The operator welcomes listeners to the Nucor's Third Quarter 2023 Conference Call and introduces the speakers, including the CEO and CFO. The use of non-GAAP financial measures and forward-looking information is mentioned, along with a reminder to access the materials posted on Nucor's IR website. The CEO begins the call by acknowledging the strong performance of the company's 32,000 employees in the first 9 months of the year.

Nucor's investments in core growth and expansion into new markets are generating strong returns for shareholders. The company has achieved its fifth consecutive year of record safety performance and has generated $1.8 billion of EBITDA and $1.1 billion of net earnings in the second quarter. Nucor has also returned $627 million to shareholders, representing 55% of its net earnings for the quarter. Total shipments to outside customers decreased by 5% compared to the prior quarter, but Nucor remains committed to sustainability and reducing emissions in its supply chain. The company has launched a National Sustainability Campaign and is making investments and forming partnerships to accelerate a cleaner future for Nucor and the broader steel industry.

In the past year, the company has made significant efforts to reduce its carbon footprint and has invested in renewable energy, advanced nuclear power, and carbon capture technologies. They have also introduced a new sustainable steel product and are leading a global coalition to develop a standard for measuring carbon emissions. The company has consistently reinvested in its businesses and recently hit three important milestones in sheet, plate, and bar production. These investments will allow them to produce higher-margin products with a lower carbon footprint and have already resulted in the groundbreaking of a new sheet mill in West Virginia and the grand opening of a state-of-the-art plate mill in Kentucky.

Nucor's investment in a new plate mill and rebar micro mill positions them as a leading supplier in North America for specialty plate products and rebar. These new capabilities will help the company achieve improved margins and lower emissions. Nucor's growth strategy is focused on expanding capabilities to better serve customers and increase earnings for shareholders. The company is well-positioned to capitalize on the rebuilding, repowering, and reshoring of the U.S. economy, and it feels like it's still in the early stages of these megatrends.

The paragraph explains that the "innings played" metric is used to track progress in federal and state level appropriations, project development, and steel product orders. The CHIPS Act has had the biggest impact on orders so far, followed by the IRA and IIJA. The IIJA has resulted in some steel product orders, but there is still more to come as many projects are still in the permitting and bidding process. The IRA has a slight timing advantage due to its use of tax credits, but renewable and energy storage projects still take time to secure financing and permits. The reshoring efforts supported by the CHIPS and Science Act have led to announcements of several projects, some of which Nucor is already delivering steel products to. Overall, there is still a lot of potential for steel product orders in the coming years.

In the third quarter, Nucor exceeded its guidance and saw strong performance in its bar mills and downstream steel products divisions. The company's business model and earnings power continue to grow, with 10 consecutive quarters of net earnings exceeding $1 billion and a return on equity of over 25%. The steel mills group saw a decrease in pre-tax earnings due to lower volumes and pricing, with sheet pricing falling by $80 a ton compared to the previous quarter.

Nucor's utilization rate for the quarter was 77%, resulting in higher conversion costs. However, the steel product segment still performed well, with pre-tax earnings of $807 million. The company's diverse product range allowed for gains in areas such as rebar fabrication and pre-engineered metal buildings. The raw material segment saw lower volumes and pricing, resulting in pre-tax earnings of $71 million. Nucor generated strong cash flow and plans to maintain a strong balance sheet while also returning value to shareholders and advancing their strategy.

Nucor's balance sheet is strong with low debt and a large amount of cash on hand, which will support their upcoming capital spending and potential M&A activity. The company has a history of returning capital to shareholders and has reduced their 2023 capital spending estimates due to delays in certain projects. For the fourth quarter, they expect lower earnings across all segments due to lower prices and volumes. However, they have a strong backlog for steel products in 2024 and anticipate continued strong order activity in various industries.

The company remains positive about long-term demand, but near-term market conditions have weakened due to various factors. They expect a decline in fourth quarter earnings and are open to answering questions. When it comes to capital allocation, the focus is on growing the core business and expanding into new areas. The CEO mentioned recent projects such as a sheet mill in West Virginia and an expansion in North Carolina.

Nucor's priorities for capital allocation include expanding beyond traditional steel businesses, balancing the return profile for shareholders, and maximizing economic value through projects that align with the company's culture. The company has a disciplined and consistent approach to returning capital to shareholders and reinvesting in the business, and uses M&A as a tool to implement its overall strategy.

The speaker discusses Nucor's approach to M&A and how they prioritize opportunities that align with their comprehensive strategy. They look for opportunities that will provide a differentiated value proposition for customers, such as in the megatrends of towers and structures, sustainability, and EVs. Ultimately, their main focus is on creating EVA and improving the consistency of their earnings performance over the long-term.

The company is exploring investment opportunities in the rebar market in the Pacific Northwest. They are optimistic about the market's growth and have seen success in their existing rebar facilities. The Seattle team has been performing well since the mill was acquired in 2002. The company believes there is potential for growth in the region and will continue to evaluate the opportunity.

The team has positioned the company for future success in the Pacific Northwest and Canadian markets. The Seattle facility, which has been in its current location since 1905, has limited growth opportunities due to the city's growth around it. The strategy is to position Nucor for success for the next 50 years and take advantage of their micromill technology and increasing product offerings. The company is aware of other mills being announced but cannot comment on them. The steel fabrication business has seen strong profitability above pre-COVID levels, but there is potential for deceleration in the fourth quarter and into 2024. The company will not provide pricing speculation for this time period.

The steel products segment of Nucor's business has been a significant source of earnings, generating $7 billion in the last seven quarters. While there has been a softening in backlog and pricing, backlogs are still 20-25% higher than pre-pandemic levels and favorable pricing is expected to continue in 2023 and 2024. Additionally, Nucor's diverse product portfolio has helped mitigate the impact of moderating pricing and volume in certain areas.

The company believes there has been a structural shift in the earnings profile of their fab product businesses. They are seeing a seasonal slowdown in construction but are also experiencing cross-selling opportunities. The company's product breadth is a key differentiator, and their teams are now approaching the market with a focus on providing solutions rather than just selling products. This includes offering a complete solution, not just individual products, and also emphasizing sustainability.

Nucor has trademarked and branded their products in the green space and is running their iconic and net zero products at a large scale. This has attracted attention from a diverse customer set, not just in the automotive industry. Nucor has also restructured some of its businesses to bring efficiencies within their systems. In terms of the steel market, Nucor's exposure to automotive is about 1.5 million tons, which is 5% to 6% of their overall volume. They are closely monitoring the automotive sector and the U.S. economy.

Nucor is committed to doubling their capacity over the next 3 to 5 years and has won awards for being a preferred supplier. Despite the impact of the strike on the overall economy, Nucor remains well-positioned to supply the demand for advanced high-strength steels in the auto industry. The company's projected CapEx for the year has been reduced to $2.4 billion, with an additional $600 million for future projects. The company's normalized level of CapEx is expected to be lower in the coming years.

The speaker discusses the company's plans for capital spending, which will likely be higher than in previous years due to upcoming projects. They also mention the potential impact of the removal of EU tariff rate quotas on the U.S. steel market, which is still uncertain. The company has been a significant player in the market and the quota has been consistently around 20-22% in recent years.

The speaker discusses the estimated steel conversion costs for the quarter, which have increased to around $518 per ton. He mentions that this includes some substrate costs and that the lower utilization rates have a big impact on the cost. He also notes that there has been a cost increase in supplies, services, and consumables.

In this paragraph, the speaker discusses the decrease in commercial costs year-over-year and how it is encouraging, despite concerns about inflation a year ago. They also mention that substrate costs are not reflected in the raw materials cost and may have an impact on costs. The speaker also mentions that conversion costs may see an uptick in the back half of last year, but were below the same period a year ago.

The company believes that the trends in the steel market have bottomed out and this will impact costs in the system. They expect a small decline in volumes in the fourth quarter, but it will be closer to historic averages. Pricing for steel products is expected to decline in the fourth quarter, but the company is not providing specific numbers.

The Brandenburg Plate Mill has been a strong performer, with the company seeing incredible returns and a fundamental shift in the market. Despite some softness in the last quarter, the sector has shown remarkable resiliency since the pandemic. The production level at the mill this quarter was below expectations, but the team has hit several milestones and continues to work hard to ramp up production. The company is expecting around 300,000 tons in the second half, but it may be closer to 160,000 tons due to the complexity of the mill.

The speaker explains that the company is making strategic decisions to use Brandenburg for its intended purpose and not impact returns at other mills. They estimate a production of 160,000 tons in the second half of the year and a ramp up to over 0.5 million tons for the next year. The tax rate is expected to fluctuate in the fourth quarter. The speaker also clarifies that the fourth quarter decline will be greater than the third quarter decline in terms of EBITDA dollars.

Phil Gibbs asks about the fourth quarter outlook and the state of the Gallatin project. Rex Query gives an update on the project and says they are currently at full run rate capacity. Leon Topalian mentions a new announcement for a rebar micro mill in the Northwest and John Hollatz will work on bringing the project to fruition. The main drivers for this project are the challenges of expanding the current mill, which has been around since 1905, in a growing city.

The company is focused on serving existing markets and gaining new customers, with a strong emphasis on providing the best capabilities for customers. They have a disciplined approach to growth and are not desperate for M&A opportunities, but will continue to invest in the future while maintaining a strong credit rating and returning 40% to shareholders.

The speaker emphasizes that Nucor's main focus is on creating value for shareholders, and that this is achieved through a strong team and culture. When asked about potential further consolidation in the steel industry, the speaker states that they are watching and cannot speculate on the outcome, but that Nucor's strategy for growth and investment remains clear. The speaker also notes that industry consolidation has been beneficial in the past.

The speaker discusses the ramping up of Gallatin and Brandenburg on the flat rolled side, noting that sheet volumes are down quarter-over-quarter despite Gallatin's ramp up. He clarifies that Brandenburg has completed its project on schedule and with high safety outcomes, while Gallatin has faced startup issues that have delayed its progress. He also states that they will not peg utilization rates to outcomes, but will focus on balancing the tons brought into the market.

Rex Query, a representative from the company, explains that their focus is on rationalizing product based on the capabilities and efficiency of their various plants. They have expanded capabilities in their pickle galv line at Gallatin and plan to invest in other plants as well. They are focused on expanding capabilities and value-added services for their customers, rather than just increasing volume. The additional Westford industry will be both incremental and could potentially replace existing capacity, as the company is responding to customer demand and aiming for sustainability. This new mill will also serve the largest sheet consuming range in the United States, where Nucor is currently underserved.

In the coming years, Nucor plans to increase its market share and capacity through its growth strategy. They expect to build 3 million tons of capacity and run it at full capacity. The company thanks its team members, customers, and shareholders for their trust and support.

This summary was generated with AI and may contain some inaccuracies.