01—Abstract
Summary
Summary of the 10-K filed February 28, 2018. Cited figures are marked; the original filing is the authoritative source.
Nucor Corporation (NUE) reported net sales of $20.25 billiona for 2017, up 25% from $16.21 billion in 2016, and net earnings attributable to Nucor stockholders of $1.32 billion, or $4.10 per diluted share, compared with $796.3 million, or $2.48 per diluted share, in 2016.
Net earnings were boosted by a provisional net tax benefit of $175.2 millionb from the Tax Cuts and Jobs Act. The steel mills segment accounted for about 72% of external sales and earnings before income taxes of $2.08 billion, while the raw materials segment swung to $129.3 million of pre-tax earnings from a $95.1 million loss in 2016. Average scrap and scrap substitute cost per ton rose 35% to $307, and the company noted unplanned outages at Nucor Steel Louisiana and unacceptable performance there, with a review underway that cannot yet estimate capital expenditures.
Cash provided by operating activities fell to $1.05 billionc from $1.75 billion, as working capital increased by $907.0 million. Long-term debt including current maturities declined to $3.74 billion from $4.34 billion after the repayment of $600.0 million of 5.75% notes. Cash and short-term investments totaled $991.1 million at year end, and the $1.5 billion revolving credit facility was undrawn.
Management reports a funded debt to total capital ratio of 29% and expects 2018 capital expenditures of approximately $1 billiond, with the company citing ongoing global steel overcapacity and rising imports of more than 15% in 2017 as continuing headwinds. The company describes its strategy as prioritizing investment in profitable long-term growth, then cash dividends (a base quarterly dividend raised to $0.38 per share), and then opportunistic share repurchases, with $738.0 million remaining under its $900.0 million authorization. Recent and planned capital projects include a $230 million cold mill at Nucor Steel Arkansas, a $176 million hot band galvanizing line at Ghent, Kentucky, and several bar mill investments, while 2017 acquisitions included Republic Conduit, Southland Tube and St. Louis Cold Drawn.
02—Key points
Key Highlights
- Net sales rose 25% to $20.25 billion in 2017, driven by a 15% increase in average sales price per ton to $764 and a 9% increase in tons shipped to outside customers.
- Net earnings attributable to Nucor stockholders were $1.32 billion ($4.10 per diluted share), up from $796.3 million ($2.48 per diluted share) in 2016, including a $175.2 million provisional tax benefit.
- Steel mills segment earnings before income taxes rose to $2.08 billion from $1.72 billion, while raw materials turned to a $129.3 million profit from a $95.1 million loss.
- Cash from operations fell 40% to $1.05 billion as working capital absorbed $907.0 million, mainly from higher scrap costs and inventory.
- Long-term debt declined to $3.74 billion after the $600.0 million repayment of 5.75% notes; the $1.5 billion revolving credit facility was undrawn at year end.
- Nucor Steel Louisiana DRI facility had unplanned outages in 2017, and management stated its performance has been unacceptable and is under review.
- Management projects 2018 capital expenditures of about $1 billion and cites approximately $2 billion in capital investments announced since the third quarter of 2016.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 28, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $20.25B$16.21B | +25.0% |
| Cost of Revenue | $17.68B$14.18B | +24.7% |
| Gross Profit | $2.57B$2.03B | +26.8% |
| SG&A Expenses | $687.53M$596.76M | +15.2% |
| Interest Expense | $187.28M$181.18M | +3.4% |
| Net Income | $1.32B$796.27M | +65.6% |
| EPS (Basic) | $4.11$2.48 | +65.7% |
| EPS (Diluted) | $4.10$2.48 | +65.3% |
| Shares Outstanding (Basic) | 319.99M319.56M | +0.1% |
| Shares Outstanding (Diluted) | 320.77M319.82M | +0.3% |
05—Questions
Frequently Asked Questions
How did Nucor's profitability change in 2017?
Net earnings attributable to Nucor stockholders rose to $1.32 billion, or $4.10 per diluted share, from $796.3 million, or $2.48 per diluted share, in 2016. The filing attributes the increase mainly to higher metal margins in the steel mills segment and a $175.2 million provisional net tax benefit from the Tax Cuts and Jobs Act. Gross margin rose to $2.57 billion (13% of sales) from $2.03 billion (12%).
What pressures did Nucor face from raw material costs and imports?
Average scrap and scrap substitute cost per ton rose 35% to $307 in 2017 from $228 in 2016, which offset some of the gains in selling prices. The filing also cites global steel overcapacity, with total steel imports increasing more than 15% in 2017 and finished imports capturing an estimated 27% market share.
How is Nucor's balance sheet and liquidity position?
Cash and cash equivalents plus short-term investments totaled $991.1 million at December 31, 2017, versus $2.2 billion a year earlier. Long-term debt including current maturities was $3.74 billion, and the company reports a funded debt to total capital ratio of 29%. The $1.5 billion revolving credit facility matures in April 2021 and was undrawn at year end.
How does Nucor allocate capital and return cash to shareholders?
Nucor's stated priorities are first investing in long-term growth, second paying dividends consistent with earnings growth, and third opportunistically repurchasing shares. The base quarterly dividend was raised to $0.38 per share, and $90.3 million of stock was repurchased in 2017, leaving about $738.0 million available under the $900.0 million program.
What are the main operational concerns highlighted for investors?
The filing discloses unplanned outages at Nucor Steel Louisiana in 2017, which management described as unacceptable performance, and says a review of that DRI facility is in early stages with potential capital expenditures not yet estimable. Other risks include overcapacity, cyclical end markets, energy cost volatility and greenhouse gas regulation.
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