Nucor Corporation — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended October 2, 2021 (13 and 39 weeks, respectively). The interim financial statements are unaudited. Nucor manufactures and recycles steel and steel products, and reports through steel mills, steel products and raw materials segments.
Financial performance
| Metric | Q3 2021 | Q3 2020 | First nine months 2021 | First nine months 2020 |
|---|---|---|---|---|
| Net sales | $10.31 billion | $4.93 billion | $26.12 billion | $14.88 billion |
| Net earnings attributable to Nucor stockholders | $2.13 billion | $193.4 million | $4.58 billion | $322.6 million |
| Diluted earnings per share | $7.28 | $0.63 | $15.34 | $1.06 |
| Gross margin | $3.41 billion; 33% | $502.2 million; 10% | $7.50 billion; 29% | $1.51 billion; 10% |
| Cash provided by operating activities | Not provided for the quarter | $3.62 billion | $2.21 billion |
- Q3 sales rose 109% year over year: average selling price per ton increased 86% to $1,438, while external tons shipped increased 13% to 7.172 million. Nine-month sales increased 76%, with average selling price up 53% and tons shipped up 15%.
- Q3 earnings were a company record, surpassing the prior quarterly record set in Q2 2021. Nucor stockholders’ earnings were 21% of sales in Q3 versus 4% a year earlier; for the first nine months, 18% versus 2%.
- Steel mills drove the improvement: Q3 segment pre-tax earnings were $3.12 billion versus $205.2 million. Steel products earned $368.6 million versus $187.0 million; raw materials earned $161.9 million versus $6.2 million. Corporate/eliminations costs increased to $777.9 million from $107.9 million.
- Scrap and scrap-substitute cost per gross ton used rose 84% year over year in Q3 to $511, and 60% in the first nine months to $457; higher selling prices and volumes more than offset the cost increases.
Balance sheet, liquidity and capital allocation
- At October 2, 2021, cash and cash equivalents were $1.76 billion, short-term investments $247.2 million and restricted cash $281.3 million. Together, these totaled approximately $2.29 billion.
- Current assets were $12.12 billion and current liabilities $4.80 billion; the current ratio was 2.5, down from 3.6 at year-end 2020. Management attributed the decline mainly to higher incentive compensation accruals, a $600 million bond reclassification to current debt, and increased accounts payable.
- Debt and finance lease obligations totaled approximately $5.67 billion on the balance sheet, including $102.7 million short-term debt, $615.1 million current maturities and $4.95 billion due after one year. The filing reports estimated fair value of short- and long-term debt of approximately $6.09 billion. No significant debt maturities were expected until September 2022.
- Funded debt to total capitalization was 28.9%, below the credit facility covenant limit of 60%; the facility was undrawn. Nucor reported investment-grade ratings of Baa1/A- with stable outlooks.
- Nine-month investing cash outflow was $2.38 billion, including $1.35 billion for acquisitions and $1.21 billion in capital expenditures. Financing cash outflow was $1.95 billion, including $1.77 billion in share repurchases and $366.6 million in cash dividends.
- Nucor estimated 2021 capital expenditures at $1.70 billion and stated that available funds and borrowing capacity should meet operating, working-capital, acquisition and capital requirements for at least 24 months. It intends to return a minimum of 40% of net earnings to stockholders while maintaining a strong investment-grade profile.
Material changes and notable items
- In August, Nucor acquired Cornerstone Building Brands’ insulated metal panels business for approximately $1.00 billion and Hannibal Industries for approximately $370 million, using cash on hand. Both were added to the steel products segment; purchase-price allocations remained preliminary.
- Nucor recorded a $42.0 million non-cash charge in the first nine months to write off part of its unproved oil and gas leasehold interests after deciding not to develop that portion. The filing also reports $9.0 million of steel products asset losses.
- The prior-year nine-month period included a $299.5 million loss on the Duferdofin Nucor equity-method investment, which Nucor has since exited.
- Share repurchases totaled $1.77 billion in the first nine months. Under the $3.00 billion authorization announced in May, approximately $1.94 billion remained available at October 2.
- After quarter-end, on November 5, Nucor amended its revolving credit facility, increasing capacity from $1.50 billion to $1.75 billion and extending maturity to November 5, 2026; it remained undrawn.
Outlook, commentary and risks
- Management expected strong Q4 2021 results, potentially exceeding the Q3 earnings record, and robust demand well into 2022. Steel mills profitability was expected to improve, led by sheet and plate; steel products profitability was also expected to rise. Raw materials earnings were expected to decline, primarily due to DRI margin compression.
- Steel mills and steel products backlogs remained elevated versus historical levels. Average facility utilization in the first nine months was approximately 96% for steel mills, 77% for steel products and 75% for raw materials.
- Management cited risks including steel-market cyclicality and pricing, scrap and energy costs, import competition and trade policy, construction demand, operational interruptions, asset impairments, environmental regulation, currency movements and COVID-19 impacts. Scrap-price volatility was expected to continue.
- Environmental costs accrued were $14.2 million, with estimation uncertainty related to site conditions, remediation technology and changing regulations. Nucor said ordinary-course legal matters were not expected to have a material adverse effect; no environmental proceeding expected to involve sanctions of at least $1 million was reported.
- The expected full-year 2021 effective tax rate was approximately 22.9%. Nucor reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Investor verification priorities
- Assess how much of the exceptional earnings growth reflects steel selling prices and margins, and how sensitive profitability is to scrap, energy and steel-price changes.
- Track working-capital needs: receivables and inventories rose substantially, and operating-asset and liability changes reduced cash by $2.04 billion in the first nine months.
- Review acquisition integration, returns and the final purchase-price allocations for the insulated panels business and Hannibal.
- Monitor the expected Q4 segment trends, elevated backlogs, planned $1.70 billion capital spending and progress on major mill projects.
- Confirm the impact of buybacks and dividends on capital allocation, liquidity and leverage, including the September 2022 debt maturity.
- Follow potential impairment exposure in natural gas assets and reporting units, and changes in environmental, tax or other contingencies.