Steel players have seen their stock prices plummeting since June 17. The sharp decline in prices has not come without a reason; it has been the market’s reaction to the poor earnings pre-announcement by the steel companies for the second quarter.
For those who don’t follow steel players regularly, an earnings pre-announcement might seem like an awkward idea. However, this has remained a norm in the steel industry and has been a more powerful stock-price catalyst as compared to the actual earnings announcement. So what did the steel players have to say?
Nucor kicked off on a bad note
Nucor Corporation (NYSE:NUE) kicked off the 2Q earnings pre-announcement season with a soft mid-quarter update, indicating it expects 2Q operating EPS of between $0.25 and $0.30 vs. consensus of $0.39.
Nucor Corporation (NYSE:NUE) indicated performance in its upstream steel mills is down with weaker performance in sheet and structural steel. On a positive note, downstream segment results (Nucor Corporation (NYSE:NUE)’s fabricated construction-products businesses and raw materials) are expected to improve sequentially after the seasonal slowdown and outage at the Trinidad DRI facility, both of which occurred in 1Q. Nucor did flag that in 2013 non-residential construction markets continue to lack sustained momentum, but are slowly improving from historically low levels.
Nucor Corporation (NYSE:NUE)’s 2Q guidance suggests the potential for more downside than upside for 2013 even in a slow recovery scenario. Thus far there has been limited follow through in the form of meaningful results for the steel producers, including Nucor Corporation (NYSE:NUE), despite the encouraging signs earlier this year of improving construction-related demand. Instead lead times, prices, and margins remain relatively stagnant while 2H’13 earnings estimates still reflect expectations of a meaningful recovery.
What AK Steel had to say
AK Steel Holding Corporation (NYSE:AKS) has seen the largest decline by far in this period. This is understandable given the large disparity between what the market was forecasting and what the company estimates that it earned in the quarter. AK Steel Holding Corporation (NYSE:AKS) indicated it expects to report a loss of $0.33 per share to a loss of $0.38 per share in Q2’13, vs. the consensus of a loss of $0.08 per share only. Included in the expected Q2 loss range is a non-cash tax income tax expense of $11 million, or $0.08 per share, vs. the Street’s tax benefit estimate of $11 million (that is not a typo, the Street was estimating it to be a benefit whereas it turned out to be an expense).