Nucor's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Nucor (NUE)

Q1 2012 Earnings Call

April 19, 2012 2:00 pm ET

Executives

Daniel R. DiMicco - Chairman and Chief Executive Officer

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

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

Keith B. Grass - Executive Vice President, Chief Executive Officer of DJJ and President of DJJ

Ladd R. Hall - Executive Vice President of Flat-Rolled Products

Analysts

Timna Tanners - BofA Merrill Lynch, Research Division

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

Shneur Z. Gershuni - UBS Investment Bank, Research Division

Evan L. Kurtz - Morgan Stanley, Research Division

Unknown Analyst

Sohail Tharani - Goldman Sachs Group Inc., Research Division

Aldo J. Mazzaferro - Macquarie Research

Brian Yu - Citigroup Inc, Research Division

Philip Gibbs - KeyBanc Capital Markets Inc., Research Division

Richard Garchitorena - Crédit Suisse AG, Research Division

Michelle Applebaum - Michelle Applebaum Research Inc.

Sam Dubinsky - Wells Fargo Securities, LLC, Research Division

Presentation

Operator

Good day, everyone, and welcome to the Nucor Corporation First Quarter of 2012 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 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, Carolyn. Good afternoon. This is Dan DiMicco, Nucor's Chairman and Chief Executive Officer. Thank you for joining us for our conference call today. 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 other Executive Vice Presidents, Jim Darsey, Keith Grass, Ladd Hall, Ham Lott, and Joe Stratman.

First and most importantly, as always, I want to thank everyone on our Nucor, Harris Steel, David J. Joseph, Duferdofin and New Mix [ph] Steel Technology teams for your excellent work in an economic environment that remains very challenging. The company's greatest competitive advantage is your strong commitment to working hard, working smart and working together and, most importantly, working safely. The Nucor team is succeeding by taking care of our customers, all of our customers, and I want to thank you all for that.

I will now ask our CFO, Jim Frias, to discuss our first quarter results and financial position. He will be followed by John Ferriola, who will report on Nucor's operations and our growth initiatives. I will conclude our presentation with some general commentary on our company and Nucor's strategy. Jim?

James D. Frias

Thanks, Dan, and good afternoon. First quarter of 2012 earnings of $0.46 per diluted share exceeded our guidance range of $0.30 to $0.35 per diluted share. That outperformance primarily resulted from stronger than expected shipments from our steel mills to outside customers during the month of March. Our results also benefited from approximately $0.04 per diluted share of state income tax adjustments.

The first quarter 2012 effective tax rate, measured as the percentage of earnings before income taxes and noncontrolling interest, was 27.4%. After adjusting our profits belonging to our noncontrolling interest business partners, the effective tax rate was 29.8%. Our minority interest partners are responsible for the income tax liability and their share of joint venture profits.

First quarter 2012 earnings increased modestly from fourth quarter 2011 earnings of $0.43 per diluted share, which included about $0.08 of nonrecurring gains. Compared to the fourth quarter, profit improvement was strongest at our sheet mills. Our plate and beam mills achieved strong profitability that was comparable to their fourth quarter performance. With margin pressure from increased rebar imports, profitability in our bar mills declined. Earnings for our raw material business improved somewhat in the fourth quarter, but decreased significantly from the first quarter of last year as a result of seasonally atypical softness in scrap prices. Our construction products businesses experienced a normal seasonal slowdown, but backlogs, both pricing and volume, have increased from last year's first quarter levels.

As we often say, our team uses economic downturns as opportunities to grow stronger. Emerging from downturns stronger than we entered them is how we build long-term value for our shareholders. We grow stronger because our financial strength allows us to invest in attractive financial opportunities that expand our earnings capacity through the economic cycle. Nucor has earned the highest credit rating award to any metals and mining company in North America, an A2 rating from Moody's and an A rating from Standard & Poor's. We're the only steel producer in North America to enjoy the very important competitive advantage of an investment grade rating. Globally, our credit rating is matched by only one other steel producer, Nippon Steel. To that point, Standard & Poor's, in its April 13 report, entitled North American's Metal and Mining Companies Strongest Weakness, again ranked Nucor #1 for credit rating and credit outlook among the universe of 70 companies. Nucor was also the only metals and mining company in the group that S&P awarded a strong business risk profile due to our competitive position and profit performance relative to our peers.

Cash, short-term investments and restricted cash totaled $3 billion at the end of the first quarter of 2012. Restricted cash of $586 million is available to fund a significant portion of the DRI plant we are building in Louisiana. Further to Nucor's strong liquidity, our $1.5 billion unsecured revolving credit facility is undrawn and does not mature until December 2016. We have no commercial paper outstanding.

At the end of the first quarter, long-term debt totaled $4.3 billion. We expect our leverage to decline as a result of long-term debt maturities of $650 million in the fourth quarter this year and an additional $250 million in 2013. Our plan is to fund those maturities by drawing from a healthy liquidity and continued strong operating cash flow. In 2012, we are continuing to invest in projects that will grow our long-term earnings power and provide attractive returns to our shareholders.

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