Steel Mills

Nucor: Challenges Equal Opportunities

January 28, 2016

Impairment charges contributed to a $62 million net loss for Nucor Corp. in fourth quarter 2015. An impairment charge of $153 million was recorded for the Duferdofin Nucor plant in Italy due to low operating performance.

The company also took an $84.1 million non-cash write-down after deciding not to proceed with plans for a blast furnace at the St. James Parish, Louisiana site.

Adjusted consolidated net earn earnings totaled $144.7 million for fourth quarter and was above guidance due to a larger than forecast LIFO credit and better than expected performance in the steel mill segment.

The company ended 2015 with a strong liquidity position of 1.9 billion as well as holding an untapped $1.5 billion revolving credit facility. CEO John Ferriola said that although cap ex is planned at 500 million for 2016 there are many opportunities organically and through M&A to grow the business.

“These are challenging times but also times of great opportunity,” commented Ferriola during the conference call.

Consolidated net sales decreased 18 percent in the fourth quarter to $3.46 billion when compared to third quarter. Nucor shipped a total of 5.1 million tons, a decrease of 14 percent from Q3 and a decrease of 16 percent from Q4 2014.

Full year 2015, Nucor’s consolidated net sales decreased 22 percent to $16.44 billion, compared with $21.11 billion for 2014. Total tons shipped to outside customers were 22,680,000, a decrease of 11 percent from 2014.

For its steel segment, total fourth quarter steel mill shipments fell decreased 14 percent from Q3 and 16 percent from Q4 2014. Full year steel shipments declined 10 percent.

Steel mill operating rates averaged 68 percent for the full year 2015 and 63 percent in Q4.

In its outlook comments, Nucor wrote, “We anticipate some improvement in the steel mills segment in the first quarter of 2016 compared to the fourth quarter of 2015 due to a lower average cost of inventory to begin the first quarter and a modest improvement in market conditions. Positive market factors include a small decline in import volumes and more balanced inventory levels at service center customers.

Profits for downstream product are expected to decrease in first quarter due to seasonality in the nonresidential construction market. Nonresidential is expected to improve in Q2 and have a strong year.

“We anticipate some slight improvement in the performance of the raw materials segment in the first quarter of 2016 primarily due to the absence of the maintenance outage at Nucor Steel Louisiana that occurred in the fourth quarter of 2015 and improved margins in our scrap recycling business. However, market conditions in the raw materials segment will continue to be extremely challenging due to the overall depressed and volatile levels of pricing for raw materials.”

During the earnings conference call Ferriola said he is happy with trade duties for China in the cold rolled and corrosion cases. He is confident that steelmakers will be able to present a strong case that will result in higher penalties for the other countries named in the trade suit. He noted that there will always be challenges with imports due to the strength of the U.S. dollar.

Ferriola opposes China’s bid to gain recognition as a market economy saying it has failed to make necessary reforms and is still government run. “The U.S. has no reason to treat China as a market economy.”

Nucor is currently capable of producing virtually every kind of steel needed for automotive, said Ferriola. Nucor sales to the automotive market increased to 1.4 million tons last year, 2016 is forecast at 1.5 to 1.6 million tons. Within a few years Nucor expects sales in the 1.9 to 2 million ton range.