Nucor Corporation (NUE) Q3 2011 Earnings Report, Transcript and Summary

Good day, everyone, and welcome to the Nucor Corporation's Third Quarter of 2011 Earnings Conference Call. As a reminder, today's conference is being recorded. [Operator Instructions] Certain statements made during this conference call will be forward-looking statements that involve risks and uncertainties. Although Nucor believes they are based on reasonable assumptions, there can be no assurance that future events will not affect their accuracy. More information about the risks and uncertainties relating to these forward-looking statements may be found in Nucor's latest 10-K and subsequently filed 10-Qs, which are available on the SEC's and Nucor's website. The forward-looking statements made in this conference call speak only as of this date, and Nucor does not assume any obligation to update them either as a result of new information, future events or otherwise. Now for opening remarks and introductions, I would like to turn the call over to Mr. Dan DiMicco, Chairman and Chief Executive Officer of Nucor Corporation. Please go ahead, sir.

Thank you, Stacy. Good afternoon. Thank you for joining us for our conference call, and as always, we appreciate your interest in Nucor. With me for today's call are the other members of Nucor's senior management team: our President and Chief Operating Officer, John Ferriola; our Chief Financial Officer, Jim Frias; and our Executive Vice Presidents: Jim Darsey, Keith Grass, Ladd Hall, Ham Lott and Joe Stratman. First, and most importantly, I want to thank everyone on our teams at Nucor and our Harris Steel and David J. Joseph operations for their excellent work in economic environment that remains extremely challenging. You are working safely and, as always, you are working together as a team to take care of our customers and our shareholders. And your work goes far beyond the significant demands of getting the job done each quarter. You are successfully implementing numerous growth initiatives that are building a stronger Nucor. By a stronger Nucor, I am describing one positioned for new higher highs and cyclical earnings power once the sustainable economic recovery arrives. Thank you, all. I will now ask our CFO, Jim Frias, to discuss our second quarter results. Following Jim's comments, President and COO, John Ferriola will report on our operations and implementation of our growth initiatives. As you listen to the reports, I believe there are 2 very important points you need to consider. First, our third quarter and first 9 months results benefited greatly from Nucor's position as North America's most diversified steelmaker. Product diversification is a critical building block in Nucor's business model. And our business model, with its flexibility, diversification and sustainability, is what drives Nucor's industry-leading through the cycle return on capital performance. Second, Nucor is growing stronger during this downturn. Throughout Nucor, our teams are growing long-term earnings power, in upstream raw materials and steelmaking and in downstream steel products. How can we do that? How can we expand while others are focused on survival? The answer is simple. Our business model and our strong balance sheet allows us to focus on the long term and grow stronger during the downturns. At this time, I'd like to turn it over to Mr. Frias, our CFO, for his comments. Jim?

Thanks, Dan, and good afternoon. Third quarter 2011 earnings of $0.57 per diluted share exceeded our guidance range of $0.45 to $0.55 per diluted share. Our results increased more than eightfold over third quarter of 2010 earnings, but decreased 39% from second quarter 2011 earnings of $0.94 per diluted share. The third quarter 2011 effective tax rate, measured as a percentage of earnings before income taxes and noncontrolling interests, was 29.6%. However, after adjusting our profits belonging to our noncontrolling interests business partners, the effective tax rate was 31.7%. Excluding tax -- state income tax credits recorded during the quarter, the effective tax rate would have been above 34%. However, the positive impact on earnings from the state tax credits was essentially offset by other nonrecurring items recorded in the third quarter. As we expected, third quarter results and profits were below our second quarter results. The quarter-over-quarter decline was primarily due to lower prices and metal margins for sheet mill products. The sheet market has been severely impacted by new domestic supply and increased imports. Importantly, Nucor continues to benefit from a diversified product mix. In fact, our bar mills and deck fabricating plants delivered solid improvement over their second quarter profitability. Earnings at our plate mills were essentially flat with the second quarter. However, the trend for the plate mills was down through the quarter due to the impact of higher imports. Our beam mill and downstream cold-finished bar businesses experienced a small decline in quarter-over-quarter results but continued to contribute solid profits. Earnings per diluted share of $2.02 for the 9 months of 2011 represent a dramatic improvement from the year-ago period's earnings per share of $0.46. That's an increase of 340%. Cash generated from operations is also up strongly, nearly triple the prior year period. And Nucor's annualized return on equity through this year's first 9 months is a respectable 12%. The Nucor team is achieving this performance in an economy which nonresidential construction square footage for 2011 is forecast to be more than 60% below the peak level reached in 2007. Our returns are also achieved at the lowest financial leverage in the industry. While construction remains our largest end-use market, Nucor's unrivaled combination of product diversification and operational flexibility allows us to grow our participation in other more robust markets. These include end-use markets such as automotive, heavy equipment, energy and general manufacturing. Throughout Nucor, our teammates are enjoying tremendous success developing new products, as well as other continual improvement initiatives that both reduce costs and improve quality across our entire product portfolio. It goes back to Dan's point, that our team uses economic downturns as opportunities to grow stronger. Emerging from downturns stronger than we enter them is how we build long-term value for our shareholders. We get stronger because our financial strength allows us to invest in an attractive growth opportunities throughout the economic cycle. At the close of the third quarter, cash and short-term investments and restricted cash totaled over $3 billion. The restricted cash is available to fund a significant portion of the DRI plant that we are building in Louisiana. Further to Nucor's strong liquidity, our $1.3 billion unsecured revolving credit facility is undrawn and does not mature until November 2012. We have no commercial paper outstanding. Long-term debt totaled $4.3 billion at the end of the second quarter for a gross debt-to-capital ratio of 36%. Moody's has reported that our debt-to-capital ratio will be viewed on a net debt basis for any cash and short-term investments balance over $1.2 billion. Using that methodology, our net debt-to-capital ratio is 29%. That calculation excludes the restricted cash. Looking ahead, our debt-to-capital ratio is expected to decline as a result of upcoming long-term debt maturities of $650 million in 2012 and $250 million in 2013. We expect to fund those maturities by drawing on our healthy liquidity position and continued strong operating cash flows. Standard & Poor's, in its October 4 report entitled "North American Metals and Mining Companies Strongest to Weakest," again ranked Nucor #1 for credit rating and credit outlook among a universe of 64 companies. Nucor was also the only metals and mining company in the group that S&P awarded a strong business risk profile due to our competitive position and profit performance relative to our peers. In 2011, we are continuing to invest in projects that will grow our long-term earnings power and provide attractive returns to our shareholders. We project 2011 capital spending of approximately $475 million. That is down from our prior estimate mainly due to the timing of expenditures for equipment at Nucor Steel Louisiana. John Ferriola will give you an update on some of our more significant growth projects in his remarks. Our outlook for the fourth quarter is tempered by the expectation of further margin compression in the sheet market due to the supply side pressures from new domestic supply and imports. We also anticipate some margin oppression in the plate market due to increased imports. This margin oppression for sheet and plate products may be cushioned somewhat by trend of lower scrap prices we see beginning to emerge in October. Overall, we expect Nucor's fourth quarter earnings to decline from the third quarter level. Demand in end-use market such as automotive, energy, heavy equipment and general manufacturing remains firm, but have shown very little improvement compared to the first half of 2011. Nucor's combined construction businesses, that's Long Products, Steel Mills and downstream operations, are expected to continue to operate profitably. This profitability has been achieved even though we have seen no real improvement in nonresidential construction markets in 2011. Nucor will again follow our practice of providing quantitative guidance around the middle of the final quarter -- excuse me, around the middle of the final month of the quarter. We are excited by the opportunities ahead to deliver higher highs and earnings when the inevitable cyclical recovery finally arrives. Again, the key to our performance, and most importantly, our ability to reward our shareholders is the flexibility, diversification and sustainability found in our business model. Thank you for your interest in Nucor. Dan?

Thank you, Jim. I will now ask John Ferriola to report on Nucor's operations. John?

Thanks, Dan. Good afternoon. Let me begin by thanking all of our raw materials, steelmaking and steel product teammates for your outstanding commitment to working safely and to taking care of Nucor's customers. When I visit our operations, I am always impressed and, quite frankly, inspired by the work of the more than 20,000 men and women of Nucor are doing every day to profitably grow our business for the long term. Thank you, and please, keep it going. Dan and Jim both mentioned the importance of Nucor's product diversification. This is highlighted by quarter-over-quarter changes in our average selling prices. Our third quarter sheet mill average selling price declined $94 per ton from the second quarter. By contrast, our composite steel mill average sales price decreased by just $44 per ton over this period. Traumatic price erosion in the sheet market was cushioned by greater stability and the selling prices of our other steel mill products. Our bar, beam and plate mills, combined, provided 61% of Nucor's total steel mill shipments in the third quarter. And our downstream steel products businesses realized a $20 per ton increase and they are composite third quarter average selling price from the second quarter level. I want to reiterate an extremely important point that investors need to understand about Nucor. Our business model, with its flexibility, diversification and sustainability, is what drives Nucor's industry-leading through the cycle return on capital performance, and our business model is getting stronger during this downturn. I will provide brief updates on some of our initiatives to grow long-term earnings power. Our team at the Memphis SBQ mill set new shipment and profitability records in the third quarter, and Memphis continues to gain product qualifications and production volumes for OEMs in the construction equipment, automotive, heavy truck, farm equipment and energy markets. Our team at Nucor Steel Nebraska successfully started up a downstream processing line that provides new growth opportunities and even higher-quality SBQ products than they currently offer. Our Sheet Mill Group continues to be successful at introducing new value-added products for a variety of end-use markets such as heavy equipment, energy, automotive, railcar and metal framing. Additional value-added steelmaking capabilities are on the horizon for Nucor. Projects underway include a normalizing line and vacuum tank degasser at our North Carolina plate mill, an equipment upgrade that will allow us to produce lighter gauge and wider product at our South Carolina sheet mill and a vacuum tank degasser at our Arkansas sheet mill. Our David J. Joseph team achieved record scrap export container shipments during the third quarter. And DJJ continues to grow its businesses in other areas as well. Nonferrous metals flotation facilities are being added in Tampa, Florida and Louisville, Kentucky. Nucor's downstream businesses are gaining market share as the result of product innovations and commercial excellence in taking care of our customers. Examples include the Vulcraft/Verco Groups, 3D Building Information Modeling and the proprietary Ecospan composite floor system. Nucor Building Systems group is growing its distribution network both in terms of quantity and quality. And our Harris Steel Rebar Fabrication business continues to expand both its footprint and its product capabilities. Our Nucor Steel Louisiana team is on schedule with the construction of our 2.5 million tons per year direct reduced iron or DRI facility. Start-up is expected in mid-2013. Combined with our new iron DRI facility in Trinidad, the first module at Louisiana will bring us to about 2/3 of our goal to control 6 million to 7 million tons of annual capacity in high-quality scrap substitutes. Greater control of high-quality iron use consumed at our steel mills will be a very high-return investment for Nucor. The projects I just discussed and many others throughout our company demonstrate how downturns create opportunities for Nucor; opportunities for our long-term, sustainable, profitable growth. That's the reason why we are very optimistic about our teams' ability to deliver higher highs and earnings when the inevitable, cyclical recovery arrives. Thank you for your interest in our company. Dan?

Thank you, John. The U.S. economy continues to struggle to emerge from the Great Recession. It has been unable to move to a path of vibrant and sustainable growth. This is not surprising. Our nation has failed to implement real solutions to eliminate the unsustainable structural imbalances that are driving our economy deeper and deeper into a hole of little or no growth. Our team has been adamant and consistent over the past 3 years with our views on the way forward to a stronger and more sustainable American economy. And we require real solutions that eliminate the structural imbalances and, at the same time, create what our economy needs most: jobs, jobs and more jobs. This can be accomplished with a multi-pronged plan for the U.S. to achieve new energy independence, enforce rules-based free trade, to build our crumbling infrastructure, reform and simplify the tax code and reduce the burden of excessive regulation on our economy. I would like to comment on 2 developments regarding enforcement of our nation's trade laws. First, the United States Senate last week passed a bipartisan currency exchange rate oversight reformat of 2011. This legislation is exactly the kind of strong and bipartisan action our government must take to hold China accountable for its protectionist trade policies. China's failure to engage in rules-based trade, a commitment it agreed to when it became a member of the World Trade Organization and achieved favored nation trading status in the United States, has destroyed millions of good paying American jobs. It is now time for the United States House of Representatives to pass this bill. It will be a big step forward in restoring free and fair competition in our global trading system. The idea that somehow this action will create a trade war is both ludicrous and ignorant, with an emphasis on ignorant. Why? Because we have been in a trade war waged by the Chinese government for 16 years, except that our government has yet to join the fight and we are losing miserably. The evidence, you say, where is it? Try a greater than a $2.2 trillion trade deficit with China over the last 11 years, greater than $2.2 trillion in manufactured goods over the last 11 years. American manufacturing, American jobs and the American middle class have borne the brunt of this trade war. It is time to say enough is enough, and act legally to hold them accountable. This is one area that the current administration has done a better job of than the previous Clinton and Bush administrations, but it is still way short of what is needed. The second development is the U.S. International Trade Commission's Sunset Review of anti-dumping and countervailing duty orders on cut-to-length plate from India, Indonesia, Italy, Japan and Korea. Maintaining these orders is critical to the health of the U.S. plate market. These orders will help to ensure that illegally traded plate imports from these countries do not return to the U.S. market as they once did. Free and fair trade in the U.S. plate market is an absolute requirement for Nucor to continue investing capital and adding jobs in this business. These are extremely challenging and uncertain times for the overall economy and the steel industry. However, one thing is for certain, and it is very much under our control. The Nucor team will meet any and all challenges head on and turn them into opportunities. We are primed and ready to continue growing stronger. That is exactly what our team has been doing for more than 4 decades. At this time, we'd be happy to take your questions.

[Operator Instructions] We'll take our first question from Kuni Chen with CRT Capital Group.

Just a quick one about your view on supply in the market. Obviously, we have short lead times here on flat-rolleds. You talked about some of the new competitors making waves in the market. When I think about flat-rolled pricing, right now, the pricing structure seems to be more driven by cost push as scrap and iron ore go up and down. When you think about kind of what level we need to get back to have more pricing power in flat-rolled, what kind of lead times do you think that correlates to?

It wouldn't be appropriate to be getting into conversations about pricing power, but I will make 2 comments. One, in today's environment, the raw material push-pull is not what's driving pricing in the marketplace. What's driving pricing in the marketplace is a massive overcapacity that's being created by additional new capacity coming on stream, increased imports from overseas, particularly in flat-rolled, and a demand in their economy that is not growing any measurable rate at this point in time. And that complete supply-demand situation is what is dictating pricing in the marketplace today more than raw materials because raw materials have been fairly steady over the past little while. So that'd be the only comments I would make on that.

We'll go next to Arun Viswanathan with Susquehanna Brokers.

So I guess, basically similar types of concerns on my end to Kuni's. I was just wondering, are you seeing any signs yet of matching production with demand out there? It seems like the industry is still oversupplying the market. And would you guys take a leadership position potentially to bring down production if needed to reduce supply?

Boy, what a loaded question. Listen, I'm not going to comment on what should or shouldn't be done out there. All I can do is tell you how Nucor handles its operating rates and production rates, and it's based upon the level of orders we get in. We're very competitive in the marketplace. We will continue to be very competitive and meet all competitive challenges out there. And how much we run or don't run is completely predicated upon the order entry level we get. As has been mentioned, the lead times are very short, particularly in the flat-rolled side. So I mean the order entry that we're reacting to is what we see on a week-to-week, month-to-month basis and more towards the week-to-week right now. And we have the luxury at our facilities, electric furnace shops, of literally being able to turn the light switch on at a moment's notice. If the orders pick up, we increase production instantaneously. If the orders go down, we decrease the production instantaneously. And our customers dictate and our success at attracting our customers' orders dictates how much we run.

Okay, great. Yes, that is kind of what I was wondering about. And then I guess, similarly, I'm just curious, your mix seemed a little bit better this quarter on the whole, and do you expect further price declines in the fourth quarter and that's why you're somewhat cautious in your comments in the release as far as earnings in the fourth quarter being lower than the third quarter. What's driving behind that commentary?

Well, there's a number of things that influence our mix, and I'll let John talk to that. There was one comment that was just made to me by Jim Frias, and that is, we had the impact in the second quarter of the tornadoes that occurred in Alabama on 2 of our mills, our plate mill -- it's a really a combo plate mill/sheet mill in Tuscaloosa and our sheet mill in Decatur. So that did have some influence on mix. John, do you happen to have any comments on that?

The only comment I'd make in terms of mix, I assume you mean that in all of our products, we're moving higher into the value-added products, and that's a conscious decision we've made on all of our product lines, in plate, in bars, in SBQ and in flat-rolled. And obviously, that's a reaction to many things, to market needs and also the import situation. Imports basically are driven by commodity items. And by continuing to move further up the value chain, we gain a little bit of protection from that, and we find new ways and new products to grow our market share.

Yes, I guess just to clarify then, so your average prices were up sequentially from the first quarter to second quarter, somewhat commensurate with flat-rolled benchmarks. But in the third quarter, you seemed to hold price better than the industry benchmark. And so I was just wondering if you were potentially selling out of backlog, or what really drove that? Was it mix improvement? And then does that mean that fourth quarter, you're going to see some of the price declines that actually were going to impact third quarter?

No to the last point that you just made. And our product diversification is just -- as really all 3 of us have discussed in our present prepared remarks. And John emphasized, it's the product diversification, the strength of the nonsheet operations that enabled us to have a better price -- overall price performance during the third quarter.

We'll go next to Tony Rizzuto with Dahlman Rose. Anthony B. Rizzuto - Dahlman Rose & Company, LLC, Research Division: Maybe I'm splitting hairs here, but when I look at the guidance that you have on the release and your comments, I would say that the guidance you gave for the fourth quarter is a little bit more constructive than in the previous quarter. And I'm wondering, first of all, is that a fair statement? And if this is the case, how much of this outlook has to do with what you guys are doing to -- in your efforts to penetrate new markets and move up the value-added chain? That's my first question.

Let me -- let us take a shot at that first. Help me understand why you feel like the guidance for the fourth quarter -- what was the word you used? More constructive than... Anthony B. Rizzuto - Dahlman Rose & Company, LLC, Research Division: A little bit more constructive. When I look at some of the verbiage used in the prior quarter, at the end of the quarter, for the 3Q, if you will.

Yes. Without having that -- those exact words in front of us, I really don't see where there should be much of a difference between the 2. Our guidance is completely qualitative at this point in time. We are indicating that there will be a reduction in our profitability because of the -- of this particular the situation in the sheet market. And -- but there is something that we are seeing right now that we didn't see coming into the third quarter, and that is, there seemed to be moderation in the scrap pricing that may continue throughout the quarter, which will help us on margin retention. But how that all shakes out? There's a lag time between what we purchase on scrap and the pricing we pay and then what the usage numbers are and the costs for the scrap that show up. Usually, there's a 2- to 4-week lag time between purchases and usage, depending upon the inventory levels at the mills themselves. So that's a little bit of an unknown. It's floating out there, but that should be an unknown that breaks in a positive direction rather than in a negative one. So maybe that's the reason for it, Tony. Anthony B. Rizzuto - Dahlman Rose & Company, LLC, Research Division: All right, understood. Appreciate that, Dan. And then just another question, too. Is this the kind of market, obviously, a slow growth environment in which you guys believe strongly that you can excel because of what you're doing and how you're differentiating the company versus others in the industry?

Absolutely, absolutely. And that's not just words, that's shows up in the results. It's shown up in the results for the third quarter. It's shown up in the results for our year-to-date numbers over last year. And it shows up throughout history of the company, including the last 11 years that this executive team has been lucky enough to lead this company. So yes, we absolutely believe it. And it's our strong financial position and our strong business model that gives us the confidence to be able to say that, and our teammates who are out there every day, finding new ways, better ways, safer ways to do things.

We'll go next to Brian Yu with Citi.

Dan, I've got more of a strategy, I guess, type of question. With DRI, you're obviously taking control of your carbon costs. There's been some announcements on the iron side. I want to see what your thoughts are on perhaps taking control of your own destiny on this ferrous side, too.

Well, what we're doing on the direct reduced iron side, it doesn't take us all the way to the beginning of the process which would be mining. But it does give us more control over production, distribution channels, how far those distribution channels are stretched out, which had a very negative impact on us in the '08-'09 downturn with the pig iron. And with the natural gas situation here in the United States being extremely competitive, it gives us a cost advantage in many respects as well even without to control over the iron ore. And I think that's what you're alluding to is us getting into the mining business. That's certainly a possibility that under the right set of opportunities, that we would be willing to partner with somebody that we're involved in getting access to our own iron ore. I wouldn't rule that out, but there's nothing imminent that we are about to announce.

Okay. Second question just on the export, I think your data's been tracking 9% to 10% of shipments. Given what's happening in Europe, any updates on that percentage? And then subcomponent, can you differentiate between how much of what you're doing is contract versus like spot business for exports?

On exports?

Yes.

Yes, I'll take a shot at that, Dan. Our third quarter was a good quarter for us in terms of exporting products. We had been, as you mentioned, we've been running about a 9% or 10%. In the third quarter, we exported about 13.3% of our products. Again, most of it going into the Central and South American region. In terms of contract versus spot on exports, very little of it is contract business on exports. Most of it is spot business.

Yes, it is something that as we develop our spot business, we're getting more interest in from the customers in South and Central America in developing a longer-term supplier relationship.

And I might actually build on that and say that to do that you have to have certain infrastructure in place. And in Colombia, we have just put our first, depot. It opened up about a month ago. Our first shipment arrived about 3 weeks ago, and we're really excited about that. The Colombian market has been a good market for us. Our sales teams there are doing a great job, and our products are well accepted. And as we continue to move in that direction, we will continue to move up the value chain and that lends itself to more contract business as we go forward. Also, one of the things that we're really excited about is the way that we've managed the logistics into that area because of our DRI facility in Trinidad and bringing the DRI back to the states. We've built a circular route, which has really helped us on our freight costs, sending product into South and Central America.

Okay. So you get a little bit of freight advantage on the backhaul?

Yes, a little bit more than a little bit. It actually is quite a significant freight advantage and it's given us an edge in our ability to export our products successfully into those countries.

The addition of -- the passage of the Colombia Free Trade Agreement, possibly the Panamanian one will also reduce some of the tariffs we've had to pay with our product versus our competition and make us even more competitive down there. And hopefully, result in even stronger margins.

So what type of product are you sending down there?

Everything.

And just to build on the freight situation and talking about having the advantage to some of our competition, because we can ship every type of product down there, it allows us to send full boatloads now. We send sheet down there. We sent beam down there. We send plate down there. We send bar down there, SBQ down there. So we're able to fill up a load without having to depend upon a single product shipment to the region.

And hopefully, we're going to be start to ship down metal buildings and joists and deck and other things, too.

We'll go next to Evan Kurtz with Morgan Stanley.

Just a question on the construction market. Your language changed a little bit in your press release here, too. Only a minimal improvement from slowly improving in the last quarter. I wondered if there's -- if that was something that was done to -- you kind of show that things may be turning down a little bit. And maybe also if you can comment on where you're seeing your backlogs in the fabrication business as an indicator of construction.

Well, all that's maintained a fairly steady pace but at, obviously, a very low rate. And the reason for our change in the wording had to do with the recent information that came out from the AISC, the American Institute and Steel Construction, and others that were actually showing that instead of a 5% gain in nonresidential construction in 2011, we were going to end up with a 1% to 2% fall-off negative growth. And that's why our comments were as worded.

Right. And backlogs, have they changed much in fab?

They've been pretty consistent.

Okay. And maybe just one more, and I know this might be difficult for you to comment on. But just given the recent activism over at CMC, would you consider any of their assets that make particular strategic sense under Nucor and should the opportunity arise down the road here?

All I can say is that all along, Nucor has put itself in the position of the opportunistic. And if opportunities come our way, we'll certainly take a look at them. Whether or not we would on that particular asset is something that we probably should avoid commenting on.

We'll go next to David MacGregor with Longbow Research.

Just with respect to the calendar, I mean, we're getting pretty close to the end of the year now, what are you hearing anecdotally from your customers with respect to maybe any kind of pickup in orders in the first quarter of next year?

John?

Well, as you know, at the end of the year, our customers focus on inventory control. And the first part of the year, the first quarter for us, most of our products typically pick up as those inventories that had been depleted in the fourth quarter are rebuilt. And we're hearing pretty much the same this year. We expect the first quarter, from our customers' perspective, to be a stronger order entry quarter in most of our products. I think you have -- in addition to the inventory situation, you have the seasonal things that take place, lawn and garden, for example, will come back in. As you get later into the first quarter, people start thinking about construction as limited as it is again. So the seasonal impact we think will be positive.

Do you think you'll see any -- above and beyond the seasonal pattern, do you think you're going to see any cyclical improvement, first quarter versus first quarter?

No.

I guess second question if I could. Just you've talked a lot about investing in the downturn and strategically why has -- at least historically, that's made a lot of sense for you. I know that your start-up costs were down about $17 million this quarter, and it looks like you're probably getting pretty close to the end of the portfolio of projects. Should we expect any additional major capital investments going forward?

Yes, the answer to that is yes. Things are winding down with respect to start-ups, but not with respect to our investments. Jim, you want to add anything?

Yes. The other thing to keep in mind is that the DRI price from Louisiana is early in its life and so it's making small charges to start-up costs today. But as it gets closer to its actual start-up date, we'll be ramping up employment there. And those start-up costs will rise. So you'll see that ramp up with the growth of that project.

And we have a few others that we didn't mention in particular in the script that will also come into play in 2012, one being the new processing center in Monterey, which we expect to be coming online towards the end of the second half of next year. And we also are beginning construction on a new processing facility in central Mexico also.

Okay. Can you give us a sense of what we should expect the start-up costs for fourth quarter?

They'll probably decline slightly, maybe $4 million or so in the fourth quarter from the third quarter level.

We'll go next to Carly Mattson with Goldman Sachs.

Given Nucor's -- your large cash balance and ample liquidity, could you rank order cash uses and in that context, talk about what types of growth opportunities Nucor could be most interested in beyond the organic side, just more broadly speaking?

Well, first off, our use of cash is always geared towards growth first, second and third. And during these down periods, we're looking for those growth opportunities both in our existing operations and with additions of new capacities or new businesses. So that will always be our first focus. As you know, we have a strong dividend being paid, over 4%. And the our policy on that dividend performance is to keep it strong. When things get better, like we did the last time, probably look at an enhanced dividend payout based upon performance. But principally, our focus is on growing the future earnings of the company, and that's where our capital will be allocated.

Okay. And as far as just the general parts, the different areas of the business, is there a particular area that you see more opportunities than in another?

Well, across the board, we're adding to our ability to go up the value chain, whether it be in bar products, or sheet products or plate products, and to discuss all of those individual programs at length, both in this call here and others. We've also discussed looking at growing our plate business with an additional plate opportunity as the markets support that. And so as far as opportunities with respect to acquisitions and what have you, again, we remain opportunistic there. We have the balance sheet and cash flow that support those types of things but you have to have willing partners when you go forward-looking acquisition. John?

Yes, I would add to that, Dan, in addition to moving up value chain with our existing products, we're also focused on developing new products, entering into new markets. Geographically, new customers and growing our market share from the new products. The work that our team has done over the last 2 years in that area is nothing short of phenomenal, nothing short of phenomenal.

The one thing I want to emphasize, as we've talked about before, is that our movement up the value chain is not one of abdication of the more "commodity-type products." It's true growth because we -- our focus is on maintaining and growing our position throughout the value chain, both at the basic commodity-type product levels, whether they be downstream products or steel mill products, and adding to our repertoire by moving up further into the higher value add, which is an opportunity. So that's where the real growth comes from. It's not one of vacating one spot to move into another, but expanding throughout the value chain.

We'll go next to Mark Parr with KeyBanc.

I had a couple of things. I wanted to talk about the SBQ market, and congratulations on the successful ramp-ups that you have going on there. Could you give us just an overview now of what your overall SBQ capacity looks like, say, today compared to where it was 2 years ago? And also, John, I was wondering if you or one of the operating guys would like to maybe, perhaps, give us an update on OEM customer qualifications from Memphis. What's your goal is for that facility and how that's progressing?

Well, let me start with just some general comments about SBQ, and then, Jim, you might jump in with some customer specific -- customers in terms of qualification, okay? All right. In general, if you go back a couple of years, 2 or 3 years ago, SBQ represented about 10% of our bar -- total bar shipments. Today, we've moved that up to about 20% or 21% of our bar shipments. So there's been a real focus on growth, and we've been very successful in that area. Not only through the introduction of Memphis and its products, but also continuing to expand on Norfolk, Nebraska facility, both in terms of volume and in new products. Jim, any specific comments on qualification? I don't want to name any particular customers, but we are focused in automotive, heavy truck.

Yes, as we've ramped up the production capacity at Memphis, we've also participated in qualifying our engineered bar, our engineered SBQ bar, to go into the engineered bar industry of heavy equipment applications. And some of the products that we're now qualified for are steering knuckles, ring gears, differential gears, spindles, camshaft, axles and crankshafts. And these are in the heavy equipment, heavy truck in automotive industries.

Any thought just in terms of what percentage of your SBQ business you'd like to see from an OEM perspective as opposed to service center?

Say that again, I'm sorry?

I'm just thinking, what's your -- do you have a target for mix between OE and service center out of the SBQ operation?

I don't know if we have a target. Our participation has been about 30% in distribution and about 60% in OEM.

And typically, in SBQ, that's about the right mix you'll find in SBQ. But it's much more OEM-driven than service center driven because of the qualification and trial process.

Yes. And one other thing I'd like to add on the products, too, we produced a lot of semi-finished and gained a lot of acceptance going into the energy industry in the form of seamless tubing.

I see it coming up Route 57 into Lorain all the time.

Yes.

I think the amount of SBQ we're doing today is on the order of 1.6 million tons, is that right?

Yes, 1.6 million.

And growing.

And growing.

There's still a lot of growth opportunity in front of us.

That's still an underserved market, so I mean that's -- I think it's a great place to be focusing attention on.

We'll go next to Luke Folta with Jeffries.

A couple of questions. Just to follow up quick on the potential move into iron ore mining at some point. Can you give us a sense of where this is on a priority list? Is this something that you are actively pursuing right now, or is it something that if a good opportunity came up, you might look at it, but you're not really actively looking at right now?

Well, our focus over the last several years has had a raw material -- large raw material component to it. Started off with the David J. Joseph acquisition, the -- and prior to that, the Trinidad DRI facility. And so the whole focus on raw material strategy is a high-priority area. How far it actually takes us remains to be seen yet, and we are open to opportunities for growth both on the iron side and the DRI side and the scrap side. So that's really all I would want to comment on that right now in terms of what might be going on right now. When we have something to talk about, we're certainly present it.

Okay. And the second question, just you talk a lot about having a positive longer-term outlook for energy. And just speaking through it, I mean OCTG is an area of the market where you're not currently participating. And I -- just thinking through your longer-term strategy, are there any constraints whether they'd be customer relationships or equipment restrictions on -- for substrate that would prevent you from moving into that market?

There's no restrictions from a quality capability standpoint or equipment standpoint. I mean, obviously, if we were going to get into producing pipe products, seamless or otherwise, that would require new equipment because we're not in that business today. But we do supply a significant amount of our steel to customers in that arena. So it's something that you constantly are looking at because the size of that, potential size of that market could be quite significant. So we haven't ruled out getting into that business ourselves. But for the foreseeable future, our focus is on supplying increased amounts of quality product to our customers who serve those markets.

Okay. And just lastly, there's -- just in response to that question earlier about whether or not certain Long Products assets may or may not become available to the market. I'm just curious to know how do you think about valuation in a scenario like that as a strategic buyer of construction-oriented long products. I mean, obviously, we're probably not going to see anything close to what we've seen over the last few years from a volume perspective, but how do you think about how you might value something like that if certain of those assets became available?

Basically, the only comment I would make on that is that we're always looking to achieve the maximum value from the least amount of investment.

And we'll take our last question from Sal Tharani with Goldman Sachs.

A couple of questions. Q4 is generally a seasonally slower demand period. Besides the margin pressure from excess supply of sheet, the slowdown, if you are seeing any, and if you will see, is it a commensurate with the equity market reaction, what we have seen in the stock prices?

Well, I'll tell you what, if we had a market that was reacting the way the stock market is, we'd be vacillating it from jumping off the top of the building to digging a bunker someplace, and thank goodness, we don't have that situation. So I would not say that it's in specific short terms related to what's going on in the equity markets. Certainly, what's going on in the equity markets and what's not going on with the leadership in our government and in Washington, that all weighs very heavily on the private sector, including the steel sector because as the economy goes, so does steel consumption. And in a very, very strong way, the additional increases of steel consumption don't take place until we're growing north of 2.5%. So that's the big issue. And the market -- the equity markets are just reacting to the tremendous uncertainty. And on top of that, it's more like the craps table at Vegas than it is a true investment situation in Wall Street anymore. So that adds its own degree of complexity in. Thank goodness that -- as rough as things are in the steel business, we haven't degenerated to that level yet.

Okay. And one last question. Your losses in the affiliates was significantly higher, I think higher since early 2008. I was just wondering -- and the year-end profit last year, last quarter. It was either something to do with seasonality or something else going on over there, and I think it's mostly Italian joint venture in there?

Yes, it's mostly Italian joint venture, Sal. And when we talked about the fact that our state tax credits were offset by some miscellaneous adjustments, there's a little bit of that in there, and there is some seasonality there as well for -- there has been some lower profits or some increase losses at the Italian facilities as well.

And at this time, I'd like to turn the conference back over for any additional or closing remarks.

Thank you, Stacy. I would like to thank everyone involved in the call. Excellent questions that we received. And close by, again, saying thank you to all of our teammates, our customers, our suppliers and our shareholders for your support. And with the programs that we have in place and the opportunities that we are taking advantage of, and of course, best years are truly in front of us. Thank you all very much.

Thank you. And ladies and gentlemen, that does conclude today's conference. We thank you for your participation.