Nucor Corporation

Ladies and gentlemen, and welcome to the Nucor Corporation third 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 call will be forward-looking statements that involves 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 risk and uncertainties relating to these forward-looking statements may be found in NUCOR's latest 10-K and subsequent filed 10-Qs, which are available on the SEC's and NUCOR's websites. The forelooking statements made in this conference 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 third quarter earnings call. Joining me today on the call are the members of Nucor's executive team, including Jim Frias, our chief financial officer, Dave Samosky, our chief operating officer, Al Baer, responsible for plate and structural products, Doug Jellison, responsible for raw materials and logistics, Greg Murphy, responsible for our 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. Nucor continues to deliver strong results in our safety performance as we work towards our goal of becoming the world's safest steel company. Our performance in 2021 is slightly ahead of last year, which was the safest year in Nucor's history. Our team is committed to identifying and eliminating those risks which could lead to injury. Our most important value is the safety, health, and well-being of our entire Nucor family. During the third quarter, we once again achieved record results with earnings per share of $7.28. Our third quarter performance surpasses our previous record of $5.04 set in the second quarter of this year and nearly matches our full year earnings record of $7.42 that we set back in 2018. I'd like to congratulate the entire Nucor team for delivering the phenomenal results we have seen so far this year while staying focused on our safety goals. I'm incredibly proud of our team and what we are accomplishing together. Since our founding 56 years ago, sustainability has been at the core of Nucor's business model. More than ever before, we see opportunities to advance our continued success by partnering with customers to help them meet their own growth and sustainability objectives. Our recent launch of ACONIC, which is a new line of net zero carbon emission seal products, gives our customers confidence and the trust that the products that they're purchasing from Nucor will not only help them meet their sustainability goals, but provide a differentiated value proposition for them for the future. Our use of recycled scrap-based EAF technology enables us to operate at 70% below the current GHG intensity for the global steel industry. Econic Steel will further advance our leadership position by applying credits from 100% renewable electricity and high-quality carbon offsets to negate any remaining Scope 1 or 2 emissions from our steelmaking process. We are delighted. that General Motors will be the first customer for Econic. With our first shipment slated for early 2022, Econic is going to be a key piece of GM's vision of a net zero emissions future. As GM continues to work towards reducing carbon emissions throughout their supply chain and through electrification of their model lineups. And we also look forward to deploying Econic more broadly to help customers from across numerous other steel consuming end markets meet their goals, and develop more sustainable products. And while I'm on the topic of sustainability, our new corporate sustainability report can be found on Nucor.com, along with our first TCFD aligned report and updated SASB aligned report from our steel mill segment. We hope you will find all this information informative and useful. The third quarter was a very eventful one for Nucor. Strategically, as we announced or closed on several investments that will help us continue to advance our company's mission to grow the core, expand beyond, and live our culture. We announced our plan to build a state-of-the-art sheet mill in the Midwest on September 20th. With 3 million tons of annual capacity, this mill will be located to serve the country's largest steel-consuming regions, the Midwest and the Northeast. These are regions where Nucor is currently underrepresented. With coil widths of up to 84 inches, a tandem cold mill and initially two galvanizing lines, the new sheet mill will position Nucor to grow its market share in value-added products from automotive, appliance, HVAC, heavy equipment, agricultural, transportation, and construction applications. The mill's product mix will be approximately two-thirds cold rolled in galve. The U.S. steel market is undergoing a structural transformation driven by the dual imperatives of economic efficiency and sustainability. Our mill will be state-of-the-art and have a significantly lower carbon footprint than nearby competitors. With our financial strength and multi-decade track record of innovation and execution, Nucor is uniquely positioned to continue leading this acceleration steel market transformation. Our investment in this greenfield sheet mill represents a continuation of Nucor's balanced approach to capital allocation. Investing in projects and acquisitions expected to generate returns that substantially exceed our cost of capital while also continuing to return at least 40% of our net income to stockholders through a combination of dividends and share repurchases. Jim will discuss this further in his opening remarks. Also, we recently announced our plans to expand out west. We will build a new melt shop at one of our existing bar mills in the western United States. This facility will have the capacity of 600,000 tons annually Adding melt capacity positions Nucor to build on our market leadership position in the region, which is experiencing both population growth and the infrastructure investment that typically accompanies it. Our bar mill group is where our steelmaking started over 50 years ago, and it continues to generate very attractive returns on capital. In addition to prudently investing to grow our core steel businesses, we are executing on our opportunities to expand beyond, During the quarter, we acquired Cornerstone's Insulated Metal Panels business, as well as Hannibal Industries, a steel racking manufacturer. We're now able to offer a broad range of insulated metal panel products and racking solutions. Each of these businesses is aimed squarely at serving fast-growing markets, such as warehouses and data centers. Our strategic investments will continue to be aimed at positioning Nucor to serve attractive, growing end-use markets as our economy evolves to rely more on renewable power and Internet-based services. We are excited to welcome our newest team members to the Nucor family. As you can see, we are adding capabilities to increase our presence in attractive markets and extend our company's long record of growth and value creation. Nucor is positioned to provide the sustainable steel and steel products needed to build the 21st century green economy. A key requirement of that economy is modern, resilient, and sustainable infrastructure. Republicans and Democrats agree that the bipartisan infrastructure bill is urgently needed, and we hope Congress can find a path forward to get this bill passed. In order to ensure the safety of our citizens, the health of our economy, and future opportunities for American workers, we cannot afford to have Congress miss this opportunity. Before I turn the call over to Jim, let me take a moment to congratulate our team. You all should be very proud of the safety and financial results achieved in the first nine months of the year. We can only benefit from these strong market conditions if our facilities are running safely, responsibly, and reliably. Once again, thank you to each of you for what you do to help Nucor win. Nucor will continue to invest in our future and provide our customers a differentiated value proposition while offering the most diverse set of capabilities of any steelmaker. Thank you all for what you do, and as we approach the end of the year, let's continue to make 2021 our safest and most profitable year in New Course history. Now, Jim Frias will provide more details about our performance in the third quarter. Jim?

Thanks, Leon. We are proud to report our third quarter of 2021 earnings of $7.28 per diluted share. establishing a new quarterly earnings record. This quarter's results also compare favorably with year-ago third quarter earnings of 63 cents per diluted share. We are benefiting from strong demand and profitability across Nucor's diverse portfolio of products and capabilities. Nucor's product breadth continues to be a powerful driver of value creation for both Nucor customers and shareholders. Due to higher than expected inventory profit eliminations, Third-quarter earnings were slightly below our guidance range of $7.30 to $7.40 per diluted share. Year-to-date earnings of $15.34 per diluted share are more than double 2018's record annual earnings of $7.42 per diluted share. We are extremely proud of our team's strong performance during the current upcycle and through all the pandemic-related challenges we have experienced this year and last. Our confidence in New Course competitive positioning has never been greater as we look to execute on further opportunities in the months and years ahead. Our results reflect strong returns from consistent reinvestment in our operations over the years and outstanding execution by our team. Five significant organic growth investment projects representing approximately $1 billion in aggregate capital investment Completed startup and full product commissioning over the 2019 to 2020 period. The rolling mill modernization at our Marion, 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 mill in Missouri and the rebar micro mill in Florida. Each of these projects are delivering life-to-date profitability well above their original projections. During this past quarter, these projects together generated EBITDA exceeding $180 million. The two completed Sheet Mill Capability Expansion projects merit additional comments. Just two years after beginning operations in September of 2019, the Gallatin, Kentucky Hot Band Galvanizing Line's cumulative EBITDA exceeds the project's $200 million investment. At 72 inches wide, this line is the widest hot rolling galvanizing line in North America, and is uniquely positioned to serve value-added markets such as automotive, solar tubing, grain storage, culverts, and cooling towers. The facility ran at 112% of design capacity in the third quarter of 2021. Next, the Hickman Arkansas Specialty Cold Mill continues to be another great success story. After beginning operations in mid-2019, the Specialty Cold Mill's cumulative EBITDA already exceeds half of the project's capital investment. This facility also ran at 112% of rated capacity in the third quarter of 2021. Further, our specialty cold mill team is still very early in the process of developing unique product capabilities and applications, leveraging Hickman's flexible cold rolling mill to produce the high-strength, lightweight products that are increasingly demanded by OEM customers. To our teammates at these locations and across Nucor, Congratulations and thank you for your outstanding work. As most of you are aware, two more major capital projects, also totaling approximately $1 billion, are on schedule to begin startup during the fourth quarter. These investments will expand further Nucor's product capabilities into the sheet market. They are the expansion and modernization of Galton Sheet Mill's hot band production capability and the Generation 3 flexible galvanizing line at the Hickman Sheet Mill. Gallatin would begin a 25-day production outage on November 23rd for final equipment installation. After the outage, startup and commissioning will commence. At Hickman, commissioning of the flexible galvanizing line is underway with prime production expected in December. Looking into 2022, our team constructing the $1.7 billion Brandenburg, Kentucky state-of-the-art plate mill is on track for startup late next year. Project-to-date capital spending totaled about $570 million. Located in the middle of the largest U.S. plate-consuming region and able to produce 97% of plate products consumed domestically, this mill positions Nucor to support domestic production of wind towers while securing a market leadership position in plate. Turning to cash flow and the balance sheet. Cash provided by operating activities for the first nine months of 2021 was approximately $3.6 billion. New Course Free Cash Flow, or cash provided by operations minus capital spending of $1.2 billion, was about $2.4 billion. For full year 2021, we now estimate capital spending of approximately $1.7 billion. At the close of the third quarter, our cash, short-term investments, and restricted cash holdings totaled $2.3 billion. This is a decline of about $900 million from the second quarter level. During the third quarter, Nucor funded significant uses of cash, totaling approximately $3.6 billion, including acquisitions of $1.3 billion, capital spending of $505 million, share purchases of $858 million, and cash dividends of $120 million, and a net working capital expansion on inventory, receivables, payables, and accruals, totaling $766 million. These uses were funded primarily from Nucor's ongoing strong cash generated from operations. The cash and short-term investments drawdown, plus the receipt of $197 million from the issuance of green bonds tied to the Brandenburg project. At the close of the third quarter, total long-term debt, including current portion was approximately $5.6 billion. Gross debt as a percentage of total capital was approximately 29%, while net debt was about 17% of total capital. Financial strength continues to be a critical underpinning of Nucor's ability to grow long-term earnings power and provide attractive cash returns to shareholders. We remain committed to returning capital through cash dividends and share repurchases, a minimum of 40% of our net income over time. For the first nine months of 2021, cash return to shareholders totaled $2.1 billion. That represents approximately 47% of Nucor's net income for this period. The year-to-date capital returns consisted of dividends of $367 million and almost $1.8 billion of share repurchases. During the third quarter, we repurchased 8.2 million shares at an average cost of approximately $105 per share. Year-to-date repurchases total 20.35 million shares at an average cost of just over $87 per share. Over the first nine months of 2021, Nucor's shares outstanding have decreased by about 5.5%. As we approach year end, Nucor's board will consider a dividend increase for 2022 We have paid and increased our regular quarterly dividend every year since dividends were instituted in 1973. We expect the Board's deliberations will consider both the effects of our recent repurchases and the sustainable earnings power we see in our businesses. Since the end of 2017, Nucor's capital allocation framework has helped us achieve significant value creation for our investors. Issued and outstanding shares have been reduced by more than 10%, moving from 318 million shares at the end of 2017 to approximately 286 million shares at the end of the third quarter. Over that same period, we have grown our steel bar production capacity by about 13% to 9.6 million tons. We have also added about 1 million tons of value-added processing capability to our sheet business. Additionally, Our steel products capacity has also grown by more than 1 million tons. Today, we have significant projects under construction that will grow our sheet and plate capacity to more than 4 million and 1 million tons respectively, further increasing our earnings power for decades to come. We are having a remarkable year in 2021, but it should not be missed that Nucor's ability to generate higher earnings per share is continuing to grow. Turning to the outlook for the fourth quarter of 2021, we are encouraged by ongoing robust demand conditions in most of the end markets served by Nucor. In fact, order backlogs at most of our businesses suggest strength well into 2022. At the same time, customer inventories remain relatively lean. Logistical challenges throughout the economy continue to represent a risk factor. However, the moderating influence this is having on current demand may prolong the duration of this favorable economic cycle. We believe earnings in the fourth quarter of 2021 are likely to be at or near the record level achieved in the third quarter. Compared to third quarter, we expect earnings growth at our steel mills and steel product segments. The raw material segments performance will be challenged by margin pressures in our DRI business. We are encouraged by our first nine months of 2021 performance and we see great opportunities in our future. We are committed to delivering increasing long-term value for our shareholders. Living our culture means driving performance. Thank you for your interest in our company. Operator, we are now ready for questions.