Nucor Corporation — Q1 2022 Form 10-Q
Reporting period: 13 weeks ended April 2, 2022; comparative period ended April 3, 2021. Unaudited results. Nucor manufactures steel and steel products and produces and processes raw materials, reporting through steel mills, steel products and raw materials segments.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Net sales | $10.49 billion | $7.02 billion |
| Gross margin | $3.46 billion; 33% of sales | $1.62 billion; 23% of sales |
| Earnings before tax and noncontrolling interests | $2.90 billion | $1.30 billion |
| Net earnings attributable to Nucor stockholders | $2.10 billion | $942.4 million |
| Diluted earnings per share | $7.67 | $3.10 |
| Cash provided by operating activities | $2.47 billion | $530.4 million |
- Sales increased 50%; average selling price per ton rose 68% to $1,641, while external shipments fell 11% to 6.394 million tons.
- Segment earnings before tax: steel mills $2.58 billion (prior year $1.31 billion); steel products $684.9 million ($211.8 million); raw materials $95.9 million ($223.2 million).
- Capital expenditures were $447.7 million. Cash used in investing was $981.7 million; cash used in financing was $189.3 million. Cash and cash equivalents were $3.73 billion at quarter-end.
- Total cash, cash equivalents, short-term investments and restricted cash were $4.26 billion. The current ratio was 2.9, versus 2.5 at year-end 2021.
- Short-term debt and current and long-term debt and finance lease obligations totaled approximately $6.83 billion at carrying value. Nucor issued $1.10 billion of notes: $550 million at 3.125% due 2032 and $550 million at 3.850% due 2052. No borrowings were outstanding under its $1.75 billion revolving credit facility; funded debt to total capital was 29.7%.
Material changes and notable items
- Q1 2022 was Nucor’s most profitable first quarter; earnings attributable to Nucor stockholders more than doubled year over year. The prior-year quarter had been the previous first-quarter record.
- Higher steel selling prices more than offset higher scrap costs: average scrap and scrap-substitute cost rose 22% to $495 per gross ton. Pre-operating and start-up costs increased to approximately $62 million from $19 million.
- Steel products delivered record quarterly profitability, supported by nonresidential construction demand. Raw materials earnings fell year over year, mainly due to lower margins at DRI facilities.
- On February 1, Nucor acquired a 51% controlling interest in California Steel Industries (CSI) for approximately $400 million, subject to closing adjustments. CSI results are consolidated from that date; purchase-price allocation remained preliminary. The acquisition added approximately $347 million of net cash investing outflow.
- Nucor repurchased $905.3 million of shares and paid $137.6 million in cash dividends. Approximately $2.94 billion remained under the $4.0 billion repurchase authorization. The quarterly dividend was $0.50 per share.
- On April 25, 2022, after quarter-end, Nucor redeemed $500 million of 2023 notes. It expected to redeem $600 million of 2022 notes before their September 2022 maturity.
Outlook, risks and contingencies
- Management said demand remained strong and expected 2022 to be another year of strong earnings and cash flow. It expected Q2 2022 to be Nucor’s most profitable quarter to date, driven by stronger steel products results, improved sheet and plate mill profitability, and higher raw-material selling prices.
- Management estimated 2022 capital expenditures at approximately $2.35 billion, compared with $1.62 billion in 2021, with major spending on the Kentucky plate mill and West Virginia sheet mill. It expected available cash, operating funds and credit access to meet needs for at least 24 months.
- Management identified risks including steel price and demand cycles, imports and trade policy, scrap and energy price volatility, supply-chain disruption, inflation and interest rates, equipment interruptions, environmental regulation, foreign exchange and COVID-19 effects. Scrap markets were expected to remain volatile in Q2.
- Steel mills utilization was approximately 77%, versus 95% a year earlier; steel products utilization was 73% versus 74%, and raw materials utilization was 72% versus 79%.
- The expected full-year 2022 effective tax rate was approximately 23.5%. Ordinary-course legal proceedings were not expected to have a material adverse effect; the filing reported no material change in risk factors. Disclosure controls were deemed effective.
Most important facts for investors to verify
- Whether Q2 earnings and demand matched management’s forecast, particularly in steel mills and steel products.
- How selling prices, shipment volumes, scrap and energy costs, and segment margins evolve amid market and supply-chain volatility.
- Final CSI purchase accounting and the contribution of the acquired business, including its noncontrolling interest.
- Progress, spending and start-up costs for major capital projects, alongside the planned 2022 capital budget.
- Completion of the planned 2022-note redemption and the pace of share repurchases relative to liquidity and investment needs.