Earnings Warning & Denying Merger Rumors Hurt Steel Stocks (NUE, STLD, X, RS, AKS)

Stock Tickers: NUE, STLD, X, RS, AKS

Nucor Corp. (NUE-NYSE) has a bit of a surprising news this morning: a steel company issuing an earnings warning. It now expects that earnings for the second quarter ending June 30, 2007 are expected to be in the range of $1.05 to $1.15 per diluted share, compared to estimates of $1.39 and compared to $1.26 EPS in the first quarter of 2007.

Here is the explanation from the company:  Second quarter earnings have been significantly impacted by lower shipments from Nucor’s bar mill group. The rapid increase in scrap prices in the first quarter resulted in hedge buying during that quarter by our customers ahead of anticipated increases in steel products pricing. This hedge buying by our customers produced a record for first quarter shipments from our bar mill group. In addition to the first quarter hedge buying driven by volatility in scrap pricing, bar market demand in the second quarter has been marginally reduced by softness in the automotive and residential construction segments. This softness reduced demand for our SBQ bar and rebar products. We expect second quarter bar shipments to decline approximately 17% from the first quarter shipments.

This news combined with the news that ThyssenKrupp in Europe denied market rumors and reports that it was in talks to acquire U.S. Steel (X-NYSE). 

This combined earnings warning from a key player and less consolidation in the sector is pressuring other steel names: Steel Dynamics (STLD-NASDAQ) -4%, US Steel (X-NYSE) -5.5%, Reliance Steel & Aluminum (RS-NYSE) -2%, AK Steel (AKS) -2.5%.

Jon C. Ogg
June 11, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.