Release Date: July 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Nucor Corp (NUE, Financial) achieved the safest first half of any year in its history, with 52 out of 109 divisions reporting zero recordable injuries.
- The company generated earnings of $2.68 per diluted share in Q2, contributing to year-to-date earnings of $6.14 per diluted share.
- Nucor Corp (NUE) repurchased approximately 2.9 million shares for $500 million and received a positive outlook on its senior unsecured credit rating from Moody's.
- Significant progress was made on key projects, including the Lexington, North Carolina greenfield bar mill and the West Virginia sheet mill.
- Nucor Corp (NUE) announced two strategic acquisitions: Rytec, a manufacturer of high-performance overhead doors, and Southwest Data Products, a manufacturer and installer of data center infrastructure.
Negative Points
- Second-quarter earnings decreased compared to the first quarter, primarily due to lower average selling prices in both steel mills and steel product segments.
- The steel mill segment saw a 40% decline in pretax earnings from the prior quarter, largely due to lower realized pricing, especially among sheet mills.
- The steel product segment experienced a 14% decline in pretax earnings, with notable impacts from the tubular products group and joist and deck operations.
- Nucor Corp (NUE) expects consolidated earnings to be lower in the third quarter, driven by continued declines in realized pricing across most major product categories.
- Concerns were raised about unfair trade practices, particularly the surge of steel imports from Mexico and Canada, which could impact domestic market conditions.
Q & A Highlights
Q: Given it's been about 3.5 months since you first introduced your weekly CSP back in April, I was wondering if you could share any key takeaways you've received from customer feedback thus far? And furthermore, how has that strategy unfolded relative to your initial expectations?
A: (Stephen Laxton, CFO) We're excited about what we're seeing in the market. In a softer market, CSP can be most meaningful to take out speculative buying and create a transparent published price. We're hearing a lot of positive feedback from our customers, and we believe it's helping us solidify relationships. (Noah Hanners, EVP - Raw Materials) We've provided relevant, timely pricing and proven our transparency. We'll gauge success when we see order entry better matching underlying demand.
Q: How should we think directionally about shipments for each segment looking into the third quarter?
A: (Leon Topalian, CEO) From a demand picture, the back half of the year is expected to be relatively flat. Many of our products remain incredibly resilient. Specifically, in the steel products sector, we've seen stable order entry rates, and we think the back half of the year will continue to tick up.
Q: Can you provide an update on Nucor's raw materials strategy, specifically upgraded low copper shred products and low-emission iron ore making?
A: (Allen Behr, EVP - Plate and Structural Products) We're aiming to supply our mills with cost-effective inputs while minimizing embodied carbon. We can process about 1.4 million tons of low copper shred and are bringing on another 750,000 tons. We expect to add another 3.5 to 4 million tons in the next few years. Regarding Electra, it's a very interesting technology with a long way to go, but it offers sustainability benefits.
Q: When you look at the upcoming elections, what risks do you see, especially regarding solar and wind funding?
A: (Leon Topalian, CEO) It's hard to speculate on what might come with a change in administration. Our strategy is to invest in the long term, and we're not over-weighted to any single side of the market. We serve a diverse range of customers and capabilities, so we're well-positioned regardless of political changes.
Q: What should be the new administration's number one priority when it comes to steel trade?
A: (Leon Topalian, CEO) We advocate for fair trade, ensuring trading partners follow agreements like USMCA. The recent agreement with Mexico is a good first step, but more needs to be done. We need to curb fabricated steel product imports and ensure recent announcements have teeth without exclusions.
Q: Can you elaborate on how automation could impact your margins?
A: (Leon Topalian, CEO) Automation and AI are creating safer outcomes, cost advantages, and efficiencies. (Douglas Utermark, EVP - New Markets and Innovation) Automation helps navigate demand fluctuations and improve efficiency. (John Hollatz, EVP - Bar, Engineered Bar and Rebar Fabrication Products) AI has optimized production scheduling, reducing manhours by 80% and improving yield and operational efficiencies.
Q: How much incremental steel demand are you seeing from IIJA at this point?
A: (Leon Topalian, CEO) The CHIPS Act is the most upfront, followed by IRA, particularly in wind and solar applications. The infrastructure bill is still in early innings, with a long maturation process from federal to state funding. We expect demand to increase in the coming years as more states receive funds.
Q: Is there anything stopping Brandenburg from ramping to 100% utilization rate over the next 6 to 12 months?
A: (Leon Topalian, CEO) No, we anticipate Brandenburg achieving full run-rate capabilities in 2024. We'll be mindful of market conditions and customer needs as we introduce capacity.
Q: How are you sourcing electricity for your steel mills, and how are you protecting against future rate increases?
A: (Leon Topalian, CEO) We have long-term relationships with utilities and are investing in advanced nuclear reactors like NuScale. Most of our power is purchased under long-term tariff rate agreements. (Stephen Laxton, CFO) Energy is a significant cost, and we're proactive in partnering with technology companies and utilities to manage it.
Q: Do you have concerns that higher electricity rates might stymie reshoring activity and disadvantage the US manufacturing base?
A: (Leon Topalian, CEO) Yes, we have concerns. The US needs to solve its energy needs to support manufacturing and the overall economy. We must reembrace nuclear energy as the cleanest, most reliable form of energy.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
