Nucor Corporation

Good day everyone and welcome to the Nucor Corporation first quarter of 2022 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 the 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. 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. For opening remarks and introductions, I would like to turn the call over to Mr. Leon Topalian, Chief Executive Officer of NUCOR Corporation. Please go ahead.

Good afternoon and welcome to our first quarter earnings call. I'd like to begin the call by introducing our new chief financial officer, Steve Blackston. During the first quarter, we announced the retirement of Jim Frias and the appointment of Steve to the role of CFO. Steve began his career in Nucor in 2003 and has spent the last eight years as our vice president of business development. We're excited for Steve's future as CFO and welcome him to the executive team. And you'll be hearing from Steve in a few minutes about our first quarter financial performance. I'd also like to take the opportunity to thank Jim Frias for his 30 years with Nucor. He has had a tremendous impact on me, our team, and our company. And we wish Jim and his wife, Sharon, and family the very best in his upcoming retirement. Also joining us on the call today are members of the Nucor executive team, including 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 business services and our general counsel. Dan Needham, responsible for bar, engineered bar, and rebar fabrication. Rex Query, responsible for sheet and tubular products. Mary Emily Slate, responsible for our enterprise commercial strategy. And Chad Udemark, responsible for fabricated construction products. Last year, we achieved record safety performance, beating the safety record we set in 2020, and the Nucor team is off to another strong start in the first quarter of 2022. We continue to see excellent safety performance across our divisions as our teams work to meet strong demand from our customers. I'm proud of our team's commitment and progress toward achieving our goal of becoming the world's safest steel company. Team together, let's set another record in 2022. Turning to our financial performance, we achieved record first quarter results with earnings per share of $7.67. The quarter was marked by pronounced volatility as Russia's invasion of Ukraine impacted commodity markets and the supply chains of nearly every industry. While the Ukraine-Russia conflict certainly is having an impact on our industry, The much larger concern is a humanitarian disaster that has unfolded in Ukraine. The images coming out of Ukraine are heartbreaking and our thoughts and prayers are with the Ukrainian people who continue to endure significant suffering due to the invasion. The onset of the pandemic in March of 2020 and the Russian invasion of Ukraine are two recent events that upended markets and showed the resilience and sustainability of our business model. Our flexible production process and diversified product portfolio have helped us to thrive in the volatile market conditions that followed. I'm extremely proud of how our Nucor team has navigated the pandemic and several unexpected supply chain disruptions over the past two years. We are on the cusp of completing $4.1 billion in strategic organic growth investments by the end of 2022. We have also completed $2.1 billion in strategic acquisitions and returned approximately 4.8 billion in capital to our investors through the last five quarters. Our balance sheet remains under levered, and we have a fresh series of new organic growth initiatives that are just getting underway. Nucor delivered breakout record performance in 2021, and now we're beginning 2022 with a new quarterly record, which we expect to surpass again in the second quarter. Our team's ability to navigate the current disruption to the seaborne pig iron markets highlight the benefit of Nucor's powerful and adaptive business model. Pig iron makes up roughly 10% of Nucor's overall metallic supply in a typical year. Russia and Ukraine have historically accounted for over half of that supply. However, at the outset of this war, we immediately ceased all purchases of pig iron and any other raw materials from Russian suppliers. We could do this without disrupting customer supply or quality because we have worked over the years to effectively manage the risks related to our raw material needs. While we have not been able to source material from Ukraine since the war began, we look forward to partnering with our Ukrainian suppliers when conditions in the region permit. We have several advantages that are enabling us to manage through this disruption, including Good long-term relationships with numerous pig iron producers globally. Reliable DRI production capabilities in Trinidad and Louisiana that are particularly helpful in this environment. The ability to increase our production of low copper shred and to continue to invest in additional technologies for high-quality metallics, especially those that can help us further reduce new course carbon footprint. And our DJJ brokerage arm that has once again proven its value as it utilizes its broad network to ensure our steel mills have the scrap they need to meet our customers' requirements. Turning to current market conditions, we continue to see robust demand across the key end-use markets we serve. Some markets, like automotive, continue to be constrained due to supply chain issues. Last year, we realized outstanding results despite key markets such as automotive and energy being challenged and well below their averages and our initial expectations. The first quarter of 2022 was similar with very strong overall demand despite continued supply constraints, production challenges and automotive and relatively tepid response for energy products despite strong pricing for hydrocarbons. And now let me provide a quick update on some specific growth initiatives During the first quarter, we completed our acquisition of a majority stake in California Steel Industries. And as we've discussed on our last call, this $400 million investment expands our geographic reach in the sheet market to the West Coast, grows our portfolio of value-added sheet products, and creates supply chain efficiencies with Nucor's downstream businesses in the region, including Verco and Hannibal Industries. We welcome CSI teammates to our Nucor family. We also announced plans to modernize and expand the product capabilities of our sheet mill in Crawfordsville, Indiana, by adding a construction-grade continuous galvanizing line and prepaint line. The construction-grade continuous galve line will have a capacity of 300,000 tons per year, while the prepaint line will have an annual capacity of 250,000 tons per year. Crawfordsville was our first sheet mill, pioneering EAF thin slab casting. These projects in Indiana will enhance Crawfordsville's ability to competitively serve the regional construction market. Earlier this month, we announced plans to build our third rebar micro mill in Lexington, North Carolina. We have had great success with our micro mills in Missouri and Florida and saw a real opportunity to supply rebar to the fast-growing region between Washington and Atlanta. Population growth in this region, along with the new federal infrastructure spending, is increasing rebar demand. The site in Lexington is near abundant scrap supplies and transportation corridors, allowing us to efficiently deliver rebar to customers in the Mid-Atlantic and Southeast. We're really excited to be growing our presence and creating jobs in our home state of North Carolina. With regard to our modernization and expansion project at Gallatin, the team there has completed commissioning the EAF and LMF. The caster and second down coiler will be commissioned during the coming weeks. Following that, we'll have seven-day outage in early June to commission the roughing mill and hot mill crop shear. By June, all of Gallatin's new capabilities and capacities will be online. We currently anticipate shipping approximately half a million tons of Gallatin's added capacity in 2022. By Q3, Gallatin should be able to produce at a 3 million ton per year rate. Our team continues to receive recognition from our customers for the high-quality products we provide. For the fourth year in a row, Nucor has received GM Supplier of the Year Award. We remain the only EEF steelmaker to receive this award. In addition, Nucor received GM's Overdrive Award for supplying them with our iconic products. GM is our first customer to receive these products, and it is an example of how we work and listen to our customers to help them achieve their sustainability goals. These awards also demonstrate the benefits of investments we are making to serve our automotive and other customers with demanding applications for lower CO2 intensity steel. To our Nucor team, you should be extremely proud of receiving this recognition for four years running. Econic is just one example of our focus on sustainability. While our greenhouse gas emissions are just a quarter of the global average for the steel industry, We continue to look for ways to further reduce our emissions. We have supported the development of solar and wind energy projects by signing three power purchase agreements for roughly 600 megawatts of renewable power generation capacity. And earlier this month, we announced an investment in NuScale, a leading developer of new nuclear power technology called the Small Module Reactor. This investment in NuScale complements these efforts to help the United States develop new sources of clean power. An effective electric grid requires both base load and intermittent power sources, which is why we believe that both nuclear and renewable energy must be a part of the solution to achieve carbon reductions while maintaining grid reliability. On the trade front, unfairly traded imports remain a concern. The US ITC is conducting five-year sunset reviews this year of key trade orders on flat products, including cold-roll steel and corrosion-resistant steel. These orders are important to market stability and industry performance, and Nucor will vigorously work to ensure that they remain in place. We view our advocacy for effective trade law enforcement as an essential component of Nucor's efforts to take care of our customers, teammates, and shareholders. Nucor is investing more than $7.5 billion in our steelmaking operations over the 2019 to 2025 period. These investments are expanding the Nucor team by approximately 3,000 jobs and are driven by exciting opportunities to compete in a global steel marketplace where winners are determined by real cost and quality advantages that create sustainable value for consumers and not by government subsidies or other non-economic factors. I'm incredibly proud of the Nucor team's exceptional focus on delivering world-class performance in every area of our business, particularly our record-breaking results in safety and profitability. We are grateful for the trust our customers place in the Nucor team with every order, and we strive to offer exceptional customer value by being leaders in delivering the cleanest and most sustainable steel solutions in the world. Our key forward-looking indicators for 2022 remain favorable, and we expect another strong year in both earnings and cash generation. Now, Steve Laxton will provide more details about our first quarter performance.

Steve? Thanks, Leon. I want to start out by thanking all my NUCOR teammates for the outstanding work in the first quarter. As they've done over my 19 years with NUCOR, the men and women of this team continue to inspire me by what's achieved working together. And I'm honored and privileged to be working alongside you in my new role as CFO. As Leon mentioned, first quarter of 2022 earnings of $7.67 per share establishes a new first quarter record, more than doubling the prior record of $3.10 set last year in the first quarter. These results also exceeded our guidance range of $7.20 to $7.30 per diluted share. Better-than-forecast earnings for the month of March were achieved across a broad array of businesses, including our rebar and merchant bar mills, sheet mills, building systems, and raw materials businesses. The value of Nucor's unrivaled product diversity, coupled with our highly variable and adaptive cost structure, was on display yet again in the first quarter. Comparing the first quarter of 2022 to the fourth quarter of 2021, a number of our businesses achieved strong earnings growth and provided and offsets to weaker pricing and volumes that impacted our sheet business. Our steel product segment profits of $684 million was the highest quarterly results ever. We fully expect the segment to set a new quarterly earnings record in the second quarter as non-residential construction demand remains strong and margins continue to expand in joist and deck metal buildings and tubular products. It's worth noting here that over the last 10 years, the period ending in 2021, our steel product segment EBITDA increased from $66 million in 2012 to just under $1.5 billion last year. Over time, we've intentionally developed a diverse portfolio of market-leading businesses that provide a wider set of in-market solutions. These include joist deck tubular products, cold-finished bars, metal buildings, fasteners, and most recently, insulated metal panels and racking systems. These last two additions made in 2021 make a fantastic complement to Nucor, as they set the confluence of our core capabilities and growth sectors of the economy. Strong net earnings for the quarter translated into strong cash flows from operations, which amounted to approximately $2.5 billion. We redeployed a portion of this cash via cash expenditures and acquisitions, totaling almost $800 million. These strong cash flows also positioned us well to continue to deliver on our commitment to provide attractive cash returns to our shareholders. Capital returns during the period totaled over $1 billion, or about 50% of quarterly net income. They consisted of dividends of $137 million and share repurchases of $905 million, or approximately 7 million shares. Financial strength remains a critical enabler of Nucor's ability to create incremental value for shareholders. Our company continues to have the strongest credit rating in the North American steel sector. At the close of the first quarter, our cash short-term investments and restricted cash holdings totaled $4.3 billion. Nucor's liquidity also includes our undrawn $1.75 billion unsecured revolving credit facility, which matures in November of 2026. Total long-term debt, including current portion, was approximately $6.7 billion at the end of the first quarter. This includes $1.1 billion of bonds we issued last month. Half of these are 10-year notes with a coupon rate just above 3.1%, and the other half are 30-year notes with a coupon rate just under 3.9%. These proceeds will be used to redeem our $600 million of 4.18% notes due this September and our $500 million of 4% notes due in August of 2023. On March 25th, we issued a notice to redeem all $500 million of the 4% notes, excluding the debt being redeemed this month and the debt maturing in September. Gross debt as a percentage of total capital was approximately 26% at the close of the first quarter. And now I'd like to spend a minute or two on capital allocations. Nucor has a clear capital allocation framework that remains unchanged. Our first priority for capital is to create additional value through deployment that leverages our existing capabilities and positions of strength. Our second priority is to maintain and grow a healthy regular dividend, something we've done for 49 straight years without fail. Lastly, we remain committed to sharing upside returns directly with our shareholders, specifically We target a minimum of 40% of our earnings going directly to shareholders via cash dividends and share repurchases. The execution of that first priority is how we create meaningful long-term value for our shareholders. The present successes we are realizing today are a result of our team's consistent focus over our company's long history on disciplined execution of our business model and growth strategy. Today, we are laying the foundation for a future of further value creation. Let me highlight here a summary of some of the key activities. As Leon mentioned, with the completion of Brandenburg later this year, we will have deployed approximately $4.1 billion of capital over the past few years on 10 significant projects that enhance Nucor's competitive position across its product portfolio. We remain confident that these 10 projects will generate annual EBITDA of at least $600 million during normal market conditions. During stronger environments, such as 2021 and 22, we can expect far better results from them. You may recall that during our fourth quarter earnings call, we noted that five completed projects accounting for approximately $1 billion of capital spending generated about $675 million in EBITDA during 2021. Looking further ahead, we have roughly another $3.5 billion of incremental capital spending on significant projects planned for the coming years, including our North Carolina rebar micro mill, enhanced capabilities at our Gallatin and Crawfordsville mills, and our West Virginia sheet mill. We expect that once fully ramped up, these facilities will be able to generate around $700 million of incremental EBITDA annually for Nucor, again, during normal market conditions. In addition to our organic growth opportunities, Nucor continues to engage in strategic and targeted M&A activity. As Leon mentioned, we've deployed about $2.1 billion in capital via acquisitions during his tenure as CEO. Collectively, these investments further differentiate Nucor and create a powerful catalyst for future sustainability and shareholder value. We expect to add more than $1.6 billion to Nucor's run rate EBITDA in future years from these already completed and underway investments. We're excited about these opportunities to grow substantial shareholder value in the years ahead. We'll have a short slide deck summarizing them posted on the IR page of Nucor.com later today. As Leon mentioned, demand remains strong across our key end-use markets. We expect that the second quarter of 2022 will be the most profitable quarter in Nucor's history, surpassing the previous record set in the fourth quarter of 2021. Second quarter earnings will be driven by the increased profitability in steel product segment I mentioned earlier. In addition, the steel mill segment earnings are expected to strengthen due primarily to increased profitability of our sheet and plate mills. Nucor's raw material segment is expected to generate increased profits in the second quarter due to relatively higher selling prices for raw materials. Thank you for your interest in our company. Operator, we're now ready to take questions.