Mixed 4Q for Nucor Corp. - Analyst Blog

Steel giant Nucor Corporation’s (NUE) adjusted (excluding special items) earnings was 31 cents per share in the fourth quarter of 2012, ahead of the Zacks Consensus Estimate of 29 cents. The adjusted earnings exclude costs associated with Skyline Steel buyout and a gain value inventories using the last-in, first-out (LIFO) method of accounting.

Profit (as reported) came in at $136.9 million (or 43 cents a share), almost flat compared with $137.1 million or 43 cents per share reported a year ago. The company’s earnings were within its guidance range due to  better-than-expected operating profits, primarily at sheet, plate and beam mills, and a larger than expected LIFO credit.

For full-year 2012, adjusted earnings came in at $1.37 per share, missing the Zacks Consensus Estimate of $1.64. Profit (as reported) came in at $504.6 million (or $1.58 per share), down 35.2% from $778.2 million or $2.45 per share reported a year ago.

A 4% fall in average sales price weighed on Nucor’s revenues in the fourth quarter. Revenues slid 7.8% year over year to $4,451 million, missing the Zacks Consensus Estimate of $4,463 million. Total tons shipped to outside customers fell 4% year over year to 5,478,000 tons in the reported quarter and total mill shipments decreased 3.5% to 4,762,000 tons.

For the full year, average sales price declined 3%. As a result of this, revenues decreased 3% year over year to $19.4 billion, missing the Zacks Consensus Estimate of $19.5 billion.

The average scrap and scrap substitute cost per ton used in the fourth quarter was $372, down 16% from $441 a year ago. Overall operating rates at Nucor’s steel mills were 71% flat compared with the year-ago quarter.

The company had ample liquidity on its books as of Dec 31, 2012 with $1.43 billion in cash and cash equivalents, short-term investments and restricted cash and investments. It also has an untapped $1.5 billion revolving credit facility that will mature in Dec 2016.

Nucor's Board declared a cash dividend of 36.75 cents per share in Dec 2012, which was the company’s 159th quarterly cash dividend on the trot. The dividend is payable on Feb 11, 2013, to stockholders of record as of Dec 31, 2012.

Nucor expects first-quarter 2013 earnings to be below the fourth quarter level due to lower level of operating performance and a reversal of LIFO from a large credit in the fourth quarter of 2012 to a small charge in the first quarter of 2013. Challenging economic conditions, higher raw material costs and high import levels can affect the company’s expectations. The company also remains cautious about the construction markets.

The steel industry is going through a difficult phase. There is not enough demand for steel products due to weakness in construction end markets, resulting in excess supply. Also the gloomy conditions in the euro zone are another area of concern for Nucor since it is the largest market for total U.S. exports.

Steel imports have given rise to stiff competition in the domestic market and the financial crisis in Europe might give rise to the same conditions in the region. All these factors are proving to be very difficult to manage for Nucor and hurting its profitability.

However, Nucor has a diversified client base, and as such, its business is not highly dependent on the conditions prevalent in a particular geography. In addition, the company’s cost structure is highly variable, giving it the luxury of adjusting its costs when the conditions call for. This enables Nucor to continue its operations without closing down its facilities, even if the market conditions in the steel industry are depressed.

Nucor currently retains a short-term Zacks Rank # 3 (Hold). Other companies in the steel industry with favorable Zacks Ranks are Gibraltar Industries Inc. (ROCK), POSCO (PKX) and ArcelorMittal South Africa (AMSIY). While both Gibraltar and POSCO hold a Zacks Rank #1 (Strong Buy), ArcelorMittal South Africa holds a Zacks Rank #2 (Buy).

 (AMSIY): ETF Research Reports

NUCOR CORP (NUE): Free Stock Analysis Report

POSCO-ADR (PKX): Free Stock Analysis Report

GIBRALTAR INDUS (ROCK): Free Stock Analysis Report

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