Steel company Nucor Corporation (NYSE: NUE) stirred the market sentiments after delivering upbeat results for the second quarter of 2022. Also, the company hinted at securing a profitable third quarter. NUE stock rose 9% to close at $128.52 on Thursday.
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Its earnings beat in the quarter was 10.7% and the sales surprise was 1.6%.
A Snapshot of Nucor’s Q2 Results
Nucor’s earnings stood at $9.67 per share in the quarter, above the consensus estimate of $8.73 per share. The bottom line grew 91.9% year-over-year and 26.1% sequentially. Earnings in the first half of 2022 were $17.30 per share.
Nucor’s President and CEO, Leon Topalian, said that the company’s earnings per share in the second-quarter and first-half of the year represent “new records.”
“Nucor’s differentiated business model is yielding exceptional results,” Topalian added.
Revenues were $11.79 billion, higher than the consensus estimate of $11.6 billion and roughly 34.2% above the year-ago tally. A year-over-year increase of 44% in the average sales price (per ton) more than offset the impact of a 7% decline in total shipments to outside customers.
Nucor’s operating results benefited from an increase in revenues, while a 21.8% rise in the cost of sales and a 45.5% surge in operating expenses played spoilsports. Operating income in the quarter grew 72.3% to $3,490.4 million. The operating margin was at 29.6% versus 23.1% in the second quarter of 2021.
Operating earnings increased 29.5% year-over-year for the Steel Mills segment, 335.7% for the Steel Products segment, and 119.4% for the Raw Materials segment.
Capital Allocation
In the first half of 2022, Nucor’s net cash generation from operating activities was $4,733.7 million, while its cash and cash equivalents at the end of the period were $2,002.7 million.
Of the available cash, Nucor used $968.8 million on capital expenditure and $506 million on debt repayments in the first half. Its long-term debt balance is $6,621.7 million. Also, the company used $272 million for paying dividends and $1,707.9 million to acquire treasury stocks.
A Solid Quarter Ahead for Nucor
Nucor anticipates solid profitability in the third quarter, driven by sequentially in-line results in the Steel Products segment and improvement in the Raw Materials segment. However, earnings of the Steel Mills segment are expected to fall from the previous quarter, due to weak prices and volumes.
The company anticipates posting all-time high profits in 2022.
Wall Street’s Take on NUE Stock
Following the earnings release, David Gagliano of BMO Capital maintained a Hold rating on Nucor while increasing the price target to $130 (1.1% upside potential) from $115.
“Following 2Q’22 results, we are raising estimates (continued strength in downsteam steel products, resilient long products, and the 2Q’22 beat), and we are raising the target price to $130 from $115,” said Gagliano.
Overall, the company has a Hold consensus rating based on one Buy, six Holds, and one Sell. NUE’s average price target of $131.57 suggests 2.37% upside potential from the current level. Shares of Nucor have increased 36.9% over the past year.
Retail Investors Shy Away from NUE Stock
According to TipRanks, the investor sentiment on NUE is Negative. In the last 30 days, portfolios with exposure to NUE stock have decreased by 0.2%.
Key Takeaway for Nucor’s Investors
Record earnings in the second quarter and expectation of solid profitability, especially in the steel products business, in the third quarter could help boost the investment appeal of NUE stock. However, the softness in steel mills might be concerning for investors.
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