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Why Nucor Corporation didn't rally despite good results

Part 2
Why Nucor Corporation didn't rally despite good results (Part 2 of 5)

Must-know: Nucor’s second quarter results

Overview of Nucor’s second quarter results

In this section we’ll analyze Nucor’s second quarter results that were released on July 24. Nucor reported net sales of $ 5.29 billion—this represents an increase of 13% over the second quarter last year and a 4% increase over the 1Q14. This increase was largely led by an increase in shipments to outside customers, which stood at 6.3 million tons—an increase of 3% over the same period last year. The average selling prices also increased by 1% over the 2Q13 which further increased Nucor’s revenues.

margin expansionEnlarge Graph

Improvement in EBITDA margins

Earnings before interest, taxes, depreciation, and amortization (or EBITDA) is one of the key metrics to monitor in a cyclical industry like steel. The previous chart shows the sequential improvement in this ratio both over the 2Q13 and 1Q14. The current EBITDA margin for Nucor stands at 8.8%, which is healthy given the current market conditions.

High return on equity

Veteran investors like Warren Buffett lay a lot of emphasis on return on equity (or ROE). This ratio indicates the management’s efficiency in deploying the capital supplied by shareholders. Managements have a fiduciary responsibility of managing the shareholder money. If you looks at Nucor’s ROE, it has been improving. It’s important to note that Nucor has one of the highest ROE in the U.S. steel industry.

Comfortable liquidity conditions

Nucor has been able to maintain its healthy liquidity condition in this quarter also. Apart from a credit line of $1.5 billion that wasn’t utilized, Nucor has another $1.1 billion of cash and cash equivalent. Management has indicated that it’s looking at acquisitions to further consolidate its position as a leading steel company. A comfortable liquidity is a key metric for investors in steel companies like Nucor (NUE), ArcelorMittal (MT), U.S. Steel Corporation (X), and Reliance Steel & Aluminum (RS). The SPDR S&P Metals and Mining ETF (XME) also invests in steel companies in the U.S.

In the next section we’ll decode the key factors that made Nucor post strong numbers in its second quarter results.

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