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Nucor Reports Solid Earnings; Expects COVID-19 Effects to Hit Next Quarter

By Howard Smith – Apr 29, 2020 at 11:36AM

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The steelmaker said it expects to report a loss in the second quarter, with a return to profitability in the second half.

Quarterly earnings reported by Nucor Corp. (NUE -0.03%), America's most diversified steel and steel products company, shed some light on the pandemic's effects on the manufacturing sector. The company said it earned $0.07 per diluted share, which was slightly below the guidance it had previously given on March 19, 2020, excluding an asset charge it took related to its Duferdofin Nucor joint venture in Italy.

The company said it is seeing varied effects from the ongoing pandemic across its businesses. While it is seeing sharp declines in the automotive and energy sectors, Nucor said nonresidential construction, its largest end market, "has shown resiliency moving through this pandemic."

Aerial view of Nucor's Berkeley, SC facility

Image source: Nucor Corp.

Effects this quarter

Looking ahead, Nucor said it is "likely" that it will report a loss for the second quarter of 2020 due to the economic fallout from the pandemic. If that occurs, it would be the first quarterly loss reported by the company since the fourth quarter of 2010. Nucor noted, however, that there has been a "fairly significant supply side response to the pandemic, with a number of our competitors having idled capacity in response to these challenging conditions."

This could positively affect Nucor's future results, as it has continued to operate its facilities as an essential business, and has been able to satisfy all customer needs. It noted only that its Direct Reduced Iron (DRI) plant in Trinidad suspended operations due to government requirements related to the pandemic response. Nucor also idled its DRI plant in Louisiana for about three weeks in April to align inventories with demand, as well as out of concern for teammates since that has been a particularly hard-hit area for COVID-19 cases. 

Task force established

In reaction to the unprecedented situation, Nucor said it has set up a "Pay & Benefits Task Force" dedicated to taking care of its teammates through the crisis. Based on the task force recommendation, the company has implemented "the assurance of a compensation floor" on pay for the financial well-being of both production and non-production hourly employees.  

Nucor also reiterated its longstanding practice of not laying off its teammates, including during the Great Recession a decade ago. It said that, based on its "share the pain, share the gain" compensation model which pays for performance and profitability, it retains more financial flexibility. This flexibility, along with maintaining a complete workforce with the added financial support, should allow the company to respond to its customers quickly as the economy rebounds.

Confident long-term outlook

The company currently believes it should be able to return to profitability beginning in the third quarter of 2020. It has reduced capital expenditure plans for the remainder of the year to help conserve cash. Some projects in the works have been put on hold, and it now plans to spend less than $1.5 billion on capital projects this year, rather than the $2 billion it originally projected.

In such a cyclical industry, Nucor management has experience with swings in the business environment. It takes a conservative financial approach, and currently holds $1.39 billion in cash and short-term investments. It has the full $1.5 billion undrawn on its credit facility. Nucor is also a Dividend Aristocrat, having raised its base dividend for 47 consecutive years. It said it expects to continue that through the current crisis. 

Howard Smith owns shares of Nucor. The Motley Fool recommends Nucor. The Motley Fool has a disclosure policy.

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