What Factors Drove Nucor’s 3Q15 Earnings?


Oct. 29 2015, Updated 5:07 p.m. ET

3Q15 earnings

As we discussed previously, Nucor’s (NUE) 3Q15 EPS (earnings per share) exceeded the market expectations by a wide margin. The company’s 3Q15 earnings per share were only about 7% lower as compared to the corresponding quarter last year.

However, Nucor’s shipments and average selling prices in 3Q15 have fallen sharply compared to the last year. Other steel companies such as U.S. Steel Corporation (X) and ArcelorMittal (MT) are also expected to report lower steel selling prices in 3Q15.

Let’s see what other factors drove Nucor’s 3Q15 earnings. Currently, Nucor forms 0.17% of the Vanguard High Dividend ETF (VYM).

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Lower capacity utilization rate

  • The capacity utilization rate is a key indicator of the steel industry’s health. In simple terms, the capacity utilization rate refers to actual production as compared to the maximum production possible using existing plants.
  • Nucor’s capacity utilization rate fell to a dismal 69% in 3Q15, as can be seen in the graph above. Nucor had a healthy utilization rate of 81% in 3Q14.
  • Steel Dynamics (STLD) reported a capacity utilization rate of 82% in 3Q15. STLD has historically enjoyed an industry-leading capacity utilization rate.

Despite falling revenues and lower capacity utilization rates, Nucor’s earnings have not fallen much.

LIFO credit

  • Nucor recorded an LIFO (last-in, first-out) credit of $137 million in 3Q15. This translates into a credit of $0.19 per diluted share.
  • According to Nucor, the company received “a $0.03 per diluted share non-cash gain related to a correction of deferred tax balances.”
  • Nucor’s steel mill and downstream segment’s performance was better than management’s expectation.
  • The average scrap cost per ton fell to $262 per ton in 3Q15 as compared to $387 per ton in 3Q14.

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