Nucor Corporation

Good day everyone and welcome to the Newcorp Corporation third quarter of 2019 earnings call. As a reminder, today's call is being recorded. Later we will conduct a question and answer session and instructions will come at that time. Certain statements made during the conference call will be forward-looking statements that involve risks 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 Newcorp believes they are based on reasonable assumptions, there can be no assurance that future events will not affect their accuracy. More information about the risks and uncertainties relating to these forward-looking statements may be found in Newcorp's latest 10-K and subsequently filed 10-Qs, which are available on the SEC's and Newcorp's website. The forward-looking statements made in this conference call speak only as of the state and Newcorp 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 and Chief Executive Officer of Newcorp Corporation. Please go ahead, sir.

Good afternoon. Thank you for joining us for our third quarter earnings call and for your interest in Newcorp. Other members of Newcorp's executive team are also on the call today, including Leon Tupoleon, our President and Chief Operating Officer, Jim Frias, our Chief Financial Officer, Craig Feldman, responsible for raw materials, Lad Hall, responsible for sheet products, Ray Napoliton, responsible for engineered bar products, Mary Emily Slate, responsible for plate, structural, and tubular products, Dave Simosky, responsible for merchant bar and rebar products, and Chad Unimark, responsible for fabricated construction products. Last month, I announced my retirement from Newcorp effective at the end of this year. One of my priorities during my time as CEO has been to make certain that we had a deep bench of leadership talent and a robust management succession plan in place. I know we have succeeded on both fronts. Identifying the right leaders is a key component of our company's future success. I am delighted that the Newcorp Board of Directors has selected Leon Tupoleon to succeed me as Newcorp's next CEO. Leon has proven himself to be an exceptional leader throughout his 23-year career at Newcorp. Since 2017, he has served as Executive Vice President responsible for Newcorp's plate and structural steel mills. Prior to joining our corporate senior leadership, Leon was General Manager at two facilities, our Newcorp Yamato Structural Steel Mill and our Kankakee, Illinois, Bar Mill. With the support of our leadership team and all of our teammates, I am confident that Leon will guide Newcorp towards continued success. I am also confident that we have an executive leadership team that is second to none in our industry, and I know Leon and the board feel the same way. Before I provide comments on our third quarter results, I want to say a few words about safety. One of my proudest accomplishments during my time as CEO is the way that our entire organization has improved our safety performance. I want to thank all of my teammates for your constant focus on working safely. We are having one of our best years ever for safety performance. Let's keep that focus as we move closer to our goal, which will always be zero incidents at every Newcorp facility. Any injury is one too many. Now on to our third quarter results. We saw continued strong performance from our metal buildings, piling, joist and deck divisions, as well as improved performance in our rebar fabrication divisions. The performance reflects excellent execution by our teammates and continued stable conditions in the non-residential construction market. Overall spending in the non-residential construction market, which typically accounts for approximately one half of our company's shipments, remains at healthy levels. After a brief summer rally, plate and sheet market conditions softened in the third quarter. Excess inventory throughout the supply chain has resulted in continued de-stocking by our customers. Service center industry data indicates that inventories remain low. In addition, our OEM customers have become cautious about buying as we head into the year end. However, we do believe that both our service center and OEM customers will start re-stocking to meet demand as 2020 gets underway. Looking out further into next year, the pending 2020 elections and current trade issues, such as the unresolved status of the USMCA agreement for North America, are creating some more uncertainty in the market. And while it's difficult to predict steel markets that far into the future, we continue to have great confidence in New Corps' business fundamentals and our long-term strategy. Finally, let me remind you all that we have several more of our growth projects starting up in the fourth quarter that will give us the capability to produce more of the products that our customers are asking us to make. As we have said many times, these investments position us for continued success by taking advantage of specific market opportunities. We expect they will further enhance New Corps' position as a steel market leader. I'm now going to turn the call over to Leon to provide comments and an update on several of our growth initiatives. Leon?

Thanks, John. I'd like to begin by saying how honored I am to have the opportunity to lead this amazing company. I look forward to continuing the proud traditions that have made New Corps the premier steel and steel products company for the last 50 years. A hallmark of our success has and will continue to be our culture, which begins with nearly 27,000 team members who make up the New Corps family. Our culture drew me to this company 23 years ago, and it inspires me daily. And the most important value in our culture is safety. Taking care of our team is the most important responsibility we have. I take it very personally and will work tirelessly to continue New Corps' quest of becoming the safest steel company in the world. Since the announcements, I've been visiting many of our divisions and have been humbled by the warm reception I've received. In talking with our team, it's obvious they are deeply engaged in our mission and just as excited about New Corps' future as I am. That excitement is especially evident among our team members who are bringing New Corps projects online. Let me just say thank you for your hard work, dedication, commitment, and never losing sight of our most important value, safety. I'd like now to provide you with an update on some of the projects we're bringing online. At New Corps Steel Arkansas, our Hickman team continues to increase production and improve yield performance on our new specialty cold mill. The mill's flexibility is a key feature. With its dual configuration, Hickman's new cold mill can change from a high reduction mill for the advanced strength steels of the future to a very efficient four high mill in just six minutes. This flexibility separates us from our competition and allows us to efficiently offer a broader range of value added products. There is no other carbon mill like this in North America. New Corps Steel Gallatin's new galvanizing line team coated their first coils on September 27th with 500,000 tons of annual capacity. Gallatin's 72-inch galvanizing line is the widest hot roll galvanizing facility in North America. Gallatin is extremely well positioned to grow New Corps share of the underserved Midwest heavy gauge galvanizing hot band market. At our Marion, Ohio rebar mill, commissioning of the new inline rolling mill was completed in August and the Marion team is currently ramping up production. Early next year Marion will also install quench and temper equipment to reduce alloy costs. These investments, combined with a more energy efficient reheat furnace installed last year, will position Marion as a low cost producer in the region. Other projects on track for start up by the end of the year include New Corps Steel Kankakee's MBQ rolling mill, our new rebar micro mill in Sedalia, Missouri, and the galvanizing line that we're building in Mexico with JFE Steel. As we have said before, we're not adding capacity simply to get bigger. These projects target defined market opportunities where we are confident that we will compete and win highly profitable market share. We are also responding to feedback from our customers regarding their product needs, particularly for value added products. New Corps is doing more than adding capacity. With the new rebar mill, New Corps is increasing our capabilities to provide our customers with superior value. We achieve that with unique product properties, unmatched product breadth, industry leading on time delivery, and unrivaled quality. Every growth project we are implementing builds on our competitive strengths to serve new product and geographic markets. With these investments we are increasing New Corps' long term earnings power. This is the same strategy New Corps has successfully executed through numerous market cycles over the past five decades. At this time I will turn the call over to Jim Frias for a review of our financial results. Jim?

Thanks, Leon. New Corps reported third quarter 2019 earnings of 90 cents per diluted share. These results exceeded our guidance range of 75 cents to 80 cents due to better than expected performance at our sheet and bar steel mills as well as from several steel products businesses, most notably Joist, Deck, and Building Systems. It's worth noting that both our Joist and Deck business and our Metal Buildings business are on pace for a record year in 2019. Both of these business groups are benefiting from lower steel prices and excellent commercial execution. The Metal Buildings business is also benefiting from a restructuring that has realigned capacity and reduced fixed costs. Earnings from our steel mill segment were lower than the second quarter due to declining metal margins. Sheet and plate products experienced the greatest pricing pressure as customer destocking continued in the third quarter. Total steel mill shipments in third quarter were comparable to the second quarter. Steel mill shipments to internal customers represented 21% of total steel mill shipments in the third quarter, an increase from 19% in the second quarter. Nucor's downstream channels to market strategy remains a key competitive strength of our company. Earnings from our steel product segment improved compared to the second quarter of this year and to the year ago third quarter. Non-residential construction market conditions remained positive. Our businesses appear to have benefited from both recovery from weather-related disruptions earlier in the year and seasonally stronger construction months. Results from our raw material segment decreased compared to the second quarter due to further margin compression at our direct reduced iron or DRI operations. In addition, our Louisiana DRI facility began its planned outage in early September and that is expected to continue until mid-November. Our third quarter results included roughly $28 million of pre-operating and startup costs related to strategic investment projects, compared with approximately $21 million in the second quarter of 2019 and approximately $11 million in the year ago quarter. First nine months of 2019 cash provided from operations was approximately $2.1 billion, up from about $1.9 billion for the year ago period. Nucor continues to benefit from its highly variable cost structure. Accounts for receivable, payables, and inventory were a source of approximately $500 million during the first nine months of 2019, reflecting consistent working capital management in a declining steel pricing environment. Capital expenditures totaled $985 million through the first nine months of 2019. Our full year 2019 capital spending budget is now approximately $1.5 billion, a decrease from our prior forecast of $1.8 billion. This change reflects the timing of expected outlays over the balance of this year. Cash return to shareholders during the first nine months of 2019 totaled $567 million. We paid dividends of $369 million and stock repurchases totaled $198 million. Thus far in 2019, we have returned 49% of our net income to our shareholders, while also investing for long-term profitable growth. Nucor's financial condition remains strong. We ended the quarter with $1.9 billion in cash and short-term investments, with total debt outstanding of approximately $4.3 billion. Our gross -to-capital ratio was 28% at the end of the third 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. Nucor's earnings in the fourth quarter of 2019 are expected to be lower than the third quarter. While nonresidential construction markets remain broadly stable and healthy, manufacturing sector activity has slowed down. We expect earnings in the steel mill segment to further decrease from the third quarter due to the impact of lower steel prices at the end of the third quarter, which will be realized in fourth quarter shipments. We believe steel prices have bottomed. The profitability of the steel product segment is expected to decrease slightly due to normal year-end seasonality. The performance of our raw material segment is expected to decline in the fourth quarter compared to the third quarter due to the impact of our Louisiana deer eye plants outage continuing until mid-November, as well as further margin pressure throughout our raw materials businesses. Thank you for your interest in our company. I will now turn the call back over to John.

Thanks, Jim. Before we take your questions, let me make a few other comments. I recently had the privilege of joining the Nucor Steel Indiana team to celebrate 30 years of making steel in Crawfordsville. Three decades ago, our team revolutionized the American steel industry, becoming the first thin slab operation to produce sheet steel using an electric arc furnace. 600 people joined us for the celebration, including local officials, teammates, customers, suppliers, and friends and family. Congratulations again to the Crawfordsville team for all they have accomplished over the past 30 years. With regard to trade policy, imports continue to supply a shrinking share of the U.S. demand thanks to the cost competitiveness of our market-oriented domestic steel industry and effective trade enforcement. At Nucor, we will not take this progress for granted, and we will continue to press for sensible legislation, regulation, and enforcement. We also remain hopeful that Congress will approve the USMCA this year. We see it as a meaningful modernization of NAFTA that will benefit the U.S. economy and the domestic manufacturing sector in particular. We would now be happy to take your questions. Operator?

Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star 1 to ask a question. We will take our first question from Martin Engler with Jefferies.

Hi. Good afternoon, everyone. Good afternoon. Downstream steel products results were fairly strong this quarter. I just want to see if you can provide an update on the efficiency initiatives, if there's more to expect there, as well as the rebar fabrication business. Was it profitable and also how those backlogs look compared to a year ago and how you see the non-resi construction moving forward?

Let me start with some comments on the business model changes that we've made in our building systems and in our coal craft operations. I'm really proud of the job that the team has done. We've always said that we had great teammates in those operations that were working in a model that needed to be adjusted. We made the adjustments and we're seeing very positive results. Is there more to go? We always want to get better. We always say that we can do better tomorrow than we are doing today. And I'm confident that as we gain more experience with the new models that we will continue to see improvements in those operations. Chad, do you want to add anything to that?

Yeah, thanks, John. Just a couple of comments. So our joists and deck metal buildings and rebar fabrication backlogs are slightly improved year over year. These end-use markets are led by warehouse manufacturing and commercial projects and we see them sustainable into the first quarter of 2020. So overall, yeah, we're very excited about the performance of our downstream product groups and look forward as we head into 2020.

Leon,

did you want to add

something? Yeah, just I agree with all Chad's comments and yours. One thing I'd add, you asked about backlogs. I tell you our backlogs and the non-res within the rebar fabrication are strong and we continue to reduce removing waste in inventory through that channel.

This question was about profitability rebar fab. We did make money in rebar fab in the quarter for sure.

And maybe to just wrap that up, I'd like to say thank you to our teammates in all of those operations. Because making changes like this, these are not easy to do. And the support that we've got from our teammates in all of those operations is what resulted in the success that we've seen as we've made these business decisions. So thank you all for the hard work. Thank you for your willingness to adjust to a changing marketplace and more to come.

Okay, again, nice results there. And also within the release, you did highlight that you believe steel prices have bottomed. Can you discuss what factors you're seeing in today's market that suggest support of current steel prices and perhaps your near-term view on the scrap market?

Well, speaking in general terms across all of our products without getting into specifics, we do feel that in many of our products the pricing has bottomed. The things that drive that are a couple of things. Number one, you're right, we see the scrap market starting to improve. We anticipate that the scrap pricing will go up about $20 maybe next month, $20, $25, somewhere in that neighborhood. We think that that trend will continue throughout the year. Our best guess on scrap pricing right now for the year is up $20 to $40 by the end of the year. The other thing that I would say that's driving our belief is that when we start to look at our bookings, particularly in our sheet area, over the last several weeks the bookings have improved. We see more energy, and particularly in the hot band. Now, you know, Coldwell and Galvanize has always been fairly strong. We haven't seen much of a decline in those two products. But hot band, as you know, was really challenged for the first part of this year. We've talked about this in the past. Overstocking of inventories last year, the tough weather conditions at the beginning of this year, de-stocking this year. These are all things that have contributed to a challenging steel market during this year. But we see that ending. When we look at MSCI inventories, we see them at, I mean, they're at incredibly low levels, and lowest that we've seen in many, many years. And compared to last year, they're down at this time. At the same time last year, they're down fairly significantly. So these are all things that we see driving our comments that we think that the pricing, as well as the vines will increase as we go forward. One more point that I would make is... What, first? Leon, you wanted to say something? Sure, yeah.

As well, Martin, the MSCI numbers, as John pointed out, are down roughly 14 to 20% year over year. And so if you look at that compared to the peak, which occurred in that 2015 to 2016 range, it's almost over 20% down compared to that point. So again, year over year, we're approximately 14 to 20% across all of our points. Additionally, as we enter the first quarter, particularly in sheet, we anticipate that being and usually is a much stronger quarter as we begin the year. And we look forward to that as we enter the next quarter.

So we see as we turn over the new year, we see business getting better across all of our products. As we said, I think Chad pointed out, we had records in many of our downstream businesses. We anticipate another strong year going into it with our downstream business next year. And we see improving conditions going into the new year in our steel products.

Okay, thanks very much for all that detail on color, and congratulations on the results in a difficult environment.

Thank

you.

If you find your question has been answered, you may remove yourself in the queue by pressing the star followed by the digit 2. We will take our next question from Matthew Korn with Goldman Sachs.

Hi, this is Hunter Alleyan from Matthew Korn. We noticed in your reporting that you now split out raw materials and other steel product shipments. We're wondering if you discuss what is the reason for the split in the reporting, and can you discuss what products are going to be included in both of those buckets?

The decision to split out more detail was just in response to requests for more information from investors. And the breakdown of the other bucket, what's in the other bucket? Metal buildings is in the other bucket, and fasteners in the other bucket, and Skylines. Cold

finish.

Yeah, and cold finish. So there's a few different businesses in the other buckets. We took the largest businesses and broke them out.

I believe the

request

by some investors came in through some of these calls. It could have been. It could have also been in offline discussions as well.

Okay, okay, great. Thank you very much. And then we noticed that structural and plate shipments have both been weaker over the year, while tubular has been stronger. Can you discuss the trends that you're seeing in any markets, and if there's anything specific driving changes at Nucor?

Well, I'll start with structural, and maybe we'll turn it over to Mary-Emily Slate to make some comments on tubular. You know, the structural business has been challenged this year, no doubt about it. A lot of it was a result of heavy stocking last year, particularly in the last half of last year. We saw service centers stocking up pretty heavily. And then, of course, the beginning of this year, as I mentioned earlier, weather conditions prohibited a lot of the construction from consuming some of that overstocking, and we've been going through a de-stocking period now. I would comment that we think that we're seeing the bottom of that stocking de-stocking now. It's coming to an end, and we expect that to pick up a little bit. We also expect to see some benefit from the recent determinations by Commerce on fabricated structural steel. We have some very positive preliminary determinations. We're looking forward to some final, also positive determinations early part of next year. So those were some of the things that are driving where we were and why we feel things are going to get better. Mary-Emily, you want to comment on tubular?

Absolutely. On tubular products, the OEM and fabricator activity has not been bad this year. It's been pretty stable, but we've also experienced some de-stocking and people bringing their inventories to lower levels. We feel that that product group, though, has seen the lowest levels of inventory, and we'll start more normal buying patterns here in fourth quarter. So we expect things to get a little bit better. There's also some really good project activity out there that we've been very successful in getting. So we look to a bright future.

John, one other point I'd add. Hunter, you asked about the trends in beams. One of the things I would share with you is that being a market leader in beams, it's been one of our most profitable groups. As you've seen and we've reported, the utilization rates are in that 65 to 70 range. Because of our market leadership position, we've been able to maintain a very profitable position in this market and serve our customers' needs. We'll continue to expand our products and our offerings, like the Grade 65 Quenching Temperature beams to our construction customers and supply the needs that they're asking us for.

That's very helpful. Thank you all for the additional call. You're welcome.

We'll take our next question from Chris Terry with Deutsche Bank.

Hi Tim, a couple of questions from my side. All the best, John, in retirement. Just firstly on your capital for the quarter, I noticed you didn't do anything on the buyback side. I just wondered if you could provide a little bit more color on that. I appreciate you've got a 40% minimum payout ratio and you've already met that. I think you commented at 49%. But just a little bit surprised when you've held back a little bit on the capital timing that there was no buyback in the quarter. Thanks.

Thanks for that question. We've got a very intentional process for how we think about returning capital to investors as well as investing our business. Of course, our capital allocation mindset begins with the idea that we want to invest in strategic long-term growth. Of course, we do have a number of projects in our pipeline. As you kind of noted, we're a little behind in terms of the spending on some of those capital projects. That's resulted in us temporarily having more cash in the balance sheet. That's going to catch up pretty quickly over the next six to nine months. We're going to need that cash to fund a lot of the capital projects that are in process. But separate from that is we think about returning capital to investors. We begin with this idea that we want to return a minimum of 40% of our earnings. Then we also want to maintain a -to-capital ratio that supports our strong investment rate, credit rating. At times when that -to-capital ratio becomes too low, we will return more like we did late last year when we have a view that we have depth of liquidity. It's possible we'll do more before the end of the year, but it depends on our forecast of cash going into 2020. Because working capital has benefited us to the tune of roughly half a billion dollars this year. If steel prices reverse and scrap prices reverse, we're going to have some use of cash in working capital next year. We definitely will see an acceleration in capital spending. So we're being thoughtful about not just where we stand with cash today, but where we expect cash to be through the next year.

Thanks for the color on that. Just in terms of the corporate eliminations, it's quite a bit lower than what we expected for the quarter. I appreciate that the steel mill's profitability obviously has an impact on what that number would be. Can you talk a little bit about some of the one-offs in that and the difficulty in the forecasting of that number?

I'm going to answer two questions, one you're not asking, but is sort of related. Marketing and admin is also dramatically lower. So the piece that's reflected in both places is incentive compensation. Incentive compensation in the quarter is about $88 million less this year than last year, -to-date. It's about $104 million less. And that's affecting both the E-LIMS line and the marketing admin and other lines. And that's just because we're making less money. And profit sharing is the biggest piece of that. Profit sharing is what we set aside for employees below the level of vice president. And then additionally, we have the profit elimination. This year in the third quarter was a benefit of about $34 million. Last year was an expense of about $67 million. So as margins on steel fall, we revalue that inventory. We can sometimes get a benefit from intercompany elimination. So we got a benefit in the third quarter this year, -to-date. The benefit is about $91 million. And last year the expense was about $228 million. So that's been a pretty severe swing as well. Those are the two biggest factors affecting the change in E-LIMS. And the incentive comp is the biggest factor affecting SG&A.

Thanks for that. And the last one from me, just in terms of the end markets, you've spoken about most of them, but I just wondered if you could comment on the auto sector specifically. And maybe just, I think you normally give color on your 24 end markets, maybe just where they're tracking. Thanks.

Well, I'll start with the second question first. And just as a general statement, you know, we feel that about two-thirds of the markets that we serve are either stable or growing, somewhere around 60 to 65% of them. And that feels about right for us, given the conditions out there in the economy. Your question about automotive, now certainly the automotive market is edged down. They're forecasting somewhere around 16.8, 16.9. I heard a number just the other day, almost 17. So it's down a little bit from last year for certain, but still 16.8, 16.9, those are pretty good numbers. And the important thing to note for us is that we continue to take a bigger share of that smaller pie. If you look at the tonnage that we sent into the automotive business this year compared to last year, we're up about 15% ton sent into automotive this year as compared to last year. So we continue to grow our market share. And although the pie is shrinking, we continue to get a bigger piece of that smaller pie. We feel real good about where we are in automotive. We are confident that we'll continue to grow. When we look at next year, we are projecting for 2020 and 2021 even more tonnage going into those markets.

Thanks very much.

We'll take our next question from Seth Rosenfeld with Exxon B&P.

Good afternoon. Seth Rosenfeld at Exxon B&P. A couple of questions please on the long products market. Obviously, we've seen a significant decline in bar prices over the last several months, but metal spreads appear to be holding up much better in rebar and other bar products than for sheet. Can you comment a bit more about what you see as driving this relative outperformance for long products, how sustainable that is going into 2020? You already commented a bit on the demand side from a broader supply-demand perspective. And then separately, as you are nearing or beginning to ramp up two new rebar micro mills, what's your thought on the supply-demand balance within the region right now? There's been some news in recent weeks that one of your closest competitors is shutting down one of their domestic rebar EAS. Do you think that the market can stomach increased capacity or will other higher cost mills be pushed out in the coming year? Thank you.

Well, let me start with your first question. Talking about our long products and the metal margins performing better than some of our other flat-roll products, clearly the demand in our long products is better. There was less of a destocking issue with our long products, particularly when you talk about rebar. We have less of an issue in rebar than we did in our sheet products or in our plate products. A little bit more in merchant, but not significantly more. So demand was strong. Inventories hadn't bloated to the level that they did in our flat products last year. A lot of our long products obviously go into construction, and construction has been relatively strong. A lot of our long products merchant and rebar go into our downstream businesses. And as Jim mentioned in his comments, internally, we're shipping about 20% of our steel products downstream. A lot of that is long products going into our building systems, and particularly our Volcraft and our Harris operations, and they have been strong. So all of those kind of lead into that. Now, having said all of that, when we talk about long products and we talk about structural, certainly an infrastructure bill would continue to help with us. So that's where we continue to encourage the administration to get going on something that's badly needed in this country, a robust infrastructure bill. So that's a little bit about the long products. Now, in terms of your comment or your question about micro mills regionally and the demand or the supply-demand ratio in the areas where we're building, and we still feel very good about that. We've talked in the past about the regional nature of these micro mills. We're not going to comment on any of our competitors shutting down or anything like that. We believe that the two things that are going to really give us an advantage with the micro mills are we're right in the heart of the marketplace. We've got great scrap availability for those mills. The design of the mills provide for an extremely low-cost structure, highly efficient, close to the supply of the raw material, close to the marketplace. Those are things that we feel will make us very successful. Dave, do you want to add something?

Yeah, if we would comment on some of the competition shutting down, we would correct you if it's an empty-queue product that's exiting the market and not the rebar.

Okay, great. Thank you very much. Okay, thank you.

We'll take our next question from Timnit Panner with Bank of America, Maryland. Yeah, hey, good afternoon.

Good afternoon.

I think this may be John's last conference call, so I wanted to wish you well on your next chapter, and thanks for all your candor over the years. We appreciate it. Thank you, Timnit. Yes, sure. I wanted to ask a little bit more about the CAPEX change, because even up until last conference call, you were just saying it would be heavily weighted in the second half. So something changed, and I know you say it's timing, but does this mean that you're pushing more CAPEX into next year? Can you give us a little more thoughts into next year? And if conditions remain somewhat sluggish, could you rethink some of the CAPEX in the projects?

Thanks. Yeah, so we rely a lot on the divisions to help us forecast when CAPEX is going to happen, and then there's a lot of variables that go into spending money in a capital project. It begins with permitting, there's an engineering design process, there's a quotation process, there's lead times on getting equipment delivered, and there's installation until products are, and then weather affects things. So until things are delivered, whether it's a service or a product to the site, we can't actually count it as CAPEX and pay for it. So some things have fallen behind what we'd hoped to accomplish this year, but by and large, we still expect to hit the dates we've committed to in terms of startup facilities. We're probably a little bit more conservative on our commitment for startup dates than we are on the CAPEX spending side. And yes, we will spend some money that we plan to spend this year next year. So in January we'll come out and give you a budget for 2020, but I would expect it to be notably higher than what we're actually going to spend in 2019, partly because of the carryover from 2019.

Tim, I do want to make a comment about the second part of that question. I want to be really emphatic about this, okay? Listen, we're not reacting to any changes in the market. We're in a cyclical business. We don't react. We don't change our strategic plan based upon changes in the marketplace. In fact, if anything, it's just the opposite of what you say. We tend to invest more and focus on growing our company during the downturns. That's always been our philosophy. We invest during the downturns to come back into the upturns stronger. We always talk about having higher highs and higher lows. So I want to be really clear about this. It has nothing to do with the change in the market dynamics at this time. We don't react. Our strategic plan is built for the long term. We don't react. Short-term changes in the market do not impact our strategic initiatives.

John, I agree with everything. And the other thing I'd add, Tim, just very briefly, is we understand our markets and where we serve them. We listen to our customers and where they need us to be, not just today, but for the long term, to provide a competitive, differentiated value proposition. And that's really where our investments come. And so to John's point, if we got thwarted by every shift in the market, I'm not sure we'd be the industry leader in the steelmaking industry in North America that we are today.

And just build on that for a minute if I may, Tim, but certainly if we didn't invest and grow our company during the last recession, we would not have seen the record year that we had in 2018. So it's the work that we do during those downturns that allow us to have the record years, and we'll continue to do that.

Okay, fair enough. I guess I struck a chord. So not changing your strategic view. What

would you say?

So you don't change your strategic view given market conditions. But just commercially and just looking at volumes, I'm still kind of in shock when I look at the -over-year trends if we kind of continue the recent volume trends in long products. And across the board, volumes are pretty significantly down. Just wondering, seasonally things improve, I get it, but even on an annualized basis, is there anything you can help us high level to understand that could explain reasons for a shift upward in bars, structural plate, just because it has been such a dramatic drop from 2018 and even from 2017 to be fair? So just wondering if there's a commercial shift you've made to maybe ship less in a soft market. Is there a reason that these volumes can rebound, or how do we think about it?

No, we made no commercial decision to change our sales or shipping strategy based upon the conditions in the marketplace, none at all. I want to be clear about that. We've talked a lot about the stocking and destocking that we've gone through, and most of our discussions have focused on the service center industry. But bear in mind that across all of our products we saw this issue of overstocking at the end of 2018 also in the downstream businesses, the downstream customers. You talk about it on some of the flat products and on the plate products, some of our large equipment manufacturing customers, I don't want to name any of them specifically, but we know for a fact that their inventories are up, their inventories are up at their plant sites and their dealers and even in some auxiliary storage locations. So it's primarily, we still feel very strongly, it's primarily an issue of stocking and destocking. We think that if you look at pure demand, we think demand is somewhat enabled to down by about 3 or 4%. Certainly the volumes do not reflect that, they're more significant than that. So we still believe strongly that we're looking at an issue of stocking and destocking and that we continue to work our way through. We will come through this and we'll get back to more normalized inventory levels and more normalized booking and shipping levels.

Okay,

thank you.

Thank you.

We'll take our next question from Phil Gibbs with KeyBank Capital Markets.

Hey, good afternoon.

Good

afternoon Phil.

Okay, I was just wondering if you could hear me okay. In terms of the rebar investment at Marion, I think Leanne was discussing that. I know it was an upgrade specifically to your rolling mill. I'm curious if that impeded any of your productivity or output at that mill while those upgrades were taking place.

You know, let me kick it off now and we might turn it over to Dave or to Leanne to add to it. I think the short answer is no. Okay, the team has done an outstanding job of making the modifications to improve our quality and our efficiency and productivity at those mills while at the same time continuing to provide quality products to our customers. The other point that I would like to make, again thanking the team, we had a great safety record during this rebuild and whenever you're modifying an existing mill and continuing to run that mill while you're making those improvements to it, it can be challenging from a safety perspective. The team did an outstanding job on getting the project done on time, on budget, and most importantly without any major accidents. So I thank you for that. Anything that you want to add Dave? Well,

I just want to add on top of that, you know, thanks to the team at Marion for the outage that they did safely, 30-day outage and we did not disrupt anything from a customer standpoint and you guys did it safely. So thank you and I appreciate that.

Great. I appreciate that. And a question more on the raw material segment. A lot of headwinds right now, they seem to be numerous. You know, curious in your mind which out of these headwinds that you're seeing right now are transitory and maybe which are structural. You know, we certainly didn't expect to see the results as negative as they were in the third quarter and getting more negative. And then just as a sub-question, when do the DRI investments that you're making come to a conclusion and then maybe remind us of the magnitude of those investments?

So a bunch of questions there, okay. Let me start with the end and I'll work my way backwards. The project that our Louisiana plan will wrap up, is scheduled to wrap up on November 14th. And we look like at this point we believe we're on time. We believe we're on schedule and excuse me, on budget. So things are looking pretty good at Louisiana. Just as a reminder, there was two major things that were attacking three altogether, two major ones. One is in the handling yard, how we manage the feeding of the raw material storage and feeding into the furnace. And that's gone particularly well. We think that's going to have a major impact on the productivity of that operation. And we also replaced the lining in the vessel. And as you might recall, we had numerous major problems with the process gas heater. And of course we are basically replacing the entire process gas heater with a design that we have a great deal of confidence in. All of these changes were done to increase the productivity, reduce our cost in that operation. It's called Project 8000 for a reason. The reason being that we want to be able to get up to 8000 hours of operation. We believe that we'll be able to accomplish that next year. If we do, and let me rephrase that, when we do, we'll have a result of about 2.2 metric tons of production. 2.2 million metric tons out of that operation. Which we'll put it in terms of hours of operation on par with our Trinidad facility, which did just under 8000 hours of operation last year. So I don't remember what was the total cost of the project that was combined.

It was roughly $200 million. Roughly $200 million. And I guess the other question, Phil, you asked was with regard to the timing of these projects. The two main projects right now, the refractory and the PGH changes, will be done in the next three weeks. Those will come up mid-November. And then the ore yard will be finalized middle of next year.

Phil, some comments on your questions on timing of these things in terms of what's temporary, what's permanent. Obviously we're going to need to get a cost benefit from these investments. Well, we're taking a cost penalty and pre-operating the starting costs in the third quarter related to these investments. And that will be done after the fourth quarter. But the part where margins are compressed in both the DRI business and in the scrap business, that's part of the cycle of the business. When prices are low for pig iron, we have to sell DRI to ourselves at a low price. And if iron ore prices don't go down enough, it puts a squeeze in our margins. So that's a cyclical business like all of our businesses. And right now it feels like it's at the bottom of a cycle and needs to get better.

And remember, it's kind of a hedge. This is kind of a good news, bad news thing when we talk about our raw material business struggling. What it means is, as Jim pointed out, it means that scrap is at a low level. Pig iron is at a low level. We consume a tremendous amount of scrap and a tremendous amount of pig iron. So it's a good news, bad news situation. When we built this, we talked about it being a hedging operation and built particularly to help put a cap on the upward movement of scrap, particularly prime scrap during really good markets. And we saw that happen in 2018 and accomplished what it was meant to accomplish in 2018.

Thanks very much.

It appears there are no further questions at this time. Mr. Dunn, I would like to turn the conference back to you for any additional or closing remarks.

Thank you, Cassie. Before we end today's call, I'd like to take a few moments to thank you for your interest in our company. For the past seven years as CEO, I have truly enjoyed participating in these calls, and I always enjoy talking about Nucor's successes. It's been a pleasure to have you all as an audience. Thank you. I also want to offer my appreciation to our investors for entrusting Nucor with your valuable capital, and to our customers for entrusting us with your business. We truly appreciate the business you give to us. It's been a pleasure to work together with my teammates to serve all of you during my three decades with Nucor. And speaking of my teammates, I always give, I often give the following advice. Successful people surround themselves with great teams. If you want to be successful, you need to have the right people in the right positions on your team. I have been fortunate to always have the right people around me at Nucor, including the team on this call today. The strong leadership team we have built over the last decade will ensure that we have a deep bench of talent to draw upon for years to come. They have worked with me to achieve a number of accomplishments, which I am very proud of. A strong record of safety, the rollout of digital tools to better connect with and serve our customers, the execution on our five drivers of profitable growth, including our greater penetration of the automotive market, our significantly expanded channels to market, and our new rebar micro mills, as well as Nucor's evolution into a company that is more intensely focused on commercial excellence and building powerful strategic partnerships with our customers. I want to thank all of our Nucor teammates for the hard work that they have done during my tenure to achieve these successes and for the hard work that I know they will continue to do each and every day into the future to build a safer and more profitable Nucor. 2020 is going to be another exciting year for our company. When we asked Leon to join the executive team, I knew Nucor was bringing a strong leader to Charlotte. I have known Leon for years and I have been proud to call him a teammate. I've watched how he has met the challenges head on, preparing him for the role into which he now steps. And let me tell you something. I know that Leon and the great team around him will ensure that Nucor continues to be an industry leader well into the future. I'm excited to see where Leon and the team takes our company next. You know, at Nucor, we believe that we are never as good today as we're going to be tomorrow. There is always an opportunity to be better. I leave you all in the very capable hands, more confident than ever, that Nucor's best years are still ahead of us. Thank you again for what you do for Nucor every day. And to my teammates, thank you again particularly for doing it safely. Please never forget, there is nothing more important than safety. Absolutely nothing. Thank you for your interest in our company. Have a great day.

That concludes today's presentation. Thank you for your participation. You may now disconnect.