Steelmaker Nucor Corporation’s (NUE) first-quarter 2012 earnings topped the Zacks Consensus Estimate and were well above the company’s own forecast. However, the North Carolina-based company witnessed a decline in its profit in the quarter.
First Quarter Flashback
Net income (as reported) dipped roughly 9% year over year to $145.1 million (or 46 cents a share) from $159.8 million or 50 cents per share reported a year ago.
Nucor's consolidated net sales increased 5% year over year to $5.07 billion in the quarter. The jump in the top line was driven by a 6% increase in average sales price per ton. However, the increase in revenues was not enough to meet the Zacks Consensus Estimate of $5.085 billion, as a 1% decline in total tons shipped to outside customers weighed on the top line.
Nucor expects that its earnings will improve slightly in the second quarter this year. The company is witnessing improved demand in end markets such as heavy equipment, automotive, general manufacturing and energy. However, a sluggish construction market is still a cause for concern.
We have discussed the quarterly results at length here: Nucor Beats on Bottom Line in 1Q
Agreement – Estimate Revisions
Estimates for Nucor have barely moved over the past week. Out of 14 analysts covering the stock, just one has decreased his/her earnings estimate for fiscal 2012 over the past 7 days, with none moving in the opposite direction. An identical trend applies to the estimates for the second quarter, with one analyst decreasing estimates out of the 12 covering the stock.
Estimates for 2012 demonstrates a strong negative bias over the last 30 days with 12 (out of 14) analysts having downgraded their forecasts with no reverse movement. For the second quarter, estimates are negatively inclined over the past month with 10 (out of 12) analysts lowering their forecasts as compared to no positive revisions.
Magnitude – Consensus Estimate Trend
Estimates for the second quarter and fiscal 2012 haven’t moved much over the last week, with the quarterly estimate dropping 2 cents and the fiscal 2012 estimate trimmed by 3 cents. The decline has been much more pronounced over the last month, with estimates for the second quarter having decreased by 20 cents and for fiscal 2012 by 51 cents.
The current Zacks Consensus Estimates for the second quarter and 2012 are 57 cents and $2.25, respectively.
Neutral on Nucor
Nucor is a leading producer of structural steel, steel bars, steel joists, steel deck and cold finished bars in the U.S., operating around 123 facilities primarily in the U.S. and Canada. The company follows a well-defined growth strategy by streamlining and improving its existing operations, executing its raw material strategy, developing Greenfield projects to enable it to benefit from new technologies and opportunities, and through acquisitions and joint-ventures in international markets.
Moreover, the company is quite agile when it comes to adjusting its costs or production according to conditions prevalent in the market. As a result, it does not have to close its facilities when the conditions worsen.
In addition, Nucor has seen an improvement in utilization rates across its facilities from the fourth quarter of 2011. They are expected to improve further as the year goes on. Also, the recent increment in prices of steel mill products is expected to have a positive impact on earnings.
Nucor is witnessing slight improvement in demand in end-markets such as automotive, heavy equipment, energy and general manufacturing. The company believes that these markets will get better going forward and drive its top line.
However, a sluggish construction market and financial turmoil in the Eurozone might prove to be significant headwinds. There is another cause for concern for Nucor coming out of China. Chinese steel output has outpaced demand, resulting in an oversupply in the industry. The industry oversupply could result in a price decline of steel and hurt Nucor.
Moreover, from last year, automobile producers started complying with the new Corporate Average Fuel Economy ("CAFE") mileage requirements for new cars and light trucks produced by them. As a result, automobile makers will now work towards meeting these new standards, probably reducing the amount of steel used in cars and trucks in order to improve fuel economy.
As this happens, demand for steel will fall, giving rise to further oversupply of steel in North America and create downward pressure on prices.
Nucor Corp. faces stiff competition from Commercial Metals Co. (CMC) and United States Steel Corp. (X). Currently, we have a long-term Neutral recommendation on the stock, whereas it holds a short-term Zacks #4 Rank (Sell).
About Earnings Estimate Scorecard
As a PhD from MIT, Len Zacks proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education/
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