Nucor Corporation — FY 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. This is an annual filing; fourth-quarter figures below are unaudited quarterly data included in the filing.
Business context
Nucor manufactures steel and steel products and produces, processes and brokers raw materials. It reports three segments: steel mills, steel products and raw materials. Operations and customers are primarily in North America; steelmaking primarily uses electric arc furnaces and recycled scrap. Steel mills generated 62% of 2019 sales to external customers.
Financial performance and liquidity
| Metric | 2019 | 2018 |
|---|---|---|
| Net sales | $22.59 billion | $25.07 billion |
| Gross margin | $2.68 billion; 12% of sales | $4.30 billion; 17% of sales |
| Net earnings attributable to Nucor stockholders | $1.27 billion | $2.36 billion |
| Diluted earnings per share | $4.14 | $7.42 |
| Cash provided by operating activities | $2.81 billion | $2.39 billion |
| Capital expenditures | $1.51 billion | $997 million |
| Cash and cash equivalents plus short-term investments at year-end | $1.83 billion | $1.40 billion |
| Working capital / current ratio | $5.76 billion / 3.3 | $5.83 billion / 3.1 |
| Long-term debt, including current maturities | $4.32 billion | $4.23 billion |
| Debt to capital | 28.6% | 29.3% |
Operating cash flow less capital expenditures was approximately $1.33 billion in 2019. Net interest expense was $121 million, down from $136 million. The effective tax rate was 23.1%, nearly unchanged from 23.2%.
For Q4 2019, net sales were $5.13 billion, gross margin was $435 million and net earnings attributable to Nucor stockholders were $108 million, or $0.35 per diluted share. Q4 included $66.9 million of non-cash impairment charges.
Material changes versus 2018
- Annual sales declined 10%; average sales price per ton fell 5% and external shipment volume fell 5%. Steel mills sales decreased 14%, steel products sales increased 3%, and raw materials sales decreased 18%.
- Steel mills earnings before taxes and noncontrolling interests fell to $1.79 billion from $3.50 billion, primarily reflecting lower prices, shipment volumes and metal margins. Scrap and scrap-substitute cost per gross ton used fell 13%, but not enough to offset weaker steel selling prices and volumes.
- Steel products recorded a segment earnings record of $511 million, up from $467 million, supported by nonresidential construction and improved performance in joist, deck, rebar fabrication and building systems.
- Raw materials moved to a $28 million segment loss from $236 million of earnings, amid lower selling prices, DRI margin compression and weaker scrap-processing and brokerage results. Louisiana DRI also underwent a planned 70-day outage.
- Cash from operations increased despite lower earnings, mainly because working-capital changes provided $413 million in 2019, versus using $983 million in 2018. Capital expenditures rose substantially as major expansion projects advanced.
Outlook, risks and unusual items
- Management expected 2020 domestic steel demand to grow modestly and described conditions as stable or improving in 17 of 24 monitored end markets. It expected Q1 2020 earnings to rise versus Q4 2019, with higher steel-mill earnings and raw-materials performance, partly offset by seasonal weakness in steel products.
- Projected 2020 capital expenditures were approximately $2.0 billion. Major growth projects included the Brandenburg, Kentucky plate mill, planned for completion in 2022, and expansions and new mills expected to start up during 2020–2021.
- Management identified global steel overcapacity and potential import pressure, cyclical end-market demand, volatile scrap and iron-ore costs, energy prices, and the lag in passing input-cost changes through to selling prices as key risks. Other disclosed risks include environmental regulation and remediation, operational interruptions, cybersecurity, international exposure and possible asset impairments.
- Section 232 tariffs were cited as supporting U.S. steel-market conditions; management cautioned that excess foreign capacity remained a threat. The filing noted the USMCA’s passage and a phase-one U.S.-China trade agreement in January 2020.
- 2019 unusual items included $66.9 million of non-cash impairments: $35.0 million for natural-gas well assets, $20.0 million for plate-mill property and equipment, and $11.9 million for steel-products intangible assets. A $33.7 million gain on sale of an equity-method investment partly offset results. The 2018 comparison included a $110 million natural-gas asset impairment and insurance-recovery benefits.
- Environmental remediation accruals were $16.4 million at year-end. Nucor said ordinary-course legal proceedings were not expected to materially adversely affect results, financial position or cash flows. The filing also disclosed $50.9 million of unrecognized tax benefits and $11.9 million of related accrued interest and penalties.
- The $1.5 billion revolving credit facility was undrawn at year-end and matures in April 2023. Nucor reported investment-grade ratings and compliance with its credit covenants. It paid $1.60 per share in dividends in 2019 and repurchased $298.5 million of stock.
Important facts for investors to verify
- Whether steel pricing and shipment volumes recover as management expected, and whether the 2019 inventory destocking had ended.
- Whether planned 2020–2022 capital projects meet cost, timing, utilization and return expectations; verify the revised Nucor-JFE project budget, which rose from $270 million to approximately $360 million overall.
- Whether DRI and other raw-material operations regain profitability, and how scrap, iron ore and energy-cost movements affect margins.
- Whether the goodwill and long-lived asset estimates remain supportable, particularly the Rebar Fabrication reporting unit; the auditor identified its goodwill impairment assessment as a critical audit matter, although no goodwill impairment was recorded.
- How trade policy, steel imports, environmental requirements and potential legal or remediation developments affect the company’s outlook and capital needs.