Nucor Corporation (NYSE: NUE) — Q2 2021 Form 10-Q
Business context and reporting period. Nucor manufactures steel and steel products, produces direct reduced iron, and processes and brokers raw materials. It reports three segments: steel mills, steel products, and raw materials. This unaudited report covers the 13 and 26 weeks ended July 3, 2021; comparisons are to the corresponding periods ended July 4, 2020.
Financial performance
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Net sales | $8.79 billion | $4.33 billion | $15.81 billion | $9.95 billion |
| Net earnings attributable to Nucor stockholders | $1.51 billion | $108.9 million | $2.45 billion | $129.2 million |
| Diluted earnings per share | $5.04 | $0.36 | $8.13 | $0.42 |
| Gross margin | $2.47 billion; 28% | $378.0 million; 9% | $4.10 billion; 26% | $1.01 billion; 10% |
| Cash from operating activities | Not separately provided | Not separately provided | $1.88 billion | $1.35 billion |
Q2 average selling price per ton rose 49% to $1,175, while external shipments increased 37% to 7.482 million tons. For the first half, average selling price rose 37% to $1,078 and shipments increased 16% to 14.658 million tons. Nucor attributed higher gross margins principally to improved steel-mill metal margins; higher selling prices and volumes more than offset higher scrap and scrap-substitute costs.
All three segments improved year over year. Q2 pretax earnings were $2.17 billion for steel mills, $259.3 million for steel products, and $120.1 million for raw materials, compared with $150.4 million, $152.9 million, and a $1.4 million loss, respectively. First-half annualized return on average stockholders’ equity was 42.5%, versus 2.5%.
Liquidity, debt, and capital allocation
At July 3, 2021, cash and cash equivalents were $2.72 billion, short-term investments $398.4 million, and restricted cash $84.4 million—approximately $3.21 billion of liquidity as defined by management. Current assets were $12.06 billion and current liabilities $3.88 billion; the current ratio was 3.1, down from 3.6 at year-end 2020. Total debt and finance lease obligations were approximately $5.39 billion on the balance sheet. Nucor reported a 29.8% funded-debt-to-total-capital ratio, no borrowings under its $1.50 billion revolving facility, and no significant debt maturities until September 2022.
First-half investing cash outflow was $681.4 million, including $702.4 million of capital expenditures. Financing cash outflow was $1.16 billion, including $916.1 million of share repurchases and $246.5 million of dividends. The company estimated 2021 capital expenditures of $1.80 billion. Its new $3.00 billion repurchase authorization had approximately $2.80 billion remaining at quarter-end. Management intends to return at least 40% of net earnings to stockholders while maintaining a strong investment-grade credit profile.
Changes, outlook, and notable items
- Year-over-year sales and earnings rose sharply from Q2 2020, when COVID-19 disruptions depressed shipments and market conditions. Management described Q2 2021 as a second consecutive record-profitability quarter; steel mills and steel products each set segment profitability records.
- Management expected Q3 2021 earnings to exceed the Q2 record, led by improved steel-mill pricing and margins, particularly in sheet. It also expected higher earnings in steel products and raw materials. Strong backlogs were cited as support for continued favorable conditions.
- Q2 included a non-cash $42.0 million charge to write off unproved oil and gas leasehold rights the company decided not to develop. First-half 2020 included a $292.8 million loss on the Duferdofin Nucor investment, which Nucor has since exited.
- After quarter-end, Nucor acquired Cornerstone Building Brands’ insulated metal panels business for approximately $1 billion. It also agreed to buy Hannibal Industries for approximately $370 million, with closing expected in August 2021. These are subsequent events, not Q2-period transactions.
- Key exposures include steel-price and demand cyclicality, scrap and other input-cost volatility, energy costs, imports and trade policy, operational interruptions, environmental regulation, asset impairment, and COVID-19 effects. Management said risk factors had not materially changed from its 2020 Form 10-K. Ordinary-course legal matters were not expected to have a material adverse effect; environmental remediation estimates remain subject to uncertainty.
Important facts for investors to verify
- Whether Q3 results met management’s record-earnings outlook, and how steel selling prices and scrap costs affected metal margins.
- Whether strong segment backlogs and high steel-mill utilization persisted, and whether demand remained robust across end markets.
- Cash conversion and working-capital needs: receivables and inventories increased substantially, and management reported a $1.27 billion cash reduction from operating-asset and liability changes in the first half.
- Funding, integration, and returns from the approximately $1 billion IMP acquisition and the planned Hannibal Industries acquisition, alongside the $1.80 billion 2021 capital-spending estimate.
- Progress on share repurchases, dividend policy, and maintaining leverage and liquidity through a cyclical downturn; also monitor potential impairment exposure in natural gas assets and other reporting units.