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Nucor (NUE) to Post Q2 Earnings: Can it Pull a Surprise?

Zacks

Nucor Corporation NUE is set to release second-quarter 2017 results ahead of the bell on Jul 20.

The steel giant’s profits surged year over year in first-quarter 2017 on higher sales. However, its earnings of $1.11 per share fell short of the Zacks Consensus Estimate of $1.14. Revenues went up around 30% year over year to $4,815.2 million in the quarter and topped the Zacks Consensus Estimate of $4,698 million. The company saw higher pricing and shipments in the quarter.

Nucor beat the Zacks Consensus Estimate in two of the trailing four quarters while missing in the other two, with an average positive surprise of 11.63%.

Nucor has underperformed the Zacks categorized Steel-Producers industry over a year. The company's shares gained 5% over this period while the industry saw a gain of 23.7%.


Let’s see how things are shaping up for this announcement.

Factors to Watch For

Nucor’s shares got battered last month after it provided downbeat guidance for the second quarter of 2017 that fell short of analysts’ expectations. The company sees earnings for the quarter in the band of $1.00–$1.05 per share. That is a decrease from $1.11 per share recorded in the previous quarter, but an increase from 76 cents a share it earned a year ago.

Nucor said that the expected decrease in second-quarter performance on sequential basis is due to decreased performance of the steel mills segment, especially bar mills and sheet mills. The market condition for hot rolled steel products is facing challenges due to aggressive competition. However, the company expects the profitability of plate mills to improve in second quarter of 2017.

The company expects the performance of its downstream products segment to improve in the second quarter as compared with the first, but to decrease from the prior-year quarter.

While Nucor sees an overall positive trend in non-residential construction markets, conditions have not been as strong as it had expected earlier. The company expects performance of raw materials segment to improve in second quarter of 2017 on sequential basis due to profitable performance of direct reduced iron facilities.

Nucor noted that the U.S. steel industry continues to be hit by cheaper imports, which account for about 26% market share. Finished steel imports from foreign producers have increased about 14% year over year during the first five months of 2017.

Nevertheless, Nucor should gain from its efforts to expand business through acquisitions. Nucor, in early 2017, wrapped up its purchase of steel electrical conduit maker, Republic Conduit, from Luxembourg-based Tenaris S.A. for $335 million. The acquisition positioned Nucor as the market leader in steel conduits. Moreover, the company acquired Southland Tube for $130 million in Jan 2017. The buyout has strengthened Nucor’s foothold in the hollow structural section (HSS) steel tubing segment. The company should benefit from the contributions of its recent acquisitions in the June quarter.

Nucor should also gain from continued momentum in the automotive market. The company remains focused on achieving greater penetration of this major market. The company has entered into a joint venture with JFE Steel Corporation of Japan to build and operate a plant in Mexico that will supply sheet steel to the country’s growing automotive market.

Nucor, in May, also announced plans to build a hot band galvanizing and pickling line at its sheet mill in Ghent, Kentucky, that will serve its objective of growing share in the automotive market. The $176 million project is likely to expand the annual production capabilities of Nucor Steel Gallatin products by almost 500,000 tons. The addition of hot band galvanizing line is in sync with Nucor’s automotive growth strategy.

Nucor Corporation Price and Consensus


Nucor Corporation Price and Consensus | Nucor Corporation Quote

Earnings Whispers

Our proven model does not conclusively show that Nucor is likely to beat the Zacks Consensus Estimate this quarter. That is because a stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below:

Zacks ESP: Earnings ESP for Nucor for the second quarter is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $1.07. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Nucor currently carries a Zacks Rank #3, which when combined with a 0.00% ESP, makes surprise prediction difficult.

Note that we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some other companies in the basic materials space you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

Endeavour Silver Corp. EXK has an Earnings ESP of +100% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Westlake Chemical Corporation WLK has an Earnings ESP of +5.04% and a Zacks Rank #2.

The Chemours Company CC has an Earnings ESP of +4.44% and a Zacks Rank #2.

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