EARNINGS PREVIEW: U.S. Steel Companies to See Lower Earnings on Ample Supply
07/12/2012| 03:58pm US/Eastern
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By Chelsea Stevenson
TAKING THE PULSE: Steel companies in the U.S. are facing a series of headwinds as a surge of imports and a still weak construction sector pressure prices. Some analysts say steel prices could be near bottom, as scrap and iron ore prices have slid below peaks. Slowing growth in top steel producer China and ongoing uncertainties in Europe also could keep pressure on prices.
Unsteady market conditions have caused steelmakers to deliver cautious tones, though crude steel production is on the rise. U.S. output through July 7 totaled 52 million tons, up 6.5% from the same period a year ago, and the industry has been running at its fastest clip since the recession. Demand from auto makers, manufacturers and the energy sector has been edging upward, while demand from natural gas drillers has wavered as companies slowed activity in the face of low prices for fuel. Still, the industry's leaders have endured downgrades and lowered outlooks amid excess supply and uncertain demand.
COMPANIES TO WATCH:
Nucor (>> Nucor Corporation) - reports July 19
Wall Street Expectations: Wall Street estimates call for earnings of 48 cents a share on $5.06 billion in revenue, according to Thomson Reuters. Last year, the company posted 94 cents a share in earnings on $5.11 billion in revenue.
Key Issues: The second-largest U.S. steel company in terms of production originally expected a modest earnings improvement but lowered its guidance in June. Nucor's Italian steel-melting joint venture, Duferdofin Nucor, has suffered due to a weakened European steel market, and the second quarter is expected to include a 9-cent impairment charge as a result. Its joint venture with Yamato Kogyo Co. approved a $115 million plan to expand production of sheet piling, to be completed in the next two years. In the U.S., production has been rising in order to meet demand from auto makers, manufacturers and the energy sector, but the company has reported pressure from imports and excess domestic capacity. Inventory charges and weak margins have hurt results in Nucor's previous quarters, while acquisition charges from its June purchase of Skyline Steel LLC won't be in play until the next fiscal year.
U.S. Steel Corp.(X) - reports July 31
Wall Street Expectations: Analysts from Thomson Reuters project the company to post a profit of 47 cents a share, on revenue of $4.99 billion, compared with last year's earnings of $1.33 a share, which included a foreign-currency gain of 21 cents, on revenue of $5.12 billion.
Key Issues: Higher maintenance costs are on the radar this quarter for U.S. Steel, affecting its flat-rolled steel division. Its tubular segment, which makes steel tubes for drilling wells and pipelines, has benefited from record high shipments and is expected to remain strong. Still, the company's performance has suffered since the start of the year, when it resold its loss-making Serbian unit to the Serbian government. Performance at the company's remaining European operations, a steel mill in Slovakia that serves healthier Northern European markets, is expected to improve this quarter.
AK Steel Holding Corp. (>> AK Steel Holding Corporation) - reports July 24
Wall Street Expectations: Analysts polled by Thomson Reuters expect earnings of 6 cents a share on revenue of nearly $1.55 billion. Last year, AK Steel posted earnings of 30 cents, including a charge of 2 cents tied to state law changes, on revenue of $1.79 billion.
Key Issues: Deterioration in steel prices and increased market uncertainty could be problematic for AK Steel, but in a bid to offset high commodity costs and boost its own supply of raw materials, the company recently formed a venture with Magnetation Inc. and acquired a small coal company. The acquisitions are ramping up for the production of metallurgical coal and iron ore production. Higher sequential shipments are also expected at 1.35 million tons, while average per-ton selling prices are predicted to remain flat, though AK Steel increased prices for all carbon flat-rolled steel products by $40 a ton. The company has warned it may record a bad-loan expense for its deferred tax assets.
(The Thomson Reuters financial estimates and year-earlier figures may not be comparable due to one-time items and other adjustments.)
Write to Chelsea Stevenson at chelsea.stevenson@dowjones.com
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