Nucor's CEO Discusses Q3 2011 Results - Earnings Call Transcript

Nucor (NUE)

Q3 2011 Earnings Call

October 20, 2011 2:00 pm ET

Executives

James D. Frias - Chief Financial Officer, Executive Vice President and Treasurer

Daniel R. DiMicco - Chairman and Chief Executive Officer

John J. Ferriola - President, Chief Operating Officer and Director

Analysts

Brian Yu - Citigroup Inc, Research Division

Anthony B. Rizzuto - Dahlman Rose & Company, LLC, Research Division

Kuni M. Chen - CRT Capital Group LLC, Research Division

Carly Mattson - Goldman Sachs Group Inc., Research Division

Sal Tharani - Goldman Sachs Group Inc., Research Division

Mark L. Parr - KeyBanc Capital Markets Inc., Research Division

David S. MacGregor - Longbow Research LLC

Evan L. Kurtz - Morgan Stanley, Research Division

Arun S. Viswanathan - Susquehanna Financial Group, LLLP, Research Division

Presentation

Operator

Good day, everyone, and welcome to the Nucor Corporation's Third Quarter of 2011 Earnings Conference Call. As a reminder, today's conference is being recorded. [Operator Instructions] Certain statements made during this conference call will be forward-looking statements that involve risks and uncertainties. Although Nucor believes they are based on reasonable assumptions, there can be no assurance that future events will not affect their accuracy. 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.

Now 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 R. DiMicco

Thank you, Stacy. Good afternoon. Thank you for joining us for our conference call, and 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 President and Chief Operating Officer, John Ferriola; our Chief Financial Officer, Jim Frias; and our Executive Vice Presidents: Jim Darsey, Keith Grass, Ladd Hall, Ham Lott and Joe Stratman.

First, and most importantly, I want to thank everyone on our team at Nucor and our Harris Steel and David J. Joseph operations for their excellent work in economic environment that remains extremely challenging. You are working safely and, as always, you are working together as a team to take care of our customers and our shareholders. And your work goes far beyond the significant demands of getting the job done each quarter. You are successfully implementing numerous growth initiatives that are building a stronger Nucor. By a stronger Nucor, I am describing one positioned for new higher highs and cyclical earnings power once the sustainable economic recovery arrives. Thank you, all.

I will now ask our CFO, Jim Frias, to discuss our second quarter results. Following Jim's comments, President and COO, John Ferriola will report on our operations and implementation of our growth initiatives. As you listen to the reports, I believe there are 2 very important points you need to consider. First, our third quarter and first 9 months results benefited greatly from Nucor's position as North America's most diversified steelmaker. Product diversification is a critical building block in Nucor's business model. And our business model, with its flexibility, diversification and sustainability, is what drives Nucor's industry-leading through the cycle return on capital performance. Second, Nucor is growing stronger during this downturn. Throughout Nucor, our teams are growing long-term earnings power, in upstream raw materials and steelmaking and in downstream steel products. How can we do that? How can we expand while others are focused on survival? The answer is simple. Our business model and our strong balance sheet allows us to focus on the long term and grow stronger during the downturns.

At this time, I'd like to turn it over to Mr. Frias, our CFO, for his comments. Jim?

James D. Frias

Thanks, Dan, and good afternoon. Third quarter 2011 earnings of $0.57 per diluted share exceeded our guidance range of $0.45 to $0.55 per diluted share. Our results increased more than eightfold over third quarter of 2010 earnings, but decreased 39% from second quarter 2011 earnings of $0.94 per diluted share.

The third quarter 2011 effective tax rate, measured as a percentage of earnings before income taxes and noncontrolling interests, was 29.6%. However, after adjusting our profits belonging to our noncontrolling interests business partners, the effective tax rate was 31.7%. Excluding tax -- state income tax credits recorded during the quarter, the effective tax rate would have been above 34%. However, the positive impact on earnings from the state tax credits was essentially offset by other nonrecurring items recorded in the third quarter.

As we expected, third quarter results and profits were below our second quarter results. The quarter-over-quarter decline was primarily due to lower prices and metal margins for sheet mill products. The sheet market has been severely impacted by new domestic supply and increased imports.

Importantly, Nucor continues to benefit from a diversified product mix. In fact, our bar mills and deck fabricating plants delivered solid improvement over their second quarter profitability.

Earnings at our plate mills were essentially flat with the second quarter. However, the trend for the plate mills was down through the quarter due to the impact of higher imports. Our beam mill and downstream cold-finished bar businesses experienced a small decline in quarter-over-quarter results but continued to contribute solid profits.

Earnings per diluted share of $2.02 for the 9 months of 2011 represent a dramatic improvement from the year-ago period's earnings per share of $0.46. That's an increase of 340%. Cash generated from operations is also up strongly, nearly triple the prior year period. And Nucor's annualized return on equity through this year's first 9 months is a respectable 12%.

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