Nucor Corporation

Good day everyone. Welcome to the Nucor Corporation third 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 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 10Qs, 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. And now for opening remarks and introductions. I would like to turn the call over to Mr. Leon Topelian, President and Chief Executive Officer of Nucor Corporation. Please go ahead.

Good afternoon, and thank you for joining us for our third quarter earnings call. 2020 continues to present all of us with challenges from the pandemic, social unrest, and the economic struggles many people are facing to the wildfires and hurricanes that have impacted our country these last few months. But we have also seen how these challenges have brought people together to care for the safety, health, and well-being of one another. I want to thank my Nucor teammates for their continued efforts to take care of our Nucor family and the communities where we live and work. Joining me today on the call are the members of the Nucor 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 services. And Chad Udemark, responsible for fabricated construction products. With regard to our safety performance, our team has had another great quarter. We are on pace to have the safest year in our history. And I want to thank every one of our team members for their hard work and commitment. At the start of the year, I set the challenge for us to become the safest steel company in the world. And my deepest thanks go out to every member of our team for your continued focus on safety and our most important value. You have remained focused despite the tumultuous year. Fifteen Nucor divisions have gone more than one year without a recordable injury. I want to thank each of you for your continued effort, focus, and commitment to ensuring that we take care of the most important value and responsibility we have, the health and safety of our entire team and family. Turning to our financial performance in the third quarter, business conditions in most of the markets we serve improved as the quarter progressed, resulting in a rebound in demand for bars, beam, and sheet products. Increased demand was reflected in our capacity utilization rate, which for our steel mills improved 83% from 68% in the second quarter. Better market conditions, combined with continued strong execution by our team, enabled us to outperform the expectations we had at the beginning of the quarter. Looking at the business conditions in different end-use markets during the quarter, non-res construction demand continued to be resilient. and in fact is growing for us in areas like our joist and deck businesses, where orders, quotes, and backlogs are all up year over year. More broadly, while third-party data tracking construction starts and backlogs have been volatile, indicators that look out further by tracking project inquiries have turned positive in recent weeks. Much of the activity continues to be in data centers and distribution centers where we've had incredibly strong capability and relationships with owners, developers, fabricators, and designers. We expect that these two areas will remain strong for the foreseeable future. We recently launched a construction solutions team to better service our customers throughout the construction segment and bring together the breadth of Nucor's products for a more coordinated approach to the marketplace. In the automotive sector, we experience a strong rebound in the third quarter related to automotive demand. Further, we are expecting strong automotive production rates in Q4 that could match or exceed the year-ago period. OEMs are focusing on rebuilding inventories to meet the continued strong demand. For reference, current days on hand inventory levels are at nearly 10-year lows. We have heard some analysts suggest that consumers are allocating money they would normally spend on travel to upgrade their cars and vehicles. We are pleased with our team's performance in this market and are expecting continued profitable share growth as we move forward. Moving on to oil and gas end use markets, there's been no appreciable change here with both rig counts and underlying commodity prices still being low. However, renewable power and energy transmission are showing strong growth despite effects from the pandemic. Through late September, steelmaking segment orders related to the renewable power sector have already exceeded 2019 by 15%. We are excited about the opportunities for our company in the renewables market, and we participate in that market through a broad variety of products, including plate, tubular, beams, fabricated rebar, sheet, piling, and fasteners. The breadth of our product offering and the investments we are making in highly differentiated capabilities present meaningful growth opportunities for us. Several of our capital investment projects that started operating in recent months are producing excellent results. The ramp up of our rebar micro mill in Missouri continues to outperform our expectations. We generated positive EBITDA through the quarter at Sedalia. Congratulations to the entire Nucor Sedalia team for their excellent performance. Our Kankakee, Illinois bar mill will complete commissioning of the new MBQ rolling mill in Q4. We expect to achieve positive cash flow from this project in Q1 of next year. While the commissioning schedule was slightly extended due to COVID-related disruptions, customer acceptance of the new products has been extremely strong. This new capability at Kankakee will allow us to provide our customers with a full range of MBQ, light shapes, and structural angles and channels out of one location in the heart of the Midwestern market. Our new state-of-the-art cold mill in Hickman, Arkansas continues to ramp up production and to diversify its product mix. Since commissioning, the cold mill has added 24 new customers, which has helped the team rapidly grow production and shipments in fact the third quarter cold rolled shipments surpassed our volumes for the first quarter which was of course pre-covered product development continues to be a focus including the first trial runs of our third generation advanced high strength seals construction of the gen 3 flexible galvanizing line at new core arkansas continued to progress throughout the quarter equipment installation began in the third quarter and the team anticipates a startup in the second half of 2021. Our other major investment projects remain on track. Startup of a rebar micro mill in Florida is expected to happen late this year. And the Gallatin expansion startup is anticipated for the second half of next year with a plate mill in Brandenburg, Kentucky to follow in late 2022. And before I leave the topic, I also want to give a shout out to our team in Marion, Ohio, We don't talk about it as much. Perhaps it's because it's a modernization and not an expansion. But the team at Nucor Steel Marion completed the project to fully modernize our Marion bar mill in the middle of last year. They did so safely, on time, and within budget. These investments lowered our cost and our environmental footprint there. And Marion's profitability is up almost 200% over last year. So again, congrats to the entire team there. While we are always looking for high return growth projects like these, we are not overlooking opportunities to improve our performance by proactively managing our existing asset base. Over the last couple of years, we've had to make some difficult decisions to restructure parts of our metal buildings group to better align our production capabilities with the needs of the market. While every team member who has been impacted has had the opportunity to remain with a Nucor family, these decisions are not made lightly or without considerable deliberation. I want to thank our teammates for their dedication and service to Nucor as we have navigated these difficult changes. We recognize our shared responsibility to effectively steward shareholder capital and deliver world-class returns on those investments today and tomorrow. It is worth noting that Nucor Buildings Group has generated strong operating profits during both 2019 and 2020. even as our teammates there adjusted to these changes in their business, as well as the pandemic. With the election less than two weeks away, we believe that no matter who sits in the White House or holds a majority in Congress next year, our leaders in Washington must understand the need to move forward with a significant infrastructure spending bill that includes strong Buy American provisions. We believe that a long-term commitment to modernizing our nation's crumbling infrastructure is long overdue. And we will continue to remind our elected officials of this when the new Congress convenes in 2021. Real progress on this front would not only boost the economy and create hundreds of thousands of much needed jobs in the short term, it would also be an investment benefiting future generations of Americans. We are also encouraging the current Congress to pass reauthorization of the Water Resource Development Act before they adjourned. WERDA legislation funds critical waterway construction projects that are an important market for us and improve the waterway transportation system we use to ship our products. Before turning it over to Jim, I just want to say how much I appreciate everyone on the Nucor team working safely and for your focus on serving our customers during these most challenging times. The Nucor team's passion and dedication are getting noticed by existing as well as new customers. Let's keep it up and never lose sight of the importance of valuing every individual and the contribution they make to our collective success.

Jim? Thanks, Leon. Nucor's third quarter earnings of 63 cents per diluted share exceeded our guidance range of 50 to 55 cents per diluted share. Results for the month of September exceeded our forecast at almost every business across our diversified portfolio. Third quarter results included $6.6 million of losses on assets related to our deferred and new core joint venture in Italy and a $16.4 million restructuring charge related to the further realignment of our metal buildings business that Leon mentioned. We expect this will be the final restructuring charge associated with that initiative. The combined negative impact of these actions on our third quarter earnings was approximately six cents per diluted share. These charges were not included in our guidance estimates. Excluding these special charges, as well as pre-operating and startup costs, earnings would have been 75 cents per diluted share. Cash provided by operating activities for the nine months of 2020 was $2.2 billion. This exceeded the sum of our year-to-date capital spending of approximately $1.2 billion and cash return to our shareholders via dividends and stock repurchases totaling $408 million. Nucor's through the cycle earnings and cash flow benefit from a highly variable, low cost structure. Working capital reductions generally provide a counter cyclical benefit to Nucor in downturns like the current one, enhancing our cash flow and liquidity. Year-to-date cash flow generated from contraction in inventory, receivables, and payables was $643 million. As I previously noted, we made significant progress in reducing inventory volumes during the second quarter. I'm pleased to say that during the third quarter, we were able to respond to increased order flow and production without increasing our inventory levels. Our investment in scrap, whip, and finished goods inventories is basically flat or slightly down from the prior quarter levels on a tons basis. On the financing front during the quarter, we took advantage of the opportunity to work with Meade County, Kentucky to issue $163 million of tax exempt industrial revenue bonds to provide partial funding for our new plate mill under construction in Brandenburg, Kentucky. The bonds are designated green bonds as proceeds will be used for pollution prevention and control facilities. The bonds will mature in July, 2060. This is Nucor's longest tenor bond ever issued at 40 years and our first green bond issuance. Concurrent with this capital raise, Standard & Poor's and Moody's both reaffirmed Nucor's 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 third quarter, our cash and short-term investments totaled approximately $3.3 billion. Nucor's liquidity also includes our undrawn $1.5 billion unsecured revolving credit facility, which does not mature until April of 2023. Total long-term debt, including the current portion was approximately $5.5 billion. Our debt to total capital ratio, net of cash and short-term investments, was approximately 13.5% at the quarter end. 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 continues 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. Our team has been working on nine significant organic growth projects representing a total investment of about $4 billion. We expect to complete commissioning on six of these projects by the end of this year. The remaining projects are the expansion and modernization of our Kentucky Sheet Mill, The addition of our generation three flexible galvanizing line at our Arkansas sheet mill and our Kentucky plate mill. At the close of the third quarter of 2020 remaining capital expenditures for these growth initiatives are estimated to be approximately $2.1 billion. We expect about 300 million of that investment to occur in the current quarter with the balance occurring in 2021 and 22. We expect that our total capital spending for full year 2020 will be in the area of $1.7 billion. Turning to the outlook, we expect Nucor's fourth quarter earnings to be improved over our third quarter results. Most notably, our sheet and plate mills will benefit from recent price increases. 2020 has been a challenging year in many respects, but it has served to heighten our already strong confidence in Nucor's future. Our teammates continue to capitalize on Nucor's advanced cost position, flexible production capability, and financial strength to build long-term value for our customers and shareholders. Thank you for your interest in our company. We are now happy to take your questions.