As the country's largest steel producer, it's no great surprise that Nucor
Sales for the first quarter climbed 45% to more than $3.3 billion, largely on the basis of a 46%-per-ton price increase over last year. While steel shipments were basically flat on a year-over-year basis, they were up about 13% sequentially.
Not especially surprising for a company with significant operating leverage, the sales increase allowed Nucor to more than double its operating margin from about 8.4% last year to 17.3% for the March quarter. As such, the company saw net income more than triple to nearly $355 million in the quarter.
Cash flow was also strong in the quarter, as free cash flow more than tripled. As a means of sharing this cash with shareholders, the company raised its dividend to $0.15 (from $0.13) and announced a supplemental dividend of $0.25.
While management acknowledged some softening of steel prices so far this year, it expressed confidence that the full-year outlook was still strong and that pricing for certain products (like rebar) was still expected to increase.
As fellow Fool Rich Duprey noted a week or so ago, Nucor is among the best-run steelmakers in the business and trades at a reasonable multiple. Better still, the company's balance sheet is relatively clean and it has excellent operating characteristics.
Although it's tough to argue with the idea that Nucor is among the best of the best in the steel business, analysts and institutional investors have definitely begun to cool their ardor toward basic materials companies. In the case of Nucor, for instance, many analysts are expecting earnings to peak in 2005, and then decline for at least the next two years.
Anecdotal evidence would seem to support this. German firm ThyssenKrupp is cutting production in response to softening demand and Swedish steel company SSAB believes current iron ore prices are "unsustainable" given the dynamics they see in the steel market.
Granted, analyst projections are only worth so much -- hardly anybody expected steel, coal, or oil prices to get as high as they did or stay at such high levels. Nevertheless, with many people seeing the market at or near a peak, it's likely that the entire sector will be quite volatile and trade erratically with any incremental information (or rumor) about demand, supply, and pricing.
For more on the steel sector, please read these past Foolish missives:
- No Wooden Nickels for Inco
- Nucor's Nimble Buying Binge
- Is the End Nigh for Steelmakers?
- Posco a Go-Go
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).