Nucor (NUE) is trading lower today (-3%) after reporting Q4 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 Q4 results, non-GAAP EPS came in at $0.65, which was above prior guidance of $0.50-0.55. Revenue rose 28.7% year/year to $5.09 bln, which was better than market expectations. In terms of guidance for Q1, NUE sees EPS being higher than it was in Q4, which is in-line with market expectations. Average sales price per ton in Q4 was comparable to Q3 and increased 14% YoY. Total tons shipped to outside customers were 6.54 mln tons in Q4, a 1% sequential decline but a 13% YoY increase.
On the trade front, Nucor says imports continue to negatively impact the US steel industry. Total steel imports in 2017 increased by more than 15.5% as compared to 2016. Additionally, finished steel imports accounted for an estimated 27% share of the US market. In 2017, the US Dept of Commerce made several rulings imposing duties on additional steel products that are favorable to the domestic steel industry. In December, the Commerce Dept made a preliminary determination that corrosion-resistant and cold-rolled steel from Vietnam that originated in China evaded U.S. anti-dumping and anti-subsidy orders. A final determination should be announced in the next few months.
In terms of its outlook, Nucor believes there is significant optimism in many of its steel end use markets and the company is encouraged by positive pricing momentum building throughout the quarter for all steel mill products. Coupled with these positive trends, Q1 results will be negatively impacted by higher scrap prices and weather related interruptions at some of its sheet mills.
In sum, NUE is trading lower despite the EPS upside. It's probably due to the overall market trading lower today. Also, the EPS beat may not have been a big surprise as Nucor tends to guide pretty conservatively mid-quarter then report upside when the actual numbers come out. The commentary about higher scrap prices may also be having a negative impact on the stock.
Also, the stock has made a big run the past ten weeks. It was trading around $55 in mid-November but had climbed to near $70 heading into this report so there probably were some high expectations for this report. Perhaps this report is providing a reason to lock in some profits. With that said, the overall demand picture for steel looks pretty good heading into 2018 and the industry looks like it will get some help on the trade front in terms of slowing imports into the US.