Nucor’s Q1 results come in slightly below its earlier guidance

Charlotte, North Carolina-based electric arc furnace (EAF) steel producer, Nucor Corp., has announced consolidated net earnings of $20.3 million, or 7 cents per diluted share, for the first quarter of 2020. The results include losses on assets of $287.8 million, or 92 cents per diluted share, related to the company’s equity method investment located in Italy, Duferdofin Nucor S.r.l.

By comparison, Nucor reported consolidated net earnings of $107.8 million, or 35 cents per diluted share, for the fourth quarter of 2019 and consolidated net earnings of $501.8 million, or $1.63 per diluted share, for the first quarter of 2019.

Nucor says its first-quarter 2020 results, excluding the losses mentioned previously, are slightly below the quantitative guidance range it released March 19.

"The global crisis caused by the COVID-19 pandemic has touched the lives of almost everyone in some way, and we would be remiss not to acknowledge the physical, mental and emotional toll so much of the world is experiencing," Leon Topalian, Nucor president and chief executive officer, says. "Our thoughts and prayers are with those who are fighting COVID-19, and our condolences are with the victims of this terrible virus and the families and friends who mourn them. We are in awe of those on the frontline—the health care workers and first responders—who are tirelessly working to save lives and end this pandemic.”

Topalian also thanks the company’s employees, who he says “have had to change how they work but have not changed the quality and timeliness of what they produce,” and the company’s customers for their continued business, adding that he looks forward “to building even more powerful long-term partnerships.

“I am confident that we will get through this crisis and emerge stronger from it by living our culture every day, staying focused and taking care of each other,” Topalian says.

COVID-19 impact

Nucor says the COVID-19 pandemic continues to have a significant impact on the company. Its facilities around the country are each taking steps to respond to COVID-19 based on the nature of their operations and the actions being taken by their state and local governments. The company has restricted travel, upgraded cleaning practices at facilities and offices, implemented remote work for teammates wherever possible and instituted social distancing measures.

Nucor says it remains “committed to protecting our teammates while minimizing disruptions to our customers and supply chain.”

In all of the states Nucor operates production facilities, the company says it has been deemed an essential operation and maintains production operations sufficient to meet its customers' ongoing needs.

Nucor says its direct reduced iron ("DRI") facility in Trinidad stopped production March 30 to comply with the country's stay-at-home orders, while its DRI facility in Louisiana halted production April 2 in response to market conditions and out of concern for the health and safety of its employees. The Louisiana DRI facility resumed production operations April 25 with additional procedures in place to protect the staff.

Outlook

Nucor describes varied effects of the COVID-19 pandemic across its different product groups.

“While the automotive and energy markets have seen the sharpest decline, nonresidential construction, which is our largest end market, has shown resiliency moving through this pandemic,” the company notes in a news release announcing its quarterly earnings. “Where we have seen impact on nonresidential construction activity, the sentiment is projects would be delayed rather than canceled. It is also worth noting that there has been a fairly significant supply side response to the pandemic, with a number of our competitors having idled capacity in response to these challenging conditions.”

Nucor foresees that it will report a loss in the second quarter of the year. “While the economic outlook is highly uncertain at present, with the duration of the COVID-19-induced downturn difficult to predict, we currently believe that market conditions will bottom in the second quarter, and Nucor will return to profitability in the second half of this year.”

To preserve its flexibility and reliability, Nucor says it has instituted enterprisewide efforts to conserve cash and support employees:

• Nucor has reviewed its capital expenditures budget and decided to freeze spending on certain capital projects currently in process and delay capital projects that have not begun. As a result, the company has revised its 2020 capital expenditures estimate down to less than $1.5 billion, from an initial projection of approximately $2 billion for the year.
• Its net working capital position is expected to contract and provide a source of incremental liquidity as business activity has slowed rapidly in recent weeks. In addition, the company is taking deliberate steps to reduce raw material inventory, bringing it more in line with anticipated near-term production requirements. These actions should benefit Nucor’s operating cash flow in the near term.
• Overall, Nucor expects a significant decrease in compensation expense in 2020 as almost all its remuneration plans are heavily weighted toward incentive compensation that rewards productivity and profitability. Nucor's "share the pain, share the gain" approach means that every team member at Nucor has a significant portion of his or her compensation at risk and tied to performance. As a result, the company says it believes widespread layoffs will be unnecessary during this crisis. Nucor established Pay & Benefits Task Force that is charged with helping to ensure the financial well-being of the company’s employees through this crisis. This task force has recommended the assurance of a compensation floor to production and nonproduction hourly teammates’ pay during the crisis. Nucor teammates can expect to maintain their normal benefits as well. The company says its executive compensation program intentionally sets base salaries below the market median for similar size industrial and materials companies. With much lower profitability expected in 2020, Nucor's executive leadership will incur a significant reduction in earned incentive compensation on an absolute dollar and percentage basis compared with compensation attributable to 2019 performance.

At the end of the first quarter of 2020, Nucor says it had $1.39 billion in cash and short-term investments on hand and its $1.50 billion revolving credit facility remains undrawn and available.

Financial review

Regarding its equity method investment in Duferdofin Nucor, Nucor says it determined that a triggering event occurred in the first quarter of 2020 because of adverse developments in the joint venture's commercial outlook, which has been further influenced by the COVID-19 pandemic. These events have negatively impacted the joint venture's strategic direction.

Nucor's overall consolidated net sales increased 10 percent in the quarter to $5.62 billion compared with $5.13 billion in the fourth quarter of 2019 and decreased 8 percent compared with $6.10 billion in the first quarter of 2019. Average sales price per ton in the first quarter of 2020 decreased 1 percent compared with the fourth quarter of 2019 and decreased 13 percent compared with the first quarter of 2019. The company says it shipped a total of 7.19 million tons to outside customers in the first quarter of 2020, an 11 percent increase from the fourth quarter of 2019 and a 6 percent increase from the first quarter of 2019. Total steel mill shipments in the first quarter of 2020 increased 12 percent as compared with the fourth quarter of 2019 and increased 8 percent as compared with the first quarter of 2019. Steel mill shipments to internal customers represented 20 percent of total steel mill shipments in the first quarter of 2020 compared with 21 percent in the fourth quarter of 2019 and 20 percent in the first quarter of 2019. Downstream steel product shipments to outside customers in the first quarter of 2020 increased 2 percent from the fourth quarter of 2019 and increased 13 percent from the first quarter of 2019.

Nucor’s average scrap and scrap substitute cost per gross ton used in the first quarter of 2020 was $293, a 7 percent increase compared with $275 in the fourth quarter of 2019 and a 17 percent decrease compared with $352 in the first quarter of 2019, according to the company.

Preoperating and startup costs related to its growth projects were approximately $29 million, or 7 cents per diluted share, in the first quarter of 2020 compared with approximately $35 million, or 9 cents per diluted share, in the fourth quarter of 2019 and approximately $20 million, or 5 cents per diluted share, in the first quarter of 2019.

Nucor says its overall operating rates at its steel mills increased to 89 percent in the first quarter of 2020 as compared to 83 percent in the fourth quarter of 2019 and 87 percent in the first quarter of 2019.

Q1 analysis

Excluding the impairment charges, Nucor says the performance of its steel mills segment in the first quarter of this year increased compared with the fourth quarter of 2019 owning to increased volumes and higher average selling prices at its sheet and bar mills. The profitability of the steel products segment during the quarter also increased as compared to the fourth quarter of 2019 (excluding the fourth quarter of 2019 impairment charge) because of increased volumes. The performance of the raw materials segment also improved as compared to the fourth quarter of 2019 owing to an improvement in pricing for raw materials, the absence of the impairment charge related to its natural gas well assets and improved performance at its DRI facilities.

Feb. 18, Nucor's board of directors declared a cash dividend of 4.03 cents per share. This cash dividend is payable May 11 to stockholders of record as of March 31 and is Nucor's 188th consecutive quarterly cash dividend, the company says.