Nucor

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Strategic Analysis of Nucor Steel

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Nucor

  1. 1. Nucor Steel A Business Analysis
  2. 2. Nucor Mission Statement • "Nucor Corporation is made up of approximately 20,000 teammates whose goal is to "Take Care of Our Customers." We are accomplishing this by being the safest, highest quality, lowest cost, most productive and most profitable steel and steel products company in the world. We are committed to doing this while being cultural and environmental stewards in our communities where we live and work. We are succeeding by working together. "
  3. 3. The Steel Process
  4. 4. Porter’s Five Forces
  5. 5. Competitive Rivalry Basis • Attractive prices • Producing quality steel products • Consistency • Selection and breadth of offerings • Meeting customer requirements and delivery schedules • Multiple state-of-the-art plants
  6. 6. Rivalry Intensity - High • Weak domestic demand • Excess global capacity • Maturing industry • Low switching costs • High exit barriers • Rising cost conditions – Iron ore and scrap steel • Concentration of players – More than 5 equal competitors
  7. 7. Threat of Entry - Low • High barriers to entry – EOS – Capital requirements • Low numbers of entry candidates • Incumbents have the ability to block • Growth and profitability are modest • Most candidates are already in the industry and seeking to expand into new geographic markets
  8. 8. Threat of Substitutes - Moderate • Buyers have increased choice in material selection (aluminum, plastics, ceramics, etc.) • New materials technologies may increase substitute pressure
  9. 9. Supplier Power - Moderate • Iron ore (concentrated) – Commodity, market & negotiated – High prices (for now) • Scrap steel (fragmented) – Commodity, market – High prices (for now) • Energy – Mitigated with new processes • Transportation – Customer pays for shipping
  10. 10. Buyer Power –Moderate/Weak • Strong demand from China • Excess capacity • Low switching costs • Some high-volume buyers, many low volume customers • But, rising feedstock prices in part due to speculation
  11. 11. Driving Forces • Increasing globalization • Steel technology and processes • Entry or exit of major firms • Advances in materials technology Boost competitive pressure Lower margins for high-cost producers Benefit foreign steel producers
  12. 12. Prospects for Future Profitability • High cost producers face a dim future of weak demand and price concessions • Low cost producers are poised to succeed, but they must fight foreign firms seeking to dump excess capacity and gain market share • Expansion in the U.S. steel market should be viewed cautiously
  13. 13. Nucor’s Competitive Strategy • Low-cost provider – Incentivized workforce – Advanced technology and processes • Minimill • Castrip • HIsmelt – Quality measures • BESTmarking – Environmental measures • ISO 14001
  14. 14. Nucor’s Policies and Practices • Aggressively pursue and implement cost-saving technologies • Employ incentive compensation that motivate above-average output • Empower plant employees • Create a low-cost culture • Offshore joint ventures • Backward integration of supply chain
  15. 15. Nucor’s Success Factors • Cost control – Automation – Low cost locations • Organizational behavior • Technology and processes – Production – Order fulfillment and distribution • Carefully chosen joint ventures Great strategy Great execution Great strategic leadership
  16. 16. Nucor’s Strengths • Low prices and high profit margins • Technological expertise and innovative capabilities • State-of-the-art plants • Strong top management • Proven skills at lowering costs • Productive, well compensated, and empowered workforce
  17. 17. Nucor’s Core Competencies • A total corporate commitment to lowering production costs while maintaining quality – Spans management, supply chain, operations, and technology • Drive for innovation – Enhance productivity – Generate new revenue streams – Block rivals
  18. 18. Nucor’s Weaknesses • Limited global presence • Lack of control over feedstock – Scrap steel – Iron ore
  19. 19. Feedstock Prices • Some of the price rise may be attributed to supply and demand • But quite a bit is due to financial speculation in derivatives – Head of Baosteel – CEO of ThyssenKrupp – Vale, BHP Billiton, Rio Tinto now pricing in quarterly contracts because of rocketing spot prices
  20. 20. Nucor’s Market Opportunities • Growing sales and share in existing product categories • Licensing HIsmelt technology • Acquiring high-cost producers and making them more efficient • Buying ownership rights in innovative new technologies
  21. 21. Nucor’s External Threats • Rising prices for scrap steel and iron ore • Slack demand • Foreign dumping • More foreign competition • Continued excess capacity • Aggressive rivals that are becoming proficient at cost cutting • Global environmental regulations
  22. 22. Nucor’s SWOT Conclusions • Nucor is superbly managed and in a good competitive position • External risks are tolerable and manageable • Nucor’s overall situation is attractive and future prospects seem promising • Of course, a Great Recession could change all that…
  23. 23. Nucor’s Chief Rivals • Mittal Steel • U.S. Steel • AK Steel • Foreign competitors – China – India – Japan – European imports
  24. 24. Nucor Financials 1970-2006 • Tons sold to outside customers – 1.3% CAGR • Net sales – 30.5% CAGR • EBT – 24.5% CAGR • Net earnings – 23.1% CAGR
  25. 25. Nucor Current Ratio 0 0.5 1 1.5 2 2.5 3 3.5 Current Ratio 2000 2001 2002 2003 2004 2005 2006
  26. 26. Nucor COGS as % of Net Sales 0 20 40 60 80 100 120 COGS % 2000 2001 2002 2003 2004 2005 2006
  27. 27. Nucor SG&A as % of Net Sales 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 SG&A % 2000 2001 2002 2003 2004 2005 2006
  28. 28. Nucor Debt/Equity Ratio 0 5 10 15 20 25 30 35 40 45 D/E Ratio 2000 2001 2002 2003 2004 2005 2006
  29. 29. Nucor Cash Flow & CAPEX 2000 2001 2002 2003 2004 2005 2006 0 500 1000 1500 2000 2500 2000 2001 2002 2003 2004 2005 2006
  30. 30. Nucor ROE and ROA 2000 2001 2002 2003 2004 2005 2006 0 5 10 15 20 25 30 35 40 ROE ROA 2000 2001 2002 2003 2004 2005 2006
  31. 31. Nucor Management Issues • Exit certain product categories? – Steel joist and decking • Make more acquisitions? • Expand in China, Latin America? • Boost the quality of Nucor steel? – Differentiation strategy • Set royalty for HIsmelt? – Traditional license or JV?
  32. 32. Strategic Recommendations • Acquire Mittal Steel – Dominate the domestic market • Continue BESTmarking – All plants to be ISO 9000/14001 • Continue Foreign JVs – License HIsmelt through ownership with some operating control • Innovative backward integration – Reduce dependence on acquired scrap steel and iron ore • Divest forward integration

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