Nucor Corporation — Q1 2011 Form 10-Q
Period: 13 weeks ended April 2, 2011; comparative period ended April 3, 2010. Unaudited interim statements. Nucor manufactures steel and steel products and operates steel mills, steel products, and raw materials segments.
Financial performance
| Metric | Q1 2011 | Q1 2010 | Change / context |
|---|---|---|---|
| Net sales | $4.834 billion | $3.655 billion | Up 32% |
| Gross margin | $438.4 million; 9% of sales | $212.8 million; 6% | Improved with higher prices and shipments |
| Earnings before tax and noncontrolling interests | $266.3 million | $64.0 million | Up substantially |
| Net earnings | $181.1 million | $41.2 million | Consolidated |
| Net earnings attributable to Nucor stockholders | $159.8 million; $0.50 diluted EPS | $31.0 million; $0.10 diluted EPS | Net earnings attributable to stockholders were 3% of sales versus 1% |
| Cash provided by operating activities | $47.5 million | Cash used of $3.0 million | Working-capital investment remained significant |
| Capital expenditures | $96.0 million | $54.2 million | Up 77% |
Revenue growth reflected a 22% increase in average selling price per ton and a 9% increase in shipments to outside customers. Average steel-mill utilization was about 80%, versus 73% a year earlier. Gross margin benefited from higher metal margins and lower start-up costs, but included a $31.0 million LIFO charge. Scrap and scrap-substitute cost per ton in the steel mills rose 33% year over year. Steel products remained loss-making, with a $35.9 million pretax loss, although that improved from $67.7 million.
Liquidity, debt, and balance sheet
- At April 2, cash and cash equivalents were $1.153 billion and short-term investments were $1.143 billion; together, $2.296 billion. An additional $576.5 million of restricted cash was designated for the Louisiana DRI project.
- Current assets were $6.296 billion and current liabilities $1.788 billion; management reported a 3.5 current ratio, down from 3.9 at year-end 2010. Receivables and inventory increased 18% and 26%, respectively, since year-end, reflecting higher prices, input costs, and volumes.
- Debt consisted of $17.0 million short-term and $4.280 billion long-term. The $1.3 billion revolving credit facility was undrawn. Funded debt to total capitalization was 36%, below the 60% covenant limit; Nucor reported compliance with covenants.
- Cash, cash equivalents, and short-term investments declined from $2.479 billion at year-end to $2.296 billion. The company reported its long-term debt fair value at approximately $4.55 billion.
Outlook, risks, and unusual items
- Management expected Q2 results to improve over Q1, despite signs of possible market weakness late in the second quarter. It described real-demand recovery as gradual and uneven; manufacturing and industrial markets were firmer, while residential and non-residential construction remained weak. Management expected Q2 scrap-cost changes to be more moderate than late 2010 and early 2011.
- 2011 capital expenditures were projected at $500 million. Management said operating funds, cash and investments, and available borrowing capacity should meet existing-operation capital and working-capital needs for at least 24 months.
- Nucor broke ground in March on a 2.5-million-ton-per-year DRI facility in Louisiana; the air permit allows two plants with combined annual capacity of 5.5 million tons. Restricted proceeds from $600 million of 30-year variable-rate bonds help fund construction.
- Late-April tornadoes disrupted power at two Alabama mills, and Mississippi River flooding affected two mills and some scrap facilities. Nucor reported order fulfillment to date and did not expect a material Q2 impact, but warned prolonged flooding or delayed restoration at Decatur could hurt results.
- Key business risks include steel-price and raw-material volatility, energy availability and cost, weak construction demand, imports and competition, cyclicality, global excess capacity, currency movements, environmental regulation, and potential impairment of investments or assets.
- Nucor is a defendant in steel-industry antitrust class actions alleging conduct since 2005. It considers the claims without merit but cannot predict the outcome or estimate potential exposure. Environmental remediation accruals were $34.0 million, with uncertainties around conditions, technology, and regulation.
- Nucor guaranteed 50% of certain Duferdofin Nucor credit facilities: €44.5 million of borrowings was attributable to its guarantee at quarter-end; no guarantee liability was recorded. The filing also says a Duferdofin investment impairment could arise if near-term performance differs from valuation assumptions.
Important facts for investors to verify
- Whether higher steel prices and shipments persist, particularly given import pressure and continuing construction weakness.
- Whether scrap and other input-cost changes continue to be passed through to selling prices, supporting metal margins.
- Working-capital needs, inventory levels, and operating cash generation as activity expands.
- Execution, spending, and funding of the Louisiana DRI project, alongside the $500 million 2011 capital-spending projection.
- Operational effects of flooding and tornado damage, plus developments in the antitrust cases and the Duferdofin investment and guarantee exposure.