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What's in Store for Nucor (NUE) this Earnings Season?

Nucor Corporation NUE is gearing up to release its first-quarter 2016 results ahead of the bell on Apr 21. 
 
The company performed exceptionally well last quarter, beating its own guidance of 15–20 cents and the Zacks Consensus Estimate of 22 cents, reporting earnings of 46 cents per share, after adjusting for impairment charges. The company has posted positive earnings surprises in each of the trailing four quarters with an average beat of 65%, including a whopping 109.09% surprise in the previous quarter. 
 
However, including the impairment charges, the company reported a loss of 19 cents per share in the quarter. Revenue for the quarter fell by double digits year over year, and presented a negative surprise of 4.95%. 
 
Let’s see how things have shaped up for the forthcoming announcement. 
 
Factors at Play
 
Nucor expects earnings for the March quarter to be comparable to that of first-quarter 2015. The projection of 20–25 cents per share for the quarter includes a LIFO expense of 3 cents per share. 
 
Nucor had stated expectations of improving conditions from the beginning of the quarter in the steel mills segment. The steel segment is likely to benefit from more balanced inventory levels at service center customers and decreased imports in the to-be-reported quarter. However, the slowdown in nonresidential construction brought about by winters will prevent excessive revenues this quarter. 
 
The reduction in the average price of raw materials should be felt as an added benefit from this quarter. Additionally, a lower cost of inventory will aid gains in the steel mills segment. Demand in the agriculture, heavy-engineering and general manufacturing sector remain low but stable, while the automotive industry is seeing a strong and rising demand. Nucor’s existing cost structure should bring about an improvement in earnings from these sectors. 
 
The company is strongly impacted by the foreign trade market. The price of imported steel continues to be cheaper, particularly from China, which makes it difficult for Nucor to compete. With a number of trade cases being underway, preliminary duties have been announced by the U.S. Department of Commerce. The final decision by the commerce department to prevent steel dumping will be beneficial to the company later. 
 
The capricious oil prices have left major customers of the company in turmoil, forcing them to reduce operations and inventories. The prices are expected to stabilize by the second quarter of 2016, and will likely impact the company adversely in the first quarter. Hence, the company is cautious about the quarter and aims to maximize its long-term earnings and shareholder value by making incremental investments. The company has allotted $500 million for capital expenditure this year. 
 
Overall, the company anticipates the steel industry to improve compared to the last few years but not much of the impact is expected to be felt in the to-be-reported quarter, as the prices are slow to pick up. However, the cost-cutting strategies that the company implemented in the past will ensure a positive return now. The company anticipates the March quarter to set in motion its increased sales and EPS for the following quarters so that full-year 2016 sees higher gains than 2015.
 
Earnings Whispers 
 
Our proven model does not conclusively show that Nucor is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at the very least 3 (Hold) for this to happen. Unfortunately, as elaborated below, it is not the case with Nucor this quarter. 
 
Zacks ESP: The Earnings ESP for Nucor is -3.57%. This is because the Most Accurate Estimate is 27 cents, while the Zacks Consensus Estimate stands at 28 cents. 
 
Zacks Rank: Nucor has a Zacks Rank #3, which increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.
 
Stocks That Warrant a Look 
 
Here are some companies in the same space you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
 
Coeur Mining, Inc. CDE has an Earnings ESP of +18.75% and a Zacks Rank #2.
 
Ryerson Holding RYI has an Earnings ESP of +60.00% and a Zacks Rank #3.
 
TimkenSteel Corporation TMST has an Earnings ESP of +6.98% and a Zacks Rank #3.
 
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COEUR MINING (CDE): Free Stock Analysis Report
 
NUCOR CORP (NUE): Free Stock Analysis Report
 
TIMKENSTEEL CP (TMST): Free Stock Analysis Report
 
RYERSON HOLDING (RYI): Free Stock Analysis Report
 
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