Earnings season is dead. Long live earnings season!
As the calendar flips over on the final earnings season of 2012, investors move briskly ahead into Q1. According to tradition, the first quarterly earnings season of 2013 will begin with Alcoa's Q2 announcement on Monday, April 8. But to tell the truth, I'm not all that interested in what the aluminum manufacturer has to say. What interests me -- and more importantly, what I've got to tell you today -- concerns steel stocks instead.
You see, no sooner has Alcoa kicked off the season, than steelmaker earnings will come tumbling out, and tripping all over each other. On April 15, Nucor (NYSE: NUE ) will report, followed shortly thereafter by fellow mini-mill operator Steel Dynamics (NASDAQ: STLD ) .
A week later, on April 23, it will be AK Steel's (NYSE: AKS ) turn to deliver earnings -- more on that in a moment. Then venerable U.S. Steel (NYSE: X ) will chime in on April 29. Last but not least, the world's biggest steel concern, ArcelorMittal (NYSE: MT ) , will straggle into place with its earnings report on May 11. Five cold-rolled lumps of steelmaking news, delivered to your doorstep in the space of four short weeks.
But what will that news be?
Here's your earnings preview
Actually, the news these companies deliver next month may not be much of "news" at all. Just last week you see, Ohioan steelmaker AK Steel gave us some earnings guidance, giving investors a heads up that:
- Its steel shipments will be down 7%-10% sequentially from Q4 levels.
- The company will attempt to offset declining profits by raising its prices 5% on what steel it does manage to sell.
- At the granular level, automotive steel shipments will show some strength, and raw material costs may be down.
- But this will be offset by what AK calls "normal cyclical" weakness in the spot steel market.
AK's advice generally jibes with what we've been hearing from AK's peers. For example, Nucor recently warned that its Q1 earnings could run anywhere from $0.20-$0.25 per share, and will therefore be down roughly by half both year over year (in comparison to Q1 2012) and also sequentially (in comparison to Q4 2012). So the trend in profitability is clearly down.
That being said, Nucor is seeing some strength in automotive steel sales (although "sheet steel" in general is "weakening"), and in "energy" (read: "pipelines") as well. Negative trends include a lack of "seasonal improvement that is typical" for Nucor in Q1 -- but apparently not for AK. Also, Nucor seems upset that high "import levels" of cheap foreign steel are swelling supplies and depressing prices.
And Steel Dynamics lends company in misery
Adding to the downbeat drumbeat in March was Steel Dynamics, which guided investor to flat "adjusted" earnings of $0.17-$0.21 per share, numbers the company says are "comparable" to the "adjusted" $0.20 it earned in Q4 and the straight $0.20 earned in Q1 2012.
Like Nucor, Steel-D is seeing "decreases in galvanized sheet volume" generally. Like Nucor and AK, Steel-D likes the prospects in automotive sheet steel. The company sees strength, too, in railroad rails and products used in residential and commercial construction -- albeit this growth is off of "base historical lows."
So what are the key takeaways from all this? Despite pockets of strength, profits growth remains elusive across the steel industry. This seems to be the unanimous consensus of companies that have issued guidance so far.
This also suggests that the relatively high P/E ratios we're seeing among steelmakers today -- 22 times earnings at Steel Dynamics, 29 times earnings at Nucor, and infinity times non-existent earnings at unprofitable AK, USX, and Arcelor -- may not be sustainable.
And as for all those single-digit forward P/Es that analysts are projecting based on hoped-for earnings growth next year? Feel free to hope for them, but so far, the evidence doesn't seem to support the case.