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Analyzing US Steel Companies’ Q2 Guidance and Outlook

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  • U.S. Steel Corporation (NYSE:X), Nucor (NYSE:NUE), and Steel Dynamics (NASDAQ:STLD) have released their second-quarter guidance and outlook.
  • While US steel stocks have bounced back in the second quarter, they’re still down sharply for the year. The industry’s outlook is muddied amid economic uncertainty.
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US steel companies Q2 guidance

Major US steel companies have released their second-quarter guidance. In the second quarter, X expects to post an adjusted EBITDA of -$315 million and an adjusted net loss of $3.06 per share. The company’s second-quarter guidance was worse than expected and the stock fell sharply after it released the guidance. U.S. Steel Corporation reiterated that the second quarter would form the trough for its earnings.

Nucor’s Q2 guidance

However, Nucor’s second-quarter guidance looked encouraging. The company expects to post an EPS of $0.10–$0.15 in the second quarter. Notably, the company expects its earnings to improve sequentially. Nucor posted an EPS of $0.07 in the first quarter. The real impact of COVID-19 was only felt in the second quarter. In the first quarter, Nucor reported a one-time loss on its investment in Italy. Nucor attributed its better-than-expected second-quarter performance to “power of our culture and the strength of our business model.” Nucor’s business model stands out from its peers.

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Steel Dynamics’ Q2 guidance

Steel Dynamics expects to post an adjusted EPS of $0.29–$0.33 in the second quarter. Despite the sharp fall in US steel production and deteriorating pricing, the company expects to post a positive net income in the quarter. In contrast, X expects a massive net loss. Mini mills, like Nucor and STLD, can tackle the industry’s cyclicity due to their variable cost structures.

Outlook

According to STLD, “As states begin to reopen and steel consuming businesses resume operations, the company anticipates steel and recycled scrap volumes will improve. The company believes trade protections that are already in place will continue to limit the amount of unfairly traded steel products coming into the United States, providing additional support for domestic steel mill utilization.”

Nucor also sees strong demand in its biggest end market of non-residential construction. In the second-quarter release, the company said, “Though overall market conditions are still challenged by the pandemic, demand in nonresidential construction has been resilient during this time.” Nucor could be among the biggest beneficiaries if the Trump administration pushes for the $1 trillion infrastructure stimulus. Notably, Nucor is the biggest rebar supplier in North America. Companies in non-residential construction use rebar.

U.S. Steel Corporation

U.S. Steel Corporation has been grappling with a weak balance sheet. Recently, the company announced a common stock offering to raise $429 million. The capital raise would help the company bridge the cash burn.

In my view, X is a high-risk bet on the revival in the industry. However, the company looks fundamentally weak and should continue to lose market share in the US market. The company’s Tubular operations are another weak spot. Also, energy prices and the energy capex probably won’t revive to normalized levels anytime soon.

Nucor and Steel Dynamics are stable bets to play the revival in the US steel industry. Both of the companies posted positive net income even at the peak of the COVID-19 crisis.

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