NUCOR CORP 10-Q Summary: Quarter Ended April 3, 2004
Business Context and Reporting Period
This Form 10-Q covers the 13-week period ended April 3, 2004. Nucor Corporation operates in two primary segments: steel mills (carbon and alloy steel) and steel products (joists, deck, fasteners, etc.). The company reported record production and sales volumes in its steel mills segment, operating substantially at capacity compared to 94% in the prior year.
Key Financial Metrics
| Metric | Q1 2004 | Q1 2003 |
|---|---|---|
| Net Sales | $2,286.4 million | $1,480.3 million |
| Net Earnings | $113.2 million | $17.8 million |
| Diluted EPS | $1.43 | $0.23 |
| Gross Margin | ~12% | ~5% |
| Operating Cash Flow | $201.5 million | $127.8 million |
| Capital Expenditures | $66.2 million | $42.5 million |
| Long-Term Debt | $903.6 million | $903.6 million |
| Cash & Short-Term Investments | $397.9 million | $350.3 million |
| Current Ratio | 2.2 | 2.6 (Year-end 2003) |
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 54% year-over-year, driven by a 16% increase in tons shipped and a 33% increase in average sales price per ton ($455 vs. $342).
- Profitability: Net earnings surged 537% due to improved gross margins, higher sales volumes, and reduced pre-operating costs at new facilities.
- Cost Pressures: Raw material costs rose 55%, with scrap costs increasing 64% to $200/ton. This resulted in a $32.2 million LIFO charge, compared to $6.4 million in the prior year.
- Operational Efficiency: Steel mills operated at full capacity, producing 4.96 million tons versus 4.26 million tons in Q1 2003.
- Expense Fluctuations: Profit-sharing costs increased twelvefold due to higher earnings, while unit freight costs decreased 8%.
Guidance, Outlook, and Risks
- Capital Expenditures: Projected to be approximately $230.0 million for the full year 2004.
- Dividends: The quarterly cash dividend was increased from $0.20 to $0.21 per share, effective May 11, 2004.
- Acquisitions: In February 2004, Nucor purchased a 50% interest in Harris Steel, Inc. for approximately $21.0 million, with potential additional earn-outs.
- Risks: Management highlights sensitivity to steel prices, raw material supply/costs (scrap), energy costs, global economic conditions, and trade policies. The cyclical nature of the steel industry remains a key risk factor.
- Legal/Environmental: Nucor agreed to pay a $100,000 civil penalty and fund $100,000 in environmental projects to resolve alleged violations with the Texas Commission of Environmental Quality.
Investor Verification Checklist
- Verify the sustainability of the 33% increase in average sales price per ton against future raw material cost trends.
- Confirm the operational status and profitability timeline of the newly acquired Harris Steel interest.
- Monitor the impact of the $32.2 million LIFO charge on future earnings if raw material prices stabilize or decline.
- Review the progress of the Castrip facility start-up in Crawfordsville, Indiana, which contributed to pre-operating costs.
- Assess the company's ability to maintain the 12% gross margin given the 64% increase in scrap costs.