Nucor's Steel Mills Perfom Better Than Expected in Q3
10/23/2014 - As it reported its third quarter earnings results, Nucor said overall operating performance at its steel mills was much improved compared to the second quarter of 2014 due to increased profitability in sheet, structural, bar and plate steel.
Nucor Corp. announced consolidated net earnings of US$245.4 million, or US$0.76 per diluted share, for the third quarter of 2014. By comparison, Nucor reported net earnings of US$147.0 million, or US$0.46 per diluted share, in the second quarter of 2014 and net earnings of US$147.6 million, or US$0.46 per diluted share, in the third quarter of 2013. Third quarter of 2014 diluted net earnings per share of US$0.76 was above our guidance range of US$0.70 to US$0.75 per diluted share due to better than forecasted performance in the steel mills segment partially offset by a larger than expected loss in the raw materials segment.
In the first nine months of 2014, Nucor reported consolidated net earnings of US$503.5 million, or US$1.57 per diluted share, compared with consolidated net earnings of US$317.5 million, or US$0.99 per diluted share, in the first nine months of last year.
Nucor's results include a credit of US$14.5 million (US$0.03 per diluted share) to value inventories using the last-in, first-out (LIFO) method of accounting in the third quarter of 2014, compared with no charge recorded in the second quarter of 2014 and a credit of US$18.0 million (US$0.03 per diluted share) recorded in the third quarter of 2013. As a result, the LIFO charges and credits netted to zero in the first nine months of 2014 and the first nine months of 2013. Included in the third quarter results is a US$12.5 million charge (US$0.03 per diluted share) related to the partial write down of assets within the steel mills segment. Earnings in the third quarter of 2013 included a net US$14.0 million (US$0.03 per diluted share) partial write down of inventory and fixed asset balances associated with the collapse of a storage dome at Nucor Steel Louisiana.
Nucor's consolidated net sales increased 8% to US$5.70 billion in the third quarter of 2014 compared with US$5.29 billion in the second quarter of 2014 and increased 15% compared with US$4.94 billion in the third quarter of 2013. Average sales price per ton increased 1% over the second quarter of 2014 and increased 5% over the third quarter of 2013. Total tons shipped to outside customers were 6,784,000 tons in the third quarter of 2014, a 6% increase over the second quarter of 2014 and an increase of 10% over the third quarter of 2013. Total third quarter steel mill shipments increased 5% over the second quarter of 2014 and 7% over the third quarter of 2013. Third quarter downstream steel products shipments to outside customers increased 9% over the second quarter of 2014 and increased 18% over the third quarter of 2013.
In the first nine months of 2014, Nucor's consolidated net sales increased 14% to US$16.10 billion, compared with US$14.16 billion in last year's first nine months. Total tons shipped to outside customers increased 9% from the first nine months of 2013, while average sales price per ton increased 4%.
The average scrap and scrap substitute cost per ton used in the third quarter of 2014 was US$379, a 1% decrease from US$384 in the second quarter of 2014 and an increase of 2% over US$372 in the third quarter of 2013. The average scrap and scrap substitute cost per ton used in the first nine months of 2014 was US$387, an increase of 3% over US$376 in the first nine months of 2013.
Overall operating rates at Nucor’s steel mills increased to 81% in the third quarter of 2014 as compared with 79% in the second quarter of 2014 and 78% in the third quarter of 2013. Steel mill utilization increased to 78% in the first nine months of 2014 from 74% in the first nine months of 2013.
Total steel mill energy costs in the third quarter of 2014 increased approximately US$1 per ton compared with the second quarter of 2014 and the third quarter of 2013. Energy costs for the first nine months of 2014 increased approximately US$2 per ton over the first nine months of 2013 due to increased natural gas and electricity unit costs.
Cash and cash equivalents and short-term investments totaled US$1.40 billion as of the end of the third quarter of 2014. After the quarter ended, Nucor closed on its purchase of all the equity of Gallatin Steel Company for approximately US$770 million, which was paid for in cash. Subsequent to the end of the third quarter, Nucor issued approximately US$300 million of commercial paper to help fund the Gallatin transaction. Nucor's liquidity position remains strong after the acquisition, and its undrawn US$1.5 billion revolving credit facility does not expire until August 2018.
Overall operating performance at its steel mills segment for the third quarter was much improved compared to the second quarter of 2014 due to increased profitability in sheet, structural, bar and plate steel. Structural steel had no major outages in the third quarter, as compared to the planned three week outage at Nucor-Yamato Steel in the second quarter associated with a US$115 million sheet piling capital project. The strongest markets for the steel mills continue to be manufactured goods, including energy and automotive. Though third quarter results are much improved from the second quarter, imports remain at high levels, applying downward pressure on pricing.
The fabricated construction products businesses (rebar fabrication, joist and decking and pre-engineered metal buildings) also generated much stronger profits compared to the second quarter of 2014. This performance reflects improving conditions in the nonresidential construction markets, although nonresidential construction markets remain at historically low levels.
The performance of the raw materials segment during the third quarter of 2014 includes an operating loss of more than US$45 million (approximately US$0.09 per diluted share) at the new direct reduced iron (DRI) plant in St. James Parish, La. The Louisiana DRI facility has continued to achieve excellent quality and volume levels. Production outages in June, July and September were necessary to implement changes intended to improve consistency in the production process and material yield performance. An additional factor affecting the performance of Nucor Steel Louisiana is the impact of consuming higher cost iron ore purchased early in the year under a quarterly lag pricing mechanism. As a result of the process improvements and lower iron ore costs, combined with a steady run-rate, it expects significant improvement in the performance of the Louisiana DRI facility in the fourth quarter and profitable results during the first quarter of 2015.
Nucor currently expects to see a moderate decrease in earnings for the fourth quarter of 2014. The profitability of the steel mills and downstream products segments is expected to be impacted by end of year seasonality that is typical in the fourth quarter.
Nucor and affiliates are manufacturers of steel products, with operating facilities primarily in the U.S. and Canada. Products produced include: carbon and alloy steel — in bars, beams, sheet and plate; steel piling; steel joists and joist girders; steel deck; fabricated concrete reinforcing steel; cold finished steel; steel fasteners; metal building systems; steel grating and expanded metal; and wire and wire mesh. Nucor, through The David J. Joseph Company, also brokers ferrous and nonferrous metals, pig iron and HBI/DRI; supplies ferroalloys; and processes ferrous and nonferrous scrap. Nucor is North America's largest recycler.
In the first nine months of 2014, Nucor reported consolidated net earnings of US$503.5 million, or US$1.57 per diluted share, compared with consolidated net earnings of US$317.5 million, or US$0.99 per diluted share, in the first nine months of last year.
Nucor's results include a credit of US$14.5 million (US$0.03 per diluted share) to value inventories using the last-in, first-out (LIFO) method of accounting in the third quarter of 2014, compared with no charge recorded in the second quarter of 2014 and a credit of US$18.0 million (US$0.03 per diluted share) recorded in the third quarter of 2013. As a result, the LIFO charges and credits netted to zero in the first nine months of 2014 and the first nine months of 2013. Included in the third quarter results is a US$12.5 million charge (US$0.03 per diluted share) related to the partial write down of assets within the steel mills segment. Earnings in the third quarter of 2013 included a net US$14.0 million (US$0.03 per diluted share) partial write down of inventory and fixed asset balances associated with the collapse of a storage dome at Nucor Steel Louisiana.
Nucor's consolidated net sales increased 8% to US$5.70 billion in the third quarter of 2014 compared with US$5.29 billion in the second quarter of 2014 and increased 15% compared with US$4.94 billion in the third quarter of 2013. Average sales price per ton increased 1% over the second quarter of 2014 and increased 5% over the third quarter of 2013. Total tons shipped to outside customers were 6,784,000 tons in the third quarter of 2014, a 6% increase over the second quarter of 2014 and an increase of 10% over the third quarter of 2013. Total third quarter steel mill shipments increased 5% over the second quarter of 2014 and 7% over the third quarter of 2013. Third quarter downstream steel products shipments to outside customers increased 9% over the second quarter of 2014 and increased 18% over the third quarter of 2013.
In the first nine months of 2014, Nucor's consolidated net sales increased 14% to US$16.10 billion, compared with US$14.16 billion in last year's first nine months. Total tons shipped to outside customers increased 9% from the first nine months of 2013, while average sales price per ton increased 4%.
The average scrap and scrap substitute cost per ton used in the third quarter of 2014 was US$379, a 1% decrease from US$384 in the second quarter of 2014 and an increase of 2% over US$372 in the third quarter of 2013. The average scrap and scrap substitute cost per ton used in the first nine months of 2014 was US$387, an increase of 3% over US$376 in the first nine months of 2013.
Overall operating rates at Nucor’s steel mills increased to 81% in the third quarter of 2014 as compared with 79% in the second quarter of 2014 and 78% in the third quarter of 2013. Steel mill utilization increased to 78% in the first nine months of 2014 from 74% in the first nine months of 2013.
Total steel mill energy costs in the third quarter of 2014 increased approximately US$1 per ton compared with the second quarter of 2014 and the third quarter of 2013. Energy costs for the first nine months of 2014 increased approximately US$2 per ton over the first nine months of 2013 due to increased natural gas and electricity unit costs.
Cash and cash equivalents and short-term investments totaled US$1.40 billion as of the end of the third quarter of 2014. After the quarter ended, Nucor closed on its purchase of all the equity of Gallatin Steel Company for approximately US$770 million, which was paid for in cash. Subsequent to the end of the third quarter, Nucor issued approximately US$300 million of commercial paper to help fund the Gallatin transaction. Nucor's liquidity position remains strong after the acquisition, and its undrawn US$1.5 billion revolving credit facility does not expire until August 2018.
Overall operating performance at its steel mills segment for the third quarter was much improved compared to the second quarter of 2014 due to increased profitability in sheet, structural, bar and plate steel. Structural steel had no major outages in the third quarter, as compared to the planned three week outage at Nucor-Yamato Steel in the second quarter associated with a US$115 million sheet piling capital project. The strongest markets for the steel mills continue to be manufactured goods, including energy and automotive. Though third quarter results are much improved from the second quarter, imports remain at high levels, applying downward pressure on pricing.
The fabricated construction products businesses (rebar fabrication, joist and decking and pre-engineered metal buildings) also generated much stronger profits compared to the second quarter of 2014. This performance reflects improving conditions in the nonresidential construction markets, although nonresidential construction markets remain at historically low levels.
The performance of the raw materials segment during the third quarter of 2014 includes an operating loss of more than US$45 million (approximately US$0.09 per diluted share) at the new direct reduced iron (DRI) plant in St. James Parish, La. The Louisiana DRI facility has continued to achieve excellent quality and volume levels. Production outages in June, July and September were necessary to implement changes intended to improve consistency in the production process and material yield performance. An additional factor affecting the performance of Nucor Steel Louisiana is the impact of consuming higher cost iron ore purchased early in the year under a quarterly lag pricing mechanism. As a result of the process improvements and lower iron ore costs, combined with a steady run-rate, it expects significant improvement in the performance of the Louisiana DRI facility in the fourth quarter and profitable results during the first quarter of 2015.
Nucor currently expects to see a moderate decrease in earnings for the fourth quarter of 2014. The profitability of the steel mills and downstream products segments is expected to be impacted by end of year seasonality that is typical in the fourth quarter.
| TONNAGE DATA | |||||||||||||
| (in thousands) | |||||||||||||
| Three Months (13 Weeks) Ended | Nine Months (39 Weeks) Ended | ||||||||||||
| October 4, 2014 | Sept. 28, 2013 | Percentage Change | October 4, 2014 | Sept. 28, 2013 | Percentage Change | ||||||||
| Steel mills production | 5,412 | 5,202 | 4% | 15,930 | 14,912 | 7% | |||||||
| Steel mills total shipments | 5,741 | 5,359 | 7% | 16,650 | 15,459 | 8% | |||||||
| Sales tons to outside customers: | |||||||||||||
| Steel mills | 4,851 | 4,640 | 5% | 14,097 | 13,248 | 6% | |||||||
| Joist | 128 | 86 | 49% | 317 | 248 | 28% | |||||||
| Deck | 113 | 90 | 26% | 301 | 242 | 24% | |||||||
| Cold finished | 129 | 113 | 14% | 400 | 359 | 11% | |||||||
| Fabricated concrete | |||||||||||||
| reinforcing steel | 342 | 305 | 12% | 902 | 813 | 11% | |||||||
| Other | 1,221 | 932 | 31% | 3,326 | 2,801 | 19% | |||||||
| 6,784 | 6,166 | 10% | 19,343 | 17,711 | 9% | ||||||||
Nucor and affiliates are manufacturers of steel products, with operating facilities primarily in the U.S. and Canada. Products produced include: carbon and alloy steel — in bars, beams, sheet and plate; steel piling; steel joists and joist girders; steel deck; fabricated concrete reinforcing steel; cold finished steel; steel fasteners; metal building systems; steel grating and expanded metal; and wire and wire mesh. Nucor, through The David J. Joseph Company, also brokers ferrous and nonferrous metals, pig iron and HBI/DRI; supplies ferroalloys; and processes ferrous and nonferrous scrap. Nucor is North America's largest recycler.
