Nucor (NUE) to Post Q3 Earnings: Stock Likely to Disappoint?

Tuesday, 17 October 2017 06:27 Written by  Read 1 times
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Nucor Corporation (NUE - Free Report) is set to release third-quarter 2017 results ahead of the bell on Oct 19.

The steel giant witnessed its profits surge year over year in second-quarter 2017, but its earnings and sales fell short of expectations. Nucor logged a profit of $323 million or $1.00 per share for the second quarter, compared to earnings of $243.6 million or 76 cents it registered a year ago. The figure, however, trailed the Zacks Consensus Estimate of $1.07.

Revenues went up around 22% year over year to $5,174.8 million in the second quarter, but missed the Zacks Consensus Estimate of $5,307.8 million.

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 8.99%.

Shares of Nucor have declined 4.8% in the last three months, significantly underperforming the industry’s 6.6% growth.

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

Factors to Consider

Last month, Nucor provided its revised guidance for third-quarter 2017 and it expects earnings for the quarter in the band of 75-80 cents per share. This is a decrease from $1.00 per share recorded in the previous quarter and 95 cents it earned a year ago.

Notably, expected earnings for the third quarter are also lower than the qualitative guidance provided by the company during its second-quarter 2017 earnings call in July. Earlier, the company had expected earnings in the third quarter to be in a band similar to the quarterly results of first-half 2017.

Nucor expects a decrease in earnings of the steel mills segment in third-quarter 2017 on a sequential-comparison basis. Regardless of higher utilization rates at its sheet mills, continued import pressure has not allowed pricing to keep pace with rising input costs during the quarter. Earnings of plate mills unit are also anticipated to be considerably less owing to tepid demand in plate end-use markets.

The company expects profitability of its steel products unit to improve on a sequential basis in the third-quarter 2017, but less than what was witnessed a year ago. Non-residential construction indicators are showing signs of marginal improvement compared to activity levels in 2016.

Moreover, Nucor Steel Louisiana was affected from unexpected outages for most of third-quarter 2017, which caused the company to lower its forecasted earnings estimate for the raw materials segment. The unit halted production in late July for repairing materials handling systems and to address other equipment issues.

Despite the punitive trade actions in the recent past (in the form of imposition of heavy tariffs on imports), the U.S. steel industry still remains under the risk of cheaper imports. Despite the U.S. steel industry’s low capacity utilization, imports continue to flow into the domestic market due to foreign producers’ overcapacity. In the first eight months of 2017, finished steel imports have increased by an estimated 16.5% year over year, and accounted for about 28% share of the American market.

Nucor Corporation Price and EPS Surprise

Nucor Corporation Price and EPS Surprise | 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 third quarter is -13.54%. This is because the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 78 cents and 91 cents, respectively. 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 #5 (Strong Sell). 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 Poised to Beat Estimates

Here are some 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:

FMC Corporation (FMC - Free Report) has an Earnings ESP of +0.88% and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Air Products and Chemicals, Inc. (APD - Free Report) has an Earnings ESP of +0.15% and carries a Zacks Rank #2.

United States Steel Corporation (X - Free Report) has an Earnings ESP of +5.73% and carries a Zacks Rank #3.

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