Nucor Corporation (NYSE: NUE) — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; the filing also reports fourth-quarter results. Nucor manufactures steel and steel products, produces direct reduced iron, and processes and brokers metals. It reports three segments: steel mills, steel products, and raw materials. Most operations and customers are in North America.
Key financial results
| Metric | FY 2022 | FY 2021 | Change / context |
|---|---|---|---|
| Net sales | $41.51 billion | $36.48 billion | Up 14%; average sales price per ton rose 26% while external shipment tons fell 10%. |
| Gross margin | $12.50 billion; 30% | $11.03 billion; 30% | Dollar margin increased; percentage was flat. |
| Net earnings attributable to Nucor stockholders | $7.61 billion | $6.83 billion | Record annual earnings; diluted EPS was $28.79 versus $23.16. |
| Earnings before taxes and noncontrolling interests | $10.24 billion | $9.20 billion | Up year over year. |
| Cash provided by operating activities | $10.07 billion | $6.23 billion | Increase reflected higher earnings and favorable working-capital movements. |
| Capital expenditures | $1.95 billion | $1.62 billion | 2023 estimate: approximately $3.0 billion. |
| Cash, short-term investments and restricted cash | $4.94 billion | $2.76 billion | Includes $80 million of restricted cash. |
| Debt and finance lease obligations, net carrying amount | $6.64 billion | $5.58 billion | Funded debt to total capital was approximately 25%. |
Segment performance and fourth quarter
- Steel mills: External sales were $24.19 billion, essentially flat. Segment earnings before tax fell to $7.20 billion from $9.74 billion, mainly because sheet pricing and volumes weakened, utilization declined, and conversion costs rose. Steel mill utilization was 77%, versus 94% in 2021.
- Steel products: External sales rose 55% to $15.06 billion, and segment earnings before tax more than tripled to $4.09 billion. Strong nonresidential construction demand and higher realized prices—especially in joist and deck—were key drivers.
- Raw materials: External sales decreased 13% to $2.26 billion and segment earnings before tax declined to $497 million from $550 million, reflecting lower DJJ volumes and a $96 million oil-and-gas leasehold write-off, partly offset by stronger DRI profitability.
- Q4 2022: Net sales were $8.72 billion, gross margin $2.10 billion, net earnings attributable to Nucor stockholders $1.26 billion, and diluted EPS $4.89. Q4 2021 comparatives were $10.36 billion, $3.52 billion, $2.25 billion, and $7.97, respectively.
Material changes and capital allocation
- Sales growth was price-led despite lower shipment volumes. Average steel mills selling prices increased 11%; steel products average price per ton rose 54% with volumes up 1%.
- Acquisitions expanded the portfolio: Nucor acquired a 51% controlling interest in California Steel Industries (CSI) in February and C.H.I. Overhead Doors (CHI) in June. CHI’s purchase price, net of cash acquired, was approximately $3.0 billion. These acquisitions increased assets, goodwill and intangible assets; acquisition-related results are included only from their respective closing dates.
- Nucor repurchased $2.76 billion of shares and paid $2.00 per share in dividends during 2022. It returned approximately $3.30 billion to stockholders and had about $1.09 billion remaining under its authorized repurchase program at year-end.
- Major projects include the completed Brandenburg plate mill, which rolled its first plate in December 2022, and the Gallatin sheet mill expansion, expected to reach full operation in Q2 2023. The new West Virginia sheet mill estimate increased to approximately $3.1 billion net of state assistance, from the original $2.7 billion; construction was pending federal permits. A $350 million North Carolina rebar micro mill is expected to operate in 2024.
Outlook, risks and unusual items
- Management expected Q1 2023 combined operating income from the three segments to exceed Q4 2022. Steel mills profitability was expected to increase, particularly in sheet; steel products profitability was expected to remain strong but decline sequentially due to seasonality and lower realized pricing. Raw materials profitability was expected to improve excluding the Q4 impairment.
- Management nevertheless expected consolidated net earnings to decrease from Q4 2022, citing intercompany eliminations and the absence of Q4 state tax benefits. Q4 included after-tax benefits of $60.4 million from state tax credits and $88.0 million from a deferred-tax valuation-allowance change, plus a $96.0 million pre-tax write-off of unproved oil and gas properties.
- Key risks include steel-market cyclicality and global overcapacity; imports and trade-policy changes; volatile scrap, pig iron, energy and other input costs; demand sensitivity to construction and economic conditions; inflation, interest rates and labor or supply-chain constraints; environmental and greenhouse-gas regulation; permitting and project execution; cyber threats; and acquisition integration.
- Management stated that operating cash flow, available cash and investments, and borrowing capacity should cover existing operating needs, capital expenditures and current debt maturities for at least 24 months. The $1.75 billion revolving credit facility was undrawn at year-end. No material adverse effect was expected from ordinary-course legal proceedings; no environmental proceeding meeting the company’s stated $1 million disclosure threshold was reported.
- Auditor PwC issued unqualified opinions on the financial statements and internal control over financial reporting. CSI and CHI, acquired in 2022, were excluded from the internal-control assessment and audit; together they represented 5.49% of assets and 4.15% of revenue for the year, as stated in the filing.
Important facts for investors to verify
- Whether steel pricing, shipment volumes and utilization stabilize, and whether the expected Q1 2023 improvement materialized.
- Progress, final costs, permits, commissioning and ramp-up of the West Virginia, Kentucky and Indiana projects; in particular, the increased West Virginia mill estimate and expected returns.
- Acquisition performance and integration of CHI and CSI, including the impact of acquired goodwill and intangible assets on future earnings and impairment risk.
- Cash generation after the planned increase in 2023 capital spending, alongside debt service, dividends and repurchases.
- Exposure to raw-material and energy-price swings, import competition, environmental requirements and contingent tax matters; the filing reports $141.7 million in unrecognized tax benefits and $26.9 million of related accrued interest and penalties.