Nucor Sales Defy Weather but Earnings Don’t

Sales were impacted by winter weather which disrupted customer demand, limited rail car availability and increased energy costs by $7 per ton compared to fourth quarter. Import levels negatively impacted pricing and margins at Nucor’s bar and sheet mills. The company benefited from not having any outages during the first quarter.

Steel production for the quarter totaled 5.194 million tons, up 8 percent from 4.818 million tons at the end of first quarter 2013. Average sales price per ton rose 1 percent from Q4. Average scrap and scrap substitute costs per ton were $398 and increase of 6 percent from the previous quarter. Overall steel mill operating rate was 75 percent, unchanged from the previous quarter.

Nucor’s new DRI plant in Louisiana produced 455,000 tons in first quarter working at 90 percent capacity.

A March verdict in an antitrust case brought by MM Steel, LP against Nucor and five other co-defendants imposed damages of $52 million against all defendants jointly and severally. Because the amount is subject to trebling, it is unknown what portion Nucor will pay. Nucor continues to appeal the verdict and did not a record a charge related to the case in first quarter results.

“We anticipate improved performance at both our steel mills and fabricated construction product businesses (rebar fabrication, joist and decking and pre-engineered metal buildings), although imports are expected to continue to pressure pricing and margins at our steel mills. We remain cautiously optimistic about the small but noticeable improvement in the nonresidential construction markets in 2014,” said Nucor in their earnings announcement.

Much of the Nucor earnings conference call with analysts was centered on the new DRI facility in Louisiana. We will have another article about the DRI discussion in our Sunday issue of SMU.

John Ferriola, Nucor CEO, told the analyst that the company was operating at 80-85 percent capacity on their sheet mills. They have been picking up business due to the inability of some of their competitors to deliver steel on time. However, Nucor was not allowing any non-traditional customer to buy on a limited time basis. If the mill provides steel to a customer coming from another mill they are requiring that customer to provide orders through the balance of the year.

Mr. Ferriola reported that they were close to the point where they could not take more orders. Having said that he suggested to any customers on the conference call to give the company a call and they might be able to take a few hundred more tons “at the right price.”