Can Nucor Overcome the Struggling Steel Market?

On Thursday, Nucor will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

The steel industry has gotten crushed lately, as slowing growth in emerging markets and economic concerns across the globe have weighed on demand for the metal. Nucor has held up quite well compared to many of its industry peers, but can the company keep defying macroeconomic trends and keep delivering strong profits? Let's take an early look at what's been happening with Nucor over the past quarter and what we're likely to see in its quarterly report.

Stats on Nucor

Source: Yahoo! Finance.

Can Nucor strengthen its earnings this quarter?
In recent months, analysts have lost a lot of confidence in Nucor, cutting their earnings estimates for the just-ended quarter by more than half. They've also reduced their full-year 2013 earnings-per-share consensus by more than $0.60, yet even with those big adjustments, the stock has only lost 4% of its value since early January.

Nucor has already given investors a flavor of what's coming in its report, as it gave early guidance last month that was well below what analysts had hoped to see. The company usually sees a seasonal uptick in the first quarter as construction season starts, but this year, attempts among many steel companies to boost prices led to restrained demand even though those attempts proved largely unsuccessful. Nucor's guidance was consistent with what AK Steel said a week later, as it expected steel shipments to fall by 7%-10% compared to the fourth quarter.

In addition, one tailwind that had been helping Nucor appears poised to disappear. The company relies on natural gas throughout the steel manufacturing process and expects its use to rise substantially when it finishes building a new direct reduced iron facility. Low gas prices have helped Nucor stay competitive, even leading the company to build a new Louisiana plant to take advantage of locally available gas. Yet even though the company made a deal with Encana to take a 50% interest in some gas wells that Nucor hopes will give it 20 years' worth of gas supplies for its mills, recent price increases could still potentially hurt Nucor.

Still, strength in the automotive sector could help pull Nucor out of its funk. Steel Dynamics said last month that despite flat overall earnings expectations, automotive sheet steel was fairly strong, as were supplies for railroads and for home and commercial construction. Nucor is also well-positioned to take advantage of those trends, especially if Ford and General Motors can continue to do well.

In Nucor's earnings report, watch for the company to talk about any signs of rising industrial activity both in the U.S. and abroad. Even with so many investors focusing their attention squarely on China, you can't afford to ignore domestic considerations in assessing Nucor's future prospects.

Nucor relies on strength in the auto industry, and Ford has helped with its big turnaround. Moreover, the Blue Oval still has big growth opportunities ahead. We've outlined those opportunities in detail, in the Motley Fool's premium Ford research service. If you're looking for some freshly updated guidance to Ford's prospects in coming years, you've come to the right place -- click here to get started now.

Click here to add Nucor to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

The article Can Nucor Overcome the Struggling Steel Market? originally appeared on Fool.com.

Motley Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends Ford, General Motors, and Nucor. The Motley Fool owns shares of Ford. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.