Nucor Posts 4Q Loss - Analyst Blog

Nucor Corporation (NUE) recorded a net loss of $23.5 million or 4 cents per share in the fourth quarter of 2010, narrower than the Zacks Consensus Estimate of a loss of 10 cents per share compared with the year-ago $58.9 million or 18 cents per share.

For the full year 2010, Nucor reported earnings of $134.1 million, or 42 cents per share, compared with a net loss of $293.6 million or 94 cents per share for the year ago period and beat the Zacks Consensus Estimate of 37 cents per share.

Nucor also incurred a charge of $10.0 million or 2 cents per share in the reported quarter for termination of its joint venture with HIsmelt and the closure of the plants at Kwinana and Western Australia.

Nucor recorded a charge to inventories using the last-in, first-out method of $23 million or 4 cents per share, compared with a credit of $116.9 million or 21 cents per share in the fourth quarter of 2009.

Revenues

Quarterly sales shot up 31% to $3.85 billion compared with $2.94 billion in the year ago period and missed the Zacks Consensus Estimate of $3.93 billion. Revenues were driven by a 14% spike in average realized prices and a 15% rise in total shipments. Steel shipments were up 12% while downstream steel products sales volumes increased 14% year over year.

For the year 2010, revenues spiked 42% year over year to $15.84 billion missing the Zacks Consensus estimate of $15.89 billion.

Costs

During the quarter, cost of sales accelerated by 37% to $3.7 billion. Average scrap and scrap substitute cost per ton hiked 30% to $359. Total energy costs decreased about $1 per ton from the fourth quarter of 2009. Pre-operating and start-up costs of new facilities were $39 million compared with $48.1 million in the fourth quarter of 2009.

Liquidity

Nucor's liquidity position remained strong at the end of the quarter. The company had cash and cash equivalents and short-term investments of $2.48 billion as of December 31, 2010 versus $2.24 billion as of December 31, 2009. It has an unused $1.3 billion revolving credit facility.

Outlook

Nucor is negatively affected by a slowdown across all its product lines due to uncertainty in the overall economy. The most challenging markets for its products are associated with residential and non-residential construction. However, the company expects the price increases for all steel mill products to have a positive impact on earnings in the first quarter of 2011.

The company also anticipates that it will continue to experience volatile raw material costs during the first quarter of 2011.  Nucor assumes that improvement in operating rates in the next quarter will be the result of combination of both improving demand and steel buyers reacting to increasing raw material and steel prices.

Our Take

Nucor Corporation, the nation's largest recycler of steel scrap, is facing higher costs in scrap prices and continued weakness in the non-residential market. Moreover, a slowdown in demand from the housing and construction sector and increased production in China are matters of concern.

However, long-term contracts, cost reduction efforts and a dominant acquisition strategy could benefit the company in the coming quarters. In addition, Nucor's strong balance sheet positions it well for the long term, but the near-term headwinds in the end-markets are likely to make it difficult for the stock to outperform.

Currently, Nucor has a short-term (1 to 3 months) Zacks #3 Rank (Hold) and a long- term Neutral recommendation.

Nucor competes with the likes of United States Steel Corporation (and Sumitomo Metal Industries (SMMLY).

 
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