Nucor Corporation

Good day everyone and welcome to the new core corporation 2nd, quarter of 2021 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 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. For 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. 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 welcome to our second quarter earnings call. Joining me on the call today 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, Doug Jellison, responsible for raw materials and logistics, Greg Murphy, responsible for business services and our general counsel, Dan Needham, responsible for bar and rebar fabrication products, Rex Query, responsible for sheet and tubular products. Mary Emily Slate, responsible for our enterprise commercial strategy. And Chad Udemark, responsible for engineered bar and fabricated construction products. Thank you for joining us today. With demand for steel remaining strong in most of our facilities operating at peak performance, we have not lost focus on our goal of becoming the world's safest steel company. We continue to perform well on the safety front as we look to make 2021 our safest year ever, besting our record set just last year. In particular, I want to acknowledge the progress demonstrated by our sheet mills and our two DRI facilities for achieving world-class safety performance so far this year. I encourage all of our teammates to maintain their focus on safety so we can achieve the most important goal that we have set for our company – Consistent with last month's guidance, Nucor posted record quarterly earnings in the second quarter. Our earnings of $5.04 per share surpassed our previous earnings per share record set last quarter. Our first half earnings of $8.13 per share exceeds our full year EPS record of $7.42 set in 2018. All three operating segments are continuing to generate robust profits due to strong demand, higher average selling prices, and excellent execution across Nucor. In our steel mill segment, we saw the greatest improvement in profitability from our sheet and plate mills. The performance of our steel products group also improved compared to the first quarter. Jim will provide more details about our performance at this quarter and our outlook for the third quarter in a few minutes. This level of performance is the result of years of work strategically growing and positioning our company to thrive in market conditions like we are experiencing today. My congratulations to the entire Nucor team. There are several fundamental drivers of the strong market conditions Nucor is benefiting from today. The most important of these is robust demand. Virtually all the steel end-use markets that we monitor are growing. Some of this growth may simply be catch-up from the pandemic-induced economic low we experienced here in the U.S., but we think it goes beyond a temporary rebound. One sign of this is the increasing confidence about next year that we sense from our customers, ranging from automotive, trucking, heavy and ag equipment, and across the construction sector. There are noteworthy new drivers for growth in steel demand. warehouses for e-commerce, renewable energy projects, and an increase in U.S. manufacturing investment focused on greater supply chain resiliency are all creating new market opportunities for Nucor. Very strong housing and automotive markets are also creating incremental steel demand, not to mention activity by state DOTs whose infrastructure investment spending has held up better than expected. We are fortunate that several of our strategic growth investments have come online during this period and our results reflect better than expected contributions from Nucor Steel Mills in Sedalia, Frostproof, Kankakee, Marion, Gallatin's new galvanizing line, and Hickman's new cold mill. My thanks especially to our teammates at these locations who have worked safely to ramp these projects up quickly to meet market demands. Our strategy continues to be grow the core, expand beyond, and live our culture. We are continuing to make targeted investments in acquisitions to grow our share in attractive markets and increase our long-term earnings power. We are complementing our investment strategy with a sharpened commercial focus that is enabling us to leverage our broad portfolio and deliver increased value to our customers with more integrated solutions. Acquisition announcements we made in the second quarter are focused on the expand beyond part of our mission statement. Our pending acquisition of Cornerstone Building Brands Insulated Metal Panels Business, IMP for short, is squarely aimed at some of the fastest growing markets I've mentioned. For example, distribution center investments driven by evolving consumer preferences regarding e-commerce and grocery delivery, as well as the expansion of data centers and server farms, which all require temperature-controlled environments. Cornerstone's IMP business is a market leader and innovator in the growing IMP product category. IMP products are gaining market share as companies and institutions continue to focus on environmental performance and energy efficiency. The superior insulating performance of IMP products reduces energy usage and overall operations-related greenhouse gas emissions. Additionally, IMP products are easier to install with lower maintenance costs versus other wall and roofing solutions. Cornerstone's IMP business is an excellent fit with Nucor Buildings Group, and we are confident that we can help the team there take performance to an even higher level. We also announced earlier this week our agreement to acquire Hannibal Industries, one of the largest steel pallet rack manufacturers in the U.S., Hannibal provides racking solutions to warehouse serving the e-commerce, industrial, food storage, and retail segments. Adding Hannibal to Nucor creates a new growth platform that broadens our offering to the distribution center market, including beams, joist, deck, metal buildings, and, of course, insulated metal panels. As an employee-owned company, we are optimistic that Hannibal Industries will be a great fit with the Nucor culture. Also, on the Expand Beyond front, we continue to build out our own growth platform in industrial gases, enabling lower cost supply to our steel mills while also creating additional streams of revenue with sales to third parties. The team that joined Nucor with our acquisition of Universal Industrial Gases in 2019 continues to do a great job executing these initiatives. We have an operating air separation unit at Nucor Hertford and are actively selling liquid gases on the open market. We will continue to have more ASUs supporting our other mills up and running in the coming months. We are bringing the safety-focused, performance-driven, team-oriented Nucor culture to each of these businesses, and we are excited to welcome these teammates to the Nucor family. As one of the cleanest steel producers on the planet, Nucor will continue to take our environmental leadership position even farther. Our new greenhouse gas reduction commitment will take our carbon intensity down to 77% below today's world average. Our commitment is to reduce our scope one and two greenhouse gas emissions intensity by a combined 35%. This commitment will be measured against the 2015 baseline, the year the Paris Climate Agreement was signed. At our current greenhouse gas intensity, Nucor has already achieved the steel sector benchmark established in the Paris Agreement. Our performance today is what many of our competitors around the globe are aspiring to achieve by 2030, 40, 50, and beyond. And compared to many of our integrated competitors, our starting point is already better than their near and intermediate goals. And now we're going to get even better. We are a leader today in sustainable steel production, and our commitment to further reduce our emissions intensity will keep us a leader as we move forward. Turning to infrastructure, we urge Congress to make good on the recent bipartisan framework reached in the Senate and come together to pass a significant infrastructure funding bill. We strongly believe that modernizing our infrastructure will boost our nation's economic competitiveness, not to mention making us all safer. Federal infrastructure spending plans currently under consideration are expected to increase U.S. steel demand by as much as 5 million tons per year for every 100 billion of new investment. Nucor is incredibly well positioned to provide steel for infrastructure projects across the U.S. We are encouraged that the President and members from both parties continue to focus on this issue, and we are hopeful that they can come together to form a bipartisan solution. Again, it is gratifying to see how years of hard work and planning are paying off in this incredibly strong steel market. We're excited about the expanded capabilities we can offer our customers because of our capital investments and acquisitions we have made in recent years. To the entire Nucor team, congratulations on an excellent first half of 2021. Let's continue to execute and make this our safest and most profitable year. Now, Jim Frias will provide more details about our performance in the second quarter. Jim?

Thanks, Leon. Second quarter earnings of $5.04 per diluted share exceeded our guidance range. Better than expected results for the month of June were achieved across a broad group of businesses, including our beam mills, bar mills, sheet mills, rebar fabrication, tubular products, and joist and deck. Nucor's diverse portfolio of products and capabilities is consistently a powerful driver of value creation for Nucor shareholders and customers. Recently completed capital projects made significant and above-budget earnings contributions in the first half of this year. These projects are the rolling mill modernization at our Ohio rebar mill, the hot band galvanizing line at our Kentucky sheet mill, the specialty cold rolling mill at our Arkansas sheet mill, the rebar micro mills in Missouri and Florida, and the merchant bar rolling mill at our Illinois bar mill. These targeted investments are enabling Nucor to earning a growing and profitable share of the markets we serve. The Hickman Arkansas specialty coal mill is an excellent example of Nucor's growth strategy. There are no other carbon steel mills in North America that match our new range of capabilities. In the second quarter, the Hickman Specialty Cold Mill ran at 118% of rated capacity, more than double its originally projected production ramp timeline. Since beginning operations in mid-2019, this project's life-to-date profitability also substantially exceeds its initial forecast. And the Hickman team is looking ahead to further expanding long-term earnings power as it begins the work of commissioning its third-generation flexible galvanizing line equipment. The state-of-the-art capabilities of these new assets will position Nucor to further grow our automotive footprint. We will provide our automotive customers the greenest, most advanced high-strength steels in the industry. These deals will provide our customers the ultimate solution that satisfies their needs long into the future. Our success bringing strategic projects like this online reflects the Nucor team's commitment to being effective stewards of our shareholders' valuable capital. Our growth investments are targeted at defined market objectives and opportunities to generate attractive returns with reduced volatility through the economic cycle. financial strength continues to be a critical underpinning to Nucor's ability to grow long-term earnings power. At the close of the second quarter, our cash, short-term investments, and restricted cash holdings totaled $3.2 billion. Compared with the end of the first quarter position, our second quarter cash position increased by about $226 million. That increase is after funding share repurchases of $614 million, cash dividends of $123 million, capital expenditures of $389 million, and a working capital expansion on the inventory receivables and payables line items, totaling about $945 million. 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 $5.3 billion at quarter end. Gross debt as a percent of total capital was approximately 30%, while net debt was 12% of total capital and remains well below our targeted range of 18% to 23%. We remain materially underleveraged on this basis, but we anticipate that this will change somewhat as we deploy capital to acquire Cornerstone's IMP business and Hannibal Industries. We're excited to be moving forward with these new growth platforms. We expect that these businesses, along with the numerous internal growth projects we have been executing on, will materially add to Nucor's earnings and cash flow generation in the years ahead. Cash provided by operating activities for the first half of 2021 was $1.9 billion. Nucor's free cash flow, or cash provided by operations minus capital spending, was $1.2 billion. Nucor's financial strength and robust through-the-cycle cash flow allows for a consistent, balanced approach to capital allocation. We now estimate total year capital spending of approximately $1.8 billion. Each of our three most significant capital projects, the expansion and modernization of the Gallatin Kentucky Sheet Mill, the Generation 3 flexible galvanizing line at the Hickman Arkansas Sheet Mill, and the Greenfield-Brandenburg Kentucky Plate Mill remain on schedule. At Brandenburg, the timing of some equipment deliveries has been delayed, but overall the project remains on schedule for late 2022 commissioning. During the second quarter, we continue to see attractive value in our shares, repurchasing 6.765 million shares at an average cost of approximately $91 per share. Over the first half of this year, New Corseri purchases totaled more than 12 million shares at an average cost of about $75 per share. Shares outstanding have been reduced by approximately 3% from the year-end 2020 level. For the first half of 2021, total cash returned to shareholders through dividends and share purchases totaled just under $1.2 billion, representing approximately 47% of net earnings for the period. As we have said previously, we intend to return a minimum of 40% of our net income to new core shareholders. We are rewarding shareholders with substantial cash returns while continuing to invest for future profit growth and maintaining a strong balance sheet. Turning to the outlook for the third quarter of 2021, we are encouraged by a number of positive factors impacting our markets. As Leon mentioned, we see improving or stable market conditions for the vast majority of the end use markets served by Nucor. In fact, order backlogs at most of our businesses suggest strength well into 2022. Further supporting our optimistic outlook, inventories throughout the supply chain remain lean. We expect earnings in the third quarter of 2021 to again set a new record. Compared to the second quarter, we expect earnings growth at all three of our segments, most notably our steel mill segment. Additionally, with our expectation of a strong fourth quarter, we believe second half of 2021 earnings will exceed first half of 2021 earnings. Nucor's record results highlight the success of our 27,000 team members, building a stronger and more profitable Nucor. Our team's 2021 performance is simply outstanding. We remain excited by the opportunities ahead for our company. We have great determination to deliver increasing long-term value for our shareholders. Living our culture means driving sustainable performance. Thank you for your interest in our company. Now we'd be happy to take your questions. Operator? Thank you.