Nucor Corporation

Please stand by, we're about to begin. Good day everyone and welcome to the NUCOR Corporation's second 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 be given 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 those 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 website. The forward-looking statement 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 Leon Topalian, President and Chief Executive Officer of Nucor Corporation. Please go ahead, sir.

Good afternoon, and welcome to our second quarter earnings call. Before we get to our second quarter results, I want to highlight some changes we've made to our executive leadership team. As we announced in May, Mary Emily Slate retired on June 11th. Mary Emily is a dedicated and exceptional leader. We thank her for her more than 21 years with Nucor. Her impact on our teams across the enterprise contributed greatly to Nucor's success and profitable growth. The Nucor team wishes the very best for you, Mary Emily, and your family. And you will always be a tremendously valued member of the Nucor family. With Mary Emily's retirement, Dan Needham has assumed the role of EVP of commercial. John Hollitz was promoted to Executive Vice President of Bar, Engineered Bar, and Rebar Fabrication. John is a proven leader. Over his 23-year Nucor career, he has served in our joist and deck, building systems, and flat roll businesses. we welcome John to the executive team. As part of this reorganization, Chad Udemark has been appointed to the newly created role of Executive Vice President of New Markets and Innovation. In this new role, Chad will focus on our continued growth into new markets and integrating new businesses into the core operations of Nucor. Also joining me today on the call are members of the Nucor's executive team, including Dave Samosky, our chief operating officer, Steve Laxton, our chief financial 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, and Rex Query, responsible for sheet and tubular products. Our mission to become the world's safest steel company is the greatest measure of our culture and our most important value. Halfway through the year, we are on pace to have our new safest year in history, which is coming off back to back to back record safety years. I want to thank each and every member of the Nucor family for your focus and dedication in ensuring every team member is safe. Turning to our financial performance, we achieved a record second quarter earnings per share of $9.67 and record first half earnings of $17.30. This record performance was driven by strength across our diversified portfolio of businesses. Strong financial results were recorded by a number of our businesses, including bar, plate, sheet, structural, joist, deck, buildings, tubular, and our raw material operations. Since entering the steel business, We have focused on growing long-term earnings power and shareholder value. This month, we are celebrating 50 years since Nucor was listed on the New York Stock Exchange. During that time, we have led the transformation of the domestic steel industry, and we are the envy of the world in terms of Nucor's environmental footprint, safety performance, and efficiency, as well as profitability. Nucor has grown revenues by more than 13% per year from $83 million when we were first listed on the exchange in 1972 to last year's record of $36.5 billion, even as the total size of the domestic industry has shrunk. We have also grown our workforce from 1,800 team members back in 1972 to more than 31,000 team members today, and in the process created a huge amount of shareholder value. $1,000 invested in Nucor when we were first listed would be worth over $1.6 million today. Our record first half results continue the history of delivering new highs in profitability and cash flow through successive economic and steel market cycles, demonstrating the sustainability and adaptability of Nucor's business model. We have world-class manufacturing talent, and we are making the right investments to continue our track record of outperformance. Several of our recently completed organic growth projects in our core steelmaking businesses are already contributing to our record first half profitability, and there is more to come as additional projects ramp up production or come online. For example, our new core steel gallatin modernization and expansion project is now fully operational, having completed the last of their project-related outage work on June 6th. Our Brandenburg, Kentucky plate mill is on schedule and on budget for a late 2022 production start with almost 400 team members on board. This is a game changing mill in the US plate market that will firmly establish us as the market leader in plate. And in May, the state of West Virginia approved the air quality permit for our new sheet mill in Mason County. Groundbreaking for the project will happen later this year. Also during the second quarter, We completed our purchase of CHI overhead doors and announced two acquisitions that will lead to the establishment of Nucor towers and structures, which will serve the utility, transportation, and telecommunication sectors. We are so excited to welcome our new team members into the Nucor family. As we execute on our mission statement to grow the core, expand beyond, and live our culture, These investments are excellent examples of what we look for and expand beyond businesses. They serve growing markets and leverage Nucor's core manufacturing capabilities and our safety and team focused incentive driven entrepreneurial culture. We look forward to rapidly scaling up their operations as we continue to broaden our portfolio of construction market solutions. As we evaluate growth initiatives, either in our core business or by expanding beyond, we focused on driving incremental value by leveraging our capabilities and existing positions of strength, as we have done for the last five and a half decades throughout our history. Earlier, I mentioned the 50th anniversary of our New York Stock Exchange listing. Our July 12, 1972 news release announcing the listing gave our firm's business description as, quote, the nation's largest producer of steel joists, end quote. It had mentioned that the company also produces carbon and alloy steel. At that time, we just operated one steel mill, which was Nucor Steel Darlington. Nucor's tremendous growth in profitability and market value over the past five decades has been fueled by our decision back then to expand upstream into steelmaking. The result is that today, we are the leading North American manufacturer of a diverse array of steels and steel products, providing essential solutions for construction, infrastructure, energy, transportation, automotive, capital goods, and consumer durable market applications. Today, Expand Beyond is a disciplined strategy for profitable growth and value creation, just as our expansion into steelmaking was 50 years ago. With it, we are targeting higher growth sectors of the economy and leveraging Nucor's core competency in efficient variable cost-based manufacturing, as well as our broad product portfolio and existing channels to market. Turning to policy issues, I want to mention that we support swift passage of legislation to address semiconductor manufacturing and beneficial updates to our trade laws through legislation known as Leveling the Playing Field Act 2.0. Congress must get this important bipartisan priority across the finish line. Since the COVID-19 pandemic first disrupted our lives more than two years ago, it has become clear that the U.S. needs strong, resilient domestic supply chains for all sorts of critical materials, such as semiconductors, made by great American companies. Reshoring semiconductor production here in America gives us a tremendous opportunity to unleash a manufacturing renaissance in the United States. Also, last week, the U.S. International Trade Commission unanimously extended anti-dumping and countervailing duty orders for an additional five years on imports of corrosion resistant steel from China, India, Italy, South Korea, and Taiwan. While this is a positive development, unfairly traded imports remain a concern for our industry. The ITC is conducting several more five-year sunset reviews this year off key trade orders on flat-rolled products. These orders are critical to market stability and industry performance and are an important part of our government's trade enforcement toolkit. Nucor is working hard to ensure that they all remain in place. Finally, today's headlines are full of concerns regarding inflation, interest rate hikes, and whether we'll experience a recession. While we are all aware of these factors, Nucor's sustainable and flexible business model gives me great confidence in our ability to continue to grow and create value for our shareholders. Our team is focused on enhancing our capabilities, not simply adding capacity, and on delivering a differentiated value proposition for our customers by reliably and safely providing a broad offering of the most environmentally responsible steels and steel products found anywhere in the world. Before I turn it over to Steve, I want to congratulate our 31,000 Nucor team members for a fantastic first half of the year. Thank you for your hard work and dedication and commitment to delivering exceptional customer service. Let's continue our progress towards delivering the safest, cleanest, and most profitable year in New Course history. Now, Steve Laxton will share additional details on our first half performance and our outlooks as we move forward into the second half of the year. Steve?

Thank you, Leon. As Leon mentioned, this year's second quarter was the best quarterly financial performance in our company's history. The quarter's earnings of $9.67 per diluted share exceeded our prior quarterly record of $7.97 per share by more than 20%. Operating profits were stronger than we anticipated for all three segments. I want to thank our 31,000 teammates for these fantastic results. Your dedication and efforts are what drive the efficiency of our manufacturing businesses, which enable us to reliably meet the strong demand we're seeing across our broad array of products. Comparing the second quarter of 2022 to the first quarter of 2021, all three segments generated higher earnings with pronounced outperformance in our steel product segment. That segment produced $1.1 billion in operating profits for the quarter. Our joist and deck business continued to be the largest contributor to the segment's performance. While joist and deck shipments were down from the first quarter, higher prices more than offset the declining volumes. Contributions from tubular products and metal buildings were aided by both higher volumes and higher pricing during the quarter. Overall, our steel product segment continues to benefit from strong non-residential construction demand. This segment's earnings power and strong free cash flow characteristics continue to make key contributions to our overall performance. In our steel mill segment, shipping volumes were up by 10%. Most of the increase was in sheet and plate as we were able to take advantage of what we considered to be strong demand leading to attractive pricing in those markets. Our metal margins decreased by about 5% from the first quarter's $941 per ton to a still robust $895 per ton. Offsetting some of the benefits of the stronger metal margins we have been realizing over the past several quarters are some cost pressures from higher electricity and natural gas pricing. Our energy cost per ton of steel produced was up approximately 50% year over year. However, for some context, energy costs still represent approximately 6% of our overall cost per ton. Some of the changes in the energy commodity pricing seen in the marketplace overall over the past year were mitigated by Nucor's physical and financial hedges that we had in place. Our raw material segment outperformed first quarter results on the back of increasing selling prices for DRI and scrap. DRI benefited from elevated metallics pricing that we used to determine transaction values between segments. Cash provided by operating activities during the quarter was $2.3 billion, enabling both continued investment to grow new course future earnings power and the return of approximately $900 million of our shareholders' valuable capital via dividends and share repurchases. Our direct returns to shareholders for the quarter was 37% of earnings. Year-to-date, it is 43%. Our capital allocation priorities remain unchanged. Our highest priority is deployment of capital in our businesses to create long-term value. We also remain committed to our regular quarterly dividend, something Nucor has paid and grown consistently over the last half century. And importantly, we remain committed to additional direct returns to shareholders in times of strong performance, with an overall payout ratio of at least 40% of net earnings. During the five years ending in 2021, we returned approximately 56% of Nucor's net earnings to shareholders. We remain confident that with the capital we retain and deploy, we are building a more resilient, more profitable, and more cash-generative Nucor. During the second quarter, Nucor funded $520 million in capital expenditures and $3.1 billion in acquisitions. Between this past December and this year end, we expect to have completed three major organic growth projects that will substantially enhance the competitive position of our steel mill segment. The first, Hickman's Gen 3 Galve Line, was completed this past December. The second, Gallatin's Modernization and Expansion, was completed in June. And the third, our new state-of-the-art plate mill in Brandenburg, Kentucky, is anticipated to start at the end of the year. We expect these investments to generate at least $370 million of combined annual EBITDA once fully ramped up at mid-cycle performance and considerably more in robust market conditions like the ones we're seeing now. Nucor has an additional $3.6 billion of approved and in-process organic growth investments that will be completed by 2025. The largest of these is our West Virginia sheet mill. Once these five projects are fully ramped up, we anticipate they will contribute a further $700 million in run-rate EBITDA in normal market conditions. As you're also aware, we closed on CHI overhead doors in June. And with the acquisition of Summit Utility Structures and Sovereign Steel Manufacturing, we've established new core towers and structures. We expect these businesses, along with other new capabilities, we've acquired such as insulated metal panels and warehouse solutions can contribute as much as $600 million of incremental EBITDA annually in future years. Turning to the balance sheet briefly, as of the end of June, Nucor had debt to capital of 29% and ample liquidity with $2.5 billion of cash, short-term holdings and restricted cash holdings and an undrawn $1.75 billion in revolving credit facility. In May, we felt it was prudent to enhance liquidity and raise $500 million of senior notes with a three-year maturity and a coupon of 3.95% and $500 million of senior notes with five-year maturity and a coupon of 4.3%. Turning to the outlook for the third quarter of 2022, while we recognize there is considerable economic uncertainty right now, demand appears stable and resilient across our key end-use markets. prices in the steel segment has softened due to import pressures coupled with overall commodity pricing declines globally. For the third quarter, we expect lower earnings from our steel mill segment relative to Q2, and we expect continued strength in steel products and raw materials with performance roughly in line with the second quarter. For the year, we expect earnings per share will establish a new annual record for Nucor. In thinking about the longer term, with balance sheet strength and product diversity that is unparalleled in our industry, coupled with our highly variable and adaptive business model, we remain confident that Nucor is well positioned to deliver on our commitments to our team, our customers, and our shareholders over time. Thank you for your interest in Nucor. Operator, we're now ready to take questions.