01—Abstract
Summary
Summary of the 10-K filed February 28, 2017. Cited figures are marked; the original filing is the authoritative source.
Nucor Corporation (NUE) reported 2016 net sales of $16.21 billiona, down 1% from $16.44 billion in 2015, while net earnings attributable to Nucor stockholders rose to $796.3 million, or $2.48 per diluted share, from $80.7 million, or $0.25 per share, in 2015.
The steel mills segment drove the improvement, with earnings before income taxes and noncontrolling interests of $1.72 billionb versus $629.3 million a year earlier, as outside steel shipments rose 11% to 18.8 million tons while the average sales price per ton fell 8%. Results were also helped by a $77.6 million pre-tax benefit from a change in inventory cost estimate and the company's change in inventory accounting from LIFO to FIFO, which was applied retrospectively to all periods presented. Management stated that imports remain at very high levels amid global steel overcapacity, which it estimates at roughly 770 million tons per year, with China accounting for about 470 million tons.
The company cited trade cases on flat-rolled, plate and rebar products as important steps toward fair trade, and said it expects 2017 results could significantly exceed 2016. Cash provided by operating activities was $1.74 billionc, cash and short-term investments totaled $2.20 billion at year end, and the company reported long-term debt of $4.34 billion and a current ratio of 2.7. The filing also disclosed 2017 acquisitions of Southland Tube (about $130 million) and Republic Conduit (about $335 million), and projected 2017 capital expenditures of approximately $575 million.
The filing shows a company with a strong balance sheet and a diversified product mix, but still exposed to import competition, volatile scrap and energy costs, and continued pressure on pricing. Its 2016 results were materially stronger than 2015, which had included $244.8 milliond of impairments and losses on assets.
02—Key points
Key Highlights
- Net earnings attributable to Nucor stockholders were $796.3 million, or $2.48 per diluted share, in 2016, compared with $80.7 million, or $0.25 per diluted share, in 2015.
- Net sales declined 1% to $16.21 billion, while total tons shipped to outside customers rose 7% to 24.3 million tons and the average sales price per ton fell 8% to $667.
- Steel mills segment earnings before income taxes and noncontrolling interests rose to $1.72 billion from $629.3 million, driven by higher volumes and lower scrap costs.
- Cash provided by operating activities was $1.74 billion, and cash, cash equivalents and short-term investments totaled $2.20 billion at December 31, 2016.
- The company changed its inventory valuation from LIFO to FIFO in the fourth quarter of 2016, with retrospective application to all periods presented.
- Steel imports were down about 15% in 2016 versus 2015, but finished imports still held a 26% market share, and trade cases on flat-rolled, plate and rebar products are ongoing.
- Nucor acquired Independence Tube for about $430 million in 2016 and agreed to acquire Southland Tube (about $130 million) and Republic Conduit (about $335 million) in early 2017, expanding its pipe and tube business.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 28, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $16.21B$16.44B | −1.4% |
| Cost of Revenue | $14.18B$15.33B | −7.5% |
| Gross Profit | $2.03B$1.11B | +81.9% |
| SG&A Expenses | $596.76M$458.99M | +30.0% |
| Interest Expense | $181.18M$177.54M | +2.0% |
| Net Income | $796.27M$80.72M | +886.4% |
| EPS (Basic) | $2.48$0.25 | +892.0% |
| EPS (Diluted) | $2.48$0.25 | +892.0% |
| Shares Outstanding (Basic) | 319.56M320.56M | −0.3% |
| Shares Outstanding (Diluted) | 319.82M320.68M | −0.3% |
05—Questions
Frequently Asked Questions
Why did earnings improve so sharply in 2016 when net sales declined?
Net sales fell 1% to $16.21 billion because the average sales price per ton dropped 8%, but total tons shipped to outside customers rose 7%. Lower scrap and scrap substitute costs per ton, which fell 16% to $228, combined with higher steel mill volumes improved total metal margin dollars. The steel mills segment, which accounts for about 70% of external sales, produced most of the improvement. The 2016 results also benefited from a $77.6 million pre-tax benefit from a change in inventory cost estimate, while 2015 included $244.8 million of impairments and losses on assets.
What is the outlook for 2017 according to management?
Management said it is 'very encouraged' about full-year volume, pricing and profitability and believes 2017 results could significantly exceed 2016. It expects the sheet mills to perform more consistently due to trade actions, and expects improved profitability in the plate and bar mills as the pending plate and rebar trade cases conclude in 2017. It also expects first-quarter 2017 operating results to increase compared with the fourth quarter of 2016, and projects 2017 capital expenditures of about $575 million.
What are the main risks to Nucor's business identified in the filing?
The main risks include global steel overcapacity, estimated at about 770 million tons per year with China accounting for about 470 million tons, which pressures prices through imports. Other risks include cyclical demand tied to nonresidential construction, volatile scrap and energy costs, exposure to environmental and greenhouse gas regulation, competition from alternative materials, and the ongoing antitrust class-action litigation over 2005 to 2007 steel pricing, where the indirect purchaser claims remain unresolved and no reserves have been recorded.
How strong is Nucor's balance sheet and liquidity position?
At year end 2016, Nucor had cash and cash equivalents of $2.05 billion and short-term investments of $150.0 million, with long-term debt of $4.34 billion including current maturities. The current ratio was 2.7, down from 4.2 in 2015, partly due to reclassifying $600.0 million of debt due in December 2017 to current liabilities. The company has a $1.5 billion revolving credit facility, which was undrawn at year end, and its funded debt to total capital ratio was 35%, below the 60% covenant limit.
What acquisitions did Nucor complete or announce that could affect future results?
In 2016 Nucor acquired Independence Tube Corporation for about $430.1 million, adding hollow structural section tubing capacity of approximately 650,000 tons annually. In January 2017 it acquired Southland Tube for approximately $130 million, and Republic Conduit for approximately $335 million. Nucor also announced a joint venture with JFE Steel Corporation of Japan for a galvanized sheet steel plant in central Mexico, expected to cost about $270 million and operate by 2019, in which Nucor would hold 50%.
06—Continue