NUCOR CORP 10-Q Summary: Period Ended July 3, 2004
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended July 3, 2004, and the six-month period ended on the same date. 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 the first half of 2004, operating substantially at capacity.
Key Financial Metrics
| Metric | Six Months Ended July 3, 2004 | Six Months Ended July 5, 2003 | Three Months Ended July 3, 2004 | Three Months Ended July 5, 2003 |
|---|---|---|---|---|
| Net Sales | $5,048,238 | $3,000,732 | $2,761,822 | $1,520,461 |
| Net Earnings | $364,680 | $26,207 | $251,442 | $8,425 |
| Diluted EPS | $4.59 | $0.33 | $3.17 | $0.11 |
| Operating Cash Flow | $371,914 | $206,772 | N/A | N/A |
| Cash & Short-term Investments | $502,050 | $350,332 | N/A | N/A |
| Long-term Debt | $903,550 | $903,550 | N/A | N/A |
| Current Ratio | 2.4 | 2.6 | N/A | N/A |
| Gross Margin | ~16% | ~5% | ~19% | ~4% |
Note: All figures in thousands except per share amounts and ratios.
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 68% for the six months and 82% for the quarter compared to the prior year. This was driven by a 47% increase in average sales price per ton (to $514) and a 15% increase in tons shipped.
- Profitability Surge: Net earnings increased dramatically due to improved gross margins (16% vs 5% year-over-year) and reduced pre-operating costs. However, this was partially offset by a significant LIFO charge of $99.3 million for the six months due to rising raw material costs.
- Raw Material Costs: Average scrap costs rose 69% year-over-year to $214 per ton. Raw material costs increased approximately 60% for the first half of 2004.
- Asset Impairment: A $13.2 million charge was recorded for the Kingman, Arizona facility after management decided not to restart the melt shop.
- Profit Sharing: Marketing and administrative expenses increased significantly due to profit-sharing costs, which rose approximately ninefold. This included a $10 million extraordinary bonus paid to employees for record earnings.
Guidance, Outlook, and Risks
- Capital Expenditures: Projected to be approximately $230.0 million for the full year 2004. Capital expenditures increased 18% in the first half compared to the prior year.
- Liquidity: Management expects funds from operations and existing credit facilities to be sufficient for the next 24 months. The company maintains a simple capital structure with no off-balance sheet arrangements.
- Subsequent Acquisitions: Following the reporting period, Nucor announced the purchase of Corus Tuscaloosa assets for ~$89.7 million and Worthington Industries cold rolling mill assets for ~$80.3 million.
- Risks: Key risks include sensitivity to steel prices, raw material supply and cost (scrap steel), energy costs, global economic uncertainty, and trade policies affecting imports.
- Contingencies: Environmental reserves totaled $55.2 million. No other material legal proceedings were identified that would significantly impact financial statements.
Investor Verification Checklist
- LIFO Impact: Verify the sustainability of margins given the $99.3 million LIFO charge and the volatility of scrap steel prices.
- Asset Write-downs: Confirm the status and potential future value of the Kingman, Arizona facility assets.
- Acquisition Integration: Monitor the financial impact and integration progress of the Corus Tuscaloosa and Worthington Decatur acquisitions announced post-period.
- Profit Sharing Volatility: Assess the impact of variable profit-sharing costs on future operating margins during periods of lower earnings.
- Capacity Utilization: Validate the ability to maintain near 100% capacity utilization in the face of potential demand fluctuations.