Nucor Corporation (NUE) Q2 2015 Earnings Report, Transcript and Summary

Good day, everyone, and welcome to the Nucor Corporation Second Quarter of 2015 Earnings Call. As a reminder, today's call is being recorded. Later, we will conduct a question-and-answer session and instructions will come at that time. Certain statements made during this conference call will be forward-looking statements that involve risks and uncertainties. The words we expect, believe, anticipate, and variations of such words and similar expressions are intended to identify those forward-looking statements, which are based on management's current expectations and information that is currently available. 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 websites. The forward-looking statements made in this conference call speaks 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. For opening remarks and introductions, I would like to turn the call over to Mr. John Ferriola, Chairman, Chief Executive Officer and President of Nucor Corporation. Please go ahead, sir. John J. Ferriola - Chairman, President & Chief Executive Officer: Good afternoon. Thank you for joining us for our conference call. As always, we appreciate your interest in Nucor. With me for today's call are the other members of Nucor's senior management team: Chief Financial Officer, Jim Frias, and our other Executive Vice Presidents, Jim Darsey, Ladd Hall, Ray Napolitan, Joe Stratman, Dave Sumoski, and Chad Utermark. The entire executive team would like to thank you all, all of our key members on our Harris, Nucor, David J. Joseph, Duferdofin, NuMit Steel Technologies, and Skyline Steel teams. The excellent work taking care of our customers and implementing our company strategy a long-term profitable growth. Without question, the first half of 2015 has been an extremely challenging time for the steel industry. The strategy at Nucor is about growing stronger and building the foundation for higher highs in earnings. Our unrivaled competitive advantages and highly flexible business model allow us to manage our business with a long-term focus and profitable and sustainable growth. Just as important, the financial success of our employees is tightly aligned with that of our shareholders. That is why more than 23,000 men and women of the Nucor team try both their high-energy level and sense of urgency to achieving our goal of profitable growth. We have a lot of exciting progress to share with you today, but first I will ask our CFO, Jim Frias, to review Nucor's second quarter performance and financial position. Following, Jim's comments, I will update you on the execution of our strategy of long-term profitable growth. Jim? James D. Frias - Chief Financial Officer, Treasurer & Executive VP: Thanks, John. Second quarter of 2015 earnings of $0.39 per diluted share exceeded our guidance range of $0.20 to $0.25 per diluted share. Second quarter results included a benefit of approximately $0.03 per diluted share related to state tax credits that largely arose from recently completed capital investment projects. Those state tax credits were not factored into our guidance for the quarter. Overall, the second quarter outperformance resulted from better-than-expected shipments and margins at our steel mills segment. Effective execution, Nucor's channel-to-market strategy is driving strong relative performance at both our bar and beam mills. Also, our sheet and plate businesses are benefiting from recent investments allowing us to expand our offerings on value-added and higher-margin products in more demanding and import resistant applications. Our downstream product segment continues to capitalize on the slow but steady growth in non-residential construction markets. Segment profitability for the first six months of 2015 was more than double the first half of 2014. Backlogs are also higher over year-ago levels for all three of our major fabricated construction products, joist and decking, rebar fabrication and metal buildings. As measured by square footage, we expect U.S. non-residential construction activity in 2015 to increase by approximately 5% to 6% from 2014 levels. The second quarter of 2015 performance of our raw materials segment included an operating loss at our new DRI facility in Louisiana for approximately $20 million. That was down from the first quarter operating loss of approximately $44 million. The quarter-over-quarter improvement resulted from the strong output achieved following last quarter's restart of production and a vendor product warranty payment of approximately $10 million. Nucor Steel Louisiana second quarter results included a negative impact of consuming higher cost iron ore inventory that was acquired in 2014. As we disclosed in our first quarter conference call, we expect to finish working through those higher cost raw materials by the close of the third quarter. A quick comment about our tax rate since it can be confusing due to the impact of profits from non-controlling interests. After adjusting our profits belonging to our business partners and the $9.3 million benefit related to state tax credits, the effective tax rate was 36.4% for the second quarter. Nucor continued to generate very robust operating cash flow during the extremely challenging first half of 2015. With our highly variable and low-cost structure, we benefit from significant reductions to working capital during downturns. That was the case again in the first half of 2015 with cash provided by operations of approximately $1.2 billion, a dramatic increase from the year-ago first half's operating cash flow of $443 million. Nucor's strong through-the-cycle operating cash flow generation allows us to invest in attractive opportunities during periods of industry distress when the long-term returns are most attractive and to continue rewarding our shareholders with immediate returns in the form of base dividends that increased for 42 consecutive years. Here's the number that help explain our cash generation is such an important competitive strength supporting our team's focus on profitable long-term growth. Over the past four quarters, Nucor has generating cash from operations totaling $2.1 billion. During that period that cash flow has enabled us to fund the acquisition at Gallatin Steel for about $779 million, paid cash dividends to shareholders of $477 million, invest in capital expenditures of $381 million, and increase our liquidity. In this time of unprecedented industry turmoil, our focus is not on survival, but on growing the long-term value of our shareholders' investment. Nucor's financial position remained strong. Our gross debt to capital ratio was 36% at the close of the second quarter. Cash and short-term investments totaled $1.7 billion, putting our net debt-to-capital ratio at approximately 26%. Our next significant debt maturity is not until December 2017. Nucor's strong liquidity position also includes our $1.5 billion unsecured revolving credit facility, which remains undrawn. That facility does not mature until August of 2018. Nucor is the only North American steel producer to hold an investment grade credit rating. The first six months of 2015 capital expenditures totaled $163 million. We estimate full year 2015 capital spending will be approximately $450 million. Most of our recent larger scale organic growth investments have been completed or are nearing completion. Depreciation and amortization for 2015 is expected to total about $700 million. Earnings in the third quarter of 2015 are expected to be improved from second quarter. The steel segment should benefit from beginning the quarter with lower cost inventories. Our steel products segment is expected to benefit from continuing gradual improvement in non-residential construction activity. We are confident Nucor's significant competitive advantages and highly adaptable business model will allow our team to continue to execute our proven strategies for delivering profitable, long-term growth and shareholder returns. We do appreciate your interest in our company. John? John J. Ferriola - Chairman, President & Chief Executive Officer: Thanks, Jim. Nucor's long-term success has been achieved by focusing on a simple strategy. Nucor capitalizes on its unrivaled position of strength to gain profitable market share in our core businesses of steel and steel products, throughout the economic cycle. The anchors to our strategy and its execution are these very powerful competitive strengths of Nucor. Nucor is a low cost producer of steel and steel products. Importantly, we work to drive continual improvement in our cost structure. Nucor's financial strength is unparalleled in the North American steel industry. Nucor generates robust operating cash flow throughout the cyclical ups and downs that are inevitable part of the steel business. Nucor is the market leader in 9 of the 11 largest markets where we compete. Market leadership matters as we are able to earn higher margins by providing the broadest mix of products and services to our customers. Nucor's channel to the market strategy allows our steel mills to increase their penetration of higher margin and higher value-added products in a global steel market burdened with irrational excess capacity resulting from foreign, government subsidies. Nucor's raw material strategies execution has positioned us with greater flexibility to take advantage of the lowest cost feedstock of making steel in a commodity business characterized by high volatility and input costs. The steel industry has seen some very tough times over the past nearly seven years stretching back to the fall of 2008. While Nucor certainly does not welcome tough times in our business, we do not fear them. In fact, we use them to our advantage to grow stronger. I am pleased to report that Nucor's position of strength has improved during this protracted steel industry downturn. Since 2008, Nucor has invested almost $6 billion to expand our portfolios of higher margin products and to improve our relative cost position. Given the growth in our earnings capacity and the strength of the steel market demand in the U.S., we believe our profitability will challenge and possibly exceed our 2008 record earnings level, were it not for the tsunami of illegally traded imports that are overwhelming domestic steel industry. Nevertheless, a very initial payoff from these investments already can be seen in our current results. Here are some examples. Nucor's market leading long products businesses achieved year-over-year growth in profitability for both the second quarter and first half of 2015 despite significant marketplace pressures resulting from imports. The keys to this performance were market leadership positions in our vertically integrated channel to the market strategy. Our bar mills benefited from a strong channels to market provided by our downstream businesses. These downstream channels to the market include, our market leading vulcraft, verco, joists and deck operations, our Harris steel rebar fabrication business, our market leading cold finish bar business, our market leading pre-engineered metal buildings business and a few others. Our Nucor-Yamato structural steel metal delivered a particularly strong performance in the second quarter. This performance is evidence of the strong partnerships Nucor-Yamato has built with its fabricated customers. Also, the market leading teams at Nucor-Yamato and Skyline Steel continue to grow profitable market share for us in the steel pilings market. Nucor-Yamato expects to grow its wider piling sections annual volume to 100,000 tons over the next few years. These products were introduced to the marketplace earlier this year and received their first export order in the second quarter. The automotive market continues to be an attractive growth opportunity for Nucor. Our sheet and engineered bar businesses are on track in 2015 to increase their combined automotive volume by more than 20% to approximately 1.4 million tons, and there was more growth ahead, as our goal is to reach an annual shipment rate of 2 million tons for the automotive market within the next two years to three years. As always, our focus is on profitable growth in our automotive book of business created by our ability to provide unique value-added products and services. Nucor's recent and significant investments to have our sheet and engineered bar mill groups are driving our growing market share in these higher margin and more import resistant products. Our Nucor Steel Berkeley Sheet Mill continues to build momentum in the second quarter with its very successful rollout of new wide light products. Berkeley expects to ship 200,000 tons of these new products this year, allowing it to gain market share with a number of important heavy equipment, service center and automotive customers. Completed in 2014, the wide light modernization capital project has positioned Berkeley with the lightest hot-rolled gauge capability of any sheet mill in the Southern U.S. market, and with a finished product width of up to 72 inches. Our raw material strategy is a critical foundation, supporting Nucor's growing participation in the higher value-added and higher-margin products. During the second quarter, our Louisiana direct reduced iron plant successfully ramped up following its five-month shutdown to make major equipment improvements. Louisiana produced approximately 540,000 tons of DRI in the second quarter of 2015 with its usual world-class quality levels. Louisiana has been a challenging startup as was our plant in Trinidad that started up in 2007. It is worth noting that the challenges in Trinidad was somewhat masked by a dramatically different raw materials pricing environment. Despite recent challenges, our confidence has never been high regarding the long-term value of Nucor owning DRI production capability. It puts Nucor in an unrivaled position of flexibility in optimizing our iron units cost due to the cycle. During the second quarter, major progress was achieved in the work done by Nucor and other producers to fight back against the tsunami of illegally traded steel imports coming into the United States. Imports were 32% of all steel sold in this country in the first six months of this year. That is up from a 27% market share for the year ago period and from slightly above 20% of the market in 2009. I am very pleased to report that we scored two significant victories recently. Congress on a bipartisan basis adopted important trade remedy provisions, champion by the U.S. steel industry as part of a package of trade bills. By passing this legislation, Congress has given our industry more effective tools to fight back against unfairly and illegally traded steel imports. These changes were a long overdue. The U.S. trade laws have not been updated for over 20 years. The Nucor team applauds Congress and the administration by taking a much tougher line with countries that break the law and destroy the economic vitality of our country. These new trade laws alone will not address the underlying issue, the systemic global steel overcapacity resulting from a trade assorting practices of some foreign governments. It is time for the World Trading Community to take firm actions to stop these countries from dumping their steel and force them to comply with World Trade Organization rules. As has always been the case, Nucor will not hesitate to file a trade case if the evidence warrants such action. During the second quarter, we joined five other steel makers in filing a trade case against India, China, Italy, Korea and Taiwan for dumping and providing significant subsidies to producers of corrosion resistant steel. We are pleased that last week the U.S. International Trade Commission made a preliminary affirmative determination, allowing the case to proceed. Nucor will continue to assess market conditions in other products market – in other product markets and pursue cases when appropriate. Our fight against illegally traded steel imports is essential to meeting our responsibility to be an effective steward of our shareholders' valuable capital. In closing, I am extremely confident that Nucor's best years are still ahead of us. Every time I visit a Nucor facility and spend time with my team mates, I am reminded why I have absolute confidence that Nucor's future is extremely bright. It's because of the quality and commitment of the men and women who serve together with me on the Nucor team. They are truly the best, they are truly the right people, they will get the job done. Thank you for your interest in Nucor. We would now be happy to take your questions.

Thank you. We'll go first to Luke Folta with Jefferies. Sir, your line is open.

Hi, good afternoon. John J. Ferriola - Chairman, President & Chief Executive Officer: Good afternoon.

Hey, first question I had was on non-res. We saw a bit of slowing in terms of – well, I mean, you saw really nice year-over-year growth in joist, deck and rebar fab last year in the first quarter. And that seemed to have dropped off quite a bit in 2Q and similar things out of Steel Dynamics' downstream business yesterday with volumes. The commentary still seems pretty positive around non-res. Can you just give us some sense of what's going on in terms of the shipment levels? John J. Ferriola - Chairman, President & Chief Executive Officer: Well, let me start with the overall markets. The pundits are still saying that they expect a 7% to 8% increase in non-res this year over last year. We think that number is a little bit optimistic. We see it close to be being around 5% to 6% this year in non-residential construction. As far as our downstream businesses go, we're seeing some very positive things. Our backlogs are stronger than they have ever been. Frankly, the pricing of the products in our backlog are stronger than we've seen in quite some time. So, although we see things over the course of the year slowing a little bit more compared to last year, was still pretty optimistic about non-residential construction and our downstream businesses going into it.

Okay. All right. Just on the trade side, the language that went with the TPA bill here recently, how big of a deal do you think that is? And when you, I guess, think about the impact for imports, is it fair to say that Nucor probably has more upside than the industry as a whole in terms of – if there is a change in a way import protection is – if the enforcement approves here, do you think that there is more upside just given your southern presence? And I think I would guess that more of your business enters into the spot market than maybe some of your integrated peers to the north. So any commentary around that would be helpful. John J. Ferriola - Chairman, President & Chief Executive Officer: Well, let me respond in general, we think that there's tremendous upside, I won't compare it to any of our competitors, but for us, we are very optimistic about potential upside. We're very positive about the language in the legislation. Clearly gives us much stronger tools to fight back against unfair trade. Just to mention maybe a couple of the things that it does for us, number one is it changes the definition of injury, it gives the International Trade Commission, a much broader list of factors when determining whether an industry has been injured, not just profitability, that's important. It will no longer be necessary for us to suffer severe financial damage before action can be taken. Another provision enhances the commerce's department – excuse me, the commerce department's discretion in dealing with foreign companies and foreign governments that are un-corporative or very slow to provide the information they need to make a determination. So although I have to say that this is a very positive first step, there is more work to be done. And we believe that this will create a much more balanced and fair marketplace competition here in the United States, but there is still work to be done. So we will continue to work in Washington with our elected officials and continue to press for even stronger trade laws in the future.

If I could ask one more just on the raw material segment outlook. The Louisiana plant seems like it's ramping up very nicely. Heading into 3Q, you're not going to have the Trinidad outage and I would think that the headwind from the high cost raw materials would be lesser quarter-on-quarter. Just trying to get a sense of why we're still looking for a flat outcome in that business quarter-to-quarter. John J. Ferriola - Chairman, President & Chief Executive Officer: Well, Trinidad will do better. As you mentioned, we won't have the shut down there. In the case of Louisiana, it will probably be towards the end of the third quarter by the time we work through all of the high priced inventory and the reason that it might be the same, even with the improvement in Trinidad is that we won't see the same impact as we did with the $10 million payment on a vendor liability.

Okay. Thank you.

We'll go next to Evan Kurtz with Morgan Stanley. Evan L. Kurtz - Morgan Stanley & Co. LLC: Hey, good afternoon. John J. Ferriola - Chairman, President & Chief Executive Officer: Good afternoon, Evan. How are you? Evan L. Kurtz - Morgan Stanley & Co. LLC: Doing well, thanks. Just a couple of follow-ups on the trade front. So I was just wondering, so the rules now changed as far as injury definition goes. Does that mean that some of the trade cases that people have been working on for the past, I guess, year-plus now on hot-rolled, cold-rolled that we haven't really seen yet, do they have to be rewritten to kind of match the new rules? Is that going to cause some sort of a delay? John J. Ferriola - Chairman, President & Chief Executive Officer: Now, frankly just the opposite. As we go forward and we press for any potential cases that we might file in the future, what will happen is the new law will apply to them. So it will not cause delays. If anything, just the opposite will happen. Now the countries that we would potentially file against will be required to submit the data faster. They will not have the same list of reasons for not getting the data in, in a timely manner. And as we look at the pressing the point of whether there was an injury or not, there's a different set of guidelines that will be used. So certainly this will not cause any delay. If anything we expect it to speed up the process in cases that we press in the future. Evan L. Kurtz - Morgan Stanley & Co. LLC: Great, thanks. And then, from what I understand, there's actually some additional trade protection that we could see coming out of the customs bill that's in conference right now on the enforcement front. And I understand the language is a little bit different on the Senate side versus the House side on enforcement. And for some of us on the outside who are trying to follow this, maybe you have some insights there that could help us. Is there any particular language that we should be looking at that you really want to see passed in this custom's bill? Or is there any language that makes you a little bit more nervous or cautious? Any color there would be helpful. John J. Ferriola - Chairman, President & Chief Executive Officer: Well, let me start by saying that we're not going to comment on what the outcome will be in Washington. We will work hard with our elected officials to get an outcome that's favorable to the industry. Beyond that, I don't want to say too much. It's an ongoing phase. We don't want to say too much about that at this point. Evan L. Kurtz - Morgan Stanley & Co. LLC: Okay, fair enough. And then, maybe one last question on raw materials as well, just trying to get a sense for modeling Louisiana going forward as far as the flow through on the timing for iron ore inventory, and I fully understand that you had quite a bit of outages, hiccups getting this project started and that obviously stretched out the amount of iron ore you had on the ground probably considerably. But once things normalize, how much iron ore inventory would you normally have on the ground? And how quickly should we model in price change on the iron ore through your earnings? John J. Ferriola - Chairman, President & Chief Executive Officer: Well, remember as you factor in your AFL, think about the fact that we buy iron ore on a contract basis and then we pay for the previous quarter, but there is always a one-quarter delay between what you're seeing going through the furnace and what you'd purchased. Always make sure you put that time delay in there as you go forward. We use about 4 million tons a year, so in terms of keeping the inventory on the ground, we probably have maybe one month. Evan L. Kurtz - Morgan Stanley & Co. LLC: One month. John J. Ferriola - Chairman, President & Chief Executive Officer: Yes. About 1 million tons we keep on the ground, probably about 25% of our annual use. Evan L. Kurtz - Morgan Stanley & Co. LLC: Great. That's super helpful. Thanks, guys.

And we'll take our next question from Matt Murphy with UBS.

Hi. John, you made a comment your backlogs are stronger than you've seen in some time. Structural rebar and joist in Q2 were all flat to down, so I'm just wondering is the backlog stronger now than it was at the end of Q1? And do you think that's a result of underlying demand uplift? Or is it more imports sort of easing off? Or is it a combo of the two? John J. Ferriola - Chairman, President & Chief Executive Officer: Ray, why don't you take that?

Sure. Good afternoon. This is Ray Napolitan. I would say our downstream backlogs are up as a combination of several things, but improved underlying demand and overall the slow growth of the non-res market, plus the worsen delayed shipments in the first quarter, first half of the year due to weather, but overall the team is doing a good job in increasing our backlog levels and in both – well, for the second half of the year, for all three of our major downstream products.

Okay, thanks. And then, I guess, the one other question is when you talk about the flexibility DRI offers, and I appreciate it, it probably plays a role with helping the current pricing environment in the scrap market. But presumably the flexibility means you run it hard when scrap prices are high, and you maybe don't focus on it as much when they're low. So I'm wondering how you're thinking about your raw material strategy as iron ore spirals and maybe we see some more weakness coming in scrap. John J. Ferriola - Chairman, President & Chief Executive Officer: Well, you are exactly right. It gives us the ability to switch back and forth in which area we want to press, whether it's in scrap or whether it's in DRI, depending upon what the cost of the iron unit is. At the end of the day, an iron unit is an iron unit. What it does is it gives us the ` to change and modify our feedstock mix, so that we can optimize our mix base upon current pricing in the different commodities. It gives us a lot of flexibility. We have pig iron out there, now we have HBI which gives us DRI. We have scrap that's under our control. So we have a lot of flexibility, but we'll drive the decision on where we're focusing is the price of the iron unit in each one of those areas.

Okay. Thanks.

We'll take our next question from Timna Tanners with Bank of America Merrill Lynch.

Yeah, good afternoon, guys. How are you, guys? John J. Ferriola - Chairman, President & Chief Executive Officer: Good afternoon. How are you?

All righty, thanks. So two big areas I wanted to touch on. One is we've heard so much about flat rolled and improvements expected there, but we were kind of surprised the year-over-year declines in bar structurals and plate. So just wanted to drill down a little bit more, if you could provide some information on how much of that might be destocking imports or underlying demand? John J. Ferriola - Chairman, President & Chief Executive Officer: Well, I can tell you that it's underlying demand in the United States it's very, very strong, but that's not the issue. The issue isn't demand, it's on the supply side. And the fact that the imports are coming in so heavy, which I'm sure you know Timna they captured about 32% of the steel market today and although that we're looking at – again, I'm talking about the whole market there. Although we're looking at demand levels that are probably just about the same as last year, the import level has gone up from 27% to about 32% to 33%. So demand is not the issue. Demand is strong, but imports are taking a much bigger bite out of our potential long product business. When I talk about 32% to 33%, that's across all of our products. When you look at – you mentioned beams specifically, so I'll comment on that. Imports are up 33% in beams year-over-year. That's a huge increase. So the short answer to your question, demand is strong. We see good demand. We believe it will grow moderately throughout the rest of the year. The issue is not the imports – and I stress the issue is actually not the imports, the issue is illegally unfairly traded imports.

Okay, got you. The other question I want to ask is on huge amount of free cash flow in the first half of the year. And I know that Jim stressed the importance of your cash generation as a competitive strength. And not to pick on you, but you did point out that DRI is obviously less attractive in the current commodity environment that none of us forecasted, and I get that. But can you talk to us a little bit about how you can deploy that capital going forward in ways that we can be confident will grow the business? In light of the fact that you've already done a lot of investments to grow organically, do you start to steer maybe toward other uses of cash going forward? John J. Ferriola - Chairman, President & Chief Executive Officer: I would say that our first goal is always to invest to grow our business. Now we believe that there's still a lot of opportunity to do that, and we would focus on areas that brought value-added higher margin products, investments that we've made similar to what we did at Hertford County with the heat treat and the normalizing line. Investments that we've made in SBQ, investments that we made at Berkeley with the wildlife project, the investments that we made with the wider piling sections, and all of these cases were at focusing on investments on higher margin products that are also more important resistant. Although we're taking it light, we feel good about the action that's being taken in Washington to fade off these illegally traded products. The focus that we have is to continue to work to better insulate Nucor from that flood of imports and the way to do that is to focus on those value-added products. A great example that I can give you, Timna, is all the work that we're doing on our advanced high-strengths steels that go into the automotive market. I mentioned how we've gone in that over the last couple of years. As a product because of the quality requirements and because of the just in time delivery requirements, that's not easily imported. So that's an area of focus for us. I'd also like to speak a little bit more about the continued investment in lowering our total cost of production. You mentioned that I referenced that our DRI production, given the current environment, is not as attractive as we thought it might have been at one point. But I do want to point out that it's still attractive. If you take a look, the issue we're working on right through is the short time, but we have this iron ore that's higher price. But if you took a look at the cost of our – our conversion cost today and you apply the market price to iron units coming out of iron ore today, our all-in costs will be under what we would have to be paying for other forms of low residual products like pig iron and prime scrap. So it's still valuable investment. The question is whether it's a good investment or whether it's a great investment. In today's pricing environment, it's a good investment. In tough pricing environment of iron units where we were a year-and-a-half ago, it would be a great investment. And trust me, given the cyclical nature of our business, it will be a great investment again in the future. So I wanted to be clear of that so that, should we move forward with investing further in some form of DRI or blast furnace projects, everyone understands that we had a short term issue, we're dealing with it, it will pass; long term, we still believe very strongly in this strategy. At the end of the day, we look at it this way. The amount of iron ore in the world is virtually unlimited. The amount of scrap in the world is much more limited and we can generate more iron ore by reinvesting in extraction techniques. It's tough to generate more scrap and we see that – frankly, we see the amount of scrap being generated in United States has declined.

Okay. The point of my question wasn't to belabor the DRI issue because those are all good points, and I understand that. I guess, the point of my question was to try to ask if the use of this cash to protect against imports has been the primary source or use of cash over the last several years, and yet the benefit of those uses has yet to show up. Do you start to think about more direct return to shareholders to deploy that capital in a more direct way? John J. Ferriola - Chairman, President & Chief Executive Officer: We always look at all options. And we look at the potential investments that we can make in our business and if we believe that they're good investments to make and how we believe that they bring long-term earnings to our shareholders that's the direction we'll take. On the other hand, if we don't see them out there, we will consider all other options.

Okay. Great. Thank you. John J. Ferriola - Chairman, President & Chief Executive Officer: Thank you.

And we'll go next to Michael Gambardella with JPMorgan.

Yes, good afternoon. John J. Ferriola - Chairman, President & Chief Executive Officer: Good afternoon.

How much sheet capability do you have left for the third quarter? John J. Ferriola - Chairman, President & Chief Executive Officer: That might be a different way of asking what's our utilization rate in sheet, is that where you're going?

Well, I just want to say, even beyond your stated capacity, how much more volume could you put out into the marketplace in sheet in the third quarter versus the second? John J. Ferriola - Chairman, President & Chief Executive Officer: Let's see how I can answer that without getting too specific here. How much more we put out? Listen, we could certainly put out several more million tons. And you are talking about just for the quarter – just for the third quarter?

Yeah, just in the quarter. Just on a quarterly basis. John J. Ferriola - Chairman, President & Chief Executive Officer: We could probably improve it about 20%.

20%. So, I mean, with your relative cost advantage with scrap where it has come down to, is it just a question of letting the import supplies dry up in the marketplace? John J. Ferriola - Chairman, President & Chief Executive Officer: Well, there's several things. Certainly that would help. It's also the issue of allowing the inventories in our warehouses continue to come down. It's a function that you look at our business in where was our product going? How those markets performed? Obviously, we talked about our increased participation in the automotive market and that's a strong market. We talked about non-residential construction and clearly lot of all of our products, including sheet were going to non-residential construction and we see that picking up. But on the other hand, we also have a lot of products that goes into oil-related products such as OCTG and that's obviously struggling right now, we don't see that changing for the rest of the year. So, we see some of the markets that we sell into – our sheet products into as continuing to get better and we see others that will continue to struggle. But overall as we look at the third quarter and fourth quarter, what we could put into that, another 20% to 25%, whether we'll be able to do that will be a function of what happens and how quickly it happens with trade cases, or potential trade cases on hot-rolled and on cold-rolled products, how quickly that impacts the imports coming in. That, of course, will also help drive how quickly the warehouse inventories deplete. But at the end of the day, I will say that I believe that we will be making more and more progress against imports. I feel really good about this recent legislation and the impact that's going to have short-term and long-term in our business. And so, as I look forward to the rest of the year, we do have, as a company, we're heavily weighted on the hot band side. Sometimes that's a real advantage, sometimes it's not. Right now we're in markets where that's not advantage but that will turn around also. So I feel good about where we're going, I feel good about the import situation and the impact that'll have on the markets.

When you think about market share, in the long products part of your business, everyone is subject to the same raw material cost issue, scrap basically in an open market. But in the other half of your business, pretty much in the sheet business, you have maybe 35% of the market is scrap-based and the other 65% is iron ore-based and that's where you can get a real advantage in terms of market share pick up. How much market share in the sheet business did you pick up in the second quarter? And then can you talk about what you think you can do in the back half of the year? John J. Ferriola - Chairman, President & Chief Executive Officer: You mean pick up because of the cost advantages in the DRI?

The DRI and the scrap business, just scrap prices coming down relative to iron ore in the last several months. James D. Frias - Chief Financial Officer, Treasurer & Executive VP: Versus the integrated scrap. I think he is thinking versus integrated.

Yeah, versus integrated. John J. Ferriola - Chairman, President & Chief Executive Officer: Well, I would have to almost answer that on a product-by-product basis. I mean, if we were to look at automotive, we think that we will pick up some market share in automotive. In construction, we feel good about our ability to pick up 2%, 3%, 4% in construction. And as I mentioned earlier, in some of our other markets, we think they'll continue to struggle.

Okay. Because I think you had about a 12% increase quarter-over-quarter in your sheet shipments and one of your other – your primary competitor, in terms of mini mill, Steel Dynamics, had about a 24% increase in sheet shipments quarter-over-quarter. So clearly both you guys are gaining share in the sheet business versus the integrateds and imports. I was just wondering, how much more share do you think you can pick up in the back half of the year? John J. Ferriola - Chairman, President & Chief Executive Officer: Well, can I answer that by saying how much would I like to pick up?

Sure. John J. Ferriola - Chairman, President & Chief Executive Officer: I'm just kidding, but listen, we continuously work against all of our competitors both scrap-based and integrated. I don't want to make any comments in particular against any one of our competitors.

Okay. Thanks a lot, John.

Up next, we'll go to David Gagliano with BMO Capital Markets.

Hi. I just – I wanted to just quickly follow up on the DRI math. I think this is right but I just want to make sure. So you mentioned 4 million tons and we don't know the cost of the iron ore inventory on the ground at this point, but is it reasonable to assume it's about $30 a ton higher than current prices? John J. Ferriola - Chairman, President & Chief Executive Officer: The inventory on the ground. James D. Frias - Chief Financial Officer, Treasurer & Executive VP: I'm sorry. Say again, I missed the question.

I'm trying to figure out what the average cost of the iron ore inventory that we've used in the second quarter. What that is relative to the current iron ore market? James D. Frias - Chief Financial Officer, Treasurer & Executive VP: The difference between the higher cost iron ore and the lower cost inventory and this is (47:11) delivered all-in is about $30 ton, $35 a ton. John J. Ferriola - Chairman, President & Chief Executive Officer: So you were pretty close.

That's what I needed. Thank you.

We'll now go to Phil Gibbs with KeyBanc Capital Markets.

Hi, thanks. Good afternoon. John J. Ferriola - Chairman, President & Chief Executive Officer: Good afternoon.

I had a question, John, on sheet pricing. If we were to assume that sheet price stayed relatively level with where they are now just in terms of the spot market, would you expect that your pricing realizations will be improved in the third quarter relative to second or would we need to see more uplift to get that? John J. Ferriola - Chairman, President & Chief Executive Officer: Actually I would say that we see a small amount of improvement.

Okay. I appreciate that. And then in the – and then the M&A landscape, what opportunities are you seeing there, and do you think that there is going to be more consolidation in the industry in the next 6 months, 12 months, 2 years – I mean, is there going to be more consolidation here that we see? John J. Ferriola - Chairman, President & Chief Executive Officer: We don't comment on any potential merger or acquisition activity that we're involved in. As a general statement – this has been a long tough period for the industry and in the past, based on historical reference points, we see consolidation occur when you've gone through these tough times. So as a general statement it's possible but i'm not going to make any more comments than that.

Okay. And then, lastly, you made a comment that Yamato had a pretty, pretty strong quarter. Is that a mix piece or is that a demand element, just anything that you could provide in terms of color there because I saw your structural pricing held up relatively well relative to the first quarter? Thanks. John J. Ferriola - Chairman, President & Chief Executive Officer: It was a little bit of both to be honest with you. Demand was up a little bit, also mix came into play. As we mentioned, our new filing sections were involved. So mix had something, certainly had a role to play in it. The demand was up a little bit also.

Thanks, John. John J. Ferriola - Chairman, President & Chief Executive Officer: Thank you.

We'll now take our question from Brian Yu with Citi.

Thanks and good afternoon. John J. Ferriola - Chairman, President & Chief Executive Officer: Good afternoon, Brian.

Hey, John. I got an outlook and then a product question for you on scrap. Scrap price in U.S., it seems like they've come back down to where they were back in February and when that happened back then, we saw a lot of volume dry up. So question is, is there some theoretical or numerical floor to where scrap could go given collection and just cost associated with aggregating it? And then two, how are you guys thinking about the scrap markets in third quarter? I think one of your competitors said, look, we think it's going to go down lower, but you guys are pretty big in it too, just wanted to get your views there too? John J. Ferriola - Chairman, President & Chief Executive Officer: Well, I'll start with that one. I think that going into the – we're kind of bearish on scrap prices going forward. We think that into the third quarter, it will – if we say, sideways with some downward pressure. So it will either be down a little bit or sideways, but we think probably down a little bit going into the third quarter. In terms of your first question, I don't think there is a numerical floor as such, but certainly as pricing goes down, again depending on the time of the year also. If it was winter and pricing is going down, a little harder to go out in the field and start tearing apart that old tractor and scrapping it, but in the summer time, nice weather, pricing goes down a little bit, but we don't see any major impact on the flows in our yards, and we don't expect to see it going forward.

Okay. And then second one back to kind of the trade – I know the industry has got to work with the tools and avenues available. I've heard others describe it as trying to herd cats when you're trying to deal with imports coming in. Say, do you lock out coated products from China and other countries. Is there a way to prevent bad Chinese product from finding a home elsewhere in the world depressing those local markets and then we end up getting imports here from another country? John J. Ferriola - Chairman, President & Chief Executive Officer: Well, there certainly is a way, and it's actually happening today, and that is other countries react much quickly to the flood of imports than we do, and they apply the appropriate tariffs and duties in a much quicker manner. So it's not a case of whether or not there is going to be product substitution going on and where that end up going. They have learned the lesson of what's been going on, and they're reacting quicker. The recent legislation is going to give us not quite the same speed, but it is going to improve our ability to deal with that issue by dealing more quickly with each product as it comes out. And ultimately there are mechanisms in the world and if we find this to be a problem that spreads across all products in any one particular country or across group of countries that we might be able to take the action. It's much harder to pursue that type of action, but we've been successful with it in the past. I'm sure you're familiar with it, it's the – we refer it as the 201. And should the problem become so obvious that countries are employing the concept of product substitution or country substitution, we would not hesitate to go down that path again in the future.

Okay. Thank you. John J. Ferriola - Chairman, President & Chief Executive Officer: Certainly it's a challenging situation, the imports, and one that we recognize as probably the largest – it's the largest challenge our industry faces, but again I'm going to stress, I feel good about the action, I mentioned this couple of calls ago, that I felt better about what was happening in the Washington than I've had in the past 20 years of my steel career and I feel even better today than I did two calls ago.

We'll now take our next question from Andrew Lane with Morningstar.

Hi, Good afternoon. I wanted to ask on a cash basis, how close are you to reaching the breakeven point at the Louisiana DRI facility and do you expect that facility to be even cash positive possibly at some point later this year, even though pig iron prices continued their steady decline over the second quarter? James D. Frias - Chief Financial Officer, Treasurer & Executive VP: Yeah, we believe if the iron ore situation were passed right now based on the volumes we're running at in the month of – at the end of the quarter, that they would have been cash breakeven then. So clearly by the end of this year they will be cash breakeven and cash positive.

Okay. Great. I appreciate that. And then along the same lines, in addition to the benefits of putting that high cost iron ore inventory behind you, how much could the unit cost at that DRI facility improve, if you tick this utilization slightly higher or are you comfortable with the current utilization rate, which I am guessing is somewhere just about 85% or so. John J. Ferriola - Chairman, President & Chief Executive Officer: Yeah. Well, we believe that we can get the utilization rate up another 5%, maybe 7% or 8% and certainly that's going to have an impact on our costs, but there's also other areas that we believe we can improve – to improve our overall cost structure. One is yield, obviously, and we're focused on that. We have just installed and started up a briquetter, which will take some of the waste product from the path and turn into briquette that we can feed back into the furnace, we believe that will have a significant impact on the yields going forward. So in addition to getting the utilization up, we're confident that we can continue to work down our conversion costs by improving operation, that something Nucor has always been very good at and I'm sure that our team will be able to accomplish the same results in that facility.

Great. And just to be clear, what is the current utilization rate at the facility right now at the end of the quarter? John J. Ferriola - Chairman, President & Chief Executive Officer: It's about 90%, 91%, something like that.

Okay. Fantastic. I appreciate the color. Thank you.

We'll now take Scott Nicholls with Bishop, Rosen & Company. Go ahead, sir. Scott Nicholls - Bishop Rosen & Co: Good afternoon, gentlemen. I've got a two-part question. First part is Sachs of Chicago have a consensus earnings estimate for the year 2016 at about $2.95 a share, could you comment on that? James D. Frias - Chief Financial Officer, Treasurer & Executive VP: This is Jim Frias. We're in a very cyclical business and making predictions about 2016 is very challenging. So our comment would be that's within the range of possibilities, but we'll have to wait and see. Scott Nicholls - Bishop Rosen & Co: Okay. Thank you very much. James D. Frias - Chief Financial Officer, Treasurer & Executive VP: You're welcome.

And we'll now go to Matthew Korn with Barclays.

Hey, good afternoon, everyone. Thanks for taking my question. Following up now... John J. Ferriola - Chairman, President & Chief Executive Officer: Hey, Matt.

Hey, John. Following up on the trade case questions, in your press release, you noted that even you don't think the trade cases right now are enough to fight off the pressures of global over-capacity. Is it really mill closures do you think in the end that's going to take that that what it's going to take to the lift the outlook for all the mills over the cycle? And do you see any tangible signs where this over capacity is beginning to be addressed, do you think some of this over-capacity is actually here in the U.S? Last, do you think that this new cascade of global protections measures here, the EU, Mexico, India, do you think that's going to really prompt the kind of capacity review in places like China that seem to be needed? Thanks. John J. Ferriola - Chairman, President & Chief Executive Officer: Well, I might be the eternal optimist, but I do believe that in China they are beginning to understand that too much of a good thing is not such a good thing. I believe that they are starting to see that they do have too much capacity, we're hearing a little bit about some potential capacity cut-backs there, it's being driven by economics, is also being driven by environmental concern that are very real. So long-term, I do think that you're going to see some capacity reduction in China. Here in the States it's impossible for me to say what's going to happen in the way of closures going forward. But in a world where there's over-capacity sooner or later, there will be those players who cannot survive and that will happen. The key here is to remember that, Nucor has always been a low cost producer of steel and steel products. And that's where we – that's all okay, that's where we are really – that's where we shine. So at the end of the day, if there is potential closures here in the United States or somewhere else around the world, this (58:51) I can assure you. One of the names of the places closing will not be Nucor. We'll be in business. So it's hard for me to comment on who will close or how much will close, but I can assure is this and my teammates can assure that, we won't be one of the one that will be closing .

Got it. I appreciate the comment.

That concludes our question-and-answer session for today. At this time, Mr. Ferriola I'd like to turn the conference back to you for any additional or closing remarks. John J. Ferriola - Chairman, President & Chief Executive Officer: Thank you. Let me conclude by saying as I always do, thank you to our shareholders, we appreciate your confidence and your support. Thank you to our customers. We really appreciate your business. And I want to say thank you to my Nucor teammates for creating value for our customers, generating attractive returns for our shareholders, and building a sustainable future for all of us. And as always, most importantly, thank you all for doing it safely. Thanks for your interest in Nucor. Have a great day.

This does conclude today's conference. Thank you for your participation. You may now disconnect.