Steel giant Nucor Corporation’s (NUE) third-quarter 2014 profit came in at $245.4 million (or 76 cents per share), surging roughly 66.3% from $147.6 million (or 46 cents per share) posted in the prior-year quarter.
The results include a charge of 3 cents per share related to the partial write down of assets within the steel mills segment. Excluding the charge, earnings came in at 79 cents per share, surpassing the Zacks Consensus Estimate of 75 cents.
The improved third-quarter results were driven by better-than-expected performance in the steel mills segment.
The Quarter in Detail
Nucor registered revenues of $5,701.9 million in the quarter, up 15% from $4,940.9 million in the year-ago quarter. Sales surpassed the Zacks Consensus Estimate of $5,307 million.
The company’s operating performance at its steel mills segment was much better compared to sequential quarter due to higher profitability in sheet, structural, bar and plate steel. Structural steel witnessed no major outages in the third quarter as compared with the planned three week outage at Nucor-Yamato Steel in the second quarter. Imports remain at high levels, thereby pressuring pricing.
Nucor’s fabricated construction products businesses also delivered much higher profits compared with the second quarter of 2014 due to improving conditions in the commercial construction markets, despite the market remaining at historically low levels.
Results from the raw materials segment includes an operating loss of more than $45 million at the company’s new direct reduced iron (DRI) plant in St. James Parish, Louisiana. Another factor that impacted the performance of Nucor Steel Louisiana is the consumption of higher cost iron ore purchased early in the year under a quarterly lag pricing mechanism.
However, the plant produced outstanding quality DRI units and volume levels.
Average sales price per ton increased 5% from the year-ago quarter. Total tons shipped to outside customers rose 10% year over year to 6,784,000 tons in the reported quarter and total mill shipments increased 7% to 5,741,000 tons.
The average scrap and scrap substitute cost per ton used in the third quarter was $379, up 2% from $372 a year ago. Overall operating rates at Nucor’s steel mills were 81%, up from 78% in the year-ago quarter.
Total steel mill energy costs in the reported quarter increased by $1 per ton year over year.
Financial Position
Nucor ended the third quarter with $1,395.9 million in cash and cash equivalents and short-term investments compared with $1,771.4 million in the year-ago quarter. Long-term debt was $4,360.6 million at the end of the quarter versus $4,376.9 million a year ago. Nucor also has an unused $1.5 billion revolving credit facility that will mature in Aug 2018.
Guidance
Nucor expects modest decrease in earnings for the fourth quarter of 2014. The company forecasts that the profitability of the steel mills and downstream products segments will be affected by end-year seasonality which is typical in the fourth quarter.
Due to the process improvements and lower iron ore costs, combined with a steady run-rate, the company anticipates significant improvement in the performance of the Louisiana DRI facility in the fourth quarter and profitable results during the first quarter of 2015.
Nucor currently retains a Zacks Rank #2 (Buy).
Some other stocks worth considering in the steel and related industries include TimkenSteel Corp. (TMST), POSCO (PKX) and United States Steel Corp. (X). While TimkenSteel holds a Zacks Rank #1 (Strong Buy), POSCO and U.S. Steel retain a Zacks Rank #2 (Buy).
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