Thursday, October 22, 2009

Sobering outlooks from the steelmakers (RS, NUE)

This morning's earnings releases from steelmakers Nucor (NUE) and Reliance (RS) are unpleasant, but important gauges of "real" demand in the industrial sector. After they both beat earnings estimates, the stocks are down about 3% due to cautious outlooks.

The companies point out that 3rd quarter results have rebounded nicely off dismal second quarter performances, but the comparison of 2008 vs 2009 3rd quarters is awful.

Nucor's results compared to last year's Q3:
-->>Revenue down 58%
-->>Average sales price per ton down 45%
-->>Total tons shipped down 24%

Reliance's results compared to last year's Q3:
-->>Revenue down 52%
-->>Net income down 72% to $41.8million from $152.5million
-->>Average price per ton down 34%
-->>Tons sold down 26%

Both companies view the sequential earnings improvements (Sept09 versus Jun09) at least partially due to customers re-stocking unsustainablly low levels of inventory. This improvement itself, is unsustainable, and is why the companies' forward-looking outlooks are very tempered.

Says Reliance - We are pleased with the significant improvement in our gross profit margins; however, we are uncertain as to business activity in the 2009 fourth quarter. Although we believe that demand is fairly stable at low levels, the fourth quarter is typically seasonally slower for us. Pricing also seems to be more stable than it was earlier in the year; however, we believe there may be some slight downward pressure on pricing for many of our products in the coming months. Because of this, we are not comfortable providing earnings guidance for the 2009 fourth quarter.

Says Nucor - Our view remains that there has been little improvement in real demand and the uncertainty in our economy is still very high. We also continue to believe that real demand is in for a long, slow recovery.

I previously mentioned that the materials companies were among firms saying that outside of government stimulus there was very little "real" activity going on. The steelmakers may be confirming that.

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