Nucor (NUE, Financial) released impressive results for the second quarter. Nucor came up with a fantastic operational performance, outpacing analysts’ estimates. The company managed to post good numbers on the board due to the improving construction market in the U.S., which led steel prices to increase. Nucor management is taking various initiatives to improve its operational performance. Let us take a closer look at Nucor’s strategies.
Increasing sales paint a positive picture
Nucor’s net sales increased by a good 13% to $5.29 billion, beating the analysts’ estimates of $5.21 billion. In addition, Nucor reported net earnings of $147 million, a good improvement when compared to $85.1 million in the same quarter a year earlier. On the earnings front, the company posted EPS of $0.46 per share topping the guidance range of $0.35 to $0.40 per share.
Nucor is delighted to see better results in the second quarter, which also topped the results it posted in the first quarter. The company further sees better opportunities as it is seeing some positive traction in the market. Nucor looks well positioned, however, it did face certain challenges in the past in many of the products produced by its steel mills. Nucor has strong strategies for growth profitability. It is seeing bright spots in the non-residential construction. As the construction is accelerating, Nucor is seeing good demands for the steel in future.
Moreover, to support its profitability growth initiatives, Nucor is making significant investments in a large number of projects to improve its cost structure. It is also gearing up to expand its product portfolio to include more valued higher margin offering. The returns from these investments are slow but the company thinks that these will start reaping benefits after some years when the steel and the non-residential construction market continues to improve further.
Confident of delivering better times
Nucor estimates that the steel industry is poised for more success as it is counting on the “Tsunami of Imported Goods.” The steel mills in the U.S are already famous for producing lower cost steel, but the country is suffering from the illegal import surge as well as the violation of government subsidies. This tsunami of imported goods is violating the local trade. But now Nucor is seeing it as a long term opportunity for growth as it is fighting hard to encourage the government to enforce its nation’s credit loss.
If this happens, it will create ample opportunities for Nucor and other steel makers driving the demands and sales for the steel products. It can be anticipated that it will happen soon as the commerce department has recently released decisions regarding anti-dumping duties on oil country tubular goods imported from Korea.
Moving ahead, Nucor is seeing further opportunities from the piling business. It is making aggressive investments in this area and thinks it will strengthen its market position in the piling business. Further, Nucor is expecting better synergies from a successful acquisition of piling distributor Skyline Steel in 2012. In addition, Nucor has a aggressive raw material strategy and in that it has taken some major steps by successfully starting the Louisiana DRI plant. This is not just enough for Nucor, it is also polishing its ability to grow in higher value added sheet and plate in SBQ markets.
Nucor is expecting good contribution from its raw material strategy. This will help Nucor to improve its long term cost structure. It will further lower the operating costs of its mills through reduced usage of consumables and energy, driving its productivity to a better level. With the significant investments that Nucor is making, it is pleased with the success of its strategic growth plan. The goals of its growth plan is to increase its market share by increasing its tons produced, increasing profits per ton, and adding resiliency to its business against the impact for global steel making overcapacity.
Conclusion
Nucor looks reasonable with considerable valuation levels. The stock is cheap with trailing P/E 28.57 and with the forward P/E of 14.77. Nucor is also showing good earnings growth. It can also be a good long term holding as its earnings for next five years are expected to grow at a rate of 39.69%. Considering all these facts, I would like to suggest the investors to think of including Nucor in their portfolios.
