Can Nucor Keep Its Edge Over U.S. Steel and ArcelorMittal?

Nucor (NUE -0.13%) will release its quarterly report on Thursday, and the steel industry hasn't been friendly to many companies around the world. Yet even though sluggish conditions among traditional steel buyers have created weak prices, Nucor has nevertheless held up far better than larger rivals U.S. Steel (X -0.62%) and ArcelorMittal (MT 0.76%). Nucor earnings are expected to stay positive, compared to losses at ArcelorMittal and U.S. Steel, and their respective share-price movements over the past year reflect the greater stability at Nucor compared to its peers.

The steel industry's struggles aren't surprising in light of the macroeconomic challenges that the entire world has faced recently. Recessionary conditions in Europe have hurt ArcelorMittal's home territory hard, and U.S. Steel and most of the steel industry have shared the pain of the Chinese slowdown and its impact on steel demand related to infrastructure and construction projects. Yet historically, Nucor has taken advantage of areas of local strength to bolster its results. 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 report.

Stats on Nucor

Source: Yahoo! Finance.

Will Nucor earnings be stronger than steel this quarter?
Analysts have downgraded their views on Nucor earnings in recent months, with a cut of almost 20% on third-quarter estimates and declines of about $0.25 to $0.30 per share for the full 2013 and 2014 years. The stock has still managed to post strong gains, though, rising 11% since mid-July.

Nucor traditionally gives early guidance before making its full report, and its initial outlook last month was fairly solid. Company earnings guidance of between $0.35 and $0.40 per share was in line with what investors had already expected, and Nucor benefited from disruptions from its competitors that made its sheet-steel products more profitable.

Nucor's true advantage over larger rivals comes from its willingness to seek out innovative new ways to do business. The company has largely built facilities that use a combination of scrap and new raw materials to make steel products, with the advantage being that the production plants can use natural gas rather than metallurgical coal as fuel. In order to ensure a supply of cheap gas, Nucor's partnership with Encana (OVV 1.57%) gives it a 50% interest in several gas wells.

However, Nucor has also had to deal with some company-specific setbacks. Late last month, one of the storage domes collapsed at one of Nucor's new plants under construction in Louisiana. Although no one was hurt, production that had expected to begin this quarter will likely be delayed until the beginning of 2014.

The question going forward is whether U.S. Steel and ArcelorMittal will try to use the same techniques that Nucor has found successful. For instance, ArcelorMittal could benefit from the same sort of hybrid production plants that Nucor is about to open. Yet U.S. Steel still isn't sure whether it will move forward with a similar facility in Ohio.

In the Nucor earnings report, watch to see whether the company is still in good shape to weather the worst of the steel industry's decline. With some signs of economic strength both domestically and abroad, Nucor would undoubtedly benefit from any improvement in steel-industry fundamentals.

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