Nucor (NUE) is trading lower today after reporting Q2 results this morning. In case you're not familiar, NUE operates steel mills primarily in the US and Canada. Products include carbon and alloy steel -- in bars, beams, sheet and plate; hollow structural section tubing; steel piling; steel joists and joist girders; steel deck; fabricated concrete reinforcing steel; cold finished steel; steel fasteners; metal building systems; steel grating; and wire and wire mesh. Nucor, through The David J. Joseph Company, also brokers ferrous and nonferrous metals, pig iron and HBI/DRI; supplies ferro-alloys; and processes ferrous and nonferrous scrap.
Nucor is what's known as a mini-mill (like STLD) meaning that it creates steel mostly by using scrap and melting it down to form new steel. This is more efficient than an integrated steel producer (IP), like AKS or X, which makes steel directly from iron ore and coal in an expensive blast furnace. Unlike a blast furnace, mini-mills can easily start and re-start based on demand which keeps costs lower. Also, mini-mills mostly use non-union labor.
Turning to the Q2 results, EPS came in at $1.00, which was at the lower end of its June 15 guidance of $1.00-1.05. Revenue rose 21.9% year/year to $5.17 bln, which was better than market expectations. Average sales price per ton in Q2 increased 5% from Q1 and increased 17% YoY. Total tons shipped to outside customers were 6,748,000 tons, a 2% increase from Q1 and a 5% YoY increase.
Nucor says imports continue to negatively impact the US steel industry. Through the first half of 2017, finished steel imports have increased an estimated 15% YoY and account for an estimated 27% share of the US market. The industry continues to pursue trade cases. Final determinations issued earlier this year against cut-to-length steel plate imports from 12 countries are having a positive impact.
The company says that the performance of its steel mills segment, particularly of its sheet mills and bar mills, decreased in Q2 relative to Q1. Market conditions for hot-rolled sheet products have been challenging due to aggressive competition. The profitability of its plate mills improved in Q2 as compared to Q1. Overall operating rates at its steel mills increased to 90% in Q2 as compared to 89% in both Q1 and 2Q16. Operating rates for 1H17 increased to 90% as compared with 84% for 1H16.
In sum, NUE is trading modestly lower probably because they came in at the low end of prior EPS guidance. Also, the comments about aggressive competition in the hot-rolled sheet market is concerning as well. But there are some positives as revenue came in above expectations and ASPs are trending higher. The stock jumped last November on Trump's surprise win but the stock has mostly traded sideways since then. If Congress can approve an infrastructure bill, that could be a nice catalyst to get the stock moving again. Be sure to keep an eye on other steel producers (AKS, CMC, MT STLD, X).