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Nucor Reports Record 2nd Quarter, Six-Month Results
07/18/2008 - Nucor announces record consolidated net earnings of $580.8 million on record consolidated net sales of $7.09 billion for the second quarter, and record consolidated net earnings of $990.5 million on record consolidated net sales of $12.06 billion for the first half of 2008.
Nucor Corp. announced record consolidated net earnings of $580.8 million on record consolidated net sales of $7.09 billion for the second quarter, and record consolidated net earnings of $990.5 million on record consolidated net sales of $12.06 billion for the first half of 2008.
Second-Quarter Results—The $580.8 million ($1.94 per diluted share) record consolidated net earnings reflect a 68% increase over consolidated net earnings of $344.9 million ($1.14 per diluted share) in the second quarter of 2007, and a 42% increase over the $409.8 million ($1.41 per diluted share) earned in the first quarter of 2008.
The $7.09 billion record consolidated net sales reflect a 70% increase compared with $4.17 billion in the second quarter of 2007, and a 43% increase compared with $4.97 billion in the first quarter of 2008. Average sales price per ton increased 24% over the second quarter of 2007 and increased 19% over the first quarter of 2008.
Total tons shipped to outside customers—7,734,000 tons—reflect a 38% increase over the second quarter of 2007 and an increase of 20% over the first quarter of 2008.
In the second quarter, the average scrap and scrap substitute cost per ton used was $456, an increase of 57% over $291 in the second quarter of 2007, and an increase of 37% compared with $333 in the first quarter of 2008. Total energy costs increased $5 per ton from the second quarter of 2007 and increased $2 per ton from the first quarter of 2008.
Nucor incurred a record charge to value inventories using the last-in, first-out (LIFO) method of accounting of $214.0 million ($0.42 per diluted share, after tax) in the second quarter, which compares with a charge of $66.5 million ($0.13 per diluted share, after tax) in the second quarter of 2007 and a charge of $69.0 million ($0.14 per diluted share, after tax) in the first quarter of 2008. This $214.0 million LIFO expense was greater than the total LIFO expense for all of 2007.
Six-Month Results—Nucor's $990.5 million ($3.36 per diluted share) record consolidated net earnings reflect a 36% increase compared with net earnings of $725.9 million ($2.39 per diluted share) in last year's first half.
The $12.06 billion record consolidated net sales reflect a 52% increase compared with $7.94 billion in last year's first half. Average sales price per ton increased 21% while total tons shipped to outside customers increased 26% from the first half of 2007.
In the first half of 2008, the average scrap and scrap substitute cost per ton used was $396, an increase of 44% over $275 in the first half of 2007. Total energy costs increased $5 per ton compared with the first half of 2007.
The LIFO charge in the first half of 2008 was a record $283.0 million ($0.57 per diluted share, after tax), compared with a charge of $91.0 million ($0.18 per diluted share, after tax) in the first half of 2007.
Impact of Recent Acquisitions—The company attributes the increases in sales and net earnings to its significant acquisitions over the last 18 months, including the acquisition of Harris Steel Group, Inc. in March 2007 and The David J. Joseph Co. (DJJ) in February 2008. Nucor also has used these two companies as platforms for additional acquisitions that will help to grow its rebar fabrication and scrap businesses.
Nucor says it product line diversity allows it to avoid tying its performance to any one steel market. With the acquisition of Harris and other downstream products companies, Nucor has more than doubled its steel products annual capacity has more than doubled since the beginning of 2007 to four million tons. Nucor said these companies also allow it to provide its steel mills with a profitable base load of volume.
DJJ's scrap processing assets also are helping Nucor broaden its raw materials strategy, and provide a partial hedge to its steel mills against scrap market volatility, further boosting Nucor's profitability.
Segment Results—In the steel mills segment, steel production increased 7% to a record 11,874,000 tons in the first half of 2008, compared with 11,103,000 tons produced in the first half of 2007.
Total steel shipments increased 9% to a record 12,068,000 tons in the first half of 2008, compared with 11,067,000 tons in last year's first half. Steel shipments to outside customers increased 5% to 10,597,000 tons in the first half of 2008, compared with 10,119,000 tons in last year's first half.
In the steel products segment, steel joist production during the first half of 2008 increased to 272,000 tons, compared with 265,000 tons in the first half of 2007. Steel deck sales increased to a record 255,000 tons in the first half of 2008, compared with 232,000 tons in last year's first half. Cold finished steel sales increased to a record 279,000 tons, compared with 206,000 tons in the first half of 2007. Sales of fabricated concrete reinforcing steel were 411,000 tons in the first half of 2008 compared to 204,000 in the first half of 2007.
Company Developments—Nucor completed a public offering of 27,667,580 common shares in late May 2008 at an offering price of $74.00 per share. Gross proceeds of the offering were approximately $2.05 billion, which the company said it intends to use for general corporate purposes including acquisitions, capital expenditures, working capital needs and repayment of debt. Also in early June 2008, Nucor issued $1.00 billion in debt with interest rates ranging from 5% to 6.4% and with maturities from 2013 to 2037. Nucor's long-term debt ratings of A+ by Standard and Poor's and A1 by Moody's Investors Services are the highest ratings of any metals and mining company in North America.
In June, Nucor's board of directors declared a supplemental dividend of $0.20 per share in addition to the $0.32 per share base dividend. The total dividend of $0.52 per share is payable on August 11, 2008 to stockholders of record on June 30, 2008. Nucor began paying a supplemental dividend in the second quarter of 2005, allowing stockholders to participate in the company’s successful pay-for-performance business model.
Also in June, Nucor announced that its wholly owned subsidiary, Harris Steel, Inc., signed a Purchase Agreement to acquire all of the issued and outstanding common shares of Ambassador Steel Corp. for a cash purchase price of approximately $185 million. Based in Auburn, Ind., Ambassador is a fabricator and distributor of concrete reinforcing steel and related products. The transaction is expected to close during the third quarter of 2008 after satisfactory resolution of certain closing conditions.
In July, Nucor completed the acquisition of 50% of the stock of Duferdofin–Nucor Srl, for the purchase price of euro 423.5 million (approximately $658 million). The company will operate from its current headquarters in San Zeno, Italy. Duferdofin–Nucor Srl operates a steel melting and bloom/billet caster in San Zeno as well as rolling mills in Pallanzeno and Giammoro. Total production in 2007 was approximately one million tons. A new merchant bar mill, which is expected to produce approximately 450,000 tons, is under construction at the Giammoro plant and is expected to be fully operational in late 2008.
Two other projects were also announced in the second quarter. Nucor applied for a permit to build a $2 billion state-of-the-art iron-making facility in St. James Parish, La. Sites outside of the United States are still being considered, and the site selection and capital investment are subject to approval by Nucor's board of directors. The facility is expected to produce 3,000,000 tons of pig iron annually, employing the latest technologies to reduce emissions.
Nucor also announced the signing of a memorandum of understanding with Sidenor SA to purchase a 34% share of a new joint venture that will be formed for the production and distribution of long steel products and plate in the Balkans, Turkey, Cyprus and North Africa. Final agreement to establish the joint venture is dependent on execution of definitive agreements, completion of due diligence, and the approval of regulatory bodies and the boards of directors of both companies.
Nucor’s Outlook—The company said it expects third quarter results to be strong, with earnings in the range of $1.80 to $1.85 per diluted share. Nucor also anticipates continued strength in its sheet, plate, beam and bar businesses due to the solid global demand for steel.
Although its downstream businesses will be challenged by rising steel prices, the company expects continued good results from this segment. The forecasted range of $1.80 to $1.85 per diluted share for the third quarter reflects an increase of approximately 6% in the diluted average shares outstanding over the second quarter due to Nucor's common stock offering on May 29, 2008. (Additional shares were outstanding only for a portion of the second quarter, resulting in an increase of more than 3% in diluted shares outstanding from the first quarter of 2008.)
Headquartered in Charlotte, N.C., Nucor makes more steel in America than any other company. Nucor and affiliates are manufacturers of steel products, with operating facilities primarily in the U.S. and Canada. Products include carbon and alloy steel bars, beams, sheet and plate; steel joists and joist girders; steel deck; fabricated concrete reinforcing steel; cold finished steel; steel fasteners; metal building systems; light gauge steel framing; steel grating and expanded metal; and wire and wire mesh. Nucor also brokers ferrous and nonferrous metals, pig iron and HBI/DRI; supplies ferro-alloys; and processes ferrous and nonferrous scrap. Nucor is North America's largest recycler.
