Nucor Corporation (NYSE: NUE) — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. The filing also reports fourth-quarter 2023 results. Nucor manufactures steel and steel products and produces, processes, and brokers raw materials, with operations and customers primarily in North America. Its three segments are steel mills, steel products, and raw materials.
Financial performance and position
| Metric | 2023 | 2022 |
|---|---|---|
| Net sales | $34.71 billion | $41.51 billion |
| Gross margin | $7.81 billion (23% of sales) | $12.50 billion (30% of sales) |
| Net earnings attributable to Nucor | $4.52 billion | $7.61 billion |
| Diluted earnings per share | $18.00 | $28.79 |
| Cash provided by operating activities | $7.11 billion | $10.07 billion |
| Capital expenditures | $2.21 billion | $1.95 billion |
- Sales declined 16%; average sales price per ton fell 15%, while outside-customer shipment volume decreased 1% to 25.2 million tons.
- Steel mills external sales fell 17% to $20.09 billion; steel products sales fell 15% to $12.76 billion; raw materials sales fell 18% to $1.86 billion.
- Steel mills segment earnings before tax and noncontrolling interests declined to $3.71 billion from $7.20 billion. Steel products segment earnings fell to $3.44 billion from $4.09 billion; raw materials segment earnings fell to $254 million from $497 million.
- Management attributed the earnings decline mainly to lower steel selling prices outpacing reductions in scrap and scrap-substitute costs. Average scrap and substitute cost fell 14%, to $421 per gross ton from $492.
- Fourth-quarter 2023 net sales were $7.70 billion and net earnings attributable to Nucor were $785 million; diluted EPS was $3.16. Fourth-quarter 2022 net sales were $8.72 billion and diluted EPS was $4.89.
- Year-end cash and cash equivalents were $6.38 billion, short-term investments $747 million, and restricted cash $3 million; combined liquidity was approximately $7.13 billion. Working capital was $11.79 billion and the current ratio was 3.6, versus 3.4 in 2022.
- Long-term debt and finance lease obligations totaled $6.72 billion net of premiums and issuance costs; the company reported debt to total capital of 24%. Its $1.75 billion revolving credit facility was undrawn, with no covenant breach reported.
- Return on average stockholders’ equity was 23.0%, down from 46.9%. Net earnings attributable to Nucor were 13.0% of sales, versus 18.3%.
Material changes, outlook, and management commentary
- 2023 was Nucor’s third most profitable year, but earnings retreated from 2022’s record. Lower steel-mill metal margins were the primary factor; steel products also saw weaker prices and volumes, particularly in joist and deck. Rebar fabrication set a profitability record.
- Operating rates for steel mills were 78% for 2023, compared with 77% in 2022. At year-end, steel-mill order backlog was $3.27 billion, up from $2.33 billion; steel-products backlog was $4.97 billion, down from $6.65 billion. Most steel-products backlog was expected to ship within one year.
- Management expected first-quarter 2024 earnings to increase from fourth-quarter 2023: steel-mill profitability was expected to improve on higher prices and volumes, especially sheet; steel-products earnings were expected to decline on lower average selling prices; and raw-materials earnings were expected to rise.
- Management estimated 2024 capital expenditures of approximately $3.5 billion and expected share repurchases to exceed 2023 levels. Major projects include the West Virginia sheet mill, the Indiana sheet-mill expansion, the North Carolina rebar micro mill, and two manufacturing sites for Nucor Towers & Structures. The West Virginia sheet mill is estimated to cost $3.1 billion net of state assistance; completion is expected to take two to three years from construction start.
- Pre-operating and start-up costs rose to approximately $400 million in 2023 from $247 million in 2022, largely related to the Kentucky plate mill, West Virginia sheet mill, and North Carolina micro mill. The Kentucky plate mill remained in ramp-up; management estimated 2024 shipments of about 500,000 tons.
- Nucor returned approximately $2.07 billion through dividends and repurchases in 2023 and states an intent to return at least 40% of net income to stockholders over time. It repurchased $1.55 billion of shares in 2023 and had approximately $3.32 billion remaining under its repurchase authorization at year-end. The 2023 dividend was $2.04 per share; the quarterly rate was raised to $0.54.
Risks, contingencies, and unusual items
- Key risks include global steel overcapacity and imports, cyclical end markets, steel-price and scrap-cost volatility, energy availability and costs, and competition from other materials. Management also highlighted the difficulty of passing through raw-material cost increases quickly, especially in weak markets.
- Environmental and climate rules could increase compliance, energy, and capital costs or complicate permits. Nucor announced net-zero GHG intensity targets for 2050 and an interim 2030 target; it also contracted with ExxonMobil to capture and store 600,000–800,000 metric tons of CO2 annually from its Louisiana DRI plant, with start-up expected in 2026.
- Nucor Louisiana received EPA allegations of Clean Air Act violations in 2022; a settlement was being negotiated with federal and state authorities. The company did not expect the aggregate settlement to be material. Nucor stated that other ordinary-course legal proceedings were not expected to materially affect its financial position or results.
- 2023 included a $21 million loss in marketing, administrative and other expenses from remeasuring Nucor’s prior NJSM interest when it acquired an additional 1% and obtained control. NJSM was consolidated beginning in the fourth quarter. In 2022, the company recorded a $96 million write-off of unproved oil and gas leasehold interests and $5.8 million of machinery and equipment impairment.
- Goodwill was $3.97 billion at year-end, including $2.51 billion in steel products. The annual impairment test found no charge, but the auditor identified goodwill impairment assessments for certain steel-products reporting units as a critical audit matter because of judgment involved in forecasts and discount rates.
- Unrecognized tax benefits were $188 million, with $37 million of related accrued interest and penalties. Tax examinations were ongoing for specified U.S. and Canadian years. The filing also identifies cybersecurity, operational interruptions, acquisition integration, and environmental remediation as risks; it reported no cybersecurity threat that had materially affected or was reasonably likely to materially affect the company as of the filing date.
Important facts for investors to verify
- Whether steel prices and metal margins recover sufficiently to offset the 2023 decline, and how quickly contract-price adjustments track raw-material costs.
- Whether the expected first-quarter 2024 earnings improvement and planned $3.5 billion capital program are achieved without materially weakening cash generation or leverage.
- Progress, costs, timing, ramp-up, and returns for the West Virginia sheet mill and other major projects, including the Kentucky plate mill.
- Whether steel-products backlog conversion and performance in joist, deck, and newer acquired businesses support earnings as expected.
- Developments in global overcapacity, trade measures, energy costs, environmental requirements, the Louisiana EPA settlement, and tax examinations.
- The filing reports that PwC issued unqualified opinions on the financial statements and internal control over financial reporting, and management concluded controls were effective as of December 31, 2023.