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Nucor Announces Guidance for Its Second Quarter Earnings
Jun. 13, 2012
Nucor Corporation announced guidance for its second quarter ending June 30, 2012. Nucor expects second quarter results to be in the range of US$0.35 to $0.40 per diluted share. These projected results include an expected impairment charge related to its Duferdofin Nucor S.r.l. joint venture of approximately US$30 million. This performance, excluding the expected impairment charge, is somewhat below the qualitative guidance presented in its first quarter earnings release and conference call which stated, "For the second quarter of 2012, we currently expect to see only a modest improvement in earnings." Excluding the impact of the impairment charge, this range is lower than 2011 second quarter earnings of US$0.94 per diluted share and is similar to the first quarter of 2012 earnings of US$0.46 per diluted share. Projected second quarter results include an estimated LIFO credit of US$14.5 million compared to charges of US$14.5 million in the first quarter of 2012 and US$32 million in the second quarter of 2011.
In its first quarter 2012 10-Q filing Nucor noted, "Steel market conditions in Europe have continued to be challenging through the first quarter of 2012, and, therefore, it is reasonably possible that based on actual performance in the near term the estimates used in our valuation as of December 31, 2011 could change and result in an impairment of our investment." Operating performance at Duferdofin Nucor has continued well below budgeted levels through the first half of 2012. This trend, combined with the recently escalated economic and political turmoil in Europe, caused Nucor to conclude that Duferdofin Nucor had a triggering event requiring assessment for impairment in the second quarter. The estimated impairment charge reflects the impact on its impairment valuation model of both deeper losses in the near term and a slower projected recovery to historic operating performance levels.
Nucor says its lower performance in the second quarter of 2012 is mainly due to a surge in imports, particularly rebar, plate and sheet steel, which began at the end of 2011 and has continued through the first half of 2012. Although the U.S. market continues to show stable to slightly improving demand for steel, this surge in imports has undercut seasonal pricing momentum that is normally experienced early in the calendar year. In addition, U.S. markets are also being negatively impacted by the influence of new domestic supply that ramped up production in 2011 and a combination of political and economic uncertainty in global markets that is beginning to affect steel buyer confidence. In the short term, lower scrap pricing is also hurting the operating performance of its scrap processing business. However, the lower pricing will have a positive operating benefit on the performance of its steel mills as these lower scrap prices work their way into the cost of scrap used. Despite continued weak construction markets, all three of its major construction products groups (rebar fabrication, joist and decking and pre-engineered metal buildings) earned a profit in May as the company has continued to drive down costs, improve market position and grow its competitive advantages. The strongest end markets continue to be manufactured goods including heavy equipment, energy and automotive.