Nucor Corporation

Good day everyone and welcome to the new core corporation fourth 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 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 can 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 like to turn the call over to Mr. Leon Topalian, President and Chief Executive Officer of Nucor Corporation. Please go ahead.

Good afternoon and thank you for joining us for our fourth quarter earnings call. We hope everyone on the call is having a good start to the year and staying safe and healthy. The last 12 months have been incredibly challenging on so many different levels. The pandemic has impacted businesses and markets and taken a tremendous toll on so many that have cared for and lost loved ones during this time. The distractions we have faced as a nation and as a company are significant, yet the Nucor team has never lost its way in delivering the safest year in our history. Let me repeat that again. 2020 was the safest year in the history of our company. I'm extremely grateful for the hard work, dedication, ownership of our nearly 27,000 team members who made this result possible. While there still is a great deal of work ahead of us in our journey to become the world's safest steel company, I am more convinced than ever that this team will accomplish our goal. To our Nucor teammates, thank you. I am proud for you all. Well done. Now, let's make 2021 our safest year ever. Joining me today on the call are the members of Nucor's executive team, including Jim Frias, our Chief Financial Officer, Dave Samosky, Chief Operating Officer, Al Baer, responsible for plate and structural products, Craig Feldman, responsible for raw materials, Doug Jellison, responsible for DJJ and logistics. Greg Murphy, responsible for business services and our general counsel. Ray Napolitan, responsible for engineered bar products. Rex Query, responsible for sheet and tubular products. Mary Emily Slate, responsible for our commercial strategy. Chad Udemark, responsible for fabricated construction products. And Dan Needham, who will be joining our Charlotte team on February 1st and be responsible for bar products. At the end of the year, we announced several changes to our executive team. Dave Samosky was promoted to Chief Operating Officer. Dave has been with Nucor since 1995 and has led multiple steel product groups and strategic initiatives, most recently combining our domestic rebar steel mill and fabrication businesses. Dave is uniquely positioned to help Nucor continue to build lasting partnerships while executing our enterprise-wide strategy. Mary Emily Slade has taken on a new role as Executive Vice President for Commercial. This is the first time we have had an EVP-level leader in this role at Nucor. The purpose is to enhance our ability to focus on our key markets and to better connect with our customers. Meeting the future needs of our customers while maintaining and maximizing the benefits of the broad and diversified offering of Nucor will be a vital function of Mary Emily's team as we move forward. I'd also like to welcome four new team members to our executive team, Rex Query, Doug Jellison, Greg Murphy, and Dan Needham. Each of these executive management team promotions will enhance our ability to serve our customers and our shareholders. Business conditions remain strong in the fourth quarter, with improving pricing and healthy volumes across our diverse product portfolio. Of particular note, utilization rates at our sheet mills and plate mills continue their sharp upturn in the fourth quarter. While we were pleased with our operating performance and cash flow for the period, our earnings were impacted by non-cash charges, which were more than offset by tax benefits recognized in the quarter. The most substantial of these were related to our agreement to exit from the Divertifin New Quarter Joint Venture and the impairment charge writing down the value of our cash trip operations, both of which impacted our steel mill segment earnings. The capabilities of our new state-of-the-art cold mill and the Generation 3 galvanizing line we have under construction at Nucor, Arkansas have diminished our utilization of Castrip. We do plan on continuing to fully support existing customers as well as the technology to further improve Castrip's product offerings for Castrip licensees. The non-cash charge that we recorded upon exiting the DeFertifin-Nucor joint venture was actually more than offset by a tax benefit related to our investment, so it did not hurt our net income for the quarter. Jim Frias will elaborate more in his opening remarks. Turning now to comment on 2020 as a whole, the year ended up much stronger than anyone would have anticipated when the pandemic first took hold of our global economy in March of last year. Our team and our business model proved to be incredibly resilient and we were able to take advantage of this stronger than expected recovery because of the Nucor team doing an excellent job keeping our mills running reliably and safely throughout the volatility that characterized 2020. This allowed us to reliably fulfill our customers' requirements. Our focus remains on continuing to deliver a differentiated value proposition to meet and exceed our customers' needs. Looking at specific end-use markets, construction remained strong throughout the pandemic, and automotive was quick to recover in the second half of the year after shutting down in the second quarter. Together, these two markets account for nearly two-thirds of steel consumption. We are aware of certain leading indicators signaling a downturn in non-res construction activity, but so far, we don't see much evidence of that. Our company is well positioned in attractive subsegments of the non-res construction market. There are areas of strength, most notably warehouses and data centers, that may not be fully reflected in the ABI and other indicators. We have worked to build relationships in these subsegments that are bright spots, ensuring that we are providing the best solutions across steelmaking and steel products to serve those customers. We are cautiously optimistic that a significant infrastructure spending bill will be passed by Congress and signed by the new president this year. After years of talk, this must get done. We are still driving on roads and bridges designed and built during the Eisenhower administration. This is not sustainable. We would not be surprised if a funding bill focused in part on green infrastructure spending, including renewable power generation and transmission. Nucor is well positioned to meet our country's needs of environmentally friendly steel and steel products. With roughly 50% of our steel used in the construction sector, There is arguably no company more poised and ready to meet the needs of rebuilding our country, the new core. In the automotive market, we believe demand should continue its rebound. We think 2021 light vehicle production in North America will be around 16 million vehicles. Having wrapped up the fall contract season, we feel good about our prospects for continuing share gains in the automotive market. The investments we have made at our sheet mills in Arkansas and in Kentucky are To expand our production of value added products are paying off demand from the oil and gas sector continues to be weak, even as oil prices have been rising, along with many other commodities. I think that significant continued improvement in that market is going to depend on how quickly vaccines can get out to a large number of people and how long it takes for commuting and travel patterns to approach pre pandemic levels. Strong demand growth from the renewable energy sector has partially offset the weakness in oil. Our sales to the renewable power sector have been very strong this year, with steelmaking segment orders related to these markets growing by double digits compared to the 2019 total. The renewable power market is one Nucor is targeting, and many of our steel and steel products are essential to its continued build-out. We rely primarily on recycled steel to make these products and they themselves are 100% recyclable. This fact positions us well as a supplier of choice here as we see sustainability and product transparency becoming a more important factor in product sourcing decisions in the renewable power sector and in most other end use markets. We're also seeing signs that other end use markets will rebound from this past year's depressed levels, including heavy duty trucks, heavy equipment, and agriculture. Turning to our strategic growth projects, we continue to make excellent progress on them during the fourth quarter. Our new rebar micro mill in Frostbrook, Florida started up operations on schedule in December. Congratulations to the entire Nucor Steel Florida team for getting this new steel mill up and running on time and for doing it safely. This past October, we celebrated the groundbreaking of our new steel plate mill in Kentucky. Our Nucor Steel Brandenburg team has done a great job keeping the project on schedule throughout this year and we are moving at full speed to bring the state-of-the-art plate mill to market during the fourth quarter of 2022. We're also making great progress on our expansion project at our Gallatin Sheet Mill. The expansion project is expected to start up in the second half of this year. With regard to some of our facilities that are in operation I'm pleased to report the new pickle galvanizing line at Gallatin had an excellent first full year of operation, despite the pandemic shipping 39% more tons than we projected when we approved the project. Year one profitability was also ahead of plan. Gallatin's entry into the value added coated sheet market has proven very timely with a strong flat rolled market conditions that emerged in the second half of 2020 and are continuing into Q1 2021. We have experienced very strong customer acceptance of Gallatin's coated product as we further develop target markets that include automotive, solar, tubing roll forming, grain storage, culvert, and cooling towers. Also, the new cold mill at Nucor Steel Arkansas has gotten off to a strong start with shipments almost 30% ahead of our initial plan for the mill. Strong customer acceptance rates following trials were conducted throughout 2020 mean that the new mill is now booked out for this year at 85% of its nameplate capacity for contract customers. We are looking forward to running our first prime coil off our new Gen 3 gaupline at Arkansas later this year. This is slightly behind our original schedule due primarily to the slowdown in capital expenditures we instituted around the beginning of the pandemic. Our new rebar micro mill in Sedalia has also exceeded our expectations. The team there generated a solid operating profit during the most recent quarter and its spooled rebar product continues to be well received by our customers. At our galvanizing line joint venture with JFE in Mexico, we are back up running after a government mandated shutdown and beginning to ship coils to automotive customers. Congratulations to the team there. Our Kankakee, Illinois bar mill completed commissioning of its new MBQ rolling mill in December. While the timeline of this project was slightly extended due to COVID-related disruptions, customer acceptance of the new products has been extremely strong. We expect to achieve positive cash flow from this investment in Q1. Construction on upgrades to Kankakee's Melt Shop, including a new caster and ladle stir station, will begin in earnest in February, with final commissioning of this equipment expected in Q4 of this year. This investment will significantly improve the energy efficiency of the Kankakee Mill. Before I turn the call over to Jim, let me give a shout out to our teammates at Louisiana DRI Operations. As many of you are aware, we took some downtime at Louisiana in 2019 and have invested approximately $200 million to enhance operational reliability there. It has really paid off. In 2020, the Nucor Steel Louisiana team set new records for production, shipping, and operating hours. Most importantly, our team there accomplished all of this while operating safely for more than 450 consecutive days. Later this quarter, we will finish our work improving Louisiana's ore yard. With that, let me turn the call over to Jim to provide more details about our financial performance and outlook for the first part of 2021. Jim? Thanks, Leon.

Fourth quarter earnings of $1.30 per diluted share exceeded our guidance range of $1.15 to $1.20 per diluted share. As detailed in our news release, results for the just-completed quarter included a number of non-operational items that were not included in our guidance. After tax effects, again, for the items not included in our guidance, the total impact was produced net income by just under $34 million, or approximately 11 cents per diluted share. Earnings significantly exceeded our guidance as the pace of margin expansion at our steel mills surpassed our expectations. Conditions improved for many of our businesses throughout the quarter and now are the strongest they've been in some years. As Leon mentioned and as detailed in our news release, we were able to claim tax deductions related to our investment into Fertifin Nucor Joint Venture that more than offset the related loss on assets we recorded in the fourth quarter. Cash provided by operating activities for full year 2020 was $2.7 billion. New course free cash flow or cash provided by operations minus capital spending was $1.2 billion in 2020, comfortably exceeding cash dividends paid to stockholders of $492 million. Over the last three years, Nucor has generated $3.9 billion of free cash flow, even as we reinvested $4 billion in our businesses. As mentioned on previous calls, we have intensified our focus on maintaining appropriate working capital levels and reducing the asset base we require to generate strong profitability. I am happy to report that even as steel market demand and pricing has rebounded strongly in recent months, our tons of raw material inventory are actually down by more than 6% from the prior year end. At the close of the fourth quarter, our cash, short-term investments, and restricted cash holdings totaled just under $3.2 billion. Nucor's liquidity also includes our undrawn $1.5 billion unsecured revolving credit facility, which matures in April of 2023. Total long-term debt, including the current portion, was approximately $5.3 billion. Gross debt as a percent of total capital was 32%, while net debt represented 13% of total capital. 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 return capital to our shareholders. Dividends and share purchases total $531 million, or 74% of net income during 2020. And with the dividend increase announced in December, NUCOR has increased its base dividend for 48 consecutive years, every year since we first began paying dividends in 1973. Speaking of growing long-term earnings power, let me take a moment to provide a brief rundown on where we stand on some of our organic growth projects. Three projects started operations in 2019. A new specialty cold rolling mill at our Arkansas sheet mill, a rolling mill modernization at our Ohio rebar mill, and a hot band galvanizing line at our Kentucky sheet mill. Another four projects started production during 2020. Our rebar micro mill in Missouri, our Illinois merchant bar rolling mill, our joint venture sheet steel galvanizing line in Mexico, and our Florida rebar micro mill. The remaining three projects are the expansion and modernization of our Kentucky sheet mill, our generation three flexible galvanizing line at our Arkansas sheet mill, and our Kentucky plate mill. At the close of 2020, remaining capital expenditures for these three are approximately $1.9 billion, with the Kentucky plate mill project representing about three-fourths of that total. We expect that Nucor's total capital spending for 2021 will be in the area of $2 billion. Approximately 80% of the 2021 spending is to improve product capabilities and reduce costs. Turning to the outlook for the first quarter of 2021, as Leon indicated, we are encouraged by a number of positive factors impacting our markets. We expect earnings in the first quarter of 2021 to be significantly higher than our reported results for the fourth quarter of 2020. The expected performance of the steel mill segment in the first quarter of 2021 is the primary driver for this increase as our sheet, plate, bar, and structural mills are all forecasting increased profitability. Our downstream steel product segments performance in the first quarter is expected to decrease compared to the fourth quarter of 2020 due to typical seasonal patterns and some margin compression due to a lag between rising steel input costs and increased selling prices. The raw material segments performance in the first quarter is expected to be significantly improved due to higher raw materials selling prices. Thank you for your interest in our company. Leon.