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2Q17 Report Card for Steel Stocks: Lower Guidance, Mixed Outlook

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Part 3
2Q17 Report Card for Steel Stocks: Lower Guidance, Mixed Outlook PART 3 OF 8

Should Nucor’s Lower-Than-Expected 2Q17 Guidance Worry Us?

Nucor’s 2Q17 guidance

Nucor (NUE) expects to post EPS (earnings per share) of $1–$1.05 in 2Q17. To put this in context, the company posted EPS of $1.11 in 1Q17 and $0.76 in 2Q16. Like Steel Dynamics (STLD), Nucor also expects its 2Q17 earnings to fall on a sequential basis. Its 2Q17 guidance fell short of analysts’ estimates.

Should Nucor’s Lower-Than-Expected 2Q17 Guidance Worry Us?

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Conservative earnings

Remember that Nucor’s earnings guidance is typically conservative. That means that for several quarters Nucor has managed to post earnings that were higher than its guidance. The markets also likely priced into Nucor’s earnings the expected upward surprise.

Nucor missed its 1Q17 earnings estimates, but the stock still saw an upward price action after its 1Q17 earnings release. Nucor’s better-than-expected 1Q17 revenues and a rosy 2Q17 outlook offered by the company’s management could be the most likely drivers. In contrast, AK Steel (AKS) and ArcelorMittal (MT) saw selling pressure after their 1Q17 earnings, despite posting better-than-expected profits.

1Q17 earnings

During its 1Q17 earnings release, Nucor noted, “Performance of the steel mills segment is expected to improve in the second quarter of 2017 as compared to the first quarter of 2017 as metal margins are expected to expand at our sheet mills due to the delayed impact of contract pricing.” However, Nucor now expects its performance to fall in 2Q17.

While Nucor’s 2Q17 earnings guidance spooked the markets (SPY) (SPX-INDEX), its commentary on the industry outlook looked scarier. We’ll look at that in the next part.

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