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Get Over Brexit and Prepare for Steel Companies’ 2Q16 Earnings

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Jul. 11 2016, Published 5:56 p.m. ET

2Q16 earnings

It’s been a turnaround of sorts for the US steel industry in 2016. This year started on a weak note, and commodity companies (USCI) fell to multiyear lows in January. However, we saw decent upward price action between February and April.

Even the Brexit vote turned out to be a small speed bump for US steel companies as they recouped most of their losses in the last few days. The Brexit vote was not expected to fundamentally impact US steel companies, which we noted in Did Steel Companies Overreact after the Brexit Vote?

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Earnings around the corner

Now, we are into the 2Q16 earnings season. Steel Dynamics (STLD) plans to release its 2Q16 earnings on July 18 while Nucor’s (NUE) 2Q16 financial results are expected on July 21.

U.S. Steel Corporation (X) and AK Steel (AKS), which have led the steel sector’s rally this year, are expected to release their 2Q16 earnings on July 26.

The 1Q16 earnings season was quite lackluster for steel companies in terms of price action. Although the earnings themselves were mixed, Market attention was more focused on the future earnings capacities of steel companies as spot steel prices were on a rising trajectory.

What now

Now, spot steel prices seem to have stabilized and have in fact seen some downward pressure over the last couple of weeks, as can be seen in the graph above. It would be crucial for steel companies to justify their price movements with solid 2Q16 earnings.

In this series, we’ll look at the consensus earnings estimates for Nucor and Steel Dynamics. We’ll also explore which of these companies can provide a possible earnings beat in the quarter. Let’s begin by looking at Steel Dynamics’s 2Q16 earnings estimates.

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