Is A Tough Q2 Earnings Season In Store For U.S. Steel Stocks?
Zacks Investment Research | Jun 19, 2019 09:13PM ET
U.S. steel companies reaped the benefits of higher domestic steel prices in 2018 that largely helped them to rack up solid earnings last year. However, a sharp decline in steel prices this year spells trouble for American steel makers. Moreover, recent profit warnings from some key players amid falling steel prices and demand have raised concerns about a possible weak second quarter for the U.S. steel industry.
Are U.S. steel producers bracing for a disappointing second quarter? Let’s have a look.
Downbeat Guidance From Major Players
Some of the major U.S. steel makers came up with lower-than-expected earnings guidance for the June quarter this week. U.S. steel giant Nucor Corporation (NYSE:NUE) , on Monday, issued underwhelming guidance for the second quarter. It sees earnings per share in the band of $1.20-$1.25 for the quarter, reflecting a decline from $1.63 in the first quarter and $2.13 in the year-ago quarter.
Nucor expects performance in the steel mills unit to decline sequentially in the second quarter. The company noted that service center destocking is affecting order rates. Lower scrap prices and higher supply in the domestic market have led to aggressive inventory management by the company’s customers.
Steel Dynamics, Inc. (NASDAQ:STLD) also provided downbeat guidance for the second quarter as it expects lower earnings in its steel operations in the quarter. The steel producer expects earnings for the quarter in the band of 86-90 cents per share. That is a decrease from 91 cents per share recorded in the previous quarter and $1.53 per share it earned a year ago.
Steel Dynamics expects earnings from its steel operations to be lower sequentially in the second quarter mainly due to reduced profitability from the long product steel operations as shipments and metal spread fell in the quarter. Average product prices declined across the steel platform in the second quarter, the company noted. Steel Dynamics also said that inventory destocking and hesitancy in steel buying have resulted from a softening scrap pricing environment.
Moreover, United States Steel Corp. (NYSE:X) on Tuesday provided disappointing second-quarter profit guidance and said that it will idle three blast furnaces in response to the weakening market conditions. The company expects adjusted earnings per share to be roughly 40 cents for the quarter. The projected earnings reflect a decrease from 47 cents per share recorded in the previous quarter and $1.46 per share the company earned a year ago.
The company said that its Flat-Rolled segment is being hurt by lower steel prices and weakening end market demand. Flooding in the southern United States also led to lower-than-expected shipments in the second quarter.
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Moreover, the company sees sequentially lower adjusted EBITDA for both its U.S. Steel Europe (USSE) and Tubular segments in the second quarter. Lower selling prices are putting pressure on Tubular margins while higher imports and headwinds related to raw material costs and demand continue to hurt the USSE unit.
Nucor currently has a Zacks Rank #3 (Hold), while both Steel Dynamics and U.S. Steel carry a Zacks Rank #5 (Strong Sell).
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