Nucor Corporation — Q1 2013 Form 10-Q
Reporting period: Unaudited 13-week quarter ended March 30, 2013; comparisons are with the 13 weeks ended March 31, 2012. Amounts below are U.S. dollars.
Financial performance
| Metric | Q1 2013 | Q1 2012 | Change |
|---|---|---|---|
| Net sales | $4.551 billion | $5.073 billion | Down 10% |
| Gross margin | $303.2 million; 7% | $380.5 million; 8% | Down $77.3 million |
| Earnings before taxes and noncontrolling interests | $153.3 million | $225.1 million | Down 32% |
| Net earnings attributable to Nucor stockholders | $84.8 million; $0.26 per diluted share | $145.1 million; $0.46 per diluted share | Down 42% |
| Cash provided by operating activities | $128.8 million | $201.8 million | Down $73.0 million |
Net sales fell as average selling price per ton declined 7% to $798 and outside shipments declined 4%. Steel production was down 8%, to 4.818 million tons. The steel mills segment generated $272.3 million of pretax earnings, versus $389.7 million; steel products recorded a pretax loss of $11.9 million, compared with a $33.0 million loss; raw materials earned $1.5 million, versus $14.6 million. Reported net earnings as a percentage of sales were 2%, compared with 3%.
Cash, debt and liquidity
- Cash and cash equivalents were $902.7 million; short-term investments were $29.5 million. Together, these totaled $932.2 million at quarter-end, down from $1.157 billion at year-end 2012.
- Current assets were $5.547 billion and current liabilities $1.987 billion; the reported current ratio was 2.8, unchanged from year-end.
- Debt on the balance sheet totaled approximately $3.673 billion, including current maturities. Funded debt to total capitalization was 32%, within the credit facility’s 60% limit. Nucor had no borrowings under its $1.5 billion revolving credit facility.
- Capital expenditures were $330.6 million, compared with $161.5 million a year earlier. Investing activities used $138.8 million; financing activities used $139.1 million. Cash and equivalents decreased $150.2 million during the quarter.
- The company declared a quarterly dividend of $0.3675 per share. Dividends paid were $117.6 million.
Material changes and unusual items
- Lower steel prices and shipment volumes, reduced metal margins, and higher unit energy costs pressured results. Management cited imports and excess domestic capacity, weak nonresidential construction demand, and a less pronounced seasonal improvement than in prior years.
- A $18.0 million LIFO charge reduced gross margin, compared with a $14.5 million charge in Q1 2012. The charge reflects management’s estimate of year-end inventory costs and quantities and may differ from the final amount.
- Weather affected scrap flows and fabricated rebar shipments; an unplanned 18-day outage at the Trinidad DRI facility also hurt raw-materials results. Skyline Steel, acquired in June 2012, contributed to the current-period results.
- Foreign currency translation reduced other comprehensive income by $50.5 million. Q1 2012 included a $12.6 million noncash tax adjustment; Q1 2013’s effective tax rate benefited from retroactively extended research and development credits.
- Capital spending and construction of the Louisiana DRI facility continued. Restricted funds of $146.6 million were available for qualified project costs; $128.7 million was disbursed during the quarter.
Outlook, risks and contingencies
Management expected some improvement in Q2 2013 earnings, led by fabricated construction products, raw materials and most steel mill product groups, partly offset by weaker sheet steel. It remained cautiously optimistic that nonresidential construction would improve slowly, while noting import levels and economic and political uncertainty. The Louisiana 2.5-million-ton DRI facility was expected to start up late in Q3 2013, later than previously anticipated because of severe weather. Full-year 2013 capital expenditures were projected at approximately $1.1 billion, versus $947.6 million in 2012. Management expected a full-year 2013 effective tax rate of approximately 32%.
- Key business risks include steel prices and demand, imports and competition, scrap and other raw-material costs, energy prices, construction-market weakness, currency movements, regulation, and the cyclical steel industry.
- Nucor warned that challenging European steel conditions could change the assumptions used to value its Duferdofin Nucor investment and potentially lead to impairment.
- Nucor guaranteed 50% of certain Duferdofin Nucor borrowings; the filing reports no liability recorded for the guarantee. It also reported a $3.64 billion expected investment over more than 20 years under its natural-gas drilling agreement.
- Accrued environmental costs were $24.7 million. Nucor is a defendant in steel-industry antitrust class actions and said it could not predict the outcome or estimate its potential exposure; it believes the claims are without merit. The company did not expect other ordinary-course proceedings to have a material adverse effect.
- Management stated that existing resources and credit facilities were expected to cover capital expenditure and working-capital requirements for at least 24 months. The $1.5 billion revolver expires in December 2016; 93% of long-term debt matures in 2017 or later.
Important facts for investors to verify
- Whether steel prices, outside shipment volumes and metal margins stabilize or improve, especially in sheet steel and construction-related products.
- Whether the Louisiana DRI facility meets the revised late-Q3 2013 startup expectation and the projected capital-spending plan.
- How actual year-end inventory costs affect the estimated LIFO charge and reported margins.
- Whether European market conditions change Duferdofin Nucor’s valuation or create an impairment; also monitor exposure under the associated guarantee.
- Progress on the natural-gas drilling commitment, cash generation, and liquidity as capital spending remains elevated.
- Developments in the antitrust litigation, environmental obligations, and other contingencies; the filing does not provide a clear estimate of potential antitrust exposure.