Nucor Corporation

Good day, everyone, and welcome to the Nucor Corporation fourth quarter of 2018 earnings call. As a reminder, today's call is being recorded. Later, we'll conduct a question and answer session, and instructions will come at that time. Certain statements made during this conference call will be forward-looking statements that involve risk and uncertainties. The words we expect, believe, anticipate, and variations of such words and similar expressions are intended to identify those forward-looking statements. which are based on management's current expectations and information that is currently available. Although NUCOR believes they are based on reasonable assumptions, there can be no assurance that future events will not affect their accuracy. More information about the risk and uncertainties relating to these forward-looking statements may be found in NUCOR's latest 10-K and subsequently filed 10-Qs, which are available on the SEC's and NUCOR's website. The forward-looking statements made in this conference call speak only as of this date, and Nucor does not assume any obligation to update them, either as a result of new information, future events, or otherwise. For opening remarks and introductions, I would like to turn the call over to Mr. John Ferriola, Chairman, Chief Executive Officer, and President of Nucor Corporation. Please go ahead, sir.

Good afternoon, and thank you for joining us for our fourth quarter earnings calls. and for your interest in Nucor. Other members of Nucor's executive team are also on the call today, including Jim Frias, our chief financial officer, Joe Stratman, our chief digital officer, Craig Feldman, responsible for raw materials, Lad Hall, responsible for sheet and tubular products, Ray Napolitan, responsible for engineered bar products, Dave Samosky, responsible for merchant bar and rebar products, Leon Topalian, responsible for beam and plate products. And Chad Udemark, responsible for fabricated construction products. Before we review our 2018 financial results, let me make a few comments about safety. Safety continues to be job number one for every NUCOR teammate. NUCOR safety incident rates are consistently below the national averages for comparable operations. almost always less than half of the nationwide figure. But we're not satisfied with that. Our goal is zero incidents in all NUCORP facilities. Our teammates remind each other regularly that they must work safely so that each of us returns home to our families at the end of every shift. So let me just take a moment to repeat what I say every time I visit a NUCORP facility. Nothing is more important than safety. Absolutely nothing. I want to thank all of our teammates for working safely and identifying and mitigating the risks in your operations. I appreciate your continued focus on driving our incident rates towards our ultimate goal, which always must be zero. Now I'll review some highlights from the year. Then Jim Frias will discuss our financial performance for the fourth quarter and for the year. The best way for me to sum up 2018 is this. It was a record year for Nucor. We posted record earnings per share and we shipped a record amount of steel. Strong economic growth fueled our record year. Tax reform and the ongoing efforts to reform the federal regulatory system took a good economy at the end of 2017 and made it even better. The Section 232 steel tariffs provided another tailwind for Nucor. Between the tariffs and the cumulative impact of the trade cases the industry has won in recent years on fairly traded imports to the U.S. market have declined significantly. Increased demand levels and lower imports generated approximately 6 million tons of added volume for the U.S. steel industry last year. Over the past decade, we have been positioning Nucor to take full advantage of an upturn in the steel market. During that time, we invested more than $9 billion to increase the company's peak earnings power. These investments enhanced our competitive strengths by building on our product diversity and market leadership positions. Our financial results demonstrate that NUCOR's disciplined strategy of investing for profitable growth is working. Here are just a few examples of how those investments are growing our company's earnings power and driving shareholder value creation. Our sheet mill group's 2018 pre-tax contribution was more than 80 percent greater than the group's prior record performance achieved during the previous steel industry's upcycle. During the economic downturn, Our sheet mill investments included the acquisition of Gallatin Steel, Decatur's galvanizing line, Berkeley's caster and hot mill upgrade, and Hickman's vacuum degasser. Our engineered bar products group also delivered record earnings last year, driven by strategic investments that expanded value-added product capabilities at our mills in Nebraska, Tennessee, and South Carolina. The plate mill group realized attractive returns because of the investments we made to add heat treating and normalizing capabilities at our Nucor steel Hereford and to add accelerated cooling capabilities at Tuscaloosa. The structural steel mill group is capitalizing on Nucor Yamato's expanded product portfolio that now includes high strength, low alloy beams and wider, lighter sheet pilings. Shipments of high strength, low alloy beams more than doubled in 2018 from the prior year level. This has been achieved after making our first shipments in late 2016 into this product market previously served exclusively by imports. Our downstream steel product segment delivered record earnings in 2018, powered by the impressive performance of the HSS and electrical conduit products acquisitions we completed in late 2016 and early 2017. Finally, significant earning gains were achieved by our David J. Joseph scrap business and both of our DRI plants. The Louisiana DRI facility established new annual records for plant uptime, production, and shipments in 2018. David J. Joseph's profitability was just shy of its record performance achieved during 2008's unprecedented raw materials market. Successful execution of DJJ's mill alignment and efficiency initiatives is enhancing the returns delivered by both our scrap recycling and steelmaking businesses. We continue to invest in Nucor's future in order to build on Nucor's long track record of delivering superior returns for investors. Over the course of 2018, we announced approximately $1 billion of value-enhancing investments to build new mills, expand production capacity at existing mills, and advance new-course technological capabilities. In 2019, we have already announced another $1.3 billion investment to build a modern, state-of-the-art plate mill in the U.S. Midwest. which I'll discuss in greater detail shortly. In the coming year, we expect to complete many of these high-return initiatives, which will grow our steelmaking capabilities in both long and flat products. Six projects will begin operations this year that represent approximately $1 billion in capital investment and will create approximately 700 new full-time jobs at Nucor. We are excited to begin realizing the benefits of these value-enhancing investments. Many of you joined us earlier this month for the announcement of our newest growth initiative, a state-of-the-art plate mill to be located in the Midwest. The mill will have an annual capacity of 1.2 million tons, and it's expected to be operational in 2022. This investment will position us right in the heart of America's largest plate-consuming region, which will give us logistical advantages over our competitors. It is also a region with excellent scrap availability. The new mill will allow us to produce 97% of the plate products demanded in the domestic market, including the highest margin products, enabling us to build a clear market leadership position in the U.S. plate market. With these investments, NUCOR will be well-positioned to capitalize on regional market opportunities and drive continued profitable growth. We will post a status update on our major investment initiatives on the investor relations page of our website later today. As we begin 2019, we are encouraged about the outlook for our domestic end-use market. In fact, we see improving market conditions in 20 of the 24 end-use markets we participate in today. Three of the remaining four are stable, and one is declining as we head into 2019. 2019 is expected to be another solid year for automotive sales, and Nucor plans to continue growing our share of this important market. In construction, We expect low single-digit growth this year, and we have a strong presence in this market, from highways to HVAC. Despite recent volatility in the energy market, market demand for line pipe will continue to grow as longer mileage projects get underway. We look forward to expanding our Gallatin mill in order to produce the API grades required by this market. And in the heavy equipment and agricultural markets, We continue to experience healthy demand and high replacement needs. 2018 was an extraordinary year, and while we are proud of Nucor's continued success, we remain focused on taking care of our customers, executing our growth strategy, and delivering even higher returns on our invested capital. Jim Frias will now provide more specific detail about our fourth quarter performance and financial position. Jim?

Thanks, John. NUCOR reported fourth quarter 2018 earnings of $2.07 per diluted share and full year 2018 record earnings of $7.42 per diluted share. Fourth quarter results exceeded the top end of our guidance range by about 12 cents per diluted share due to stronger than expected performance by our sheet structural and raw materials businesses. 2018 record annual earnings represent an increase of 24% compared to our previous earnings record of $5.98 per diluted share reported in 2008. Our strategy for profitable growth is working. Nucor continues to benefit from our long-standing tradition of investing opportunistically through economic cycles to grow long-term earnings power. Nucor also generated exceptionally strong cash flow over the course of 2018. For the year, cash provided by operating activities totaled approximately $2.4 billion as compared with 2017's operating cash flow of approximately $1.1 billion. These results, combined with our disciplined approach to capital allocation, enable us to return more than $1.3 billion to shareholders via dividends of $485 million and share repurchases of $854 million. After repurchasing 13.7 million shares last year, Nucor ended 2018 with approximately 306 million shares outstanding. $1.5 billion remains available under Nucor's existing share repurchase authorization. In addition, in December, Nucor's board increased our regular quarterly cash dividend by more than 5% to 40 cents per share. Our company has increased its base dividend for 46 consecutive years, every year since we first began paying dividends in 1973. Nucor's long-term success in rewarding our shareholders has been and will continue to be driven by effective and balanced capital allocation. Our ongoing investments to deliver future profitable growth are the vital foundation to that work. For 2019, we estimate capital expenditures of approximately $1.8 billion. That represents a significant increase from 2018 capital spending of approximately $1 billion. Approximately 70% of planned 2019 capital expenditures are for expansion, product improvement, and cost savings projects, with the remaining 30% for replacement or maintenance purposes. As John has already noted, NUICOR has announced 10 significant growth projects that represent total capital investment of approximately $3.5 billion that will begin operations between 2019 and 2022. Of these capital outlays, approximately $600 million has been spent through 2018. An estimated $900 million will be spent in 2019, and the remaining investments of about $2 billion will occur through the end of 2022. We are excited about the impact that these investments will have for Nucor and all its stakeholders. We are directing our capital very strategically towards clear market opportunities and expect these projects to provide incremental EBITDA exceeding $600 million during normal market conditions. Nucor is already among the most diversified steel producers in the world, with leadership positions in numerous products, regions, and end-use markets. These investments will enhance those leadership positions and position Nucor to outperform the industry for many years to come. We intend to fund these investments with internally generated cash flow and plan to continue returning a minimum of 40% of our earnings to our shareholders while maintaining our strong financial condition. With respect to our balance sheet, at year-end our total debt outstanding was $4.3 billion and our gross debt-to-capital ratio was 30%. Our year-end cash and short-term investments total approximately $1.4 billion. Now turning to our outlook. John has already mentioned the positive trends we are observing in our major end-use markets. We do think that 2019 will be another strong year with earnings performance among the best in new course history. For the first quarter of 2019, although sheep pricing and margins are expected to decrease compared to the fourth quarter of 2018, We expect that this will be partially offset by increases in profitability in our bar and structural mills. The performance of the raw materials segment is expected to decrease in the first quarter of 2019 as compared to the fourth quarter of 2018 due to the decreased performance of our DRI businesses. We expect the profitability of our steel product segment in the first quarter of 2019 to be similar to the fourth quarter of 2018. Overall, we do expect that the first quarter of 2019 will be much stronger for Nucor than the first quarter of 2018. Thank you for your interest in our company. Now I'll turn the call back over to John. John?