Nucor Corporation

Good day, everyone, and welcome to the Nucor Corporation third 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 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 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 websites. 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 Topelian, President and Chief Executive Officer of NUCOR Corporation. Please go ahead, sir.

Good afternoon, and thank you for joining us for our third quarter earnings call. Joining the call today are other members of Nucor's executive team, including Dave Samosky, Chief Operating Officer, Steve Laxton, Chief Financial Officer, Al Baer, responsible for plate and structural products, John Hollitz, responsible for bar, engineered bar, and rebar fab, Greg Murphy, responsible for business services and our general counsel, Dan Needham, responsible for our commercial strategy, Rex Query, responsible for sheet and tubular products, and Chad Udemark, responsible for new markets and innovation. As our teammates continue to serve our customers in what we anticipate will be a record year for Nucor financially, we've not lost focus on our most important goal of becoming the world's safest steel company. After two record-setting safety years in 2020 and 2021, we are on pace for the safest year and new course history in 2022. I want to acknowledge the progress demonstrated by all of our teammates as they continue to take care of our most important value. I'd also like to thank and give a shout out to our sheet and engineered bar teams for achieving world-class safety performance so far this year. And I want to encourage all of our team members to maintain their focus on safety so we can again achieve our most important goal that we have set for our company. Regarding our financial results in the third quarter, we posted earnings of $6.50 per share. And through the first nine months of this year, we have earned $23.85 per diluted share, setting an all-time record for Nucor Corporation. Our earnings in the third quarter were down compared to the record high levels we achieved in the first two quarters of the year. And as we indicated in our guidance, earnings from our steel mill segments were lower In the third quarter, due to metal margin contraction and reduced shipping volumes, particularly at our sheet and plate mills, prices have decreased more rapidly than our raw material costs, and we've also had planned outages at several of our mills. The ongoing war in Ukraine, dynamic changes in energy costs, and shifting monetary policy have amplified economic uncertainty. Even with this uncertainty, we continue to see good demand here in the United States, particularly in our steel product segments, which had strong earnings again in the third quarter. Their performance was largely the result of continued, robust demand from the non-res construction market. U.S. Census Bureau data reflects that the total domestic non-res construction spending hit a record in August at $79.4 billion. Steve Laxton is going to provide more details on the financial performance of our three business segments and the outlook for the final quarter of the year. Although increased economic uncertainty and lower pricing for many steel grades means it's unlikely we'll see more record highs for the rest of the year, we believe that the medium and long-term outlook for our business is quite positive. We continue to execute on our various capital investment projects. so that we're well positioned to seize market opportunities as they evolve. Consistent reinvestment in our businesses has been the critical factor enabling value creation by our team over the years. The construction and startup of our Nucor Steel Brandenburg plate mill continues to progress incredibly well with respect to safety, budget, and schedule. The Brandenburg team is delivering one of the safest construction projects in Nucor's history. The Brandenburg team has already commissioned the electric arc furnace, the ladle metallurgical furnace, and anticipates commissioning the vacuum tag degasser and caster in the next several weeks. Commissioning is also underway in the rolling mill area, positioning the team to produce its first plate products by year's end. The startup this year will have our state-of-the-art mill ready to enter the market in 2023. We also announced that Brandenburg is publicly registered to pursue LEED, version 4 for building and design certification. In a continued trend of environmental leadership as a company, Nucor Steel Brandenburg is the first steel mill in the world to pursue certification under LEED version 4, which is more stringent than previous LEED rating systems. The new plate mill will play a key role in supplying sustainable steel to build our clean energy infrastructure. It will be one of very few mills worldwide and the only one in the Western Hemisphere capable of supplying the critical steel components required to build offshore wind farms. I'd like to congratulate our entire Nucor Brandenburg team. The ramp up at Nucor Steel Gallatin continues to progress. Although we anticipated a full run rate production by the end of this year, we now expect that this will occur in Q1 of 2023. The majority of our startup delays have centered around equipment sequencing and remembering that this upgrade was a complete modernization of the entire facility, including new automation software throughout the mill. This investment, combined with the galvanizing line we added in 2019, the addition of the recently purchased pickle line, and the two mill currently under construction, dramatically expands the breadth of market solutions our Gallatin Mill can provide. Collectively, these efforts position Gallatin with a higher, more value-added product suite and will enable our team to generate higher profit margins as we move forward. We're proud of the work our team is doing to safely bring the Gallatin facility to its full production capability for our customers. The third quarter was also the first full quarter of operating CHI overhead doors since closing on the acquisition in June. We continue to work closely with the CHI team to integrate them into Nucor and we are already realizing supply chain efficiencies because of the acquisition. We're also working to capitalize on incremental sales opportunities now that CHI is part of Nucor. We are very excited about the growth potential of this new portion of our business and we are on track for a record 2022 and ahead of our acquisition model expectations. We also announced in the third quarter that we will be adding a melt shop at our Kingman, Arizona facility. The new $100 million melt shop will have the capacity to produce 600,000 tons annually and create approximately 140 new full-time jobs. Kingman is currently a rolling mill, and we're leveraging that existing footprint and adding melt shop capacity there to efficiently meet the growing demand for rebar in the western U.S. Lastly, at the end of the third quarter, we announced that the Nucor Board of Directors approved the construction of a galvanizing line at our Nucor Steel Berkeley sheet mill that is expected to begin operations in mid-2025. The Board also approved an additional galvanizing line to be constructed in the western United States, with details to be announced at a future date. The new Berkeley line will be our eighth wholly owned galvanized line. These investments further advance our strategy of shifting our mix to higher margin value-added products and capitalizing on sustainability trends that are driving more growth opportunities for Nucor. Turning to Washington for a moment, during the third quarter, Congress passed the CHIPS Act and the Inflation Reduction Act, two pieces of legislation that will strengthen domestic manufacturing and create opportunities in the future for the American steel industry. The CHIPS Act promotes semiconductor manufacturing here at home, which is strengthening our supply chains and helping us unleash a manufacturing renaissance across the United States. The Inflation Reduction Act invests in the domestic manufacturing of clean technologies to reduce emissions. It also contains provisions that encourage the procurement of American-made steel products in clean energy infrastructure. Incentives. to build our clean energy future with low emission steel produced by the US industry give us a competitive advantage. And finally, as we've mentioned in previous calls, we expect to start seeing the impacts of new federal infrastructure spending in 2023 as states continue to move forward with their projects. With our expanded capabilities and sustainable steel products, we are well positioned to supply the broad array of solutions that are essential to these efforts. And we are confident that as we do so, our efficient and flexible business model and diversified product portfolio will enable us to deliver very attractive returns on our shareholders' valuable capital. Before I turn it over to Steve, I want to thank our Nucor team for your incredible hard work and great performance through the first nine months of this year. And as we navigate the volatility and uncertainty in the market, we must stay focused on working safely and operating reliably to take great care of our customers. Let's finish this year having 2022 be the safest and most profitable year in Nucor's history. Now, Steve Laxton will share with you additional details about our third quarter performance and our outlook through the end of the year. Steve.

Thanks, Leon. This quarter's earnings of $6.50 per diluted share represent the fifth best quarterly results ever posted by Nucor. Year-to-date earnings per share of $23.85 actually beats the record we established last year for a full-year EPS of $23.16. An operating cash flow through the first nine months of the year was approximately $7.5 billion, also setting a new annual record. The entire Nucor team should be very proud of these results. Comparing this quarter's results to the prior quarter, our steel segment earnings were down about 55%. Shipment volumes were down about 9%, with sheet and plate volumes relatively weaker and long products more stable. Overall, metal margins contracted by approximately 11% as lower realized pricing for sheet, plate, and bars more than offset reduced metallics cost. Conversion costs were higher due to lower utilization and higher energy cost. Energy cost per ton produced increased by 17% during the quarter, and now constitute about $57 per ton. Some of these costs were offset by natural gas hedges we had in place, as well as increased earnings from our producing gas wells in the Peons Basin of Colorado. We continue to see very strong performance from our steel product segment. That segment's earnings were up about 6% on the last quarter's record performance. Joist and deck results improved from the second quarter, while tubular products' profits declined. Joist and deck volumes both increased slightly, and pricing on orders shipped during the quarter also rose, while substrate costs declined. Pipe and tube shipments were down almost 16%, and realized prices were off about 11%. Leon has already referenced the excellent results posted by CHI Overhead Doors. CHI is one of several moves the company has made recently to leverage our capabilities, products, and channels in new businesses that have good margins strong free cash flows, and good growth attributes. We call these efforts Expand Beyond. Other platforms in our Expand Beyond efforts include insulated metal panels and warehouse systems. During the quarter, these businesses produced $29 million and $28 million in EBITDA, respectively. While it's early in the Nucor life of these three Expand businesses, all three met or exceeded the targets for the third quarter in our acquisition model assumptions. I want to thank our teammates for the excellent work they're doing running and integrating these businesses. Raw material segment earnings were up slightly from the second quarter, with higher profits from our DRI operations more than offsetting lower results from DJJ. Cash provided by operating activities during the quarter was $2.8 billion, while capital expenditures totaled approximately $460 million. Year-to-date capital expenditures totaled $1.43 billion. For the full year, we now expect capital expenditures to be approximately $2 billion. During the quarter, we repurchased 5.3 million shares and paid $132 million in dividends for a total capital return to shareholders of $784 million or 46% of net earnings. Total capital returns to shareholders through the first three quarters of the year via dividends and repurchases were approximately $2.75 billion, or 44% of net earnings. During August, we also retired $600 million of senior notes that were set to mature in September. We had pre-funded this maturity and some other outstanding debt back in March of this year, with opportunistic issuance of $1.1 billion in new senior notes split evenly between 10- and 30-year maturities. The coupon on the maturing notes was 4.18%. The blended coupon on the March issuance was 3.5%. Nucor continues to enjoy excellent access to capital due to our position as a leading manufacturer across a broad array of steel products, our efficient and highly variable cost structure, and our consistent commitment to maintaining a strong balance sheet with good financial liquidity. Speaking of the balance sheet, We finished the quarter with debt-to-capital ratio of 26% and ample liquidity with $3.5 billion of cash, short-term holdings, and restricted cash holdings, and our $1.75 billion revolving credit facility was undrawn. Turning to the outlook for the fourth quarter, we expect our steel mill segment earnings to decline meaningfully relative to the third quarter. Fourth quarter shipments are projected to be lower compared to the third quarter, primarily due to seasonality, customers delaying orders due to economic uncertainty, as well as some of the planned outages in our own fleet. We expect lower realized prices in the quarter for most of our mills due to some of the same factors. The most pronounced effects will be felt in our sheet business. Lower raw materials cost will partially offset some of these impacts. We expect lower but still very strong earnings from our steel product segment in the fourth quarter, primarily due to seasonality and softer demand. Raw material earnings will also decline sequentially, primarily on lower pricing and shipping volumes from DRI. Several factors are combining to create a more dour economic outlook. The ongoing war in Europe, other geopolitical tensions, and rapid monetary policy actions attempting to tame inflation likely mean tempered near-term demand and stronger U.S. dollar, both challenging elements for Nucor's customer base. Service centers in particular are are cautious at this time. While there are still headwinds in the economy, we also have tailwinds supporting our overall demand. Just a few of those factors include non-residential construction, particularly in warehousing and reshoring of manufacturing, as well as energy and projects funded by the Infrastructure Investments and Jobs Act, some of which should see commencement next year. Thank you for your interest in NUCOR. Operator, we are now ready to take questions.