Nucor to Double Decuple

One month ago, rule-breaking steel maker Nucor (NYSE: NUE  ) preannounced that it would destroy Wall Street analysts' forecasts of $0.52 per diluted share for its fiscal first quarter. The company predicted earnings of anywhere from $0.80 to $1.00, a 250% to 330% increase over its $0.23 profits from the year-ago period. But yesterday, the company posted earnings that were simply astounding. The actual take was $1.43 per diluted share.

That's right, folks. Nucor nearly tripled Wall Street's expectations from a month ago, and fell just short of septupling its first-quarter 2003 profits. And it did that on a mere 54% increase in sales.

If those results do not sound impressive enough, consider this: The company uses the last-in, first-out (LIFO) method of accounting for its product shipments. That means that it calculates its profits by subtracting from a product's sales price the cost of the raw materials most recently used to produce that product. So if raw materials costs are increasing, each product sold should have a smaller and smaller gross margin and drop less and less profit to the bottom line. And those costs are indeed increasing. The steel scrap that Nucor uses as its raw materials has increased 85% in price since March 2003.

Similar raw materials cost increases drove fellow steel maker Allegheny Technologies (NYSE: ATI  ) into a $0.63 per-share loss this quarter. Nucor, however, was able to successfully pass on the increased costs of its raw materials in surcharges paid by its customers, keeping its profits intact.

And what's good for Nucor is good for Nucor shareholders, now as in the past. For Nucor, rule-breaker or not, is one of those old-fashioned kinds of companies that your granddaddy used to love -- the kind that pays dividends. The company has increased dividends annually for the past three decades. And simultaneously with its announcement of outsized profits, Nucor hiked its quarterly dividend by 5%, from $0.20 to $0.21, and now has a dividend yield of 1.3%. (That's only two-thirds the yield of the average S&P 500 company, and certainly not high enough to attract readers of Mathew Emmert's Motley Fool Income Investor, but a nice touch nonetheless.)

Even if dividends are not your thing, Nucor is worth a look on its growth prospects alone. Remember how I said the company almost "septupled" its first-quarter 2003 profits? Well, next quarter, look for a "double decuple" (an increase of up to 20 times its second-quarter 2003 profits).

Fool contributor Rich Smith has no beneficial interest in any companies mentioned in this article.