Nucor Corporation

Good day everyone and welcome to the Nucor Corporation fourth 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 involve risk 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 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 2021 fourth quarter and full year's earnings call. Joining me on the call today are several 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 rebar fabrication and engineered bar products. Rex Query, responsible for sheet and tubular products. Mary Emily Slate, responsible for commercial strategy. And Chad Udemark, responsible for fabricated construction products. By so many measures, 2021 was an extraordinary year for Nucor. Our team delivered incredible financial and operating results over the course of the year while working safely and responsibly. Every single day, our nearly 29,000 team members remain focused on our company's mission to grow our core steelmaking capabilities while expanding our presence into related businesses that fit with our culture and leverage our strengths. For our team, the most important value is safety, and so I'm incredibly pleased to report that 2021 was the safest year in our history. Becoming the world's safest steel company is a lofty goal, and our team has now achieved back-to-back record years in safety. Nucor had 16 divisions that went zero recordable injuries in 2021, and I look forward to the day when our entire company achieves that same goal. I want to thank each of my Nucor team members for your daily commitment to safety, looking out for one another, and I look forward to an even safer year in 2022. Turning to our fourth quarter results, earnings per share were $7.97, exceeding our guidance range of 765 to 775. This represents another new quarterly record for our company. Looking at 2021 as a whole, we set several other financial records. Net income for 2021 was $6.8 billion, and full-year earnings per share was $23.16, which were both notable increases over the prior records we'd set in 2018, with $2.4 billion of net income and an EPS of $7.42. Our record financial performance is the result of years of work reinvesting to strategically position and grow our portfolio of capabilities across the steel value chain. We are leveraging our competitive advantage to aggressively and opportunistically pursue value enhancing long-term growth. Along the way, we are delivering a differentiated value proposition to our customers and expanding our relationships with them. By executing operationally across our business lines and in parallel, investing in Nucor's future, we are generating attractive returns for our shareholders and positively impacting our local communities. In the process, we can offer Nucor teammates secure employment and competitive compensation and benefits, as well as the opportunities to further their professional growth and development. Our talented, dedicated team members are NUCOR's greatest value creators. Reflecting this, for 2021, our profit sharing totaled about $850 million. Adding this amount to Team 8 profit sharing over the course of the last five decades, NUCOR has allocated a total of about $3.8 billion in profit sharing to our team members. Most profit sharing payments are contributed directly to Team 8's retirement savings accounts. And as a result, we believe that Nucor teammates are far more prepared for retirement than the average American. Of course, we're also mindful of our responsibility to shareholders. We're proud to have been able to provide cash returns via dividends and share repurchases, totaling about $3.8 billion in 2021. And in December, to increase our regular quarterly dividend for the 49th year in a row, this year by 23% to a rate of 50 cents per quarter. Our quarterly dividend is now about 32% higher than it was in 2018. We reduced our share count by more than 11% in 2021, even as we funded capital expenditures and acquisitions, totaling approximately $3 billion to drive the next chapter of our growth story. And as Jim will share, we remain very well capitalized and able to pursue our objectives. And speaking of those, As we move into 2022, we are not letting up when it comes to executing our strategy to grow our value-added product portfolio and expand into new product markets and geographic regions. Two weeks ago, we announced that Mason County, West Virginia, will be the location of our new state-of-the-art 3 million ton sheet mill. The location along the Ohio River provides NUCOR with important transportation and logistics advantages. in serving the country's two largest sheet steel-consuming regions, the Midwest and Northeast, two areas where Nucor is currently underrepresented. Once operational, our West Virginia mill will have some of the most advanced capabilities and one of the lowest carbon footprints of any sheet mill in the world. We are very excited to begin work with the local community in Mason County on this transformational project that will create substantial long-term value for all Nucor shareholders. On December 16th, our Nucor Steel Arkansas sheet mill produced its first prime coil from its new generation three flexible galvanizing line. The new galvanizing line, combined with Hickman's highly successful specialty cold rolling mill that's been in operation for more than two years, uniquely positions our company among North American EAF steel makers to provide the high strength, lightweight steels that are increasingly in demand These capabilities represent important competitive advantages for our company, exemplifying Nucor's ability to meet the needs of our customers for high-strength steels. Congratulations to the entire Nucor Arkansas team. Another sheet mill project, Nucor Steel Gallatin's Hotband Modernization and Expansion, is beginning to start up in the current quarter. This project gives Gallatin's new mill thicker slab casting and wider coil capabilities, expanding our product portfolio into markets currently served by higher-cost competitors. Our Gallatin team members continue to impress with their ability to safely construct the expansion project within the environment of an operating mill, and we look forward to its continued ramp-up. We are also expanding our presence in the western U.S. In December, we announced an agreement to acquire a majority ownership stake of 51%, in California steel industries for about $400 million. CSI is a flat-roll converter with annual capacity to produce more than 2 million tons of finished steel and steel products. This investment, which is expected to close shortly, expands our geographic reach in the sheet market, grows our portfolio of value-added sheet products, and enables us to supply Nucor's downstream businesses in the region, including Verco and the recently acquired Hannibal Industries. We are very excited to partner here with JFE Steel Corporation on our second joint venture. Switching to the plate market, our Brandenburg, Kentucky Greenfield Mill is on track to begin rolling its first steel plate product in the fourth quarter of this year. With the capability to manufacture nearly all the different types of plate products consumed in the United States, Brandenburg will position Nucor as the supplier of choice in the domestic plate market. which includes applications in offshore wind, heavy equipment, construction, and military. Finally, I would also like to mention a new project in our bar mill group. In December, we announced our plan to build a new rebar micro mill with annual capacity of 430,000 tons in the South Atlantic region. This will be Nucor's third rebar micro mill, joining micro mills in Missouri and Florida that began operations in 2020. We are currently evaluating potential sites and are excited about this opportunity to grow our profitable leadership position in rebar, a core business for new core throughout the last 50 years. I'm extremely proud of all of our teammates who are working so hard on all of these projects as they are prime examples of new course, continued execution of our mission to grow the core, expand beyond and live our culture. And before I leave this topic, I just want to note that we believe we are seeing an acceleration of a transformation in our industry that has been underway for decades, forces driving economic efficiency and lower emissions in steelmaking. No North American producer is better positioned than Nucor to continue leading in these areas. With our team's disciplined focus on execution and Nucor's financial and operational strengths, we expect to realize very attractive returns on our investments. We're very proud that Nucor has helped make the United States the cleanest place in the world to make steel. The green economy is being built on steel, and the steel it's built on matters. We are also capitalizing on the opportunity to supply the sustainable steel that is building our 21st century economy. Earlier this month, we shipped our very first coil of Econic to General Motors after having just launched this new line of steels this past October. Our ACONIC offering represents the world's first ever net zero carbon steel available at scale. We look forward to continuing to offer ACONIC to more customers and, of course, lower greenhouse gas emission steel across our product portfolio. Nucor will continue to be a key part of our modern economy by supplying the most advanced and sustainable steel products needed to rebuild America's infrastructure. We are pleased that our leaders came together in the fourth quarter to pass historic bipartisan infrastructure legislation that will help advance and modernize U.S. infrastructure and strengthen the health of our economy by creating opportunities for American workers. With approximately half of Nucor's products going into the construction market, we stand ready to help our country meet its infrastructure needs. We also continue to work with the administration and members of Congress to enforce our trade laws so that our market is free from the distortions caused by unfairly traded imports, and that as we reinvest in our infrastructure, we do so with steel produced in America, the highest quality, cleanest steel possible. And before I turn the call over to Jim, I'd like to congratulate the entire Nucor team on reaching new heights to achieve our safest and most profitable year in company's history. You have much to be proud of, and on behalf of myself and our entire executive team, thank you. Team, let's keep up our focus in 2022, and of course for Nucor, that begins with a value of safety. We have much to look forward to as we progress throughout this new year. Now, Jim will provide more details about our fourth quarter and full year performance. Jim?

Thanks, Leon. As Leon mentioned, fourth quarter of 2021 earnings of $7.97 per diluted share established a new quarterly record, eclipsing the prior record of $7.28 per share established in last year's third quarter. Fourth quarter earnings also exceeded our guidance range of $7.65 to $7.75 per diluted share. Better than expected results for the month of December were achieved across a broad group of businesses. Record full year net income of $6.8 billion was driven by Nucor's diverse portfolio of products and capabilities. Profitability records were set by numerous businesses, including Nucor sheet mills, rebar and merchant bar mills, engineered bar mills, plate mills, structural mills, joist and deck, tubular products, cold finish bars, and fasteners. Nucor's product breadth continues to be a powerful driver of value creation through the cycle for both our customers and shareholders. While our 2021 performance unquestionably benefited from an exceptionally strong steel industry upcycle, Nucor's results were also fueled by our team's focus and commitment to safely meeting our customers' needs. Disciplined execution of our growth strategy over the years is a significant factor underlying our success. For example, five major Greenfield projects completed commissioning and startup over the 2019 through 2020 time period. They 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 mill in Missouri, and the rebar micro mill in Florida. These projects represent an aggregate capital investment of just over $1 billion. For the full year of 2021, they generated EBITDA totaling $674 million. Our teammates at these facilities have done stellar work, executing across the board on safety, product quality, and financial performance. Cumulative EBITDA already exceeds the investment outlays for the Gallatin Galvanizing Line and the Ohio rebar mill modernization. The cumulative EBITDA generated by the Hickman Specialty Coal Mill is nearing that project's capital investment. First year EBITDA for the Missouri and Florida rebar micromills are multiples of what we originally projected in our project return budgets. Two more major capital projects totaling just over $1 billion have entered startup in late 2021 and early 2022. These investments meaningfully enhance Nucor sheet product capabilities. They are the expansion and modernization of the Gallatin sheet mill and the Generation 3 flexible galvanizing line at the Hickman sheet mill. We look forward to introducing our new capabilities to strategic customers as the year progresses, and we are excited about the returns expected to be generated for our shareholders as these projects ramp up. While 2021 clearly revealed the earnings and cash generation power of Nucor's businesses, it also provided an opportunity for us to fully demonstrate Nucor's balanced capital allocation framework. As most of you know, we are committed to first investing for profitable growth while maintaining our strong investment grade credit rating and returning capital to our shareholders through cash dividends and share repurchases, a minimum of 40% of net income over time. When we judge that strong free cash flow is causing us to become overcapitalized, we will typically distribute more than 40% of our net income to shareholders. Capital returns have averaged 58% of net income over the five-year period ending in 2021, and they were 55% of Nucor's net income for the year of 2021. 2021 capital returns consisted of dividends of $483 million and share repurchases of just under $3.3 billion. The share repurchases totaled more than 33.8 million shares at an average cost of about $97 per share. These returns were, of course, funded by our strong cash provided by operating activities, also a new record of $6.2 billion. Other significant uses of cash during the year were capital spending of $1.6 billion, expansion of working capital, mainly receivables and inventory net of payables totaling approximately $3.3 billion, and acquisitions of about $1.4 billion. We remain well capitalized with excellent liquidity. A year-end gross debt as a percentage of total capital was approximately 28%, while net debt was about 14% of total capital. Our cash, short-term investments, and restricted cash holdings totaled about $2.8 billion at year end. Nucor's liquidity also includes our undrawn $1.75 billion unsecured revolving credit facility. In November, we increased the capacity by $250 million and extended the maturity date to November of 2026. Given the state of our balance sheet, near-term investment plans, and our expectations for earnings, We anticipate that we will continue returning excess capital to our shareholders during the first quarter of 2022, very likely via continued share repurchases. Our analysis suggests that Nucor shares are significantly undervalued relative to our risk profile, earnings, and cash flow generation capacity. For 2022, we project capital spending of approximately $2.3 billion. Growth projects for improved product capabilities and expansion represent about 75% of our expected capital spending for this year. These include the Kentucky Plate Mill, the West Virginia Sheet Mill, the South Atlantic Rebar Micromill, and Gallatin's Tubular Products Facility. Maintenance capital spending for equipment replacement spares and cost savings projects accounts for the roughly 25% remaining. We currently expect capital expenditures over the next three years to total approximately $5.5 billion. Turning to the outlook, we are confident that 2022 will be another year of strong profitability for Nucor, fueled by continued strong end-use market demand for a wide range of steel and steel products. Better margins in our steel product segment as pricing has now caught up with higher steel input costs and lower intercompany inventory revaluation expenses reflecting flatter steel and raw material costs compared to 2021. Focusing on the quarter, We expect consolidated net earnings attributable to new core shareholders will be slightly reduced from the fourth quarter of 2021's record results. Diluted earnings per share for the first quarter of 2022 will benefit from lower weighted average shares outstanding. Steel mill segment earnings are expected to decline in the first quarter of 2022 due to decreased profitability of our sheet mills, offsetting increased profitability at our long products mills. The steel product segment is expected to achieve further margin expansion and profitability in the first quarter of 2022 as backlog pricing continues to improve. The raw material segment is expected to improve slightly in the first quarter of 2022 as compared to the fourth quarter of 2021 due to the improved profitability of our derived facilities partially offset by the impact of lower scrap prices on our scrap brokerage and processing operations. Before we go to Q&A, I would like to just take a moment to highlight our board's action to increase Nucor's base dividend for the 49th consecutive year, effective with the February 11th payment. I hope you'll agree that this is an impressive track record. Our team has great determination to continue our record of delivering increased long-term value for our shareholders. Thank you for your interest in Nucor. Operator, we are now ready to take questions.