Nucor Corporation — Q3 2023 Form 10-Q
Business context and period. Nucor manufactures steel and steel products, produces direct reduced iron, and processes and brokers raw materials. This unaudited quarterly report covers the 13 weeks ended September 30, 2023, and the 39 weeks ended that date; comparatives are the corresponding 2022 periods.
Financial performance
| Metric | Q3 2023 | Q3 2022 | First nine months 2023 | First nine months 2022 |
|---|---|---|---|---|
| Net sales | $8.78 billion | $10.50 billion | $27.01 billion | $32.79 billion |
| Net earnings attributable to Nucor stockholders | $1.14 billion | $1.69 billion | $3.74 billion | $6.35 billion |
| Diluted earnings per share | $4.57 | $6.50 | $14.83 | $23.85 |
| Gross margin | $1.92 billion (22%) | $2.84 billion (27%) | $6.42 billion (24%) | $10.41 billion (32%) |
| Cash provided by operating activities | Not separately stated for the quarter | $5.59 billion | $7.54 billion |
Q3 net earnings attributable to Nucor were 13.0% of sales, versus 16.1% a year earlier; the nine-month figures were 13.8% and 19.4%. Nine-month capital expenditures were $1.50 billion. Cash and cash equivalents, short-term investments, and restricted cash totaled $6.73 billion at September 30, 2023. Total debt and finance lease obligations were approximately $6.68 billion, including $6.62 billion due after one year. The current ratio was 3.7.
Material changes versus comparable periods
- Q3 sales declined 16% year over year; average selling price per ton fell 14% and outside shipments decreased 3%. For the first nine months, sales declined 18%, average selling price per ton fell 15%, and outside shipments decreased 3%.
- Q3 earnings declined across all three operating segments. Steel mills faced lower selling prices and metal margins; steel products were affected by lower volumes and prices, partly offset by stronger rebar fabrication; raw materials earnings fell, particularly at DRI facilities.
- Nine-month operating cash flow decreased $1.95 billion, primarily reflecting lower earnings, partly offset by more favorable changes in operating assets and liabilities.
- Pre-operating and start-up costs were approximately $100 million in Q3 and $273 million for the first nine months, mainly related to the Kentucky plate mill and West Virginia sheet mill projects.
Outlook, risks, and contingencies
- Management expected Q4 2023 earnings to decrease from Q3, mainly due to lower pricing across all segments and, to a lesser extent, lower volumes. The anticipated price pressure was most pronounced for sheet steel; planned DRI facility outages were also expected to weigh on raw materials earnings.
- Management estimated 2023 capital expenditures of approximately $2.40 billion and an effective tax rate of approximately 22.3%. It said available funds and credit access should meet existing-operation capital and working-capital needs for at least 24 months.
- Management expected scrap prices to decrease in Q4 compared with Q3. Key exposures include steel and raw-material prices, energy costs, demand, imports and trade policy, interest rates, foreign exchange, operational interruptions, and environmental regulation.
- Nucor was negotiating a settlement concerning alleged Clean Air Act violations at its Louisiana DRI facility and did not expect the aggregate settlement to be material. The company said ordinary-course legal proceedings were not expected to have a material adverse effect.
- The IRS was examining certain federal tax years, and Canadian tax returns were also under examination. Nucor reported $179.8 million of gross unrecognized tax benefits at September 30, 2023.
- No material changes to the risk factors disclosed in the 2022 Form 10-K were reported. Management identified no interim goodwill impairment trigger for Rebar Fabrication, while noting that a deterioration in expected performance could result in impairment charges.
Important facts for investors to verify
- Whether steel pricing, shipment volumes, and segment margins follow the Q4 trends management anticipated.
- Progress, costs, timing, and expected returns for major mill projects, given the $2.40 billion 2023 capital-spending estimate and elevated start-up costs.
- Cash generation and liquidity as earnings moderate, alongside continued dividends and share repurchases; approximately $3.50 billion remained authorized for repurchases at quarter-end.
- Developments in the Louisiana environmental settlement, tax examinations, and Rebar Fabrication goodwill assumptions.