01—Abstract
Summary
Summary of the 10-K filed February 26, 2016. Cited figures are marked; the original filing is the authoritative source.
Nucor Corporation (NUE) reported a sharp earnings decline for 2015.
Net sales fell 22% to $16.44 billiona from $21.11 billion, and net earnings attributable to Nucor stockholders dropped 50% to $357.7 million, or $1.11 per diluted share, versus $713.9 million, or $2.22 per share, in 2014. The filing attributes the weakness to continued extremely high levels of steel imports and global overcapacity, with the average sales price per ton falling 13% to $725 and outside tons shipped down 11% to 22.7 million. Steel mills segment earnings before taxes fell to $629.8 million from $1.59 billion, while raw materials posted a pre-tax loss of $283.9 million.
The fourth quarter included a $153.0 millionb impairment on the Duferdofin Nucor investment and an $84.1 million impairment tied to a blast furnace project in St. James Parish, Louisiana. Balance sheet and cash flow were comparatively strong. Cash and cash equivalents plus short-term investments rose to $2.04 billion, and cash provided by operating activities increased 61% to $2.16 billion, helped by working capital releases.
Long-term debt was $4.36 billionc, and the company held an undrawn $1.5 billion revolving credit facility. Management stated it expects 2016 sales and profitability on par with 2015, excluding the LIFO credit and fourth-quarter impairments, and projected capital expenditures of approximately $500 million for 2016. The company also authorized a $900 million share repurchase program in September 2015 and repurchased $66.5 million of stock in December 2015.
The filing notes that the company has raised its base quarterly dividend every year since 1973, with total dividends declared of $1.49d per share in 2015. Management described the steel environment as one of the most arduous in company history, with U.S. steel mill capacity utilization dropping to 71% in 2015 and finished imports capturing 34% of the market. The company also disclosed that the Fifth Circuit reversed the MM Steel antitrust verdict against Nucor, reducing its estimable exposure to zero, while class certification in the Standard Iron Works antitrust litigation remains pending.
02—Key points
Key Highlights
- Net sales fell 22% to $16.44 billion, with the average sales price per ton down 13% to $725 and outside shipments down 11% to 22.7 million tons.
- Net earnings attributable to Nucor stockholders fell 50% to $357.7 million, or $1.11 per diluted share, compared with $2.22 per share in 2014.
- Fourth-quarter 2015 included a $153.0 million impairment on the Duferdofin Nucor investment and an $84.1 million impairment on blast furnace project assets at the St. James Parish, Louisiana site.
- Steel mills segment pre-tax earnings declined to $629.8 million from $1.59 billion, while the raw materials segment posted a pre-tax loss of $283.9 million.
- Cash and short-term investments rose to $2.04 billion, and operating cash flow increased 61% to $2.16 billion, aided by working capital reductions.
- Management expects 2016 sales and profitability on par with 2015 excluding the LIFO credit and fourth-quarter impairments, with capital expenditures projected at approximately $500 million.
- A $900 million share repurchase program was authorized in September 2015, and $66.5 million of stock was repurchased in December 2015; the base quarterly dividend was raised to $0.375 per share.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2015filed February 26, 2016Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $16.44B$21.11B | −22.1% |
| Cost of Revenue | $15.33B$19.26B | −20.4% |
| Gross Profit | $1.11B$1.85B | −39.8% |
| SG&A Expenses | $458.99M$520.80M | −11.9% |
| Interest Expense | $177.54M$174.14M | +2.0% |
| Net Income | $80.72M$679.34M | −88.1% |
| EPS (Basic) | $0.25$2.12 | −88.2% |
| EPS (Diluted) | $0.25$2.11 | −88.2% |
| Shares Outstanding (Basic) | 320.56M319.84M | +0.2% |
| Shares Outstanding (Diluted) | 320.68M320.13M | +0.2% |
05—Questions
Frequently Asked Questions
Why did Nucor's earnings decline in 2015?
The filing attributes the decline to continued extremely high levels of steel imports and global overcapacity, which pressured sales prices and volumes. Average sales price per ton fell 13%, outside tons shipped fell 11%, and scrap and raw material weakness compressed margins. Gross margin fell to $1.58 billion (10% of sales) from $1.91 billion (9%).
How significant were the 2015 impairment charges?
Impairments and losses on assets totaled $244.8 million in 2015, compared with $25.4 million in 2014. The largest items were a $153.0 million impairment on the investment in Duferdofin Nucor S.r.l., an Italian steel manufacturer, and an $84.1 million impairment on engineering and equipment for a blast furnace project at the St. James Parish, Louisiana site.
How is Nucor managing its raw material costs?
Nucor is building in-house supply of scrap substitutes, with a goal of producing six to seven million tons of annual capacity. Its direct reduced iron plants in Trinidad (2,000,000 metric tons per year) and Louisiana (2,500,000 metric tons per year) give it iron-unit flexibility. The company also runs DJJ, which operates about 70 scrap recycling facilities with annual processing capability above five million tons.
What are Nucor's capital allocation priorities and cash position?
The filing lists three priorities: reinvesting in growth through capital projects, acquisitions, or greenfield expansion; paying a base dividend reflective of earnings; and repurchasing stock when cash is strong and shares are attractively priced. Cash and short-term investments reached $2.04 billion at year end, long-term debt was $4.36 billion, and the $1.5 billion revolving credit facility was undrawn. The company stated a funded debt to total capital ratio of 36%, well within its 60% covenant.
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