Summary
- Nucor reported consolidated net sales of $4.94 billion in third quarter 2013 and $5.70 billion in third quarter 2014.
- Nucor reported consolidated net sales of $5.29 billion in second quarter 2014 and $5.70 billion in third quarter 2014.
- The amount of steel Nucor shipped to outside customers increased by 6% between the second and third quarters.
- The tonnage of steel that Nucor shipped to outside customers in third quarter 2014 was 10% higher than the tonnage shipped in third quarter 2013.
- Nucor’s consolidated net sales in the first nine months of 2014 were 14% higher than consolidated net sales in the same period in 2013.
One of the best value buys in the market these days might just be in an industry most Americans think is history: steel. Nucor Corp (NYSE: NUE) has cashed in on America’s manufacturing renaissance and energy boom in a big way, putting out some impressive financials and displaying many of the attributes of a classic value stock in the process.
The most appetizing aspect of Nucor for value investors has to be to its financial numbers. Those numbers alone would make Nucor an attractive addition to any value portfolio:
- A TTM revenue of $21.05 billion on Sept. 30, 2014-a $2.39 billion increase from September 2013 when it reported $18.61 billion.
- A gross quarterly profit margin of 10.52% for the third quarter of 2014
- A quarterly profit margin of 4.3% for the third quarter of 2014
- A dividend yield of 2.74%
- A free cash flow of $371.78 million for the third quarter.
- A return on equity of 8.81% for the third quarter of 2014.
The financial numbers are complemented by the third quarter sales figures that Nucor released on Oct. 23, 2014. The sales figures show that Nucor’s market is growing and growing fast.
The highlights of Nucor’s 2014 third quarter sales figures include:
- A Nucor just reported a 15% increase in consolidated net sales over third quarter 2013.
- An 8% increase in consolidated net sales between second quarter 2014 and third quarter 2014. Nucor reported consolidated net sales of $5.29 billion in second quarter 2014 and $5.70 billion in third quarter 2014.
Steel Costs Fall While Prices Rise
Nucor is also making more money off that steel; it reported that the average sales price per ton increased by 4% in the past year. Meanwhile, the cost of scrap steel (Nucor’s raw material) fell by 1% between third quarter 2013 and third quarter 2014. A ton of scrap steel cost $384 in third quarter 2013 and $379 in third quarter 2014. Scrap prices have fallen because of lower demand from overseas markets like Turkey.
Although Nucor’s energy costs are increasing, total energy prices increased by $2 a ton in the first nine months of 2014. The cost was largely caused by higher natural gas prices.
The good news is that Nucor’s energy costs should fall over the next few months. The US Energy Information Agency (NYSEMKT:EIA) is predicting that the average price for an MMBtu (one million British Thermal Units) of natural gas at the Henry Hub in 2015 will be $3.84 compared to $4.45 in 2014. The EIA also expects that natural gas prices will remain below $4 per MMBtu through November.
It looks as if Nucor’s production costs are falling even as the prices it can charge customers are rising. Not a bad situation for a manufacturer to be in.
Nucor’s Business Strategy Is Paying Off
The sales and revenue figures are also validating Nucor’s business decision to steer clear of steel production for the auto industry. The Metal Miner’s Lisa Reisman estimated that less than 10% of Nucor’s production is targeted toward the auto industry. Instead, the company has concentrated on sales to the oil and gas industry, railcar manufacturers, and other infrastructure companies.
Automakers have been switching from steel to lighter materials like carbon fiber and aluminum, reducing the demand for steel in that sector. The body of Ford’s (NYSE: F) 2015 F-150 pickup truck is built out of aluminum instead of steel in order to cut 700 pounds from the vehicle to improve fuel economy. Other automakers, like BMW, are using carbon fiber bodies instead of steel in next generation vehicles.
In contrast, the demand for steel in the energy and rail sectors that Nucor services is growing. Nucor has expanded its footprint in the energy sector by purchasing Gallatin Steel Co. That $770 million deal makes Nucor America’s largest steel manufacturer. The price of plate steel used in oil and gas drilling increased by 15% over the past year, The Wall Street Journal reported. The cost of a ton of plate steel rose from $753 a ton in 2013 to $863 a ton in 2014.
Railcar manufacturers are also buying more steel in order to reinforce oil tank cars to comply with new federal relations, The Journal reported. Plate steel is one of the materials used to construct railcars.
The numbers show that Nucor is a value investment that is poised for a lot of growth as America’s energy sector and manufacturing booms. Steel is going to be with us for a long time, and Nucor is the best value in that sector today.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article. (More…)
Steel Is Real: Nucor Is A Great Value Buy - Seeking Alpha (registration)
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