Nucor Corporation

Good day, everyone, and welcome to NICORS Corporation's second quarter of 2020 earnings conference call. As a reminder, today's call is being recorded. Later we will conduct a question and answer session and instructions will be given at that time. Certain statements made during this conference call will be forward-looking statements that involve risk and uncertainties. The words we expect, believe, anticipate, and variations of such words or 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 NCCOR 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 related to the forward-looking statements may be found in NCCOR's latest 10-K and subsequently file 10-Q, which are available on the SEC's NCCOR 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 of 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 thank you for joining us for our second quarter earnings call. As we continue to navigate the COVID-19 pandemic, we want to again thank the doctors, nurses, EMTs, and other first responders for their efforts in this fight. I'd also like to thank our team who have continued to serve our customers throughout this pandemic. Joining me today on the call are the members of Nucor's executive team, including Jim Frias, our Chief Financial Officer, Al Baer, responsible for plate and structural products. Craig Feldman, responsible for raw materials. Ray Napolitan, responsible for engineered bar products, as well as Nucor's digital initiatives. Mary Emily Slate, responsible for sheet and tubular products. Dave Samosky, responsible for bar rebar fabrication and construction and engineering services. And Chad Udemark, responsible for fabricated construction products. Before going over our financial performance for the quarter, I want to congratulate our team on our safety performance. We began the year with a challenge to become the world's safest steel company, and I couldn't be prouder of our efforts on the most important value we have as a company. While the current pandemic has challenged all of us, it has also allowed our team to expand how we care for the safety, health, and well-being of one another. I want to take a moment to recognize Nucor Steel Arkansas and Nucor Castrop Arkansas for going more than one year without a recordable injury. An impressive accomplishment for one of our larger, more complex steel mills. I'd also like to congratulate Nucor Steel Connecticut for going three years without a recordable injury. Congratulations to our teammates at these divisions. We look forward to replicating these results across more of our operations so that this becomes the new normal at every location. Safety also means creating a more diverse and inclusive company. With the events gripping our nation, we are committed to taking the necessary steps to ensure that every team member in our company feels safe, not just in how we produce our steel, but safe in every sense of the word, safe in how we treat one another, regardless of the color of our skin, our religious beliefs, age, or sexual orientation or political views. Our culture is the foundation that has made Nucor the preeminent North American steel producer for over 50 years, and we are committed to ensuring that our culture remains the hallmark of our success for the next 50. Turning to second quarter financial performance, earnings were better than we anticipated due to our diversified product mix and strong position in non-res construction markets. We continue to see the benefits of our recent initiatives to improve the performance of our businesses that serve these markets, specifically in rebar fabrication and metal buildings. I want to thank those teammates for embracing the changes we have made in these business units. During the quarter, we had very strong cash flow and increased our financial flexibility with the issuance of $1 billion of new notes. Jim Frias will discuss this more in detail in a few minutes. As we discussed in our last call, All of our domestic steel and steel product operations are considered to be an essential business in estate operating since the pandemic began. Our ability to continue operating along with proactive engagement with our customers has enabled us to grow our businesses with existing customers as well as develop new customer relationships. We're also getting inquiries and conducting trials with customers who are planning to reshore their manufacturing operations. In the uncertain environment created by COVID-19 pandemic, our team's reliability and resilience is appreciated by our customers. I want to thank our teammates for their dedication and commitment to living our culture over these last few months, which is why we were able to exceed our customers' expectations. During the quarter, we were pleased to receive two awards from General Motors. For the second consecutive year, Nucor has earned GM Supplier of the Year Award We remain the only EAF-based dealmaker to receive this prestigious award. We value the partnership we have built with GM and look forward to growing that partnership in the future. Congratulations to all of our teammates who are successfully executing our strategy to grow our share in the automotive market. In addition, Nucor Steel Berkeley was recognized by GM for excellent quality and responsiveness and received the Supplier Quality Excellence Award. My congratulations and thanks to the entire Berkeley team for this outstanding achievement. We're very proud of your success. Now I'd like to provide some updates on growth projects we recently commissioned. Progress continues at our Hickman Specialty Cold Rolling Mill. The mill is already producing 980 megapascal strength steel with just five passes through the mill versus 25 or more passes required to produce comparable material at a conventional reversing cold mill. Hickman is continuing to trial advanced high strength steels with both existing and potential customers. The new galvanizing line at our Gallatin sheet mill is fully operational and the team continues to focus on optimizing yield and productivity. The mill received IATF quality certification in May and is working on qualifications relevant to other markets. including rain bins and cooling towers. Gallatin also received a new supply award from a major automotive OEM, and they continue to see strong performance in the solar market. Our new Sedalia rebar micro mill in Missouri has already achieved positive EBITDA for June. We forecast that the mill will be bottom line profitable by September and will be capable of full production capacity early in the fourth quarter. The spooler commissioning has been completed and spooled product is being well received in the market. We are growing our number of active customers each month. Our Kankakee, Illinois division has continued to commission equipment and is starting to develop a wide range of products on our new NVQ mill there. We will start to ship orders to customers this quarter. While market conditions are difficult to forecast, we are optimistic that we will achieve positive cash flow from this project by the end of the year. We also continue to make progress on several projects that are currently under construction, including Frostbrew Florida rebar micromill is on track for startup in the fourth quarter. The Hickman Generation 3 flex galvanizing line. The team progressed with building construction and installing equipment foundations during the quarter. We were targeting startup of the line there for the second half of next year. Finally, with respect to the Gallatin modernization and expansion and the Brandenburg plate mill, we are green lighting each of these projects to move ahead at full speed. Our decision is guided by the incredible market opportunities these investments afford us, our strong operating cash flow, and the adjustments we have been able to make across the company in response to the pandemic. We did receive our air permit for the Brandenburg plate mill, and we have remained on track with our timeline there by continuing to push ahead on the engineering work for the project. Despite the significant challenges posed by COVID-19 pandemic, the 26,000 men and women of the Nucor team worked hard to maintain profitability during this challenging quarter. I'm especially proud of how our team has come together and continues to live our culture. With that, I'd like to now turn it over to Jim Frias.

Thanks, Leon. Our second quarter results demonstrate once again the strength and resilience of Nucor's business model, with the Nucor team delivering better than expected earnings and robust cash from operations in a very challenging and uncertain environment. Second quarter earnings of $0.36 per diluted share exceeded our guidance range of $0.10 to $0.15 per diluted share. Results for the month of June exceeded our forecast at several businesses, including our rebar and merchant bar mills, rebar fabrication, joist and deck, tubular products, and at our sheet mills. Cash provided by operating activities exceeded $1.1 billion for the quarter, with working capital contraction on the inventory receivables and payables line items totaling $650 million. Working capital reductions generally provide a counter-cyclical benefit to Nucor in downturns like the current one, enhancing our cash flow and liquidity. Scrap inventory has been an area of particular focus as the pandemic has unfolded. Today, we are much leaner in this area than we were at the pandemic's outset. And I think we will be able to use this experience to stay lean when growth resumes and prices rebound, reducing the asset base that we require to generate strong profitability. Our cash provided by operating activities for the first half was $1.35 billion, our second best first half performance in terms of operating cash flow. It exceeded our year-to-date capital expenditures and cash dividends to shareholders by more than $300 million. During the second quarter, we took advantage of attractive market conditions and, of course, strong credit profile to issue low coupon debt. $500 million of five-year senior notes with a coupon rate of 2% and $500 million of 10-year senior notes with a coupon rate of 2.7%. Concurrent with our capital raise, Standard & Poor's, and Moody's both reaffirmed their new core credit ratings of A- and BAA1, respectively, while also maintaining their stable outlooks. We continue to hold the highest credit ratings of any steel producer headquartered in North America. At the close of the second quarter, our cash and short-term investments totaled more than $3 billion, more than double our cash and short-term investment position of about $1.4 billion at the end of the first quarter. Nucor's liquidity also includes our undrawn $1.5 billion unsecured revolving credit facility, which does not mature until April of 2023. Our next significant debt maturity is not until September of 2022, $600 million of unsecured notes with a coupon rate of 4.125%. The flexibility provided by Nucor's low-cost operating model and financial strength has been and will continue to be a critical underpinning to our company's ability to grow long-term earnings power and reward our shareholders with attractive returns on capital. On our April call, we reported that we had revised our full-year 2020 capital expenditures budget down to less than $1.5 billion. While that measure was taken to maximize our flexibility in light of a dramatically different economic outlook than we anticipated at the beginning of the year, We have not slowed any capital spending related to safety, operational reliability, or environmental compliance. With respect to our most significant organic growth projects, the Brandenburg Plate Mill, and the expansion and modernization of our Gallatin Sheet Mill, as Leon has already indicated, we have decided to reaccelerate investment in each of them. We are taking this step after a thorough review of these projects and their compelling economic returns, as well as our cash flow performance. This will mean that CapEx in the second half will be approximately $250 million higher than it would have been otherwise. We now project their total capital spending for 2020 will be in the area of $1.7 billion. Before I turn the call back over to Leon, let me provide a few comments about the outlook. While the current environment is highly uncertain, with sheet, plate, and raw material markets remaining challenging, At this point, we expect new course third quarter earnings to be similar to our second quarter results. Our long products and downstream businesses continue to benefit from solid non-residential construction market conditions. And our teammates continue to capitalize on new course advantage cost position, flexible production capability, and financial strength. Thank you for your interest in our company. Leon?