Certain statements made in this Quarterly Report on Form 10-Q, 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; (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 (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, 2020 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 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, 2020.
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, steel grating, tubular products
businesses, piling products business, 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 related assets.
The average utilization rates of all operating facilities in the steel mills,
steel products and raw materials segments were approximately 95%, 74% and 79%,
respectively, in the first quarter of 2021 compared with approximately 89%, 73%
and 73%, respectively, in the first quarter of 2020.
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Results of Operations
The first quarter of 2021 was the most profitable quarter in Nucor's history.
The Company reported record consolidated net earnings of $942.4 million, or
$3.10 per diluted share, in the first quarter of 2021. By comparison, the
Company reported consolidated net earnings of $20.3 million, or $0.07 per
diluted share, in the first quarter of 2020.
In addition to being the most profitable quarter for Nucor as a whole, the first
quarter of 2021 was the most profitable quarter for each segment. The steel
mills segment benefited from strong demand and increased average selling prices.
Our sheet, bar, plate and structural mills had increased profitability in the
first quarter of 2021 as compared to the first quarter of 2020, with the largest
increase by our sheet mills. The steel products segment continued its strong
performance due to the continued strength in nonresidential construction
markets. The raw materials segment's record-setting quarterly profitability was
driven by the strong performance of our scrap brokerage and processing
operations and our DRI facilities.
The impact of the COVID-19 pandemic on our business and results of operations
continued to subside in the first quarter of 2021. Most of the end use markets
we serve remain strong and inventories remain lean across supply chains.
Nonresidential construction markets were resilient during the depths of the
economic turmoil in 2020 caused by the COVID-19 pandemic and have remained
strong in 2021. The automotive market is continuing its recovery from
pandemic-induced lows and the industry has been challenged thus far in 2021 due
to a shortage of semiconductors and severe weather. However, light vehicle
demand is very strong and inventories are low. We continue to see strong demand
in the renewable energy market, and agricultural and heavy equipment are also
showing strength.
Market conditions in the first quarter of 2020 were building off pricing
momentum that began in late 2019. However, the onset of the COVID-19 pandemic
late in the first quarter of 2020 had a negative impact on the markets we serve
and the global economy at large. In addition, Nucor recorded $287.8 million of
losses on assets related to our equity method investment in the Duferdofin Nucor
S.r.l ("Duferdofin Nucor") joint venture in the first quarter of 2020, which we
would ultimately exit in the fourth quarter of 2020.
The following discussion will provide greater quantitative and qualitative
analysis of Nucor's performance in the first quarter of 2021 as compared to the
first quarter of 2020.
Net Sales
Net sales to external customers by segment for the first quarter of 2021 and
2020 were as follows (in thousands):
Three Months (13 Weeks) Ended
April 3, 2021 April 4, 2020 % Change
Steel mills $4,608,777 $3,519,270 31%
Steel products 1,810,055 1,726,854 5%
Raw materials 598,308 378,213 58%
Total net sales $7,017,140 $5,624,337 25%
Net sales for the first quarter of 2021 increased 25% from the first quarter of
2020. Average sales price per ton increased 25% from $783 in the first quarter
of 2020 to $978 in the first quarter of 2021. Total tons shipped to outside
customers in the first quarter of 2021 were 7,176,000 tons, a slight decrease
from the first quarter of 2020.
In the steel mills segment, sales tons for the first quarter of 2021 and 2020
were as follows (in thousands):
Three Months (13 Weeks) Ended
April 3, 2021 April 4, 2020 % Change
Outside steel shipments 5,190 5,182 -
Inside steel shipments 1,354 1,316 3%
Total steel shipments 6,544 6,498 1%
Net sales for the steel mills segment increased 31% in the first quarter of 2021
from the first quarter of 2020, due primarily to a 31% increase in the average
sales price per ton from $680 to $891 as well as a slight increase in tons sold
to outside customers. Average selling prices increased across all product groups
within the steel mills segment in the first quarter of 2021 as compared to the
first quarter of 2020.
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Outside sales tonnage for the steel products segment for the first quarter of
2021 and 2020 was as follows (in thousands):
Three Months (13 Weeks) Ended
April 3, 2021 April 4, 2020 % Change
Joist sales 172 131 31%
Deck sales 135 125 8%
Cold finished sales 132 126 5%
Rebar fabrication sales 282 311 -9%
Piling products sales 136 180 -24%
Tubular products sales 250 287 -13%
Other steel products sales 100 99 1%
Total steel products sales 1,207 1,259 -4%
Net sales for the steel products segment increased 5% in the first quarter of
2021 compared to the first quarter of 2020, due primarily to a 9% increase in
the average sales price per ton from $1,372 to $1,499 which was partially offset
by a 4% decrease in tons sold to outside customers. Average selling price per
ton increased across most businesses within the steel products segment in the
first quarter of 2021 as compared to the first quarter of 2020, most notably at
our tubular products businesses.
Net sales for the raw materials segment increased 58% in the first quarter of
2021 compared to the first quarter of 2020, due primarily to increased average
selling prices and volumes at DJJ's brokerage and scrap processing operations.
In the first quarter of both 2021 and 2020, approximately 88% of outside sales
for the raw materials segment were from the brokerage operations of DJJ and
approximately 9% of outside sales were from the scrap processing operations of
DJJ.
Gross Margins
Nucor recorded gross margins of $1.62 billion (23%) in the first quarter of
2021, which was a significant increase compared with $629.3 million (11%) in the
first quarter of 2020.
• The primary driver for the increase in gross margins in the first quarter
of 2021 as compared to the first quarter of 2020 was increased metal
margin in the steel mills segment. Metal margin is the difference between
the selling price of steel and the cost of scrap and scrap substitutes.
Backlogs for the steel mills segment were strong at the end of the first
quarter of 2021.
Partially offsetting the previously mentioned increase in the average selling
price of steel in the first quarter of 2021 as compared to the first quarter of
2020 was increased scrap and scrap substitute costs. The average scrap and scrap
substitute cost per gross ton used in the first quarter of 2021 was $405, a 38%
increase compared to $293 in the first quarter of 2020.
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 increased
dramatically since the beginning of 2021 and we expect continued volatility in
scrap prices as we begin the second quarter.
• Pre-operating and start-up costs of new facilities decreased to
approximately $19 million in the first quarter of 2021 from approximately
$29 million in the first quarter of 2020. The decrease in pre-operating
and start-up costs was primarily due to the completion of the bar mills in
Missouri and Florida. 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 merchant bar quality
mill expansion at our bar mill in Illinois and the 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 2021 as compared to the first quarter of 2020. The primary driver was
the increased margins at our tubular products, rebar and cold finish
businesses that were partially offset by decreased margins at our deck,
building systems and piling businesses. The largest increase in gross
margin was at our tubular products business. Led by large commercial,
warehouse and data center projects, demand in nonresidential construction
markets continues to be healthy. As we enter the second quarter of 2021,
backlogs for the steel products segment are strong.
• Gross margins in the raw materials segment significantly increased in the
first quarter of 2021 as compared to the first quarter of 2020, primarily
due to rising raw materials selling prices and margin expansion. The
largest improvement in gross margins in the first quarter of 2021 as
compared to the first quarter of 2020 was at our
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DRI facilities. The profitability of DJJ's brokerage and scrap processing
operations also significantly increased in the first quarter of 2021 as
compared to the first quarter of 2020.
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
$136.1 million in the first quarter of 2021 as compared to the first quarter of
2020. This increase was due to Nucor's increased profitability in the first
quarter of 2021 as compared to the prior year period, which resulted in
significantly increased accruals related to profit sharing.
Equity in (Earnings) Losses of Unconsolidated Affiliates
Equity in earnings of unconsolidated affiliates was $13.2 million in the first
quarter of 2021, which compared to equity in losses of unconsolidated affiliates
of $0.8 million in the first quarter of 2020. The increase in equity method
investment earnings from the first quarter of 2020 to the first quarter of 2021
was primarily due to increased earnings at NuMit.
Losses on Assets
Included in the first quarter of 2021 earnings were losses on assets of $6.7
million in the steel products segment.
Included in the first quarter of 2020 earnings were losses on assets of $287.8
million related to our equity method investment in Duferdofin Nucor that we have
since exited. Nucor determined that a triggering event occurred in the first
quarter of 2020 due to adverse developments in the joint venture's commercial
outlook, which were exacerbated by the COVID19 pandemic, all of which
negatively impacted the joint venture's strategic direction.
Interest Expense (Income)
Net interest expense for the first quarter of 2021 and 2020 was as follows (in
thousands):
Three Months (13 Weeks) Ended
April 3, 2021 April 4, 2020
Interest expense $ 40,970 $ 47,596
Interest income (1,326 ) (6,686 )
Interest expense, net $ 39,644 $ 40,910Interest expense decreased in the first quarter of 2021 compared to the first
quarter of 2020 due primarily to an increase in capitalized interest. Interest
income decreased in the first quarter of 2021 compared to the first quarter of
2020 due to a decrease in average interest rates on investments.
Earnings (Loss) Before Income Taxes and Noncontrolling Interests
Earnings (loss) before income taxes and noncontrolling interests by segment for
the first quarter of 2021 and 2020 were as follows (in thousands). The changes
between periods were driven by the quantitative and qualitative factors
previously discussed.
Three Months
(13 Weeks) Ended
April 3, 2021 April 4, 2020
Steel mills $ 1,314,974 $ 156,506
Steel products 211,812 162,559
Raw materials 223,235 (7,911 )
Corporate/eliminations (451,775 ) (164,857 )
$ 1,298,246 $ 146,297
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Noncontrolling Interests
Noncontrolling interests represent the income attributable to the noncontrolling
partners of Nucor's joint ventures, primarily Nucor-Yamato Steel Company
(Limited Partnership) ("NYS") of which Nucor owns 51%. The increase in earnings
attributable to noncontrolling interests in the first quarter of 2021 as
compared to the first quarter of 2020 was primarily due to the increased
earnings of NYS, which was a result of the increased metal margin per ton in the
first quarter of 2021 as compared to the first quarter of 2020. 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 both 2021 and 2020, 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 2021 was 23.9% as compared to
62.8% for the first quarter of 2020. The effective tax rate for the first
quarter of 2020 was elevated, relative to the first quarter of 2021, primarily
due to a $250.0 million non-cash impairment charge to an equity method
investment which had no corresponding impact to the provision for income taxes.
The expected effective tax rate for the full year of 2021 is approximately
23.6%.
We estimate that in the next 12 months our gross unrecognized tax benefits,
which totaled $53.0 million at April 3, 2021, exclusive of interest, could
decrease by as much as $5.0 million as a result of the expiration of the statute
of limitations and 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 2019 remain open to
examination by the Internal Revenue Service. The 2015 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 2014 through 2019
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 $942.4 million, or $3.10 per diluted
share, in the first quarter of 2021 as compared to consolidated net earnings of
$20.3 million, or $0.07 per diluted share, in the first quarter of 2020. Net
earnings attributable to Nucor stockholders as a percentage of net sales were
13.4% and 0.4% in the first quarter of 2021 and 2020, respectively. Annualized
return on average stockholders' equity was 33.9% and 0.8% in the first quarter
of 2021 and 2020, respectively.
Outlook
We expect earnings in the second quarter of 2021 to be the highest quarterly
earnings in Nucor history, surpassing the record set in the first quarter of
2021. The primary drivers for the expected increase in earnings in the second
quarter of 2021 as compared to the first quarter of 2021 are improved pricing
and margins in the steel mills segment. The segment's largest increases in
performance are expected at our sheet and plate mills. The steel products
segment is expected to have another strong quarter in the second quarter of 2021
that will be comparable to the first quarter of 2021. The profitability of the
raw materials segment is expected to decrease in the second quarter of 2021 as
compared to the first quarter of 2021 due to rising raw materials input costs.
Nucor's largest exposure to market risk is via our steel mills and steel
products segments. Our largest single customer in the first quarter of 2021
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.
Liquidity and Capital Resources
Nucor operates a capital-intensive business in highly cyclical markets. We
therefore utilize conservative financial practices that maximize our financial
strength during economic downturns like the one we experienced as a result of
the COVID-19 pandemic. Our liquidity position, consisting of cash and cash
equivalents, short-term investments and restricted cash and cash equivalents,
remained strong at $2.98 billion as of April 3, 2021. Additionally, Nucor has no
significant debt maturities until September 2022.
We believe that our conservative financial practices have served us well in the
past and are serving us well today. Nucor's financial strength allows for a
consistent, balanced approach to capital allocation throughout the business
cycle.
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Nucor's highest capital allocation priority is to reinvest in our business to
ensure our continued profitable growth over the long term. We have historically
done this by investing to optimize our existing operations, initiate greenfield
expansions and make acquisitions. Our second priority is to return capital to
our stockholders through cash dividends and share repurchases. We intend to
return a minimum of 40% of our net earnings to our stockholders, while
maintaining a debt-to-capital ratio that supports a strong investment grade
credit rating. In September 2018, Nucor's Board of Directors approved a share
repurchase program under which the Company is authorized to repurchase up to
$2.00 billion of its common stock. As of April 3, 2021, the Company had
approximately $857.5 million remaining for share repurchases under the program.
Cash provided by operating activities was $530.4 million in the first quarter of
2021 as compared to $201.2 million in the first quarter of 2020. Net earnings
improved by $933.1 million over the prior year period. Included in the first
quarter of 2020 was a non-cash loss on assets of $287.8 million related to our
previously held equity method investment in Duferdofin Nucor. In addition,
changes in operating assets and operating liabilities (exclusive of
acquisitions) used cash of $734.2 million in the first quarter of 2021 compared
with $366.7 million in the first quarter of 2020. The funding of our working
capital in the first quarter of 2021 increased over the first quarter of 2020
mainly due to larger increases in inventories and accounts receivable from
year-end 2020 than the increase from year-end 2019 to the end of the first
quarter of 2020. Inventories increased due to a 27% increase in the cost of
scrap and scrap substitutes in inventory on hand from year-end 2020 to the end
of the first quarter of 2021, as compared to a 4% increase in the cost of scrap
and scrap substitutes during the same prior year period. Accounts receivable
increased in the first quarter of 2021 from the fourth quarter of 2020 due to a
21% increase in composite sales price for the quarter and an 11% increase in
tons shipped to outside customers, whereas the first quarter of 2020 saw a
similar increase in tons shipped to outside customers from year-end 2019, but
composite sales price was flat quarter-over-quarter.
The current ratio was 3.5 at the end of the first quarter of 2021 and 3.6 at
year-end 2020. The current ratio decreased slightly due to the following: a 38%
decrease in other current assets, most notably the federal income tax
receivable; a 16% increase in accounts payable driven by the previously
discussed increased inventory costs; and a 14% increase in salaries, wages and
related accruals due to increased profit sharing accruals resulting from the
increased earnings of the Company. Partially offsetting these items were a 23%
and 22% increase in accounts receivable and inventories, respectively, due to
the previously discussed increases in inventory costs and selling prices. In the
first three months of both 2021 and 2020, accounts receivable turned
approximately every five weeks and inventories turned approximately every 10
weeks.
Cash used in investing activities during the first three months of 2021 was
$302.0 million as compared to $254.9 million in the prior year period. Nucor
purchased $214.4 million of investments in the first three months of 2021, as
opposed to $24.7 million in the first three months of 2020. Offsetting the
increase in cash used for purchasing investments was a 25%, or $103.0 million,
decrease in capital expenditures during the first quarter of 2021 as compared to
the first quarter of 2020. The decrease in capital expenditures was primarily
related to completion of three significant strategic growth projects in 2020:
the micro mill in Sedalia, Missouri; the rolling mill upgrade in Kankakee,
Illinois; and the micro mill in Frostproof, Florida. The first quarter of 2021
also benefitted from an additional $41.0 million of cash provided by the sale of
investments when compared to the prior year period.
Cash used in financing activities during the first three months of 2021 was
$410.7 million as compared to $228.6 million in the prior year period. Stock
repurchases were $301.9 million in the first three months of 2021 as compared to
$39.5 million in the first three months of 2020. Offsetting the increase in cash
used for acquisition of stock was $107.5 million of proceeds from the exercise
of stock options.
Nucor's $1.50 billion revolving credit facility is undrawn and was amended and
restated in April 2018 to extend the maturity date to April 2023. 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 credit facility includes only one financial covenant, which is a limit of
60% on the ratio of funded debt to total capitalization. In addition, the credit
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 3, 2021, our funded debt to total
capital ratio was 31% and we were in compliance with all non-financial covenants
under our credit facility. No borrowings were outstanding under the credit
facility as of April 3, 2021.
Our financial strength allows a number of capital preservation options. Nucor's
robust capital investment and maintenance practices give us the flexibility to
reduce spending by prioritizing our capital projects, potentially rescheduling
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certain projects and selectively allocating capital to investments with the
greatest impact on our long-term earnings power. Capital expenditures for 2021
are estimated to be around $2.00 billion as compared to $1.53 billion in 2020.
The projects that we anticipate will have the largest capital expenditures in
2021 are the hot band galvanizing line at Nucor Steel Arkansas, the sheet mill
expansion at Nucor Steel Gallatin, and the plate mill under construction in
Brandenburg, Kentucky.
In February 2021, Nucor's Board of Directors declared a quarterly cash dividend
on Nucor's common stock of $0.405 per share payable on May 11, 2021 to
stockholders of record on March 31, 2021. This dividend is Nucor's 192nd
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.
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