Nucor Corporation — Q2 2023 Form 10-Q
Business context and reporting period. Nucor manufactures steel and steel products, produces direct reduced iron, and processes and brokers raw materials. This unaudited report covers the 13 weeks and 26 weeks ended July 1, 2023; comparisons are with periods ended July 2, 2022.
Financial performance
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Net sales | $9.52B | $11.79B | $18.23B | $22.29B |
| Gross margin | $2.50B (26%) | $4.10B (35%) | $4.50B (25%) | $7.56B (34%) |
| Net earnings attributable to Nucor stockholders | $1.46B | $2.56B | $2.60B | $4.66B |
| Diluted EPS | $5.81 | $9.67 | $10.26 | $17.30 |
| Cash provided by operating activities | Not separately stated | Not separately stated | $3.13B | $4.73B |
- Q2 net sales fell 19% year over year; average selling price per ton decreased 14% and outside shipments decreased 6%. First-half sales declined 18%, with average price per ton down 16% and outside shipments down 3%.
- Q2 net earnings attributable to Nucor fell 43% year over year, but increased from $1.14B in Q1 2023. First-half earnings were the second highest in company history, according to management.
- First-half capital expenditures were $1.06B. Cash used in investing activities was $1.38B; cash used in financing activities was $1.59B. Cash and cash equivalents, short-term investments, and restricted cash totaled $5.39B at July 1, 2023.
- At July 1, short-term debt was $33M and long-term debt and finance lease obligations were $6.62B, including current maturities. The $1.75B revolving facility had no borrowings outstanding; funded debt to total capital was 24.2%, versus a 60% covenant limit. The current ratio was 3.8.
Material changes and management commentary
- The primary earnings decline was in steel mills: weaker selling prices and lower shipments reduced metal margins, and price declines outweighed lower scrap and scrap-substitute costs. Steel mills pretax earnings were $1.40B in Q2 versus $2.82B a year earlier.
- Steel products pretax earnings moderated to $1.01B from $1.13B in Q2, while first-half pretax earnings rose to $1.98B from $1.81B. Strong rebar fabrication and the overhead doors acquisition supported results; nonresidential construction demand remained strong.
- Raw materials pretax earnings declined to $138M from $264M in Q2 and to $197M from $359M in the first half, primarily due to margin compression across scrap, DRI, and brokerage operations.
- Management attributed lower year-over-year results partly to exceptionally favorable market conditions in Q2 2022. Scrap and scrap-substitute costs averaged $455 per gross ton in Q2 2023, down 15% year over year.
Outlook, risks, and contingencies
- Management expects Q3 2023 earnings to decrease from Q2. Steel mills profitability is expected to decline, particularly at sheet mills; steel products earnings are expected to moderate; and raw materials earnings are expected to decrease due to margin compression. The company expected scrap prices to decline from Q2 levels.
- Estimated 2023 capital expenditures are approximately $3.0B, mainly for new or expanded sheet, micro, and plate mill capacity and a tubular products facility. First-half pre-operating and start-up costs were approximately $172M, versus $122M a year earlier.
- Management expects operating funds, cash and investments, and available credit to meet existing-operation capital and working-capital needs for at least 24 months. It cited A- ratings from S&P and Fitch and Baa1 from Moody’s.
- Principal stated risks include steel pricing and demand, raw-material and energy costs, imports and trade policy, the cyclical industry, equipment interruptions, construction activity, inflation and interest rates, environmental regulation, and execution of capital projects and acquisitions. Nucor reported no material change in risk factors from its 2022 Form 10-K.
- The company said ordinary-course legal proceedings were not expected to have a material adverse effect; no qualifying environmental proceeding was reported. The IRS and Canadian tax authority were examining specified tax years. A potential non-cash goodwill impairment at Rebar Fabrication remains dependent on future performance; no interim triggering event was reported.
Investor verification points
- Track steel selling prices, shipments, scrap costs, and segment margins against management’s Q3 expectations.
- Monitor the $3.0B 2023 capital-spending estimate, project start-up costs, and progress toward utilization at new facilities.
- Verify operating cash generation, working-capital movements, liquidity, and debt levels as earnings normalize.
- Review the return and timing of share repurchases: Nucor authorized a new $4.0B program in May 2023; the full authorization remained available at quarter-end.
- Follow tax examinations and Rebar Fabrication performance for any change in estimated tax exposure or impairment risk.