Nucor Corporation (NUE) Q1 2012 Earnings Report, Transcript and Summary

Good day, everyone, and welcome to the Nucor Corporation First Quarter of 2012 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, Carolyn. Good afternoon. This is Dan DiMicco, Nucor's Chairman and Chief Executive Officer. Thank you for joining us for our conference call today. 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 other Executive Vice Presidents, Jim Darsey, Keith Grass, Ladd Hall, Ham Lott and Joe Stratman. First and most importantly, as always, I want to thank everyone on our Nucor, Harris Steel, David J. Joseph, Duferdofin and NuMit Steel Technology teams for your excellent work in an economic environment that remains very challenging. The company's greatest competitive advantage is your strong commitment to working hard, working smart and working together and, most importantly, working safely. The Nucor team is succeeding by taking care of our customers, all of our customers, and I want to thank you all for that. I will now ask our CFO, Jim Frias, to discuss our first quarter results and financial position. He will be followed by John Ferriola, who will report on Nucor's operations and our growth initiatives. I will conclude our presentation with some general commentary on our economy and Nucor's strategy. Jim?

Thanks, Dan, and good afternoon. First quarter of 2012 earnings of $0.46 per diluted share exceeded our guidance range of $0.30 to $0.35 per diluted share. That outperformance primarily resulted from stronger than expected shipments from our steel mills to outside customers during the month of March. Our results also benefited from approximately $0.04 per diluted share of state income tax adjustments. The first quarter 2012 effective tax rate, measured as a percentage of earnings before income taxes and noncontrolling interests, was 27.4%. After adjusting our profits belonging to our noncontrolling interest business partners, the effective tax rate was 29.8%. Our minority interest partners are responsible for the income tax liability and their share of joint venture profits. First quarter 2012 earnings increased modestly from fourth quarter 2011 earnings of $0.43 per diluted share, which included about $0.08 of nonrecurring gains. Compared to the fourth quarter, profit improvement was strongest at our sheet mills. Our plate and beam mills achieved strong profitability that was comparable to their fourth quarter performance. With margin pressure from increased rebar imports, profitability in our bar mills declined. Earnings for our raw material business improved somewhat in the fourth quarter, but decreased significantly from the first quarter of last year as a result of seasonally atypical softness in scrap prices. Our construction products businesses experienced a normal seasonal slowdown, but backlogs, both pricing and volume, have increased from last year's first quarter levels. As we often say, our team uses economic downturns as opportunities to grow stronger. Emerging from downturns stronger than we entered them is how we build long-term value for our shareholders. We grow stronger because our financial strength allows us to invest in attractive financial opportunities that expand our earnings capacity through the economic cycle. Nucor has earned the highest credit rating awarded to any metals and mining company in North America, an A2 rating from Moody's and an A rating from Standard & Poor's. We're the only steel producer in North America to enjoy the very important competitive advantage of an investment grade rating. Globally, our credit rating is matched by only one other steel producer, Nippon Steel. To that point, Standard & Poor's, in its April 13 report entitled, “North American's Metal and Mining Companies’ Strongest Weakness,” again ranked Nucor #1 for credit rating and credit outlook among a universe of 70 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. Cash, short-term investments and restricted cash totaled $3 billion at the end of the first quarter of 2012. Restricted cash of $586 million is available to fund a significant portion of the DRI plant we are building in Louisiana. Further to Nucor's strong liquidity, our $1.5 billion unsecured revolving credit facility is undrawn and does not mature until December 2016. We have no commercial paper outstanding. At the end of the first quarter, long-term debt totaled $4.3 billion. We expect our leverage to decline as a result of long-term debt maturities of $650 million in the fourth quarter this year and an additional $250 million in 2013. Our plan is to fund those maturities by drawing from a healthy liquidity and continued strong operating cash flow. In 2012, we are continuing to invest in projects that will grow our long-term earnings power and provide attractive returns to our shareholders. We project 2012 capital spending of approximately $1 billion or more than double 2011 capital spending of $441 million. 2012 capital spending in our Louisiana DRI raw materials project is expected to increase to approximately $450 million in 2012. That's from about $50 million in 2011. It is worth noting that a large number of additional projects are also being implemented throughout our upstream, steelmaking and downstream businesses to develop new products, increase quality and reduce costs. John Ferriola will review some highlights for you in his report. In addition to allowing us to invest in attractive growth opportunities, Nucor's strong financial position and cash flow generation has enabled our company to reward our shareholders with an impressive record of cash dividends. With our first quarter of 2012 payment, Nucor has increased its regular base dividend for the 39th consecutive year. Reflecting Nucor's team's success in growing long-term earnings power, the base quarterly dividend has increased approximately tenfold over the past 11 years. For the second quarter of 2012, we expect earnings to modestly improve from the first quarter level. Several end-use markets, such as automotive, heavy equipment, energy and general manufacturing, have continued to experience improvement in demand, benefiting primarily our SBQ, sheet and plate products. We are also seeing small but encouraging signs of improvement in our construction products businesses. However, steel mill pricing and metal margins remained under pressure from the resurgence in imports, along with the impact of new and restarted domestic supply in the sheet market. Nucor will again follow our practice of providing quantitative guidance around the middle of the final month of the quarter. We are excited by the opportunities we see ahead to reward our shareholders with very attractive long-term returns. Our competitive advantages will continue to be the flexibility, diversification and sustainability found in Nucor's business model. Thanks for your interest in Nucor. Dan?

Thank you, Jim. I'll now ask John Ferriola to report on Nucor's operations and the implementation of our growth initiatives. 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. You are Nucor's most valuable asset and our most powerful competitive advantage, the right people living our culture every day. Working together, our team is growing Nucor's long-term earnings power. Thank you, and please keep it going. Dan and Jim both discussed the ongoing challenging economic and steel market conditions experienced so far in 2012. We are very proud of the performance of all of our businesses in this adverse environment. This performance increases our already strong confidence in the Nucor team ability to continue delivering industry-leading through-the-cycle return on capital performance. Nucor's first quarter 2012's steel mill capacity utilization of 79% highlights the value of our position as North America's most diversified steel producer. Our sheet and plate mills ran at very healthy utilization rates during the quarter. Nucor's strong and growing presence in the sheet and plate markets positioned us to benefit from relatively strong demand from our customers in the automotive, energy, heavy equipment, agricultural and railcar sectors. Contrary to some market observers' claim that Nucor is "just a construction play," our overall mill utilization rate exceeded the industry's first quarter rate of 78%. And that is more difficult to accomplish when you are the industry's largest producer. Our SBQ bar business is also capitalizing on strength in the automotive, energy, agricultural and heavy equipment markets. It's worth noting that Nucor Steel Nebraska’s investment last year in a quality assurance line is receiving a tremendous response from our customers. It includes an offline bar straightener and performs both surface and ultrasonic inspections. These new value-added capabilities are already helping Nebraska penetrate more demanding and higher-margin engineer bar applications. While demand from nonresidential construction markets remains at very depressed levels, we continue to believe that the construction market has, at a minimum, stabilized. In fact, our rebar fabrication and custom-engineered metal buildings businesses are seeing year-over-year increases in orders and in backlogs. Margins for our Vulcraft's vertical groups joist and deck business improved in the first quarter as pricing increased to levels more reflective of raw materials and other input costs. As I said at the start of my comments, we are very proud of the results our team has achieved in these tough economic times. Even better, we are extremely excited about the impressive work being done by our raw material, steelmaking and downstream products teams during these bad times to prepare Nucor for the good times ahead. Here are updates on some of the projects underway to expand our company's long-term earnings power: Construction of our Louisiana DRI plant is on schedule for a mid-2013 start of production. As we have begun erecting the structural steel for the furnace, the plant now has a skyline. Annual capacity will be 2.5 million metric tons. Combined with the recently completed expansion of our Trinidad DRI plant's annual capacity of 2 million tons, Louisiana's first DRI margin will bring us to about 2/3 of our goal to control from 6 million to 7 million tons of annual capacity in high-quality scrap substitutes. Implementation of our raw material strategy will be a game changer in advancing Nucor's growth in the sheet and SBQ markets. Our David J. Joseph team completed 3 acquisitions in the first quarter, located in Florida, Colorado and North Carolina. These bolt-on acquisitions expand DJJ's regional scrap recycling platforms and increase Nucor's total annual scrap processing capacity by about 5%. Work began in the first quarter on our Berkeley County, South Carolina sheet mill's wide light project. The addition of a seventh hot mill stand will provide Berkeley with the capability to produce wider and lighter gauge, hot-rolled sheet steel. We will be able to produce hot band, pickled and oiled, and cold-rolled at a finished length of 72 inches. Berkeley will also supply our Decatur, Alabama sheet mill's state-of-the-art, automotive-quality galvanizing line with 72-inch coils. We are committing $100 million of capital to this project because of the tremendous opportunities it will provide to the entire Nucor Sheet Mill Group to move up the value chain and flat-rolled markets. We expect to accelerate our growth into agricultural, pipe and tube, industrial equipment, heavy truck and automotive high strength and ultra high strength applications. Our Berkeley team is on track to complete construction and start production by the end of 2013. Building on the outstanding success of their new heat treated line, our Hertford County, North Carolina plate mill team expects to complete construction and start commissioning a vacuum tank degasser in this year's third quarter. That will be followed by the addition of a normalizing line in 2013. These projects further advance our strategy of expanding our value-added product mix in the plate market. Our Hickman, Arkansas sheet mill team is also installing a vacuum tank degasser to grow their value-added product offerings. As the westernmost flat-rolled mill in the United States with a vacuum degasser, Hickman will be strategically positioned to serve the vibrant markets in the Southwest United States and in Mexico. The degasser is expected to be operating by the end of this year. Work is underway to increase our SBQ and wire rod annual capacity at our mills in Nebraska, South Carolina and Tennessee by a combined 1 million tons. The total capital cost is expected to be $290 million, and completion is scheduled by the end of 2013. Our expanded SBQ product will position us for continued growth in automotive, energy, general manufacturing applications. Vertical integration downstream into value added products will continue to be a major contributor to Nucor's profitable growth. Our joist and deck rebar fabrication and custom-engineered metal-building businesses are building their long-term earnings power by drawing both a geographical footprint and their product offerings. Our 50% owned Steel Technologies' flat-rolled steel processing joint venture announced plans earlier this month to construct a facility in Celaya, Mexico. Celaya is expected to be fully operational by the end of this year. Steel Technologies' new facility in Monterrey is also expected to be completed by year's end. With the addition of these 2 facilities, Steel Technologies will have a total of 5 processing facilities in Mexico. We believe these exciting projects and with strong prospects for more to come make it clear that our team's unrelenting focus remains on long-term sustainable growth in Nucor's profitability. Thank you for your interest in our company. Dan?

Thank you, John. The 21,000 men and women of Nucor have again delivered a solid and profitable performance and what Stanford economist, Edward Lazear, recently described as the worst economic recovery in history. In his opinion piece published in The Wall Street Journal on April 3, Professor Lazear laid out the ugly facts of the current recovery. Since this recovery began in the second half of 2009, the United States economy has grown at an annual rate of just 2.4%. That mini growth rate is well below the rates experienced in past recoveries and even lags the average annual growth rate of 3.4% delivered by the U.S. economy over the 60-year postwar period from 1947 to 2007. Dr. Lazear also give -- points to reasons for this dismal performance. I will quote his words. "The government policies have focused on short-run changes and gimmicks -- recall Cash for Clunkers and first-time home buyer credits -- rather than creating conditions that are favorable to investment that raise productivity, wages and create jobs." In his essay, he also highlights other damaging actions that include the threat of higher taxes, constantly increasing regulatory burdens and ineffective trade practices and policies. Nucor and the U.S. steel industry face these severe economic headwinds every day. The 2 industry data points tell the story: The first is the U.S. steel industry's capacity utilization rate of less than 78% in this year's first quarter are well below rates approaching 90% prior to the onset of the financial crisis in the fall of 2008. The second data point, which is heavily influencing industry capacity utilization, relates to surging import levels. Through the first 2 months of this year, imports of finished steel have increased 36% over the year-ago period. Major products with significant increases include rebar, plate and tubular goods for the energy market. There is no doubt that the legality of these imports will be strongly challenged in the months to come. Let's be completely honest with ourselves. The U.S. economy has not had a sustainable and healthy recovery from the great recession that began almost 4 years ago. And it's not going to get on the right path until our country moves back to creating, innovating, making and building things as the major driver of our economic -- and economy's growth. The time is right and long overdue to reinvigorate the American economy by seizing new opportunities in energy, infrastructure rebuilding and growing a globally competitive U.S. manufacturing sector that is primed and ready to prosper in an environment of rules-based free trade. On the energy and competitiveness front, I have one further comment. Make no mistake, natural gas recovery technology and the enormous reserves created by it are a game changer of historic proportions, that, if used properly and wisely, will drive a renaissance in U.S. manufacturing and fuel economic growth and job creation for decades to come. Our challenge as Americans right now is to get our government and business leadership to go together arm in arm into the world of global economic competition. Reflecting on the history of our country's successes winning World War II and the space race, there is little our nation can't accomplish when we go forward together as Americans and leave our political differences behind us. This is the responsibility of leadership. And the failure to achieve this unity is a failure of leadership. The Nucor team will continue to do our part to shine a bright light on this exciting path forward to sustainable and vigorous growth for the American economy and U.S.-based manufacturing. And our team is bullish on the American people and their ability to do the right things. That is why we are busy building a stronger Nucor. A stronger Nucor is one positioned to deliver higher highs and higher lows in earnings power through successive economic cycles. Over the 2008 to 2012 period, Nucor will have invested more than $6 billion of capital by a disciplined execution of our 5-pronged growth strategy: first, to optimize and continually improve our existing operations and our teammates' skill sets; second, execute and grow our raw material strategy; third, expand through greenfield growth, taking advantage of new technology and unique marketplace niches where major cost advantage can be attained; fourth, seek international growth via joint ventures; and fifth, grow through strategic acquisitions. And it's Nucor's superior competitive position with our financial strength, product diversification, operational flexibility and unique culture that allows us to continue growing our earnings power during times of economic distress. I want to again thank everyone in our Nucor, Harris Steel, David J. Joseph, Duferdofin and NuMit Steel Technology teams for a job well done in the first quarter. You are the reason that we can say with the greatest confidence that Nucor's best is yet to come. We would like to take your questions at this time. Please feel free to join the question-and-answer session. Thank you.

[Operator Instructions] And we'll go first to Timna Tanners with Bank of America Merrill Lynch.

You've outlined some compelling economics for the DRI plant. I just wanted to get an update on how you're thinking about further capacity expansions there. If that works, as you're expecting, is that something where you could consider building it out to be an exporter or to be even more self-sufficient?

Well, certainly, yes, the self-sufficient part is part of our strategy. As we have talked before on numerous occasions, we currently are permitted for two 2.5 million metric ton DRI plants. And the initial part of our strategy will be to build the first one and then to build the second. Exactly when we start building the second, it has not been determined. It could be as early as while we're still starting up the first one. We also have the opportunity to build 2 more units there for a total of 4, which will give us somewhere in the vicinity of 12 million metric tons of DRI capability and capacity, which could be used entirely in Nucor. If the market said we should export some of it, we would do so. John, do you have any comments you want to add to that?

The only thing I would add, Dan, is that we are building the first DRI facility with the capability, all of the infrastructure in place for our second DRI unit of 2.5 million metric tons.

Okay. So is there any reason why not moving forward sooner if you already are familiar with the DRI technology in Trinidad? I mean, is this a new competency for Nucor that you could plan to develop more aggressively going ahead?

Well, caution is just a matter of the times we're in. The need to move at a faster pace than what we're planning on is not necessarily there. And we -- as John said, we're building the infrastructure for the second one. So to construct the second one will be a considerably shorter time frame. Let's get one done and ready to operate, and then we will go from there. As far as new business strategy goes, our intent here is to utilize the DRI to replace the 3-plus million tons of pig iron and other high-quality scrap substitutes on an economic, competitive basis going forward and be in control more of our own supply. And with the natural gas opportunities that will be with us for the next 20 to 40 years, we think this is a wise way to go.

Next, we'll go to Kuni Chen with CRT Capital Group.

I was just hoping you could give us a little bit more color around your expectations for modest improvements in the second quarter, maybe talk about how the pace of order entry has progressed through the first quarter and what you're seeing so far in April. Could you give us some view on lead times and whether that's changed at all across your business lines?

John?

Why don’t we start with order entry rates. The year started fairly strong on order entry. We saw a dip around the middle of the first quarter. After the dip, a short period of 2 or 3 weeks, we began to see both volume and pricing recovery. So it's been a slow but steady recovery from the middle of the first quarter to where we are today both on volume and on pricing. Going forward, given the current match between capacity and demand, we would see both volume and pricing to stabilize in the near future.

Okay. And then just as a follow-up, on the steel product segment, we're getting closer to breakeven in that area. When do you expect to see that cross back into the black?

Well, we are definitely closer. At some of our divisions, we are actually in the black, but it is a slow process. And until we start to see a significantly stronger trend in construction, it will be -- we won't see a significant flip over to the black until that happens. And right now, we're looking at a slow progress continuing for the entire year of 2012. John, do you have anything you want to add to that?

No, I would say that we do believe that the construction market is stabilizing and we see some signs of improvement. The API has been above 50% now for 5 months in a row. That's a very positive sign. Of course, there's a lead time element in that. So there’s several months out there before we begin to see that in actual construction starts. But again, as we said in the script, we think at least, at a minimum, the construction market is stabilizing. And we have seen increases in our backlogs and in the order entry rate in Harris rebar and in our building systems. So those are somewhat encouraging signs.

One of the early indicators that seem to be sending a positive signal in our pre-engineered metal buildings, which will usually improve before our joist business and the overall construction market, is the size of the jobs that are actually going forward. And over the last couple of months, we've seen more and more large jobs than we have seen for some time. But it's still at the beginning stages. And whether it stays at a trend, an upward slope, or whether it flattens out or drops back, up until this point in time, we just seem to be on a sinusoidal curve that just goes up and down, up and down about a fairly steady bottom in the construction markets. So we're not getting overly excited, but it is a positive observation and we'll see if it continues.

And our next question will come from Shneur Gershuni with UBS.

My first question is related to DJJ. You made a couple of acquisitions there. I was wondering if you can walk us through the thought process because the margins have been under pressure a little bit. Is this a signal of a turn that you're seeing? Or is it more strategic with respect to those 3 unique acquisition?

John?

Well, as I mentioned, the 3 acquisitions were what we refer to as bolt-on acquisitions. And the strategy behind it is to get better control on the feeder lots so that we have a more steady and consistent supply of scrap into our yards for processing. As far as going forward, we will continue to do that when it makes sense, when the opportunities present themselves, and continue to grow our business in times that we are able to process for feedstock into our mills.

We've been very disciplined. Keith and his team have been very disciplined about the acquisitions that we have been making. There has been no rush. When we get an opportunity to have a very cost-competitive, effective acquisition, they’ve been executing on them and that will continue going forward.

Okay. I was wondering if we can turn to your prepared comments about the import market. Spreads have definitely narrowed, if not collapsed, between Europe and the U.S. and so forth. Where do you see it going forward over the next couple of months? Do you think it stabilizes, comes down? Is there certain parts of the market where -- flat-rolled versus rebar or something -- that you're more concerned about or less concerned about?

I like the way you transitioned very quickly from one term to another when you went to "collapsed." The margins have tightened and then collapsed, which is typical of surges in imports when they take place. And listen, we have a U.K. -- a global economy that is sputtering. We have a domestic economy that is growing at a snail's pace. And there's massive oversupply in some products here in the United States and around the world, created in this country by both domestic overcapacity based upon the demand levels we're seeing, not based upon peak demand and the influx of imports. In particular, we've seen a significant, a serious flood of imports from Turkey, reinforcing bar and a little bit on merchant. And we're starting to see it on sheet and we're concerned about that. And it's not just what happens with respect to the first order move out of one country, but it can, and this has been the case with China as they export more and more product to other places in the world. People move the exports that they had to those areas to other areas, and for the U.S. market being the most open. Clearly, this flood of imports is -- it's not being driven by demand. It's being -- it's a excess supply push on the part of the global steel industry and the trading environment. And as such, it usually leads to distortions in pricing and cost. And as such, as I mentioned in my prepared remarks, you can rest assured that we will be moving forward with legal challenges to Washington to this flood of imports that have taken place and deal with them in the only way that we have possible to deal with them when they're not market driven, surges in imports and movement of steel. So it's a serious issue. It affects all the products eventually. And it's been more so in the long products, rebar business and in the sheet business. We're starting to see some of that in plate. Yes, the margins are compressing, but the problem with that is the damage is being done as these margins continue to compress. There's no way in heck that in this domestic industry, if competing on a level playing field, all things being equal, that an industry running at 78% or less than capacity needs a 36% increase in imports to satisfy the demand. And it doesn't come in here unless it is underpriced and many times priced below the cost to produce. So those issues are with us. They’ve been with us for decades. We continue to fight them. We continue to win. It's unfortunate that we cannot have something that's more proactive in dealing with these surges on the part of our government, but we are even working on that as we speak.

One final question, if I may. Can you remind us what your auto exposure is and what the impact would be? If I remember, it would be smaller than others if the auto companies were to bring forward some of their maintenance and retooling schedules due to some of the resin issues out there in the marketplace?

John?

Well, let me comment first on what our exposure is. I like to think of it as our participation, not our exposure. Our participation has grown in automotive probably to the tune of 10% to 15% over the last year. And we see that as a very good market for us. We have developed many products. We've been able to put into that light gauge, high strength, I mentioned in the prepared remarks, ultra high-strength products. So on the sheet side, our participation has grown 10% to 15%. The automotive build this year is expected to increase by about a million units, up from somewhere in the neighborhood of 13 million, 13.5 million, up to about 14 million, 14.5 million units. And don't forget, in addition to the sheet business going into automotive, we have a lot of participation from our SBQ group. And that participation is also growing both as a result of new products that we're introducing and as a result of the volume that we'll have to be able to put into those markets as a result of some of our expansion projects that we've mentioned in the script. The only thing I would add to that, Dan, is that I mentioned Steel Technology expanding in Mexico. The Mexican automotive market production has increased tremendously in the last 4 to 5 years, again, to the tune over that period of about a million units of build, taking it from somewhere in the neighborhood of 3 million units in Mexico 4 or 5 years ago up to about 4 million units today. So we’re well positioned, both in the Southeast, where there's a large growth in automotive production and in Mexico, where we're also seeing a large growth in automotive production. So we see our participation in the automotive as a very positive thing.

What percent of our overall business, John, is going into automotive if you bring together the bar, SBQ, the sheet, the fasteners, you name it, what are we looking at?

Probably close to about 2 billion tons. So we added 20 million tons.

As far as the impact of this resin shortage that seems to be certainly being talked about with the outage in Germany, it's going to affect every player in the business. Some companies, obviously, have greater exposure to automotive than we do. Ours is growing. And what that impact is going to be is not something we can speculate on. It just depends how the oil companies handle it and how much they cut back production, if at all. I think they’re actively working to find other sources of materials to be able to use, to replace those not on resins, out of Germany.

And next, we'll go to Evan Kurtz with Morgan Stanley.

I just wanted to chat again about D.J. Joseph. We keep hearing from scrap processors and they’re struggling to kind of earn their cost of capital at this point, that there’s too much trading capacity in the U.S., and I just kind of wanted to get your views on that. Do you think it's a longer term problem, does capacity need to come out or can we grow into this?

Well, it's probably -- this is Keith. It's probably a combination of the 2. As the economy improves, it will generate more scrap and make more unprepared scrap available to various scrap processors around the country. But there is no doubt that during the shredding business today, you have experienced increased competition over the last several years. There's been a significant jump in the number of shredders in the country. So as you've seen in past cycles, there is a trend towards consolidation, as well as we will grow through it with increased scrap generation.

Are you actually starting to see any scrap prices and facilities come out at this point? Or is it just consolidation at the moment?

I would say more consolidation -- slight consolidation. I haven't really seen anybody drop out at this point in time.

And just one other question. I was looking at the kind of year-on-year numbers for the first quarter '12 versus the first quarter '11, you have metal margins up about $14 a ton, energy down about $2 a ton. Are there any other kind of nonmetal and non-energy costs, significant costs, that I should be aware of?

This is Jim Frias, not that I can think of. You'll need the API, too, above $100.

And next, we'll go to Aaron Viswanisen [ph] with Longbow Research.

I just wanted to see if you guys could maybe give us a number and help us understand like how much of your sheet products are -- what you'd characterize as value add. And through these projects that you have, where are you going to get to and how many other projects would you consider to take that number higher?

Well, earlier, John mentioned that we're putting a total of about 2 million tons into the automotive-type market. But frankly, talk about value add, it covers many more products and many more uses across agriculture and energy and what have you. So John, what's your thoughts on that?

One way you can look at it is that on the sheet side, the split between our hot-rolled product and our cold-rolled and galvanized product, and our percentage that goes into the highest strength in ultra high strength markets. And on the SBQ side, I would say that all of our SBQ products are value added products. So that's fairly easy to address. Currently, our split is about 55% hot band to 45% cold-rolled and further process galvanized product. In terms of our high strength and ultra high strength, we continuously move in more and more of our tonnage into those areas and going into areas we mentioned, automotive, but also appliance, agricultural are big areas for our value added products going into those markets. So we continue to see it grow. And on the sheet side, if I were to take a round number on all of our value added, cold-rolled, galvanized and ultra high strength, I would say somewhere in the neighborhood of 55% to 60%. And our current SBQ capacity, which is all value added, would be roughly 1.5 million tons. So when you look at those totals, it's a pretty good number overall.

And then you guys have talked about the import pressures and especially now on the rebar side as well as Turkey. I mean, assuming that some of these pressures are here to stay, is there any value added projects you guys can undertake to address that as well in the rebar and some of these more commoditized markets?

Before we answer that specifically, I just want to add on the plate side of our business, we're currently somewhere around 10% of what we would call highly value added through heat treat, growing to about 20% as we bring on the normalizing facility that's currently under construction and the vacuum degasser that's being put into place. So you're looking at somewhere around 200,000 to 350,000 tons of our 1.5 million, 1.6 million ton plate capacity roughly at our Hertford plant. Now I'm not talking about our Tuscaloosa operation, which is another million-plus tons. And as far as the imports of rebar and Turkey and other Russians and other places, Chinese, those are going to get dealt with. They come in cycles, unfortunately. As margins drop down or as we put in place effective trade remedies to the core systems, they will be dealt with going forward. We'd like to think that they would stop on their own because we haven't seen that in the past. And as far as putting in other products to replace that business because on the order of magnitude, the size of our rebar business, that just is not going to happen. That's the bottom line. And we are continually working to move up in all product lines into more value-added product, but we don't vacate the lower value product. We just use it to grow our total market participation. And when you have 8 million tons of rebar capability, it's not something you're going to replace with a few hundred thousand tons of this or a few hundred thousand tons of that. It's an issue that has to be dealt with in the marketplace.

And our next question today will come from Sal Tharani with Goldman Sachs.

Dan, I just wanted to ask you a question on your average selling price for the steel division. It was up $8 quarter-over-quarter from fourth to first quarter, considerably lower than the spot market pricing figures. I was just wondering is it a matter of mix or is it a lag because you have more contracts now and you didn't get the full price increase. Can you give us some color on that?

Are you saying that on sheet product...

I'm just looking at your average selling price if I divide your volume of steel shipments should be. Total value...

Total price of all products. You have to keep in mind that there have been upward and downward movements depending upon the product during the course of the quarter. And so you can't draw a generalized comment on the flat-rolled business from that particular change in selling price because you've got an equal amount of long products and plate products included in that. So I'm not sure I know how to answer that question. If you want to try again.

Sohail, one thing I would add is if you look at the schedules that we posted on our website, we have one called sales price and scrap cost. Our actual steel selling prices in the first quarter were $824. In the fourth quarter, they were $806. The increase was bigger than $8 per ton. They are closer to $18 per ton.

Okay, I was just calculating based on just the volume and revenue, okay. But also, how are your contracts? And how much is your flat-rolled contracts? And how do these work?

John?

Our contract design team [ph] in our sheet business is about 50% and within that 50% of contract business, there's a myriad of different pricing mechanisms. Some are scrap based. Some are CRU based on a monthly adjusted basis. And some are CRU based with the changes occurring on a quarterly basis based on the previous quarter's average selling price. So there's a multitude of different structures, but within sheet about 50% of our tonnage is under contract. On the -- we have a sign here. Virtually all of our SBQ products, 50%. About 50% of our SBQ products are also under contracts that are based on CRU or other pricing mechanisms.

Yes and on the SBQ contracts, we have a base price plus a floating surcharge based on a scrap index.

Jim, are these monthly contracts, monthly adjustments on SBQ?

They vary, but our contracts typically run from 3 months up to 1 year, and they are adjusted monthly based on a scrap index.

One more question, Dan, if I may. I was reading a report recently that Trinidad is running short of reserves of natural gas, and I was wondering how long is your contract over there and what are the adjustments you will have in the contract once that gas price contract runs out.

Yes, first off, I think what you're referring to as a shortage of natural gas is more an issue of poor maintenance or maintenance issues on the platforms that they have. And it has caused some interruptions, and I don't know exactly how many days we have lost in production down there. I don't think it's been a huge number. But the contract itself is not in jeopardy in terms of the life of that contract. I think we have -- I don't know how many years left, 15 years -- 14 or 15 years left in the contract, and to the best of my knowledge -- and Ladd Hall, you might want to comment -- there's not a concern on our part that there won't be gas available to service that contract. Ladd?

There's no -- in actuality, the platform problem ended mid-February. They're all back online now, but they have some excess capacity right now that they’re not even using. And we don't anticipate, at least in the foreseeable future, any shortages on natural gas. And as Dan said, we have that contract for the next 14 or 15 years. So we don't anticipate any problem in Trinidad.

And next, we'll go to Aldo Mazzaferro with Macquarie Securities Group.

On the DRI, Dan, I know your friends at Steel Dynamics are saying that they might be able to save something like $100 a ton against the cost of pig iron once they bring their Mesabi Nugget plant on. And the way I view your DRI facility, it seems like an easier technology, more experience that you have with it and certainly larger scale. But do you think that per ton comparisons -- are you looking at those same kind of things where you could say, $350 a ton DRI versus $450 pig or something like that?

Listen, I don't want to get into commenting about where SDI is or isn't and their Mesabi Nugget experience. Certainly, the DRI is a proven technology. I think other technologies that we worked with, and we have worked with Mesabi Nugget ourselves several years before other people started working with it. The cost and benefits of the DRI operation are significant, larger than the magnitude that you're quoting. But it depends on where the other raw material pricing is. It depends on where scrap is. It depends on where pig iron pricing is. So to make a blanket statement that it gives a $100 a ton cost advantage over other ways of providing yourself with the raw materials, it's very dependent upon where the other pricing is. Certainly, with the price of natural gas, where it is and where it'll be, they won’t stay at these low levels over anywhere near the lifespan of our DRI operations. We're looking at substantial cost benefits. That's why we're doing it versus just buying pig iron on the open market let alone prime grades of scrap.

Great. So, Dan, are you going to stay fairly short-term in buying practices for iron ore, like 3-month-type pricing or where do you think?

Well, let's see how that works, Al. We have 0 control over iron ore companies that price their product in that order [ph] and price it over. So we will be subject to whatever the market conditions dictate, and until such time as we have some kind of opportunity on our own to be an ore producer or a partner in an ore project, which is something that we're continually looking at.

Great. And final question, Dan, on the imports, I mean, I don't want to stir up a hornet's nest, but in a sense, wasn't it just...

You don't have to. They already have.

But didn't U.S. raise prices $100 a ton relative to the world and get a premium that just attracted imports quite simply? And isn't that still legal?

That's not the issue whether the prices were $100 a ton difference. The issue is whether the pricing that they're at is below their home market pricing and below the cost of production. And certainly, if they are abiding by the globally agreed-upon rules in that regard, there's no issue. And we just have to deal with it. And there's no legal recourse that's going to change that, that the issue has been proven time and time again. I don't know where your head has been lately over the last 20 years, Aldo, but I know it hasn't been stuck in the sand like an ostrich. You know darn well that we've won numerous, numerous cases against virtually every country in the world for cheating on the global trading system. And they've held up in court and not only our court, but the World Court. So to imply that if nobody ever does anything wrong when they import it to the United States and that somehow because we had $100 a ton price differential, that we were the bad guys. And out there, we try and get -- make a profit on our product when other folks are just interested in dumping their product to keep people employed. Now that's ludicrous, my friend. But you're entitled to your question.

And next, we'll hear from Brian Yu with Citi.

On the export side, can you provide us with a percentage of your shipments that were exported in the quarter?

We've been averaging somewhere in the neighborhood of about 10%. It's probably off a little bit in the first quarter as a result of the economic conditions worldwide. So it might be down a little bit, maybe in the 7% to 8% range.

Okay, and then second one, just with the point of $50 million that you got committed to the DRI project, will any of that be funded by the restricted cash you've got in your balance sheet? I think that's about close to $600 million.

Yes, that's what all that cash will be used for, is that DRI facility.

Okay, and will that be going into this year's $450 million spending?

Yes, it will.

All right, if I can get one last one. At SBQ, could you give us a sense of what the end markets are and then with the 1 million ton expansion you got coming online, would that be geared towards the same end markets? Or do you see that being targeted maybe the strong ones like machinery or whatever else?

Obviously, automotive, as I mentioned earlier in the day, heavy truck, heavy equipment, Caterpillar, those kind of operations. Agricultural is another one that's very strong.

Energy.

Energy would be yet another one that's very strong. So there are several markets that we are putting our product in today. And as we continue to bring new grades and qualifications into our Memphis facility, that list is growing.

As we talked before, some of the heavy equipment manufacturers and other manufacturers are, as we speak, either opening or building or getting ready to construct new facilities in North America, particularly the United States, that will increase the demand for those products above where they are today or in a what would have been considered a previously strong volume market.

Do you have a rough split of these various type of markets on the SBQ side? I mean, just the top 3 or what percentage it might account for.

Auto would definitely be #1. Heavy equipment would be #2. How about trucks? Heavy trucks would be #3. Again, I would think more of the question to you that, that changes as different market conditions change also, but that's how we're seeing it in current.

And our next question today will come from Philip Gibbs with KeyBanc Capital Markets.

Just, Dan, my first question was the status of the EPA review in Louisiana, just that we were reading some articles that they were giving you a hard time.

Say that again?

The EPA review at your Louisiana DRI facility. We've just been reading that the EPA is giving you a hard time.

The EPA has worked to make it a difficult process at federal level. Luckily, at the state level, we've had extremely good cooperation from the state environmental people in Louisiana and we have the permits in place. Most of the discussions at this point in time revolve around the permit for the blast furnaces that we still have and plan on holding onto and not so much the existing DRI permits.

Okay, I just have a couple of quick ones for Jim. First one was just what were the startup costs in the quarter? And two, the SG&A looked solidly below what it's been running at over the last several quarters. Just curious what the reasons for that were.

Okay, first on pre-operating and startup cost. We first began breaking it out in our earnings release in mid-2009 because they were both a material relative to our gross profit and they were materially different than they were in 2008. And really, when we got into 2011, they were no longer material relative to 2011's gross profit but we kept disclosing them because in comparison to 2010 when they were higher, there was a change that was fairly material. Now our earnings release includes the income statements for 2011 and 2012. And for both those years, it's not material and they really aren’t that materially different on an apples-to-apples basis, we include all the different components that have been a part of pre-operating startup costs over the year. So they're relatively flat. They’re not material. They're just not worth breaking out right now. We will again in the future when they rise because of the Louisiana startup creating more pre-operating startup costs. But they just haven't changed that much really.

What's the second part of your question?

I was asking about SG&A?

Yes, and that was -- yes, we were classifying freight for part of our business differently in the past and we've moved it up in the cost of goods sold. Some of them we're recording in their first [indiscernible]. There has been a reclass and now we account for freight.

So we should look at this as 107?

It's been morphed with run rate and the baseline.

And next, we'll go to Richard Garchitorena with Crédit Suisse. Richard Garchitorena - Crédit Suisse AG, Research Division: So my first question is, just on the press release, there's a comment there saying that you saw unexpected margin weakness in your raw materials business in the Q1. I'm just wondering if you can give some color on that because you don't get the schedule on pricing, and the scrap prices were up quarter-over-quarter.

Yes, the scrap pricing’s up, but the price you pay for it is up as well. Keith, do you want to address that?

I'll go down 2 different roads with it. The first one was scrap market moved up as it moved December into January but then pretty much flattened out or moved down from there. So there was really no sustained upward trend that we had seen in the past during the quarter, which is alluded to in the release this morning. So that's probably really what accounted for a good portion of the squeeze. And the second one would go back to the earlier question about overcapacity of shredders and all. So we're fighting for raw material in this overcapacity situation in a market that was trending flat to down. We saw a squeeze through most of our operations in the -- around the country. Richard Garchitorena - Crédit Suisse AG, Research Division: Great, that's very helpful. And then my second question, it looks like demand is still improving in most end markets with the exception of construction. So given that and given your expectation of modest improvement in earnings in Q2, is there any way we can sort of figure out what your figure is in terms of volumes going forward? Is it really just the pressure on pricing from higher imports and excess of supply or scrap to basically keep margins flat? Or how should we think about that?

Yes, yes, yes and yes. The volumes and the pricing go fairly hand in hand. And so on the demand side, because the economy is really growing at a snail's pace on the steel consumption. And we just recently had some numbers come out in the last day or 2 on manufacturer, where there seems to be a bit of a slowdown, hopefully that’s a temporary thing. We’re not going to get ahead of ourselves on volume forecasts. We do believe volumes will be up modestly, and we do believe pricing on some of our products will be up modestly. Some products will be sideways down. And the net of that is, we see an environment going through the second quarter that will be more profitable but not in a large way. And predicting the volumes with still the uncertainties in the economy and the fits and starts in construction that seem to come and go. It is difficult to do.

And next, we'll go to Michelle Applebaum with Steel Market Intelligence.

I have about 12 questions, so I'll try to restrict it. You said unfortunately, we can't be more proactive on imports, but you're working on things to be more proactive. Can you give us a little color?

Yes, when I say we I’m talking about the government, and so you can take the speed of action out of the government into consideration. Obviously, I'll be qualified by saying that we are working on these things. And that is we are working on coming up with tools that allow our government to be more proactive, i.e. to respond much quicker to floods of imports. Other than that, I won't go any further.

Okay, and the second thing is, you're to be congratulated, I think, for resisting the urge to integrate into iron ore as you were moving forward with Louisiana the last 5 or 6 years. Now that your disciplined strategy of not investing in iron ore has been rewarded and the market is more flush and properties are more available, can you give me some idea of where that stands in terms of your priorities from a use of capital perspective?

Subtlety, you are not, Michelle.

Gee, 30 years, you didn't notice that.

No, it’s not the first time. It's the first time I’ve commented on it. As I mentioned earlier, we are constantly evaluating the opportunity in iron ore, if there is one or not. And pricing in most commodities go through cycles so we're cognizant of that. And we have had opportunities that we walked away from because they were too expensive. And so we will be very cautious about moving into that space but if the opportunity does present itself and there are some opportunities that could be doing that, we will -- are taking advantage of them but if we do, you can count on the fact that it’s with the idea that higher pricing will not stay in one place over the life of the business cycle.

Okay, can I ask another one?

Not 12, but you can ask another one.

Okay, because you're answering fast. So one of the most interesting things I've read in the last 6 months was one of the more traditional integrated steelmakers in their 10-K, they've always had a risk factor about mini mills and the risk factor’s varied over the years, but it's always been like lower-cost labor might be competitive, but they use scrap and that might hurt them. And what was interesting this year was this company changed what has been boilerplate language from saying that the mini mills can be a threat but they -- that the integrators are generally able to manufacture a broader range of products. And they changed it this year to say that the mini mills are increasingly able to compete directly with integrated producers in a number of flat-rolled products previously produced only by integrated steelmaking. So I thought that was real significant in a competitor's SEC filing. So my question for you that I've been trying to ask this in the past, can you give me some idea of how many tons increase in the market you're going to be able to reach with these investments you're making in flat-rolled?

Yes, I think John might have a handle on that. John?

Well, the sky is the limit as we move forward, okay, because we never stop climbing the mountain of improved products and quality and finding new ways to enter into new markets. We've done a great job across our company in all of our products and doing this specific to automotive. And we -- in the last 5 to 7 years, the amount of high strength and ultra high strength products, the light gauge that we've been able to produce, the quality of our products that we've been able to produce, the number of vacuum degassers that we've added, all increased, each time increased our potential in automotive and other high-value products. So the number over the last 5 years, we've gone from a very small percentage in automotive to a significant player, as we've said in the past. Today, we've given you some indication of what we would do in automotive as we go forward. We've mentioned the wide light project at Berkeley. And we feel that that's going to boost our participation in automotive strongly. Being able to produce that product in Berkeley shifted to a state of the art automotive qualified galvanized line in Decatur, gives us another window of opportunity. So we feel very encouraged about what we're doing. I would add to that -- you're familiar with our Castrip product and our technology. That opens up another world of opportunity as we continue to grow in grades. As you know, that's an ultralight gauge, cold-rolled replacement product and that we are currently investigating opportunities to put that into automotive product also.

Those are some very general product side. But Michelle, if you're looking for absolute tonnages, there is -- or percentages of the high quality, suppliable market we will be able to service. John's point is a very good one. We don't limit ourselves. We never have, even when we were first getting into the flat-rolled business and people said they’ll never be able to do anything more than decking and construction grades. That was just a matter of time to us, not a fact that could not be overcome. And so you have to really look at this from the standpoint of there's nothing in the automotive sector from a quality standpoint in the flat-rolled or other SBQ or what have you that we will and are not already moving into in a strong way. And when I say strong way, we're talking about hundreds of thousands of tons to millions of tons ability to penetrate that market in terms of the type of product we're capable of making. The rest of it is actually -- comes through being successful and competing for that market. But there is no limit. And so that to ask us what -- how many more tons we're going to get or what percentage we're going to get is, in our minds, limiting and we don't see it as a limiting thing. There's nothing that we won't be able to reach, including exposed automotive. So I don't know how to answer that question. There are no limitations.

Maybe and I know these are famous last words, but let me ask it a different way. How much...

Last question.

What?

Last question.

Well, then I'm just going to ask a different question.

I want you to understand, you should ask the most forward questions first and maybe other people will want to ask some questions. We can go back to your other questions later. But 4 questions at a time is reasonable. So you tell me what your next question is.

My next question was, I'm 55, am I going to see you making steel in Louisiana before I retire?

I don't know. When are you going to retire?

I don't know, if David has something to say about it -- what?

If you’re going to retire next week, you will not see us making steel in Louisiana. If you are years away from it, it depends on how many years. As we’ve said all along, the strategy for the 4,000-plus acre tract on deepwater port in Louisiana is to include everything, including steelmaking operations, both steel production and downstream. And it's a matter of time. And when it all happens, our first focus is on the raw materials side. But you could see how we've talked about the fact that we're exploring additional greenfield opportunities, and Louisiana may be one of those places that pops up.

And next, we'll go to Sam Dubinsky with Wells Fargo.

Just a couple of quick ones. Apart from another question on the raw materials business, could you disclose a ballpark figure for the operating income per ton in Q1? And how should we think about profitability for raw materials going forward?

We don't have an operating income per ton for the raw materials to disclose, and we typically don't.

We don't disclose individual.

Was it operating at a loss this quarter?

Are you talking about DRI? Are you talking about scrap? Are you talking about overall combination of them?

Yes, the combination of them.

Both DRI and scrap were individually profitable.

We don't break out those numbers.

Okay, and then -- sorry if I missed this, but you had a tax benefit this quarter, what tax rate should we model going forward?

If you exclude that adjustment, we'd be at 35%, or 36% if you also exclude the share of profits belonging to our JV partners. So if you make that adjustment, I'd use somewhere in the 35% to 36% range.

Okay. And then just my last one, I think your steel product lines are flattish year-over-year, but construction spending bounced a little bit in Q1 for the first time. Maybe it was weather driven and maybe it just bounced from the bottom, but could you explain why your steel products maybe wasn't a little stronger? Was it you de-emphasize some products? Or is there something else behind that?

You have to be very careful when you are looking at dollars of construction versus square footage of construction. And there has not been a significant change in the construction activities. On top of that, you are continually in a competitive environment where you have significant overcapacity in virtually every construction products business that we're in, whether it be joist, deck, pre-engineered metal buildings, rebar, fabrication. So you have those -- the situation where there's a lot more growth that's got to come before real pricing power is and margin power is back in the construction product side of the business. So I wouldn't be looking for anything more than that and explain that situation.

And that will conclude our question-and-answer session for today. I'll turn things back over to our speakers for any additional or closing remarks.

Yes. Thank you all for your interest in Nucor. For those of you that may not have gotten to ask all of the questions you wanted, feel free to send them in to Gregg Lucas and we'll get you answers. And I wanted to, once again, thank all of our customers for their support, all of our suppliers for taking care of our teammates out on the operations and keeping them well supplied with quality products, and all of our teammates around the corporation for working safely and working effectively. Thank you all very much, and our shareholders and our best years are yet to come. The 470% increase in total return since 2000 is not a thing of the past. It's a thing of the future, and we are building that profit platform to deliver on that as we speak, as we always do during downtimes. And in the meantime, we're paying a nice dividend and we'll continue to do so. So thank you all for your interest in the company.

And that does conclude today's conference call. Thank you everyone for your participation.