Story Stocks^®

Steel Dynamics (STLD +4%) and Nucor (NUE +0.7%) tend to both provide EPS guidance around the middle of the last month each quarter. And that was the case again this quarter as the two steelmakers provided downside Q3 EPS guidance with Steel Dynamics guiding lower last night and Nucor guiding lower this morning.

• Steel Dynamics expects Q3 EPS of just $1.94-1.98 whereas analysts had been expecting EPS to be north of $2.00 per share. Its largest segment is its steel operations and here STLD expects earnings to be meaningfully lower than Q2 results. The main culprit is lower average realized pricing within the flat rolled operations as generally 80% of this business is contractually based and tied to lagging pricing indices.
• The silver lining is that STLD said underlying steel demand remains steady. Also, flat rolled steel prices stabilized in Q3 and have even improved. While STLD did not guide beyond Q3, it did say that current order activity is steady with expectations for improved volumes in 2025 as interest rates decline. Also, the US infrastructure program and onshoring are expected to positively impact demand for not only steel joist and deck products, but also for flat rolled and long product steels.
• Steel Dynamics did not break it down by market segment, but on its Q2 call it said North America automotive production estimates for 2024 were revised to a strong 16 mln units, with continued growth expected in 2025 and 2026 as demand remains resilient and supply chain constraints continue to dissipate. It also said nonresidential construction remains stable, with slowdowns across some building types due to hesitancy around higher interest rates.
• Turning to Nucor, the steel giant expects Q3 adjusted EPS of $1.30-1.40. Nucor's downside guidance was more pronounced that Steel Dynamics. Unfortunately, Nucor did not provide a lot of color in its press release but that is not unusual for them. It did say that its steel mills segment is seeing lower average selling prices.

What is interesting is that shares of both companies are trading higher despite the downside guidance with STLD doing much better than NUE. We suspect investors are interpreting the guidance as not as bad as feared, especially for Steel Dynamics. Investors already knew that steel prices would be weak. STLD's comments on prices stabilizing also was a positive. Also, we think there is some anticipation and excitement ahead of the expected Fed rate cut tomorrow. What the steel industry really needs are lower rates. This will spur cautious customers to get off the sideline and start greenlighting construction projects. Also, industrial and manufacturing customers will be more willing to start spending.