Nucor Earnings Call Nuggets: Promotions and Steel Investments

Nucor Corp. (NYSE:NUE) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.


Michelle Applebaum – Steel Market Intelligence: First I want to congratulate you on your promotion, it was very well deserved and also say I guess – I don’t want to say goodbye to Dan, but I guess new mode of – all congratulations I guess to Dan on this new job, maybe that’s a way to do it as well on his promotion.

John J. Ferriola – CEO: That’s the way to say it and I certainly don’t want you saying goodbye to Dan.

Michelle Applebaum – Steel Market Intelligence: Is this the quietest you’ve ever been at one time, I’m just curious. My question for you is, can you give me your thoughts about what will be different and what will be the same in your tenure?

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John J. Ferriola – CEO: But let me start with what will be a little different. As I mentioned in the script, we’ve invested – by the end of 2013 we will have invested $8 billion in our strategic plan. So over the next several years our focus will be on executing that plan, converting those investments to higher highs during the next up-cycle. That will be our focus. Let me talk a little bit about some of the things that will be the same. First of all most importantly our absolute commitment to safety will remain unchanged. I believe that there is nothing more important than safety, will remain the same. And our relentless drive to achieve beyond zero will not change. We believe strongly that maximizing safety maximizes our team’s communication and productivity. Shareholders benefit from our safety focus in many ways. We’ll stay committed to our mission statement to take care of our customers, all of our customers, the way we have defined them in the past. But we remain committed to a strong balance sheet. We’re in a highly cyclical business and remaining committed to a strong balance sheet in a cyclical business allows us to weather those economic cycles without having to divest those valuable people or assets. And as we’ve shown during this recent downcycle that discipline has allowed us to take advantage of some strategic assets at attractive pricing. We remain committed to growing our business through the long-term perspective that we’ve always had, our goal being long-term, sustainable, profitable growth. We remain committed to previous capital deployment priorities that we had, investing in long-term profitable growth, return capital to our investors with a strong base dividend, provide a supplemental dividend when economic conditions allow, and opportunistically buyback stock only when other capital deployment commitments are fully satisfied. We believe that these stock is an excellent value. So, that’s a little bit about what will be different and what will be the same. Let me add one more point. I should have mentioned this. Of course, we remain as a team committed to our strategic growth plan of five pronged growth strategy that we’ve had over the last 10 years.

Michelle Applebaum – Steel Market Intelligence: Listen, I just want to tell you guys both and your whole team, and I know this was certainty, Ken would have been very, very proud and I’m.

Steel Investments

Luke Folta – Jefferies: The first question I had was when you look at the investments that you are making in steel, there is a numerous investments and expanding capacity SBQ something going on in your structural business, wide and light project and all of that. I wanted to get a sense of, I mean essentially these are investments you are making at pretty attractive capital cost that will expand your steel capacity without having to build any new mill capacity per se. So, I mean they are good investments, but I guess I wanted to get some sense of how much additional shipment opportunity that these investments are going to generate overtime. The reason I ask I guess is because when we listen to your competitor skill dynamics, talk about some of their initiatives. I think they get a decent amount of credit rightfully so for some of the things they are doing in rail and the SBQ expansions there. For them because they report production by mill, it’s really easy to kind of tally-up what the potential benefit could be. And I guess I’m trying to get there with Nucor to try to generate some similar math.

John J. Ferriola – CEO: Well, as you know, Luke, we do not talk about individual mills or even with our product’s groups individual production levels. But if you look at the investments that we have made, it had not only been in steel, but they’ve been over the full value chain of our business and that’s how we’ll continue to focus and that’s how you need to think about the investments and the returns that we’ll get during the next up-cycle. We’ve made substantial investments in our steel side for sure, and not only on the volume side, but certainly growing value added profits. So it’s more than just looking at how many tons we will ship during the next up-cycle. It’s the mix of the tons that we will ship during the next up-cycle. In addition to that, we’ll continue to grow upstream and downstream. The recent acquisition of the Skyline asset, tremendous opportunity – tremendous addition to the Nucor family as the economic and our markets recover. They will be a large contributor to our business.

James D. Frias – CFO, Treasurer and EVP: I just would add one thing. We had disclosed SBQ tonnage increments from those investments. That’s about 1 million tons. Luke, I’d also say that we’ll be able to operate at a high utilization rate to the economic cycle, because we’ll be able to ship products that we don’t make today, because of the fact that we’re expanding the range of products we make. So our utilization rates on average will be higher through the cycle than they have been in the past.

Luke Folta – Jefferies: Can you give us some color on what the magnitude of wide and light project would be just as far as how much tonnage you can produce at those stages?

John J. Ferriola – CEO: Joe, you want to take a shot at that?

James D. Frias – CFO, Treasurer and EVP: The wide and light project are not going to add significant additional tons and it is going to allow as Jim said, getting to the value add, it will be a significantly higher margins than what we’ve been able to do for our tonnage from Alberta mill for that projects will not increase.

Luke Folta – Jefferies: But what percentage do you think will be in that product mix that the wide and light project, is it going to be 20%, 25%?

John J. Ferriola – CEO: You’ll see somewhere around 10% to 15% range.

James D. Frias – CFO, Treasurer and EVP: One of the things we might want to point out, we talked on the script about the importance of a slowing in the automotive market, growing the right way in the automotive market, and this is an investment that will allow us to continue growing in that market segment. As we mentioned in the script, the automotive market continues to be one of the markets that has remained strong during this downturn. If you look at 2012 auto sales I believe they came in at about 14.5 million tons, which was about 12% to 13% higher than last year, last year being previous year in 2011, and we expect them to increase again in 2013. We expect automotive sales to top out at about 15 million tons. So, the automotive market is a strong market and it has remained strong during this downturn. The wide and light project (at Alberta) will allow us to further penetrate that market.

John J. Ferriola – CEO: Again, it’s an issue of not significantly more tons, but value added higher value tons into a value appreciative market.

Luke Folta – Jefferies: Just one more if I could on the natural gas project, I appreciate your forecast for CapEx into the next year. But in the press release it was initially put out there, there were some big numbers like I think this $3.6 billion expected to be spent over some longer term timeframe and it was a pretty wide range given as far as over what timeframe that would be spent. Can you just maybe put into perspective for us over the next kind of one to five years what the spending annually could amount to for that project and also maybe what – some sense of what the benefit could be or may be some numbers that could help at least to put that into perspective?

R. Joseph Stratman – EVP: Sure, Luke. This is Joe Stratman. I’m going to be happy to take a shot at that. I would say over the next two to five years this ’13 and for the next four or five years after that the spend should be approximately in the same ballpark and as you might imagine and you know probably the natural gas drilling business a little bit you’re deploying capital and you’re drilling wells and the wells come on they produce for very long period of time, but one well certainly doesn’t produce all the gas that we’re talking about in these program. So, you’re drilling multiple wells over a series of years and the gas will be drilled for a number of years, we’ll produce for a number of years more. So, when we talk about natural gas supply for the next 20 plus years that’s not all drilling programs. The drilling program could go in the seven to 10 year range and then the gas production will come after that. So, near term it’s going to be very consistent with 2013 expenditure. But then the gas production will go off for many years after that.

James D. Frias – CFO, Treasurer and EVP: I would just build upon that a little bit we talk often and did again today in the script how Nucor’s long term focus on profitability to be in the low cost producer and this is one of those projects that is a long term project, a lot of capital being invested but again it’s going to payback over the long term. This is important for us. One of our strategic goals has been for the low cost producer of steel and have 6 million to 7 million tons of high value, low residual scrap or scrap substitute products under our control and the DRI project is critical to achieving that strategic objective. Having the natural gas project will ensure us a long-term viability of the DRI project. So they go hand in hand and both are focused on providing Nucor with a long-term return on a good investment.

A Closer Look: Nucor Earnings Cheat Sheet>>