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spk11: Good morning and welcome to NUCOR's third 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 touch-tone phone. 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, Investor Relations. Please go ahead.
spk13: Thank you, and good morning, everyone. Welcome to Nucor's third 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 Samosky, Chief Operating Officer, Al Baer, responsible for plate and structural products, Brad Ford, over fabricated construction products, Noah Hanners, raw materials, John Hollitz, bar and rebar fabrication, Doug Jellison, corporate strategy, Greg Murphy, business services, sustainability, and general counsel, Dan Needham, Commercial, Rex Query, Sheet, and Talent Resources, and Chad Udemark, New Markets and Innovation. We've posted our third quarter earnings release and investor presentation to Nucor's IR website. We encourage you to access these materials as we will 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 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.
spk15: Thanks, Jack, and welcome, everyone. I'd like to begin today's call by highlighting the tremendous performance of our 32,000 Nucor team members through the first nine months of the year. The investments we're making to grow our core and expand into new markets are generating strong returns for our shareholders, and our team continues to operate efficiently and safely. In fact, we're on pace to deliver our fifth consecutive year of record safety performance, further proof of the world-class performance by our Nucor team members who live our culture each and every day. Looking at our financial performance in the second quarter, Nucor generated approximately $1.8 billion of EBITDA and $1.1 billion net earnings, or $4.57 per diluted share. This brings our year-to-date net earnings to $3.7 billion, or $14.83 per diluted share. Even though we still have one more quarter to go, our year-to-date earnings through September already represents our third best full year in New Course history. In keeping with our investor-focused capital allocation strategy, we've returned $627 million to shareholders in Q3, representing 55% of our net earnings for the quarter. On the operations front, total shipments to outside customers was approximately $6.2 million. down 5% compared to the prior quarter and down 3% compared to Q3 of 2022. Total steel mill shipments for the quarter were nearly 5.8 million tons and downstream steel product shipments to outside customers was roughly 1.1 million tons. Earlier this month, we launched a national sustainability campaign branded Made for Good, which highlights our commitment to producing the world's most sustainable steel and our efforts to lead others in our industry to adopt practices that reduce emissions. Our circular, recycling-based process gives us a competitive advantage as more customers look to reduce emissions in their supply chain. But we are taking steps to differentiate ourselves even further. We are not just talking about sustainability. We are making investments and forming partnerships to accelerate a cleaner future for Nucor, the broader steel industry, in all industrial manufacturers. And in almost every month of the past year, we've done something to move the needle in that regard. We've entered into another renewable energy, PPA, invested in technologies to develop advanced forms of nuclear power generation and zero carbon iron making, formed a partnership to capture, transport, and sequester CO2 emissions from our Louisiana DRI facility, Introduced LCN, our new sustainable heavy gauge steel plate for the offshore wind energy industry. And helped lead the Global Steel Climate Council, a coalition of global steel companies and industry partners to develop a clear and unbiased global standard to measure and report carbon emissions. Consistent reinvestment in our businesses has played a critical role in our company's growth. We make investments after we identify strategies that have compelling risk adjusted return opportunities for new core shareholders. I'd like to highlight three important milestones we've hit recently across sheet, plate and bar with a reminder of the strategic rationale behind each investment. Starting with sheet, last week we were joined by hundreds of leaders in West Virginia and Mason County for a groundbreaking event to celebrate the start of a construction of our newest sheet mill. This investment in West Virginia, along with additional galvanizing, paint, and tube lines we are adding at other sheet mills, will enable Nucor to produce higher margin, value-added products for a broader set of customers, especially those who value high-quality steel with a lower carbon footprint. By 2026, we will have more than doubled our capacity to produce higher valued sheet products compared to our capabilities in 2020. Turning to plate, earlier this month, we celebrated the official grand opening of our state-of-the-art mill in Brandenburg, Kentucky. This investment positions Nucor as the most capable plate supplier in the largest plate consuming region of North America, able to produce specialty plate products that support our nation's economy and security in critical areas such as wind, long-span bridges, military applications, power transmission, amongst many others. And in August, we held a groundbreaking ceremony for a rebar micro mill in Lexington, North Carolina. This mill will help us to capitalize on growing demand for rebar in the growing mid-Atlantic and southeast regions over the coming decades. The modernized equipment and processes at this new mill will enable us to achieve both improved margins and lower emissions intensity from our rebar operations. The team in Lexington is making great progress on the construction and we look forward to starting the mill up in early 2025. As we have said many times, the goal of our growth strategy is to expand our capabilities to better serve our customers and grow our earnings for our shareholders. The new capabilities we're adding in our steel mill and steel product segments are diversifying our customer base and creating more opportunities to cross-sell various products. A lot has already been said about the magnitude of the three steel intensive megatrends, each fueled by supportive federal legislation. We like to think of these three as the rebuilding, repowering, and reshoring of the U.S. economy. And with Nucor's unrivaled scale and diversity, we are favorably positioned to capitalize on these growth drivers. Investors have been asking where we are in the cycle of these mega trends and what steel products Nucor is best positioned to supply. I'd like to share a few thoughts on that. And since it's baseball playoff season, I'll use a few baseball metaphors to help make my point. Based on current production in order books, it feels like we're still in the early innings across all three. To be clear, innings played is not intended to reflect tons shipped and some innings may last longer than others. It's meant to indicate where we believe we are along the continuum from federal and state level appropriations, project engineering and development, the permitting and bidding process, and ultimately taking orders and manufacturing steel products. While all three are still early in the process with still plenty of upside to come, we feel like the IIJA has progressed the least with respect to steel-related orders. The Chipsax has probably had the biggest impact on our order book this far, and the IRA falls somewhere in between. As it relates to the rebuilding effort, with funding through IIJA, we have shipped tons related to the first wave of bridge projects involving Nucor plate, beam, and piling products. but we believe a lot more has yet to make it out of state-level permitting and the bidding processes, especially with respect to highway construction and power transmission, which will require a great deal of rebar, plate, and heavy sheet. Back to my baseball analogy, the game has started and we've probably neared the bottom of the first, but some fans are still tailgating while others are just entering the stadium. On the repowering front, the financial stimulus under the IRA occurs through tax credits as opposed to the longer allocation process under the IIJA. This probably gives the IRA a slight edge on timing, but renewable and energy storage projects still take a while to secure financing and all the necessary permits. So, while we are starting to see more orders relating to ground mounted solar and onshore wind, There's still a lot of upside remaining in the years yet to come. And finally, the reshoring effort supported by the CHIPS and Science Act has promulgated announcements for at least 37 projects worth an estimated $370 billion. Nucor is already delivering steel products to a few of these, but these projects can take several years to complete and will shift from one steel product to another as construction progresses. When it comes to an advanced manufacturing facility, including semiconductor, battery, and EV plants, Nucor can produce an estimated 90% of the required steel. Some of the higher steel intensity products represent home runs for Nucor, but there are plenty of companion tons representing base hits. And in many cases, the profit margins of base hits orders can be quite compelling. Needless to say, we're excited for what these megatrends can mean for the U.S. economy and Nucor plans to be the leading supplier of the steel with which it's built. With that, I'd like to turn it over now to Steve Laxton, who will provide additional details about our Q3 performance and outlook for Q4.
spk17: Steve? Thank you, Leon, and thank you all for joining our call this morning. With third quarter consolidated net earnings of more than $1.1 billion, we exceeded the midpoint of our guidance by about 10%. The main driver of this exceedance was better performance in September than we expected from many of our businesses, but most notably in our bar mills and several downstream steel products divisions. The strength of Nucor's business model and growing earnings power were on display yet again. The third quarter was our 10th consecutive quarter, where both net earnings exceeded $1 billion and return on equity exceeded 25% on a trailing 12-month basis. With respect to our operating segment results, our steel mills group generated $883 million of pre-tax earnings in the third quarter, a decrease of 37% from the second quarter. While volumes declined roughly 4% from the prior quarter, lower realized pricing accounted for most of the earnings decline. As an example, our realized sheet pricing for the third quarter fell by roughly $80 a ton compared to the prior quarter, outpacing more modest declines in our cost of scrap and ore-based metallics. Our utilization rate for the quarter was 77%, down from 84% in the prior quarter. This lower utilization rate was a key factor affecting higher price per ton conversion cost at our steel mills. We continued to see excellent results from a steel product segment. Pre-tax earnings for steel products were approximately $807 million for the third quarter. As you know, our steel products business produces the most diverse set of solutions in our industry, and we're benefiting from this broad range of capabilities. During the quarter, we saw stronger contributions from areas like rebar fabrication, pre-engineered metal buildings, and insulated metal panels. These partially offset some declines in joist and deck and tubular products. While Joyston Deck profitability continues to moderate from historically high levels, it remains well above pre-pandemic averages. Although there is a lingering lack of clarity with the overall economy, we're still seeing areas of growth within non-residential construction. Here again, Nucor's diverse product range is allowing us to see gains with advanced manufacturing facilities and data centers on the buildings front and transportation and energy on the infrastructure front. Our raw materials segment produced pre-tax earnings of $71 million for the quarter. Compared with the prior quarter, we shipped lower volumes and saw lower realized pricing in both our DRI and recycling businesses. Nucor generated nearly $2.5 billion of cash from operations during its third quarter and $5.6 billion through the first nine months of the year. This strong cash flow enabled our balanced approach to capital allocation. Our framework for capital remains the same. We expect to maintain a strong investment-grade balance sheet, make meaningful direct returns to shareholders, and create long-term value by redeploying capital and advancing our strategy. Nucor's balance sheet remains strong, with a total debt to capital of just around 24% and more than $6.7 billion of cash on hand at the end of the last quarter. This level of liquidity provides support as we move into a period of accelerated capital spending over the next year with large capital projects, such as our West Virginia Sheet Mill, while also enabling potential M&A activity. Nucor has a long track record of returning capital to its shareholders. Since 2020, Nucor has returned approximately $9.3 billion back to shareholders through dividends and share repurchases. Year to date, Nucor has returned nearly $1.8 billion, or 47% of net earnings, to shareholders. Turning to capital spending, as you may recall, initial progress on several of our growth projects was slower than anticipated. But in particular, our largest project in West Virginia was delayed. Because of the slower spending and timing delays, we're reducing our 2023 capital spending estimates from $3 billion to approximately $2.4 billion, with the difference between those figures being pushed into 2024. For our fourth quarter outlook, we expect consolidated earnings to be lower than the third quarter, with declines across all three segments. At the steel mills, we expect earnings to decrease compared to the third quarter results on lower realized prices and slightly lower volumes. Given that most of our sheet business is sold on contracts, recent improvements in pricing are not expected to improve average realized selling price until later in the quarter. In our steel product segment, we expect slower volumes and lower realized pricing as well. For the raw material segment, we expect lower earnings in the fourth quarter due to margin compression and planned outages that are DRI operations. Looking ahead into 2024, we have attractively priced backlogs into the second quarter for some of our steel products, with continued strong order activity expected in manufacturing, data centers, and energy. So while we remain constructive over the long term due to expected secular demand drivers, near-term market conditions have softened. We attribute this to uncertainty arising from the United Auto Workers strike, higher interest rates, credit tightening, elevated geopolitical risk, and concern about another potential U.S. government shutdown. As of today, we expect that sequential declines in our fourth quarter earnings may exceed that of our third quarter decline. With that, we'd like to hear from you and answer any questions you may have. Operator, please open the lines for Q&A.
spk11: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touch-tone phone. If you are using a speakerphone, please pick up the handset before pressing the keys. To withdraw from the question queue, please press star, then 2. The first question is from Tristan Gresser of BNP Paribas. Please go ahead.
spk01: Yes, hi, thank you for taking my questions. The first one is on capital allocation. Could you remind us what is the place of inorganic growth in the strategy? I think you touched on potential M&A. I think in the past you viewed M&A as more on the downstream side, but how do you view the upstream and how do you view the current fat role market at the moment? That's my first question. Thank you.
spk15: Yeah, Tristan, I'll kick it off and maybe ask Steve to comment on maybe the second half of your question. But if we think about our mission statement that we started when I took over as CEO in 2020, it's to grow the core, expand beyond, and live our culture. So as we think about growth, it's really against those two backdrops, growing our core, projects like our sheep mill in West Virginia, which, again, we couldn't be more excited about. Had an incredible groundbreaking last week on Friday of last week with our team and senators and local politicians. And again, couldn't be more thrilled for the location of that, the proximity of that, generating the highest grades and cleanliness of steels in that facility. Projects like Lexington, North Carolina are expansions and galvanizing and sheet and painted and galvanized. So that's the core. The other piece is the expanding beyond things like Our investments in CHI and the overhead door business are racking our warehouse systems, the towers and structures, pieces of Nucor that are going to continue to generate more consistent earnings profiles, a higher high and, again, a higher low. Because, again, many of those businesses, as we think about the adjacencies, Tristan, are that operate outside the traditional cyclicality of the the normal steel curve that we've been a part of for so long so they're balancing that overall portfolio again balancing that that return profile for our shareholders and so those are our our priorities as we think about you know we've not broken out dollars to dollars on where we're going to you know spend x amount percent in which bucket what we're doing is looking through where do we bring value where do we create economic value add and how do we maximize each capital dollar into those projects that are going to come close or near double our cost of capital. Ultimately with the umbrella of are they cultural fits for Nucor? Do they make sense? Because ultimately what drives Nucor and every KPI that you see is the 32,000 men and women who make up this family. It is our culture that drives every result that our shareholders benefit from.
spk02: Yeah, Tristan, the only thing I might add to what Leon said was you started the question with capital allocation. And just as a reminder, Newport has been, and Leon used the word balance. Balance is really the key summary there. We have a disciplined and consistent approach with returning capital back to shareholders, which we have, of course, done for a number of years, reinvesting in our business. And your question was about how do we look at organic versus inorganic, and as Leon talked through some examples, you can see that we take advantage of opportunity where we can create value. So we don't expressly have an inorganic or an M&A strategy. We have a strategy, and M&A is a tool by which we use to implement that strategy.
spk01: All right. That's clear and helpful. Maybe a quick follow-up on that. When you look at M&A, are there particular red lines in the sense of on the upstream side? Is there potentially interest to go on certain upstream assets to get certain types of grades and quality? I think one of your peers earlier mentioned that the flat role market was pretty fragmented. Is that also something of you share?
spk15: Yeah, Tristan, the short answer is yes. As you think about all of that and another hundred variables of upstream product differentiation, other materials, Nucor is in our team and the M&A team review that consistently and we've looked. And again, one of the great things about having a comprehensive strategy, it informs you as much about what you're not going to do as what you are. So the things that we've made and the investments that I've just highlighted are really reflective of the opportunities that we're going to continue to look for in the pipelines of those megatrends that are existing in our economy. They're going to provide a differentiated value proposition for our customers. So the megatrends like towers and structures, the opportunities and sustainability in the iconic steel that we're making with this zero net carbon footprint, how are we thinking about the manufacturing build out of EVs, battery plants, data centers Again, Nucor is really well positioned. And so what I would tell you is all of the things you mentioned come into the filtering of how we're thinking about M&A, but ultimately what Steve and I just mentioned are the drivers of can we create EVA for every dollar invested that is going to return well above our cost of capital to our shareholders, and also giving us a opportunity to, again, improve the overall, volatility of our earnings profile through cycle performance is much more consistent over the long term.
spk01: All right. That's very clear. Thank you. And if I might just have a follow-up on the rebar market, you just announced you're looking for some investment there. Yeah. Basically, what are you seeing in the terms of supply and demand medium term? I know there's been a lot of projects being announced, but I'm not sure if they're going through with, you know, the interest rate being where they are. So how comfortable are you with the medium-term supply and demand balance you're seeing on the rebar market to make this type of investment? Thank you.
spk15: Yeah, Tristan, I'll start it off and maybe ask John Hollis or EVP over bar products to comment as well. But look, we announced in the exploration that we're going to look into the Pacific Northwest. As we think about what we've done in the bar group itself and the our footprint in rebar is significant. And so, you know, in the micromill strategies and what we've seen in Sedalia and Frostproof and now what we're going to see come online in 25 in Lexington, North Carolina, man, it gives us an awful lot of excitement and optimism, but so do all our other facilities that are running rebar. So the market's growing. We know that. We know it's going to grow somewhere in that 2 million ton range. And to your point, there's a lot of, Announced capacity, not sure all of that. North Sea, flight of day. But again, we know the Pacific Northwest. We have our Seattle operations plan that's been running a long time and consistently one of our great financial performer and return of the team there does an amazing job. And so we know the customers there. We know the growth that's going to be there. And again, we think it holds a great deal of promise as we evaluate this in the coming months. John?
spk16: Yeah, thank you, Leon. As Leon mentioned, we're really proud of what our Seattle team has delivered since we bought that mill with the acquisition of Birmingham Steel in 2002. And our team has also done a really good job of positioning us for future success in this market. We're really optimistic about the growth opportunities that we see in the Pacific Northwest and in the Canadian markets. The challenge that we face with our Seattle facility is it's been in its current location since 1905. And the mill sits on a very small footprint. Over the last century, the city has really grown around us, which has limited our ability to grow our capacity and our capabilities. So the strategy here is really to position Nucor for success for the next 50 years. to take advantage of the cost and the efficiencies that we've experienced with our micro mill technology, as well as increasing our product offerings. We're certainly well aware of all of the other mills that have been announced. We're following those projects closely. We're really not in a position
spk08: All right. I appreciate the callers. Thank you very much.
spk11: The next question is from Carlos de Alba of Morgan Stanley. Please go ahead.
spk09: Yeah. Good morning, everyone. So on the steel products, the steel fabrication business, you did mention that profitability has moderated, although it remains quite strong above pre-COVID levels. Can you provide a little bit more color regarding your order book, your backlog, where does it extend to, and any sort of magnitude of the potential deceleration, continued deceleration, if that is what you're seeing in the fourth quarter and perhaps into the 2024 year in terms of pricing and volumes, anything would be quite important for us.
spk15: Yeah, Carlos, thanks for the question. I'll kick it off and then maybe ask Brad True to comment. Obviously, we're not going to give you pricing speculation into the, you know, back half of this year and or 2024. But here's what I would tell you. And I think context becomes really important as we talk about our steel products segment of our business. Again, it's generating now 40% of our overall net earnings. And that's been an incredible opportunity for Nucor. We've had seven straight quarters. where they've generated a billion dollars or more. And so, again, over the last seven quarters, they've generated $7 billion in earnings. It's been an incredible platform for us to continue to grow and continue to think about that diversity of mix that we bring to the marketplace. But it is softening. It is coming down from our peak highs and historic highs and, you know, 21, 22 season, and so, again, they're moderating, but there's no cliff. We're not seeing this, the order books dry up. We're seeing some softening in backlogs, but again, as compared to, you know, sort of pre-pandemic levels, those backlogs are up 20, 25% still over that period of time. So again, it's softening, but I would tell you that we're still optimistic about, you know, as we finish 2023 and head into 24, Some of those backlogs are extending out into, you know, into Q2 already with favorable pricing. So, Brad, do you want to add any more detail on that?
spk05: Yeah, basically, as Liam mentioned, backlogs have come down some, but are still well above pre-pandemic levels. And we have strong pricing in our backlog. We'll see some seasonal slowdown as we normally do this time of year. But we'll still have great results and strong earnings in Q4. Now one thing I would mention in addition is our diverse product portfolio continues to differentiate in import. What we saw moderating pricing and volume mainly driven by warehouse demand in our joints and deck business. We saw near record and record earnings in our pre-engineered metal buildings businesses, our insulated metal panel business, and rebar fab. All three had stronger earnings quarter over quarter. And again, we'll see some seasonal slowdown in construction, but we really believe there's been a structural shift in the earnings profiles of our fab product businesses. The other thing we're seeing is a lot of cross-selling opportunities. We're bringing multi-product solutions to our customers that bring value to them, bring value to Nucor in a way that we've never done in the past.
spk09: All right, thanks for that. And just if I could maybe press on the point, what do you think has changed versus pre-pandemic conditions that has allowed the company to command a much higher price and therefore much higher margins than it did in the past? Can you point us to something fundamentally different? different than what we had before? Because the construction market is softening, as you mentioned, so wouldn't that potentially make the market a little bit looser and therefore reduce your pricing?
spk15: You know, Carlos, look, what I would touch on immediately out of the gate is what Brad just mentioned, which is our product breadth is a key differentiator. So, again, we're not and under Dan Needham and the entire commercial team at Nucor, we're approaching that market to look and say, how do we provide a solution set, not just provide and sell a product? So our teams, our construction solutions group, our energy solutions groups are going out now and meeting with customers, attaching them to maybe areas and products that weren't traditionally purchased either mill direct or that weren't coupled together that we now can bring to bear as an entire offering to provide a solution set. You know, as we think about the manufacturing build-out, warehouse build-out, how do we now look to offer, again, the complete solution, not just a piece or part of and product of? And so I would tell you that is gaining a lot of traction and attention. The other piece is the sustainability. You know, there's a lot of people that have trademarked and branded their products in the green space, but very few, if any, in the world at our scale And so the scale of which we're running our iconic products and Net Zero products today is getting a lot of attention and not just through the OEMs and automotive. It's a much more diverse customer set today that we're seeing that are demanding those products. Anything I missed? Great.
spk09: Thank you. I'm sorry. Sorry. Go ahead, Steve.
spk02: Sorry. One other element to that. You'll recall you followed us for a long time. New Corp took some actions several years ago to restructure a few different businesses in that downstream steel products group. And while that's not something we really love doing, the teams did a wonderful job to bring efficiencies within our own systems there too. So the predominant reason is exactly what Leon outlined.
spk09: All right. Great. Thank you.
spk02: Thanks, Carlos.
spk11: The next question is from Bill Peterson of JP Morgan. Please go ahead.
spk12: Yeah, hi, thanks for taking the questions. A couple, I guess, market-related questions. So if we think about the steel market today, I'm trying to get a sense of how you're anticipating the market reactions to, you know, maybe a prolonged UAW strike versus maybe an immediate end, and especially in the context of, you know, we've seen some, you know, middle discipline in the past few months, you know, some of the maintenance extended, just to get a sense of how the reaction would be under those two scenarios.
spk15: Yeah, I'll start us off with the first one. And I'm not sure I fully caught the second part of the question, Bill. But, you know, if I don't, please just re-ask that second half. New course exposure to automotive today is about a million and a half tons. So we don't, you know, that's 5 or 6% of our overall volume. So it's not a huge exposure for us directly. Obviously, we're watching in the automotive sector in the United States and the U.S. economy. potentially the longer it goes, have a more profound impact to the overall industry. But, you know, the part that Nucor remains excited and very committed to is to doubling that capacity over the next three to five years to moving from one and a half million tons to about three million tons of overall volume and footprint. And, you know, over the last several, we've continued to grow. We've continued to embed ourselves as a preferred supplier. you know, now won the GM supplier of the year award for the last four straight years. And so we're excited about those things. We're excited about what our teams are doing to create some of the most advanced high strength seals in the marketplace. And again, despite some of the rhetoric coming from other competitors, Nucor is positioned incredibly well to make the most advanced grades that they are required by the U.S. auto industry. So, you know, You know, ultimately, if you're asking in the broader context, the longer this goes, yeah, the more impact we're going to see in the overall economy. Not having a massive impact to the overall NUCOR footprint, but again, I hope this ends quickly and we can move forward and continue to generate. There's a lot of demand out there, even in spite of the strike. I think the overall expectation is in that, you know, 15.2 or 3 million units to be produced for 2023. And hopefully we can get back on track and continue to supply into that market.
spk12: Yeah, that addresses the question. I had a question on CapEx. You talked about CapEx now projected at $2.4 billion versus prior three. I guess, how should we start thinking about next year, I guess, with the additional $600 million? And I guess even maybe out a few years, what does a normalized level start to look like for the company, given the projects you've outlined?
spk02: Hey, Bill, thank you for the question. So I think it's a good indicator. First of all, we'll give guidance on the year after we get approval from our board on capital spending, which we do at the end of every year. So stay tuned on our next call. You know, we'll give a more precise update. But directionally, you should assume that our capital spending will be heavier than historic averages. When you look at the pipeline, some of the bigger projects coming through right now, You can see that we're going to be spending more over the next year or two. And then just as a framework item for you to help you in some of your modeling, our maintenance capex, what we consider maintenance, which would include spares and safety-related capex as well, and that is, you know, probably somewhere around $600 million a year. We have given a little bit of the investor relations team put out the slide deck sometime, I think around the first or second quarter that showed So the larger projects, how much is getting spent this year versus next year. So you can use that as a good framework for estimating your next year fee.
spk12: Great. Thanks for that. If I could speak one more, kind of, again, a bigger picture. You know, we're aware that the U.S. may be looking to remove the EU tariff rate quotas and understanding that nothing was concluded at this time and it remains fluid. I guess, how would you see this impact in the U.S. steel market? And I guess, what are the potential outcomes should the quotas be increased? I'm asking in the context of new quotas obviously being an important part, a huge part of the U.S. steel market.
spk15: Yeah, Bill, look, there's a lot going on. You know, the talks today with the global arrangement and the European Union and, you know, again, we've seen over the last really three years us move from a tariff to a tariff-free quota. And again, the important picture really has been pretty consistent over the last several years. Probably still a little high in some areas, but, you know, that 20, 21, 22% of the overall market. Again, I think a healthier number is in that 15, 16. I don't see a material change because we haven't. When we watched the USMCA get drafted, the course agreement with Korea, the agreements with Brazil and other nations, we've not seen that open up the floodgates. One of the bright spots that I've commented too many times, the confidence that we have and I have in Secretary Raimondo, Commerce Secretary or USTR and Catherine Tai, You know, her counsel and Greta Peisch, they are very accomplished leaders and they know this industry incredibly well. And Nucor will remain a tireless advocate to make sure we create a level playing field in the United States. And again, those three leaders really understand this industry well and you're doing a really nice job of making sure that shifting to a TRQ does not open up the floodgates to see a massive uptick in dumping of illegally or subsidized steels into the US.
spk08: Yeah, thanks for those insights. Thanks, Bill.
spk11: The next question is from Martin Englert of Seaport. Please go ahead.
spk03: Hello. Good morning, everyone.
spk08: Morning.
spk03: Estimated steel conversion costs for the quarter, they had increased to around, I think, 518 per ton. And while I understand some of it includes some substrate costs, can you discuss some of the sequential impacts from the changes, you know, qualitatively, both on anything to do with substrate? as well as the true underlying conversion costs. I think you alluded to some of this related to the lower utilization quarter on quarter in your prepared remarks as well.
spk02: Yeah. Hey, Martin. Thanks for the question. And I think you summed it up actually pretty well. Utilization rates have a big impact on the cost. That's a major driver, and you highlighted that. We also saw cost increases . um, supplies and services and consumables. So those are sort of product categories that we saw, um, increases quarter over quarter. I think what's important to Martin is to keep in mind, um, in general, when you look year over year, commercial costs are down. And I think that's encouraging against the backdrop of what we would have had. You know, we were having this conversation a year ago. We were all concerned about inflationary pressures in the cost system. Those appear to have moderated, you know, notwithstanding the quarter over quarter changes we've had, which were predominantly due to our own production choices as a company. Is that helpful?
spk03: Okay. That's helpful. Anything with pivots with substrate costs or not a material impact quarter on quarter?
spk02: By substrate, you mean raw materials?
spk03: Meaning when you have to, for the Western assets there, if you have to purchase substrate to run across them, that wouldn't, I don't think it's captured in the Ferris cost, right?
spk02: Yeah, that's correct, Mark. That's a good point. The slab purchases at CSI, we record in consumables, not in the raw materials. That does have an impact, and so that's part of the change that you're seeing that's not reflected in the raw materials .
spk03: Okay, got it. And just kind of parsing through your comments about inflation and the implications there and the concerns a year ago, I guess. You know, when looking back at conversion costs in the back half of last year, you know, presumably there's some, you called it out in the kind of qualitative guidance, lower volumes anticipated in the steel business quarter on quarter, lower utilization. So probably some uptick in conversion costs, net-net, although, you know, you highlighted this quarter they were below where they were at a year ago in the comparable period. Is that kind of the right framework to be thinking about?
spk02: Yeah, I think, Martin, if you're modeling out for the fourth quarter, you might see more close to flat cost quarter over quarter. rather than an uptick, continued uptick. That's just because of where you see some of the trends. For example, you look at things like sheep. It likely has bottomed out at this point. So that has an impact on the system and how costs flow through our system. So you may see, you may not see the same rate of increase on a per-time basis going into the fourth quarter and so on third quarter.
spk03: Understood. Could we briefly discuss seasonality and 4Q within the steel business? Recent years, some of the sequential declines have been rather steep, in excess of 10%, but before that it was kind of around mid-single digits, and I think you had commented in prepared remarks earlier in the discussion about anticipating maybe a small sequential decline in volumes in the fourth quarter here.
spk04: Any other color to add there or thoughts?
spk02: Yeah, hey, Martin. I think from where we sit today with what, you know, Brad highlighted, you know, some comments about downstream products, order book, and backlog, and where we sit, I think those The trend being closer to those historic averages rather than some of the volatility you saw over the last year or two is probably an accurate statement.
spk03: Okay. If I could, one last one, and again, this kind of comes back to some of the prepared remarks on expecting declines. on pricing across the three business segments into 4Q here, but specifically narrowing in on steel products here. You know, it was a fairly small decline of about $47 per ton sequentially. Thinking about the commentary on the backlogs extending into next year and still good pricing off from peak, but any color regarding the cadence of steel products pricing, 4Q versus 3Q, whether it would be something on par of around $50 or something differing in magnitude?
spk15: I don't know if we're going to provide you any more color on, you know, pricing outlook. Again, I think what we've tried to indicate is, again, we see some of that softness as we head into the last quarter of this year. But again, context, particularly in our steel products, it has generated incredible returns, coupled with Brad's comments earlier, which was to say there has been a fundamental shift in that overall market where we've seen a, Again, a different reset in the pricing levels that we believe are more sustainable. So again, while we see some softness heading into the last quarter, again, the resiliency of that sector has been remarkable, you know, getting all the way back to the pandemic. So again, we see that as one of our strongest performers as we move into 2024 and that to continue to be the case.
spk03: Okay, I appreciate all the color and nice job navigating the down market. Thank you.
spk08: Thanks, Martin.
spk11: The next question is from Katya Jancic of BMO Capital Markets. Please go ahead. Hi, thank you for taking my question.
spk10: Quickly on the Brandenburg plate mill, can you let us know what the production level was this quarter and how we should think about the ramp up at the mill in 4Q and also into next year?
spk14: Yeah, Katya, this is Albert. Happy to thank you for the questions. Just some comments around the ramp up in Brandenburg. First, there's a lot of things that are going quite well with the capabilities of the mill. That was the strategy for us to build Brandenburg, was to broaden our capability of plate. And we fit several milestones in the quarter. We brand the caster to its full set of capabilities. We've cross-rolled plate almost to the full width of the mill, which is 168 inches. We've commissioned our continuous heat-treat line, so the team continues to work really, really hard on hitting some key milestones. You asked about volume. You know, we guided to about 300,000 tons in the second half. We're going to be under that. We'll probably be closer to 160,000 tons. Part of that's just due to the complexity of the mill itself, and there's equipment complexity, there's software complexity and automation. Part of that's also a strategic decision for us to make sure we're using and compete so rather than hitting volume targets and and uh impacting the returns that are other two plate mills because we operate a portfolio of plate mills and brandenburg is an important part of it but there's two other legs to that stool uh we want to be really strategic on how we bring those tons forward so that that's the best number i could give you for for the second half is about 160 000 tons total and um and then we're headed in the next year after that
spk10: And for next year, is there any color you can provide about the ramp-up or how much it could produce?
spk14: Yeah, you know, I would say we'd be closer to what we would have intended for the run rate through this half. I think we'll be up north of half a million tons for the year and probably more than that, but we'll continue to stay focused on driving incremental return through the group and being as strategic as we can about using those tons to our best strategic advantage.
spk10: Perfect. Thank you. And just quickly on the tax rate, it seems like the tax rate this quarter was a little lower. How should we think about it in 4Q? Is there anything we should be thinking about there?
spk02: Yeah. I think the guidance on the tax rate is, you know, that will move around a little bit with how you believe the year is going to end up. So you pay your taxes quarterly, but it's based on a manual estimate. So I'll let you use your own modeling to estimate what you think the fourth quarter is.
spk10: Okay. Thank you very much.
spk11: The next question is from Phil Gibbs with KeyBank Capital Markets. Please go ahead.
spk04: Hey, good morning. Steve, I just wanted to qualify the comment you made about the fourth quarter decline being more than that of the third quarter decline on a sequential basis. Were you talking about absolute EBITDA dollars or were you talking about more of a percentage?
spk08: Yeah. Hey, Phil. Thanks for the question.
spk02: And on the fourth quarter outlook, That's really more about the total EBITDA outlook. But I think if you're looking at the change that happened in the third quarter, that's a very good indication for the direction that we're seeing headed into the fourth quarter if you want some framework. So, again, I want to let you decide how you want to, you know, morph that into your own estimates.
spk04: And then on Gallatin. Did you provide, I may have missed it, but did you provide any color on the state of that project?
spk08: Yeah, Phil, I'll ask Rex Querrey to give you an update, part of his group and the she group.
spk06: Yeah, Bill, thanks for the question. Currently, as we mentioned in our second quarter call, we are full run rate capable. With that said, during the third quarter, we continue But really, from a production standpoint, as we look at our entire group, we've gauged on what demand is in the marketplace. And that's really what we focused on. But again, just to reiterate, I mean, at Gallatin, we're full run rate capacity at this point.
spk04: Thank you. And then, lastly for me is on the new announcement on the, in the Northwest. with the rebar micro mill. I guess really what drove that decision and, you know, I guess what are the expectations for when that could be contributing?
spk15: Yeah, Phil, you know, again, it was an announcement that we're going to work through and John Hollits and his teams are going to work through and look at the diligence and all the variables that go into, bringing that project to fruition. But, you know, the drivers of that, I think John touched on really well. That mill has been around since 1905, and as that city has grown up, expanding that footprint becomes a significant challenge. So how do we do that? How do we continue to serve our customers? How do we continue to serve those markets in gaining new customers? And again, we see some opportunities out there that are compelling that we think the strategies that the team is engaged on are going to potentially effectuate a great long-term outcome. Again, Seattle has been an incredible producer for Nucor, for our customer shareholders. And so, again, against that backdrop of providing the most capability for our customers are really the drivers behind this exploration in our future.
spk04: Thanks, Leon. I had one further, and I apologize, but it just popped in my mind here. What's the current appetite for M&A across the spectrum, whether that's in mills or fab or recycling? I know you've obviously made a lot of internal investments, so you can be more in control of kind of the long-term asset quality and cost base of what you're investing in, but what's the appetite to add on that capability with M&A and how willing are any of the potential targets you're looking at. Thanks.
spk15: Yeah, Phil, what I would tell you is we've generated an awful lot of free cash flow. We've got a lot of cash. We've got the best credit rating in the industry. So all those things said, there's no desperation. There hasn't been. There wasn't in 21 and 22 and the record years of Nucor. It was an incredibly disciplined approach to think about growth. But make no mistake, we're going to grow. We're going to invest. We're going to continue to maximize our shareholder returns. We're going to continue to be great stewards of the shareholder capital we're entrusted with. We're going to return our 40%. We're going to maintain an incredibly strong credit rating. But we're going to invest for the future. We're going to look. And so I would tell you the appetite is continually strong. with a, again, a very disciplined mindset that this cash isn't burning a hole in our pocket. We're not going to, you know, chase things. We're going to look for the things that create EVA for our shareholders, period, full stop. Again, under the umbrella of the cultural fit that matches Nucor's longstanding traditions of how we know we can maximize that return is through the team, through the incredible culture that Nucor has been a proud part of for 60 years. that is driving and guiding our decisions and how we think about those companies that we choose to engage and bring on a new core.
spk08: Thanks, Phil.
spk11: The next question is from Timna Tanners of Wolf Research. Please go ahead.
spk00: Yeah. Hey, good morning, everyone. I wanted to follow up on Phil's question and see if I could ask it a little differently. But on a call we were just on, most of us, we heard that there's a view of one of the other steel mills that there could be further consolidation in the flat-rolled sector. So do you agree that there's further... You've been making your investments to grow organically in a lot of ways, but do you think there's also ability to further consolidate without running into any issues in antitrust?
spk15: Yeah, look, I think... Like you, we're watching that play out as well, and so we'll see how that shakes out in the coming weeks and months and years. But again, what I can not speculate on is some of that. What I can tell you for sure is our strategy is clear in how we want to think about growing this company and investing for our futures. So, you know, historically, what we've seen is the industry's consolidated. That's been a healthy thing for the steel industry. outcome. And so whether or not certain companies meet DOJ hurdles, I can't even begin to speculate on. But again, like you, we're watching how this plays out and we'll stay tuned.
spk00: Okay. So let me switch gears a little bit and kind of ask, on the flat world side, you've been ramping up Gallatin and Brandenburg for a while, but it doesn't seem like you're running flat rolled anywhere near full out. If we look at the sheet volumes, they're down quarter of a quarter despite Gallatin ramping up. So you're running your sheet at less than full utilization, but you're also starting a new sheet mill. Is that going to displace any capacity or are you thinking that will be incremental? Because I know on the rebar side, you've been pretty disciplined and not adding a lot of extra capacity, but is flat rolled a different market for a reason that I might be missing? It'd be great to get your thoughts on that. Thanks.
spk15: Yeah, I'll share a couple of perspectives. First thing, though, I want to do is decouple Gallatin and Brandenburg. Brandenburg's not been in the startup for a while. They are on target. They completed that project on schedule, on time, and on budget with one of the highest safety outcomes we've ever seen in the history of Nucor. So I couldn't be more proud of how they've executed that and how the plate group is going to market. So I would tell you that's very different from what we've seen in Gallatin where, Again, I'm not sure all of our, you know, obviously you've been to a number of Nucor facilities. When you look in the visits I've made to Gallatin and what they had to do, the integration of, you know, we call it a brownfield, but they essentially were a greenfield in everything from automation and the control systems that are required to bring that new equipment online was Herculean. The team has worked entirely, incredibly well, safely. But, ma'am, there were a lot of startup issues that cost us six to eight months of where we thought we were going to be. Your ultimate question of, you know, are we going to peg the utilization rates to the outcomes? The answer is no. We're going to look at making sure that the tons we bring into the market are balanced. We're not just going to run, you know, one-inch plate at Brandenburg because they can when Hertford or Tuscaloosa can do something or do you make those tons and serve that customer need? But Rex or Al, any other additional comments you'd like to make?
spk06: Yeah. Tim, this is Rex Query. You know, as I look at our capabilities across our chief mills, you know, we're positioning ourselves to rationalize product based on the, I'm going to say the capability and the efficiency levels of our various plants. So if you look at our Pickle Gal line, at Gallatin, which we have continued to support through all of these changes at Gallatin and supply into the automotive market, heavy frame applications. If you look at our expansions in the coated side, a new Galvaline announced for Berkeley. We have tremendous automotive supply there from that plant. So we're going to expand the capability there. Our investments in Crawfordsville. So we're really looking to make sure that we're expanding capabilities, value added. You know, we're growing in our capabilities with our customers, not just only in volume. We're going to focus on margin and bottom line profitability. Frankly, that's going to be our focus.
spk00: Okay. I was just trying to get an answer to the question on the sheet mills. Are they going to be the additional West Virginia sheet mill, will that be incremental capacity or like you were alluding to on the rebar side, could it replace existing capacity, and if it's incremental, is there room for another 3 million tons in the market? Thanks.
spk15: Yeah, look, I think it's a fair question, and it's going to be both is the short answer. You know, part of the driver for that is we think about the sustainability model and where our customer segment is asking us to go and has been asking us to go. That's going to be an incredible need, and don't forget that That mill is going to sit in the largest sheet consuming region in the United States where Nucor is underserved. We don't have as much market share that we know we're going to be able to go in and provide for our customers. So there's no doubt that, you know, both pieces of that strategy are going to come into play in the coming years as we ramp that up. And so, you know, no, we're not building three million tons of capacity that we think we're going to run in 2.1. We have full expectations that we're going to build it in three. and it's going to run in three.
spk07: Okay.
spk15: Thank you. What you just said, the incremental and new capacity.
spk00: Got it. Thanks, Ian.
spk11: This concludes our question and answer session. I would like to turn the conference back over to Leon Topalian for closing remarks.
spk15: In closing, I'd like to thank our new core team members for the way you've executed our growth strategy and continue to raise the bar on our safety. Let's carry this performance through and finish the rest of this year and make this the fifth straight year of record performance. I'd like to also thank our customers for the trust you placed in us with each and every order. And finally, thank you to our shareholders in the trust you placed in us to be great stewards of the capital. Thank you all for your interest in Nucor and have a great day.
spk11: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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