Nucor Corporation — Q1 2023 Form 10-Q
Reporting period: Three months (13 weeks) ended April 1, 2023; comparative period ended April 2, 2022. Unaudited. Nucor manufactures steel and steel products and produces and processes raw materials, with operations reported in steel mills, steel products and raw materials segments.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Net sales | $8.71 billion | $10.49 billion |
| Gross margin | $2.00 billion; 23% | $3.46 billion; 33% |
| Earnings before tax and noncontrolling interests | $1.60 billion | $2.90 billion |
| Net earnings attributable to Nucor stockholders | $1.14 billion | $2.10 billion |
| Diluted EPS | $4.45 | $7.67 |
| Operating cash flow | $1.21 billion | $2.47 billion |
- Revenue declined 17%; average selling price per ton fell 18% to $1,352, while outside shipments rose 1% to 6.443 million tons.
- Net earnings attributable to Nucor were 13.0% of sales, versus 20.0% a year earlier. Annualized return on average stockholders’ equity was 24.3%, versus 57.4%.
- Steel mills segment earnings before tax fell to $838 million from $2.58 billion, principally reflecting lower selling prices, especially for sheet steel. Steel products earnings rose to $971 million from $685 million, supported by higher prices and robust nonresidential construction demand. Raw materials earnings decreased to $58 million from $96 million.
- Net interest expense was $10 million, down from $43 million: higher interest expense was more than offset by higher interest income. The effective tax rate was 22.9%, versus 23.2%.
Financial position and cash flows
- At April 1, 2023, cash and cash equivalents were $3.80 billion, short-term investments $818 million and restricted cash $81 million; together these totaled $4.70 billion. The comparable total at year-end 2022 was $4.94 billion.
- Total debt and finance lease obligations were approximately $6.67 billion on the balance sheet, including $54 million current and $6.62 billion long-term. The filing estimates fair value of short- and long-term debt, including current maturities, at approximately $6.07 billion. No revolving-credit-facility borrowings were outstanding.
- Current assets were $14.32 billion and current liabilities $3.83 billion; the reported current ratio was 3.7, compared with 3.4 at year-end 2022. Funded debt to total capital was 25.1%, below the credit facility’s 60% covenant limit.
- Capital expenditures were $532 million. Investing activities used $770 million; financing activities used $921 million, including $426 million of treasury stock purchases, $338 million of distributions to noncontrolling interests and $131 million of dividends. Cash and restricted cash decreased by $480 million during the quarter.
Changes, outlook and risks
- Management expected Q2 2023 earnings to increase from Q1. It anticipated steel mills improvement, mainly from sheet-mill margin expansion; strong but moderating steel products results as lower average prices offset higher volumes; and improved raw materials performance from DRI facilities.
- Management projected approximately $2.80 billion of 2023 capital expenditures, compared with $1.95 billion in 2022, focused on major mill and facility projects. It said available cash, investments, operating funds and borrowing capacity should cover existing-operation capital and working-capital needs for at least 24 months.
- Steel mills average utilization was 79%, versus 77% a year earlier; steel products utilization was 65%, versus 73%; raw materials utilization was 75%, versus 72%. Scrap and scrap-substitute cost per gross ton averaged $414, down 16% year over year; management projected stable scrap prices entering Q2.
- Pre-operating and start-up costs were approximately $82 million, versus $62 million, primarily related to the Kentucky plate mill and West Virginia sheet mill construction.
- Management cited competitive pricing and imports, steel demand and industry cyclicality, raw-material and energy prices, inflation and interest-rate volatility, equipment interruptions, environmental regulation, currency movements, capital-project execution and acquisition integration among risks. Ordinary-course legal proceedings were not expected to have a material adverse effect; the filing reported no material change in risk factors from the 2022 Form 10-K.
- The filing reported no material impact from the new 1% excise tax on certain stock repurchases. The Rebar Fabrication reporting unit’s fair value exceeded carrying value by about 34% in the latest annual assessment; no interim impairment trigger had occurred. The company noted that impairment could be required if expected performance declines.
Most important facts for investors to verify
- Whether Q2 earnings improved as forecast, particularly whether sheet-mill margin expansion offset steel products price moderation.
- Steel selling prices, shipment volumes and scrap/input costs, which drove the year-over-year decline in gross margin and earnings.
- Execution, timing, costs and expected returns of the approximately $2.80 billion 2023 capital program.
- Cash conversion and working-capital movements, including large profit-sharing payments and changes in accrued compensation.
- Progress on share repurchases: $426 million was spent in Q1 and approximately $661 million remained under the authorized program at April 1, 2023.