Nucor posts better-than-expected Q3 results

Electric arc furnace (EAF) steelmaker Nucor Corp., headquartered in Charlotte, North Carolina, has announced consolidated net earnings of $193.4 million, or 63 cents per diluted share, for the third quarter of 2020. In the second quarter of this year, the company reported consolidated net earnings of $108.9 million, or 36 cents per diluted share, while in the third quarter of 2019 it reported consolidated net earnings of $275 million, or 90 cents per diluted share.

By the numbers

In the first nine months of 2020, Nucor generated consolidated net earnings of $322.6 million, or $1.06 per diluted share, compared with consolidated net earnings of $1.16 billion, or $3.78 per diluted share, for the same period in 2019.

"I am incredibly proud of how our team has responded to the many challenges of 2020 beginning with the health, safety and well-being of our entire Nucor family,” says Leon Topalian, Nucor president and chief executive officer, in a news release about the company’s Q3 earnings. “Our third-quarter results were better than we expected, reflecting continued strength in nonresidential construction. We expect improved performance in the fourth quarter due to positive pricing momentum in sheet and plate markets. Our teammates across the company continue to find unique ways to serve our customers while bringing innovative product solutions into the market.”

Included in earnings for the third quarter of 2020 was a restructuring charge of $16.4 million, or 4 cents per diluted share, related to the realignment of Nucor's metal buildings business.

Nucor's consolidated net sales increased 14 percent to $4.93 billion in the third quarter of this year compared with $4.33 billion in the second quarter of this year and decreased 10 percent compared with $5.46 billion in the third quarter of 2019. Average sales price per ton in the third quarter of this year decreased 2 percent compared with the second quarter of 2020 and decreased 7 percent compared with the third quarter of 2019.

In the conference call to review Q3 results, Topalian said, “Business conditions in most of the markets we serve improved as the quarter progressed, resulting in a rebound in demand for bars, beam and sheet products.

“Increased demand was reflected in our capacity utilization rate, which for our steel mills, improved [to] 83 percent from 68 percent in the second quarter. Better market conditions, combined with continued strong execution by our team, enabled us to outperform the expectations we had at the beginning of the quarter.”

Nucor says its operating rates in the first nine months of 2020 decreased to 80 percent as compared to 85 percent in the first nine months of 2019.

The company says it shipped a total of 6.367 million tons of steel to outside customers in the third quarter, which was 16 percent more than in the second quarter of 2020 and a 3 percent decrease from the third quarter of 2019. Total steel mill shipments in the third quarter increased 18 percent as compared with the second quarter of 2020 and decreased 3 percent as compared with the third quarter of 2019. Steel mill shipments to internal customers represented 21 percent of total steel mill shipments in the third and the second quarters of this year and in the third quarter of 2019. Downstream steel product shipments to outside customers in the third quarter of 2020 increased 14 percent from the second quarter of this year and remained flat compared to the third quarter of 2019, according to Nucor.

In the first nine months of 2020, the company’s consolidated net sales of $14.88 billion decreased 15 percent compared with consolidated net sales of $17.46 billion reported in the first nine months of 2019. Total tons shipped to outside customers in the first nine months of 2020 were 19.033 million a decrease of 5 percent from the first nine months of 2019, while the average sales price per ton in the first nine months of 2020 decreased 10 percent from the first nine months of 2019.

The average scrap and scrap substitute cost per gross ton used in the third quarter was $277, a 2 percent decrease compared to $284 in the second quarter of this year and a 7 percent decrease compared with $299 in the third quarter of 2019. The average scrap and scrap substitute cost per gross ton used in the first nine months of 2020 was $285, a 13 percent decrease compared to $328 in the first nine months of 2019, according to the company.

Expansion projects

Preoperating and startup costs related to Nucor’s growth projects totaled approximately $22 million, or 6 cents per diluted share, in the third quarter. These figures matched figures the company reported for the second quarter of this year, while they represent a decline from the approximately $28 million, or 7 cents per diluted share, the company spent in the third quarter of 2019.

In the first nine months of 2020, preoperating and startup costs related to its growth projects totaled approximately $73 million, or 18 cents per diluted share, compared with approximately $68 million, or 17 cents per diluted share, in the first nine months of 2019, Nucor reports.

In the conference call, Topalian said the company’s rebar micromill in Florida is expected to start up late this year, while the Gallatin expansion startup in Ghent, Kentucky, is anticipated for the second half of 2021, with a plate mill in Brandenburg, Kentucky, to follow in late 2022.

“Through late September, steelmaking segment orders related to the renewable power sector have already exceeded 2019 by 15 percent. We are excited about the opportunities for our company in the renewables market, and we participate in that market through a broad variety of products, including plate, tubular, beams, fabricated rebar, sheet, piling and fasteners. The breadth of our product offering and the investments we are making in highly differentiated capabilities present meaningful growth opportunities for us.” - Leon Topalian, president and CEO, Nucor Corp. 

He also mentioned that the modernization project at its bar mill in Marion, Ohio, that concluded last year, adding that the company’s investments in that project “lowered our costs and our environmental footprint there, and Marion's profitability is up almost 200 percent over last year.”

Topalian added, “While we are always looking for high-return growth projects like these, we are not overlooking opportunities to improve our performance by proactively managing our existing asset base.”

Markets

The company says nonresidential construction market conditions remained strong throughout the third quarter, while the automotive market's recovery accelerated.

Topalian said during the conference call that Nucor “experienced a strong rebounding third quarter related to automotive demand. Further, we are expecting strong automotive production rates in Q4 that could match or exceed the year-ago period. OEMs (original equipment manufacturers) are focusing on rebuilding inventories to meet the continued strong demand.”

He added that current days on-hand inventory levels are at nearly 10-year lows. “We have heard some analysts suggest that consumers are allocating money they would normally spend on travel to upgrade their cars and vehicles,” Topalian said. “We are pleased with our team's performance in this market and are expecting continued profitable share growth as we move forward.”

During the conference call, he said “no appreciable change” has occurred in oil and gas end-use markets, adding that rig counts and underlying commodity prices remain low. “However, renewable power and energy transmission are showing strong growth despite effects from the pandemic,” Topalian added. “Through late September, steelmaking segment orders related to the renewable power sector have already exceeded 2019 by 15 percent. We are excited about the opportunities for our company in the renewables market, and we participate in that market through a broad variety of products, including plate, tubular, beams, fabricated rebar, sheet, piling and fasteners. The breadth of our product offering and the investments we are making in highly differentiated capabilities present meaningful growth opportunities for us.”

The results of the steel mills segment improved in the third quarter of 2020 as compared with the second quarter of 2020, led by Nucor's bar and structural mills. The company's steel products segment had a strong quarter, which it credits to the continued resiliency of nonresidential construction markets, and, as expected, earnings for the third quarter of 2020 increased compared with the second quarter of 2020 for this segment.

Third-quarter 2020 earnings in Nucor's raw materials segment increased as compared with the second quarter of 2020 because of improved pricing reflecting stronger steel demand, the company says.

Despite these improvements, Nucor says market conditions for its sheet and plate mills remained challenged.

Fourth-quarter outlook

The ongoing COVID-19 pandemic continues to cause uncertainty, making it difficult to accurately forecast future market conditions and demand trends, Nucor says. While many of the markets Nucor serves have typically experienced a seasonal slowdown in the fourth quarter, Nucor says it expects higher earnings in the fourth quarter of 2020 as compared with the third quarter of 2020 primarily because of improved pricing at its sheet and plate mills. Nucor also expects the raw materials segment's earnings to increase in the fourth quarter of 2020 as compared with the third quarter of this year because of the improved margins at its direct reduced iron facilities.