Friday, July 23, 2010

Nucor (NYSE:NUE) Earnings May be Under Pressure Going Forward

It wasn't a surprise to see a number of commodity companies like Nucor (NYSE:NUE) perform better than last year in the same quarter, and it wouldn't take much to beat that, and analysts have been holding back on their estimates, and in some cases downwardly revising them like they did with Alcoa (NYSE:AA), giving the impression they strongly outperformed, when in fact they would have underperformed if it wasn't for the revised earnings numbers right before the quarterly reports.

That wasn't necessarily the case with Nucor, but mentioned to show the last quarter was probably the last for a number companies in the metals sector, and also for Nucor, which has had three straight positive earnings quarters.

Higher prices and growing demand last quarter generated the increased earnings for Nucor, where they rose to $91 million, or 29 cents a share, a major improvement over last year's loss of $133.3 million, or 43 cents a share during the same period.

Analysts from Bloomberg had been looking for 25 cents a share, so that was a nice performance. Sales were also up to $4.2 billion, a huge surge of 69 percent.

Mills ran at 71 percent of capacity for the quarter, according to CEO Dan DiMicco, whereas last year they ran at an anemic 46 percent. Prices were also up 25 percent, while they shipped 53 percent more steel than a year earlier.

Even so, as it looks like will happen in the metals sector in general this quarter, Nucor said in a statement that earnings will be challenging going forward. “There is a general slowdown taking place across all product lines as the overall economy has entered into a new period of uncertainty. This is the case both in the U.S. and globally,” said the company.

Like other metals, steel prices have dropped since June, and demand from China has fallen as they deal with a hot property market they're battling.

Some analysts see the next quarter as being level at its best, and quite possibly an earnings loss.

It's actually good to hear one of the commodity companies admitting things are slowing down, as a number have given guidance as to increased demand and prices, which the current economic conditions make look like a stretch at best.

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