Shares of steel manufacturer Nucor (NUE 55.59, -3.52) trade about 6.0% lower today following its worse than expected Q2 guidance from before the open due in large part to a more challenging hot-rolled sheet products environment.
NUE now expects earnings to be in the range of $1.00 to $1.05 per diluted share. About two months ago (April 20), when the company reported Q1 results, management had guided for a Q2 earnings improvement compared to Q1. Also at that time, NUE management specifically highlighted the steel mill segment as an area which would improve in Q2 as compared to Q1.
Flash forward to today, and NUE is singing a modestly different tune. Steel mills are now expected to report a performance decrease. Additionally, earnings are expected to decelerate as aggressive competition reigns in the company’s forecast for the coming quarter.
The company commented that market conditions for hot-rolled sheet products have been more challenging than they had expected earlier in the quarter when they provided our qualitative guidance due to aggressive competition.
As anticipated, NUE’s plate mills are expected to have improved profitability in Q2 compared to last year as the performance of its downstream products segment is expected to improve. However, the company expects the performance of this segment in Q2 to be decreased from Q2 of last year. Also, nonresidential construction markets continue an overall positive trend, but conditions in Q2 have not been as robust as previously expected. NUE’s raw materials segment's performance is expected to increase in Q2 as compared to Q1 due to the profitable performance of both of our direct reduced iron facilities.
NUE also gave broader commentary on the steel market; they noted that through the first five months of 2017, finished steel imports have increased an estimated 14% compared to the same period last year and account for an estimated 26% share of the U.S. market. However, the company noted several recently completed and ongoing trade cases are helping to stop the flood of dumped and subsidized products from foreign producers. Final determinations in the cut-to-length plate trade cases are having a positive impact as steel imports of these products have decreased in the first five months of this year compared to the same period last year. They highlighted that in May, the government issued final determinations in the U.S. industry's trade cases against cut-to-length steel plate imports from twelve countries because of injury that has occurred from unfairly traded imports in this market. The company believes that these final determinations will address all dumping and subsidies associated with these cases.
In all, today’s commentary and guidance take not only the broader Steel ETF (SLX 35.48, -0.93 -2.55%) lower, but close peers STLD -3.78%, AKS -3.60%, MT -3.48%, X -2.97%, CMC -3.04%, TMST -1.57% as well.