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Nucor Net Trails Estimates on Unexpected Price Drop

Nucor Corp., the largest U.S. steelmaker, reported third-quarter profit that trailed analysts’ estimates because of lower-than-expected selling prices. The company said the current quarter may be more challenging.

Net income was $23.5 million, or 7 cents a share, in the three months ended Oct. 2, compared with a net loss of $29.5 million, or 10 cents, a year earlier, Charlotte, North Carolina- based Nucor said today in a statement. The average estimate of 10 analysts surveyed by Bloomberg was for profit of 10 cents a share, the top end of a range that Nucor forecast on Sept. 14. Sales rose 32 percent to $4.14 billion.

Nucor, led by Chief Executive Officer Dan DiMicco, said the company ran its mills at 68 percent of capacity, compared with 71 percent in the second quarter. The company’s prices rose through July and then fell more than expected in August and September, said Michelle Applebaum, who runs Chicago-based equity research company Michelle Applebaum Research.

“Their prices were $30 a ton less than what I was forecasting, and that impacted margins,” Applebaum, a former analyst at Citigroup Inc., said in a telephone interview. “We have never seen this kind of price volatility in the steel industry before.”

Average third-quarter prices for hot-rolled steel coil, a benchmark product used in cars and buildings, were about $564 a ton, 18 percent higher than a year earlier, according to data compiled by Metal Bulletin. Average prices slipped 11 percent from the second quarter.

Global ‘Uncertainty’

Nucor said there is “increased uncertainty” about the U.S. and global economies.

“The fourth quarter may indeed turn out to be the most challenging quarter of the year,” Nucor said in the statement.

Prices for steel scrap in the current quarter will be unchanged to “slightly higher” compared with the third quarter, Chief Operating Officer John J. Ferriola said today on an earnings conference call.

Nucor fell $1.49, or 3.8 percent, to $37.89 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have dropped 19 percent this year.

Reliance Steel & Aluminum Co., the largest U.S. metal service center, also reported earnings that trailed analysts’ estimates. Third-quarter net income rose 17 percent to $48.7 million, or 65 cents a share, from $41.8 million, or 57 cents, a year earlier, Los Angeles-based Reliance said today in a statement. The average estimate of nine analysts surveyed by Bloomberg was for profit of 72 cents a share.

Reliance Forecast

Reliance forecast fourth-quarter profit of 35 cents to 45 cents a share, trailing the 73-cent average estimate of eight analysts surveyed.

The third-quarter results were a function of falling steel prices compounded by Reliance’s “first-in, first-out” method of inventory accounting, Applebaum said.

“I call it the LIFO quarter from hell,” she said.

Reliance fell $1.10, or 2.6 percent, to $41.36 in New York Stock Exchange composite trading. The shares have dropped 4.3 percent this year.

Nucor said LIFO accounting reduced its third-quarter earnings by $50 million, compared with a $120 million credit a year earlier.

Nucor has posted four consecutive quarterly profits since reporting losses through the first three quarters of 2009.

U.S. Steel Corp., the second-biggest U.S.-based steelmaker by market capitalization, and West Chester, Ohio-based AK Steel Holding Corp. are scheduled to report quarterly results on Oct. 26.

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