Nucor Management Discusses Q2 2012 Results - Earnings Call Transcript

Nucor (NUE)

Q2 2012 Earnings Call

July 19, 2012 2:00 pm ET


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

D. Michael Parrish - Former Executive Vice President

R. Joseph Stratman - Executive Vice President of Beam & Plate Products

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


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

Michelle Applebaum - Steel Market Intelligence Inc

Luke Folta - Jefferies & Company, Inc., Research Division

Timna Tanners - BofA Merrill Lynch, Research Division

Arun S. Viswanathan - Longbow Research LLC

Sohail Tharani - Goldman Sachs Group Inc., Research Division

Evan L. Kurtz - Morgan Stanley, Research Division

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

Michael F. Gambardella - JP Morgan Chase & Co, Research Division

Brian Yu - Citigroup Inc, Research Division

Richard Garchitorena - Crédit Suisse AG, Research Division



Good day, everyone, and welcome to the Nucor Corporation's Second 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. The words we expect, believe, anticipate and variations of such words and similar expressions are intended to identify those forward-looking statements, which are based on management's current expectation and information. 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 and 10-Qs, which are available on the SEC's and Nucor's website.

The forward-looking statements maybe -- I'm sorry, 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, Toya. Good afternoon. This is Dan DiMicco, Nucor's Chairman and Chief Executive Officer. 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 President and Chief Operating Officer, John Ferriola; Chief Financial Officer, Jim Frias; and our other Executive Vice Presidents, Jim Darsey, responsible for our bar group; Keith Grass, responsible for our David J. Joseph's materials, handling and scrap group; Ladd Hall, responsible for our Flat-Rolled Products group; Ham Lott, heading up our Fabricated Products group; and Joe Stratman, who's responsible for both Business Development and our Plate and Beam businesses.

First, as always, and most importantly, we want to thank everyone on our Nucor, Harris Steel, David J. Joseph, Duferdofin and NuMit/Steel Technology teams for your excellent work in today's extremely challenging economic and steel market conditions. We are tremendously proud of your unrivaled commitment to working safely, taking care of all of our customers, building a stronger and more profitable Nucor. You are and always will be Nucor's greatest asset and our true competitive advantage. Thank you all.

We also want to extend a very warm welcome to the newest addition to our Nucor family. In late June, the 481 teammates of Skyline Steel joined the Nucor team. As proven and valued partners for over 2 decades, we are extremely excited to welcome you into Nucor. Together, our combined team is uniquely positioned to grow in the steel piling business.

Skyline gives Nucor another attractive growth platform. We are bringing together the North American market leader in the production of steel piling products, Nucor, and the North American market leader in the distribution of steel piling products and some of its manufacturer, Skyline. Skyline's product portfolio includes H-piling, sheet piling and pipe piling, which it fabricates itself. It is a company and management team that we know very well. They have been one of Nucor-Yamato's most valued growth partners in this business from day 1. They are a significant consumer of our H-piling and sheet piling products. Again, welcome to all of our Nucor-Skyline teammates.

I'll then ask our CFO, Jim Frias, to discuss our second quarter results and financial position. He will be followed by John Ferriola, who will report on Nucor's operations and growth initiatives. Then, I will conclude our presentation with some general comments on the economy and Nucor's growth strategy. Jim?

James D. Frias

Thanks, Dan, and good afternoon. Second quarter 2012 earnings of $0.35 per diluted share were at the low end of our guidance range of $0.35 to $0.40 per diluted share. Our second quarter results were negatively impacted by a noncash charge of $8.5 million or $0.02 per diluted share due to purchase accounting charges and intercompany profit eliminations related to our Skyline acquisition. These costs were not factored into our guidance, which was issued several days prior to the closing of the acquisition.

Second quarter results also included an impairment charge of $0.09 per diluted share related to our Duferdofin-Nucor joint venture located in Italy. This impairment charge was factored into our mid-quarter quantitative guidance. Nucor acquired its 50% interest in Duferdofin, a producer of beams and bars, in July of 2008 for a cash purchase price of approximately $667 million. Our $30 million impairment charge resulted from Duferdofin's disappointing performance through the first half of 2012, combined with increasing economic turmoil in Europe. It incorporates the impact on our fair value model of both greater losses in the near term and a slower than previously expected recovery to historic profitability. Although our timing on this acquisition has proven to be poor in the short run, we continue to view Duferdofin as a very attractive asset offering solid long-term value.

Nucor's second quarter operating performance reflected mixed trends across our diverse product portfolio. Profitability at our steelmaking business has been severely impacted by an import search across most products. The sheet steel markets have also been challenged by new domestic supply that began production in 2011. Lower scrap pricing has depressed the profitability of our scrap processing business.

On the positive side, our downstream products business reported its first profitable quarter since the fourth quarter of 2008. Nucor's Fabricated Construction Products, joist and decking, rebar fabrication and preengineered metal buildings, returned to profitability as a result of market share gains, improved pricing and effective management of costs.

While first half of 2012 earnings decreased by 44% from the year-ago level, cash generated from operations actually increased by more than 50% to $446 million. Nucor benefits from a countercyclical cushion provided to our cash flow as lower scrap and steel prices reduce our working capital investment during downturns. Nucor's consistent cash flow performance is also helped by our highly variable cost structure.

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