Nucor Corporation (NYSE: NUE), the largest steel producer in the United States, saw its stock price fall by more than 6% on Thursday after it issued a weak guidance for the third quarter of 2023. The company expects its earnings per share to be in the range of $4.10 to $4.20, lower than the consensus estimate of $4.61 by analysts.
Lower Pricing and Volumes Hurt Steel Mills Segment
The main reason for the lower-than-expected earnings guidance is the decline in profitability of the steel mills segment, which accounts for more than half of Nucor’s revenue. The company said that the segment will be impacted by lower pricing and, to a lesser extent, reduced volumes in the third quarter. The sheet mills within the segment are expected to experience the most significant impact on earnings.
Nucor attributed the lower pricing to the seasonal slowdown in demand and the increased supply of steel in the market. The company also said that it faced some operational challenges due to Hurricane Ida, which affected its facilities in Louisiana and Mississippi.
Other Segments Also See Lower Earnings
The steel products segment, which produces steel joists, deck, cold finished steel, steel fasteners, metal building systems, and light gauge steel framing, is also expected to see a decline in earnings for the third quarter compared to the second quarter. The company said that this is due to lower realized prices and reduced volumes.
The raw materials segment, which includes direct reduced iron (DRI) facilities, scrap processing operations, and natural gas drilling activities, is also projected to have lower earnings in the third quarter compared to the second quarter. The company said that this is mainly attributed to margin compression at its DRI facilities and scrap processing operations.
Share Repurchases and Dividends Continue
Despite the lower earnings guidance, Nucor said that it remains committed to returning capital to its shareholders through share repurchases and dividends. The company said that it has repurchased approximately 3 million shares at an average price of $168.99 per share during the third quarter. The company has repurchased approximately 8.8 million shares at an average price of $157.36 per share this year.
Nucor has also paid dividends of $0.51 per share for each quarter of 2023, totaling $1.53 per share for the year. The company has increased its dividend for 49 consecutive years, making it one of the dividend kings in the market.
Analysts Remain Bullish on Nucor
Despite the weak guidance, analysts remain bullish on Nucor’s long-term prospects. According to MarketBeat, out of 14 analysts who cover Nucor, 10 have a buy rating, three have a hold rating, and one has a sell rating. The average price target for Nucor is $191.08, implying a 15% upside from its current price of $165.40.
Analysts cite Nucor’s diversified product portfolio, low-cost structure, strong balance sheet, and growth initiatives as reasons for their optimism. Nucor has invested in several new projects, such as a plate mill in Kentucky, a rebar micro mill in Missouri, a galvanizing line in Arkansas, and a hot band continuous pickling line in Indiana. These projects are expected to enhance Nucor’s product mix, expand its market share, and improve its margins.