01—Abstract
Summary
Summary of the 10-K filed March 8, 2005. Cited figures are marked; the original filing is the authoritative source.
Nucor Corporation reported record results for 2004, with net sales rising 82% to $11.38 billiona from $6.27 billion in 2003 and net earnings of $1.12 billion, or $7.02 per diluted share (post two-for-one split), compared with $62.8 million in 2003.
Earnings before income taxes were $1.73 billionb versus $66.9 million a year earlier. Gross margin improved from 4% in 2003 to 20% in 2004, which the filing attributes to historically high selling prices, shipment growth, the raw material surcharge introduced in 2004, and the turnaround at the Decatur, Alabama sheet mill. Average sales price per ton rose 66% to $595, while total shipments to outside customers increased 9%.
Steel mills accounted for $10.11 billionc of external sales and $2.19 billion of pre-tax earnings, while steel products contributed $1.27 billion in sales and $149.6 million in pre-tax earnings. Raw material costs were the main pressure point. The average scrap and scrap substitute cost per ton rose 74% to $238 in 2004, and LIFO charges reached $375.9 million.
Nucor responded with a raw material sales price surcharge that the filing says has allowed it to maintain margins and secure scrap. The balance sheet strengthened, with cash and short-term investments rising to $779.0 million, working capital to $2.11 billiond, and stockholders' equity to $3.46 billion. Long-term debt was $923.6 million, and the filing reports long-term debt at 20% of total capital, down from 26%.
Cash provided by operating activities was $1.03 billion. Looking forward, management said it expects capital expenditures of about $415.0 million in 2005, largely tied to relocating and refurbishing a direct reduced iron plant to Trinidad, and it plans acquisitions and joint ventures.
Recent deals include the February 2005 purchase of Fort Howard Steel's Oak Creek, Wisconsin cold finish operation for $44.2 million. The board raised the base quarterly dividend to $0.15 per share and declared a $0.25 supplemental dividend, with management estimating a total supplemental dividend of $1.00 per share over four quarters.
02—Key points
Key Highlights
- Net sales rose 82% to $11.38 billion in 2004, and net earnings reached $1.12 billion ($7.02 per diluted share) versus $62.8 million in 2003.
- Gross margin expanded from 4% in 2003 to 20% in 2004, with average selling price per ton up 66% to $595.
- Scrap and scrap substitute costs rose 74% to $238 per ton, and LIFO charges totaled $375.9 million; a raw material surcharge was implemented to offset these costs.
- Steel mills segment earnings before taxes were $2.19 billion, compared with $209.4 million in 2003; steel products earnings were $149.6 million.
- Cash and short-term investments increased to $779.0 million, working capital reached $2.11 billion, and long-term debt was $923.6 million, or 20% of total capital.
- Board raised the base quarterly dividend to $0.15 per share and declared a $0.25 supplemental dividend, with an estimated $1.00 per share supplemental dividend planned over four quarters.
- 2005 capital expenditures are projected at about $415.0 million, primarily for relocating the direct reduced iron plant to Trinidad, with several acquisitions and joint ventures underway.
03—Questions
Frequently Asked Questions
What drove Nucor's record 2004 earnings?
The filing attributes the increase in net earnings to higher shipments, higher average selling prices, improved margins, and lower pre-operating and start-up costs, which fell to $28.8 million from $117.5 million in 2003. Partial offsets included higher scrap costs, higher LIFO charges, increased profit-sharing costs, and a higher effective tax rate of 35.22%.
How is Nucor managing volatile scrap steel costs?
Nucor implemented a raw material sales price surcharge in January 2004 that passes through higher scrap and raw material costs to customers. The filing says this surcharge has helped offset significantly higher scrap prices, ensured the company could buy the raw materials needed to fill orders, and is expected to continue in 2005. Sheet mill contract customers, which make up 60-65% of sheet volume entering 2005, have pricing formulas tied to raw material costs.
What acquisitions and capital projects did Nucor complete or plan?
In 2004 Nucor bought Corus Tuscaloosa for about $89.4 million, Worthington's cold rolling mill for about $80.3 million, and a one-half interest in Harris Steel for about $21.0 million. In February 2005 it bought Fort Howard Steel's Oak Creek, Wisconsin operation for about $44.2 million. Planned projects include vacuum degassers at the Hickman and Decatur sheet mills, expected to add about 1,000,000 tons of capacity by the first half of 2006, and the Trinidad DRI plant with a budget of about $225.0 million.
What dividend changes did Nucor announce?
In February 2005 the board raised the base quarterly dividend to $0.15 per share from $0.13 and declared a supplemental dividend of $0.25 per share, payable May 11, 2005 to holders of record on March 31, 2005, for a total of $0.40 per share. The filing states this is the first installment of an estimated $1.00 per share supplemental dividend to be paid over four consecutive quarters. Future supplemental dividends will depend on earnings, cash flows, and financial position.
What is Nucor's outlook for 2005 according to the filing?
Management expects non-residential construction demand to remain strong through 2005 and anticipates higher average selling prices and continued surcharge collection to support margins. Vulcraft and Nucor Building Systems are expected to benefit from improving non-residential construction, and Cold Finish sales should grow with the Oak Creek capacity. Management also cited uncertainty from raw material costs, economic growth, and import levels as factors that could significantly affect results.
04—Continue