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Nucor and Steel Dynamics See 4Q15 Earnings Falling off a Cliff

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Nucor’s 4Q15 earnings guidance

Nucor (NUE) and Steel Dynamics (STLD) released their 4Q15 earnings guidance on December 16 and December 17, respectively. Nucor expects to post EPS (earnings per share) between $0.15 and $0.20 in 4Q15. To contrast, the company posted EPS of $0.65 in the corresponding quarter last year. The EPS guidance is also much lower than what Nucor delivered in 3Q15. Nucor had posted EPS of $0.71 in 3Q15, which was almost 50% higher than its guidance.

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Nucor’s 3Q15 earnings came in much higher than consensus estimates, as can be seen in the graph above. The markets also rewarded Nucor for its better-than-expected earnings, sending its stock up more than 5.5% after it released its 3Q15 earnings. Nucor has generally posted earnings better than its guidance and consensus estimates.

Steel Dynamics’ 4Q15 guidance

Steel Dynamics’ 4Q15 guidance also failed to impress investors. The company expects to post EPS of $0.03–$0.07 in 4Q15. In contrast, Steel Dynamics posted EPS of $0.25 and $0.40 in 3Q15 and 4Q14, respectively. It’s important to note that Steel Dynamics has not included the potential impairment of its Metals Recycling operations in its 4Q15 guidance.

Together, Steel Dynamics and U.S. Steel Corporation (X) form ~8.4% of the SPDR S&P Metals and Mining ETF (XME). Overall, almost half of XME’s portfolio is invested in US steel companies.

Worrisome trend

What’s worrisome is the sequential fall in steel companies’ earnings. The year-over-year fall in earnings is very much expected and factored in by the markets as current steel market conditions are much more challenging than last year’s. You can read Key for Investors: Steel Industry’s Outlook Keeps Getting Worse to learn more about the US steel industry’s health.

Meanwhile, AK Steel (AKS) is expected to post a loss in 4Q15 after churning out a surprising profit in 3Q15. In the next part, we’ll look at AK Steel’s 4Q15 guidance.

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