Steel stocks are mixed after a crop of profit warnings for the second quarter. Bonds are unfazed.

By Ciara Linnane

U.S. Steel, Steel Dynamics and Nucor are expected to be dinged by pressure on prices

Steel stocks were mixed on Monday after a crop of steel companies issued profit warnings for the second quarter amid pressure on prices.

U.S. Steel Corp. (X) reversed early losses to trade up 0.7% in early trading. The Pittsburgh-based company said it now expects second-quarter per-share earnings to range from 76 cents to 80 cents, while FactSet is expecting 77 cents.

The company said it expects adjusted Ebitda - earnings before interest, taxes, depreciation and amortization - of about $425 million, at the lower end of its guidance.

The guidance "reflects stable domestic flat-rolled steel end-use demand despite a dynamic spot steel pricing environment," the company said in a statement.

In Europe, U.S. Steel recently restarted a temporarily idled blast furnace in response to improving customer demand.

"As expected, challenging market conditions are negatively impacting the Tubular segment's performance," the statement said.

The company is still working to close its planned deal with Nippon Steel Corp. and has obtained approval from shareholders and non-U.S. regulators.

"We continue to work towards the remaining U.S. regulatory approvals, and look forward to closing the transaction that will bring advanced technologies to U.S. Steel to support a stronger domestic steel industry with enhanced competition and will strengthen national security, economic security and job security," the company said in the statement.

See also: Nippon Steel delays closing of U.S. Steel acquisition after Justice Department request

Separately, Steel Dynamics Inc.'s stock was up 1% after shedding early losses, after the company also issued a profit warning for the second quarter, citing pressure on prices.

Profitability from the company's steel operations "are expected to be meaningfully lower than sequential first-quarter results, based on lower realized pricing offsetting steady shipments," the company (STLD) said in a statement. "Underlying domestic steel demand remains intact although steel buying hesitancy has resulted from a weakening scrap price environment."

The Fort Wayne, Ind.-based company is now expecting second-quarter earnings per share between $2.64 and $2.68, down from $3.67 in the first quarter and $4.81 in the year-earlier period. The current FactSet consensus is for EPS of $2.98.

The automotive, nonresidential-construction, energy and industrial sectors are still leading demand, the company said.

Earnings from the company's metal-recycling business are expected to be higher than in the first quarter, driven by stronger volume in ferrous and nonferrous metals.

Earnings from the company's steel-fabrication operations are expected to be in line with first-quarter numbers, based on increased shipments offsetting lower realized pricing.

But the nonresidential-construction segment remains strong, as the steel joist and deck order backlog volume extends into the fourth quarter and comes with solid pricing.

"In addition, the continued onshoring of manufacturing, coupled with the robust U.S. infrastructure program and industrial buildouts, support strong demand in the coming years," the company said.

Steel Dynamics bought back $247 million, or 1.1%, of its outstanding common stock in the quarter.

On Friday, Nucor Corp. (NUE) warned of a second-quarter earnings shortfall, citing weakness in its steel-mill business.

The downbeat earnings outlook comes after the company reported first-quarter profit that fell below expectations, marking the first miss in six quarters and just the second miss in 19 quarters.

That stock was down 1% early Monday.

Bonds issued by all three producers were taking the profit warnings in stride and all were seeing net buying after the Nucor warning on Friday, as the following chart from data-solutions provider BondCliQ Media Services shows.

For more, read: Steelmaker Nucor's stock extends selloff after a profit warning

Spreads and prices on the bonds have been steady for the past two weeks, as the following two charts illustrate.

The bonds are offering some generous yields, especially those issued by Steel Dynamics and Nucor, which are investment-grade issuers, while U.S. Steel has a junk-bond BB rating from S&P Global Ratings.

-Ciara Linnane

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06-17-24 1352ET

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