28/10/2014 – Nucor reports solid 3Q results

Nucor released its 3Q earnings on October 23. The results were slightly better than Nucor’s guidance estimated. Nucor reported earnings per share (or EPS) of $0.76 per share. The corresponding EPS in 3Q13 was $0.46 per share. Even with such strong results, Nucor failed to cheer investors. The share price of Nucor (NUE) was down more than 1% after the announcement of these results.

In this series, we’ll present an overview of Nucor’s 3Q results. We’ll analyze the key takeaways of these results from an investor’s perspective. We will also analyze the outlook for Nucor. Let’s begin by looking at the Nucor key operations.

Business Segment Of Nucor

Nucor: A pioneer in EAFs

In the 1970’s when most U.S. steel companies were making steel through integrated steel mills, Nucor pioneered mini mills using electrical arc furnaces (or EAF). Recently Nucor has started investing in direct-reduced iron (or DRI) plants. EAFs use DRI as a raw material. Steel scrap is another key raw material for Nucor.

Key products for Nucor

Nucor manufactures both raw steel and steel products like fasteners, girders, joists, and decks. The above chart shows the key business segments for Nucor.

In 2008, Nucor acquired the David J. Joseph Company, which is the world leader in scrap metal brokerage. The acquisition not only helps Nucor to secure steel scrap for its steel plants, but also in earning brokerage income from third parties. Nucor also has working interest investment in natural gas drilling, which helps the company secure natural gas for its steel plants.

Recently, Steel Dynamics (STLD) also released its 3Q results. Other steel makers like U.S. Steel (X) and ArcelorMittal (MT) will also release their earnings shortly. Currently, Nucor is the largest holding company for the SPDR S&P Metals and Mining ETF (XME).

Nucor reports 15% increase in net sales

We looked at the year-over-year growth in Nucor’s EPS in our last part. Let’s now analyze the other key metrics in Nucor’s 3Q results. The net sales in 3Q14 increased 15% over 3Q13. Steel shipments to outside customers increased 10% over 3Q13. The average selling prices also increased 5% over this period.

Revenues Increase 15% year over year

The above chart shows the increase in net sales at Nucor. As you can see, its sales have been rising over the past several quarters. Nucor’s consolidated net sales have increased 14% in the first nine months of 2014, as compared to the first nine months of 2013.

Downstream sales increase 18%

Nucor also has a downstream steel products division, as we discussed in the last part of this series. The shipments at its downstream operation increased 18% over the third quarter of 2013. The increase in shipments from steel mills was 7% over this period. This is a part of a conscious strategy by Nucor (NUE) to increase its downstream revenues.

Other steel companies like U.S. Steel (X), ArcelorMittal (MT), and AK Steel (AKS) have also been focusing on downstream operations. The value-added steel products from downstream operations generally sell at a higher price compared to generic steel products. This helps in increasing profit margins for steel companies.

Nucor reports higher costs in 3Q

In addition to Nucor’s third quarter sales growth, investors should also monitor the company’s cost structure. The raw material costs, as well as other expenses, have increased in 3Q, compared to last year

Source – MetalRealist.com