Nucor Corporation (NYSE: NUE) — FY 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. The filing also reports unaudited fourth-quarter results. Nucor manufactures steel and steel products and processes and brokers raw materials, primarily in North America.
Financial performance
- Revenue: FY net sales were $36.48 billion, up 81% from $20.14 billion in 2020. Average sales price per ton rose 64% to $1,292; outside shipments increased 11% to 28.25 million tons.
- Profit and margins: Net earnings attributable to Nucor stockholders were $6.83 billion, or $23.16 diluted EPS, versus $721.5 million, or $2.36, in 2020. Gross margin was $11.03 billion (30% of sales), compared with $2.23 billion (11%). Net earnings attributable to Nucor were 18.7% of sales, versus 3.6%.
- Fourth quarter: Net sales were $10.36 billion, gross margin $3.52 billion, net earnings attributable to Nucor $2.25 billion, and diluted EPS $7.97. In fourth-quarter 2020, the corresponding figures were $5.26 billion, $718.5 million, $398.8 million, and $1.30.
- Segments: Steel mills led the recovery, with external sales of $24.15 billion and pretax earnings of $9.74 billion, versus $12.11 billion and $720.2 million in 2020. Steel products sales were $9.73 billion and pretax earnings $1.29 billion; raw materials sales were $2.61 billion and pretax earnings $550.0 million.
- Cash flow: Operating cash flow was $6.23 billion, up from $2.70 billion. Capital expenditures were $1.62 billion. Working capital absorbed cash, including $1.39 billion from receivables and $2.31 billion from inventories.
- Liquidity and debt: Cash, short-term investments and restricted cash totaled $2.76 billion at year-end, down from $3.16 billion. Working capital was $7.64 billion; the current ratio was 2.5 versus 3.6. Debt and finance lease obligations totaled $5.78 billion before unamortized adjustments; $601 million of debt principal was due in 2022. The $1.75 billion revolving facility was undrawn. Management reported net debt to total capital of approximately 14%; funded debt to total capital was 28%.
- Shareholder returns: Nucor repurchased $3.28 billion of shares and paid $1.62 per share in dividends during 2021. The quarterly base dividend was raised to $0.50 in December.
Changes and notable items
- Strong demand, high steel selling prices, increased mill utilization (94% versus 82% in 2020), and higher shipments drove record earnings. Average scrap and scrap-substitute cost also increased 62%, to $469 per gross ton; higher selling prices and volume more than offset this in the steel mills segment.
- Profit-sharing and incentive costs rose substantially with results; profit-sharing contributions, including the company match, were $869.9 million, versus $86.6 million in 2020.
- 2021 included acquisitions of the Cornerstone insulated metal panels business for approximately $1.00 billion and Hannibal Industries for $370 million. Nucor also acquired majority ownership of California Steel Industries in February 2022 for $400 million, subject to closing adjustments.
- FY 2020 comparisons included approximately $483.5 million in losses and impairments related to Duferdofin Nucor, other asset impairments, and significant tax benefits. FY 2021 included a $42 million noncash write-off of unproved natural-gas property interests.
Outlook, risks and contingencies
- Management expected 2022 to be another year of strong profitability, but forecast first-quarter 2022 consolidated earnings slightly below the record fourth quarter. Steel mills earnings were expected to decline, steel products margins to expand, and raw materials earnings to improve slightly.
- Projected 2022 capital expenditures were approximately $2.3 billion. Major growth projects include the Brandenburg plate mill, expected to begin production in late 2022; the expanded Gallatin sheet mill, expected to start up in early 2022; and a proposed West Virginia sheet mill with expected capital expenditures of approximately $2.7 billion, subject to approvals.
- Key risks include global steel overcapacity and imports, cyclical demand and steel-price volatility, scrap and other raw-material availability and costs, energy costs and reliability, inflation, labor and supply-chain constraints, COVID-19 effects, and environmental and climate regulation. Contract pricing adjustments can lag changes in input costs.
- Environmental costs and remediation estimates involve uncertainty. Accrued environmental costs were $13.6 million. Nucor said ordinary-course legal proceedings were not expected to have a material adverse effect; no qualifying environmental proceeding with expected sanctions of at least $1 million was reported.
- The 2021 goodwill impairment test found no impairment; the Rebar Fabrication reporting unit was a critical audit matter because its valuation depended on significant assumptions. The auditor issued unqualified opinions on the financial statements and internal controls. Acquired IMP and Hannibal controls were excluded from the 2021 internal-control assessment.
Important facts for investors to verify
- Whether exceptionally high steel prices, metal margins, and earnings can be sustained as scrap prices and market demand change.
- Execution, cost, permitting and start-up timing for major capital projects, and the returns expected from acquisitions.
- Cash conversion and liquidity as receivables and inventories increase, alongside the $601 million 2022 debt maturity and planned capital spending.
- Import volumes, trade-policy changes, and the effect of global overcapacity on domestic pricing and utilization.
- Progress toward the stated 35% reduction in steel-mill GHG-emissions intensity by 2030 and potential associated energy, regulatory and capital costs.