Nucor Sees Big Bump in Second-Quarter Profits
Nucor Corp. enjoyed a large increase in profits during the second quarter of 2010. The Charlotte, N.C.-based minimill reported net earnings of $91.0 million, nearly 200 percent greater than the $31.0 million in the first quarter of the year. The contrast was even greater compared to the same quarter in 2009. Nucor reported a loss of $133.3 million in the second period of 2009, a rare losing quarter for the company.
Nucor’s net sales increased 15 percent to $4.20 billion from $3.65 billion during the second quarter. Sales were up 69 percent compared to the second quarter of 2009. Tons shipped to outside customers totaled 5.6 million, only 1 percent more than the first quarter but a 35 percent increase from the same three months of 2009.
In the first half of 2010, Nucor reported consolidated net earnings of $122.0 million, compared with a net loss of $323.0 million in the first half of last year. Nucor's consolidated net sales increased 53 percent in the first half to $7.85 billion, compared with $5.13 billion in last year's first half. Average sales price per ton increased 8 percent, while total tons shipped to outside customers increased 41 percent over the first half of 2009, reported company officials in their conference call with analysts and investors last month.
“Overall operating rates at our steel mills in the second quarter (71 percent) were down slightly from the first quarter (73 percent), with some improvements at the beam and plate mills offset by declines at the sheet mills,” said Dan DiMicco, Nucor chairman, president and CEO. “Steel mill utilization significantly increased from 46 percent in last year's second quarter, and increased from 46 percent in the first half of 2009 to 72 percent in the first half of 2010.”
Operating results improved significantly over the first quarter, primarily due to increased margins, DiMicco said. However, he added, it’s unclear if the upward trend experienced through the first half of the year will continue. “There is a general slowdown taking place across all product lines as the overall economy has entered into a new period of uncertainty. This is the case both in the U.S. and globally. The most challenging markets for our products continue to be those associated with residential and nonresidential construction, which continue to show little, if any, strength. This is particularly true for our downstream businesses.”
Nucor continues to invest for long-term growth, DiMicco said, pointing to the company’s new SBQ and rebar production, galvanizing, heat-treating and Castrip facilities, as well as its proposed pig iron plant in Louisiana. Internationally, Nucor’s Duferdofin Italian joint venture with Duferco and its NuMit joint venture with Japan’s Mitsui have both gotten off to strong starts. “The opportunities with Mitsui have the potential to expand the partnership’s reach into raw materials, steelmaking and into downstream businesses, both domestically and internationally,” DiMicco said.
In April, Nucor acquired its 50 percent interest in NuMit, which invests in various steel and steel-related activities in North America and around the world. As part of the agreement, Mitsui contributed 100 percent of Steel Technologies Inc., which operates 23 sheet steel processing facilities throughout the U.S., Canada and Mexico. The purchase price of Nucor's 50 percent interest was approximately $221.3 million. At closing, Nucor also extended a $40.0 million loan and a $60.0 million line of credit (of which $54.0 million was drawn down immediately) to Steel Technologies.
Nucor spent $163 million in capital improvements in the first half and has a projected capital budget of $370 million for the year. Executives feel the company’s product diversity puts it in a good position to emerge from the recession stronger than it went in.
One example is a new product, HP16, produced by Nucor Yamato, the largest H-piling section available in North America. Initial orders will be used to helps shore up the river system in New Orleans, said John Ferriola, chief operating officer of steelmaking.
Nucor continues to experience success in the export market, reporting one million tons of exports in the first half or 11 percent of total mill shipments, a 50 percent increase over last year. With over 60 percent of its mill capacity on or with ready access to deep water ports, the export market is a natural for Nucor, Ferriola said.
It is difficult to tell if slowing sales and weakening steel prices are seasonal or the result of ongoing economic challenges, he added, noting a slight uptick in service center inventories. “We see a difference between what we would call apparent demand and real demand, and that is impacting service centers’ behavior. Right now we feel true demand is stronger than apparent demand. That is a function of service centers, due to the uncertainty, holding back on their purchases.
“Customers tell us that although demand is certainly down 20 to 30 percent from 2008, real demand for their products has been pretty consistent throughout last year and the first half of this year,” he added.