Nucor (NUE) is trading modestly lower today after guiding Q3 EPS below market expectations. 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 guidance, Nucor expects Q3 EPS to come in around $0.75-0.80. Despite high utilization rates at its sheet mills, NUE says continued import pressure has not allowed pricing to keep pace with increasing raw material costs. Also, the forecasted earnings of its plate mills are expected to be significantly less than what was expected when NUE provided qualitative guidance in July. Following increased demand earlier in the year primarily due to inventory restocking in the supply chain, demand in plate end use markets has been tepid. Also, its Nucor Steel Louisiana unit has experienced unplanned outages for most of Q3 which has impacted EPS.
The closest comparable is Steel Dynamics (STLD) as both are mini-mills. However, the integrated producers (AKS, MT, X) are seeing weakness as well. There are also the steel processors (ROCK, RS, WOR, ZEUS). They do not make steel, rather they buy 20-ton coils from the steel mills then process them further according to customer specs.
This disappointing guidance follows on the heels of a Q2 earnings report that was on the lower end of prior guidance. Despite this, the stock is down only modestly. It may be that the main reason for the weak guidance is higher costs, imports and unplanned outages. Investors seem to be heartened that end demand is not to be that bad. Be sure to keep an eye on other steel producers (AKS, CMC, MT STLD, X).