Nucor Corporation

Good day everyone and welcome to the new core corporation first quarter of 2020 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 the 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 now 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 welcome to our first quarter earnings call.

I want to begin today by taking a moment to honor the heroes surrounding us during these unprecedented times. Thank you to the doctors, nurses, and healthcare workers drawing close when the natural tendency is to pull away. Thank you to the EMTs and first responders, like my own daughter, who are serving on the front lines, battling to save lives. Thank you to the U.S. postal workers, UPS and FedEx drivers, and to the truck drivers delivering our food and medicines. I'd like to also thank the Nucor team members who have continued to work in order to support our country's essential systems and processes. And finally, I want to offer our thoughts and prayers of sympathy for those who have lost loved ones or who currently has someone fighting this terrible disease. Joining me in honoring these heroes on our call today are the members of Nucor's executive team, including Jim Frias, our chief financial officer, Craig Feldman, responsible for raw materials, Lad Hall, responsible for flat roll products, Ray Napolitan, responsible for engineered bar products, as well as Nucor's digital initiative. Mary Emily Slate, responsible for plate, structural, and tubular products. Dave Simosky, responsible for merchant bar products. Chad Udemark, responsible for fabricated construction products. And Al Baer, our most recently named executive vice president. And to our teammates listening in, your health and safety is our most important responsibility. Thank you for those of you who continue to work from home and those of you who are working to safely produce the products our customers need to continue to support essential projects across our nation. We will get through this pandemic by living our culture every day, staying focused, and taking care of one another. Currently, over 40 states where we operate our facilities are subject to either shelter-in-place or stay-at-home orders. In every one of these jurisdictions, NUCOR has been deemed an essential manufacturing operation Some of the essential projects that Nucor continues to produce feel for include the expansion of the Mayo Clinic in Arizona, the Henry Ford Healthcare System in Detroit, and many other hospitals across the nation in New York, California, Oregon, and Minnesota. Our sheet mills recently received orders from hospital bed manufacturers. We prioritized those orders and got the material turned around in one and a half weeks. Thank you to our team for making that happen. military and defense applications, including two aircraft carriers being built for the United States Navy, and several nursing homes, assisted living communities, and critical infrastructure projects across the United States. Over these last several weeks, the spirit of Nucor's culture has been on full display. Our teammates are not only continuing to serve our customers, but they are living up to the deeply shared sense of responsibility to the communities in which we operate and we live. there have been numerous stories of our team members finding ways to help their communities during this crisis by exercising the entrepreneurial spirit that brought them to Nucor. For example, Nucor teams all over the country have been pooling resources and overnighting in 95 masks and other critical PPE to medical units in need. Our team members in Seattle and Nebraska are utilizing personal and company-owned 3D printers to produce as many as 100 NIH approved face shields per day. Our Volcraft New York team has created and donated specialty hardhats with face shields to the local hospitals. Our Nucor LMP team in Missouri has been delivering meals to local senior centers. And one of our engineers at Nucor Steel Berkeley is producing intubation boxes to protect doctors and nurses in the operating room. These are just a few of the many stories that make me incredibly proud. to work with the greatest team assembled anywhere in the world. In late February, we took several proactive steps to prepare for the COVID-19 pandemic, including establishing three task force teams to guide our response, a main COVID-19 task force to provide guidance to our general managers who run each of the divisions, a pay and benefits task force focused on the financial well-being of our team members and a commercial task force to work with our customers, making sure that we provide uninterrupted customer service and that our customers continue to recognize Nucor as a sustainable and reliable supplier of choice. Turning to our first quarter performance, 2020 got off to a good start with an operating rate of approximately 90% at our steel mills and very strong earnings from our steel products businesses. Excluding the charges we took related to our deferred investment, our earnings were just under the guidance range we indicated in our March 19th news release. Order activity and backlogs remained strong well into March, reflecting solid underlying demand in non-residential construction and other end-use markets. The coronavirus pandemic's impact to our overall business has been varied. Automotive and oil and gas end-use markets have been the most severely impacted, while demand for our non-res construction products continues to be quite strong. Our facilities serving these construction applications continue to operate at high utilization rates. We are well positioned to weather the economic downturn and emerge from it poised to grow again once it's behind us. Nucor is a low-cost producer in each of the diverse markets in which we compete, and our businesses generate healthy cash flows throughout the upside. and downs of the business cycle. Our strong balance sheet and good liquidity during these distressed business conditions continues to be a source of real competitive advantage. Finally, underlying demand going into this crisis was robust. As we see America reopen for business, we believe that demand is still there and it will return quickly in most end-use markets. However, as you might expect, we are taking steps to further enhance our liquidity position during this time of significant uncertainty. We will also continue to look for ways to enhance our competitive position through the strategic allocation of capital. UCOR is currently evaluating all of our capital projects across the enterprise to determine which projects will continue to move forward, which projects we will pause as we assess the depth and severity of the pandemic and oil crisis facing our globe, and finally those projects that we will readdress at another time. We're also aggressively managing all inventory positions, including scrap with finished goods. We believe that these initiatives will allow Nucor to generate more than an additional $1 billion in free cash flow in 2020. I also want to note that we believe it's vital for Congress and the administration to move forward immediately with a significant infrastructure spending bill with strong Made in America provisions that include melted and poured for the United States steel industry. Our domestic infrastructure needs have been neglected for too long. A large-scale infrastructure effort would not only generate the economic activity and jobs we need now, but would also be an investment in our nation's future competitiveness. In closing, let me just note that we have faced crises before at Nucor, and it is during these times when the strengths and sustainability of our company are most evident. As we move forward, Nucor will stay focused on the health and safety of our team, serving our customers, and supporting our communities while preserving and growing shareholder value.

Jim? Thanks, Leon. I join Leon in offering my thoughts and prayers to everyone impacted by this terrible virus, and also my tremendous gratitude to the heroes working on the front lines to save lives and end the pandemic. The Nucor team has responded to this challenge The way our company has met every difficult period we've faced over the years by focusing our talents and commitment on building an even stronger Nucor for each other, our customers, our shareholders, and the communities in which we work and live. The resiliency and sustainability of Nucor's business model is built on these powerful attributes. Our team-oriented culture built on a foundation of trust, a highly variable and low-cost structure, our market leadership positions across a highly diversified product portfolio, our robust cash flow generation through the cycle, and a strong balance sheet. Nucor's balance sheet strength is evidenced by the fact that we hold the highest credit ratings of any steel producer headquartered in North America, with an A-minus long-term rating from Standard & Poor's and a BAA1 rating from Moody's. We believe our financial strength is a key strategic advantage. It has been a critical underpinning of Nucor's ability to consistently grow long-term earnings power and reward our shareholders through seven U.S. recessions and nine steel industry cyclical downturns since we began steelmaking in 1969. Nucor has paid and increased its regular base dividend for 47 consecutive years. We expect to continue this practice through this difficult period as well. With regard to our first quarter performance, I echo Leon's comment that we had a good first quarter in terms of operating profitability. Our cash provided by operating activities exceeded $200 million for the first quarter, even after we funded $160 million in profit sharing earned by new core teammates, as well as working capital expansion on the inventory, receivables, and payable line items, totaling another $194 million. Working capital expansion typically consumes cash during our first quarter. We expect this to reverse during the second quarter, given the downturn in business conditions brought about by the pandemic. Working capital contraction can generally be relied upon as a counter-cyclical benefit for Nucor, enhancing our cash flow and liquidity in more challenging environments. For example, working capital reductions generated cash flows of about $1.2 billion in 2015 and approximately $620 million in 2009. As we enter this time of significant uncertainty, we are taking additional steps to maximize our financial flexibility. In addition to normal working capital adjustments, we are further reducing inventories to increase turn rates and maximize liquidity. We remain confident in our competitive position and financial strength in this environment. That said, we believe it's prudent to review our capital expenditures budget to identify projects that we can freeze spending on or delay initiating, again, with the goal of maximizing financial flexibility. As a result of this review, we have revised our full-year 2020 capital expenditures estimate down to less than $1.5 billion from our initial projection of approximately $2 billion for the year. First quarter of 2020 capital spending was about $417 million. Our prudent approach means scheduled critical work, such as engineering and permitting, are continuing without interruption. Now I'd like to update you regarding the strategic growth projects that have recently come online or will begin operations later this year. Our Galvin, Kentucky Hotband Galvanizing Team doubled outside shipment times in the first quarter of 2020 compared to the fourth quarter of 2019. Our new 500,000 tons per year 72-inch wide galvanizing line is the widest hot-rolled galvanizing line in North America. The galvan team achieved nameplate capacity in March and now believes the new cork capacity will approach 700,000 tons per year. Our new cold mill at our Hickman, Arkansas location continues to ramp up well. The team there delivered first quarter of 2020 production at our dual configuration reversing mill That was more than double the average output of the three quarters that it operated last year. The Hickam team is now taking advantage of the current marketplace disruption to run development orders for automotive advanced high-strength steels. We are ready to serve our growing base of automotive customers as they return to work. Our KXK Ono and Merchant bar rolling mill has completed construction and equipment commissioning is now underway. We expect to start shipping product during the second quarter. Kankakee's expansion is targeted to benefit from significant logistical advantages, allowing Nucor to provide our customers with a full range of MBQ, light shapes, and structural angle and channel out of one location in the heart of the attractive Midwestern market. Our Sedalia, Missouri rebar micro mill has successfully started operating its melt shop and rolling mill in a continuous process. Production ramp-up continues, and output is receiving strong support from independent fabricators in the region. Our frost-proof Florida Rebar Micromill remains on track for completion later this year. Finally, our galvanizing line joint venture with JFP in Mexico is not currently operating under the terms of a decree by the Mexican government. The Mexican automotive industry and its supply chain has not been granted essential industry status at this point. where our hopeful operations can resume in the coming weeks. Before I turn the call back over to Leon, let me say that while these are very challenging times, I am encouraged by the extraordinary determination and performance delivered by the 27,000 men and women of Nucor. My confidence has never been greater that Nucor's best years are still ahead of us. Thank you for your interest in our company. Leon?

Good afternoon and welcome to our first Thank you, Jim. Before we move to Q&A, let me just comment on the substantial charges we took related to our Defertafin investment during the quarter. We acquired our 50% interest in Defertafin Nucor during the summer of 08. Soon after the transaction closed, we were faced with a dramatic shift in the regional economic outlook as the scope and severity of the global financial crisis became clear. We, our partners, and the Defertafin teammates quickly turned to the task of positioning the business for sustainable success in the new environment. Over the years, the Fertifin has made considerable progress at enhancing its capabilities and improving its efficiencies. But even as great strides were made within the business, the regional economic environment has only become more challenging. With the advent of the coronavirus pandemic, with particular severity in northern Italy, and some further changes in regional market dynamics, It's become clear to us that the investment was worth substantially less than its carrying value on our balance sheet. Operator, we're now ready to take your questions.

Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. And if you are using a speakerphone today, please make sure that your mute function is turned off to allow your signal to reach our equipment. Once again, that's star 1 to signal. And our first question today comes from Chris Terry of Deutsche Bank.

Hello. I hope you're safe and well. A couple of questions from me. Just wanted to start on the capex, just high level. So the reduction to less than 1.5 this year, does that mean 2021, 2022, et cetera, the total 3.5 bill of growth opportunities that you were seeking, is that still the number? So we should look at that as basically a deferral or have you changed the next few years as well? Thank you. That's my first question.

Yeah, this is Jim Fritz. I'll start with that question, and Leanne, if you want to add something, you can. But quite frankly, what we're doing is taking a course that gives us flexibility. So depending on what our outlook is as we progress through the year, we may end up spending more than $2 billion next year or less than $2 billion next year. We have flexibility to choose how quickly we put things back up to full ramp in terms of those CapEx projects. So 2021, it's too early to call. We'll make a decision on that by the end of the year.

Okay, thank you. And then just trying to square some of the cash items, I think you commented that you expect to still get over a billion of free cash flow. I wonder if you could comment on your cash tax rate, which I think is quite a bit below your P&L tax rate, and just some of the working capital improvements. I know you talked about 2009 and 2015, but just wondered if you could give some detail behind the free cash flow number. Thanks.

Yeah. Just to clarify, I think Leon meant to read cash from operations, not free cash flow in that portion of the script. He thought working capital would add to cash from operations by roughly $1 billion. But let me walk you through some of the pieces when you come up with computing what our cash from operations will be, and then after CapEx, what the free cash flow will be. So you have to start with an earnings number. I'm not going to give you a forecast of earnings for the year. We really don't know what earnings should be, but certainly we're going to make money this year. Then you would add to that our depreciation and amortization. That's roughly $720 million. We think working capital, the point that Leanne was making, is going to generate more than a billion dollars of additional cash from operations this year. And then finally, we are going to get a tax benefit that depends partly on how much money we make, but the full potential is $350 million this year because of the accelerated depreciation we're getting on projects that will start up this year. This has nothing to do with the deferred projects. And then over the next three to four years, that tax benefit is likely to be $7 to $750 million.

So does that cover it for you, Chris? Yeah, that's helpful. Thank you. And then the last one for me, a number of companies have commented that the non-res construction market is the one area of relative strength within the context of the demand for 2Q. and heading forward. I just wondered if you could comment on whether you believe that it's because there's a backlog or because that industry will stay robust. Just hard to sort of differentiate between the three- to four-month backlog that other companies have talked about. Thanks.

Yeah, Chris, as we've looked at a construction, it's sort of a dichotomy in today's pandemic. And so what I would tell you is I'm incredibly proud of our Volcraft, Verco, and building systems companies. teams, all of which have set record profitability in the first quarter. But as we move them to Q2, their backlogs continue to grow. And so there's a lot of resiliency in this market. And so we're optimistic but also looking to be very deliberate in how we spend and, as Jim mentioned, our flexibility towards capital allocation as we move forward. But that is the area that has shown great resiliency as we move through this current climate.

Great. That's it for me. Thank you very much. Thanks, Chris.

Our next question comes from David Gagliano of BMO Capital Markets.

Great. Thanks for taking my questions. So I just want to clarify something here. The press release reads to me, I think it says that Nucor has decided to freeze spending on certain capital projects currently in process and then delay capital projects that have not begun. But the remarks that just sounded to me like, They indicated that the projects for 2020 startup are actually basically still on pace to happen. And it sounds like 2021 and beyond pipeline really haven't been any decisions made as of yet. So my questions are specifically what projects are being deferred and frozen and for how long? And then secondly, where does the $500 million reduction in 2020 CapEx come from specifically?

Okay, David, thank you. I'll begin and maybe some commentary at the end. So as we look at the projects that we've talked about for probably the last 18 months, around that $3.5 billion of investment, all of the long products, the micromills in both Sedalia, which is running, Frostproof are going to move forward. The bar mill expansion, as Jim mentioned in his comments, in Kankakee is moving forward and now beginning to commission. Our Marion upgrades are up and running. So really the The pause that we're taking on capital expenditures come both in Brandenburg and the plate mill as well as the Gallatin expansion. And both of those are a pause in timing, not strategy. We are very committed to producing plate and believe we're going to have a differentiated product offering in both Brandenburg and Gallatin and offering things that no other EAF producer can currently offer. So, as we move forward, as Jim mentioned, it's too early to view the 21 landscape, but Those projects will come back. It's just a matter of timing and when we execute them.

Yeah, Dave, if I could add to that. I would say that the other thing is there are a number of projects that are smaller that we never broadcast what they specifically are. We are spending on where it makes sense. Some were far enough along towards completion that it didn't make sense to stop them. Others were early days where we couldn't stop them without causing a disruptive effect on the equipment suppliers. or on our divisions that were executing those projects. The other thing I'd say is that with these bigger projects, we are continuing to spend on things that we think are critical path items, such as engineering and permitting, so that if there is some delay, we can minimize that delay. If we gain confidence and decide we want to push and accelerate capital spending again, try and get these projects online sooner rather than later. Okay, that's helpful. Is maximizing flexibility.

Okay, understood. I appreciate that. It's helpful. So just a couple quick follow-ups. On the plate mill and the Gallatin expansion, how much of the $500 million reduction is attributable to pausing those two projects specifically? And then the second question is, The timeline in the previous presentation showed the Gallatin expansion mid-2021, and then the plate mill, obviously the biggest project, I think, in the history of Nucor, late 2022 startup. What should we be thinking about in terms of the timeline now for both those projects? Thanks.

David, I'll begin with the latter question first, and maybe Jim can comment to the specific or not. But as we think about Brandenburg as well as Gallatin, one of the things right now is really too early to predict when we start back. What I would tell you in Brandenburg's case, the engineering is going to continue moving forward. And so even if we pause for three or four months, that really won't have a material impact on the startup, because we'll be able to make that up as we move through construction, because quite frankly, our engineering will be that much further along. So it really is a dependent factor on when do we unpause and when do we continue to move forward. And so a little early to tell, but we'll have more color on that and clarity as we move into the quarter.

Thanks. The other thing I'd say is we don't really want to break down the detail of where the savings are coming from, but certainly Gallatin as well as the Platinum and Brandenburg are big contributors to that reduction in capex.

Okay, great. And then just the last piece, the Gallatin startup timeline, it was mid-2021. Now what do you think it's going to be?

You know, look, we haven't revised that yet, David, again, quite frankly, because we don't know how long that pause may be. It could be another month, and we're executing, and we didn't delay at all. But we'll have to just wait and see as we assess the length and the depth of this pandemic and oil crisis.

Okay, that's helpful. Thank you very much.

Thank you.

Our next question comes from Seth Rosenfeld of Exane BNP.

Good afternoon. Thank you for taking the questions. If I may, with regards to the steel products business, I wonder if you can give a little bit more color with regards to the fabrication backlogs and how you see those develop over recent weeks. And when you think about how your steel products business intersects with the mills, should we think about that as being an increasing bit of a buffer as perhaps third-party sales in the mills division fall in Q2 to expect to increase your internal sales going into downstream fabrication steel products. And then lastly, maybe some comments with regards to margins and how you expect it to progress going into Q2, assuming a reduction in scrap input costs for steel products. Thank you.

Okay, thank you, Seth. If we don't get all three parts of that question, let me know. Chad, you to Mark. Why don't you start out on the first part of the question regarding backlogs in our products businesses?

Yeah, thanks, Leon.

In both our Joyston deck and Nucor buildings group, as well as rebar fabrication, our backlogs are strong. They're actually up year over year. This is led by large commercial and warehouse projects, data centers, And quite frankly, COVID-19 has had a very small impact. We have had some regional delays and stop work orders, but we will expect as states come back online for those projects to start again.

This continued solid and steady non-risk construction market, I think leads us well into Q2 and Q3. Now historically, when there's economic downturns, our businesses will lag six to nine months and we'll see a little bit of a pause

With this self-induced economic downturn, I think time will tell whether that impact will be the same. But Leon, we have a strong backlog right now. We're pretty excited about Q2 and Q3. Thank you, Chad.

Jim, did you want to make a comment?

Yeah, I mean, internal funds consumed, we think of that as an important strategic advantage, our position there, because roughly 20% of our skill typically goes into those downstream businesses. In 2019, that was roughly 4 million tons if we just count our wholly owned subsidiaries. If we include steel technologies, which we own half of, it would have been 4.5 million tons in 2019. In the first quarter, just counting the new core wholly owned subs, it was 1.15 million tons. So again, a significant amount of the steel that we sell gets to go to businesses that we own, and that's a key component. It will not change dramatically in the second quarter. buy very much steel from outside sources. We pretty much self-supply wherever we can already. So there's not going to be a shift in that mix as we go forward. And I can't remember the third part of the question.

Was your last part of the question, Seth, around scrap pricing? I may have missed it.

I missed it. Sorry. It was around a margin assumption within steel products into Q2, not with regard to scrap, but with regards to the steel input cost. If you have an assumption with regards to steel margins Sorry, steel product margins in the Q2, please. Thank you. Yeah, this is Chad. Yeah, our margins are strong, and we don't anticipate those falling much. Obviously, you know what's going on in the scrap market and steel pricing. And again, demand drives our business, and right now demand is healthy.

Great. Thank you very much. Thank you.

Our next question comes from Timnit Tanners of Bank of America.

Hey, good afternoon, and thanks for the call. I hope everyone's healthy. I wanted to see if I could get a little more color on how you're talking about now that you're into April, so a third of the way through Q2. It sounds like most of the impact will be more on the flat world side then, and like you mentioned in the release, kind of cryptically, that there's been some closures, some supply off. So I just wanted to know if you could provide a little bit more of a snapshot of how to think about the product so far into the quarter. Is it mostly a flat rolled hit then with some plate and SPQ, and then long products are holding up volume-wise, or can you provide a little more color?

Sure. Thanks, Kim. And as we look at it, yeah, the flat side of our business, particularly the hot band, has probably been impacted along with the engineered bar for the oil and gas segment. So those are the two areas of our business portfolio that have probably been the most impacted. As we think about the longs and construction segments, though, those continue to run in fairly high utilization rates, 75 plus in some areas and even stronger in some others. But even as we think about the sheet side, our value-added product in the coal world and gal are at 80% or better in most of our plants and some running near capacity. So again, it's a little bit of a mixed bag, but overall the automotive and engineered bar would be the most directly impacted for us.

Okay, thanks. Then if I could, I want to take it a little higher level and just think about what kind of containment you could see in terms of overhead. So it sounds like you're not as panicked about this downturn as you, you know, as comparing it to the great finance, the global financial crisis, as you mentioned. But in 2008, 2009, you cut SG&A by $300 million. And I'm just wondering, you know, if times are particularly challenging for you know, could we expect something comparable in terms of SG&A cuts, or can you provide a little bit more framework around how much you think overhead could be trimmed? Thanks.

Yeah, I'll begin, and maybe ask Jim to think through some of the tail end of your question regarding SG&A. But, Tim, I want to make sure we're very clear. There's no Pollyanna-esque about our approach and where we see the markets today. The pandemic facing our lives is bigger than just our industry in steel. It's affecting the global markets worldwide. It's affecting families and businesses, small and big. And so part of the reason you've heard us take a very deliberate move in pausing Brandenburg, which again, strategically makes all the sense in the world and we will move forward on, is to really understand just how significant and how long these pandemic and oil crisis may stay with us. And so when Jim alluded to a comprehensive review of every project, we've looked across the spectrum of the enterprise on every capital dollar being spent to maximize our financial levers and the liquidity position as we move forward. Jim, any specifics on the SG&A?

When you think about SG&A, a big component of that is profit sharing and other incentive comp. And when we make less money, we have less profit sharing and less incentive comp. Now, as you may recall, We went into 2009 with a significant overhang, a very expensive figure, and we're not carrying that load this time. So we're entering this down cycle with a better position in terms of the assets we're carrying, our balance sheet. And so profit sharing probably won't go down by quite the same amount. Remember, profit sharing is the bonus that goes to our employees below the level of vice president, where 10% of pre-tax profits go into the pool and get split amongst all those employees every year. but all of our incentive comp plans will be flexing down, and that's where most of those savings will come. And the other thing is, as we've sheltered in place across our company, even though we're still operating, we are sheltering in place. We're having most of our teammates work from home. We're not on the road making the calls on customers or visiting vendors. We're doing a lot of the activities we normally do. So a lot of our C&A spending will come down, too. I don't have a hard number to give you, but we are being very thoughtful about saying, okay, let's reduce spending everywhere. Our maintenance teams are doing everything they can to reduce our reliance on contractors as an example of one of the places we're trying to reduce spending. And that's not SG&A. That's an operating expense. But we're looking to reduce spending wherever it makes sense in a way that doesn't hurt the business. But at the core of Nucor's philosophy and culture is to value the team. We're not laying off the Nucor teammates at our CMOs, our fab businesses. That's not part of how we're saving costs.

Great. Thanks, guys. Our next question comes from Andrea Bach of UBS.

Well, thank you very much. Just a quick question from me, just to provide a little bit of a framework around the current oil price. How do you guys think about it, just given where oil price levels are and in terms of any benefits it may provide you in terms of lower costs going into the second quarter, but potentially also if you expect any demand destruction for it? And maybe you could add a comment as to what extent you're hedging any oil if you are, in fact, doing that. And if not, then any clarity on that as well would be great. But just kind of your overall thinking about, well, when you think of oil at $20, how do you think about the impact on your business? Thank you very much.

Yeah, Andreas, I'd love to tell you. I have a really great picture of clarity as you watch every analyst today and yesterday and probably tomorrow about what the oil prices will be in a month It's really anybody's guess. What I would tell you of the certainties of the things that I do know, Nucor's broad product offering enables Nucor to thrive in the businesses that we're very strong in, the construction side of our businesses. We're not overly weighted. to oil and gas. About 10% of our overall product is into the direct oil and gas business. And so while it's certainly been a dramatic hit in the length of time we're going to see that impact and how long it takes to fully recover, I don't want to even begin to speculate. But what I do know is our teams are incredibly ingenious in how they continue to operate their mills and serve the customers in the sectors that are still doing well in HVAC, ag, heavy equipment, other sectors that we continue to supply direct business as well as our service centers.

Let me add to that, Leon, with just the idea from our cost perspective. Oil itself is not a primary cost driver for Nucor. Our biggest cost is raw materials. Our next biggest cost is energy, but that's mostly electricity. Obviously, we have a lot of mobile equipment, and we have an over-the-road fleet at some of our businesses that delivers product to our customers and But oil, gasoline, diesel fuel costs, they're not insignificant if you just think about that number. But as a percentage of overall costs, they're fairly insignificant. And we don't hedge those, excuse me. I meant to mention that as well.

Okay, excellent. Yeah, that's very clear. Thank you very much.

Thank you. And our final question today comes from Phil Gibbs of KeyBank Capital Markets.

Hey, good afternoon. Good afternoon, Phil.

Just a question on the raw material side. One, what's the May outlook for scrap as of right now, best you can tell? And then secondarily, when should we expect your DRI operations to begin production? I know Trinidad was shut down and there was press about Louisiana being shut down as well.

Certainly. I'll begin and then maybe ask Greg Feldman to jump in and maybe add some thoughts. As we think about the scrap for May, look, there's some tightening. Obviously, we're watching what's happening internationally, but also domestically. We think May will be up. As we think about obsolete, that'll really be a demand driver, but also on Prime, the availability of Prime with the auto plant shutdown and access to that is an element where we have some great flexibility as our DRI plant in Louisiana comes back online and, in fact, is producing prime as of today. And I'll let Craig add some more detail to that. But as we get into this market and really the tightness around prime and the value-added products that we serve our customer base with, the DRI is going to be a great benefit and a better factor as we move forward. Craig, do you want to add anything?

Sure. On the scrap market itself, Yeah, there's a lot of availability internationally, and we participate in a fair amount of that, both scrap and substitutes, including pig iron. And as Leon alluded to, we can certainly see some constraints on the prime scrap domestically, but I think that finds its own level fairly quickly. You could see a lag in supply of prime scrap, obviously, with the automotive producers shut down. But as they come back online, the availability will increase, and I think they'll find a pretty good balance relatively quickly. I guess the other point I would make is we really do have a unique flexibility within our sourcing strategy, our raw material strategy. We can flex between pig iron sourced on the Seabourn Market, our own two DRI plants, our DJJ scrap yards. So we really do have the ultimate ability to shift and flex in that regard. And then the other part of your question, I guess, is related to the DRI plants, the As you alluded to, Trinidad is still down, subject to a government order. Although we are waiting on a decision, we do expect to resume operations fairly quickly there. And I know the team there is eager and ready, willing, and able to jump in and get back to work as soon as that government order is lifted. Finally, as it relates to Louisiana, we opted early in the month to idle. And as Suzanne said, we're producing prime today. The team has done a wonderful job of bringing that plant back up safely and back in operation today. And I would also just point out that the reliability that they've improved on the last several months prior to this pause, I know the Louisiana team is anxious to get back to producing at a high level as they were prior to that brief pause. And again, the flexibility that that DRI gives us in the marketplace is something that really positions us very uniquely.

Thanks, Craig.

And Leon, the comments that you made on infrastructure specifically in your prepared remarks, is that something that you're advocating as a good idea just because obviously it would benefit the steel industry? Or is that something you feel like is gaining support for some eventual outcome in the next 12 months? Because obviously this can has been kicked for a couple of decades.

Yeah, look, I think it's both. I, like my predecessors with John Ferriero and Dan, are going to be a tireless advocate for fair trade in the United States, but it's bigger than that. You know, one of the things that the global overdependence of the supply chain into China has done to the American people is it's opened our eyes, not just in manufacturing and steel, but in pharma, our overdependence in medical devices and PPE and equipment. It is time for our nation to be a nation that builds and makes things in the United States again. And quite frankly, with more than 25 million Americans out of work today, a strong $1, 1.5, $2 trillion infrastructure bill will put hundreds of thousands, if not millions, of American workers back to work. It is something we need in this country desperately, Phil.

I appreciate that. And then lastly, I think you also mentioned in your prepared remarks that you're taking some time at Hickman to – progress on advanced high-strength steels with your customers? Is this downturn specifically allowing you to accelerate those efforts and trying to just gauge how that's being received and when we might be able to see some commercial success? Thanks.

Yeah, look, the short answer is yes, it is allowing us to do some of those things The team at our Hickman facility has done an amazing job of bringing that coal mill complex up and online. They're continuing to progress the galvanizing line Again, we'll be the first EAF producer to produce a Generation 3 steel for the auto industry. The fact that we serve all the major OEMs as a Tier 1 direct supplier gives us great access, so those trials are ongoing. I couldn't be more excited and optimistic about the work that our team has done in positioning Nucor for the future supplier of choice in that sector.

Thanks very much. Thank you, Phil.

That concludes the question and answer session today. At this time, I'd like to turn the call back over to Mr. Leon Topalian for any additional or closing remarks.

I'd be remiss in not taking a moment to thank Glad Hall for his nearly 40 years of service to Nucor. Glad, on behalf of the 27,000 men and women of Nucor, we would like to thank you, Sally, and your entire family for your dedication, service, and sacrifice to our company. While our nation faces this crisis in times of uncertainty, there are a number of things that our investors, customers, and team can be certain about. Nucor is the greatest manufacturing team assembled anywhere in the world, and we have the financial strength and discipline not just to survive this crisis but thrive coming out of it, allowing Nucor to steward a valuable shareholder capital and to serve our customers as the North American supplier of choice.

Thank you for your interest in our company.

And this does conclude today's call. We appreciate everyone's participation today. And you may now disconnect.