Nucor Corporation — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended October 1, 2022. Unaudited results; comparisons are to the periods ended October 2, 2021, unless stated otherwise. Amounts are U.S. dollars.
Business context
Nucor manufactures steel and steel products and produces and processes raw materials. It reports three segments: steel mills, steel products and raw materials. During 2022, Nucor acquired a 51% controlling interest in California Steel Industries (CSI) and acquired overhead-door manufacturer C.H.I.; their results are included in the relevant segments from their acquisition dates.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net sales | $10.50 billion | $10.31 billion | $32.79 billion | $26.12 billion |
| Net earnings attributable to Nucor stockholders | $1.69 billion | $2.13 billion | $6.35 billion | $4.58 billion |
| Diluted earnings per share | $6.50 | $7.28 | $23.85 | $15.34 |
| Gross margin (reported) | $2.84 billion (27%) | $3.41 billion (33%) | $10.41 billion (32%) | $7.50 billion (29%) |
| Cash provided by operating activities | Not stated for quarter | Not stated for quarter | $7.54 billion | $3.62 billion |
- Q3 sales rose 2%, while Nucor-attributable earnings fell about 20%. Average sales price per ton increased 14% year over year, but outside shipments declined 11%.
- Nine-month sales increased 26% and Nucor-attributable earnings rose about 39%. Average sales price per ton rose 39%, while outside shipments declined 9%.
- Q3 Nucor-attributable net earnings were 16.1% of sales, versus 20.6% a year earlier; the comparable nine-month figures were 19.4% and 17.5%.
- Q3 segment pretax earnings: steel mills $1.29 billion (down from $3.12 billion); steel products $1.20 billion (up from $369 million); raw materials $279 million (up from $162 million).
Cash, debt and liquidity
- At October 1, 2022, cash and cash equivalents were $3.05 billion, short-term investments $377 million and restricted cash $80 million. Total liquidity on this basis was $3.51 billion, compared with $2.76 billion at year-end 2021.
- Operating cash flow for the first nine months was $7.54 billion. Investing activities used $4.99 billion, including $3.55 billion for acquisitions and $1.43 billion for capital expenditures. Financing activities used $1.93 billion.
- Balance-sheet short- and long-term debt and finance lease obligations totaled approximately $6.71 billion, including $65 million of short-term debt, $29 million current maturities and $6.62 billion due after one year. The filing reports estimated fair value of short- and long-term debt at approximately $5.80 billion.
- Current assets were $14.36 billion and current liabilities $4.63 billion; management reported a current ratio of 3.1. No borrowings were outstanding under the $1.75 billion revolving facility. Funded debt to total capital was 26.3%, within the 60% covenant limit.
- Nucor repurchased $2.36 billion of shares and paid $404 million in cash dividends during the first nine months. Approximately $1.49 billion remained under its $4.00 billion share repurchase authorization.
Material changes and notable items
- Steel mills’ Q3 pretax earnings fell substantially year over year as shipments and selling prices declined and steel margins contracted. Management attributed the sequential decline from Q2 principally to lower volumes and selling prices falling faster than raw-material costs.
- Steel products’ Q3 sales increased 49%, driven largely by higher average selling prices; segment pretax earnings more than tripled. Demand in nonresidential construction remained strong, and management described segment backlogs as strong.
- C.H.I. was acquired in June for approximately $3.00 billion net of cash acquired. The preliminary purchase allocation included $1.04 billion of goodwill and $2.39 billion of identifiable intangible assets. The acquisition increased reported goodwill and intangible assets; purchase accounting remained subject to change.
- CSI was acquired in February for approximately $400 million for Nucor’s controlling interest. The filing also reports $3.55 billion of acquisition cash outflows for the nine-month period, including these and other acquisitions.
- Nucor issued $2.10 billion of notes during the nine months and redeemed $1.10 billion of earlier-maturing notes. The new notes included maturities from 2025 through 2052.
- Pre-operating and start-up costs were approximately $52 million in Q3 and $174 million for the first nine months, primarily for steel mill and expansion projects.
Outlook, risks and contingencies
- Management expected 2022 to be Nucor’s most profitable year on record, but forecast Q4 earnings below Q3. It expected considerably lower steel mills earnings, a seasonally lower but still strong steel products result, and significantly lower raw materials earnings.
- Management cited economic uncertainty, inflation-fighting monetary policy, geopolitical tensions and a stronger U.S. dollar as challenges that could temper near-term demand. Service-center caution was already affecting steel mills pricing and volumes. Management remained positive on the medium- and long-term outlook, particularly for steel products.
- Estimated 2022 capital expenditures were approximately $2.0 billion, compared with $1.70 billion in 2021. Management said available funds and access to capital were expected to cover operating, working-capital and capital-expenditure needs for at least 24 months.
- Principal risks include steel-industry cyclicality, selling-price and raw-material volatility, energy costs and availability, import competition and trade policy, economic conditions, project execution, acquisition integration, equipment interruptions, environmental regulation and potential asset impairments. The filing reported no material change to previously disclosed risk factors.
- Nucor said ordinary-course legal matters were not expected to have a material adverse effect. Tax examinations were ongoing in the U.S. and Canada; the filing reported $136.9 million of gross unrecognized tax benefits.
Important facts for investors to verify
- Whether the expected Q4 decline in earnings, particularly in steel mills, materialized and how steel prices, volumes and metal margins evolved.
- Whether nonresidential construction demand and steel products backlogs remained resilient amid broader economic uncertainty.
- Integration, realized synergies and final purchase accounting for C.H.I. and CSI, including the effect of acquired goodwill and intangible-asset amortization.
- Capital-spending delivery, acquisition-related cash requirements, debt levels and continuing share repurchases relative to cash generation.
- Exposure to scrap, energy and commodity-price movements, as well as developments in tax examinations and other contingencies.