Nucor Corporation (NUE) Q4 2017 Earnings Report, Transcript and Summary

Good day everyone and welcome to the Nucor Corporation Fourth Quarter of 2017 Earnings Call. As a reminder, today's call is being recorded. [Operator Instructions] 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 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. 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.

Good afternoon. Thank you for joining us for our conference call. We appreciate your interest in Nucor. With me for today's call are the other members of Nucor's leadership team, Jim Darsey, Jim Frias; Ladd Hall, Ray Napolitan, Joe Stratman; Dave Sumoski, Leon Topalian and Chad Utermark. The team in Charlotte would like to thank all of our teammates throughout Nucor for their excellent work in 2017. Your effective implementation of our five drivers to profitable growth strategy delivered Nucor's strongest annual earnings since the cyclical peak year of 2008. As always, you are working together to build a safer, stronger and more profitable Nucor. The 25,000 men and women of Nucor are the reason our company's best years are still ahead of us. Thank you. Our Chief Financial Officer, Jim Frias will now review Nucor's fourth quarter performance and financial position. Following those comments, I will update you on the execution of our strategy for long-term profitable growth. Jim?

Thanks, John. Nucor reported fourth quarter of 2017 earnings of $1.20 per diluted share and full year 2017 earnings of $4.10 per diluted share. Fourth quarter and full year 2017 earnings included a net benefit of approximately $0.55 per diluted share related to the impact of the U.S. federal tax legislation enacted in the fourth quarter. Excluding the benefit realized from tax law changes, fourth quarter 2017 earnings exceeded our guidance range of $0.50 the $0.55 per diluted share. Nucor's Steelmaking Operations, particularly our sheet and bar mills, achieved significantly better-than-expected results for the month of December. The Nucor team faced a very challenging marketplace in 2017. Finished steel imports increased 12% from 2016, driven by unacceptably high levels of illegal trade. Non-residential construction activity remained sluggish. Nevertheless, Nucor delivered robust year-over-year profit growth and our highest earning since the cyclical peak year of 2008. We believe our 2017 performance provides strong evidence that Nucor's strategy for profitable growth is working. Over the past nine years since the 2008 cyclical peak, Nucor continued its long-standing tradition of investing opportunistically during downturns to grow long-term earnings power. Here are some examples of how our strategic work during the downturn is now yielding returns. Nucor's sheet mills delivered strong earnings growth in 2017 and actually exceeded their prior earnings record set in the last up-cycle. Their performance benefited from major investments made during the downturn. That include our Alabama mills galvanizing line, our Arkansas mills vacuum tank degasser, our Berkeley mills Wide-Light project, and our acquisition of the Gallatin steel flat-rolled mill. All five of our flat-rolled mills continue to successfully move up the value chain. Nucor's engineered bar mill group more than doubled their earnings contribution year-over-year in 2017 to a record level. During the downturn, we completed a $290 million investment program expanding our engineered bar production capacity and quality range at our engineered bar mills in Nebraska, Tennessee and South Carolina. Our quality achievements were highlighted in 2017, when our Memphis facility became the only steel mill in the world to earn Caterpillar's highest-quality certification, The Platinum Level. Nucor grew its 2017 automotive market shipments by 7% year-over-year to 1.5 million tons of sheet and engineered bar products. That growth was achieved in a year when North American automotive production declined approximately 3%. Nucor's growth is being fueled by expanding both our customer base and penetration of product platforms. Nucor Tubular Products, our newest growth platform, delivered strong profitability in 2017. Acquired in late 2016 and early 2017, these producers of hollow structural sections and electrical conduit provide an attractive channel to market for Nucor's hot-rolled and cold-rolled sheet steel. Our tubular shipments exceeded 900,000 tons last year. We are encouraged by our 2017 performance. More importantly, it increases our focus on delivering the more substantial long-term payoff we expect from our team's hard work. Nucor's financial position is strong. With total debt outstanding of $3.8 billion, our gross debt-to-capital ratio was 29% at the end of 2017. After paying off the $600 million of 5.75% 10-year notes that matured on December 1, our year-end cash and short-term investments totaled approximately $1 billion. Nucor's strong liquidity position also includes our $1.5 billion unsecured revolving credit facility, which remains undrawn. The facility does not mature until April, 2021. For 2018, we estimate capital expenditures of approximately $1 billion. That represents a significant increase from 2017 capital spending of $450 million. Approximately two thirds of planned 2018 capital expenditures are for expansion, product improvement and cost-saving projects, with the remaining one third for maintenance purposes. We have six particularly significant growth projects underway this year. First, a specialty cold-rolling facility at our Arkansas sheet mill. Second, hot- band galvanizing line at our Kentucky sheet mill. Third, a sheet galvanizing facility in Mexico being constructed with our joint venture partner, JFE Steel. Fourth, a rolling mill upgrade at our Ohio bar mill. Fifth, a rebar micro mill in Missouri. And sixth, a new merchant bar rolling facility at our Illinois bar mill. In total, Nucor has announced approximately $2 billion in capital investments and acquisitions since the third quarter of 2016. We expect these projects to provide incremental annual EBITDA of approximately $400 million through normal business cycles. Nucor's capital allocation priorities are clear, and they have been consistently practiced over many years. Our first priority is to invest for profitable growth. Our investment strategy is simple and flexible, leveraging our five drivers to profitable growth. Our second priority is to return cash to our shareholders, primarily with cash dividends, consistent with our success in delivering long-term earnings power. Our February 2018 quarterly dividend will mark 45 consecutive years of increased regular or base dividends for our Company. Nucor is one of only 32 publicly held companies that have increased their dividend for 45 or more consecutive years. Our third priority is to opportunistically repurchase our stock when our cash position is strong and our shares are attractively priced. We intend to continue Nucor's long-term history of effective and balanced capital allocation. Over the 10-year period ended in 2017, Nucor returned $5.2 billion to our shareholders through dividends and share repurchases. These returns to shareholders represent approximately 36% of Nucor's cash from operations over that period. Earnings in the first quarter of 2018 are expected to increase compared to the fourth quarter of 2017, exclusive of the benefit related to tax reform. We believe there are significant optimism in steel end-use markets and are encouraged by positive pricing momentum we are experiencing for all of our steel mill products. Coupled with these positive trends, first quarter of 2018 results will be negatively impacted by higher scrap prices and weather-related interruptions at some of our sheet mills. We expect decreased earnings in the steel product segment due to typical seasonality. We expect first quarter earnings in our raw materials segment to improve compared to the fourth quarter of 2017. Thank you for your interest in our company. John?

Thanks, Jim. Nucor's disciplined strategy for profitable growth is working. As Jim noted, our 2017 earnings are Nucor's highest since the cyclical peak year of 2008. Here's a statistic that I find especially noteworthy. Excluding the net benefit of about $175 million we received from the recent Federal tax law legislation. Nucor's 2017 earnings were more than $1.100 billion. Those earnings are more than double Nucor's average annual earnings of $483 million over the preceding seven years, or from 2010 through 2016. Let's take the analysis a step further and look at the steel industry environment in which we achieved our strong 2017 earnings. Two adverse factors of stand-out, first, the illegally traded imports remained a very serious problem last year. Finished steel imports captured an estimated 27% share of the U.S. market. Second, market conditions remained challenging for a number of major products produced by Nucor's steel mills, including beams, rebar, merchant bar and plate. Together, they represent about 45% of our total steel making capacity in 2017, or about 12 million tons. At the same time, our downstream fabricated construction products businesses, with shipments last year of about 2,400,000 tons, were significantly impacted by the still sluggish nonresidential construction activity. This highlights an important point. Nucor's 2017 earnings performance was delivered without the benefits of all cylinders firing last year. Nucor's 2017 results were also impacted by unplanned outages we experienced at our Louisiana DRI facility. With the unplanned outages, Louisiana's 2017 production was less than half of its weighted capacity. Louisiana's performance is unacceptable, and we are executing on a plan to change that. In late 2017, we began a top-to-bottom review of the Louisiana DRI facility. As we study potential process and design modifications at Louisiana, we are drawing upon both internal and a number of external resources. Our internal expertise includes our highly successful DRI plant in Trinidad. Trinidad is currently approaching world-class productivity performance to complement its longstanding world-class quality achievements. Looking at our overall performance in 2017, the Nucor team is encouraged, but not satisfied. We are ready and eager to realize these significant pent-up earnings power we have built with more than $8 billion invested during the steel industry's lengthy downturn that began in 2009. That number includes capital spending of more than $5 billion and acquisitions totaling slightly less than $3 billion. As highlighted by Jim's review of our 2017 performance, we are already realizing attractive returns from our work to grow stronger during the downturn. We view this as just the initial return, with a greater payoff in the years ahead. Our strategy for long-term profitable growth is simple and flexible. We are leveraging Nucor's five drivers to profitable growth, and they are: strengthen our position as a low-cost producer; achieve market leadership positions in every product line in our portfolio; move up the value chain by expanding our capabilities to produce higher quality, higher margin products; expand and leverage our downstream channels to market to increase our steel mills base load volume for sustained results; and achieve commercial excellence to complement our traditional operational strength. I will now update you on highlights of our team's most recent work executing our strategy for profitable growth. Nucor's Sheet Mill Group is implementing three major growth initiatives. Our Arkansas mill is constructing a specialty cold rolling facility with an annual capacity of 500,000 tons and a capital cost of $230 million. This specialty mill is the only carbon mill of its type in North America, and it will be able to produce 2,000 megapascal steel. The new mill's advanced cold reduction technology will greatly expand Nucor's capabilities to produce lighter gauge and higher strength sheet steel products. Start-up is scheduled for the first half of 2019. Our Gallatin, Kentucky mill is building a hot-band galvanizing line with an annual capacity of 500,000 tons and a capital cost of $176 million. The 72-inch galvanizing line will be the widest hot-rolled galvanizing line in North America. This project will position us to expand into a number of growing segments of the automotive market that we do not currently serve. Start-up is expected to begin in the first half of 2019. Nucor and JFE Steel of Japan are constructing an equally-owned joint venture galvanizing facility in Mexico with an annual capacity of 400,000 tons and a total capital cost of $270 million. Nucor will supply half of the substrate requirements from our sheet mills. This investment will expand our participation in Mexico's growing automotive market, where we have been doing business for more than a decade. Equally important, we are excited to partner with a premier supplier of high quality steel products to the global automotive market. Start-up is set for the second half of 2019. During the fourth quarter, we announced two major growth investments for our bar mill group. Nucor's bar mills are a cornerstone of our company. Capitalizing on our position as a market leader and a low-cost producer of merchant bar and rebar, they consistently generate attractive returns on capital and free cash flow through the economic cycles. Nucor will build a rebar micro mill just east of Kansas City, in Sedalia, Missouri. The expected annual capacity of the new micro mill project will be about 350,000 tons and cost approximately $250 million. Start-up is projected for late 2019. A Missouri micro mill will enhance Nucor's position as the low-cost producer by capitalizing on significant logistical advantages. Rebar supply currently travels long distances into the Kansas City, Upper Midwestern and Plains markets. Strategically positioning this micro mill in Sedalia will give us a sustained cost advantage over other domestic steel producers supplying rebar from outside the region. We will also be able to utilize an abundant scrap supply in the immediate area provided by the infrastructure of Nucor's existing David J. Joseph scrap operations. The second growth initiative is Nucor Steel's Kankakee's plan to build a full-range merchant bar mill. It will complement Kankakee's existing position as a major rebar producer in the Chicago market. A merchant bar mill will have an annual capacity of 500,000 tons with an estimated capital cost of $180 million. Startup is expected in late 2019. Similar to the Missouri rebar micro mill, this project will capitalize on Nucor's position as a low-cost producer and benefit from multiple logistical advantages. Kankakee will displace tons currently being supplied by competitors outside the Upper Midwest region, which is the largest U.S. market for merchant bar. Kankakee will also take advantage of an abundant low-cost scrap supply in the region. Additionally, this investment will leverage Kankakee's excess melting capacity. Nucor got its start as a steelmaker nearly 50 years ago in the steel bar business. As these two investments and our Marion, Ohio bar mills modernization project demonstrate, our bar mills are not only a cornerstone of Nucor's past. They remain an important platform for Nucor's future profitable growth. Our long-term success as a steel bar producer reflects the adaptability and flexibility of our business model. That adaptability allows us to grow from a position of strength as we enter new markets and continually move up the value chain. The bedrock of that strength is Nucor's people and the Nucor culture. That remains our most valuable competitive advantage. Our team is both ready and eager to unleash the pent-up earnings power that we have built into our company during the industry downturn. That is why we are absolutely confident that Nucor's best years are still ahead of us. We would now be happy to answer your questions.

Thank you, sir. [Operator Instructions] And we will take our first question from Novid Rassouli, please proceed, from Cowen and Company. Mr. Rassouli, your line is open.

Hi, thank you guys for taking my question. This is Han in for Novid. So just wondering if you could speak a little bit about where you see shipments and pricing for the steel mill products this quarter, given the current market dynamics. And just on the Louisiana DRI plant, just wondering if we should assume that the place – the plant will run better this year compared to 2017. And if there will be any additional CapEx spending related to the DRI plant going forward. Thank you.

Well, to your first comment, we're not going to speak about individual pricing in an individual quarter. I'll just make a general comment. And as we learned at the end of last year, we saw pricing strengthening. That was encouraging. We are encouraged by some of the things that we see in the marketplace today, but there are still some headwinds out there in some of our product lines. Clearly, our sheets and our SBQ business, our engineered bar business, is doing well. We expect that to continue. We continue to see some challenges on our other businesses. Plate, from a volume perspective remains challenged. And certainly, our rebar and merchant bar are challenged. So in general, we see pricing at the end of the year improving. We expect that to be stable to improving. Volumes will be about stable, and we're not going to go much further than that. The Louisiana DRI plant, we said in the script that we are – we've hit the pause button. We certainly understand and agree that the performance that we had last year, and frankly, in the past, at Louisiana has been unacceptable. And we're in the process of doing a complete review from top to bottom of our operation there, both from a process perspective and from an equipment perspective. In terms of commenting on what CapEx would be required to change – make any changes there, it's really too early to tell. We won't make any comment on that until we complete our analysis. And at that time, maybe by the next conference call, maybe by midyear, we'll be able to give you a complete update on what we're doing in terms of process and what we're doing in terms of equipment. But at this point, it's too early for us to comment. It's certainly too early for anyone else to comment. I will say that we have brought in a bunch of external experts both on blast furnaces, on chemical plants and on DRI plants. And we have a tremendous amount of internal resource that we can capitalize upon. As you know, we have a plant running – a DRI plant running in Trinidad that's approaching world-class production levels and certainly at world-class quality levels. So we've got a lot of resource, both internally and externally, that we can draw upon to complete this analysis, and we will. And we'll give you a complete update when we have completed the analysis.

Great. Thank you so much.

You’re welcome.

And we will take our next question from Curt Woodworth with Credit Suisse.

Hey, good afternoon, guys.

Good afternoon, Curt.

John, can you help frame sort of the overall mix impact from some of the capital investments you're making on the sheet side? So the addition of the 500,000 tons of cold-rolling in galv. Where do you see your value-added mix going to, say, by 2019 or 2020 relative to what it was in 2017 on the sheet side?

Well, strategically, we believe that our mix in sheet needs to be closer to the market mix at existed sheet. Today, we are a little bit under-weighted in downstream in terms of cold-rolled and in terms of galvanized, so we're focusing on those two areas. I would point out, if you look at the total – we in fact we consider our tubular business as also a downstream business. So if you factor in the tubular business, 900,000 tons to 1 million tons that we supply internally from our sheet mills, we're a little bit closer to that market mix, but we've got some ways to go yet. Certainly, the cold mill and the galvanizing line at Gallatin will get us closer to that market mix. We'll continue to move in that direction until we feel we are strategically balanced with the marketplace.

Can you give us a sense of what your, say, cold-rolled or coated percent mix was in 2017 so that we have a better sense to model these?

In terms of our internal mix, we’re about 60% hot-band and 20% cold-rolled and about 20% galvanized.

Okay. Great. And a second question on the steel mills segment on the cost structure. The conversion costs were up fairly significantly second half of the year relative to the first half of the year. And I understand there's been energy, electricity inflation. But can you comment on sort of how you see raw materials flowing into next year? Do you think that conversion cost would start to moderate at any point?

Well, probably the biggest impact that we'll see in terms of conversion cost in 2018 will be on the electrode side. We expect electrode cost to go up, as we reported, there's a shortage of electrodes. And there's a lot of media talk about pricing and what's going to happen to it. Now we do have – we've got long-term contractual relationships with a lot of our suppliers, so at least, in the short-term, we'll be somewhat not that significantly impacted by the spot price increases as we will see in the second half of the year. The good news is, and this is something that we're very happy about, that is that, in terms of volume commitments, we have the volume commitments on the contract to produce the maximum amount of steel that we have scheduled to produce in 2018. We have enough electrodes to do that. So overall, in terms of the conversion cost, probably the biggest impact will be the electrodes. There’s always a little bit electrical energy costs continue to go up. Gas costs might go up a little bit in 2018, with the price of oil up a little bit. That’s the – electrodes would be a major impact. Jim?

I would tell you that, sometimes when you try and compute our conversion cost, there’s one factor that’s hard to capture the value of, and that’s scrap. Because we do publish what our use cost was, but that’s not necessarily what’s going through our P&L each quarter. So if you think about how we finished 2016, we had about 5.7 million tons of steel inventory, including scrap and all the steel that we’ve made that we either had at our steel mills order downstream businesses. And that 5.7 million tons had embedded in it, the scrap costs that we purchased in the fourth quarter of 2016, which is a much lower value. So we started out with some very low cost of scrap embedded in our inventory. So I think – if you’re not factoring that into your conversion cost model, then you may be overstating the step up in conversion costs in the second half. That may be a factor in your analysis.

And to go back to your question about 2018, though, on scraps, it’s hard to predict what scrap is going to do long-term over the course of the year. But we think, over the next several months, we’ll see a relatively stable. That means up and down a little bit, but we won’t comment for the rest of the year on scrap.

Okay. The metallics cost that you report, is the right way to think about it – for example, the $317 million this quarter that would flow through…

[Indiscernible]

Okay.

Some of it will flow through currently, but the majority, there’s a lag of about a quarter.

Right, okay. All right. Thanks, guys. Appreciate it.

And we will take our next question from Matthew Coren with Goldman Sachs.

Good afternoon, John, Jim. All you are doing well. Question, with some quick math, it looks like you put up an EBITDA margin for about 13% for the full year, which is, as you pointed out, it’s the closest you’ve come really since the pre-financial crisis levels. So if everything were to hold still from today for the remainder of the year, including the cost pressures that you just mentioned, how many more cylinders do you think you could fire in 2018? And how much could you estimate to be able to increase that margin versus last year?

Well, a lot of that answer depends upon what happens in the market. As you adequately pointed out, we had a very good year in 2017, our highest earnings since 2018. And frankly, a record-setting year for our sheet business and for our engineered bar business. So good news on that. In terms of our other products, market will dictate how that grows. You asked about our commitment to capital. We are committing another $1 billion this year to 2018 to capital spend and about maybe two-third of that will go to new products, cost-reduction projects, expansion of our businesses and so – anything you want to add, Jim, to that?

No, I don’t think so. I think you covered it.

Fair enough. Let me ask you a bit about the overall market and you say whether this is going to continue. It seems like a quarter ago we had this market pegged, auto slowing, non-res is fine, but not particularly exciting. Energy is great. The rig counts are holding steady. But you’ve been watching your customers’ behavior and temperament for a long time. What’s materially changed? Are they coming to your sales team and showing that the demand they’re seeing is that much better? Is there a particular enthusiasm within the certain buckets of end markets, like, our machinery manufacturers showing more animal spirits than they were six months ago, for example.

Well, I got to tell you, frankly, of course, all of our products and most of our customers, we see optimism that we haven’t seen in quite some time as – it’s a very positive attitude out there. And clearly, our customers are coming to us looking for more commitments for 2018 in terms of volume. So optimism, overall, looking pretty good. So I would be – I would say that it’s hard to predict exactly what the market would do as you go forward in the year. But right now, we see a great deal of optimism. You mentioned the one area where we see a little bit of a retraction and that’s in automotive. But I would point out that, although automotive production was down, as we said in the script, down about 3% in 2017, we increased our market share into that market by about 7% up to 1.5 million tons. So we continue to grow in that market and that’s a reflection of the – our continuous movement up on margin and higher-quality products, higher-strength products, we continue to invest in that. Our cold mill, and our Hickman facility, our Arkansas facility, will be a huge step in getting us even further into that automotive market. So we feel pretty good about the things going into 2018. Market seems good and there’s potential for some better news coming out, we hope. We think the long overdue infrastructure plan; we hope we see some action on that early in 2018. Now of course, even if the President does take some action, it will be a while before it goes down to our businesses. But when you look at infrastructure and when you look at Nucor and just the breadth of our products, when we get that badly needed infrastructure plan, and we’re going to get it someday because we need it someday, there’s no company that is positioned better than Nucor to participate in that infrastructure build. So again, we won’t see the benefits right away, but when they do flow down to us, we will be positioned in our industry better than most to take advantage of that infrastructure build.

All right. Thank you.

And we will take our next question from Chris Terry with Deutsche Bank.

Hi, guys. Thanks for taking my question. Mine is mainly around the tax reforms. Can you give us some guidance for 2018 on what you expect to be your book tax rate?

Yes, I’ll take that. Go ahead.

The second part of that is just around…

I’m sorry. We lost you on the second half of that. Are you still there? I’m thinking we had a cell phone issue happened there. Well, let me answer the first part of the question. And if Chris is able to get back on the call, we’ll talk about the second part of this question. First of all, we obviously recorded a big adjustment at the end of the year. There could be some true-up adjustments as we finish doing all the accounting work around implementing the tax legislation, and some of those could be positive or negative. We really don’t know. Otherwise, we have recorded something different. So there’s some things that could trickle through. We’re excluding adjustments as we finish the implementation and also excluding the impact of non-controlling interests. We would expect our effective tax rate to be in the range of 23% to 25%. So I think we lost.

Yes, let’s go to next caller.

And we will take our next question from Timna Tanners with Bank of America.

Hey, good afternoon, gentlemen.

Good afternoon, Timna.

On the Q1 guidance, I just wanted to see if you could provide a little bit more detail. I was kind of surprised by the comments on the weather. It’s not even third of the way through this first quarter. And already, you’re telling us that sheet is going to be hit. Why sheet? What is it about this quarter that’s weather-hit? And are we wrong in thinking that normally first half is pretty strong? So what is the seasonal commentary you’re referring to?

Well, that’s really directed at what took place in January. We had a storm, as you know, freezing temperatures that impacted our operations at Berkeley. It also impacted our operations at – adversely impacted our operations for almost a week in Arkansas both at our Hickman sheet mill and our Nucor-Yamato mill. So, yes, it’s early in the quarter, but we recognize that in the first month of the quarter, we’ve had – if you look at kind of summarizing all of our operations and the weather impact, we’re probably looking at an impact that – for the first month of the year, hit us pretty hard. So we just – we don’t know what the rest of the quarter is going to bring, but just kind of making you aware that this is something that will impact the first quarter.

Got you. Okay, that’s helpful. And then I think a key theme so far in steel earnings has been just a lag effect on pricings and I think a shift broadly to more contractors, CRU Index business again. Can you just run through us – for us, like how we should think about that flow-through of price impacts across your businesses, if you would?

Well, specifically, on contract business, it’s – it would be our sheet business. And we this year we have about 70% of our total sheet businesses on the contract that’s CRU-based. Most of it is adjusted on a quarterly basis or monthly basis. I can give you an exact breakdown of what percentage is quarterly.

25%.

25% is quarterly, and the rest of it is – the majority of the rest of it is monthly. So that gives you some idea. So we’re relatively tied to CRU. On our engineered bar products, we are more tied to raw material. And in terms of our contract pricing, we saw 50% for 2018. And we have the last part of that is tied – as it has been forever, to our raw material costs there. So those are really the two areas where we have contracts going forward into 2018. Does that answer you question, Timna?

Yes, that’s helpful. Thank you. And then if I could, the last one. It was really great to see the detail on your capital allocation plans and some of the investments. Galvanized, we’ve talked about in the past, somewhere, it seems like all the mills are adding capacity, and we’ve had some worries about oversupplying that, although you’ve pointed out there is growing demand. And if you could touch on that and then on the bar side, we’ve gotten so used to low utilization of bar products and definitely as constructions have been coming out of it’s trough, but why make the investment at bar if it’s not been a great area of return. Is the return there enough to just – I mean I guess it’s enough to justify the investment. But why – and what about the cannibalization of other bar mills you have if you are building new capacity.

Actually very good questions. And when you look it – I’m going to kind of start by putting the two of them together the galv question and you talked about bar but I’m sure you are talking about rebar, given our announcements, to a less degree, merchant bar. When we look at our business strategically, and you look at those investments that we’re making, frankly, it’s not just more of the same. In terms of our galvanizing, clearly, one of the investments in Mexico, that opens up a new world for us. We’ve been in the Mexican market quite a bit for the last several years, but not having in automotive and in terms of galvanizing, this puts some galvanizing boots on the ground right in Mexico. So that’s a geographical issue. In terms of our Gallatin galvanizing line, as we mentioned in the script, that will be the widest hot-band galvanizing line in the United States, and it’s located right there in the heart of that market. So logistically, we’ve got – we believe that we’ve got an advantage to the marketplace there also. The same is true of our rebar mill in East of Kansas City, in Sedalia. When you look at the location in terms of the market and in terms of the scrap availability, we believe that we’re going to have a very good logistical advantage in terms of our product and in terms of our scrap supply. So we feel confident about that investment. In Kankakee, we’re in the heart of the market. When you look at where the product is coming into that market from today, it’s traveling great distances from outside of the region. We’ll be right there in the heart of that market. And you make a good point about whether or not we are cannibalizing our other mills in terms of rebar by adding this thing. But if you look at our overall what we’re doing in Kankakee reducing the amount of rebar that we’re producing, shifting some of that mill into merchant, adding merchant, so we’re actually leveraging our hot metal that’s available in Kankakee in terms of our investments there. And then overall, what we’ve done is we’ve done a market analysis. Frankly, of course, the United States in terms of rebar and in terms of merchant, looked at where our facilities are located and did an assessment, and frankly, a reassessment of where we want to be producing what products to optimize our logistics. And the investments that you see we’re making today on the bar side are a result of that logistics and market analysis.

Okay, great. Thanks.

And we will take our next question from Seth Rosenfeld with Jefferies.

Good afternoon. I have a couple of questions on the domestic plate market, please. I recognized that plate pricing was pretty choppy during the course of 2017. I guess a bit surprise that you commented earlier that plate remains a challenge going into 2018, given the recent sharp rally we’ve seen in the last couple of months. Can you just talk a little bit about the current status of the U.S. plate market, whether the recent price hikes have been successful, if they’re sticking with customers or if you can comment it more broadly on the demand environment within plate. What areas are stronger? Which are perhaps still lagging across your customer base? Thank you.

Leon, why don’t you start off with your comment please.

Okay. Thank you, John. To answer your question, we saw shipment in 2017 actually improve about 12% year-over-year. As we look forward to 2018, we do see a modest improvement in market and then specifically some of those sectors – energy sector seeing some revival in quotes on the offshore drilling business, some refineries and some big line pipe jobs. We also see some OEM markets coming back and wind continues to be very strong, transmission poles and a few others. And imports because of our trade action and continued focus there continue to remain in check, and we’ll continue to move forward on those fronts. But again, just the overall market, we do see improving in 2018. And in terms of whether or not pricing is sticking, again, it goes back to the market, where – supply and demand we – the market will dictate our pricing. And specifically, we wouldn’t make moves into the market in terms of price increases if we didn’t believe they were sustainable.

To Leon’s point, he mentioned that the import picture is better. Imports are actually down, as we look at that. There’s also some domestic capacity that has come off line in 2017. And you mentioned a couple of things that were up on demand, but I would also add to that heavy equipment has been improving, and mining has been going up. And so those are two areas where we can see some improvement in demand also. So my comments were in general, but we hope, as we go through the rest of the year, we continue to see improvement in that area, but it’s still early in the year.

Great. Thank you very much. And just one follow-up question separately within the steel product division. Can you talk a little bit about the pricing and margin dynamics in that business given the sharp rally we’ve seen in some of the steel input costs there? How are you thinking about your ability to pass them onto customers and the strength of your order book going into 2018?

Chad Utermark?

Thanks, John. Yes, we’ve encouraged by what we are seeing in our backlogs year-over-year as well as what we're hearing from our customers in our downstream businesses. The non-residential sentiment out there continues to improve. Square footage activity is up. So we're encouraged as we head into 2018 with what we see in the non-residential construction market.

Okay. Thank you very much.

And we will take our next question from Phil Gibbs with KeyBanc Capital Markets.

Good afternoon.

Good afternoon Phil.

Had a question, John, on automotive. I think you said, in 2017, you did about 1.7 million tons of shipments. Just curious and…

1.5 million. Just to correct you. 1.5 million. If I said 1.7 million, I misspoke. It's 1.5 million.

And what was that relative to the 2016 base? And how much of that, roughly speaking, should we think about split amongst sheet and bar?

First of all, that's about a 7% improvement 2017 over 2016. So, that answers the question about improvement. That is 1.5 million. As I mentioned a couple of times in the past, our goal is still to reach 2 million tons in terms of the split between sheet and engineered bar product. Of the 1.5 million tons, about 1.2 million of that is in sheet product.

Thanks, John. And when you get the full gamut of your investments in – from 2018, 2019 in the sheet side that you're making here in the U.S. and in Mexico, is the primary driver to get to that 2 million tons moving that sheet capability up to that target?

Our automotive is certainly one of the targets, but there's other targets that we are also focused on. HVAC would be another area that this would be useful in. The goal, in particular, in is to get into those ultra high-strengths steels that we believe not only are applicable to automotive now, but frankly, the light, high-strength steels we see are going to be in greater demand in automotive, particularly as the markets in automotive shift to maybe to electrified vehicles and other things like that as time goes on.

Do you think, John, many of the EAF mills right now can make the light high-strength steel that you're talking about?

Well, I'm not going to comment about what others can do. What I can say to you, and we said it in the script, that when you look at the specialty cold mill that we're putting in at Heckman, I think it's – in terms of the carbon specialty mills, it's one of three in the world, it's the only one in North America that will be able to produce ultra high-strength steels at very efficient levels. And that's really the key. It's – what we call a 6-roll mill that's able to be converted very quickly to a 4-roll mill. And that gives us the ability to reduce the number of passes to be able to get to those, a, light gauges; but b, also have the horsepower to be able to do the ultra high-strength at the very low gauges also. So I'm not going to comment on whether others can do, but I'm very pleased with what we've done in our Berkeley mills in terms of the chemistries and the metallurgical improvements that we made to be able again, to do the high-strength steels that use that type of steel that goes into automotive today and with high margins. And I'm excited about what we're doing in our Decatur facility at that galvanneal. Very excited about the cold mill that we're putting in Heckman. So we've made a big investment and we're confident that we will reach our goal of two million tons by 2020.

Thanks, John. I just had one more follow-up, if I could. If I heard you correctly, in the first quarter, you said that volumes on the steel side would be pretty stable, if I heard that right. I just wanted to make sure that, one, and then you did mention weather is an issue in some of your sheet mills, but are you seeing freight and logistics constraints right now given some of the driver shortages that we see? I just want to make sure I get the full picture here.

You are correct on what you heard. We think that volumes will be basically stable, maybe slightly improved, okay, depending upon how things finish out the quarter. In terms of the logistical issues, there have been some. We’ve taken very proactive steps to address that issue, so we're in a good position. Joe Stratman heads up our logistics team, so I'm going to ask him to make some comments on some of the proactive steps we've taken.

Yes, Phil. That's a great question. As John said, we're not immune to the supply and demand in the transportation space, but we really have not seen any issues yet. Logistics, for us, is not only a major cost issue, but it's also a customer service issue. So we've been focused beyond it, pretty hard for the last decade or so. In 2008, we actually established Nucor's logistics center, which is a group of transportation professionals based in Memphis. And they work side by side with our plant teams to coordinate activity across the enterprise. To give you some example, today in trucking, we actually own about 200 of our own trucks that we run every day. In addition, we have about 100 dedicated contract trucks under – at our disposal. And we have over 1,000 trucking companies under a master contract agreement across the enterprise. You combine that with our geographical footprint and the density of plants we have across the country, we can allow our trucking companies a lot of reload or next-load opportunities. In fact, we have probably somewhere in the area of 20% to 25% of the trucks that leave a Nucor facility actually drop their load and reload at another Nucor facility. In addition to that on rail, we own 2,700 railcars that handle both scrap and steel. And you might be surprised to know that 15% of our logistics costs actually – or tonnage volume, excuse me, actually transport on water. So we have long-term contracts with barge lines and ocean lines for our DRI facilities that have contractual arrangements for both availability and freight. So as the economy improves, we feel we're very well situated to maintain and control our cost but more importantly, service our customers.

Terrific color and thanks Joe. Appreciate it.

And we will take our next question from David Gagliano with BMO Capital Markets.

Hi, thanks for taking my question. I just had a question regarding the strategic investments and the outline that you provided today and then in some slides. The $2.1 billion of investments since the third quarter of 2016 that looks like $900 million obviously was tied to the two acquisitions, which were back in Q4 2016 and early 2017. And then the EBITDA target, $400 million. I'm assuming that's a kind of a mix of what we've already seen with the tube and plus what's coming. So I was wondering if you could just break down that EBITDA, $400 million, over the cycle, $400 million. How much of that actually flowed through 2017 results already via those two acquisitions?

Well, the one comment I would make is on the tubular side. We've seen that pull through very, very quickly. So we've seen some of that in 2017. And we expect, the second part of your question, we're not going to break it down individually by project, but we are pleased with what we've seen so far with the investments that we made, particularly in tubular. Jim, did you want to add something?

Yes Dave, I think that's a very good question. And in fact, if you look at – everything that's an acquisition, it's over $1 billion out of the $2.1 billion. And of course, acquisitions generate – you're paying a higher premium for the EBIT because they are immediately accretive in terms of cash flow. And so when we give the $400 million, probably, there's a bigger weighting that's tied to the capital expenditures than there is that's tied to the acquisitions. So it's more coming in the pipe than what we've already received. But clearly, we're getting the benefit of the acquisitions today.

Okay. So is it roughly a reasonable weighting, say – I mean, $100 million flowed through so far…

I don't want to be that specific. I'd rather not be that specific. We don't break out that kind of detail.

All right, okay. No problem. Thanks.

And we will take our next question from Piyush Sood with Morgan Stanley.

Hey, John and Jim, good afternoon. A couple of questions, are you trying to expand in the automotive sheet side? Could you talk about your raw materials sourcing strategy? Is the plan to those – most of the new iron units from Louisiana or you looking at domestic or imported HBA or pig iron? Or is it going more towards prime scrap? Just want to understand how you're thinking about it?

Well, it's actually a mix of all of the above. We do use, fortunately, have part of the David J. Joseph Company as part of the Nucor family. So they're able to supply us with information on what's going on in the world. We always take a look at the economics of the materials that we’re using, cost of the iron unit. So we do bring in some pig iron where that makes the most sense. We bring some of that in from Brazil. We bring some we’re still getting any from the Ukraine, a little bit in from the Ukraine. But clearly, our overall long-term strategy is to focus on DRI and to use prime scrap from the domestic market. So DRI has always been part of the plan and will continue to be part of the plan. Today, if you would to look at roughly our mix in terms of our sheet, it’s about 15% to 20% pig iron, another 20% to 30% DRI, and the rest in prime scrap or obsolete scrap. That gives you some idea of the mix today, but DRI has always been part of our long-term strategy. It’s going to be more and more important as time goes on. And the availability of prime scrap becomes more challenged, as we’ve talked about in the past, and not only big in terms of volume as manufacturing continues to move offshore. There’s less of it available. And as you continue to move through processing the prime scrap over and over again, you lose some of the quality of the prime scrap. So as we move forward, we think that our strategy of DRI is the right strategy. We will solve the problems in Louisiana. There’s no doubt in my mind about that, and that’s sort of how we view our automotive for raw material strategy.

So that HBI product that interests you or would you rather import more maybe prime scrap – or either prime, or let’s say, pig iron?

HBI has never really been a preferred iron unit source for us. It doesn’t travel well, and frankly, does not outperform as well in our furnaces as pig iron or DRI, or frankly, prime scrap, for that matter.

Okay. Thanks for the color. And I have a follow-up. You had several high returns growth projects lined up. So how are you thinking about allocating capital to inorganic growth at this point? Is the bar higher now for acquisitions? And would it continue to focus on downstream so that it helps through more volumes?

We take a look at what opportunities are in front of us and we evaluate them on an economic basis as they happen to be upstream, so be it. If they are in our core businesses, so be it, if they’re downstream, so be it. Frankly, if it’s outside of our mainstream, and it provides a good economic return, we would take a hard look at it. So we’re not limited by what it is, what the opportunity is. We focus on whether or not that adds value to our shareholders. And if it does, then we’ll make the move on it. So one of the great things you’ve heard us say several times our strategy is going forward, our strategic plan is simple, but flexible. So we can move in many directions. And the good news is we have financial strength to take advantage of whatever comes in front of us.

Thank you. That’s very useful.

And it appears there are no further questions at this time. Mr. John Ferriola, I’d like to turn the conference back to you for any additional or closing remarks, sir.

Well, in conclusion, I would like to say thank you to our customers. We appreciate the opportunity to partner with you and to earn your business every day. Now we’re excited and ready to join with you to seize new opportunities as we move forward. Thank you to our shareholders. We appreciate your ongoing confidence and your support. And finally to my Nucor teammates, I want to say thank you for a great year. Thank you for the hard work you’re putting into make it a great year. Let’s keep it going. 2018 has the potential to be a better year. Let’s work together to make that happen. And more importantly than anything else, let’s make sure that we all work safely as we work towards that goal. Thank you for your interest in our company.

And ladies and gentlemen, that does conclude today’s conference. I’d like to thank everyone for their participation. You may now disconnect.