The document provides an overview of Nucor Corporation, the largest steel producer and recycler in North America. It describes Nucor's operations, including its three business segments (steel mills, steel products, and raw materials). It discusses Nucor's culture and competitive advantages. It also summarizes some of Nucor's recent mergers and acquisitions, such as acquiring David J. Joseph Company in 2008 to expand its scrap brokerage operations.
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1. Tyler Clayton
April 30, 2012
FIN 5326 Equity Valuation & Analysis | Dr. Ryan Whitby | Texas Tech University
2. Company Description
Largest steel recycler in North America
Largest steel producer by tonnage in
the United States
Largest „mini-mill‟ operator in the
United States
3. Company Description
58 operating facilities, primarily in the
United States and Canada
Total annual steelmaking capacity is 26
million tons
2009 – first year since 1966 Nucor had a
negative net income
4. Company Description
Three (3) company segments:
1. Steel mills – accounts for 96% of total
revenue
2. Steel products
3. Raw materials
5. Company Overview
Price 39.06 (11:15 AM Today)
Market Capitalization 12.47 Billion
Fiscal Year 2011 End Date January 31, 2011
Fiscal Year 2011 10-K Release February 28, 2012
2012 Q1 Filing Date April 19, 2012
Headquarters Charlotte, North Carolina
Shares Outstanding 317.69 Million
Average Trading Volume (3 Month) 2,798,140
Institutional Ownership 75%
Insider Ownership 0.22%
Float 316.01M
11. Nucor‟s Strengths
Superior long-term fundamentals and growth prospects
1. Low-cost operations
2. Technological innovation – electric arc furnaces, Castrip
facilities
3. Superior product mix
4. Strong balance sheet – strong cash flow, low amount of
debt, high credit rating
Vertical Integration through Mergers & Acquisitions
Capital Investments
Dividends
12. „Nucor Culture‟s Five Areas‟
Decentralized management philosophy
Only five (5) managerial levels
Supervisor/professional, department manager, division general
manager, executive vice president, and President/CEO
Less than 95 employees at corporate headquarters
Performance based compensation
Pay for performance: even hourly workers
Employee focused
Non-unionized
Egalitarian benefits
Senior officers do not receive traditional “perks”
Many of Nucor‟s programs (profit sharing, scholarship
program, service award programs) only available to lower-level
employees
13. „Nucor Culture‟s Five Areas‟
Customer service and quality
Member of U.S. Green Building Council and participant in other
elite environmental programs
Technological leadership
One of first companies to use electric arc furnaces to melt recycled
steel
Castrip – casts sheet steel directly from molten steel with the need for
heavy, expensive, and energy-consuming rollers
Allows mills to be built in 1/6 the space of a „mini-mill‟ and 1/10 the
cost of a traditional integrated mill
Pilot projects in Western Australia and Brazil
Which develop low-cost sources of iron for use in its mills
18. Primary Materials Used: By Segment
How Obtained
Steel Mills - Ferrous Scrap
Primarily acquired from various sources via DJJ brokerage
services, including from DJJ scrap processing facilities
Steel Products - Steel
Almost entirely acquired through Nucor‟s steel mills segment
Raw Materials - Ferrous and Nonferrous Scrap
Purchased from a variety of sources
1. Manufactures and industrial plants
2. Sources which generate or recycle steel
scrap, aluminum, copper, stainless steel, and other
nonferrous metals
3. Scrap dealers, peddlers, auto wreckers, demolition firms
and others who generate steel which they collect from a
variety of sources
19. How Steel is Made
Raw Materials Used:
Iron Ore
Natural Gas
Recycled Steel Scrap / Scrap Substitutes
Coke
Freight
Alloys
Energy
23. Steel Mills
Products sold from steel mills are tied to capital and durable goods
spending and are affected by changes in general economic
conditions
Sell to end markets of automotive, heavy equipment,
construction, energy and general manufacturing
Sells products primarily to steel services centers, fabricators and
manufactures located United States, Canada, and Mexico
2011: approximately 86% of the production by steel mills were
sold to external customers
Maintains inventories to fulfill anticipated orders
24. Steel Mills
Castrip facility – Blytheville, Arkansas
Nucor holds exclusive rights in the U.S. and Brazil
Breakthrough technology which involves the direct
casting of molten steel into near final shape and
thickness with minimal hot or cold rolling, allowing
lower investment and operating costs, reduced energy
consumption and smaller scale plants that can be
economically built, and lower environmental emissions
Special bar quality mill – Memphis, Tennessee
Estimated annual capacity of 850,000 tons
26. Steel Mills – Sheet Sales
2011: about 50% of sheet sales were to contract
customers
Should help navigate through slow economic recovery and
maintain near-term profitability
Sheet sales contracts permit price adjustments to reflect
changes in prevailing raw material costs, typically having
terms ranging from six (6) to twelve (12) months
Steel contract sales outside of sheet sales were not
significant
27. Steel Mills – Plate, Structural, Bar Steel
Plate, structural, reinforcing, and merchant bar
steel come in standard sizes and grades
Maintain inventory levels to meet customers‟
expected orders
Bar mill group
Manufactures hot-rolled SBQ products to exacting
specifications primarily servicing the automotive,
energy, agriculture
29. Steel Products - Overview
Market for steel products are tied to capital and
durable goods spending and are affected by
changes in general economic conditions
Sell steel joists and joist girders, and steel deck to
general contractors and fabricators located
throughout the United States
Make products to customers’ specifications
DO NOT maintain inventories of finished steel
products
30. Steel Products
Majority of contracts are firm with fixed prices
Usually done on competitive basis against other
suppliers
Longer term supply contracts may permit Nucor to
adjust prices to reflect changes in prevailing raw
materials costs
Sell fabricated reinforcing products only on a
construction contract bid basis
Used by contractors in constructing highways,
bridges, reservoirs, utilities, hospitals, schools,
airports, stadiums, and high-rise buildings
31. Raw Materials - Overview
Goal of controlling six to seven million tons of
annual capacity in high quality scrap substitutes
Processes ferrous and nonferrous scrap
metal for use in Nucor‟s steel mills and for sale to
various domestic and international external
customers
Brokers ferrous and nonferrous metals and scrap
substitutes
Supplies ferro-alloys
Provides transportation, material handling, and
other services to users of scrap metal
33. Recent Mergers and Acquisitions / Partnerships
2007 – Harris Steel Co.
Acquired by Nucor – located in Canada
Produces reinforcing steel (rebar) fabrication
Allowed Nucor to expand its presence in the type of steel used
to build bridges, highways, and other infrastructure projects
Capacity more than doubled since Nucor purchase (770,00
tons up to1,563,000 tons)
2007 – Magnatrax
Acquired by Nucor - created Nucor Buildings Group
Done to bolster its share in the pre-engineered metal building
systems market
Magnatrax was made up of four brands: American Buildings
Company, Gulf State Manufactures, Kirby Building
Systems, and CBC Steel Buildings
34. Recent Mergers and Acquisitions / Partnerships
2008 - David J. Joseph Company (DJJ)
Acquired by Nucor – DJJ was one of the largest scrap
brokerages
Processing of ferrous and nonferrous metals
Primary raw material used by Nucor‟s electric arc
furnace steel mills
Brokers ferrous and nonferrous metals, pig iron, hot
briquetted iron (HBI) and direct reduced iron (DRI)
Q1 2012 – acquired three (3) metal recycling
companies, providing additional annual capacity of
275,000 tons
35. Recent Mergers and Acquisitions / Partnerships
2008 - Duferco S.A., Duferdofin Nucor S.r.1.
International company operating in Italy
Operates a 1M tons-per-year steel melt shop with a bloom billet
caster and three (3) rolling mills
2010 - Mitsui & Co.
Formed agreement to form NuMit LCC
Nucor owns a 50% economic and voting interest
Nutmitt LCC
Owns 100% equity interest in Steel Technologies LLC
Steel Technologies operates 25 sheet processing facilities
located throughout United States, Canada, and Mexico
38. Going Forward : Nucor Future Growth
Direct reduced iron (DRI) facility
In Louisiana
Received air quality permit in 2011 from the Louisiana
Department of Environmental Quality for facility to be
built
Allows for construction of two plants with a
combined annual DRI production of 5,500,000 tons
Broke ground on first plant in March 2011
Scheduled to start-up in mid-2013
39. Going Forward : Nucor Future Growth
International Growth
Australia, Brazil
Technology Advancements
Strong cash flow and balance sheet should provide
opportunities and flexibility for continued future growth
40. Future Growth - Capital Spending in Nonresidential
Construction Market in United States
Large driver of Nucor sales within United
States
Industrial and commercial sectors
Capital spending on infrastructure that is
publicly funded such as
roads, bridges, schools, prisons, and hospitals
Nucor heavily impacted by strength of sales to
automotive companies
Negatively impacting by Japanese earthquake and
tsunami in March 2011
44. Scrap Prices
Based on changes in global
supply/demand
Which is based on changes in global
supply/demand for steel products
Late 2003 – Q3 2008 – sharp rise in price
of scrap steel
Large rise in demand for scrap steel:
domestic and internationally
Nucor surcharge – tied to market indices
tied to steel scrap and other raw materials
50. Rivalry Among Existing Competitors
HIGH
Cost competitive
Many current players
Lack of product differentiation
Must form relationships with buyers
51. Threat of New Entrants
LOW
Large Barriers to Entry
Capital Intensive
Already high level of competition
Many current players
Little product differentiation
Price competitive
Regulation and Environmental Laws
52. Substitutes
LOW
For the most part, no other metal
can offer equal benefits per cost
compared to steel
Aluminum: most potential substitute,
but does not offer strength of steal
53. Supplier Power
Need for raw material
No substitute for scrap metal
MEDIUM
and iron ore
Size of Nucor will help due to
purchase in bulk from suppliers
54. Buyer Power
Lack of product differentiation
HIGH
Overcapacity
Competition from steel imports
to United States
Critical to form strong relationships with
large buyers, such as automobile industry and
large scale construction companies
56. Factors Effecting Future Business /
Sales
Global / U.S. economy
Uncertainties surrounding severe economic downturn in
construction markets and excess world capacity for steel
production
Pressure from imports
Challenging legality of imports from China
Changes in law or government regulations
affecting environmental compliance
That may result in greater regulation of greenhouse gas
emissions, which could increase Nucor‟s energy costs, capital
expenditures, and operating costs
57. Macro Environment / Risk Factors
Cyclical industry
Commodity prices / Cost of raw materials
Especially scrap steel
Changes in availability and cost of
electricity and natural gas
Subject to volatile market conditions
59. Competitors - Domestic
North American Competitors
1. United States Steel Corp
1. Integrated steel producer of flat-rolled and tubular
products with major production operations in North
America and Europe
2. Market Cap: 3.67B
2. Schnitzer Steel Industries
1. Recycler of ferrous and non ferrous scrap metal
2. 43 operating facilities throughout 14 states
3. Market Cap: 1.15B
3. Steel Dynamics
1. Steel producer and metals recycler in the United States
2. Market Cap: 3.08B
61. Competitors - International
International Competitors
1. ArcelorMittal
1. Global steel producer that produces range of finished and semi-finished
products
2. North America, South America, Europe, Asia, Africa
3. Flat products, including sheet and plate, long products, including
bars, rods, and stainless steel products
4. 10% of world‟s steel output
5. Market Cap: 29.55B
2. POSCO
1. Korea
2. Integrated steel producer of hot rolled steels, steel plates, wire rods, cold
rolled steels, electrical steels, etc
3. Gerdau SA
1. Brazil – leading steel producer in Brazil (also operations in other areas of
South America, as well as North America and Europe)
2. Produce long steel and flat steel items mainly through the process of
fabrication in electrical furnaces from scrap metal and purchased pig
iron, as well as through blast furnace
95. From 2012 Q1 Results – Company Expectations Going
Forward
Sold order entry rates
2011 started strong with increase volume and price
recovery
Construction market stabilizing
Increases in backlogs and in order entry rate in Harris
rebar and building systems
Improvement in orders of pre-engineered metal
buildings
Which usually improve before joist business
Sign of jobs in this area picking up – more jobs seen in
this area for some time
96. Valuation - DCF
Forecasted Revenue through 2017 (5 Year Investment
Period), finding FCF for each year
Projected growth of around 9.5% over this period
Perpetual growth of 2.5%
Adjusted WACC
Treasury Rates (1, 2, 3, 5 Year), Adjusted Risk Free, Market
Risk Premium
MV per share = $49.32
97. Buy
Vertically Integrated: Growth Through M&A
Growing International Presence
Advanced Technology
Better able to adapt to potential increases of input and
energy costs
Favorable Economic Growth Ahead
Strong Dividend Yield: 12 Month Yield of 3.24%
Editor's Notes
-Largest producer of structural steel, steel bars, steel joists, steel deck, and cold finished bars in the United States-2011: recycled approximately 19.7 million tons of scrap steel