Sometimes, you rush right out to write about a company's press release, and you're first in line with the story. Other times, it pays to wait. While I didn't plan it this way, turns out this was one of those "other times."
At the close of August, mini-mill metals maker Steel Dynamics
Not one to disappoint, Nucor dutifully put out its own release a week later, upping its buyback program and announcing its dividends. But what about Nucor's guidance? Missing from the first announcement, it showed up a few days later in a separate press release. And now, with a complete set of data in hand, it's time to digest what the two steel titans had to tell us -- and the implications for their industry, and others.
Let's begin with a side-by-side comparison of the firms' news:
Steel Dynamics |
Nucor |
|
---|---|---|
Buyback announcement * |
+5 million shares |
30 million shares |
Quarterly dividend |
$0.10 |
$0.11 |
Special dividend |
$0.05 |
$0.50 |
Q3 earnings guidance, per share |
$1.02 to $1.07 |
$1.10 to $1.15 |
Recent Share price |
$45.65 |
$58.35 |
Things are swell all over!
Seeing as Steel Dynamics (SDI) was first in line with its updates, let's start with it. The company issued a pretty upbeat update, overall:
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SDI sees flat-rolled steel orders as "steady" with "moderately increasing selling values."
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"Structural and bar steels continue to experience solid bookings and pricing strength."
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"Order rates for fabricated building products remain strong."
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Steel scrap prices (which both SDI and Nucor use as a basic raw material, melting it down in electric arc furnaces to form "new" steel) were "lower" in Q3, lending a "positive impact" to earnings. Although scrap prices have been rising recently, SDI has good inventories of scrap already built up, which should mitigate its costs.
Overall, SDI says it is "optimistic that 2007 will be another record-setting year for Steel Dynamics in steel shipments, revenues, and earnings." So you can see why management feels confident enough to announce a special dividend and continues spending to buy back shares. But hark! I hear a fell note sounding next door at Nucor. Let's see what it has to say.
No, things are fell all over
Nucor tells a different tale entirely. For one thing, its guidance of $1.10 to $1.15, while not technically a "warning," probably felt like one to shareholders who had relied on analyst predictions of $1.27 per share for Q3. For another, Nucor's predicted number represents roughly a one-third fall in profits from last year's Q3 earnings of $1.70.
What's got Nucor's steel-girded panties in a bunch? Try:
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"Continued softness in the sheet markets ... demand softness in the automotive and residential construction markets, including appliances and HVAC"
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"Increasing costs of some raw materials" -- see SDI's comments on scrap pricing
Looking forward, Nucor further predicts better prices for its sheet products and stable prices on "most other mill products" in Q4. Steel bar products, however, may experience margin compression.
Foolish takeaway
What's all this mean to investors? First and foremost, it suggests to me that, at least in the short run, SDI is doing its job better than Nucor. Throughout the broader steel industry, Nucor's comments on the slowing of imports from China should shift pricing power in the favor of domestic steelmakers like U.S. Steel
Read more about the mini-mill metals makers in: