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After Steel Dynamics (STLD) guided Q4 EPS well below expectations yesterday morning, steel producer Nucor (NUE) followed suit after the close last night, issuing downside Q4 EPS guidance of $0.55-$0.65. Like STLD, the company's earnings forecast badly missed the mark as decreasing volumes and lower average selling prices in its steel mills segment continue to weigh on profits. When NUE reported mixed Q3 results on October 21, the company warned that it anticipated Q4 earnings to be below Q3's EPS of $1.05 due to these volume and pricing pressures.

While NUE's cautious outlook sparked a short-lived post-earnings report selloff, the election of Donald Trump as President on November 5 rekindled hopes for NUE and a struggling steel industry that has been weighed down by high interest rates. This optimism centered on the idea that the supply of foreign steel would slow significantly as the Trump administration launched new tariffs, leading to higher steel prices. Additionally, the prospect of more interest rate cuts in 2025 drove a bullish theme for steel demand as construction projects, vehicles, appliances, and many other products become more affordable.

• So far, though, it hasn't played out as anticipated. Since that initial post-election pop, shares of NUE have cratered by 27% and are currently trading at multi-year lows. The main problem? Interest rates haven't cooperated, remaining stubbornly high, keeping a lid on steel demand across several key end markets.
• During the Q3 earnings call, NUE stated that while the Federal Reserve's recent rate cuts are a good start, more rate relief is needed and that it will likely take more time for lending conditions to loosen. Until then, steel demand in the industrial, construction, and consumer durables markets is likely to remain subdued.
• There are some pockets of strength. More specifically, the emergence of AI is facilitating the construction of more data centers, semiconductor factories, and advanced manufacturing plants. Furthermore, NUE anticipates new infrastructure spending to generate incremental demand in the years ahead.
• From a company specific standpoint, NUE is looking to lessen its dependence on highly cyclical businesses, while aligning more closely with secular trends. To accomplish this, the company is investing in its higher margin steel products segment, which manufacturers steel products for data centers, decking, doors, highway and agriculture, joists, and many other applications. During the 12-month period ending in September, the steel products segment accounted for 42% of NUE's pre-tax earnings, about three times more than historical averages.

In the wake of STLD's weak guidance, NUE's downside Q4 EPS outlook doesn't come as a major surprise, but it does reinforce a bearish sentiment that has enveloped the stock and the broader steel industry over the past month. The bottom line is, NUE and other steel stocks will have trouble gaining any sustainable upward momentum until interest rates come down and begin trickling through the economy.