Mining Profits...Investing In Industrial Metals

Another strong quarterly earnings report by steelmaker and scrap metal recycler Nucor Corp. sent the company's share price higher Thursday and spurred analyst optimism even in the face of worries about softer fourth-quarter demand.

On a conference call with investors, CEO Daniel R. DiMicco noted that the company has now met or exceeded earnings guidance for 13 straight quarters and credited the company's product mix _ which includes steel sheets, bars, beams, plates and value-added steel products like building systems _ with helping Nucor avoid short-term downturns.

"Because of our product line diversity, Nucor's short term performance is not tied to any one market," DiMicco said.

For the quarter ending Sept. 30, Nucor reported net earnings of $517.6 million, or $1.68 per share. That was up 77 percent over the $291.9 million, or 93 cents per share, earned in the third quarter of 2005.

For the first nine months of 2006, earnings totaled $1.35 billion, or $4.33 per share, an increase of 39 percent over the first nine months of 2005 _ and a sum greater than the company's earnings for all of 2005, Nucor said.

Consolidated net sales totaled $3.93 billion for the quarter, up from $3.03 billion in the third quarter of 2005.

The results beat Wall Street expectations for profit of $1.56 per share on sales of $3.88 billion, according to a poll by Thomson Financial. Nucor shares rose 40 cents to close at $54.70 on the New York Stock Exchange.

While DiMicco expects a some reduction in fourth-quarter shipments due to lower seasonal demand and customers reducing inventory overstocks due to a flood of imports, he predicted margins will remain strong.

"Most importantly, underlying demand trends are very positive heading into 2007," he said. "Our confidence has never been greater that Nucor's best years are ahead of it."

Timna Tanners, an analyst with UBS Investment Research in New York, held Nucor at a "neutral 2" rating and in a note to investors wrote, "While (Nucor's) diversification and variable cost structure should keep it relatively resilient, we see earnings stagnating on tougher market conditions, and expect investors to stay wary amid market softness."

Michelle Applebaum, an independent Chicago-based analyst, said she was raising her projection of Nucor's fourth-quarter earnings to $1.48 per share, above the consensus of $1.34 and a dime above Tanners' $1.38 estimate. Though the sheet steel business, which makes up about 40 percent of Nucor's sales, may be soft in the fourth quarter due to the inventory issues, Applebaum expects demand and margins for long steel products to remain strong.

"After a $1.68 (third quarter), even with the little bit of weakness we're seeing for sheet, I think consensus has to jump," Applebaum said in an e-mail.

For the third quarter, Nucor's average sales price per ton was up 23 percent over the third quarter of 2005 and up 7 percent over the second quarter of this year. The company said demand remained strong, as it shipped 5.6 million tons of steel to outside customers in the third quarter. That was an increase of 6 percent over the third quarter of last year, but a drop of 4 percent over the second quarter of this year.

Energy and scrap costs _ both key indicators for Nucor, which makes steel from recycled metal at its "minimill" operations across the country _ were up slightly over the second quarter. Scrap costs per ton rose 4 percent, to $257 in the third quarter, while total energy costs increased about $3 per ton from the second to third quarters.

Earlier this month, Nucor announced plans to expand operations in Memphis, Tenn., by adding a $230 million, 850,000-ton annual capacity mill there that will employ more than 200 people. Nucor, the nation's largest recycler, has operations in 17 states and has also announced this year a new $27 million Utah facility and an expansion of operations in Decatur, Ala.