Nucor (NUE) is trading slightly lower today after reporting Q3 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 Q3 results, EPS came in at $0.83, which was above prior guidance of $0.75-0.80. Revenue rose 20.5% year/year to $5.17 bln, which was roughly in-line with market expectations. In terms of guidance for Q4, NUE sees EPS being similar to slightly decreased from Q3 levels of $0.83. That translates into an EPS number slightly below market expectations. Average sales price per ton in Q3 increased 2% sequentially and increased 7% from 3Q16. Total tons shipped to outside customers were 6,618,000 tons in Q3, a 2% decrease from Q2 but a 12% YoY increase.
Overall operating rates at its steel mills decreased to 83% in Q3 from 88% in Q2, but up from 74% in 3Q16. The performance of its steel mills segment decreased from Q2. Nucor says that despite high utilization rates at its sheet mills, continued pressure from imports has prevented prices from keeping pace with increasing raw material costs. The profitability of its plate mills decreased significantly in Q3 relative to Q2. Its rebar fabrication operations have experienced significant declines in performance due to a combination of margin compression caused by higher steel prices and delays on larger, more profitable projects.
Approaching the end of 2017, Nucor says it's encouraged by a number of positive factors impacting its markets going into 2018. NUE sees generally stable or improving market conditions for nonresidential construction, automotive, energy, heavy equipment and agriculture. Although illegally traded imports remain at unacceptable levels, NUE is encouraged by the cumulative benefits of the domestic steel industry's successful trade cases.
In sum, NUE is trading modestly lower despite the EPS upside. It's probably due to the tepid Q4 EPS guidance. However, keep in mind, that Nucor tends to be fairly conservative with guidance so perhaps that's what is going on here. The comments on its rebar and plate segments may also be having an impact on the stock. With that said, Nucor does seem pretty bullish on a number of its end markets heading into 2018.