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Why Nucor’s Revenues Fell off the Cliff in 3Q15

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Nucor’s revenues

Revenues for steel companies, including U.S. Steel Corporation (X), AK Steel (AKS) and ArcelorMittal (MT), are a function of steel prices and shipments. Shipments depend on demand from end consumers as well as any portfolio actions undertaken by the company.

While steel prices are decided by market forces, that in turn depends on the demand and supply balance as well as prevailing sentiments. In this part of the series, we’ll explore the trend in Nucor’s (NUE) revenues.

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Falling revenues

  • The graph above shows the falling trend in Nucor’s revenues. In 3Q15, Nucor reported revenues of $4.23 billion—a year-over-year (or YoY) decline of 26%.
  • Revenues fell due to lower shipments and a steep drop in steel selling prices. Nucor’s steel shipments to outside customers fell 13% YoY in 3Q15 while the average steel selling prices fell more than 14.5% over this timeframe.
  • As compared to 2Q15, steel shipments have fallen ~3% in 3Q15 while steel pricing has been flat. Although spot steel prices have fallen in 3Q15 compared to the previous quarter, Nucor has been able to protect its average steel selling prices.
  • Nucor has been growing its presence in the value-added steel space. Value-added steel products sell at a higher price. These products are also less prone to steel imports compared to standard-grade steel products. According to Nucor, the company’s “strategic plan is to continue to grow market share in the higher quality, higher margin, more profitable products.”

Outlook

  • Nucor notes that it sees “gradual strength in nonresidential construction markets” and “strength in the automotive market.” These factors would bode well for the company’s shipments in the coming quarters.
  • Steel prices, however, continue to weaken in the United States (SPY). It would be interesting to see if the higher share of value-added products in Nucor’s sales mix compensates for lower spot steel prices in the coming quarters as well.
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