After Steel Dynamics (STLD, Financial) issued Q4 EPS guidance below expectations, Nucor (NUE, Financial) followed with its own disappointing Q4 EPS forecast of $0.55-$0.65. This guidance reflects ongoing challenges from decreasing volumes and lower selling prices in its steel mills segment. In its Q3 report on October 21, NUE had already warned of lower Q4 earnings compared to Q3's EPS of $1.05, due to these pressures.
Despite a brief selloff post-earnings, NUE saw renewed hope with Donald Trump's election on November 5. Expectations rose that foreign steel supply would slow under new tariffs, potentially increasing steel prices. Additionally, anticipated interest rate cuts in 2025 were seen as positive for steel demand, making construction projects and other products more affordable.
- However, these hopes have not materialized. Since the election, NUE shares have dropped 27%, hitting multi-year lows, as interest rates remain high, suppressing steel demand.
- During its Q3 earnings call, NUE acknowledged that while recent Federal Reserve rate cuts are helpful, more relief is needed. Until lending conditions improve, steel demand in industrial, construction, and consumer durables markets will likely stay weak.
- There are some areas of growth, particularly in AI-driven construction of data centers, semiconductor factories, and advanced manufacturing plants. NUE also expects new infrastructure spending to boost demand in the future.
- NUE is working to reduce reliance on cyclical businesses by investing in its higher-margin steel products segment, which serves data centers, decking, doors, highways, agriculture, and more. This segment accounted for 42% of NUE's pre-tax earnings in the past year, significantly higher than historical averages.
In light of STLD's weak guidance, NUE's Q4 EPS outlook is not surprising but highlights the bearish sentiment affecting the stock and the steel industry. Until interest rates decrease and positively impact the economy, NUE and other steel stocks may struggle to gain sustainable upward momentum.
