Nucor Corporation Preannounced Record Q2 Earnings, but What’s Ahead?

Inflation is rapidly growing, and that impacts many commodities including steel despite slowing down of the U.S. housing market. Nucor (NUE) preannounced record Q2 earnings, noting that it expects its EPS to come in at the mid-point of $8.80 meaning an increase of 14.7% from $7.67 reported in Q1 2022, and estimated 13% RoE.

Nucor is a well-positioned U.S. steel manufacturing company, with solid near-term prospects. However, that being said, there's a lot of future uncertainty. Least of all, steel prices have fallen by around 5% only through the past week because of pervasive fears that the U.S. is about to enter a recession. However, at the flip of a coin, there is even greater fear of protracted inflation that has been pushing commodities prices higher and higher.

Nucor's balance sheet at the end of Q1 had approximately $2.4 billion of net debt (total debt is around $5.34 billion) reflecting a 0.824 debt-to-equity ratio. Given that Nucor made approximately $2 billion of free cash flow during Q1, it may translate into Nucor's free cash flow in Q2, which was a record quarter as it was already mentioned, at least to the tune of $2 billion of free cash flow.

This means that Nucor will be able to drastically cut its debt, showing approximately $1 billion in net debt on the company's balance sheet, after returning capital to shareholders. Indeed, Nucor repurchased approximately $900 million worth of stock in Q1. Also, Nucor repurchased $803 million worth of stock in Q2. So this stock may be worth a try to be used as a portfolio diversification component.