This morning Nucor Corp. ( NUE) , the U.S.'s largest steel producer, reported June quarter results that saw its EPS soared to $2.13 per share beating consensus estimates of $2.09 per share. This marked the second highest quarterly earnings in company history and came on the back of a 25% year over year increase in revenue. Breaking down that double digit revenue increase, 7% was volume related with the balance - some 17% - due to higher steel prices. With President Trump announcing a 25% tariff on imported steel, as well as a 10% tariff on aluminum, from China, Canada and the EU back in March, we've seen a sharp move higher in steel prices as well as other building materials such as lumber, drywall and concrete.
What's more noteworthy, particularly on the heels of aluminum producer Alcoa ( AA) cutting its profit forecast for the back half of 2018, is that Nucor did not. Rather the company forecasted September quarter earnings to improve compared to the June quarter given its expectations for continued strength at its steel mills business paired with margin expansion at both its sheet and plate mill businesses.
Yet Nucore shares are selling off albeit modestly today, and that likely reflects today's news that the EU will introduce tariffs of 25% on U.S. steel and aluminum imports. As one might suspect, those tariffs are a direct response to measures enacted by President Donald Trump's trade commission. While they may further boost the market price of steel and aluminum, the question being pondered by the market is what the impact will be on demand volume for those commodities? Sure higher prices wil help boost margins and the bottom line, but we'd rather see the extra earnings leverage to be had from a combination of rising prices and growing demand.
That likely has investors pondering Nucor's September quarter guidance, which as we saw in its press release talked about its earnings expectations for the September quarter, not its revenue forecast. Even during a regular earnings season, we would want to triangulate Nucor's revised outlook against its competitors, such as US Steel ( X) , AK Steel ( AKS) and Steel Dynamics ( STLD) , as they report their quarterly earnings. Given the tariff dynamics at play, that triangulation is warranted now more than ever to suss out the puts and takes between domestic demand and pricing vs. the crimp to be had in export demand.
Over the last four months, NUE shares have been inside a trading range between $60-$67 and with today's share price, they are smack in the middle of that range. With uncertainty in the front view mirror, odds are the shares will continue to move within that trading range until we have some clarity on how much these new tariffs will impact demand or we some resolution to what is increasingly shaping up to look like a full out trade war.
