Nucor Corporation (NUE) Earnings Call Transcript & Summary

Thank you for joining the 2020 annual meeting of Stockholders of Nucor Corporation. Today's meeting may include forward-looking statements. Please refer to the slide on your screen for important information that could cause actual results to differ from those forward-looking statements. I will now turn the call over to John Walker.

Thank you, Julie, and good morning, everyone. I'm John Walker, and I'm Executive Chairman of Nucor. I would like to welcome Nucor's stockholders as well as our Nucor teammates and guests who are participating in or listening to this meeting. Due to the public health risk of the COVID-19 pandemic, we made the decision to put safety first and to prioritize the health and well-being of our stockholders, teammates and other meeting participants. As a result, for the first time in our history, we are holding our annual meeting virtually this year. We all wish we were together in Charlotte with you today rather than holding this meeting virtually. If you have not already done so, you may vote your shares online during this meeting prior to the closing of the polls by following the voting instructions on your screen. While the meeting is virtual only, we welcome questions from our stockholders. You may submit questions by following the instructions on your screen. As now Executive Chairman, I call the 2020 annual meeting of the stockholders of Nucor Corporation to order. At this time, I would like to introduce Leon Topalian, Nucor's President and Chief Executive Officer. And I'm pleased to turn the chair of this meeting over to Leon. Leon?

Thank you, John, and good morning to our stockholders, teammates and guests who have joined us this morning. We appreciate your attendance, your interest, and most importantly, your support of Nucor. At this time, I would like to also recognize and thank our retired CEOs, Dave Aycock, Dan DiMicco and John Ferriola. They usually attend this meeting when we hold it in person, and I'm sure they're listening in now. Gentlemen, we miss you -- being with you today and look forward to seeing you in the future. Rae Eagle, Nucor's Vice President and Corporate Secretary, will act as Secretary of this meeting. We have with us today several key members of Nucor's management team, who I am pleased to introduce. Jim Frias, our Chief Financial Officer, Treasurer and Executive Vice President; Craig Feldman, Executive Vice President of Raw Materials; Ray Napolitan, Executive Vice President of Nucor's Engineered Bar group, as well as Nucor's digital initiatives; MaryEmily Slate, Executive Vice President of Plate, Structural and Tubular Products; Dave Sumoski, Executive Vice President of Merchant and Rebar products; Chad Utermark, Executive Vice President of Fabricated Construction Products; and Ladd Hall, Executive Vice President of Flat-Rolled Products. Recently, Ladd Hall announced his plans to retire in June after almost 40 years of dedicated service to Nucor. Ladd, thank you for your leadership and for your friendship. You've played an incredibly important role in positioning Nucor for continued success. You will be missed, and we wish you and Sally, a very long, happy and healthy retirement. Effective May 17, Al Behr will be promoted to Executive Vice President. Al is a dynamic leader with 24 years of experience at Nucor. He will be a strong addition to our executive management team. Joining remotely, we have with us today the following current directors and nominees for election as directors: Lloyd Austin; Patrick Dempsey; Chris Kearney; Laurette Koellner; Joseph Rupp; and Nadja West. Also joining us remotely are several of Nucor's advisors. From the law firm of Moore & Van Allen, Wade Sample. And from the accounting firm of PricewaterhouseCoopers, we have Matt Kosmicki and Elizabeth Allison. Now on to some business. The Secretary will please report the stockholders present or represented by proxy.

Of the 301,131,528 shares issued and outstanding and entitled to vote at this meeting, there are present or represented by proxy more than 268 million shares.

Since the holders of the majority of the shares issued and outstanding and entitled to vote at this meeting are present or represented by proxy, a quorum is present for the transaction of all items of business. I will ask the secretary to file the proxies with Nucor's records. Ms. Eagle, will you please report on the notice of meeting sent to stockholders of record as of the close of business on March 16, 2020? These are the holders entitled to vote at this meeting.

I present this meeting my affidavit showing the mailing commencing on March 27, 2020, to each stockholder of record as of the close of business on March 16, 2020, the following: the notice of the 2020 annual meeting of stockholders and related proxy materials or the notice of Internet availability of proxy materials. Our counsel has advised us that the mailing was made in accordance with all applicable requirements of law, including the regulations of the Securities and Exchange Commission and the rules of the New York Stock Exchange. Additionally, in connection with the change from an in-person to a virtual meeting, Nucor filed a notice of change of location of this meeting with the Securities and Exchange Commission on April 14, 2020, and a news release announcing such change was also issued that same day and promptly posted on the company's website.

Ms. Eagle, would you please annex your affidavit to the minutes to this meeting? Sid Rodrigue, with Broadridge Financial Solutions, has been appointed inspector of elections as required by Delaware law. He has submitted his oath of office, and I ask that his oath be attached to the minutes of this meeting. The next order of business is to consider the 4 proposals for this annual meeting as set forth in the proxy statement. Proposal #1 is the election of the 8 directors for 1 year. The terms of Lloyd Austin, Patrick Dempsey, Chris Kearney, Laurette Koellner, Joseph Rupp, John Walker, Nadja West and myself will expire at this annual meeting. The Board's governance and nominating committee is recommended, and the Board of Directors has nominated these 8 nominees for reelection for 1 year terms ending at the annual meeting in 2021. There are no other nominees. Proposal #2 is the ratification of the appointment of PricewaterhouseCoopers to serve as Nucor's independent registered public accounting firm for 2020. The Audit Committee of the Board of Directors has appointed PricewaterhouseCoopers to serve as Nucor's independent registered public accounting firm for 2020. Nucor's Board of Directors unanimously recommends a vote for this proposal. Proposal 3 is an advisory vote to approve Nucor's named Executive Officer compensation in 2019. Nucor's Board of Directors unanimously recommends a vote for this proposal. And proposal #4 is the approval of the amendment and reinstatement of the Nucor Corporation 2014 Omnibus Incentive Compensation Plan. Nucor's Board of Directors unanimously recommends a vote for this proposal. If you are a stockholder entitled to vote and have not yet voted, or if you want to change your previously cast vote, please do so via the website used to access this meeting. Please remember that if you have already voted by proxy, it is not necessary to vote again. The polls are about to close, so if you have not yet voted, please do so. [Voting]

I declare the polls closed, and ask the inspector of elections to announce the preliminary results of the vote.

I submit a certificate of the inspector of elections certifying to the vote. Proposal #1, all 8 director nominees have been reelected as directors of the company. Proposal #2, the appointment of PricewaterhouseCoopers to serve as Nucor's independent registered public accounting firm for 2020 has been ratified by the stockholders. Proposal #3, Nucor's named executive officer compensation in 2019 and has been approved on an advisory basis by the stockholders. And proposal #4, the amendment and restatement of the Nucor Corporation's 2014 Omnibus Incentive Compensation Plan has been approved by the stockholders.

Thank you, Sid. If there are no further business to come before this meeting, a motion to adjourn is in order.

I move.

I second the motion.

A motion has been made and seconded. Without objection, I declare that this meeting is adjourned. We will now proceed with a discussion of Nucor's business. First off, let me say what an honor it is to have been asked to lead this amazing company. I'm humbled, privileged and excited about our future. And before I begin my presentation, I'd be remiss if I did not take a moment to honor and acknowledge the many contributions of the folks out there on the front lines helping all of us to cope with this pandemic. The nurses, doctors, first responders, pharmacists, researchers and many other essential workers, including our own Nucor teammates across the country and around the world, thank you for everything you are doing. Also, my thoughts and prayers go out to anyone afflicted with this awful virus, or those who have lost loved ones during this time. For this morning's discussion, I want to speak for a few minutes about what I see is a core or fundamental to who Nucor is, what we're doing to position Nucor for future success, and how that will enable us to thrive, not just for you, our shareholders, but also our teammates, their families, our communities as well as our customers. Nucor's greatest competitive advantage is the culture of our company. That culture is the 27,000 men and women who make up the Nucor family. And the greatest measure of our culture is how we care for our team through the value of safety. Our culture has enabled us to achieve the results our stakeholders have come to expect and deserve, and it is what will ensure our continued success moving forward. At the very core of our culture, is the fundamental understanding that we must achieve results in every aspect of our business, from safety, to quality, to our return metrics that continue to allow Nucor to grow and invest for the long term. The safety, health and well-being of our team is our greatest responsibility. While many competitors can buy the same equipment we use, I don't believe there's anyone who can achieve and deliver the results that our team has been able to achieve and deliver, anywhere in the world. And while we've made very good progress on safety, we can and are committed to getting much better. In February of this year, we held a live webcast Team Hall event for all 27,000 of our Nucor team members. During that event, we issued every Nucor team member a challenge coin, like the one you see here on the screen. The challenge I've asked everyone at Nucor to embrace is for us to become the world's safest steel company. I reminded our teammates then and will again now, since many of them are listening in, that not only are we counting on each other at Nucor, but their loved ones are counting on them as well to work safely each and every day, we will never compromise on the safety of our team. You may rightly ask what else is important? What else are we doing to drive results? To address that, let me show you the other side of our challenge coin. In the center, it explains that we will grow our core, expand beyond and live our culture. And to make sure we embrace our culture, words that remind us of it are engraved around the perimeter of the coin, trust, family, teamwork and open communication. By growing our core, we mean focusing on what got us to the industry-leading position we occupy today, including reinvesting to maintain and enhance the capabilities and competitiveness of our existing steel mills, building new world-class mills, where we see market opportunities to take advantage. A couple of the examples from our sheet and plate group. At our Gallatin mill in Ghent, Kentucky, which we bought in 2014, we've recently added the capability to produce 500,000 tons per year of 72-inch wide galvanized product. We are very confident that this will continue to find strong regional demand as the economy reemerges in the coming months. We're also cost effectively doubling Gallatin's capacity, while modernizing the mill to produce wider hot band from a thicker slab, opening up new markets that at present are served by higher cost competitors. Our new plate mill will be the industry leader in terms of cost, quality and product breadth when it starts up. We expect it to firmly establish Nucor as the United States leader in the plate market. This concept of growing our core also encompasses holding ourselves accountable for those businesses that have not met the return metrics we have set for ourselves. We will continue to scrutinize all of our businesses and make the requisite decisions for the long-term financial stewardship that is core to our values. I can share a number of other examples among our bar mills and bulk steel products as well as raw materials. But in the interest of being brief and getting to your questions, let me move on to explain what we mean by expanding beyond. We can't simply be satisfied with our leadership in steel and steel products. We're looking for other avenues of potential growth and value creation beyond them. We are constantly evaluating what we described as adjacencies, where Nucor's culture, manufacturing prowess and other advantages can be brought to bear. Our recently acquired industrial gas business is one such example. In 2019, we acquired a company called UIG, the Universal Industrial Gases. In doing so, we brought to Nucor the capability to design, build and operate our own air separation plants, which produce oxygen, nitrogen and argon gases that are mission-critical to our steelmaking operations. With these capabilities in house at Nucor, we will lower our steelmaking costs, develop commercial sales opportunities for liquid oxygen, nitrogen and argon, and over time, have the ability to offer design-build operations for third-party sales. We can execute on our plans in good times and in bad ones because of the conservative financial profile we have consistently maintained. While no one was expecting a pandemic and severe economic disruption, our approach means we were ready for it. And as a result, we are taking appropriate steps to further enhance our financial flexibility. We expect that slowing down some of our capital spending and reducing our investment in working capital should create incremental cash flow of more than $1 billion this year. We are already starting to see the benefits of these actions. And as a result of these measures, we expect that we will finish the current quarter with a higher cash balance than the $1.4 billion we ended the first quarter with. All of this means we're comfortable and remain committed with our dividend. We are very proud of our history of paying and increasing it over the past 47 years, and I have no intention of being the first Nucor CEO, who brings that enviable track record to an end. Before I close, I just want to highlight some of the ways Nucor teammates have taken it upon themselves to help their communities cope with this pandemic. Nucor teams all over the country have pooled resources and overnighted N95 masks and other critical PPE to medical units in need. Our team members in Seattle and Nebraska utilize personal and company-owned 3D printers to produce as many as 100 NIH-approved face shields per day. Our Vulcraft New York team created and donate specialty hard hats with face shields to the local hospital. Our Nucor-LMP team in Missouri has been delivering meals to local senior centers, and one of our engineers at Nucor Steel Berkeley is producing intubation boxes to protect doctors and nurses in the operating room on the COVID patients. These contributions and many others have been initiated by Nucor teammates who saw that help was needed in their community, quickly figured out ways to assist and got to work. So circling back to the beginning of my comments here, it is truly an honor to have been asked to lead this great company. And yes, our culture is very real. Now we'd be happy to take your questions. You may submit questions by following the instructions on your screen. Paul Donnelly, Nucor's Director of Investor Relations, will read the questions as we receive them. Paul?

Thanks, Leon. Our first question is as follows: it doesn't seem like Nucor has reduced its capital spending very much, more like you're just pushing it out a little. Are you sure that's wise given the severity of the recession we seem to be in the middle of?

So we believe in the return potential of all of the investments that we have made and launched, and they were not being made under the view about where we were in the current economic cycle. So we do intend to complete them. We know there will be difficult economic conditions. We're in a cyclical business and industry that we've been a part of for over 50 years. So we understand as we move forward, that, that is part of it. However, we also recognize that this particular pandemic-induced recession has come upon us suddenly and has been quite severe. Since the timing and pace of our recovery is so uncertain, we believe the measures we have taken to create maximum flexibility are the right ones moving forward.

We have another question. It has been some time since your last sustainability report was published. Will we see one published this year?

Yes. And matter of fact, we're in the middle of updating our sustainability report. And what was previously released on an every 2-year basis, we'll now move forward to publishing our sustainability report every year.

Our next question. Do you have any supply chain concerns due to COVID-19? What plans do you have to shift supply chains post-pandemic?

Well, unlike many other companies, Nucor has been able to manage its supply chain issues very well. We attribute this to a couple of fundamental principles that existed -- pre-existed, actually to COVID-19 pandemic. First, Nucor relies very heavily on American and North American business partners, who support our critical supply chain needs. We are intentionally not dependent on China for our critical needs and supplies. Second, we're very vertically integrated. This gives us tremendous flexibility as it relates to some of our most significant raw materials. And finally, we forge lasting partnerships and strong business relationships with our supply base. We're able to count on our supply partners in good times as well as bad. Just as they can count on us.

Next question is, how does Nucor address labor condition issues in countries from which you import pig iron, specifically Brazil?

Thanks, Paul. For many years, Nucor's had a policy addressed specifically to eliminate forced labor from our supply chain. That policy can be found on our website and has addressed some of the concerns in the supply chain, specifically related to Northern Brazil. As a result of those actions, Nucor and other companies, we are pleased to say that many of the historic abuses involving force labor in Northern Brazil have been dramatically reduced. That being said, the overwhelming majority of our pig iron is purchased from regions and countries outside of Brazil. We require our suppliers to agree to and abide by our supplier code of conduct. We do not buy pig iron from anyone who supplies -- excuse me, from any suppliers who are not vetted by the government of Brazil, and also we conduct our own due diligence to ensure that no entity in our supply chain uses illegal labor practices.

Next question is: Leon, could you please comment on the construction progress of the plate mill facility in Brandenburg? Is Nucor still on schedule to complete construction by 2022? Have we had any extra cost as a result of COVID-19?

Okay. So look, we're very excited about the strategy that sits behind our Brandenburg plate mill. As I said earlier, it's going to be our most diverse product offering of plate in one mill located anywhere in the country. It's going to enable Nucor to achieve a market leadership position. It's going to give us a cost position by locating it in the heart of the largest plate consuming region in the United States. And so we remain very, very excited and committed to the strategy of moving forward on this plate mill. However, we have taken a slight pause in spending, but that is not stopping the engineering and some of the progress that will remain moving forward at our Brandenburg facility. So we've broken ground. Our team there is small. So there are just a few people. But they're continuing to develop the engineering and move forward. At this point, we do not expect our start-up to be delayed past the fourth quarter of '22, but we'll be mindful of that and update you more as we move forward, as this pandemic lifts, and the country begins to reopen.

Leon, could you please comment on the recent events at Duferdofin Nucor?

Certainly. I'll start. And Jim, if there's anything I miss, please feel free to jump in. So over the last 12 years, our teams and our joint venture between Nucor and Duferco, the Duferdofin JV, have worked really hard to figure out how we move that business forward, have done many, many things, and I'm proud of the work that's been put into place over the last 12 years to try and bring that business to a point of profitability, where it can derive sustainable results. However, as we sit today and then look at some of the structural changes in Europe, some of the things that we're going through today, we felt and walked through an impairment analysis and felt at this time that an impairment on that business was warranted and needed. And as a result, we've made that decision. We've taken the impairment charge that we shared with you on the earnings call. And again, we'll work to figure out how we continue to bring that business to sustainable results. Jim, anything you'd like to add?

Yes. The only thing I'd add is the key underlying issue that brought us to the point of believing there was a trigger, was the continuing deterioration of performance versus the projections that we were relying on for the valuation. And so that was the key issue. We just lost confidence in the projections of what might be achieved there based on what was occurring in the marketplace.

How have recent health events changed the mindset of our Board of Directors as far as share buybacks?

This is Jim Frias. Hopefully, the Board will be comfortable with me speaking on their behalf. We have a very disciplined philosophy about returning capital to investors with an objective of returning a minimum of 40% of our earnings to shareholders. Things have changed quite dramatically since early in the first quarter when we did some share repurchases this year, and so we're likely to have earnings this year where our dividends will far exceed 40% of our earnings. So it's unlikely we'll do more share repurchases this year.

Okay. Thank you, Jim. This concludes the Q&A portion of the meeting. If there are any additional questions, please feel free to contact our Investor Relations team. I'd now like to close by thanking our Board members for participating remotely, and to our team members listening in. Your health and safety is our most important responsibility. Thank you to those of you who continue to work from home, and to those of you who are working to safely produce the products our customers need to continue to support essential projects across this country. And finally, I'd like to thank our stockholders for attending today and for your continued interest and your trust in our company. Thank you.