Yahoo Finance Nucor Corporation (NYSE:NUE) Q1 2024 Earnings Call Transcript
Nucor Corporation (NYSE:NUE) Q1 2024 Earnings Call Transcript April 23, 2024
Nucor Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning, and welcome to Nucor's First Quarter 2024 Earnings Call. [Operator Instructions] and today's call is being recorded. [Operator Instructions] I would now like to introduce Jack Sullivan, General Manager of Nucor Investor relations. You may begin your call.
Jack Sullivan: Thank you, and good morning, everyone. Welcome to Nucor's first quarter 2024 earnings review and business update. Leading our call today is Leon Topalian, 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, including Dave Sumoski, Chief Operating Officer; Al Behr, responsible for Plate and Structural Products; Brad Ford over Fabricated Construction Products; Noah Hanners, Raw Materials; John Hollatz, Bar and Rebar Fabrication; Doug Jellison, Corporate Strategy; Greg Murphy, Business Services, Sustainability and General Counsel; Dan Needham, Commercial; Rex Query, Sheet Products; and Chad Utermark, New Products and Innovation.
We have posted our first quarter earnings release and presentation to the Nucor Investor Relations website and we encourage you to access these materials as we will cover portions of them during the call. 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 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.
Leon Topalian: Thanks, Jack and welcome everyone. I'd like to begin by congratulating our 32,000 Nucor teammates for a safe and profitable start to 2024. In the first quarter, we generated EBITDA of approximately $1.5 billion and net earnings of $845 million or $3.46 per diluted share. For the quarter, we shipped a total of 6.2 million tons to outside customers, up 5% from the prior quarter and in line with our average quarterly shipments for 2023. Pricing also remained strong in the first quarter. Average steel mill pricing per ton was up nearly 10% compared to the prior quarter and slightly ahead of the average for all of 2023. For steel products, realized prices continue to moderate. However, prices have held consistently above pre-pandemic levels and will continue to generate robust returns.
In keeping with our commitments to shareholders and our balanced approach to capital allocation, Nucor returned over $1.1 billion to shareholders through dividend payments and share repurchases in the first quarter. We made good progress on key capital investment projects during the quarter. And as we have mentioned previously, our capital spending will increase this year as we get further along in the construction phase of our West Virginia Sheet Mill and our Lexington, North Carolina rebar micro mill. We're also advancing work on 2 downstream production facilities that are part of our Nucor Towers and Structures growth platform. On the safety front, our team delivered the safest quarter in Nucor's history with an injury and illness rate roughly 30% lower than that of Q1 last year.
I'm incredibly proud of the steady progress we have been making since 2017 to drive down the number of safety incidents we experience. Our goal to become the world's safest steel company will require the steadfast determination, innovation and continuous improvement in how we operate. We have the most capable team assembled anywhere in the world who are all focused on delivering these results and taking great care of one another, our customers and shareholders. Building on our leadership position and sustainability continues to be a high priority and we kicked off 2024 with several exciting initiatives. In March, we signed an agreement with Mercedes Benz to supply Econiq-RE for vehicles produced at its Tuscaloosa, Alabama manufacturing plant.
The Econiq-RE is made with 100% renewable energy and has a greenhouse gas intensity less than half that of extractive blast furnace based steel production across scopes 1, 2 and 3. Our agreement with Mercedes Benz is another example of how we're partnering with world class customers to reduce carbon emissions within their supply chain. We also announced a new initiative with Google and Microsoft to scale the adoption of clean energy technologies. Developers of such technologies often struggle to find creditworthy and large-scale energy customers to advance early stage projects. We aim to lower these obstacles by aggregating our energy needs with others like Google and Microsoft that will seek affordable, reliable and cleaner forms of energy.
Going forward, we'll be working with energy providers, policymakers and other large energy consumers to advance this work. Nucor continues to receive recognition for our sustainability efforts. Earlier this year, Barron's Magazine designated Nucor the only steel company ranked among its top 100 most sustainable companies. Congratulations to our entire Nucor team for this well-deserved recognition of your commitment to operating sustainably each and every day. Turning to our commercial strategy, we're always looking for better ways to serve our customers, which has led us to introduce weekly pricing updates for our hot rolled coil sheet products. Nucor's consumer spot price or CSP for short will provide customers with reliable real time pricing information for hot rolled coil.
The CSP will provide our customers with better information to make better decisions to meet their needs. Having real time pricing coupled with shorter lead times will help our customers reduce the risks inherent in price speculation. While the CSP pricing framework has only been in place for a few weeks, the customer feedback thus far has been positive. On the corporate strategy front, 2024 is off to a productive start. We recently announced the acquisition of Southwest Data Products, a reputable manufacturer and installer of data center infrastructure with an impressive blue chip customer base. With that, I'd like to welcome the 147 team members at Southwest Data Products to the Nucor family. In conjunction with this transaction, we're launching a new business unit, Nucor Data Systems to better serve the data center market.
Southwest Data Products gives Nucor expanded capabilities in airflow containment structures, which help data centers run more efficiently by separating cold air from the heat generated by racks of server equipment. The team at Southwest has a strong reputation for engineering and manufacturing high quality products and installing them in a timely and professional way. They have also deep relationships with many of the largest data center, co-developers and hyperscalers, which Nucor can leverage to cross sell our other downstream products. The rise of artificial intelligence and the growing reliance on cloud computing are driving strong demand for the next generation data centers, and this market is expected to grow at double-digit annual rates through the end of this decade.
We continue to evaluate other acquisition opportunities in high growth sectors, and we have a robust pipeline of compelling prospects aligned with steel adjacent growth trends. Before turning it over to Steve, I'd like to take a moment to comment on recent updates to our nation's trade enforcement policy. Earlier this month, I attended a World Steel Association meeting, where I currently serve as Chair. And during that meeting, we discussed the ongoing challenges posed by global production overcapacity. The U.S. Commerce Department recently published a final rule designed to strengthen its antidumping and countervailing duty regulations. These rule changes are a positive development for Nucor and the entire steel industry as they strengthen the enforcement of existing trade laws.
We appreciate the Commerce Department for making these necessary changes, but we still believe it's crucial for Congress to pass the Level the Playing Field 2.0 legislation to give commerce additional tools that address trade distorting behaviors. With that, I'll turn it over to Steve, who'll share some more details on our Q1 financial results. Steve?
Steve Laxton: Thank you, Leon, and thank you all for joining our call this morning. The first quarter of 2024 saw Nucor advance its growth strategy, make meaningful commercial moves and continue to differentiate itself. We also had a solid start to the year on the earnings front with net earnings of $845 million or $3.46 a share. This was nearly 10% higher than our prior quarter earnings per share, but came in roughly 4% below the midpoint of our first quarter earnings guidance range. So I'd like to take a minute to share some color on that. First and most important, results from the 3 operating segments were generally in line with our forecast for the first quarter. However, certain administrative costs and intercompany eliminations exceeded our estimates.
Some of the larger drivers have higher than expected administrative costs related to employee benefits such as medical insurance coverage. Intercompany eliminations had a more pronounced impact. Higher than expected eliminations were a function of two things. One driver was the delivery of more materials from new core divisions to our own construction projects than expected. This is predominantly a timing difference between our pre guidance assumptions and what actually materialized. The second driver was more activity and profits than anticipated between our operating divisions. As most of you know, Nucor has a diverse and integrated set of this aspect provides strategic benefit, synergies and risk mitigation over long periods of time. However, that same beneficial attribute can result in short-term adjustments to earnings recognition, particularly during periods of higher rates of change in volume and realized pricing, both of which occurred in the first quarter.
Generally speaking, these intercompany eliminations are simply timing differences between segment level earnings recognition and the final sale to our customers. With respect to our operating segment results, our steel mills improved pretax earnings nearly 90% from the prior quarter, generating approximately $1.1 billion in pre-tax earnings for the first quarter. Improved results in our sheet business was the largest factor driving the quarter over quarter gains. That business saw approximately 11% increase in shipments percent higher realized pricing during the quarter. Moving to Steel Products, this segment delivered pre-tax earnings of approximately $512 million for the quarter. Total segment shipments were down approximately 4% from the prior quarter.
We believe an unusually wet start to the year may have adversely affected some regional construction activity during the period. While margins for downstream steel products have receded from the historically high levels of recent years, segment continues to generate attractive returns and strong cash flows. Highlighting a few individual product lines, the first quarter saw higher pricing and margin from our tubular products divisions. This was more than offset by moderating contributions from our joist and deck, metal buildings and rebar fabrication operations. Our joist and deck business continues to be the largest single contributor to our steel product segment earnings. This business tends to have backlogs and lead times of 4 to 6 months.
Consequently, we believe the earnings profile of our joist and deck business will likely stabilize as we approach the back half of the year given the relative stability we've seen in pricing over the last quarter. It's worth noting that for the foreseeable future, this business is expected to maintain results that remain considerably higher than pre-pandemic averages. Our raw material segment produced pretax earnings of approximately $10 million for the quarter. Overall, volumes were higher, but lower metallics prices compressed margin for the segment. Let me now turn our attention to the balance sheet and capital allocation. We began the year with a strong cash position and generated $460 million in cash from operating activities in the first quarter.
These factors enabled Nucor to continue its balanced approach to capital allocation, enabling growth through investment, providing direct shareholder returns and maintaining a strong investment-grade rating. On the growth front, during the first quarter, we continued to advance our strategy deploying $670 million in capital spending with progress made on several greenfield and expansion projects described earlier. The first quarter also saw Nucor return over $1.1 billion back to its shareholders. This includes $134 million in dividends and $1 billion in share repurchases, which reduced our share count by 5.5 million shares. It has long been Nucor's practice to put capital to use or return it. This discipline was on display again in the first quarter, where repurchasing activity was higher than normal due to our sizable cash balance at the start of the year.
Today, we continue to have a healthy cash and liquidity position, an enabler of our expected near-term CapEx plans and pipeline of acquisition opportunities. Nucor's balance sheet remains robust, a financial practice that both maintains a strong investment grade rating and enables our long-term orientation and success. We ended the quarter with a total debt to capital ratio of approximately 24% and total leverage of roughly onetime trailing 12-month EBITDA. Looking ahead to the second quarter of 2024, we expect consolidated earnings to be lower than the first quarter with reduced earnings from our Steel Mill and Steel Products segment, partly offset by modest improvements in earnings from our raw materials segment. Lower earnings from our Steel Mills segment are the largest drivers of our reduced outlook for second quarter earnings.
For this segment, we expect slightly higher volumes to be more than offset by lower realized prices. We anticipate our sheet business will be the largest driver of change in results for the Steel Mill segment and for the overall company. Our steel product segment continues to moderate from historically high record levels of performance. For this segment in the second quarter, we expect higher volumes and lower realized pricing with the net effect being slightly lower earnings for the segment. For the raw material segment, stable volumes and improved margins should result in an overall higher profitability. Overall, across all businesses, backlogs remain healthy and in line with historic norms. However, the anticipated reduction in realized pricing for our steel mills and steel products segment in the second quarter are expected to lead to lower overall cash flows and earnings.
On a macro level, the U.S. economy appears to demonstrate near term resilience. Net strength relative to recent past expectations is an overall positive. In addition, select end markets such as advanced manufacturing, data centers and infrastructure continue to show strength from secular trends. Taken collectively, near-term demand appears stable. Looking further out, we remain cautiously optimistic on demand fundamentals given the positive trends of reshoring, repowering and rebuilding. With that, we'd like to hear from you and answer any questions. Operator, please open the line for Q&A.
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