When it comes to the stock market earnings are my primary focus.  I don’t scour 10-Q’s because I enjoy reading them.  I read them because I know that a company’s ability to make money is the primary driver of its future stock price.  For those among us who believe the economy is bottoming I would urge them to read today’s press release from Nucor, one of the world’s largest steel producers:

Our revised guidance for a first quarter loss reflects continued deterioration in economic and market conditions. Customer demand has continued to weaken, with resulting downward pressure on orders, production rates and steel pricing in all of our product lines. Nucor’s overall steel mill utilization rate is expected to decline to approximately 43% in the first quarter from the fourth quarter of 2008 level of 48%. The dramatically lower production has further slowed the rate at which our sheet mills are consuming higher cost iron units, in particular pig iron inventories, which were purchased prior to the collapse in both the economy and scrap/pig iron pricing in last year’s fourth quarter. If these current production rates continue, the overhang from the high cost pig iron will impact our results through the second and third quarters of this year. The impact from higher cost scrap should disappear during the second quarter. Any improvement in order entry and operating rates will speed up our raw material destocking process with a corresponding improvement in earnings.

“The unprecedented speed and magnitude of the global economy’s decline to depressed levels not seen in our lifetime have presented severe challenges in 2009. The economy has fallen off a cliff — and there is no visibility as to the timing of the recovery. While the projected results for the first quarter are very disappointing, our team is responding to these challenges with the ‘can do’ attitude and determination of the Nucor culture. As always, we are focused on continual improvement in safety, quality, costs and taking care of our customers. With Nucor’s unrivaled position of strength in the steel industry, our team is working to continue Nucor’s long tradition of taking advantage of economic downturns to grow even stronger and reward our shareholders with attractive long-term returns.”

Nucor is at the heart of the global economy.  Steel demand is an excellent barometer of global economic health.  And the steel business is downright dreadful right now.  I would urge readers to be very careful heading into the earnings season that begins in April.  We are going to be reading comments like this left and right and it’s looking more and more like the market is going to be sitting on a very overbought precipice at that point. The global economy is unbelievably weak and the earnings picture is awful at best.

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