01—Abstract
Summary
Summary of the 10-K filed February 28, 2020. Cited figures are marked; the original filing is the authoritative source.
Nucor Corporation, a Delaware corporation incorporated in 1958, manufactures steel and steel products and is North America's largest recycler, recycling approximately 17.8 million gross tons of scrap steel in 2019.
Its three segments are steel mills (62% of 2019 external sales), steel products, and raw materials. Net sales for 2019 were $22.59 billiona, down from $25.07 billion in 2018, and net earnings attributable to Nucor stockholders were $1.27 billion, or $4.14 per diluted share, versus $2.36 billion, or $7.42 per diluted share, in 2018. Management attributed the decline mainly to inventory destocking across the supply chain, lower average steel selling prices, and margin compression in the raw materials segment, including DRI operations.
Gross margin fell to $2.68 billionb (12%) from $4.30 billion (17%). The balance sheet remained strong, with cash and cash equivalents plus short-term investments of $1.83 billion, an undrawn $1.5 billion revolving credit facility, and a current ratio of 3.3. Cash provided by operating activities rose to $2.81 billion from $2.39 billion, while capital expenditures increased to $1.51 billion.
Management expects 2020 capital expenditures of approximately $2.0 billionc and is pursuing several growth projects, including a $1.70 billion plate mill in Brandenburg, Kentucky, and new micro mills in Missouri and Florida. The company returned capital through a base quarterly dividend of $0.4025 per share and $298.5 million of 2019 share repurchases, and it intends to return at least 40% of net earnings to stockholders over time.
Management is optimistic about 2020, citing the Section 232 tariffs keeping imports low, the USMCA trade agreement, and expected price increases announced in late 2019. The filing also flags risks including global steel overcapacity, cyclical demand, scrap price volatility, energy costs, environmental regulation, and goodwill and equity-method impairment exposure, including the Duferdofin Nucor investment.
02—Key points
Key Highlights
- Net sales fell 10% to $22.59 billion in 2019, and average sales price per ton decreased 5% to $851.
- Net earnings attributable to Nucor stockholders were $1.27 billion, or $4.14 per diluted share, compared with $7.42 per diluted share in 2018.
- Gross margin declined to $2.68 billion (12%) from $4.30 billion (17%), driven mainly by lower metal margins in the steel mills segment.
- The raw materials segment posted a loss before income taxes of $28.2 million in 2019, reflecting DRI margin compression and a $35.0 million impairment of natural gas well assets.
- Operating cash flow increased to $2.81 billion, and cash plus short-term investments totaled $1.83 billion at year-end 2019.
- Capital expenditures rose to $1.51 billion in 2019 and are projected at approximately $2.0 billion for 2020, with major projects including a $1.70 billion Brandenburg, Kentucky plate mill.
- The company paid a total dividend of $1.60 per share in 2019, repurchased $298.5 million of stock, and declared a quarterly dividend of $0.4025 per share in February 2020.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 28, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $22.59B$25.07B | −9.9% |
| Cost of Revenue | $19.91B$20.77B | −4.2% |
| Gross Profit | $2.68B$4.30B | −37.6% |
| SG&A Expenses | $711.25M$860.72M | −17.4% |
| Interest Expense | $157.36M$161.26M | −2.4% |
| Net Income | $1.27B$2.36B | −46.2% |
| EPS (Basic) | $4.14$7.44 | −44.4% |
| EPS (Diluted) | $4.14$7.42 | −44.2% |
| Shares Outstanding (Basic) | 305.04M315.86M | −3.4% |
| Shares Outstanding (Diluted) | 305.50M316.73M | −3.5% |
05—Questions
Frequently Asked Questions
Why did Nucor's earnings decline in 2019 after a record 2018?
Management attributed the decline primarily to inventory destocking throughout the supply chain after customers overbought in 2018, which led to lower average steel selling prices through most of 2019. Lower metal margins in the steel mills segment, a planned 70-day outage at the Louisiana DRI facility, and DRI margin compression also contributed. Steel products segment earnings reached a record in 2019, partially offsetting these pressures.
How strong is Nucor's balance sheet and liquidity position?
At December 31, 2019, cash and cash equivalents totaled $1.53 billion and short-term investments totaled $300.0 million. The $1.5 billion unsecured revolving credit facility was undrawn, and the current ratio was 3.3. Total long-term debt including finance leases was $4.32 billion, and funded debt to total capital was 29%. The company reported an A- long-term rating from Standard and Poor's and a Baa1 rating from Moody's.
What is Nucor's capital allocation policy and how much did it return to shareholders?
Nucor's highest priority is reinvesting in the business for long-term growth. Its second priority is returning capital through dividends and share repurchases, with a stated intention to return at least 40% of net earnings over time. The company paid $1.46 billion in dividends over the past three years and repurchased $298.5 million of stock in 2019, with about $1.2 billion remaining under its $2.0 billion authorization.
What growth projects is Nucor pursuing that could affect future earnings?
Projects include a new plate mill in Brandenburg, Kentucky, with an expected investment of $1.70 billion and annual capacity of about 1.2 million tons, expected to be completed in late 2022. Other projects include rebar micro mills in Sedalia, Missouri and Frostproof, Florida, a Kankakee, Illinois merchant bar mill, and the Gallatin sheet mill expansion. The Nucor-JFE galvanized sheet joint venture in Mexico is expected to start up in the first half of 2020, with its capital budget raised to approximately $360 million from $270 million.
What are the main risks to Nucor's business identified in the filing?
Key risks include global steel overcapacity, estimated by the OECD at about 485 million tons, which could increase imports if Section 232 tariffs are lifted. Other risks include cyclical demand tied to nonresidential construction, volatile scrap and raw material prices, and volatile electricity and natural gas costs. The filing also cites greenhouse gas and environmental regulation, cybersecurity threats, and potential impairments of goodwill, equity method investments such as Duferdofin Nucor, and long-lived assets.
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