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Nucor Foresees Significant Jump in First-Quarter Profits

By Neha Chamaria - Updated Jan 28, 2021 at 1:40PM

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The largest steelmaker in the U.S. is making the most of a recovery in key end markets.

Shares of Nucor (NUE -1.65%) dropped after the steelmaker announced its fourth-quarter earnings Thursday morning as its sales numbers missed analysts' estimates, but investors might be overlooking the big picture.

Fourth-quarter net sales increased 3% year over year to $5.26 billion, falling short of analysts' estimates by more than a percentage point. But sales grew 7% sequentially, confirming a rebound in demand for Nucor's core and largest segment, steel mills, which manufactures sheet, bars, and beams. Steel pricing also started to gather momentum as Nucor stepped into its fourth quarter, further boosting its top line.

The good news is that the trend is expected to continue, and perhaps even get stronger, going by Nucor's outlook.

Work ongoing at a construction site.

Image source: Getty Images.

The company expects earnings in the first quarter of fiscal 2021 to significantly increase from the fourth quarter of 2020, backed by ongoing strength in its steel mills segment. It earned $398.8 million, or $1.30 per share, in the fourth quarter. There are two key points to note here.

First, Nucor's fourth-quarter earnings beat the company's own guidance issued in mid-December. Second, and more importantly, a significant sequential jump in first-quarter earnings, as Nucor projects, would also mean dramatic year-over-year growth given that the company earned only $0.07 per share in the year-ago quarter.

So it's surprising to see Nucor shares react adversely despite the company issuing such strong guidance. Key end markets, like nonresidential construction and automotive, haven't just recovered, but are visibly growing. That also explains why Nucor operated its steel mills at 87% capacity in the fourth quarter compared to 83% in the third. The company's prospects look even brighter, what with other markets like renewable energy, heavy equipment, and agriculture also showing signs of improvement.

"At the onset of the pandemic, we capitalized on the flexibility of our business model and strong demand for our products to gain market share across nearly our entire portfolio," said CEO Leon Topalian. Nucor ended fiscal 2020 with $3.16 billion in cash and cash equivalents and short-term investments, and boosted its dividend for the 48th consecutive year this past December. The Dividend Aristocrat currently yields 3.2%.

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