Nucor Q4 2022 Earnings Call Transcript

Quartr
Provided by Quartr
January 26, 2023

There are 16 speakers on the call.

Operator

Afternoon, and welcome to Nucor's 4th Quarter Earnings Call. All lines have been placed on mute to prevent any background noise, and today's call is being recorded. After the speakers' prepared remarks, I will provide instructions for those wanting to ask questions during the Q and A session. I would now like to introduce Jack Sullivan, General Manager of Nucor Investor Relations. You may now begin your call.

Speaker 1

Thank you, and good afternoon, everyone. Welcome to Nucor's 4th quarter year end 2022 earnings review And business update. Leading our call today is Leon Tapalian, 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 Who may provide comments during the Q and A portion of the call. They include Dave Samuski, Chief Operating Officer Al Baer, responsible for Plate and Structural Products Noah Hanners, responsible for 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 Utemark, New Products and Innovation. This morning, we posted our earnings release And an updated slide deck to the Nucor Investor Relations website.

Speaker 1

We encourage you to access these materials as we will cover portions of them during the 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 and uncertainties 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.

Speaker 2

Thanks, Jack, and welcome, everyone. I'd like to begin by highlighting some recent organizational changes. Earlier this month, Noah Hanters joined the executive team as EVP for raw materials. Noah is a West Point graduate with his Bachelor's of Science in Mechanical Engineering In his MBA from UNC Chapel Hill, he also served our nation in the United States Army for 9 years. Noah began his career with Nucor in 2011 at Nucor Steel Darlington and has worked at several of our divisions, Most recently serving as Vice President and General Manager of The David Joseph Company.

Speaker 2

Doug Jellison, previously EVP of Raw Materials, Has accepted the newly created role of EVP for Strategy. Doug has been with Nucor for more than 30 years and has a great understanding of all of our business segments. As we continue to grow Nucor, Doug will continue to help ensure We are further leveraging our competitive advantages across the enterprise. Congratulations to both Noah and Doug. Now turning to our year end review, I'm proud to announce that 2022 was the safest and most profitable year in Nucor's history, Breaking prior records set in 2021, in the face of uncertain and at times volatile market conditions, we stay focused on our goal of becoming The world's safest steel company and our mission to grow the core, expand beyond and live our culture.

Speaker 2

In terms of safety, we established another record low injury and illness rate for the 4th consecutive year. 20 Nucor divisions Went the entire year without a single recordable injury, and we set new records across each of the 4 primary safety metrics that Nucor tracks. And we achieved all of this during a period of rapid growth, welcoming over 2,000 new team members to the Nucor family throughout the year. I'm inspired by the way each member of the Nucor team has embraced our most important value, the health, safety and well-being of all 31,000 team members who make up our family. Turning to financial performance, we earned $4.89 per share in the Q4 of 'twenty 2 On our way to setting a new earnings record of $28.79 per share for the full year, This represents a 24% increase over the annual EPS record we previously set in 2021.

Speaker 2

Our operations continue to generate strong cash flow With a record $11,600,000,000 of EBITDA, this allowed us to advance our strategy along several fronts, We're also returning $3,300,000,000 to shareholders through dividends and share repurchases, consistent with our capital allocation strategy of returning at least 40% of earnings to Nucor shareholders. Our return on invested capital stands at a healthy 35% And we closed out the year by announcing the 50th consecutive annual increase to our regular dividend following Nucor's original listing on The New York Stock Exchange in 1972, this places Nucor among an elite group of roughly 40 dividend kings, Referring to publicly traded companies that have consistently increased annual dividends to shareholders for over half a century. These successes were in large part made possible through the hard work and dedication of the Nucor team who executed our strategy To achieve world class performance, as most of you know, we share our profits with our team. And in just a few weeks, We will reach a milestone never achieved before in Nucor's history, delivering nearly $1,000,000,000 back to our teammates. In 2022, we made considerable progress along all of our strategic initiatives, deploying approximately $2,000,000,000 in CapEx In completing 5 acquisitions valued at approximately $3,600,000,000 to grow our core and expand beyond.

Speaker 2

But we didn't just invest in new assets and business lines. We invested in a more sustainable future. We did this through new partnerships and capital commitments to our technologies that can help reduce our carbon footprint even further. In December, we announced an equity investment in Elektra, A Boulder based startup that has developed a process to produce carbon free iron used in making steel. In November, Nucor became the 1st Major industrial company in the world to join the United Nations 20 fourseven Carbon Free Energy Global Compact, which aims to accelerate the world's transition to clean, affordable and reliable electricity.

Speaker 2

Nucor also co founded the Global Steel Climate Council, an international coalition advocating for a single, transparent, global emission standard That is focused on steelmaking emissions. In last week, the NRC officially certified NuScale's design to build a small modular reactor, The first of its kind approved for use in the United States. Nucor's minority investment in NuScale will continue to support the development of this technology with a goal of producing 100 percent carbon free electricity. Our mission to grow the core, expand beyond and live our culture Is delivering results for our company and our shareholders. In our steelmaking operations, we invested in new capabilities to produce more value added products and improve operating efficiencies that can earn higher and more sustained margins.

Speaker 2

In our downstream operations, We continue to expand into new steel adjacent markets where we can offer differentiated solutions, including overhead doors And utility towers. These represent unique opportunities in faster growing markets where Nucor can leverage its core competencies, Supply chain efficiencies in market channels to create incremental value for shareholders and We lived our culture. For over 50 years, Nucor's unique culture has created value for shareholders as it empowers and incentivize Let me provide an update on some of our larger initiatives to grow the core, starting with our Brandenburg plate mill. Nearly 4 years after it was first announced, the Brandenburg team Rolled their first steel plate on December 30. They are now focused on final commissioning of the mill and plan to begin customer shipments by the end of the quarter.

Speaker 2

Last week, we announced the Brandenburg Mill would produce a new product called Elcyon, a sustainable heavy gauge steel plate Designed to meet the growing demands of the offshore wind industry, congrats to the entire Nucor Brandenburg team Turning to our sheet operations, we announced plans to build a continuous Galvanine at California Steel Industries to serve construction markets In the Western United States, recent closures of galvanizing capacity by other suppliers in the West Presented Nucor a unique opportunity to better serve this region. This new Galvan along with the line we completed at Nucor Gallatin in 2019 And future lines planned for Berkeley and Nucor West Virginia will position the company as a supplier of choice for the cleaner, value added sheet products Our customers are seeking in several key markets. Investments like this help forge even stronger relationships with our key customers Like Trane Technologies, which honored Nucor last week with their 2022 Supplier of the Year award. Now shifting to our Expand Beyond strategy, I'd like to provide an update on a few of our recent acquisitions we've completed, Beginning with our mid year purchase of CHI overhead doors, when we announced this transaction and held a special investor call last May, We spoke about CHI's $230,000,000 LTM EBITDA, its 30% EBITDA margins and average annual revenue growth Of 10%, in the last 6 months following our June closing, CHI generated record EBITDA of nearly $170,000,000 Finishing the full year with over $320,000,000 of EBITDA and expanding margins.

Speaker 2

Within the 1st 6 months of closing, We've taken our implied trailing EBITDA acquisition multiple down from 13 times to just over 9. Going beyond the strong financial results, I want to commend the entire CHI team for executing such a quick and seamless integration into Nucor. We're already seeing the benefits of our combined operations, including improvements to CHI's safety performance. Thank you. Thank you, team CHI and all of the Nucor team members that have come together to make this an incredibly successful transition.

Speaker 2

We're starting to realize supply chain synergies as well with CHI, developing plans to source most of its sheet, bar and tube from Nucor divisions. The sales team at CHI is collaborating with Nucor's regional commercial groups and cross selling efforts have begun as CHI grows Its share of the commercial overhead door market. Last year, we also acquired Summit Utility Structures, producer of steel structures for the utility, Telecommunications and Transportation sectors. It's an area that we see considerable growth potential in. Then in December, we announced plans to construct 2 new state of the art tower production plants.

Speaker 2

These highly automated facilities Will help meet the growing need for utility infrastructure as our nation's electric transmission grid is modernized and hardened. Turning to the broader economic backdrop, we recognize there continues to be uncertainty, but we also see tailwinds that should benefit Nucor as well as the American steel industry Throughout this decade, including the Infrastructures Act, the Chips Act and IRA that are all starting to work their way into the steel sector. These programs align perfectly with Nucor's unmatched and unrivaled product capabilities to meet the growing demand of our customers today and well into the future. With that, let me turn the call over to Steve Laxton, who will share more about our Q4 performance. Steve?

Speaker 3

Thank you, Leon. As Leon mentioned, our earnings of $28.79 per share established a new record for the company. These results highlight the earnings power of Nucor's diversified portfolio and industry leading capabilities. 2022 was also a noteworthy year for cash flows at Nucor. For the year, cash from operations exceeded $10,000,000,000 for the first time in our history And free cash flow topped $8,000,000,000 Over the past 5 years, Nucor has generated $16,600,000,000 in free cash flow.

Speaker 3

During that same time period, we returned $9,700,000,000 directly to shareholders through dividends and share repurchases,

Speaker 4

While at

Speaker 3

the same time investing over $12,800,000,000 in our business through capital expenditures and acquisitions to further strengthen and grow our earnings base. These results demonstrate continued and consistent adherence to our balanced capital allocation framework. Nucor's efficient manufacturing business model It's a powerful through cycle cash flow generator. Turning to our financial results for the Q4. Earnings for the Steel Mills segment were down nearly 60% from the prior quarter.

Speaker 3

Shipment volumes fell 13%, reflecting normal seasonal weaknesses and some purchasing hesitancy as prices were trending lower for much of the quarter. Overall, metal margins contracted as lower realized pricing outpaced lower cost for metallics. Conversion costs were slightly lower compared to the 3rd quarter despite lower utilization rates, in part due to energy cost, which Fell approximately 10% on a per ton basis. Alloys and consumable cost also trended slightly lower. Shifting to our Steel Products segment, we continue to see very strong performance with segment earnings of $1,100,000,000 in the 4th quarter.

Speaker 3

This is down about 10% from the 3rd quarter's record results, but still represents the 3rd best earnings quarter ever for the segment. Contributions from most product lines were down from the respective 3rd quarter levels, reflecting normal seasonality. CHI Overhead Doors was a notable exception as Leon touched on earlier, posting 4th quarter earnings 20% higher than the prior quarter. Turning to raw materials, this segment saw negative earnings for the quarter as DRI and scrap processing results were impacted by lower volumes and falling prices We also took both DRI facilities offline for planned maintenance and elected to extend those outages for additional service until we saw signs of improving conditions later in the quarter. On the capital deployment front, Nucor's CapEx for the quarter Totaled approximately $520,000,000 bringing total CapEx for the year just under $2,000,000,000 We're forecasting CapEx In 2023 at $3,000,000,000 including some catch up spending originally slated for 2022, new growth initiatives and general maintenance.

Speaker 3

The earnings presentation we posted on our Investor Relations site this morning has additional details on our 2023 capital spending plan, Including projected allocations among primary CapEx categories and a preliminary look at the anticipated pace Spending on a few of our major growth projects over the next couple of years. I'd like to take a minute and provide an update on the strong results we're from recently completed investments. While strong conditions in 2022 certainly aided performance, we believe these were prudent, timely and well Investments that are yielding excellent returns and position the company for continued future success. The roughly 2,200,000,000 We invested in sheet and bar projects that have been up and running for the past few years generated an estimated $620,000,000 in EBITDA for 2022. And the businesses we acquired over the last 2 years for around $4,500,000,000 establishing 4 new downstream platforms Generated EBITDA of nearly $500,000,000 over the course of the year.

Speaker 3

We believe this puts us well on our way to reaching our Annual run rate EBITDA goal of $700,000,000 for our Expand Beyond businesses. Collectively, these strategic investments and those to come Provide significant earnings catalyst and position Nucor for sustained value creation long term. Turning to our balance sheet. We finished the year in a very strong liquidity position With over $4,900,000,000 in cash and short term investments and our $1,700,000,000 revolving credit facility remains undrawn. We've been intentional about building liquidity toward the end of the year in light of uncertain economic conditions coupled with near term uses of cash, Including our 2022 profit sharing payouts that are earned by our teammates, our capital spending plans and maintaining our commitment to meaningful direct returns to shareholders.

Speaker 3

In addition to ample near term liquidity, Nucor's balance sheet continues to be in a position of strength with total debt to capital of around 25% at the end of the year And debt to EBITDA well under one turn. Earlier this week, Fitch Ratings published its first credit rating on Nucor, With long term and short term unsecured ratings of A- and F-one respectively, we were pleased to see Fitch recognize Nucor's credit strength. During the quarter, we repurchased 3,100,000 shares valued at $403,000,000 and made dividend payments of $130,000,000 for a total of $533,000,000 returned directly to shareholders, which represents more than 42% of our quarterly net earnings. Over the last 5 years, we've returned $9,700,000,000 to shareholders, representing approximately 52% of total net earnings for the period. As we look ahead to the Q1 of 2023, we expect earnings from our Steel Mill segment to increase compared to 4th quarter results On higher shipments, improved metal margins and expected higher realized prices.

Speaker 3

In our Steel Products segment, we expect lower earnings in the Q1 compared to the Q4 due to seasonally lower volumes and lower pricing in some products. However, it's worth noting that earnings are expected to remain higher than the Q1 of 2022. Our raw material segment earnings are expected to improve on more stable pricing and higher shipment volumes. While operating income from these three segments is expected to be higher compared to the 4th quarter, We expect consolidated earnings for the Q1 to be lower due to higher intercompany eliminations and the absence of one time state tax We remain relatively optimistic 2023 will be another strong year of earnings for Nucor Despite entering a period of increased economic uncertainty, overall nonresidential construction spending continues to be robust. Federal support for infrastructure and energy projects will begin to show impacts on demand in 2023.

Speaker 3

Other positive drivers of demand include reshoring of manufacturing, energy infrastructure demand, clean energy and storage projects, EV Factories and Semiconductor Plants. In closing, we believe medium and long term fundamentals of our industry and Key demand drivers remain relatively positive. This coupled with our growth initiatives and investments that advance our strategy to grow our core and expand beyond Position Nucor for strength well into the future. With that, we'd like to hear from you and answer any questions. Operator, please open the line for Q and A.

Operator

We will now begin the question and answer And our first question here will come from Lawson Winder with Bank of America. Please go ahead.

Speaker 5

Good afternoon, Leon. Good afternoon, Steve. Thank you for the presentation. Also congratulations to Noah and Doug, on the new roles and also I'd just say nice work to whoever helped create those slides. That looks great.

Speaker 5

So Wanted to follow-up, Steve, on your last comments on market demand. Could you maybe provide a sense To the extent to which demand might be driven also by restocking versus some of these actual real demand drivers that you're highlighting? And then in terms of these real demand drivers, you highlighted non res auto electricity grid, which is moving the Needham most for a new quarter. Thank you.

Speaker 2

Hey, Lawson. I'll start us off and ask Dan Needham, our EVP So for commercial to jump in and paint some perspective around what we're seeing in terms of the traction we're getting from some of the programs that We discussed, but I want to begin with saying a thank you for recognizing that and thank you to the 31,000 team members who made a historic year for Our company, thank you to our customers who made all of that possible. I couldn't be more proud that our team executed its 4th consecutive safest year in our history. It is the most important value that we have at Nucor and none of us on our executive team take that for granted. And I look forward to 2023 Setting a new safest year in our history.

Speaker 2

So as we unpack the first question that you began with or started and really understanding the Demand trends real versus the restocking, look, I think we've certainly hit the bottom as we think about distribution and And we're going to see that continue to restock as we move into the Q1, but that to me is not what's driving demand. If you actually look over the, let's say, the last 8 or 10 weeks in the sheet For example, our bookings are up 45% to 50% during that time period. Our backlogs over the last, I don't know, let's say, Q over You have climbed about 16%. So that drive is there, that demand is there that's pulling that. The other side is a non res construction.

Speaker 2

Obviously, Nucor's channel in that market is over 50%. So we're heavily invested in that. But There were so many incredibly positive signs. And while, 2022 was a historic year And we're slightly off in terms of order activity. We think it's going to be another very strong year that non res construction will remain robust As we move forward and there are several things that are going to drive that, that we'll touch on here in just a second.

Speaker 2

And then really the other piece is our plate strategy and long product strategy that continues To produce and perform incredibly well as we move through the back half of twenty twenty two into twenty twenty three. But as we talk about the Infrastructure Act, the Chips Act, Inflation Reduction Act, automotive improvement for 2023, All others are going to have meaningful intangible impacts to our business. Dan is going to touch on a second, the infrastructure bill, but I just want to Put some context to the CHIPS Act. It's a $55,000,000,000 package that Congress passed. What does that translate to?

Speaker 2

To about 27 different meaningful chip plants that are going to be produced, some of which are pushing $20,000,000,000 On their own individual plants. Well, what does that actually translate? What's that look like? That market segment, as we think about advanced Manufacturing is requiring something different for its future. Our customers in that sector are requiring the most sustainable, Comprehensive differentiated value products and solutions that are available to the market.

Speaker 2

Nucor is incredibly well positioned to meet that growing demand in every category, in every sector. So we feel very Good. As we enter 2023, that'll be a strong year, maybe not as strong as 2022, but a continued strong year. But I want to paint a little context around the Infrastructure Act and what we think we'll see in 2023.

Speaker 6

Okay. Appreciate the question, Lawson. In particular, what we're seeing in forecasts out there from construction indices are predicting infrastructure Starts to increase 16% in 2023 and additionally 10% in 2024. But more specific to that, We are seeing activity today on the infrastructure bill. In January, the Biden administration announced $2,100,000,000 in funding For 4 major bridge projects, the most notable being the bridge over the Ohio River connecting Ohio and Kentucky on I-seventy 5 And I-seventy one, you also asked a little bit and Leon touched on the advanced manufacturing, but the other thing around the advanced manufacturing, The activity is increasing tremendously in that space, not only in chips, but also on the EV space and batteries.

Speaker 6

But those plants are quite large and the requirements from a grade and size standpoint, There's only a few suppliers that are capable of serving that and Nucor is well positioned to do that. If you think about the breadth of our products, our capabilities in the construction side from Structural buildings to racking systems to now insulated metal panels and garage doors, our capabilities are unparalleled. One thing you also mentioned was the Inflation Reduction Act around energy. We're seeing activity grow in that space as well. And additionally, our breadth of capabilities fit that space, very well, additionally.

Speaker 6

And if you think about our leading low greenhouse gas intensiting offerings, the requirements in that Space, we're well poised to help the energy U. S. Energy market move towards decarbonization. So the last point I'd like to make is In all of these, they're not mutually exclusive. They're all interconnected.

Speaker 6

And we have customers in these spaces in automotive and energy That have requirements on the construction side. And a couple of years ago, we created our focus on our Solutions teams, and we have teams around construction, automotive and energy that are best poised to recognize these opportunities early And the design conceptual phase of these projects and work with the owners, developers, engineers to provide a valued solution

Speaker 5

Thank you, Dan. Thank you, Leon. Fantastic color. Maybe just one follow-up from me, if you could comment perhaps on the ramp ups at Gallatin, Brandenburg through 2023, including your thoughts on profitability.

Speaker 2

Yes, absolutely. As we touched on in my opening comments on Brandenburg, we're incredibly proud of the team, the work that they've done, what they've been able to accomplish. And Again, I've been at Nucor a long time now and 26 years. And from a construction standpoint, from a safety standpoint from a budget standpoint, this project exemplifies the very best of what our team has done and produced. Alber will share Few more highlights of that because we've got some recent milestones that the team has reached here in just a moment.

Speaker 2

And turning to Gallatin, Again, we're about 6 months behind where we wanted to be at, on their ramp up. However, over the last Few months that team has done a phenomenal job of bringing that new castor and equipment online. As I mentioned during the last call, This really wasn't just a brownfield. It was a complete mill modernization with software and automation tying that entire complex together. So it was a significant undertaking.

Speaker 2

And all that being said, the bottom line at Gallatin, in Q2, we expect them to be a full run rate capability. We'll see how the market needs and demands go and meet that demand. But the other piece and point that I would share is we expect Yes, it's been to be profitable in the Q2 as well. So maybe you want to touch on a few other things at Brandenburg.

Speaker 7

Yes. I'd be happy to Leon, and thanks, Lawson. We love talking about Brandenburg. Obviously, we're really excited about it. We're sitting here today and at Exactly where we wanted to be.

Speaker 7

And like Leon said, I just congratulate not only the Brandenburg teammates that have just crushed it in building this project and bringing it in on time And on budget, but also our greater plate group teammates at Hertford, at Longview, at Tuscaloosa that have created an environment in which this mill is going to be excited. So And as Leon alluded to, just yesterday, I'm happy to report that we made our first customer shipment out of Brandenburg. So we are on the board and We're ready to go. In terms of the ramp up and how we're thinking about 2023, I'll share with you that we've got really 3 focus areas, Lawson, that we're going about number 1 is the teammates that we just talked about that they are the difference makers. They are our competitive advantage.

Speaker 7

You've seen what they've done on this job site and And the market and what they've created, we're going to continue to focus on them, but also that those are the men and women that take care of our customers, which is the second area of focus. So with our customers, we've got existing customers that have helped us get to this point with our plate business, but also new customers in new markets that are new areas For us to go and serve that we couldn't touch before. That if you remember back in 2019, the strategy around Brandenburg was to build the most Broadly capable mill in the Western Hemisphere and put it in the biggest plate market in the U. S. That's what we've got.

Speaker 7

We've built the capability set and we intend to go use it. So with those two focuses then at least the third one, which is driving incremental returns for the enterprise. We've had the support from teammates, Customers and our shareholders to put this project on the ground and now we're just going to be more excited to start driving returns with it and we're excited about what

Operator

And our next question will come from Phil Gibbs with KeyBanc Capital Markets. Please go ahead. Hey, good afternoon.

Speaker 2

Hey, Phil. How are you?

Speaker 8

Doing well. Thank you.

Speaker 9

How do you

Speaker 8

guys See the global pig iron trade unfolding this year, given the 25% reduction in 2022. Do you see Supply chains having reoriented at this point, is there a reduced dependency on it given some of the new projects that have been announced by the Glass furnace folks or others, just what's the reconstruction in that market right now?

Speaker 2

Yes. I'll kick it off, Phil, and then ask Noah Hanters, overall materials to comment on that. But I just want to point out, because Noah was in The Vice President will roll over to DJJ at the time. And again, as we've mentioned a few times on this call, the day that the Russians invaded Ukraine was the last day we took any material from them. And so it required Nucor to pivot Incredibly quickly, Noah and the entire DJJ team stepped up.

Speaker 2

Our teams across Nucor stepped up Because of the long tenured relationships that we have around the globe, because of the relationships that DJJ has built With partners and customers in South America, we were able to pivot, move very, very quickly and bringing new supply Into Nucor, at the same time, our teams have also technically figured out how to reduce our use and move from roughly what was about 10% Of our pig iron use across the sheet group down to 5% or 6%. So the overall Tragedy that is still continuing to unfold in Ukraine has created a silver lining for Nucor and how we think about raw materials, Our positioning strategy and our overall use and consumption, but maybe Noah just paint the picture as we think about 2023 and how that's going to shape out.

Speaker 10

Yes. First of all, thanks for the question, Phil, and really for the opportunity to talk about our team and the performance through 2022 because I think it was Really formative for how we think about employing raw materials going forward. So the short answer, I think, to your question about the balance of global pig iron supply is the Ukraine invasion of Ukraine was really impactful. It was roughly 50% of the supply that went offline when Russia invaded. But more important to us, the strength of our raw material models and the flexibility we have.

Speaker 10

If you think about how we operate, about 3rd of our raw materials are self sourced between the DRI plants and our recycling group assets. So you combine this with what's really unmatched Coverage of the market through our DJJ brokerage team and the flexibility of our mills in terms of what they can melt to make our products for our customers. And we can be Extremely agile. So we're able to, as Leon described, quickly change our melt mixes, maintain our focus on value and use, while minimizing our cost and making the products our customers need. So again, if you

Speaker 2

look back to

Speaker 10

2022, it's a testament to this flexibility. We prepared for the invasion to the best of our ability. We had indications that was coming. We were able to quickly pivot, Adjust our melt mixes at the mills, minimize our pig iron and immediately cease purchasing from Russia. So I'm extremely proud of our team for the 2020

Speaker 8

Thank you. And then in fabrication, you kind of gave us a range Basically somewhere between the Q4 of 'twenty two and the Q1 of 'twenty two given profits, should we essentially Split the difference there or is it going to be closer to one versus the other? And then within that, how are deck and joist prices holding up relative to the second half? Because I know that they were

Speaker 11

So while we do see some moderation from that group, it's still very strong. I'm not going to guide you Leading one way or the other necessarily from 2021 versus 2022 or something like that, but you're seeing some moderation there, but Still outstanding performance in that group, well above you should expect well above historic norms

Operator

Thanks, John.

Speaker 12

Thanks, Phil.

Operator

Our next question will come from Curt Woodworth with Credit Suisse. Please go ahead. Yes.

Speaker 4

Hey, good afternoon, Leon and team. Hope you're well.

Speaker 2

Thanks, Kurt. Yes, hope you are as well.

Speaker 4

Thanks. So, just want to drill down into the margin structure in the mill segment. If I look at 2021, your reported metal spread was about $7.20 And then if I look at the back half of 'twenty two, it was about the same at $7.10 But your EBITDA per ton, at least based on my math, went from $410,000,000 to only $185,000,000 So that Seems to imply a pretty big step up in conversion costs. And I know that there could be some Galton start up and other issues. But is that math roughly correct?

Speaker 4

Can I just talk to, how you see conversion costs trending into the start of this year?

Speaker 13

Yes. Thank you, Kurt. This is Dave Symondski. Inflation has certainly been a factor For us on our convergence costs, it probably falls anywhere within $40 to $80 depending on the division. Couple of divisions Would be higher than that, Gallatin being one of those, but those are outliers.

Speaker 13

So inflation has been a big factor. 2 other big hitters, You have to remember well, 2 other big hitters are, as we bought CSI and ramped it up this year, we run slabs through that facility. And the cost of the slabs go right directly into our cost of goods sold. So we had some pretty expensive slabs on the ground. So that was a pretty big hit year over year for our cost of goods sold.

Speaker 13

And then across all of our divisions, we had significant inventory adjustments throughout the year. And those inventory the cost of those inventory adjustments goes right into our cost of goods sold as well. So those three factors We're pretty big. We're very big and that's why you see that big increase.

Speaker 4

Okay. Okay, that's helpful. And then second question is, if I look at Slide 7 on the Expand Beyond, you're talking, I think targeted EBITDA across those assets of roughly $700,000,000 and it seems like you're making good progress on CHI, to get to the 400 number. But can you kind of help frame like roughly like where we are And that progression, and then when you look at, I guess, those business segments, can you talk about, growth potential within those? Or how should we think about Maybe how much capital you would look to allocate M and A wise into expanding beyond the core this year if you have any preliminary views.

Speaker 4

Thank you, guys.

Speaker 2

Yes. Kurt, I'll begin and let Steve Sure to talk about the as we think about through cycle EBITDA, but I'll touch on your second question first. As we continue to Think about the growth of Nucor. We're coming off 2 historic years and really over the last several years, our strategy has Not change. Our mission and our vision is very clear and that is to grow our company, period.

Speaker 2

And we're going to do it in 2 ways, In the core and expanding beyond, you've seen our investments in the core and while we're certainly not done, those will be Probably more, in line with what you've seen in terms of positioning strategies moving into, more galvanized, more prepaid, more Higher value added products as opposed to what we're doing in West Virginia in terms of a greenfield facility. But on the ExpandBeyond piece, Steve, Alex Hoffman, who heads up our business development team and our executive team is focused on growing and looking in that expand beyond area. For those adjacent companies that have sort of a steel centricity at some piece that are efficient manufacturers because that's really where We see the value set in coupling. That's one of the reasons why, we were so excited about CHI. Again, couldn't be more proud of David Banger and the entire CHI team for how they have performed through this year.

Speaker 2

And again, their EBITDA and where we sit today is so far beyond The models that we built out, so that focus for us is going to continue. We are going to continue to look To grow Nucor, to position Nucor well into the future and be generating significant revenues as well as our bottom line net earnings Through the ExpandBeyond businesses that we continue to acquire?

Speaker 11

Yes. Kurt, I'll just add a couple of comments there to what Leon said. In terms of where we are, with these particular platforms, there's not a significant amount of capital other than what we've announced on the towers business to achieve the $700,000,000 target that we outlined for these businesses. So we are well along that path, Very proud of the teams that are in these 4 platforms. The work they've done so far to integrate into NewCoors, Leon touched in his opening remarks, It has been very solid.

Speaker 11

And I think they just undermined what Nucor's business model really is. At our heart, We're a strong diversified industrial manufacturing model and we're able to leverage that model in businesses and across a broad spectrum Our portfolio to drive value. So, if you're looking for how much money might be in new Expand Beyond Platforms, as Leon said, we are a growth company. And so we're not done yet, but these platforms that are established Are well on their way to that $700,000,000 figure.

Speaker 4

Great. Thanks very much. Best of luck.

Operator

Our next question will come from Timna Tanners with Wolfe Research. Please go ahead.

Speaker 14

Yes. Hey, good afternoon, everyone. I wanted to explore a little bit the outlook and then ask a question about volumes, and I think they're a bit tied. But to start with the outlook in the steel mills in particular, So you talked to improve profitability on higher volumes and improved margins, specifically in the sheet business. So the higher volumes I get seasonally and, off a Pretty low base at 70% utilization.

Speaker 14

On the margin side, I mean, it looks like, trending prices at 7.50 hot rolled And compared to Q4's average price of $9.60 looks like a tough comp and costs have increased and there's Deeper discounts on your quarterly contacts and monthly contacts. So I'm just trying to figure out if your guidance is more about the volume side or if I'm missing something on mix or costs?

Speaker 2

Yes. I mean, Tim, I'm not going to get into the contract to contract comparison. But again, All contracts are not created equal. They're not all on a calendar year. They're not all 1 year contracts and there are different escalators built in accordingly.

Speaker 2

And so again, we feel really good about our strategy and that strategy really comes back to The pre announcement is we were getting ready to announce West Virginia to build the most diversified capability set, not capacity. And so if you look at what the Shey group in particularly has done this year, they've matched demand. They've matched the market and what was required. And that flows through and you can look very quickly to see our EBITDA per ton and what we've been able to return back to our shareholders and our performance that I'm very proud of. If you think about our positioning as we move forward, we're going to match that in my Answer to the Gallatin question, that mill will have the capability to run at full steam come Q2, but we'll be very mindful about how we bring There was tons in the marketplace.

Speaker 2

So again, we're going to be very thoughtful about how we do that. Rex, anything you'd like to touch on in terms of That customer set and segment as we move into 2023?

Speaker 12

Yes, Tim, thanks for the question. The only thing I would really add, If you look at the volatility we had from what we saw in really the second half of twenty twenty two, but if you look at where CRU stood And Q3 and then the drop in the 4th quarter and now what we're seeing now, it's a really short window. And I think that's to Leon's point. We have a long term strategy. And in the short term, you may see us do things From a quarter to quarter based on what the market's happening.

Speaker 12

We chose very specifically not to participate in some of the spot market As heavily as we saw some of the lower pricing, so you would see some lower volumes, But we are a margin focused company, long term, as a group, as a sheet group. Our goal, our purpose is to generate a return for our shareholders on our investment. So that would be the only addition I would have.

Speaker 14

Okay. I was just trying to understand the margin guidance on the Sheet side in particular, if that was a pricing or cost driven. But, I don't want to press you on contracts. I understand that's sensitive. So I guess I'll switch to the second one.

Speaker 14

If you have anything else on the cost side, that would be great. But on the utilization at 70% in the 4th quarter And, that one of your peers earlier today touting above 85% utilization. Should we think about that, ramping up given all

Speaker 7

the positive commentary on demand that you are

Speaker 14

explaining, Slide 17, Carry on demand that you are explaining, Slide 17 and the ramp up of, of course Gallatin and Brandenburg. I mean, is it reasonable to expect that there To be a commensurate increase with the new capacity coming on or to more normal utilization levels?

Speaker 2

Yes. I think you're going to watch that unfold. And again, I'm not going to comment on what our competitor strategy or positioning is. However, Obviously, one of our competitors has got a new mill and a lot of assets sitting on the books and they're going to do whatever they're going to do and Bringing that mill up, at the same time, we're going to focus on what Rick said in providing a return to the margin That drives our business. And so we'll meet the demand, out there.

Speaker 2

We're not going to chase tons or pull forward, demand that isn't real. But again, I think what we're seeing in the indicators that the Shey Group has seen over the last 2 months are very favorable. And I think that will continue and you'll see the uptick Subsequently in our utilization rates and as we head into the back half of Q1 into Q2.

Speaker 14

Okay. Thanks, everyone.

Speaker 2

Thanks, Timna.

Operator

Our next question will come from Carlos De Alba with Morgan Stanley, please go ahead.

Speaker 9

Thank you very much. Good afternoon, Leon and Steve. I have a couple of questions. One is on Startup cost and the other is on the Corporate and Immunizations segment or line in your reports. First on the startup cost, as you complete some of the projects, I know you ramp up the play mill, How do you see the startup costs coming out in 2023 given the big Increase that we saw to $250,000,000 in 2022 versus $130,000,000 last year.

Speaker 9

Any clarity there will be great understanding that you are always growing company, but any color would be useful.

Speaker 11

Yes. Hey, Carlos, and thank you for that comment. And that's where I'd like to start where you ended. Nucor is very much a growth company and you do see different treatment of startup costs from us versus some of our peers. Of them like to make adjusted earnings.

Speaker 11

We don't view that as an adjustment. That's just part of what we do. We're a growth company. You're going to see that going forward from us, Continued startup costs, pre operating startup costs, it was $73,000,000 in the last quarter. We expect it to be down just a little bit in the Q1.

Speaker 11

And some of the variability as you start to model out the year will have to do with spending and the pace at West Virginia. So you'll have to just kind of stay tuned on that. But for the next quarter, you'll see that come down slightly from the 4th quarter. Did that address your question adequately?

Speaker 9

Yes, definitely. Thanks, Steve. And then the other question is on corporate and elimination. The report was $77,100,000 in the quarter. If I jost back for the tax credit and the tax the change in the valuation Allowance, I think I calculate and I'm assuming that this is all on just the same figure pretax and after tax, I calculate that line would have been around €71,000,000 negative €71,400,000 negative, which will be a substantial Improvement versus the $441,000,000 reported in the 3rd quarter and 617 1,000,000 negative in the Q4 of 2021.

Speaker 9

So I wonder if you can comment a little bit about that delta, which is definitely helped The quarter and I assume from your guidance that it's not going to be such as positive tailwind in the Q1 of 2023.

Speaker 11

Yes, very much so. The components that go into that segment, the corporate and ELIMS number, You've got several different things, administrative costs, you've got interest costs and compensation related costs, the largest of which is profit sharing, which as Leon said, we are thrilled But our team earned almost $1,000,000,000 in profit sharing this year, which will get paid out in March. But the big swing Last quarter to this quarter was really the inventory valuations that occurred in our intercompany e lens. That's why it swung To the positive credit that you see, so that's what we don't expect to have going forward. That's going to be the biggest change between Q4 and as we head into Q1, and there's really 2 components to that, if you start to Looking to your model in a little bit more detail, one part of that was the DRI losses we had, which of course wiped out any profits, Intercompany profits between DRI.

Speaker 11

And the other part is really around volumes. And that was more pronounced in our downstream Steel Products segment than it was anywhere else. We just we shipped a lot Carlos toward the end of the year, even more than we expected. So That's partly why you saw a little bit of increased free cash flow from working capital as well from that factor. And as just to close the loop here between Dave Simosky commented earlier, it's one of the drivers of why Sometimes it's a little complicated to look at our cost when you're looking at a segment and you're trying to dial into steel mill cost.

Speaker 11

Part of those ELIM numbers are actually falling out of that segment number and down into the total corporate ELIMs number as well. So that it does get a little

Operator

Our next question will come from Tristan Gressa with BNP Paribas. Please go ahead.

Speaker 15

Yes. Hi. Thank you for taking my questions. The first one on plate, please. Can you Explain a little bit the strategy and it's kind of a question in 3 parts.

Speaker 15

The first one on the volume side, if I look at plate volumes, so for the year, they're around 1 5,000,000 tonne, usually around 2,000,000 tonne. So how what's the target really with the new facility for 2023? And also if you can Talk a little bit about the mix, the target product mix and market mix for the new facility. The second kind of part of the question is more on prices. When you look at plate prices drift lower, they're still really strong.

Speaker 15

Do you believe that the demand environment you're seeing is kind of warranting those elevated prices and now we're back to kind of a more Normal kind of price cost relationship or do you believe some normalization should still take place there? And finally, with those elevated prices domestically, how do you view the import risk? There has been a new trade case. How do you feel about that? Do you think that the U.

Speaker 15

S. Market is definitely well protected there? So thank you.

Speaker 2

All right. I'm going to begin and then let Al talk more specifically, but I want to begin with telling you Our prices in plate are not elevated and I do look forward to them returning to normal levels closer to $2,000 a ton. And so Being a little facetious with you Tristan, but we don't think they're elevated at all. We think they're we're in a supply and demand environment. And In a commodity business, demand will always dictate pricing.

Speaker 2

And so that is the driver. And so I would again tell you that I'd hear not too long ago on that case. The ITC has found and upheld that sunset review on those countries and so the protections that are in place today, not just on plate, but all of our products is so greatly enhanced from what we saw 6, 7 years ago in 2015, for example, there was only about 50 or 55 trade cases that were won against countries found dumping or Illegally subsidizing their steels today that is closer to 150. And so Regardless of administration, we've had great success in advocating for our industry and holding those countries accountable With countervailing duties or antidumping margins, for bringing again, not just plate, but sheet and rebar and other products into this Country illegally. But Al, you want to touch on, sort of that mix, the strategy for Brandenburg and how

Speaker 13

do you expect to ramp that up?

Speaker 7

Yes. It's a great question, Tristan. There's a lot to unpack there. I'll talk through a few of it and then I may ask Caleb Strother, who's our Director of Commercial for our plate and structural group to talk with a few more But to echo what Leon said, no, certainly not. We think plate prices are Yes, at a range where the market is bearing them and they think they're fair and we don't see them as elevated at all.

Speaker 7

What we did with our Order book or the way we bifurcated our order book through this year, we separated coil and cut to length plate from discrete plate. That was one thing we did To make sure that the highly differentiated product like discrete plate that can only be made at a plate mill collects the premium that is And so that's been largely successful. If you follow the pricing of both of those, and I know you do, you can see that we were able to decouple those 2. So as we sit now, our order book, our mix on plate is about 2 thirds discrete plate and about 1 third coil or cut to length plate. And as Brandenburg comes up, Brandenburg is going to be mainly a discrete plate mill.

Speaker 7

It's got a Steckle mill. It can run coil plate. That will be highly specialized plate, Very value added. We won't run a lot of coiled plate out of Brandenburg, it's discrete plate. So it's going to move our mix to about 75% Great.

Speaker 7

We see that obviously as a good thing. You asked about tons. I'll give you a rough accounting of the tons during ramp up year and then ask Caleb to Chime in on some of the markets, but we're expecting somewhere in the 10,000 to 20,000 ton range of shipments in Q1. So that's the primarily a ramp up quarter. 2nd quarter probably on the range of 100,000 tons and then somewhere in the 200,000 ton range in the second or excuse me, in the 3rd Q4.

Speaker 7

So somewhere in the 500,000 to 600,000 tons, I think we would expect out of Brandenburg this year. Obviously, the market will dictate Part of that, but we would expect to be at run rates capable of capacity by the end of the year. So Caleb, maybe if you want to talk just a little bit about some of the market strategies and some of

Speaker 10

the areas we help penetrate with our broader capabilities. Sure. Thanks, Alan. Thanks, Tristan, for

Speaker 12

the question. Brandenburg brings a whole diversified product mix that we haven't had with our plate group prior. When you're looking at plates up to 14 feet wide, 14 inches thick and 1500 inches long. This helps support a lot of the initiatives that are going on the market. Dan touched on the IRA and the infrastructure package.

Speaker 12

Brandenburg is well suited in the middle of the country to help supply those customers with solutions that our playgroup hasn't been able to offer in the past. Also with our announcement of Elcyon, you look at further advancement and greening of the energy grid that's happening in our country, Brandenburg is well suited to supply the monopile plate that will be required for our U. S. Fabricators and as well as globally around the world for other fabricators.

Speaker 15

All right. That's very helpful. And just a quick follow-up. In terms of Wind and Renewable, how much of the percentage of demand or volumes could that be?

Speaker 2

The percent of the volume out of well, I would just tell you energy roughly around 10% of our overall mix is probably where See, I could ebb and flow a little bit depending on demand and timing, but that's roughly where we were at as a company.

Speaker 15

All right. That's really helpful. And if I may just another one, also kind of big picture, but moving from plate to rebar, Can you discuss a little bit what you're seeing on the market more kind of near term, but also more medium term as you ramp up your new micro mill? And also What's kind of the time line? Is summer 2024 the right kind of timing to think about this facility?

Speaker 15

And the impact of the infrastructure bill, is it something you're looking at to kind of move meaningfully into Q3, Q4, is that the right way to think about it? Thank you.

Speaker 11

Yes. Good afternoon, Tristan. This is John Hollis. Thank you for the question. We feel our portfolio in long products is really going to benefit from what we see coming in 2023 related to the infrastructure build, where the rebar market will grow by 1,500,000 to 2,000,000 tons per year.

Speaker 11

And we're planning on ramping up Armill and Kingman should ramp up about October of 2024 and Lexington in the middle of 2024. So we feel Like we're well positioned to take advantage of that market.

Speaker 2

Yes. The other thing I would add, John, and Tristan, just in closing that, The positioning of Lexington and the overall micro mill strategy is to locate in the Growing regions in the Atlantic Post in that where Lexington, North Carolina sits is going to be Very key in the growth of that sector in that market with proximity to the lowest price scrap and again the customers That will be supplying that strategy, as John pointed out and has been Incredibly important for Nucor that will continue to help shape and again provide the returns that we've seen in rebar and quite frankly of our long products. The other piece is the, you asked about the Infrastructure Act. That We'll take meaningful shape probably 2nd, 3rd, 4th quarter, certainly in the back half of the year. But as Anita mentioned earlier, Make no mistake, the order activity, the quotes, the interest in the Bar Group, our products, Voll Craft, Vercode decking, It's already begun.

Speaker 2

So we're already seeing the pre bids and activity already starting. So again, that's not Just wishing and hoping we're seeing that activity. We're seeing some of the approvals in the bridge and in highway programs actually get funding now And that will have a meaningful and substantive impact. We estimate and most of the outside groups estimate for every $100,000,000,000 in infrastructure, there's going to be about 5,000,000 tons of steel that will flow through. And again, the product breadth and offering that Nucor has today Puts us in an incredibly advantageous position to serve that growing market.

Speaker 15

All right. Thank you very much.

Operator

And this concludes our question and answer session. I'd like to turn the I'll turn the conference back over to Mr. Leon Tepalian for any closing remarks.

Speaker 2

Thank you. In closing, I just want to thank our team for a historic year In delivering the safest and most profitable year of Nucor's history, thank you to our customers who enable our success. We appreciate the trust you place in Nucor with every order and we'll continue to work hard to earn your business. And finally, thank you to our shareholders. We take seriously the stewardship

Operator

The conference has now concluded. Thank you very much for attending today's presentation. You may now disconnect your

Powered by Quartr
Earnings Conference Call
Nucor Q4 2022
00:00 / 00:00