Why Is Nucor (NUE) Down 9.1% Since Last Earnings Report?

It has been about a month since the last earnings report for Nucor (NUE). Shares have lost about 9.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Nucor due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Nucor's Earnings, Sales Surpass Estimates in Q4

Nucor’s profits declined year over year in fourth-quarter 2019. The steel giant logged net earnings of $107.8 million or 35 cents per share, down from $646.8 million or $2.07 in the year-ago quarter.

Barring one-time items, earnings per share came in at 52 cents, which topped the Zacks Consensus Estimate of 34 cents.

Nucor recorded net sales of $5,131.7 million, down 18.5% year over year. The figure beat the Zacks Consensus Estimate of $5,012.4 million.

2019 Results

For 2019, net earnings were $1.3 billion or $4.14 per share, down from $2.4 billion or $7.42 per share recorded in 2018.

Net sales for the year went down 9.9% year over year to $22.6 billion.

Operating Figures

Total steel mills shipments in the fourth quarter were 5,779,000 tons, down 2% year over year. Total tons shipped to outside customers were down 3% year over year to 6,486,000 tons. Average sales price declined 16% year over year.

Steel mill operating rates remained were 83% in the fourth quarter compared with 88% a year ago.

Segment Highlights

Profitability in the steel mills segment fell sequentially in the fourth quarter due to lower steel prices witnessed at the end of the third quarter. Also, the domestic scrap metal prices surged during the fourth quarter. As such, the company’s plate, sheet, structural and bar mills have implemented price hikes.  

The performance of steel products unit fell modestly in the fourth quarter compared with third-quarter levels. This was mainly due to normal year-end seasonality.

Performance in the raw materials division was affected by the Louisiana DRI plant's planned outage. Losses in the segment widened considerably in the fourth quarter compared with third-quarter levels. Notably, the planned outage was completed in mid-November.  

Financial Position

Nucor ended 2019 with cash and cash equivalents of around $1.5 billion, up 9.7% year over year. Long-term debt was $4,291.3 million, up 1.4% year over year.

Net cash generated from operating activities rose 17.4% year over year to $2.8 billion.

The company repurchased around 1.9 million shares of its common stock during the fourth quarter and roughly 5.3 million shares in 2019. As of Dec 31, 2019, the company had around 301,812,000 shares outstanding and roughly $1.20 billion remaining for repurchases under its authorized share repurchase program.

Outlook

Nucor expects earnings to increase sequentially in first-quarter 2020.

Profitability in the steel mills unit is expected to increase sequentially in the first quarter. This is expected to be driven by price increases and expected rise in volumes. Notably, the company expects a more stable pricing environment in 2020 after the severe inventory destocking, which occurred in 2019.

Earnings of steel products unit are expected to decline sequentially in the first quarter due to normal seasonality.

The company expects performance of the raw materials unit to improve sequentially in the first quarter. This is expected to be driven by an improvement in pricing for raw materials. Also, the absence of the impairment charge associated with its natural gas well assets and no planned non-routine outages at the Louisiana DRI plant are forecast to support performance.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 18.06% due to these changes.

VGM Scores

Currently, Nucor has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Nucor has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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