Nucor (NUE) Guides Q3 EPS Below Views

September 14, 2016 9:04 AM EDT

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Nucor Corporation (NYSE: NUE) announced guidance for its third quarter ending October 1, 2016. Nucor expects third quarter results to be in the range of $0.85 to $0.90 per diluted share. This range is an increase compared to the second quarter of 2016 consolidated net earnings of $0.73 per diluted share and the third quarter of 2015 earnings of $0.71 per diluted share.

*** The Street sees Q3 EPS of $1.03.

Projected third quarter of 2016 results include an estimated LIFO expense of $21.8 million ($0.04 per diluted share), compared to an expense of $19.0 million ($0.03 per diluted share) in the second quarter of 2016 and a credit of $137.0 million ($0.27 per diluted share) in the third quarter of 2015. LIFO charges or credits for interim periods are based on management's current estimates of both inventory costs and quantities expected at year-end, and that full year estimate is incurred ratably over the remainder of the year. Included in the third quarter of 2015 earnings are out-of-period non-cash gains totaling $10.2 million ($0.03 per diluted share) related to a correction of deferred tax balances.

Flat-rolled trade cases are having a positive impact as steel imports are down in the first seven months of this year compared to the same period last year and duties are in place and being collected. Affirmative final determinations in the antidumping duty and countervailing duty cases of corrosion-resistant, cold-rolled steel and hot-rolled steel products have been announced by the Department of Commerce and the International Trade Commission. Earlier this year, Nucor and other domestic steel producers also filed trade cases against cut-to-length steel plate imports from 12 countries because of injury that has occurred from unfairly traded imports in this market. We believe the plate cases should have a positive impact as they work their way through the legal process. The plate cases are expected to conclude by mid-2017.

The expected improvement in earnings in the third quarter of 2016 compared to the second quarter of 2016 is primarily due to the performance of our steel mills segment and raw materials segment. The profitability of our sheet mills is expected to improve due to higher average selling prices, which benefited in part from contract sales that are priced on a lagging quarterly basis. Demand for cold-rolled and galvanized sheet products is robust, but demand for hot-rolled sheet products has weakened since the first half of the year. Market conditions for our plate and bar mills continue to be challenging due to high levels of imports. The steel mills segment is expected to benefit from low service center inventory levels and lower scrap costs over the remainder of the year. Energy, heavy equipment and agricultural markets remain weak. The automotive markets remain strong.

The performance of the raw materials segment in the third quarter of 2016 will be significantly improved compared to the second quarter of 2016 due to the improved performance of our DRI facilities, which we expect will be profitable for the quarter. We expect decreased profitability for our steel products segment in the third quarter of 2016 as compared to the second quarter of 2016 due to margin compression. We continue to see gradual improvement in nonresidential construction markets and believe the performance of the steel products segment for the full year 2016 will be improved compared to 2015.

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