Nucor (NUE) Blows Up on Lowered Guidance

By: TraderMark Tuesday, March 17, 2009 6:44 PM

Article Author

Bio and Articles
Author's Website

Vote for next session

The next market session will close:

We are really timing our stories quite perfectly of late - we talked about the pain in solar this weekend, than last night Energy Conversion Devices (ENER) blew up; we wrote about the hype that is "China will lead us back" and how steel companies are jumping the gun based on "hope/thesis" just yesterday (Mar 16: WSJ - Some Steelmakers Jump the Gun in Response to Stimulus)- and lo and behold Nucor (NUE) blows up today. This is the problem you have by investing with the horde that is basing their purchase on nothing other than thesis. When reality strikes, you lose a lot of money in a flash. The big theme you will begin to hear as we move forward this year is the following: "we are looking for less worse than the previous economic report/quarter.... when things start to become less worse than the 2nd derivative play is to begin piling into early cycle stocks because the recovery is coming soon". Again, I've outlined why I think this recovery will be weak - and that will be the big surprise of the coming 12-24 months. We will have a government inflated bump in GDP sometime between quarter three 2009 and quarter two in 2010. That's just government spending and Federal Reserve flooding of the system with money. It won't be true health. But the stock market at some point will jump on "2nd derivative improvement!" (i.e. it's not good but it's less horrific than last quarter!)

But as you can see with Nucor - if you drink that Kool Aid, you are prone to being smashed. As my thoughts evolve my working thesis now is a double dip recession akin to late 70s/early 80s. The only reason you will see any pop is the massive amounts of dollar stolen from your grandchildren and borrowed from our overseas creditors to give you an illusion of health that is coming in the next few quarters. Then we'll sag again. But I do believe as Americans move back to a 8%+ type of savings rate, the government will once again come back to us in less than a year saying we need to borrow/spend another $750 Billion plus... yes kids, it will be stimulus time (again).

Anyhow, Kool Aid time... all the stimulus by China and America will surely be a boon to steelmakers as we build projects left and right. Remember, the only people who have visibility are pundits and traders who tell us of "recoveries" around the "bend". This now marks 3rd company in the metal space (a space traders have been piling in to front run the "recovery") who say things are bad and they have no visibility. (RTP, AA, NUE) We've seen this over and over and over the past year+ as trader and investors live in some parallel universe of "pending recoveries based on hope" - remember they know better than company CEOs. Thesis baby.

Steelmaker Nucor Corp (NUE) warned on Tuesday it would sink to a first quarter loss as the slumping economy sapped demand for the metal, forcing it to cut output and sending it shares down more than 10 percent.
"The economy has fallen off a cliff -- and there is no visibility as to the timing of the recovery," Nucor Chairman, Chief Executive and President Dan DiMicco said in a statement. (unless you are a pundit)
The company expects to post a first quarter loss of 55 cents to 65 cent per share, far below the $1.41 per share it earned in the year-ago quarter and the 34 cent profit it posted in the fourth quarter.
The company had previously expected marginally better earnings than the fourth quarter, but customer orders continued to weaken, pressuring prices in all its product lines.
Its overall steel mill utilization rate would decline to about 43 percent in the first quarter from the 48 percent run rate in the fourth quarter.
Nucor's statement came a day after aluminum giant Alcoa Inc (AA) said it would slash its dividend, seek to raise capital and trim its future spending to cope with the moribund metals demand.

No position; short Kool Aid

Bookmark:
Email
Print


3/18/2009 11:40:54 PM ceo by gerald pines The Nucor story is reflected in what is going on in the steel industry........promises that they would cut production and would hold their pricing firm followed by an almost immediate 50% drop in selling prices to the distributors who had just loaded up in 2008 with material. Nucor and SDI tie their pricing in with scrap costs because the are 90% scrap....the integrateds who are only 25% scrap dependent don't need to do the same. Not only will the mills bankrupt themselves they will bankrupt everyone along the supply chain with the rapid price decreases. Interesting that they ramped their prices up quickly as demand increases and reduce pricing when demand diminishes. Nucor has always been a price leader, rarely considering the effect of price decreases on the distribution network that sells 30% of the material consumed in the US. When we have little or no real import threat in the US today, why throw the distributor under the bus during leaner times. What happened to orderly pricing? Nucor is a smart company........not certain that they took over the scrap companies at an opportune time but they didn't know that scrap was going to nose dive from $.40/lb to $.06/lb almost overnight. Nobody, including Nucor will come out of this market price but 50% price cuts doesn't really help the companies with inventory. Forty five years in the business and I still can't figure this crowd out. Glad I don't have more than a few years left. Reply Rating: (0) (0)

The Nucor story is reflected in what is going on in the steel industry........promises that they would cut production and would hold their pricing firm followed by an almost immediate 50% drop in selling prices to the distributors who had just loaded up in 2008 with material. Nucor and SDI tie their pricing in with scrap costs because the are 90% scrap....the integrateds who are only 25% scrap dependent don't need to do the same.
Not only will the mills bankrupt themselves they will bankrupt everyone along the supply chain with the rapid price decreases. Interesting that they ramped their prices up quickly as demand increases and reduce pricing when demand diminishes. Nucor has always been a price leader, rarely considering the effect of price decreases on the distribution network that sells 30% of the material consumed in the US. When we have little or no real import threat in the US today, why throw the distributor under the bus during leaner times. What happened to orderly pricing? Nucor is a smart company........not certain that they took over the scrap companies at an opportune time but they didn't know that scrap was going to nose dive from $.40/lb to $.06/lb almost overnight. Nobody, including Nucor will come out of this market price but 50% price cuts doesn't really help the companies with inventory. Forty five years in the business and I still can't figure this crowd out. Glad I don't have more than a few years left.

Rating: (0) (0)

Post Comment

Name:

Alert for new comments:

Your email:

Your Website:

Title:

Comments:

The above story is the opinion of the author only and it does not reflect iStockAnalyst opinion. Further, the author is not personally advising you regarding the suitability of the story for your investment needs. In no event iStockAnalyst will be liable for any loss or damage including without limitation, indirect or consequential loss or damage, or any loss or damage whatsoever arising from or arising out of, or in connection with the use of this information. Please consult your investment advisor before making any investment decision.

Related Stories