Nucor Corporation ( NUE)

Q4 2010 Earnings Conference Call

January 27, 2011 2:00 PM ET


Daniel DiMicco – Chairman, President and CEO

James Frias – CFO, EVP and Treasurer

John Ferriola – COO, Steelmaking Operations


Timna Tanners – UBS

Brian Yu – Citi

Sal Tharani – Goldman Sachs

Mark Parr – KeyBanc Capital Markets

David Gagliano – Credit Suisse

Mark Liinamaa – Morgan Stanley

Michelle Applebaum – Steel Market Intelligence

Tony Rizzuto – Dahlman Rose

David Martin – Deutsche Bank



Please standby, we are about to begin. Good day, everyone and welcome to the Nucor Corporation Fourth Quarter and Year End of 2010 Earnings Call. As a reminder, today’s call is being recorded. Later, we will conduct a question-and-answer session and instructions will come at that time.

Certain statements made during this conference call will be forward-looking statements that involve risks and uncertainties. The word we expect, believe, anticipate and variations of such words are – and similar expressions are intended to identify those forward-looking statements, which are based on management’s current expectations and information that is currently available.

Although Nucor believes they are based on reasonable assumptions, there can be no assurance that future events will not affect their accuracy. For more information about the risks and uncertainties relating to these forward-looking statements may be found in the Nucor’s latest 10-K and subsequently filed 10-Qs, which are available on the SEC’s and Nucor’s website. The forward-looking statements made in this conference call speak only as of this date, and Nucor does not assume any obligation to update them either as a result of new information, future events or otherwise.

For opening remarks and introductions, I would like to turn the call over to Mr. Dan DiMicco, Chairman and Chief Executive Officer of Nucor Corporation. Please go ahead, sir.

Daniel DiMicco

Good afternoon. We want to thank you for joining us for our conference call. As always, we appreciate your interest in Nucor. With me for today’s call are the other members of Nucor’s senior management team, our newly elected President, Chief Operating Officer and Board Member, John Ferriola; Chief Financial Officer, Jim Frias; and our other Executive Vice Presidents, Jim Darsey, over Launch Products, Keith Grass, over our Raw Materials/Scrap Operations, Ladd Hall, over our Flat-Rolled Operations, Ham Lott, over our Fabricated Product Divisions and Joe Stratman in Business Development and over our Beam and Plate Operations.

First as usual and most importantly we want to thank everyone on our team at Nucor and our Harris Steel and David J. Joseph operations for working safely and working together in what remains an extremely challenging economic environment. The talent and can-do attitude of the Nucor team are why our company will continue our long history of emerging from downturns stronger than we entered into them.

When a robust, sustainable economic recovery inevitably begins, our team’s efforts will pay big dividends to all members of the Nucor family, particularly the people who own Nucor, our shareholders. Again, thank you to all of the 20,000-plus men and women of the Nucor team and most importantly continue to work safely.

I will now ask our CFO, Jim Frias, to discuss our fourth quarter results and financial position. Following Jim’s comments, President and CEO John Ferriola will report on our operations and the implementation of our growth initiatives. And then before we take your questions, I will share with you some of my thoughts. Jim?

James Frias

Thank you, Dan, and good afternoon. With a loss of $0.04 per diluted share the fourth quarter proved to be the most challenging quarter of 2010, as we predicted. Of particular note, metal margins at our steel mills declined by $27 per ton from third quarter levels. A sharp escalation in scrap prices late this fall outpaced our ability to realize mill price increases in time to benefit the fourth quarter. The margin compression was greatest at our flat-rolled mills.

In our mid-December guidance, we reported our expectation that the 2010 full year LIFO charge would be lower than the amount estimated at the end of the third quarter. The fourth quarter LIFO charge of $23 million was down from our average quarterly expense of $47 million at the end of the third quarter but in line with our guidance estimate. This decline reflected lower year-end units of inventory compared to third quarter.

Our full year 2010 LIFO charge was $164 million compared with a 2009 LIFO credit of 467 million. Nucor incurred a $10 million charge in the fourth quarter related to the termination of the HIsmelt joint venture in Australia. This charge was not incorporated in the quantitative guidance we gave in mid-December. While the HIsmelt technology still has promise, the partners have decided that additional capital expenditures would not be a good investment in the current economic environment.

For Nucor, we believe our best iron-making investment opportunities today are in growing our direct-produced iron or DRI production capabilities. We will continue to build on both the knowledge gained from our highly successful DRI plant in Trinidad and on our long-term supplies of attractively priced natural gas.

Fourth quarter results also included $39 million of pre-operating and start-up costs. On a quarterly basis, there has been some improvement from the peak level of more than $50 million in 2010’s first quarter. For the full year 2010, these expenses totaled $175 million.

Nucor typically incurs significant pre-operating and startup expenses during economic downturns. We view these costs as investments to grow our long-term earnings power. We look for these new businesses to be significant profit generators in the years ahead. That has been our company’s experience over many previous cycles. For example, Nucor’s most recent cyclical peak earnings of almost $6 per share in 2008 carried sizable benefits and contributions from the start-up projects undertaken during the 2001 to 2003 downturn.

It goes back to Dan’s point that our team expects to continue Nucor’s long history of emerging from downturns stronger than we entered them. Successful execution of this strategy is how we build long-term value for our shareholders. It is our financial strength that allows us to invest in attractive growth opportunities through the economic cycle.

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