Nucor's Profits Thin Out from Weak Steel Prices in Second-Quarter 2015, but Market Expected to Improve

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Researched by Industrial Info Resources (Sugar Land, Texas)--Nucor Corporation (NYSE:NUE) (Charlotte, North Carolina), a leading steelmaker, saw revenues and profits decline in second-quarter 2015 as growing steel imports sent per-ton sales prices down 13% from a year earlier, which more than offset the benefits of lower scrap costs and improved downstream performance. Net earnings for the quarter were reported to be $124.76 million, a 15.16% decrease from second-quarter 2014.

Industrial Info is tracking $563 million in projects involving Nucor, including two planned additions at the company's steel plate mill in Tuscaloosa, Alabama: the $21 million addition of a pollution control system, and the $12 million addition of an accelerated cooling system. The former project involves the installation of 800,000-cubic-foot-per-minute baghouse; the latter involves installing a fully enclosed water system to better cool steel coming out of the furnaces. Both projects are set to be completed by the end of the year.

Net sales stood at $4.36 billion, a 17.64% decrease from the same period last year. Nucor put much of the blame on high levels of steel imports, which the company said accounted for 32% of the finished steel market in the first half of 2015, up from 27% in first-half 2014. In a quarterly earnings release, company executives specifically attributed much of the problem to "trade-distorting practices of some foreign governments." Nucor was not alone in this observation; earlier this week, Steel Dynamics executives made similar remarks. For more information, see July 22, 2015, article - Steel Dynamics Blames Imports for Second-Quarter 2015 Profit Tumble, Sees Better Market in Second Half.

"The biggest factors driving these exceptionally high levels of imports are the trade-distorting practices of some foreign governments," Nucor executives said in the quarterly release. "We are pleased with recently passed legislation that strengthens our trade laws and provides the steel industry with more effective tools to fight back against unfair trade. While these trade law changes alone will not address the serious challenges facing the U.S. steel industry due to systemic steel overcapacity overseas, they do strengthen our hand against illegal trade practices."

Nucor also noted a drop in shipments. Total tons shipped to outside customers were down 5% from the same period last year; steel-mill shipments fell 2%; and downstream steel-product shipments to outside customers fell 3%. Nonetheless, the operating performance of the downstream-products business improved amid a recovery in U.S. nonresidential construction.

Among the factors partially offsetting the decline in prices were scrap and scrap-substitute costs, which fell 29% from those in second-quarter 2014, and lower natural gas unit costs. Executives also noted several exceptional gains: a $95.5 million credit to value inventories using the "last-in, first-out" (LIFO) method of accounting, and a $9.3 million benefit related to state tax credits.

Capital expenditures for the first half of the year were reported to be $175.25 million, compared with $446.8 million in the first half of 2014.

Nucor executives expect the Steel Mills segment to report improved performance in the third quarter, as the cost of inventories declines and the automotive and construction end markets continue to show strong results. Nonresidential construction markets are expected to continue to strengthen the downstream-products businesses, while the Raw Materials segment is not expected to see any significant growth or decline.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.