Nucor Corporation (NYSE:NUE) came under pressure after issuing third-quarter earnings guidance that fell short of Wall Street expectations. Shares declined more than 3% in after-hours trading on September 17 after the steelmaker forecast third-quarter earnings of $5.55 to $5.65 per share.
While the guidance would represent a substantial increase from the $2.63 per share reported in the third quarter of last year, it nevertheless came in below analysts’ expectations of approximately $6.20 per share. The shortfall suggests that even a favorable steel pricing environment may not translate into earnings growth at the pace investors had anticipated.
Higher Steel prices vs. Costs
Higher average selling prices are expected to support earnings across parts of the business. However, Nucor Corporation also anticipates higher product costs that could limit the benefits. Earnings are expected to improve in the steel mills and steel products segments due to higher volumes and higher average realized selling prices.
By contrast, the raw materials business is expected to be affected by lower pricing and shipments. Nucor also warned that higher corporate expenses could weigh on third-quarter results.
While a strengthening steel cycle provides a more supportive near-term backdrop, the company’s earnings remain exposed to fluctuations in key input costs. If steel demand weakens, the company may have less ability to pass higher input costs on to customers, potentially putting pressure on margins.
The company has also warned of global steel overcapacity and imports as a significant industry risk. Excess capacity can increase competition and put downward pressure on steel prices, particularly during periods of weaker domestic demand.
Hedge Fund Positioning and Short Interest
Hedge fund interest in Nucor Corporation increased modestly in the second quarter, with 62 hedge funds holding positions in the company compared with 59 in the first quarter. However, some prominent investors reduced their exposure.
According to Insider Monkey’s database, Berkshire Hathaway reduced its Nucor position by 53% to approximately $413.81 million, while Slate Path Capital cut its stake by 39% to approximately $280.39 million.
Meanwhile, short interest increased. The number of Nucor shares sold short rose from approximately 3.69 million shares as of July 31 to 4.11 million shares as of August 31, representing short interest of roughly 1.81% of the company’s shares.
Bottom Line
The disappointing third-quarter guidance signals that higher steel prices might not translate to strong earnings growth as previously expected. Higher costs and weakness in the raw material segment could partially offset any benefit from higher steel prices. A sustained recovery in steel demand and pricing could support the company’s results, but global overcapacity, imports, and volatile input costs remain important risks to margins.
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