Nucor Corporation

Good day, everyone, and welcome to the new CORE Corporation fourth 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 this 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 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 risks 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. Now, for opening remarks and introductions, I would like to turn the call over to Mr. Leon Topalian, President and Chief Executive Officer of Nucor Corporation. Please go ahead, sir.

Good afternoon, and thank you for joining us for our fourth quarter earnings call and my first call as CEO of Nucor. I'm honored to have the opportunity to lead this company and to serve alongside the 27,000 men and women of Nucor who inspire me every day. Joining me on the call today are the members of Nucor's executive team, including Jim Frias, our chief financial officer, Craig Feldman, responsible for raw materials and logistics, Lad Hall, responsible for flat-rolled products, Raina Pollison, responsible for engineered bar products, as well as Nucor's digital initiatives, Mary Emily Slate, responsible for plate, structural, and tubular products, Dave Samosky, responsible for merchant bar and rebar products, and Chad Udemart, responsible for fabricated construction products. I also want to thank John Ferriola for his leadership during the past seven years as CEO and the impact he has made over his 28 years with our company. We thank him for his many contributions to Nucor and wish him all the best in his retirement. At Nucor, our greatest competitive advantage is our culture. and the greatest measure of that culture is how we care for one another through the value of safety. 2019 was the safest year in our history, and I'd like to thank all of my teammates for achieving this tremendous result. Nucor is a continuous improvement company. Our challenge and opportunity is to achieve breakthrough improvements in this core value. Over the last several months, I've engaged our team to ask how we can continue to improve our performance and safety. And we plan to work together with our teammates to implement their ideas and strategies. I look forward to making 2020 an even safer year for Nucor together. In 2019, Nucor recorded earnings of $4.14 per diluted share. This was a good result given the challenging steel market conditions that prevailed throughout much of the year. Strong performance in many of our steel products businesses helped partially offset the destocking that negatively impacted our steelmaking operations. In particular, I'd like to recognize both Volcraft and Verco and our buildings group, which each achieved their most profitable year ever, as well as our rebar fabrication operations, which posted much improved results over 2018, reflecting both strong execution and favorable non-res construction market conditions. Thank you for this result. We believe that inventory destocking concluded in the fourth quarter, when customers resume more normal buying patterns. General business conditions also improved as the fourth quarter progressed due to a number of factors, including a rate cut by the Federal Reserve, the new labor agreement between the United Automobile Workers and GM, as well as progress on U.S.-China trade relations, and the passage of the U.S.-Mexico-Canada trade agreement by Congress. With regard to the USMCA, we applaud the House and Senate for passing the agreement with overwhelming bipartisan support. The new trade deal with Canada and Mexico is a significant win for the U.S. steel industry, especially given the revamped rules of origin that will greatly incentivize the use of North American steel in autos, auto parts, and other products containing steel. All in all, we sense noticeably more optimism about the outlook for the U.S. economy as we head into 2020. I'd like now to share with you my most immediate priorities for our company as I begin my tenure as Nucor CEO. There are four key areas that we as a leadership team will focus on and execute on. First, how we as a team care for one another through the value of safety to further strengthen our culture which is a key driver of our success. Secondly, the execution of the $3.5 billion of growth projects we are bringing online. Execution begins with bringing these products online safely, and we've been doing that. Once they begin operating, we need to ensure that we stay focused on generating appropriate returns from these investments. All of these investments are focused on Nucor's goal of being the supplier of choice both today and tomorrow. We're staying ahead of the curve in adding the high-value products that our customers are asking for. Third, effective management of our portfolio of businesses to maximize our earnings potential. Ensuring our future success requires both making sound growth investments and addressing areas of underperformance. We will harness Nucor's culture of continuous improvement to achieve the full return potential across our entire asset base. Finally, I've taken over the leadership of a company whose ability to attract, retain, and develop great people has always been key to our success. So we will remain relentlessly focused on talent. Our team members create the true value in our company. We have more than a 90% retention rate, and I believe we have the most engaged, passionate, and driven team members in the world. We will continue to attract great team members by making sure the talent and passion of our team is more broadly recognized outside the company. And we are committed to further enhancements of our programs to develop and retain our valuable team members. There will be more to come in all four of these areas as the year progresses, but I wanted to share these initial priorities with you today. Let me conclude by prepared remarks this afternoon with an update on some of our more significant capital projects. We achieved important milestones on several of them during the quarter. At our DRI plant in Louisiana, the critical work of replacing the convection section of our process gas heater, as well as relining the reactor refractory, was completed in November. The work was done safely, on time, and within budget. We expect these projects will further improve the plant reliability. My thanks and congratulations to the team in Louisiana for their successful execution from this key phase of project 8000 and for the performance in 2019, which was our second best year ever for uptime and output, despite the 70 day planned outage. Two of our growth projects, our specialty cold mill complex at New Course Steel, Arkansas, and the new galvanizing line at New Core Steel Gallatin continue to ramp up production during the fourth quarter. Feedback from our customers on the products out of Gallatin and Hickman has been excellent, and now that we're operating, we've seen even more opportunities to align with our customers. Utilization at Gallatin's galvanizing line is already over 50%, and Hickman's new cold mill is operating 24-7. We had contract customers for 31% of the new cold mill's capacity at year's end. Qualifications are ongoing and we expect to be IATF certified by mid-2020 at Hickman's new state-of-the-art reversing cold mill. Several other growth projects are coming online early in 2020 as well, including our new rebar micro mill in Sedalia, Missouri, the new merchant bar quality mill at Nucor Steel Kankakee, and our JV galvanizing line located in central Mexico that we are operating with JFE Steel of Japan. We have arced both the EAF and LMF furnaces at Sedalia in recent days, and our new teammates there are hitting the ground running, already serving customers with product made from billets. We expect the ramp-up to continue to go well. Kankakee experienced some delays in equipment deliveries and the permitting process, but we expect to come in at our initial capital budget of approximately $190 million. We expect to start shipping product during the second quarter. At our joint venture with JFE in Mexico, we look forward to beginning trials shortly and serving automotive customers in central Mexico. The facility's opening has been delayed due to some challenges that we did not anticipate. For example, more difficult soil conditions required incremental piling, resulting in higher costs than budgeted. We also found that the local electrical system infrastructure was insufficient for our needs. and decided to acquire additional land for our operational footprint. These events increased the total capital budget from our initial estimate of $270 million to approximately $360 million, with Nucor's share of these amounts being 50%. While this is disappointing, JFE and Nucor remain very excited about the JV's prospects and are very confident in the product and our partnership. This is especially so following the recent passage of the USMCA with its North American content rules. Finally, we are excited to report that we have teammates on the ground and have begun excavation work for our new plate mill in Brandenburg, Kentucky. The mill is the largest investment in our company's history, and when it begins to operate in 2022, Nucor Steel Brandenburg will be able to produce 97% of the plate products demanded in the United States market. With that, let me turn it over now to Jim Frias, who will discuss our financial results in greater detail.

Thanks, Leon. NUCOR reported fourth quarter of 2019 earnings of $0.35 per diluted share. Included in these results were non-cash impairment charges of $66.9 million, or $0.17 per diluted share. Of that amount, $35 million, or $0.09 per share, related to our natural gas well assets. $20 million or $0.05 per diluted share related to a long-lived asset impairment in the steel mill segment and $11.9 million or $0.03 per share related to the write-down of certain intangible assets in the steel product segment. These results exceeded our fourth quarter of 2019 guidance range of $0.25 to $0.30 per share. The amounts of these non-cash impairment charges were not included at the time we issued our guidance on December 12th. Our fourth quarter included better than expected performance across most of the steel mill segment. Our fourth quarter results included approximately $35 million or $0.09 per diluted share of pre-operating and startup costs related to strategic investment projects. That compares to approximately $28 million in the third quarter of 2019 and approximately $17 million in the year-ago quarter. Excluding profits attributable to non-controlling interests, the effective tax rate was approximately 24.5% for the full year. Going forward, we expect Nucor's effective tax rate to continue to be in the range of 24 to 25%, barring any unusual items. In 2019's challenging steel market conditions, Nucor generated record operating cash flow of approximately $2.8 billion. Capital expenditures for 2019 totaled approximately $1.5 billion. For 2020, we expect capital spending to exceed $2 billion. Major components of this year's capital budget include the Brandenburg Greenfield Plate Mill, the Gallatin Sheet Mill's hot band production capacity expansion, the Hickman Sheet Mill's new galvanizing line, and our Florida Rebar Micro Mill. In addition to investing for long-term profitable growth, Nucor's disciplined and balanced approach to capital allocation rewards our shareholders with attractive cash returns. Cash returns to shareholders during 2019 totaled $791 million, or 62% of net income for the year. We paid dividends of $492 million. We also repurchased approximately $299 million of our stock, about 5.3 million shares at an average cost of just over $56 per share. With the dividend increase announced in December, NUCOR has increased its base dividend for 47 consecutive years, every year since it first began paying dividends in 1973. Over the 10-year period ending in 2019, NUCOR has returned a total of more than $6 billion to our shareholders through dividends and share repurchases. Our focus continues to be on effective stewardship of our shareholders' valuable capital via both disciplined investments that we expect will generate returns well in excess of our cost of capital as well as attractive cash returns to our shareholders. Nucor's financial condition remains strong. We ended 2019 with $1.8 billion in cash and short-term investments. With total debt outstanding of approximately $4.3 billion, our gross debt-to-capital ratio was 29% at the end of the fourth quarter. Our $1.5 billion unsecured revolving credit facility remains undrawn and does not mature until April of 2023. Our next significant debt maturity is in 2022 for approximately $600 million. Now turning to the outlook. Nucor's earnings in the first quarter of 2020 are expected to increase as compared to the fourth quarter of 2019. We are encouraged by improving conditions in the U.S. steel markets entering 2020. We believe this reflects the end of the severe inventory stocking that occurred last year and ongoing modest growth in end-use markets overall. We expect first quarter earnings in the steel mill segment to increase from the fourth quarter due to price increases and expected higher volumes. It is worth noting that December, a historically weak month, was the highest profit month in the fourth quarter for our steel mill segment. The profitability of the steel product segment is expected to decrease as compared to the fourth quarter due to normal seasonality. The performance of the raw material segments is expected to increase compared to the fourth quarter due to improved pricing for raw materials. It's worth noting the outlook from an end-use markets perspective. We see stable or growing end-use markets accounting for approximately 70% of our shipments. Leon mentioned the strength of non-residential construction markets. We see this continuing into 2020. Non-residential is an important demand driver for our industry. Boats, order rates, and backlogs are up across our buildings group and in our joists and deck business. We are also hearing similar things from our structural fabrication customers. Nucor is the leading supplier of structural beams in the U.S. with the broadest product offering. It's a privilege to support our fabricator customers on important projects across the country. Thank you for your interest in Nucor. I will now turn the call back over to Leon.