Inside Nucor’s Higher 1Q16 Shipments: A Warning for U.S. Steel
What You Shouldn't Miss in Nucor's 1Q16 Earnings
Nucor’s 1Q16 shipments
Nucor (NUE) reported revenues of $3.7 billion in 1Q16, as compared to $4.4 billion in the corresponding quarter last year. According to the data compiled by Bloomberg, analysts were expecting Nucor to post revenues of $3.63 billion in 1Q16.
We should note that steel companies’ revenues are a function of shipments and average selling prices. Shipments depend on end-user demand as well as on import penetration. The decline in Nucor’s 1Q16 revenues was led by lower steel prices. Nucor’s average steel selling prices fell by 23% YoY (year-over-year) in 1Q16. Although steel prices were a drag on Nucor’s 1Q16 revenues, the company managed to beat analyst revenue estimates on high shipments.
High shipments
Nucor’s total tons shipped to outside customers rose by 9% YoY in 1Q16. The performance of Nucor’s sheet operations was even better, and its sheet shipments increased by 25%, as compared to the corresponding quarter last year. Apparently, Steel Dynamics (STLD) also reported a significant increase in 1Q16 shipments.
High shipments reflect these companies’ strategies to capture the spot demand because imports have now come down steeply. Notably, last quarter, most US (DIA) steel companies reduced their spot exposure, especially in the commodity grade hot-roll steel products, due to depressed pricing.
Competitors
As Nucor and Steel Dynamics seem to be taking the lion’s share of incremental spot demand, other flat steel producers like U.S. Steel Corporation (X) and AK Steel (AKS) might not be able to take advantage of higher volumes in 1Q16. Although AKS and X will benefit from higher steel prices, they might not enjoy volume gains like NUE and STLD.
Meanwhile, did higher 1Q16 shipments help Nucor in 1Q16? We’ll explore this in the next part of this series.
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