Commodities & Metals

Can US Steel Companies Ever Realize Their Turnarounds?

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In the past three days, three steel companies have provided first-quarter guidance. One cut earnings forecasts drastically and the other two both offered weak outlooks. Nucor Corp. (NYSE: NUE) said on Thursday that it now expects earnings per share (EPS) in a range of $0.10 to $0.15, well below its previous estimate of less than fourth-quarter 2014 EPS of $0.65 but “slightly exceeding” first-quarter 2014 EPS of $0.35.

Steelmaker AKS Steel Holding Corp. (NYSE: AKS) also offered weak guidance on Thursday, and the company said it expects to post a first-quarter loss in the range of $0.23 to $0.28 per share. The consensus analysts’ estimate called for EPS of $0.01.

Steel Dynamics Inc. (NASDAQ: STLD) has arguably been the best performer among U.S. steelmakers, with a five-year share price gain of about 14%. Over the past two years, the company’s stock has added 27%. But Steel Dynamics has forecast first-quarter adjusted EPS in a range of $0.12 to $0.16. In the first quarter a year ago, the company posted EPS of $0.17, and in the fourth quarter EPS reached $0.40.

What has happened? According to both AKS and Nucor, a glut of imports have hammered steel prices. In the fall of 2014, the steel industry appeared to be on the verge of completing a turnaround that had weighed on share prices for about three years. Yet, even as steel shipments from U.S. makers were rising, steel imports were rising faster and prices started declining.

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In 2014, steel imports to the United States were 38% higher than in 2013, at 44 million net tons. Steel shipments were up 3% at 98 million net tons. Total U.S. demand in 2014 was around 131 million net tons.

That excess supply, which Nucor and AKS attribute to an import glut, continued into this year. The slightly better news for U.S. steelmakers is that February steel imports fell 15% month-over-month. The less-good news is that imported steel still accounted for 33% of the U.S. market in February.

Interestingly, Steel Dynamics said now that domestic pricing has fallen to globally competitive levels, it believes steel import levels will also decline. The company expects to work through its excess inventory issues by April or May and, “coupled with continued demand, should result in increased domestic steel mill utilization.”

AKS, Nucor and Steel Dynamics are just the latest to spill the bad news. United States Steel Corp. (NYSE: X) has closed two plants and laid off 750 employees in Texas and Louisiana as demand for pipe in the oil and gas drilling business has faltered. The company announced last that it will close a Minnesota plant temporarily as it works through its own inventory issues.

For the year to date, AKS shares have dropped about 29%. The stock’s 52-week range is $3.62 to $11.37. The consensus price target is $5.74, and at Thursday’s closing price of $4.20 it implies a potential gain of about 37%. The last time the stock traded around the price target was late last December.

U.S. Steel has dropped 17% since the beginning of the year. The consensus price target on the stock is $29.94 and shares closed at $22.13 Thursday night. The 52-week range is $20.13 to $46.55, and the implied gain based on the most recent closing price is around 35%.

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Nucor’s shares have dropped 6% year to date, to close at $46.10 on Thursday. The consensus price target on the stock is $53.50 and the 52-week range is $42.93 to $58.76. Based on that closing price, the potential upside for Nucor stock is 16%.

Steel Dynamics has managed to post a year-to-date gain of 0.15% so far in 2015. The stock’s 52-week trading range is $16.51 to $25.51, and shares closed at $19.76. The consensus price target is $23.56, and the potential upside is around 19%.

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