Al Root
Steel stocks are slumping Tuesday after two producers reported weak first-quarter reports. Each disappointment was company-specific, however.
Monday evening, Cleveland-Cliffs reported adjusted earnings per share of 18 cents on sales of $5.2 billion. Wall Street was looking for earnings per share of 22 cents on sales of $5.3 billion, according to FactSet.
Shares were down 6.7% in early trading at $19.47, while the S&P 500 and Dow Jones Industrial Average were up 0.7% and 0.4%, respectively.
It's a large drop for a small miss. Counterintuitively, large buybacks might be the biggest reason for the decline. Cliffs bought back $600 million in stock in the quarter -- about 6% of total shares outstanding -- and authorized another $1.5 billion in share repurchase.
Cliffs is buying stock by adding debt. "We are surprised the scale of the buybacks, having (incorrectly) assumed that balance-sheet flexibility would be [the] number-one priority until the M&A backdrop was fully resolved," wrote Citi analyst Alexander Hacking in a Monday report.
Cliffs was in the running to buy United States Steel. Nippon Steel won the auction with a $55 all-cash offer, but the Nippon/U.S. Steel merger faces significant opposition from U.S. politicians.
Nucor stock was off 5.4% in early trading at $181.26. It reported first-quarter numbers Monday evening, too.
Nucor generated earnings per share of $3.46 on sales of $8.1 billion. Wall Street was looking for earnings per share of $3.67 on sales of $8.3 billion.
It's a miss, like Cliffs, but Nucor's was especially unexpected because Nucor provides updates throughout the quarter. Its late quarter guidance implied earnings per share of about $3.60, wrote Hacking in another Tuesday report.
"Disconcerting for such a historically conservative company and hopefully a one-off," added the analyst. He rates Nucor stock at Buy with a $240 target price.
Nucor's outlook for second-quarter earnings to decrease from the first was disappointing, as well. Wall Street had projected earnings per share of $3.64. Estimates will have to come down.
Steel prices are expected to be lower in the second quarter, pressuring earnings, wrote KeyBanc analyst Philip Gibbs in a Monday report. He rates Nucor stock at Hold without a price target.
Falling prices aren't good for any steel company. U.S. Steel shares were off 1.1% in early trading, while Steel Dynamics shares were down 2.2%.
Write to Al Root at allen.root@dowjones.com
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April 23, 2024 10:52 ET (14:52 GMT)
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