Nucor Corporation

to the NUCOR Second Quarter 2023 Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Jack Sullivan, General Manager of Investor Relations. Please go ahead.

JACK SULLIVAN Thank you, and good morning everyone. Welcome to Nucor's Second Quarter 2023 Earnings Review and Business Update. Leading our call today is Leon Topalian, Chair, President, and CEO along with Steve Laxton, Executive Vice President and CFO. We also have other members of Nucor's executive team with us, including Dave Samusky, Chief Operating Officer, Al Baer, responsible for plate and structural products, Brad Ford, over-fabricated products, Noah Hanners, raw materials, John Hollitz, bar products and fabrication, Doug Jellison, corporate strategy, Greg Murphy, Business Services Sustainability and General Counsel, Dan Needham, Commercial Strategy, Rex Query, Sheet and Tubular Products, and Chad Udemark, New Products and Innovation. We've posted our second quarter earnings release and investor presentation to the new Core Investor Relations website. We encourage you to access these materials as we'll cover portions of them during the call. Today's discussion will include the use of non-GAAP financial measures and forward-looking information within the meaning of securities laws. Actual results may be different than forward-looking statements and involve risks outlined in our Safe Harbor Statement and disclosed in NUCOR's SEC filings. The appendix of today's presentation includes supplemental information and disclosures, along with a reconciliation of non-GAAP financial measures. So with that, let's turn the call over to Leon.

Thanks, Jack, and welcome, everyone. I'd like to begin by thanking the 31,000 members of the Nucor team for delivering another outstanding quarter. The investments we've made in recent years to grow our core and expand into new markets are generating strong returns for our shareholders increased capabilities for our customers, and the Nucor team is executing safely and efficiently. In fact, through the first half of 2023, we're on track to set another annual safety record for the fifth straight year, further proof of the world-class performance by Nucor teammates who live our culture every single day. Looking at our financial performance in the second quarter, Nucor generated approximately $2.2 billion of EBITDA, and $1.5 billion of net earnings, or $5.81 per diluted share. On a year-to-date basis, we've generated $4 billion in EBITDA and $10.26 earnings per share, representing our second-best start to any fiscal year in new course history. Each of the three reporting segments saw higher earnings in Q2 compared to Q1, with the largest gains coming from the steel mill segments, which saw higher realized pricing. The steel mills order book remains healthy with strong demand from automotive, energy, heavy equipment, bridge construction, data centers, and manufacturing. And within steel products, Q2 marks the fifth consecutive quarter with segment earnings of approximately $1 billion or higher, and we continue to see a healthy backlog at attractive margins through the remainder of the year. Looking ahead, we believe steel markets for the remainder of the year will remain healthy driven by strong manufacturing investment and infrastructure spending. U.S. GDP growth forecast for 2023 have been revised upward on multiple occasions in response to economic data that continues to demonstrate the resiliency of the U.S. economy. Turning to our growth strategy, we've completed slightly more than 50% of our $10 billion CapEx plan to grow our core steelmaking operations. Several of these investments are already generating incremental earnings and growing our share in key markets. Over the next several years, we'll continue to execute on our CapEx plan to better position Nucor with more value-added steelmaking capabilities. In our sheet mill group, we've continued our ramp up at Nucor Steel Gallatin in the second quarter. The Gallatin team has achieved full run rate production levels in June and saw increasing levels of profitability each month of the quarter. I'd like to congratulate our entire Gallatin team for their continued focus on safely bringing the facility to full run rate production, as well as taking care of our customers during this time. At Nucor Steel West Virginia, we expect to begin construction in the coming weeks. We remain excited about this transformative project to serve the heartland of American steel consumption with a considerably lower carbon footprint. In our plate mill group, the Brandenburg team in Kentucky continues to ramp up production at the most advanced EAF plate mill in the world. As we've shared before, our focus at Brandenburg in 2023 is on improving our capabilities rather than maximizing output. We've spent the first half of the year dialing in the caster and downstream operations, and we're now producing finished products ranging in thicknesses from 1 to 12 inches. In the second half of 23, we expect to produce approximately 300,000 tons and turn profitable by year's end. Our customers continue to express strong interest in Brandenburg's capabilities and our team there is working to ensure we can provide a full range of plate solutions. Finally, in the bar mill group, construction on our new rebar micro mill in Lexington, North Carolina broke ground in May and is slated for completion by early 2025. This highly efficient 430,000 ton bar mill will serve the growing construction markets throughout the Mid-Atlantic and Southeast regions. Our steel product segment continues to generate strong earnings with nearly $2 billion of pre-tax earnings year to date, representing 45% of Nucor's earnings mix for the first half of 2023. This is a testament to our industry-leading capabilities across a broad array of engineered steel construction products and solutions. Today, Nucor can produce an estimated 90% of the steel intensity of a typical manufacturing facility or large warehouse. With over 100 fabrication centers throughout North America, we are the leading supplier of the steel products most commonly used in non-residential construction. Last year, we provided solutions to more than 5,000 steel products customers, with none representing more than 5% of consolidated revenue. And we're leveraging our channels to market and broad capabilities to cross-sell products such as overhead doors, racking, and other solutions. In recent years, our customers are attributing more value to the solutions we provide, helping to depart from the traditional cost plus paradigm. They recognize the incremental value we provide through engineering, detailing, fabrication, custom finishing, and our nationwide logistics capabilities. As a result, products such as joist and deck, pre-engineered metal buildings, and insulated metal panels command higher margins than in years past. Our performance also reflects some fundamental changes we've made to improve efficiencies in metal buildings and rebar fabrication, which are now driving better results for our customers and our shareholders. Turning to our Expand Beyond strategy, we're pleased with the initial success of our four new growth platforms, and we continue to develop a pipeline of potential growth opportunities. During the second quarter, Nucor Towers and Structures announced the location of our second new production facility in Crawfordsville, Indiana, there is considerable growth potential in the utility infrastructure market with a need to expand and harden transmission infrastructure while accelerating the connection of distributed renewable energy to the grid. As we evaluate and pursue new Expand Beyond platforms, we're focused on opportunities that leverage our core capability as an efficient industrial manufacturer and are aligned with steel-intensive megatrends or themes. Passage and implementation of the infrastructure bill, IRA, and CHIPS and Science Act are helping to drive these megatrends, and Nucor intends to capitalize on them further to grow and diversify our earnings potential. The goal of our growth strategy is not simply about being the biggest steel company. It's about providing a differentiated capability set for our customers and creating long-term economic value for our shareholders. We aim to generate returns over the economic cycle comparable to the best manufacturing companies in the world. That's why we're seeking opportunities with attractive growth rates, stronger free cash flow, great synergy potential, and more stable earnings profiles. Before turning it over to Steve, I'd like to provide some updates on our sustainability strategy. In May, we announced an MOU at NuScale to explore locating new-scale small modular reactor power plants near certain Nucor steel mills. And in June, we announced a partnership with ExxonMobil to capture, transport, and store CO2 emissions from our DRI plant in Louisiana. We believe this is the first carbon capture project of any DRI facility and will enable us to produce the lowest embodied carbon DRI in the world. Even though our emissions intensity is already 60% lower than the global steelmaking average, Nucor continues to aggressively pursue strategies that further differentiate itself as the leader in sustainability for our industry. With that, let me turn it over to Steve, who will share additional details about our Q2 performance as well as our outlook for Q3. Steve?

Thank you, Leon. Nucor just completed another terrific quarter. The company had consolidated net earnings of nearly $1.5 billion, resulting in return on equity of 30% over the past 12 months. In fact, the second quarter of this year marks our ninth consecutive quarter, where both net earnings exceeded $1 billion and return on equity exceeded 25%. These results highlight the advancement of our strategy and the growing earnings power of Nucor's diversified portfolio and industry-leading capabilities. It also demonstrates solid execution by the Nucor team and ongoing favorable conditions across important steel-consuming end markets, such as construction, automotive, energy, and industrial equipment. At the segment level, our steel mills group delivered $1.4 billion of pre-tax earnings in the second quarter, an increase of 68% over the first quarter. This was due to higher metal margins, especially at our sheet mills, as gains on realized pricing on steel outpaced higher prices for both scrap and ore-based metallics. Second quarter steel shipments were similar to that of the first quarter. During the period, we realized slightly lower conversion costs, including lower energy rates. Turning to our steel product segment, we saw another period of outstanding performance with segment pre-tax earnings of just over $1 billion. We continue to realize attractive pricing and margins, even as some subsectors like warehouses continue to moderate from their historically high levels of 2022. While Nucor operates a diverse portfolio of downstream steel products, some of the strongest contributions came from our joist and deck business and our pre-engineered metal buildings group. We also saw improved results in our rebar fabrication and tubular products businesses. In addition, As Leon mentioned, we've seen very positive contributions from our newly acquired Expand Beyond platform businesses. Our raw material segment produced pre-tax earnings of $138 million for the quarter. Relative to the first quarter of the year, we realized higher volumes in pricing in both our DRI and recycling businesses. During the second quarter, we also continued to generate strong free cash flow. with cash from operations totaling $1.9 billion for the quarter and $3.1 billion year-to-date. This strong cash flow allowed Nucor to continue its balanced approach to capital allocation. In the second quarter, we deployed $525 million in capital expenditures as we continue to enhance and grow our core. We also returned $580 million to shareholders, including approximately $130 million in dividends and $450 million in share repurchases. Year to date, we've returned roughly 44% of our net earnings to shareholders through dividends and share repurchases. Nucor's balance sheet strength continues to be a fundamental underpinning of our current and future success. At quarter end, Nucor had approximately $5.4 billion in cash and short-term investments, and our revolving credit facility remains undrawn. This strong liquidity position enables us to continue our balanced approach to capital allocation. Leon referenced the progress we're making on our $10 billion capital spending plan to leverage and grow our core. But we still have significant spending in our largest project ahead of us. We expect capital spending related to our West Virginia sheet mill to accelerate in the near term as we begin the construction phase of this project. And as mentioned earlier, we continue to cultivate a viable pipeline of growth opportunities to expand into new adjacent businesses. Maintaining a strong balance sheet and sufficient liquidity are centrally important to enabling and positioning Nucor for continued future success. Turning to our outlook for the third quarter, we currently expect consolidated earnings to be lower than the second quarter. At the segment level for the third quarter, we expect earnings from steel mills to decrease compared to the second quarter on stable shipments but lower margins, as we've seen prices come down for sheet and, to a lesser extent, long products. In our steel product segment, we expect performance will continue to moderate from the record-setting earnings of recent quarters due to modestly lower pricing and stable volumes. For the raw material segment, we expect lower earnings in the third quarter due to margin compression of our DRI and scrap processing operations. Overall, non-residential construction remains elevated with especially strong activity from infrastructure spending, data centers, and manufacturing. In addition, positive trends continue in the automotive and energy sectors. In short, we believe medium and long-term fundamentals of our industry and key demand drivers remain very healthy. This coupled with our strategy to grow our core and expand beyond position new core for strength well into the future. With that, we'd like to hear from you and answer any questions you might have. Operator, please open the line for Q&A.

We will now begin the question and answer session.

To ask a question, you may press star, then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. Once again, that was star, then 1 to ask a question. And at this time, we will pause momentarily to assemble the roster.

And our first question comes from Alex Hacking of Citi.

Please go ahead.

Yeah, morning and thanks for the time. I guess just my first question, just drilling down on demand a little bit. If we look at, you know, shipments of long steel bars and structurals, it's down about 10% year over year. I guess, you know, what's driving that kind of year-on-year decline? Thanks.

Yeah, Alex, I appreciate the question.

You know, as we look over, you know, the course of this year compared to last, you know, we're coming off historic highs, historic backlogs, and volumes. And so some of that's moderating. We're seeing, again, continued robust demand in many of those sectors, particularly, you know, around non-res construction, auto, advanced manufacturing, and the like. So maybe provide a little more context on some of those. long products and what we're seeing in the marketplace today.

Good morning, Alex. This is John Hollis. I'll speak specifically to long products. So you've got to keep in mind that when it comes to Nucor's long products portfolio, we have the most diverse offering of any long product company out there. We've got Rebar, Merchants, SBQ, and Rod all mixed into those numbers. The rebar demand has remained steady. That's about even with where it was last year as we would expect. Where we've seen some decline is on the rod side and on the SBQ. You've seen inventory buildups over the course of last year that have been making their way down over the course of this year, and we're feeling some impact of that. But again, the bigger portion of that is the rebar side, which remains very consistent.

Thanks, Leon and John. It's very helpful. And then I guess my second question, I guess turning to the sheet side, you know, shipments there, you know, modestly lower year on year, you know, despite adding 400,000 tons from Gallatin, you know, your peers have generally been reporting, you know, shipments higher year on year. Sitting on the outside, it looks like maybe Nucor is happy to concede a little bit of market share in the short term. You know, is that a fair assessment or is there kind of something else going on?

Well, hey, I appreciate that. And a couple of things to note. And again, context is important in a number of different aspects, not the least of which, you know, the second quarter of last year was historic for Nucor and really our industries. And so at that time, we're peaking and setting records in about every category that you can imagine, including about 7 million tons of shipments in that quarter alone, two and a half of which was in our sheet group. And so what I would tell you is we looked at Q2 of this year, we're not conceding market share. And in fact, we're growing some of that. And, you know, I'm going to ask Rex Query to touch base on a little bit, give you a little bit more flavor of that. But, you know, Nucor is, you know, focused on providing a capability set out for our customers, again, not just volume. At the same time, we're not going to concede market share. We're going to be deliberate in how we ramp up. We've thought very deliberately about how we bring I'm proud of what they and their team have done from a safety standpoint, from a reliability standpoint, and again, really taking a complete brownfield revamp of that facility. You know, while delayed, I'm really proud of the efforts that team has made and now profitable and running at full run rate levels. So, Rex, provide a little more clarity for Alex around that in our market share gains.

Yeah, Alex, appreciate the question. As Leon mentioned, second quarter last year really was extremely high in volume. So it matters where you start at when you look at that from a just relative tonnage standpoint. So you saw, I would tell you, basically been stable. And as far as market share, if you go back to that time frame versus now in the last year, we've picked up a couple of points of market share from first quarter to we're up about four points in market share. So from that standpoint, we've grown it. Imports have decreased slightly over that time. So from a standpoint of someone else growing, they're getting that from somewhere else, not from Nucor. At the same time, we're expanding our capabilities. So you're seeing us expand market share, but also expand our capabilities into our customers for higher quality products.

Thanks, Leon and Rich. Appreciate the the context and clarification.

Thanks, Alex.

The next question comes from Tim McHanners of Wolf Research.

Please go ahead.

Yeah, hey, good morning, Tim. Good morning. Hello. I wanted to ask a bit more about your backlog. I know you talked about healthy backlogs. You alluded to some of the weakness in warehouses, but also talked about healthy government program support. So just wondering if you could provide any further color, you know, recent warehouse starts have fallen over 50%. Have you seen much weakness yet? What are your customers saying there? And what are you seeing in terms of evidence of the government spending so far and your backlogs as well?

Yeah, thanks, Tim. I'll kind of start it because there's a few different prongs that I want to touch on and maybe ask John Hollis to touch on, you know, some of the flow through effects that we're already seeing in our order books. But I want to begin with the backdrop, right? If we pick a point in time like June's numbers of a drop of 53%, you know, if you look at the overall year average, it's about down 25%. And again, the 2023 overall forecast is 27%. down year over year, but you're coming off, again, historic highs. However, June, you know, I think what you're asking is June, you know, an indicator that we've reached some different and a bigger decline that's going to stay with us. I would tell you that is not indicative of what we're seeing in our quoting data or backlog data. And as we talk to our customers, customers, the feedback and reports that we're getting is, again, pretty resilient through the rest of the year. You know, it is off 2022 peaks. But again, as we think about maybe a 2017 to 19 average, it is still significantly higher than that period of time. So, you know, John, maybe just provide a little context around what we're seeing in terms of the infrastructure chips and IRA flowing through our mills.

Yeah. Thank you, Leon. Good morning, Tim. On the infrastructure bill, we're really seeing still design and budgetary work. being done on those projects. So we expect that that would flow our way probably more at the end of this year, beginning of 2024. On the chip side, those projects are currently in motion. They are sitting in our backlog. Some have actually been delivered, and we're seeing the benefits of that. Specifically on the rebar and rebar fabrication side, you asked about Backlogs, I'll touch on rebar fabrication. I'm really proud of what our team at Harris Rebar Fab has done over the last year. We are comfortably going to have a record year in that business. And the margin in our backlog right now is higher than it's been at any time in our history since we have owned this business. Our backlogs are down just slightly year over year. That's by design where we were coming off of a record backlog a year ago. But we're positioning ourselves because of our geographic footprint across the entire country to take advantage of this wave of work that continues to come with the CHIPS Act and the infrastructure bill.

Okay, thanks for that, Tyler. Very helpful. If I could sneak another one in, I just wanted to kind of clarify. I sensed a couple comments from you guys about potential interest in further downstream M&A. Did I catch that right? And if so, can you elaborate on any of the criteria that you're looking for in market geography? Anything that you want to provide would be great.

Yeah, Tim, I'll touch on that. And, you know, part of the expand beyond for us is a few filters that I'll share with you. One is a marriage up where we bring value as an industrial manufacturer, right, that there's something that we bring to bear. We're not looking for disparate businesses, certainly not looking to become a conglomerate and, again, having things that don't marry up or we don't bring value to. So that's one. The second is scalable, whether we can maintain or grow into a market leadership. Third is looking for adjacencies that operate somewhat out of the traditional cyclicality of the steel mill world, right? So how do we provide a more stable earnings profile through the long term? And again, the best example of that is our CHI overhead door business that is operated prior to us acquiring them at a 10% CAGR. for 20 years, and so their stability in that earnings profile is something that we look for a lot as we're continuing to look. There are a lot of irons in the fire. I won't get specific into the sectors, but other than to say, you know, as we look at the megatrends that are happening in our industry in the long term, how do we continue to broaden that portfolio and, again, increasing our value and capability set for customers and the returns for our shareholders?

Okay, thanks a lot.

Thanks, Timna.

The next question comes from Lawson Winder of Bank of America Securities.

Please go ahead.

Thank you, operator, and good morning, everyone. Thank you for the update today and taking my call. I just wanted to start off with your commentary on steel products and for those to moderate in Q2 and ask whether you might be able to provide some more specific direction in terms of what moderation means. For example, would that be down like 2%, 5%, 10% versus Q2? Thanks so much.

Yeah, Lawson, I appreciate the question. And, you know, I don't know we're prepared today to talk about that one and provide that exact in that one specific end market. What I would tell you is we look to Q3, you know, we expect volumes to remain pretty stable. Again, we think that business segment is pretty resilient. And again, we do see some slight contraction on the overall pricing that's going to flow through. But again, at this time,

I'm not going to provide a specific number.

Okay. That's fine. I mean, that's helpful what you've provided. And then I just also wanted to ask on Brandenburg. You continue to expect profitability in Q4. How does Q3 look? And then looking into 2024, how would you describe the profitability outlook for Brandenburg then?

Yeah, I'll ask Albert, our EVP over plate products, to touch on it. I would just point out and tell you, you know, the excitement of Brandenburg to us internally and then to our customer segment in the marketplace has been extraordinary. It is the most diverse capable plate mill in the Western Hemisphere. The team has done a phenomenal job. Again, I shared earlier in my opening remarks about, you know, their ramp up and their ability today to, have produced 1 to 12 inches. You know, again, we're excited about being in the heartland of the largest plate consuming region in the United States. Al, you want to just maybe provide a little bit of insight into, you know, Q3 and that ramp up and, again, our expected profitability by Q4.

Yeah, thanks. And, you know, I don't know, Austin, if I'm in a position to comment beyond on the profitability, what we've given you about achieving it in Q4. But I can talk a little bit about volumes as we look at the second half. And it's heavily weighted towards Q4. So of the 300,000 tons, I'd say you'd see 100 of that in Q3 and 200 of that in Q4. So that might help you to kind of pencil out what that looks like for the year. But as Leon said, we remain focused on the capabilities of that machine, which are extraordinary. We've hit several milestones even within the quarter of rolling a 12-inch finish plate. We've cast a 12-inch slab at that caster. We just continue to grow our capabilities in all the casting, rolling, and finishing breadth that that plant can do. We're going to be strategic about rolling the tons out. We're going to be careful and thoughtful about it, but I've given you about the best estimate we have on how the second half would look.

That's super helpful. Thanks, Al. And then when you think about profitability in that sector as well in terms of pricing, I mean, would you expect premium value-add pricing to start coming through in 2024, just given the range of product that you guys will be producing there and the focus on those higher value-add products? Thanks.

Yeah, well, with regard to pricing, ultimately, the market's going to decide the pricing and supply and demand dynamics do that. I would say Brandenburg is primarily a discrete plate mill, and discrete plate does carry a premium over hot-rolled coil plate. So that mix will be helpful as you look at just backlog pricing and overall mix pricing. But that's probably as much granularity as I could give you as we just look into the next year.

Okay. That's all very helpful. Thanks very much, guys.

Thanks, Austin.

The next question comes from Bill Peterson of JP Morgan.

Please go ahead.

Yeah, hi. Good morning and thanks for taking the questions. You discussed, you know, some fundamental changes that helped improve the efficiencies in the metal buildings and rebar fabrication. I can recognize that customers are realizing value in the business, but can you elaborate more on, I guess, what you're doing internally, the internal efficiencies that led to the fundamental change or is there any room for further improvement down the road?

You know, Bill, I appreciate the question. You know, over the last couple of years, really three, four years, we've taken some very, very strong looks in evaluating our own internal portfolio. Where do we gain efficiencies? How do we do align certain operations? And we largely feel that the overall footprint today geographically where we're positioned as well as the product offering is a really good balance into the marketplace and customer segment that we're, you know, attached to and the dealer networks that we continue to help support and ultimately supply into. So I would tell you on that internal footprint, I think we feel very well positioned with the moves we've made to date. And while there will be continued efficiency gains, they'll be more smaller in nature. You know, we don't see at this time further consolidation or closures in the future.

Okay, I appreciate the call there. Maybe turning to CapEx, it looks like you spent a little more than a billion in the first half of the year. How should we think about the cadence of CapEx in the back half of the year, I guess, taking into account projects like the West Virginia site or any other projects?

Yeah, hey, Bill, this is Steve. Thanks for the question on there. And the back half is definitely going to be a much heavier spin on CapEx. We guided earlier in the year to an estimate of around 3 billion on the year. And of course, we spent only about a billion of that so far. And the largest project that we have by far is West Virginia. And we're about to enter a phase of construction there. So that's going to, in particular, that asset is going to ramp up rather quickly in the second half.

Okay. Thanks for the call. Thanks, Bill.

The next question comes from Carlos de Alba of Morgan Stanley.

Please go ahead.

Yeah, good morning everyone. You mentioned that you saw a lower cost conversion in the steel segment in the second quarter. I wonder if you can provide a little bit more color in terms of what do you expect for the third quarter, maybe the second half, and what is driving those cost reductions? And then, yeah, I have a second question, if I may, after.

Hey, Carlos. Steve, I'll take that question. And generally what you've seen since the midpoint roughly of last year is an overall moderation in cost in general. And of course, that's been reflected in the CPI data and more broadly in the economy. And we're not any different than that. But in particular, energy is down around 20% year over year, for example. But you're seeing some moderation in freight costs and supplies and services in particular. Those are some areas we're seeing the biggest declines year-over-year in cost.

And do you expect the level of declines in the second half to remain close to the 20% that you mentioned, for instance, on energy?

Yeah. I don't know that I would project further decline necessarily, but we're not seeing, you know, the increases that we saw last year.

All right. Thanks, Steve. And the other question I had is, what we're seeing is that in terms of square footage, commercial warehousing construction is coming down. Manufacturing plant is increasing, but warehouse is just far much bigger in terms of area than manufacturing plants, at least where we stand right now. Infrastructure is also picking up. How much exposure do you have to each one of these different segments between the non-residential construction sector and how quickly, for instance, if you had more exposure to the commercial warehousing, how quickly can you adapt your product mix so you can sell more to those areas that are seeing expansions?

Carlos, I'll attempt to answer that. So starting with the back half of your question first, you know, our ability to pivot is instantaneous. And so, again, we're not making products for our own edification. It's to deliver solutions to our customers that, again, now Nucor has an incredibly wide and diverse portfolio. If you're on the website or looking at that slide deck, you know, today Nucor produces and supplies into that typical warehouse structure. About 90% of the steel intensity needs are already being met but you also have to keep in mind and i'm not going to detail out what individualized percentage of the overall portfolio but the warehouse piece for us is only a small piece of the overall mix when you think about insulated metal panels racking um the the uh the joyston deck the buildings the you know all the towers instruct the entire portfolio of what nuclear brings to bear again the the that overall matrix for Nucor and that revenue stream continues to look very robust. And so while you're seeing and you're right about the reduction in overall square footage, you know, Nucor's earnings potential and you're seeing our volumes pretty stable. We think there's going to be a little bit of pressure as we get into Q3. Again, volumetrically, we have a very stable picture as we look out in the future. So, again, I think it's going to be a strong year for Nucor in our total portfolio of our downstream products. But, again, I'm not going to break out the individual revenues for each of those components.

Fair enough, Leon. Thank you very much.

Thanks, Carlos.

The next question comes from Cleve Rickert of UBS.

Please go ahead.

Great. Thanks for the question. Good morning, everybody. I think a lot of it's been covered already, but Leon, I wanted to follow up on Timna's question. I'm curious to understand what, in your opinion, needs to happen for you to generate returns comparable to the best manufacturing companies in the world. Is this really about vertical integration? Or is there an opportunity to get there within your current business mix?

And I'm just kind of curious about what direction you kind of are... Yeah, look, fair question. And again, as you think about that as a backdrop, it really goes back to our launch and my time in taking over as CEO where we rolled out our mission statement to grow the core, expand beyond, and live our culture. So the expand beyond piece was really the lens in which we're looking on How do we continue to generate long-term growth and long-term earnings power for our shareholders? Part of that analysis and strategy has come back and embedded in the expand beyond that we are looking for businesses that generate more consistent through cycle earnings profiles than the traditional cyclicality of the steel business. So at the heart of what we do well, We're an excellent industrial manufacturer. So part of that overall analysis and backdrop is, well, if you want to be comparative against the industrial manufacturers, we've got to bring our cyclicality of earnings closer together. We've got to provide a more stable return performance and profile to our shareholders. And so that's really where the entirety of our time is spent in looking at Expand Beyond and what businesses we want on board that fit the long-term profile for Nucor that does just that, that again stabilizes that through cycle performance and again generating higher highs and higher lows for our shareholders.

Yeah. I appreciate that. I'm going to read out a slide kind of. comparing, I think it was the HRC margin versus the rebar margin in your investor day. So I guess I'm just curious about whether you think you can achieve that margin stability in the steel industry or you need to kind of continue with the expand beyond strategy.

Yeah, well, fair enough. And so I think there's two things to think about there. One, we have seen substantive shifts in the industry. We've seen consolidation. We've seen rationalization. And we've seen a massive change in trade. If we go back five or six years ago in trade, for example, and we had 50 cases that the industry had won against bad actors that were illegally dumping or subsidizing steels. Today, that's over 120. So while the overcapacity situation in the world will never, ever be gone, our advocacy has got to remain vigilant. You know, Secretary Raimondo or Catherine Tai or USTR, understand that incredibly well and are very supportive of the industry, as well as the manipulation that can occur. When you look at the consolidation or rationalization in our industry, it has created some outcomes that are much more advantageous that are stabilizing those earnings. So I think with that, we're going to get a much more consistent outflow. You saw back in November when we had our earnings day, there are projected through-cycle EBITDA with the online West Virginia, it's about $6.7 billion. So that's the through cycle. So we expect peaks to be much higher. And quite frankly, we don't expect the trust that we saw pre-pandemic to occur for us. Additionally, though, the expand beyond sort of shores that up. It embeds in that. And again, go back to CHI. We bought it at 13x. Today, with the performance that it's generated, It's, you know, calculating now more like a 9.2 or 3x on that EBITDA value. So they continue to perform because there are synergies inside of Nucor that are going to grow that platform in that business segment. And so together, I think that creates a very compelling case for why we believe we're one of the best industrial manufacturers, and certainly in the industry, why we ought to be, have a compelling story to trade at a higher multiple.

Got it. Thank you for all the detail. I appreciate that. And then just sort of one other follow-up on the demand side. We've talked about it a little bit already, but you mentioned that the CHIPS Act is helping drive some rebar demand. On the infrastructure spending that's been very slow to develop, but it sounds like it's starting to shift from planning to execution later this year. Where do you expect that to drive volumes within your portfolio? Is that, again, about rebar? I think in the past we've talked about plate demand. Is it both? Do you see a skew one way or the other as that spending gets unlocked?

Yeah, well, fair question. I think you're going to see it across our portfolios. You're going to see it in plate. You're going to see it in longs and, you know, bar beans. You're going to see it in joists and deck. You're going to see it in racking. You're going to see it through, you know, the Nucor Warehouse Systems Group and, again, that build out. So I think there's going to be a fair distribution across Nucor's portfolio that's going to see an increase. You know, the other thing to keep in mind, Nucor's overall volume, about 50% of that flows through the construction and markets in some form or fashion. And that's targeting right in line with that, all three pieces of those legislative investments from our nation in passages. So the position Nucor sits in today across those spectrums are well-suited to deliver those outcomes. But again, you're going to see that mix distributed fairly well across several of our product groups.

Got it. That's clear. Thank you for the comment. I appreciate it.

Next slide.

The next question comes from Tristan Gresser of BNP Paribas Exane. Please go ahead.

Yes, hi. Thank you for taking my questions. I have two. The first one is basically a follow-up on rebar. It seems manufacturing investment is supporting rebar spread at the moment. And if I understand your comments earlier, we're still waiting for infra to really kick in. And that's the most rebar-intensive part, I believe. So my question is, is infrared yet to flow through? Do you see any reason why rebar metal spread should actually fall into H2? And also, how do you address the import risk? The ARBs are clearly open. We've seen rebar imports picking up in recent months. If you could comment on that as well. Thank you.

Yeah, I'll kick us off, Tristan, maybe ask John to make a few comments. But, you know, again, our longs businesses in general have been our most stable earnings performers over the many, many years. And so, you know, as we look to the back half of the area, there's some downward pressure. But again, the overall demand picture remains pretty robust. So, you know, like you, I don't see this collapse in the second half 2023, because again, the underlying demand or backlogs, and again, having the breadth of exposure that we have, knowing the customers the way we do, we, again, think 2023 will shape up to be another very strong year for Nucor, again, our customers. John, anything you want to add on that? Because I don't know that I fully understood the second part of your question, Tristan, but any comments on the opening?

Yeah, Tristan, ultimately the market's going to demand margins on any products that we would produce, and we're going to monitor that closely to making sure that we're taking care of our customers. You had mentioned imports on rebar. Year over year, import volumes on rebar are down slightly. We've seen a reduction from Turkey. I think everyone's well aware of what's happening over there. We're seeing some increased volumes coming out of Algeria, Egypt, and Mexico. But overall, year over year, it's actually down by comparison.

Okay. So that's really helpful. So no real pressure of late from imports. Okay. And my second question is pretty similar. It's actually on plate. If you can discuss a little bit the demand outlook. I mean, it seems you haven't seen also the impact from higher infrastructure spending, which I think can benefit a lot of plate business. But can you also discuss a little bit what you're expecting in terms of the ramp up of offshore, onshore wind in the U.S. and how could that carry you maybe in the back half of this year, but especially in years moving forward and Any type of pressure you're also seeing maybe on plate metal spread recent months in the new term? Thank you.

Yeah, Justin, this is Albert. I'll speak a little bit to plate demand. When we just look at the general market, there's several areas of strength that we see carrying through the rest of the year. Ag and heavy equipment remain fairly strong. Onshore wind has picked up with the passage of the IRA and brought some clarity to opportunities there. Service center buying has picked up versus a year ago. So those are all tailwinds to demand, and we think the plate market will continue to be fairly strong through the rest of this year. You asked about offshore wind. That's certainly a big opportunity for plate, and we watch that closely. The easiest way I can tell you is it takes about 250 tons of steel for every megawatt of offshore wind put in place. So you really have to come back to what you think is going to be built in any period of time offshore. And there's a widespread in those estimates. But it takes about 250 tons per megawatt to execute that. We don't see that coming this year or even later. much into next year. But I think it's a huge opportunity for plate that as the years beyond that start to play out, there's a lot of tons there if you do that math. Closing up real quickly on the other infrastructure parts and the spending you asked about, we do see that in plate. There is a lot of opportunity that creates in plate. We're starting to see that today with bridge work especially. Much more to come, and it's just in its early stages. But that money and those opportunities are starting to present in the market.

All right.

That's really helpful. Thank you. Thank you.

The next question comes from Martin Anglers of Seaport Research Partners. Please go ahead.

Hello. Good morning, everyone.

Good morning, Martin.

which there's been a lot of conversation about government spend and incentives, but about private sector and what's happening with manufacturing. What conversations are you having, if any, with customers that may be in the process of reshoring manufacturing or considering it in the future regarding their steel and metals needs, you know, when you think out several years ahead here?

Yeah, maybe I'll kick it off and let Dan Needham, our EVP over commercial, maybe give some broad context. But, you know, we're having a lot of those conversations and have actually for the last year, year and a half about, you know, what does that look like? You know, again, with all the negatives of COVID, one of the things that it did, and I believe in this country, is it saw and showed our over-dependence to foreign nations on many, many things, not just steel. but pharma and PPE and medical devices and the like. And so, you know, you're seeing that move come back, and you mentioned the semiconductors, and I'll touch on that and turn it over to Dan. But, you know, when we were running short on semiconductors, it obviously has massive impacts through the automotive sector, but others as well, and HVAC and other industries that are dependent on those. So with the Chips and Science Act, $55 billion piece of legislation passed that now put to date 34 projects on the books to be built in the United States, totaling $374 billion of build out. Very steel intensive type buildings. And some of those individual are massive, 20, 23, $25 billion investments in single plants. So as we talk to those customers and the GCs and the architects and engineers to partner with them, the size and scale of that reshoring effort is massive. It is not inconsequential. It is a significant overall volume of the ADC. But, you know, Dan, maybe just provide as well another backdrop as we think about our customer interactions with infrastructure and IRA.

Sure. Appreciate the question, Martin. If you think about the breadth of our capabilities today that we've talked about throughout this call, our ability to go into customers now today and give them opportunities or solutions around how we can help them with this reshoring is unbelievable. That's what we're doing every day today. Taking advantage of that, having those conversations, leveraging our groups, what we call solutions, particularly construction solutions. where we have technical capabilities, we have the breadth of our capabilities throughout NUCORP to go in and provide solutions in lots of ways, turnkey solutions to what they need going forward. So we're having many of those conversations today and that's our focus as we go forward.

Okay. And looking past the build out of these facilities, so just taking it a step or two forward, I guess, you know, if a semiconductor plant is, you know, built and producing, it's probably not moving the needle, you know, for steel and metals demand. I guess I'm curious, maybe, yeah, on a next step, what you're seeing as far as, like, steel and metals intensive consuming industries like after the build-out or if you're having customers that are talking to you about needs there, like, hey, we're reshoring whatever type of manufacturing facility that's going to be consuming more steel and what you're hearing there anecdotally.

Yeah, you know, Martin, look, I think anecdotally you're right. A single individual plant may not move the needle for a new core at 30 million tons of year of capability and capacity. However, if you look at the aggregate, if you look at the, you know, the next 10 years, which is really the cycle these legislative bills are built up under, you're talking about somewhere between 6 and 8 million tons of steel demand annually for 10 years. Well, that's 7 or 8% of overall ADC in this nation. And so, you know, it's not going to spike the United States as an industry to move from 105 or 110 million tons of steel consumed to 180 or 190, but it is a strong indication of a long-term trend that's going to be here. But the other pieces of that, and I think at the heart of your question are, and what are those regions that Nucor is positioning itself to offer? Well, one of those, for example, is towers and structures. That is a massive growing industry. We've announced our small acquisition with Summit Industries we're very excited about. We just announced our two greenfield plants that are going to be built to continue to ramp that business up and grow in it because every one of those transmission lines, every one of those towers and structures are individually designed by the utility themselves. So again, with our breadth of exposure and engineering and pipeline, Man, we marry up really, really well to serve that industry and that market, again, for a long period of time. So while the individual plan, you're right, may not move the needle, you're also talking about a decade worth of work. So this is not short-term in the legislative side, but the other investment piece that you're seeing at Nucor is to identify those megatrends that will be growth platforms again, for many, many years to come that are outside of those legislative windows as well. Automotive being another one. You know, energy and renewables out touched on the plate. We are the only producer in the Western Hemisphere that can make the monopiles for the offshore wind. What position does that line Brandenburg up for the long-term build-out of the renewable sector in this nation? So there are many of those industries that we're coupling and And again, building capability sets today, because that's where we know the industry is moving.

Martin, I'd just add one thing to what Leon said. You know, anytime you see manufacturing growth, there's a multiplier effect in the economy. And there's a rippling and cascading effect for years to come. So all the jobs that get created from those various investments create follow-on growth. subsequent investments, things like schools, housing, non-res construction growth. And that typically shows up a number of years later and has, like I said, a cascading sort of effect. So that CHIPS Act will promulgate an awful lot of value for Newport and the steel industry over a long period of time.

That's a fair point. I appreciate you highlighting that. One quick follow-up. On the colors and structures business, if you look through the supply chain there, are there any other adjacent businesses that make sense? To pair up with that, where there'd be synergies and potential scale and, you know, it fits the framework that you previously detailed for the beyond strategy here. Or is it more so like, hey, there's steel in the supply chain. This kind of fits with that and some engineering capabilities and then it's right to the customer and there's not something, you know, more vertical or horizontal that might pair up with it.

Well, now we need to bring you in the executive strategy session we have. So the answer to this is yes to the all of the above. As Nucor and Chad Udamark leads our new markets and innovations team, the towers and structures team, the M&A team are all sitting down, identifying and doing exactly what you just shared. Where are the trends? Where are the supporting structures, pun intended, to augment this business to continue to provide adjacencies where we believe there is value to be added We're doing the same thing as you look at the slides on the warehouse buildings and structures. Where else can NUCOR marry up? So as Dan Needham pointed out, we can walk in with a complete packaged solution for our customer set. We're doing the same thing in automotive and you'll see in the coming months that we'll release the same type of slide that does the cross-section of the automobile. Where are we today? What are we targeting and where will we be in the next three to five years? Because our anticipation is that we're going to double our volumes into the automotive industry. West Virginia, for example, is targeting about roughly a third of their overall mix to be an automotive. That from an individual plant standpoint would be the largest volume per capita into that sector. So again, we've got a lot of plans built into how we continue to grow this company and where we're going to position it for future growth.

Thank you. I appreciate all the color there and have a good rest of the day. Thank you. You do the same as well, Martin. Thank you.

This concludes our question and answer session.

I would like to turn the conference back over to Leon Topalian for any closing remarks.

Thank you. And I want to thank the Nucor team for delivering a great and safe first half of our year. Let's continue to make sure we take care of our most important values the health, safety, and well-being of the entire 31,000 Nucor team member family. Thank you to our customers as well in allowing us the privilege to serve you with each and every order. And finally, thank you to our shareholders for the trust that you've placed in us to be great stewards of the valuable shareholder capital that you've entrusted us with.

Thank you for your interest in Nucor, and have a great day.

The conference has now concluded.

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