Certain statements made in this report, or in other public filings, press
releases, or other written or oral communications made by Nucor, which are not
historical facts are forward-looking statements subject to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements involve risks and uncertainties which we expect will
or may occur in the future and may impact our business, financial condition and
results of operations. The words "anticipate," "believe," "expect," "intend,"
"project," "may," "will," "should," "could" and similar expressions are intended
to identify those forward-looking statements. These forward-looking statements
reflect the Company's best judgment based on current information, and, although
we base these statements on circumstances that we believe to be reasonable when
made, there can be no assurance that future events will not affect the accuracy
of such forward-looking information. As such, the forward-looking statements are
not guarantees of future performance, and actual results may vary materially
from the projected results and expectations discussed in this report. Factors
that might cause the Company's actual results to differ materially from those
anticipated in forward-looking statements include, but are not limited to: (1)
competitive pressure on sales and pricing, including pressure from imports and
substitute materials; (2) U.S. and foreign trade policies affecting steel
imports or exports; (3) the sensitivity of the results of our operations to
prevailing market steel prices and changes in the supply and cost of raw
materials, including pig iron, iron ore and scrap steel; (4) the availability
and cost of electricity and natural gas, which could negatively affect our cost
of steel production or result in a delay or cancellation of existing or future
drilling within our natural gas drilling programs; (5) critical equipment
failures and business interruptions; (6) market demand for steel products,
which, in the case of many of our products, is driven by the level of
nonresidential construction activity in the United States; (7) impairment in the
recorded value of inventory, equity investments, fixed assets, goodwill or other
long-lived assets; (8) uncertainties surrounding the global economy, including
excess world capacity for steel production, inflation and interest rate changes;
(9) fluctuations in currency conversion rates; (10) significant changes in laws
or government regulations affecting environmental compliance, including
legislation and regulations that result in greater regulation of greenhouse gas
emissions that could increase our energy costs, capital expenditures and
operating costs or cause one or more of our permits to be revoked or make it
more difficult to obtain permit modifications; (11) the cyclical nature of the
steel industry; (12) capital investments and their impact on our performance;
(13) our safety performance; (14) the impact of the COVID-19 pandemic and any
variants of the virus; and (15) the risks discussed in "Item 1A. Risk Factors"
of the Company's Annual Report on Form 10-K for the year ended December 31, 2021
and elsewhere in this report.
Caution should be taken not to place undue reliance on the forward-looking
statements included in this report. We assume no obligation to update any
forward-looking statements except as may be required by law. In evaluating
forward-looking statements, these risks and uncertainties should be considered,
together with the other risks described from time to time in our reports and
other filings with the United States Securities and Exchange Commission.
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the unaudited condensed
consolidated financial statements and the notes thereto included elsewhere in
this report, as well as the audited consolidated financial statements and the
notes thereto, "Item 1A. Risk Factors" and "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations" contained in Nucor's
Annual Report on Form 10-K for the year ended December 31, 2021.
Overview
Nucor and its affiliates manufacture steel and steel products. Nucor also
produces DRI for use in its steel mills. Through DJJ, the Company also processes
ferrous and nonferrous metals and brokers ferrous and nonferrous metals, pig
iron, hot briquetted iron and DRI. Most of Nucor's operating facilities and
customers are located in North America. Nucor's operations include international
trading and sales companies that buy and sell steel and steel products
manufactured by the Company and others. Nucor is North America's largest
recycler, using scrap steel as the primary raw material in producing steel and
steel products.
Nucor reports its results in the following segments: steel mills, steel products
and raw materials. The steel mills segment includes carbon and alloy steel in
sheet, bars, structural and plate; steel trading businesses; rebar distribution
businesses; and Nucor's equity method investments in NuMit and Nucor-JFE. The
steel products segment includes steel joists and joist girders, steel deck,
fabricated concrete reinforcing steel, cold finished steel, precision castings,
steel fasteners, metal building systems, insulated metal panels, steel grating,
tubular products, steel racking, piling products, and wire and wire mesh. The
raw materials segment includes DJJ, primarily a scrap broker and processor;
Nu-Iron Unlimited and Nucor Steel Louisiana, two facilities that produce DRI
used by the steel mills; and our natural gas production operations.
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On February 1, 2022, Nucor used cash on hand to acquire a 51% controlling
ownership position in CSI for a cash purchase price of approximately $400.0
million, adjusted for net debt and working capital at closing. CSI is a
flat-rolled steel converter with the capability to produce more than two million
tons of finished steel and steel products annually. The company has five product
lines, including hot rolled, pickled and oiled, cold rolled, galvanized and ERW
pipe. Key end-use markets served by CSI include customers in the construction,
service center and energy industries. This acquisition gives Nucor a strong
presence in the Western region of the United States and grows our ability to
produce an even wider range of value-added sheet products. CSI financial results
were included as part of the steel mills segment beginning on February 1, 2022,
the date of the acquisition of Nucor's 51% controlling ownership position.
The average utilization rates of all operating facilities in the steel mills,
steel products and raw materials segments were approximately 77%, 73% and 72%,
respectively, in the first quarter of 2022 compared with approximately 95%, 74%
and 79%, respectively, in the first quarter of 2021.
Results of Operations
Nucor reported consolidated net earnings of $2.10 billion, or $7.67 per diluted
share, in the first quarter of 2022, making it the most profitable first quarter
in the Company's history. By comparison, Nucor reported consolidated net
earnings of $942.4 million, or $3.10 per diluted share in the first quarter of
2021, which was the Company's previous record for first quarter earnings. Nucor
reported consolidated net earnings of $2.25 billion, or $7.97 per diluted share,
in the fourth quarter of 2021, which was the most profitable quarter in the
Company's history.
Demand remained robust in the first quarter of 2022 across the key end-use
markets we serve, a continuation of the trend that we saw throughout 2021.
Average selling prices for our steel mills and steel products segments increased
rapidly during 2021, and the Company's profitability increased during the first
quarter of 2022 as compared to the first quarter of 2021.
Earnings in the first quarter of 2022 decreased from the fourth quarter of 2021
primarily due to the decreased earnings of the steel mills segment, which was
impacted by some demand softening at our sheet mills. This softening demand,
combined with increased imports and higher customer inventory levels, led to
decreased average selling prices for sheet products in the first quarter of
2022. However, overall selling prices in the steel mills segment increased later
in the first quarter due in part to the supply chain disruptions caused by the
conflict in Ukraine. The steel products segment had a record quarter for
profitability in the first quarter of 2022 as demand in nonresidential
construction markets continued to be strong. Earnings in the raw materials
segment increased in the first quarter of 2022 as compared to the fourth quarter
of 2021 due to volatility and market conditions.
The following discussion provides a greater quantitative and qualitative
analysis of Nucor's performance in the first quarter of 2022 as compared to the
first quarter of 2021.
Net Sales
Net sales to external customers by segment for the first quarter of 2022 and
2021 were as follows (in thousands):
Three Months (13 Weeks) Ended
April 2, 2022 April 3, 2021 % Change
Steel mills $6,518,609 $4,608,777 41%
Steel products 3,323,088 1,810,055 84%
Raw materials 651,585 598,308 9%
Total net sales to external customers $10,493,282 $7,017,140 50%
Net sales for the first quarter of 2022 increased 50% from the first quarter of
2021. Average sales price per ton increased 68% from $978 in the first quarter
of 2021 to $1,641 in the first quarter of 2022. Total tons shipped to outside
customers in the first quarter of 2022 were 6,394,000 tons, an 11% decrease from
the first quarter of 2021.
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In the steel mills segment, sales tons for the first quarter of 2022 and 2021
were as follows (in thousands):
Three Months (13 Weeks) Ended
April 2, 2022 April 3, 2021 % Change
Outside steel shipments 4,539 5,190 -13%
Inside steel shipments 1,275 1,354 -6%
Total steel shipments 5,814 6,544 -11%
Net sales for the steel mills segment increased 41% in the first quarter of 2022
from the first quarter of 2021, due primarily to a 61% increase in the average
sales price per ton, from $891 to $1,436, partially offset by a 13% decrease in
tons sold to outside customers. Average selling prices increased across all
product groups within the steel mills segment in the first quarter of 2022 as
compared to the first quarter of 2021.
Outside sales tonnage for the steel products segment for the first quarter of
2022 and 2021 was as follows (in thousands):
Three Months (13 Weeks) Ended
April 2, 2022 April 3, 2021 % Change
Joist sales 179 172 4%
Deck sales 136 135 1%
Cold finished sales 133 132 1%
Rebar fabrication sales 291 282 3%
Piling products sales 111 136 -18%
Tubular products sales 255 250 2%
Other steel products sales 130 100 30%
Total steel products sales 1,235 1,207 2%
Net sales for the steel products segment increased 84% in the first quarter of
2022 compared to the first quarter of 2021, due to a 79% increase in the average
sales price per ton from $1,499 to $2,689 and a 2% increase in tons sold to
outside customers. Average selling prices increased across all businesses within
the steel products segment in the first quarter of 2022 as compared to the first
quarter of 2021.
Net sales for the raw materials segment increased 9% in the first quarter of
2022 compared to the first quarter of 2021. The increase in net sales was due
primarily to increased average selling prices, which were partially offset by a
decrease in volumes at DJJ's brokerage and scrap processing operations. In the
first quarter of 2022, approximately 91% of outside sales for the raw materials
segment were from the brokerage operations of DJJ, and approximately 7% of
outside sales were from the scrap processing operations of DJJ (88% and 9%,
respectively, in the first quarter of 2021).
Gross Margins
Nucor recorded gross margins of $3.46 billion (33%) in the first quarter of
2022, which was a significant increase compared with $1.62 billion (23%) in the
first quarter of 2021.
• The primary driver for the increase in gross margins in the first quarter of
2022 as compared to the first quarter of 2021 was increased metal margins in
the steel mills segment. Metal margin is the difference between the selling
price of steel and the cost of scrap and scrap substitutes.
Scrap and scrap substitutes are the most significant element in the total cost
of steel production. The average scrap and scrap substitute cost per gross ton
used in the first quarter of 2022 was $495, a 22% increase compared to $405 in
the first quarter of 2021. The increase in the average scrap and scrap
substitute cost per gross ton used was more than offset by the previously
mentioned increases in average selling prices.
Scrap prices are driven by the global supply and demand for scrap and other
iron-based raw materials used to make steel. Scrap prices have been volatile as
the conflict in Ukraine has disrupted global supply chains. We believe that
scrap markets will continue to be volatile in the second quarter of 2022.
• Pre-operating and start-up costs of new facilities were approximately $62
million in the first quarter of 2022 and approximately $19 million in the
first quarter of 2021. Pre-operating and start-up costs in the first quarter
of 2022 included costs related to the sheet mill expansion in Kentucky, the
plate mill being built in Kentucky and the galvanizing line at our sheet
mill expansion in Arkansas. Pre-operating and start-up costs in the first
quarter of 2021 included costs related to the plate mill being built in
Kentucky, the sheet mill expansion in Kentucky, the
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merchant bar quality mill expansion at our bar mill in Illinois and the
galvanizing line at our sheet mill expansion in Arkansas. Nucor defines
pre-operating and start-up costs, all of which are expensed, as the losses
attributable to facilities or major projects that are either under
construction or in the early stages of operation. Once these facilities or
projects have attained a utilization rate that is consistent with our
similar operating facilities, they are no longer considered by Nucor to be
in start-up.
• Gross margins in the steel products segment increased in the first quarter
of 2022 as compared to the first quarter of 2021. The largest increase in
gross margins was at our joist and deck businesses. Demand in nonresidential
construction markets continues to be strong. As we enter the second quarter
of 2022, backlogs for the steel products segment are strong.
• Gross margins in the raw materials segment decreased in the first quarter of
2022 as compared to the first quarter of 2021, primarily due to decreased
margins at our DRI facilities, which had strong profitability in the first
quarter of 2021.
Marketing, Administrative and Other Expenses
A major component of marketing, administrative and other expenses is profit
sharing and other incentive compensation costs. These costs, which are based
upon and fluctuate with Nucor's financial performance, increased by
$157.1 million in the first quarter of 2022 as compared to the first quarter of
2021. This increase was due to Nucor's increased profitability in the first
quarter of 2022 as compared to the prior year period, which resulted in
significantly increased accruals related to profit sharing.
Equity in Earnings of Unconsolidated Affiliates
Equity in earnings of unconsolidated affiliates was $7.7 million and $13.2
million in the first quarter of 2022 and 2021, respectively. The decrease in
equity method investment earnings was primarily due to decreased earnings at
Nucor-JFE.
Interest Expense (Income)
Net interest expense for the first quarter of 2022 and 2021 was as follows (in
thousands):
Three Months (13 Weeks) Ended
April 2, 2022 April 3, 2021
Interest expense $ 44,076 $ 40,970
Interest income (941 ) (1,326 )
Interest expense, net $ 43,135 $ 39,644Interest expense increased in the first quarter of 2022 compared to the first
quarter of 2021 due primarily to an increase in average debt outstanding.
Interest income decreased in the first quarter of 2022 compared to the first
quarter of 2021 due to a decrease in average interest rates on investments.
Earnings Before Income Taxes and Noncontrolling Interests
The table below presents earnings before income taxes and noncontrolling
interests by segment for the first quarter of 2022 and 2021 (in thousands). The
changes between periods were driven by the quantitative and qualitative factors
previously discussed.
Three Months (13 Weeks) Ended
April 2, 2022 April 3, 2021
Steel mills $ 2,578,854 $ 1,314,974
Steel products 684,867 211,812
Raw materials 95,853 223,235
Corporate/eliminations (461,459 ) (451,775 )
$ 2,898,115 $ 1,298,246
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Noncontrolling Interests
Noncontrolling interests represent the income attributable to the holders of
noncontrolling interests in Nucor's joint ventures, NYS and CSI, in both of
which Nucor owns 51% controlling interests. The increase in earnings
attributable to noncontrolling interests in the first quarter of 2022 as
compared to the first quarter of 2021 was due to the increased earnings of NYS,
which was a result of the increased metal margins, as well as the earnings of
CSI, for which results were consolidated beginning on February 1, 2022, the date
of the acquisition of Nucor's 51% controlling ownership position.
Under the NYS limited partnership agreement, the minimum amount of cash to be
distributed each year to the partners is the amount needed by each partner to
pay applicable U.S. federal and state income taxes. In the first quarter of 2022
and 2021, the amount of cash distributed to noncontrolling interest holders
exceeded the earnings attributable to noncontrolling interests based on mutual
agreement of the general partners.
Provision for Income Taxes
The effective tax rate for the first quarter of 2022 was 23.2% compared to 23.9%
for the first quarter of 2021. The expected effective rate for the full year of
2022 is approximately 23.5%.
We estimate that in the next 12 months our gross unrecognized tax benefits,
which totaled $118.0 million at April 2, 2022, exclusive of interest, could
decrease by as much as $10.4 million as a result of the expiration of the
statute of limitations and the closures of examinations, substantially all of
which would impact the effective tax rate.
Nucor has concluded U.S. federal income tax matters for tax years through 2014
and for tax year 2016. The tax years 2015 and 2017 through 2020 remain open to
examination by the Internal Revenue Service. The 2015 and 2018 Canadian income
tax returns for Harris Steel Group Inc. and certain related affiliates are
currently under examination by the Canada Revenue Agency. The tax years 2015
through 2020 remain open to examination by other major taxing jurisdictions to
which Nucor is subject (primarily Canada and other state and local
jurisdictions).
Net Earnings Attributable to Nucor Stockholders and Return on Equity
Nucor reported consolidated net earnings of $2.10 billion, or $7.67 per diluted
share, in the first quarter of 2022 as compared to consolidated net earnings of
$942.4 million, or $3.10 per diluted share, in the first quarter of 2021. Net
earnings attributable to Nucor stockholders as a percentage of net sales were
20.0% and 13.4% in the first quarter of 2022 and 2021, respectively. Annualized
return on average stockholders' equity was 57.4% and 33.9% in the first quarter
of 2022 and 2021, respectively.
Outlook
End-use market demand remains strong for steel and steel products, and we remain
confident that 2022 will be another year of strong earnings and cash flow
for Nucor.
We expect that the second quarter of 2022 will be the most profitable quarter
in Nucor's history, surpassing the previous record set in the fourth quarter of
2021.
We expect that second quarter earnings will be driven by increased profitability
in the steel products segment, which continues to benefit from robust demand in
nonresidential construction markets. In addition, the steel mills segment
earnings are expected to strengthen due primarily to increased profitability at
our sheet and plate mills. Similarly, Nucor's raw materials segment is expected
to generate increased profits in the second quarter due to relatively higher
selling prices for raw materials.
Nucor's largest exposure to market risk is in our steel mills and steel products
segments. Our largest single customer in the first quarter of 2022 represented
approximately 5% of sales and has consistently paid within terms. In the raw
materials segment, we are exposed to price fluctuations related to the purchase
of scrap and scrap substitutes, pig iron and iron ore. Our exposure to market
risk is mitigated by the fact that our steel mills use a significant portion of
the products of the raw materials segment.
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Liquidity and Capital Resources
We believe our financial strength is a key strategic advantage among domestic
steel producers, particularly during recessionary business cycles. We carry the
highest credit ratings of any steel producer headquartered in North America,
with an A- long-term rating from Standard & Poor's and a Baa1 long-term rating
from Moody's. Our credit ratings are dependent, however, upon a number of
factors, both qualitative and quantitative, and are subject to change at any
time. The disclosure of our credit ratings is made in order to enhance
investors' understanding of our sources of liquidity and the impact of our
credit ratings on our cost of funds.
Our liquidity position as of April 2, 2022 remained strong, consisting of total
cash and cash equivalents, short-term investments and restricted cash and cash
equivalents of $4.26 billion as of such date compared to $2.76 billion as of
December 31, 2021. Of these totals, the amount of restricted cash and cash
equivalents was $88.2 million at April 2, 2022 and $143.8 million at December
31, 2021. Approximately $504.6 million of the cash and cash equivalents position
at April 2, 2022, was held by our majority-owned and controlled subsidiaries,
including CSI which was acquired on February 1, 2022, as compared to
$540.3 million at December 31, 2021.
Cash provided by operating activities was $2.47 billion in the first quarter of
2022 as compared to $530.4 million in the first quarter of 2021. The $1.94
billion increase was primarily driven by net earnings of $2.23 billion for the
first quarter of 2022, an increase of $1.24 billion over net earnings in the
prior year period of $987.5 million. In addition, changes in operating assets
and operating liabilities (exclusive of acquisitions) provided cash of $6.7
million in the first quarter of 2022 as compared to using cash of $734.2 million
in the first quarter of 2021.
The funding of our working capital in the first quarter of 2022 decreased over
the first quarter of 2021 mainly due to accounts receivable and inventories only
increasing by 7% and 4%, respectively, as compared to 23% and 22%, respectively,
in the first quarter of 2021. As a result, the change in accounts receivable
only used cash of $92.4 million in the first quarter of 2022 as compared to
$524.6 million in the first quarter of 2021. The change in inventories provided
cash of $124.2 million in the first quarter of 2022 as compared to using cash of
$795.9 million in the same period of 2021. The increase in accrued federal
income taxes provided cash of $672.1 million compared to the change in federal
income taxes providing cash of $200.9 million in the first quarter of 2021.
These changes were offset primarily by the following: (i) the change in
salaries, wages and related accruals using cash of $658.3 million in the first
quarter of 2022 as 2021 incentive compensation was paid versus providing cash of
$69.8 million in the first quarter of 2021; and (ii) the change in accounts
payable using cash of $165.5 million in the first quarter of 2022 as compared to
providing cash of $225.3 million in the same period of 2021.
The current ratio was 2.9 at the end of the first quarter of 2022 and 2.5 at
year-end 2021. The current ratio increased primarily due to the following
increases in current assets: a 58%, or $1.36 billion, increase in cash and cash
equivalents, a 77%, or $193.9 million, increase in short-term investments, a 7%,
or $257.5 million, increase in accounts receivable, and a 4%, or $234.5 million,
increase in inventories. Additionally, salaries, wages and related accruals
decreased by 44%, or $662.2 million, as 2021 incentive compensation accrued as
of year-end 2021 was paid in the first quarter of 2022.
Cash used in investing activities during the first quarter of 2022 was $981.7
million as compared to $302.0 million in the prior year period. Cash used for
acquisitions (net of cash acquired) increased by $347.5 million due to the
acquisition of CSI on February 1, 2022. Additionally, cash used to purchase
investments increased by $59.8 million and cash proceeds from the sale of
investments decreased by $139.4 million over the same period of 2021. Finally,
cash used for capital expenditures of $447.7 million in the first quarter of
2022 increased by $134.2 million over the same period of 2021 primarily due to
the plate mill under construction in Kentucky, the sheet mill expansion in
Kentucky and the sheet mill in West Virginia. Capital expenditures
for 2022 are estimated to be around $2.35 billion as compared to $1.62 billion
in 2021. The projects that we anticipate will have the largest capital
expenditures in 2022 are the plate mill under construction in Brandenburg,
Kentucky and the sheet mill in West Virginia.
Cash used in financing activities during the first quarter of 2022 was $189.3
million as compared to $410.7 million in the prior year period. Stock
repurchases were $905.3 million in the first quarter of 2022 as compared to
$301.9 million in the first quarter of 2021 and distributions to noncontrolling
interests were $211.6 million in the first quarter of 2022 as compared to $73.8
million in the first quarter of 2021. Offsetting these uses of cash was cash
provided from the issuance and sale of the Notes, net of the discount, of $1.09
billion in the first quarter of 2022 (none in the same period of 2021). In the
first quarter of 2022, Nucor issued $550.0 million of the 2032 Notes and $550.0
million of the 2052 Notes. In April 2022, we redeemed all $500.0 million
aggregate principal of the 2023 Notes.
Nucor's $1.75 billion revolving credit facility matures on November 5, 2026. The
revolving credit facility includes only one financial covenant, which is a limit
of 60% on the ratio of funded debt to total capital. In addition, the revolving
credit
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facility contains customary non-financial covenants, including a limit on
Nucor's ability to pledge the Company's assets and a limit on consolidations,
mergers and sales of assets. As of April 2, 2022, the funded debt to total
capital ratio was 29.7% and we were in compliance with all non-financial
covenants under the revolving credit facility. No borrowings were outstanding
under the revolving credit facility as of April 2, 2022.
In February 2022, Nucor's Board of Directors declared a quarterly cash dividend
on Nucor's common stock of $0.50 per share payable on May 11, 2022 to
stockholders of record on March 31, 2022. This dividend is Nucor's
196th consecutive quarterly cash dividend.
Funds provided from operations, cash and cash equivalents, short-term
investments, restricted cash and cash equivalents and new borrowings under our
existing credit facilities are expected to be adequate to meet future capital
expenditure and working capital requirements for existing operations for at
least the next 24 months. We also believe we have adequate access to capital
markets for liquidity purposes. In September 2022, $600.0 million aggregate
principal amount of the 2022 Notes will mature, which we expect to redeem
in-full prior to that time using a portion of the net proceeds from the sale of
the Notes, along with cash on hand, if necessary.
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