Can Nucor Overcome the Struggling Steel Market?

On Thursday, Nucor (NUE -1.04%) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

The steel industry has gotten crushed lately, as slowing growth in emerging markets and economic concerns across the globe have weighed on demand for the metal. Nucor has held up quite well compared to many of its industry peers, but can the company keep defying macroeconomic trends and keep delivering strong profits? Let's take an early look at what's been happening with Nucor over the past quarter and what we're likely to see in its quarterly report.

Stats on Nucor

Source: Yahoo! Finance.

Can Nucor strengthen its earnings this quarter?
In recent months, analysts have lost a lot of confidence in Nucor, cutting their earnings estimates for the just-ended quarter by more than half. They've also reduced their full-year 2013 earnings-per-share consensus by more than $0.60, yet even with those big adjustments, the stock has only lost 4% of its value since early January.

Nucor has already given investors a flavor of what's coming in its report, as it gave early guidance last month that was well below what analysts had hoped to see. The company usually sees a seasonal uptick in the first quarter as construction season starts, but this year, attempts among many steel companies to boost prices led to restrained demand even though those attempts proved largely unsuccessful. Nucor's guidance was consistent with what AK Steel (AKS) said a week later, as it expected steel shipments to fall by 7%-10% compared to the fourth quarter.

In addition, one tailwind that had been helping Nucor appears poised to disappear. The company relies on natural gas throughout the steel manufacturing process and expects its use to rise substantially when it finishes building a new direct reduced iron facility. Low gas prices have helped Nucor stay competitive, even leading the company to build a new Louisiana plant to take advantage of locally available gas. Yet even though the company made a deal with Encana to take a 50% interest in some gas wells that Nucor hopes will give it 20 years' worth of gas supplies for its mills, recent price increases could still potentially hurt Nucor.

Still, strength in the automotive sector could help pull Nucor out of its funk. Steel Dynamics (STLD -2.06%) said last month that despite flat overall earnings expectations, automotive sheet steel was fairly strong, as were supplies for railroads and for home and commercial construction. Nucor is also well-positioned to take advantage of those trends, especially if Ford and General Motors can continue to do well.

In Nucor's earnings report, watch for the company to talk about any signs of rising industrial activity both in the U.S. and abroad. Even with so many investors focusing their attention squarely on China, you can't afford to ignore domestic considerations in assessing Nucor's future prospects.

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