Steel Yourself for Earnings Season

By Brad Zigler

Real-time Monetary Inflation (per annum): 7.8%

It's going to be a busy week for earnings watchers. Especially those tracking the agricultural and steel sectors. Iowa's Terra Industries Inc. (NYSE: TRA), a producer of fertilizers and agrichemicals, is expected to announce first-quarter earnings of 43 cents a share Tuesday – about half its year-ago profit.

Analysts have also forecast a 75-cents-per-share loss for Ohio-based AK Steel Holding Corp. (NYSE: AKS) to be announced that same day, a negative 191% year-over-year turnaround.

On Wednesday, Steel Dynamics, Inc. (Nasdaq: STLD)'s numbers are due, followed by a slate of Thursday releases by Potash Corp. of Saskatchewan (NYSE: POT), Bunge Ltd. (NYSE: BG), Reliance Steel & Aluminum Co. (NYSE: RS) and Nucor Corp. (NYSE: NUE).

The late-week reports are expected to show an average 93% decline in year-over-year results, with the steel companies getting the worst of it. The deterioration forecast for the four steel companies noted averages 126%; aggregate earnings for the three agribusinesses are expected to drop 62%.

Year-over-year stock performance pretty much mirrors the earnings disparity. Since April 2008, the Market Vectors Steel ETF (NYSE Arca: SLX), an exchange-traded portfolio tracking the NYSE Arca Steel Index, has swooned 63%; the 44 issues proxied by the Market Vectors Agribusiness ETF (NYSE Arca: MOO) dipped 51%.

There's cold comfort in that if you're a fan of ag (agriculture) stocks. Still, your mood must have been lifted by the breakout reported last week in our Desktop piece, "Bunge Leads Agribusiness Breakout."

Don't think steel issues are moribund, though. While metal producers are flagging on a yearly basis, year-to-date, their performance is outstripping the ags' by 11%.

Steel (SLX) Vs. Agribusiness (MOO)

The steel issues' breakaway began about two weeks ago, a signal that investors may see steel issues as a relative bargain. A bargain before earnings are released? Perhaps the numbers won't be as bad as expected.

Comments

[Brad Zigler:]

Earnings surprises today consistent with the recent outperformance of the steel index over agribusiness: Terra Industries (TRA) earned 30 cents a share, 30% less than consensus expectations; AK Steel Holding (AKS) lost only 67 cents a share, a loss 11% smaller than Street forecasts.

Apr 21 03:16 PM