Nucor Corporation

Good day, everyone, and welcome to the Nucor Corporation's second quarter of 2019 earnings call. As a reminder, today's call is being recorded. Later, we'll conduct a question-and-answer session, and instructions will be given 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 that 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'd 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. Thank you for joining us for our second quarter earnings call 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, Craig Feldman, responsible for raw materials. Lad Hall, responsible for sheet products. Ray Napoleon, responsible for engineered bar products. Mary Emily Slate, responsible for tubular products. Dave Samosky, responsible for merchant bar and rebar products. Leon Topolian, responsible for beam and plate products. And Chad Unimark, responsible for fabricated construction products. My remarks will be brief this afternoon as we covered a lot of this material at our recent Investor Day event. Thank you to everyone who participated, either in person or via the webcast. And for those who could not join us, a recording of the event and the slide presentation are available at newcorp.com. Before we discuss our second quarter earnings, I would like to thank our teammates for continued excellent safety performance. Safety is the number one priority for everyone on the NUCOR team, and we continue to work to improve at it, identifying and mitigating risks and changing behaviors to achieve our goal of zero incidents at every NUCOR facility. Turning now to our performance in this quarter, our financial results were lower than our expectations at the start of the quarter. Unusually wet weather and aggressive supply chain destocking impacted mill order rates in the first half of 2019. We have seen lower volumes during the first half of this year, resulting in a more challenging price environment. However, real demand for our products remains strong in key end-use markets. We see healthy conditions in end-use markets that typically account for more than two-thirds of of our steel shipments. For this reason, we are cautiously optimistic that pricing has bottomed on most of our products and that volume should be more closely aligned with real and used demand in the second half of the year. We all know that the steel industry is cyclical, and we have built our business model around that reality with our low and highly variable cost structure and our diversified product portfolio. Our performance in the first half of the year benefited from meaningful year-over-year earnings gains in our plate, MBQ, rebar, joist and deck, metal buildings, and pilings distribution businesses, once again highlighting the benefits of our diversified product mix. Our strategy to increase market share in automotive applications also continues to bear fruit. We are currently shipping into this market at an annual rate of about 1.6 million tons. Further, we were recently named Supplier of the Year by General Motors. We are the first EAF-based steel producer to receive this recognition. It's a tremendous testament to our team and further evidence of our success moving up the value chain and gaining market share in many value-added applications. As we have previously discussed, we have several investment projects coming online this year, and I want to update you on their status. In our sheet group, we continue to ramp up production of our new specialty coal mill at New Coast Steel, Arkansas, and we have been pleased with the performance. This project will allow us to produce higher-valued products, especially in high-strength steels, and it will differentiate Nucor Steel Arkansas from its competitors. We are currently in trials for value-added applications, and customer acceptance has been excellent to this point. We are targeting to have as much as 20 percent of the new mill's capacity booked with contract customers by the year end. We expect to continue adding contract volumes at the mill as 2020 progresses. In Kentucky, Nucor Steel Gallatin has begun commissioning its new galvanizing line and test running coils to verify the functionality of the line. Production of pickled and oiled coils has started this month and will be followed by production of galvanized coils in August. With 500,000 tons of annual capacity, this 72-inch galvanizing line will be the widest hot-walled galvanizing facility in North America. Gallatin is now positioned to supply the underserved Midwest heavy-gauge hot-band galvanized market. The new line will enable us to grow our automotive applications to include frames, control arms, supports, and brackets. Our commercial teams are excited to have these new capabilities in our sheet mill group. to serve both new and existing customers. The last project in our sheet mill group I would like to mention is our joint venture with JFE Steel in Mexico. We are on track for a startup of the galvanizing line later this year, and we look forward to serving automotive customers in Mexico. In the bar mill group, our Marion, Ohio bar mill's new in-line rolling mill is starting up in the third quarter. Marion's new reheat furnace, which we installed last year, is reducing our natural gas consumption by about one-fourth. In late 2019 or early 2020, Marion will also install quench and temper equipment to reduce alloy costs at the melt shop. The upgrades significantly improve Marion's efficiency and strengthens its leadership position in the regional rebar market. Two other projects in our long products group are on track for startups later this year, the merchant bar product expansion at our mill in Illinois and the first of our new rebar micro-mills, which is located in Sedalia, Missouri. In all, we have 10 significant organic investments in various stages of development, representing a total capital investment of approximately $3.5 billion that will deliver long-term profitable growth to our shareholders. As I have made clear on several occasions, we are not simply adding tons to get bigger. These projects target defined market objectives and opportunities to generate higher profits and reduced volatility through the cycle. They also expand our product portfolio so that we will be able to offer our customers more solutions to meet their toughest challenges. The U.S. steel industry continues to benefit from effective trade enforcement. Through May of 2019, total and finished steel imports declined by 12 percent and 18 percent from last year's levels. In the last 12 months, approximately 6 million fewer tons of imported steel have come into the U.S. market. The decrease in imports reflects the cost competitiveness of our domestic steel industry and the success of our industry's ongoing efforts to see that the rules of trade are enforced. Recent findings by the U.S. Department of Commerce provide further evidence that our industry, our government, and our customers understand the importance of acting to keep unfairly traded steel and steel products from distorting the U.S. market. On July 2nd, the U.S. Department of Commerce issued its preliminary circumvention determination on imports of galvanized and cold-rolled sheet steel from Vietnam manufactured with hot-rolled or cold-rolled substrate from South Korea and Taiwan. Commerce found that that the steel went through minor modifications in Vietnam to avoid appropriate restrictions that have been imposed on imports from South Korea and Taiwan. Imports of these products from Vietnam must now pay duties of more than 400%. It is vitally important that our government stop these and similar illegal transshipments meant to avoid trade duties, and we are glad that they have taken such a strong action. On July 8th, the U.S. Department of Commerce also issued a preliminary countervailing duty determination on imports of fabricated structural steel from China and Mexico, and duties have been applied to imports from both countries. This ruling shows that the government is not only concerned about unfair trade practices in raw steel, but also in downstream products. Rules-based trade. is a critical underpinning to the continued success of our customers, NUCOR, and the U.S. economy, and we are pleased that the Department of Commerce continues to take action on individual trade cases. Jim Prias will now provide more specific detail about our second quarter performance, as well as our outlook for the remainder of this year.

Jim? Thanks, John. Nucor reported second quarter of 2019 earnings of $1.26 per diluted share. Earnings from our steel mill segment were lower due primarily to reduced shipments to our service center customers, reflecting their caution with respect to inventory levels and order rates in a weakening price environment. Earnings from our steel product segment improved in second quarter in line with our expectations. Strong non-residential construction markets along with increased productivity from our rebar fabrication and metal buildings businesses were the primary factors. Results from our raw material segment were slightly better than we anticipated. It is worth noting that our second quarter results included $20.5 million of pre-operating and starter costs related to strategic investment projects, compared with $19.6 million in the first quarter of 2019 and approximately $6 million in the year-ago quarter. First half 2019 cash provided from operations was approximately $1.2 billion, up from about $870 million for the year-ago period. Inventories and receivables were a source of approximately $400 million in the first half, reflecting consistent working capital management in a declining price environment. Our capital spending accelerated in the second quarter and totaled $650 million so far this year. We received our permits for the Gallatin expansion, so between that and other projects that we have in our pipeline, we expect to increase CapEx further in the second half and approach our budgeted amount of approximately $1.8 billion for the full year. With respect to cash returned to shareholders during the second quarter, we paid dividends of $123 million and stock repurchases totaled $125 million. Thus far in 2019, We returned 50% of our net income to our shareholders, while also investing for long-term profitable growth. We ended the quarter with $1.4 billion of cash on hand. Nucor's financial condition remained strong. With total debt outstanding of $4.2 billion, our gross debt-to-capital ratio was 28% at the end of the second quarter. Our $1.5 billion unsecured revolving credit facility remains undrawn and does not mature until April of 2023. Our next material debt maturity is in 2022 for approximately $600 million. Now turning to the outlook. Earnings in the third quarter of 2019 are expected to be lower than the second quarter. Inventory destocking, especially by service center customers, has led to declining results year to date and our muted expectations for the next quarter. While we are encouraged by recent upturns in the prices for flat-rolled steel products, and as John mentioned, we do continue to see healthy demand for our major end-use markets. We finished the second quarter with much lower margins in sheet and plate steel and believe that margin recovery could take some time. We therefore expect weaker linked quarter performance in the steel mill segment, again, primarily reflecting reduced margins for both sheet and plate steel. However, We do expect that service center customers will resume more normal buying patterns in the third quarter. The steel product segment is expected to achieve further profitability improvement in the third quarter over the second quarter. Non-residential construction activity remains strong, and we believe some incremental demand has likely shifted to later in the year due to difficult weather conditions during the first several months of 2019. Recent initiatives to improve the performance of a rebar fabrication and metal buildings businesses are also expected to continue to favorably impact results for the steel product segment. The performance of our raw material segment is expected to decline in the third quarter compared to the second quarter due to further margin pressure at our direct reduced iron or DRI plants. In addition, later this quarter, we will begin our planned 65-day outage at Nucor Steel, Louisiana to complete major enhancements to the physical plant. Thank you for your interest in our company. I will now turn the call back over to John.