Nucor Announces 2nd Quarter Earnings Guidance
06/12/2007 - Nucor says it expects earnings for the second quarter to be in the range of $1.05 to $1.15 per diluted share, “historically strong earnings,” but below this year's first-quarter results and the record second quarter earnings achieved last year.
Nucor Corp. says it expects earnings for the second quarter ending June 30, 2007 to be in the range of $1.05 to $1.15 per diluted share. By comparison, Nucor earned $1.26 per diluted share in the first quarter of 2007 and $1.44* per diluted share in the second quarter of 2006.
Nucor says its second-quarter guidance represents historically strong earnings, but would be below this year's first-quarter results and the record second quarter earnings achieved last year.
Nucor said that lower shipments from Nucor's bar mill group are having a negative impact on earnings, and that the rapid increase in scrap prices has resulted in hedge buying by customers ahead of anticipated increases in steel products pricing. The hedge buying resulted in a record for first quarter shipments from the bar mill group.
In addition to first-quarter hedge buying driven by volatility in scrap pricing, bar market demand in the second quarter has been marginally reduced by softness in the automotive and residential construction segments. This softness reduced demand for SBQ bar and rebar products. The company expects second-quarter bar shipments to decline approximately 17% from the first quarter shipments. However, bar shipments for the first six months of 2007 are down only 5% from the record level of shipments in the first half of 2006. As underlying demand for bar products remains strong, the company says that second half of 2007 bar shipments should be more in line with the year-to- date pace than the second-quarter rate.
The company says that sheet market conditions have also remained challenging in the second quarter. Sheet customers have decreased their rate of inventory reductions as a result of demand softness in the automotive and residential construction markets and as a result of a continued surge of imports from China of galvanized sheet, cold rolled sheet and hot rolled sheet in the form of pipe and tube products. With these over-supplied market conditions, announced flat rolled price increases were not realized. In turn, sheet mill margins were reduced by the company’s inability to recover increased scrap and energy costs.
Nucor says its earnings continue to benefit from a diversified product portfolio, with very strong earnings contributions from beam and plate mills as well as a number of downstream businesses. The company says that its expected second-quarter earnings will exceed annual earnings in 2000 at the last peak in the economic and steel market cycles.
For the second half of 2007, as previously mentioned, Nucor expects improved bar shipments over the second quarter pace. Sheet markets are expected to remain challenging due to the surging imports from China and the ongoing difficult conditions in the automotive and housing sectors. The company expects beam and plate mills to continue to enjoy healthy demand and post strong results over the second half of 2007.
The company says that all of its steel mills — bars, beams, sheet and plate — will benefit in the third quarter from lower prices for scrap purchased in April and May. Finally, the outlook for the second half of 2007 is positive for Nucor's downstream businesses. Nucor says its recent acquisitions of Verco Manufacturing Co. and Harris Steel Group will also help to position it for growth in value-added steel products.
*Note: On January 1, 2007, Nucor adopted FASB Staff Position AUG AIR-1, "Accounting for Planned Major Maintenance Activities," which eliminates the method that Nucor had previously used of accruing in advance for planned major maintenance activities. In accordance with this position statement, Nucor now uses the deferral method of accounting for such maintenance activities. The prior period has been adjusted to reflect the effects of applying this new accounting principle.
Nucor and affiliates manufacture steel products, with operating facilities primarily in the U.S. and Canada. Products include carbon and alloy steel bars, beams, sheet and plate; steel joists and joist girders; steel deck; fabricated concrete reinforcing steel; cold finished steel; steel fasteners; metal building systems; light gauge steel framing; steel grating and expanded metal; and wire and wire mesh. Nucor is North America's largest recycler.
