It sells to a variety of end markets, including the automotive, energy, agricultural, heavy equipment, transportation, construction and aluminum industries.Nucor makes steel and steel products through three segments: Steel Mills, Steel Products and Raw Materials.
The company's lineup of products includes hot-rolled, cold-rolled and galvanized sheet steel, steel joist and joist girders, cold finished steel and direct reduced iron ( DRI ). It also brokers ferrous and nonferrous metals, pig iron, hot briquetted iron and DRI.
Financial Comeback
After watching annual sales and earnings dip in both 2012 and 2013, Nucor this year is expected to produce a 9% top-line gain and a 49% increase in earnings per share, according to a poll of analysts by Thomson Reuters.
For that, it can thank improving end markets.
"If you look at the major markets for steel -- construction, industrial machinery and automotive -- automotive has been really strong for a while now, but demand for steel in industrial production has been fairly weak," said Andrew Lane, analyst at Morningstar. "So it's really the nonresidential construction that looks the most promising in terms of demand growth."
Nucor officials, who did not respond to requests for comment, echoed Lane's view on Sept. 17, when the company raised its third-quarter earnings guidance.
Nucor said it expected improvement in the performance of its fabricated construction products businesses, including rebar fabrication, joist and decking, and pre-engineered metal buildings.
This reflects better conditions in the nonresidential construction markets, it said in a press release: "Although nonresidential construction markets are at historically low levels, they are improving."
Nucor is due to report Q3 results in mid-October. The company guided earnings of 70 cents to 75 cents a share, well above the Wall Street consensus of 62 cents at the time. Analysts polled by Thomson Reuters expect the company to deliver EPS of 67 cents for the quarter.
"The company tends to guide conservatively, so we see upside to this range," Citigroup analyst Brian Yu noted.
On the day when Nucor issued its Q3 guidance, the company's shares popped 4% to 57.81, its highest closing price in more than six years. The stock continued to push higher on Sept. 18, closing at 58.09, but has since fallen back to around 57.
Nucor stock had gotten a lift earlier that week when the company announced plans to acquire Gallatin Steel for $770 million in a deal that will broaden Nucor's Midwest operation and expand its flat-rolled capacity by 16%.
Gallatin operates a flat-rolled products mill located on the Ohio River in Ghent, Ky. The mill has an annual capacity of around 1.8 million tons. Nucor is acquiring the operation from a joint venture betweenArcelorMittal ( MT ) andGerdau 's ( GGB ) Gerdau Ameristeel.
"Importantly, Gallatin will enhance Nucor's current position serving flat-rolled steel customers in the growing pipe and tube segment," Nucor CEO John Ferriola said in a statement.
Industry Dealmaking
The Gallatin deal continues a trend toward more consolidation in the steel industry.
Nucor's main U.S. rival,Steel Dynamics ( STLD ), last week closed its $1.6 billion buyout of Severstal Columbus, a mini-mill operator.
Also last week, another U.S. steel company,AK Steel (AKS), completed its $707 million acquisition of Severstal North America's integrated steel making assets in Dearborn, Mich.
Nucor's buyout of Gallatin will be its largest acquisition since 2008, analyst Lane said.
"The Gallatin mill will ultimately be a value proposition for Nucor," he told IBD. "It's not an old mill, so it's not like Nucor has to turn around a laggard. Gallatin has been producing."
Lane also says the purchase price "represents a discount to prices paid in recent steel acquisitions, including deals by AK Steel and Steel Dynamics."
Like Nucor, Steel Dynamics and AK Steel have had a bumpy ride the last several years. Steel Dynamics reported lower profits and sales in 2009 and 2012, while AK Steel logged annual losses four times between 2009 and 2013. All were hurt by the financial crisis.
Before the crisis hit, many steel makers "aggressively expanded their production capacity to supply the robust demand growth at that time," Lane said.
After the crisis hit, many steel makers were stuck with overcapacity.
"There was an extended cyclical trough," Lane said. "But because of the slow but gradual demand growth in North America, a lot of that excess capacity is being utilized, which makes for a much healthier industry."
Nucor reported lower annual sales and earnings three times between 2009 and 2013. However, the only year it recorded a loss during that span was 2009.
The company quickly moved back into the black, thanks in part to a manufacturing operation that is both cost-efficient and versatile, analysts say.
Rather than focus on traditional blast-furnace production methods that require large, integrated steel mills, Nucor pioneered the use of electric arc furnaces and smaller, more energy-efficient mini-mills.
According to Nucor's website, such facilities -- which rely on scrap metal as their main raw-material source -- deliver about 60% of U.S. steel production.
"Something unique about Nucor is that they are exposed to just about every major market for steel," Lane said. "That helps soften the blow if one market goes into a slump."
Source: http://www.nasdaq.com/article/nucor-flexes-steel-sector-muscles-with-buy-guidance-cm393623#ixzz3EBbYrrEg
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