Q1 2021 Nucor Corp Earnings Call
During the 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 that they are based on.
Reasonable <expletive>umptions, there can be no <expletive>urance that future events will not affect their accuracy or 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 can speak only.
As this day and Nucor does not <expletive>ume 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. Leon Topalian, President and Chief Executive Officer of Nucor Corporation. Please go ahead.
Good afternoon, and thank you for joining us for our first quarter earnings call joining.
Joining me today are the members of Nucor's executive team, including Jim Frias, Our Chief Financial Officer, Dave <unk>, Our Chief operating officer Al Behr responsible for plate and structural products, Craig Feldman responsible for raw materials.
Doug Jellison responsible for D J J and logistics.
Greg Murphy responsible for business services and general counsel.
Apology responsible for engineered bar products, Dan Needham responsible for bar and rebar fabrication products.
<unk> query responsible for sheet and tubular products.
Mary Emily slate responsible for our enterprise wide commercial group and Chad you to Mark responsible for fabricated construction products.
I wanted to take just a minute to congratulate <unk> on his upcoming retirement in June.
<unk> has been an invaluable part of the executive leadership team and I will greatly Miss his leadership strategic vision and keen insights.
I wish him and his wife, Jody a long healthy and happy retirement.
Thank you both for your commitment and sacrifices during your 25 years with Nucor.
On behalf of our 26000 team members. Thank you.
Craig Feldman will also be retiring in June.
Craig has been a part of the David Joseph Company, and Nucor for over 30 years and I'd like to thank him for his commitment dedication to the D. J J team and Nucor for three decades.
Craig we wish you and Sheri very long healthy happy retirement and on behalf of our entire team. Thank you.
As we continue to work toward our goal of becoming the safest steel company in the World. We are maintaining our focus, especially as our operations have ramped up across the company in response to strong steel demand.
Knowing where to focus our efforts can bring tremendous improvement in safety performance.
Looking at our safety data approximately 40% to 50% of our recordable injuries are hand related.
To address this we held a companywide hand safety week at the end of February we are optimistic that our increased focus in this area will enable us to make meaningful progress toward our goal.
I want to thank all of our teammates for your commitment to improve the most important value in our company.
The safety health and wellbeing of our entire Nucor family.
This past quarter was our best quarter in Nucor's history.
I'd like to thank our customers for the trust you place in us with each and every order and I would also like to thank our team who make extraordinary results like these possible.
Net earnings per share of $3 10.
<unk> surp<expletive>ed our previous quarterly record of $2 31.
Sent back in the third quarter of 2008.
Robust cash flow from operations during the quarter allowed nucor to return $425 million to our shareholders, while maintaining our strong liquidity position.
Demand for our products remains quite strong with healthy volumes and metal spreads across our diverse portfolio of products capacity utilization at our steel mills increased to 95 per cent for the quarter from 87% in the fourth quarter of last year.
Any of our product groups are running at or near full capacity.
We have had some spare capacity in long products, we are adding shifts in many of our steel products facilities to meet robust market demand. It is gratifying to see such strong performance across all of Nucor, We're clearly reaping the rewards from our prior investments and the more strategic approaches we're taking.
With our key end use markets.
Most of the end use markets, we serve remained strong and inventories remain lean across supply chains.
We have greater certainty today that the current favorable demand outlook will persist through the rest of 2021, we.
We are benefiting from our strategy of intentionally targeting our product capabilities at attractive sub segments of our various markets.
Our latest project announcements continue in this vein, namely the new tube mill, we are building in Kentucky, and the new insulated panel facility in Utah.
We also see indications that the strength in non res construction is broadening out beyond the warehouse datacenter and cold storage sub sectors.
The Abi index turned positive in February after 11 consecutive months of contraction.
And the Dodge momentum index recently registered $1 51 for which I believe is the highest reading since 2018.
Also backlogs across our steel products segments are all very strong our fabricating partner customers are reporting strong demand and strong inquiry activity in the construction and fabrication markets.
I'm, particularly excited to see the business momentum being generated by our construction solutions team. We formed this group last year. So we can develop deeper strategic relationships in the construction market and better leverage our diverse product offering.
The team regularly interact with a broad set of influencers, including owners developers architects and engineers.
We also recently launched a trademarked high strength being product called OS a grade a 91 three beam.
Beams are produced efficiently from sustainable recycled steel at our Nucor Yamato steel plant and allow for faster and lighter construction Nucor Yamato as the only producer of these great 80, 913 high strength beans in North America.
We are already realizing attractive orders from this effort and are optimistic that we will see many more opportunities as we leverage the unique capabilities of the nucor portfolio, including iOS.
We are also pleased that president Biden has put forward an ambitious infrastructure plan, we look forward to working with the administration and Congress and are confident in our country can make a meaningful investment with sustainable funding to rebuild our nation's infrastructure.
Action is long overdue as the recent grade of C minus by the American Society of Civil Engineers U S infrastructure report card illustrates.
In the last five years Nucor alone has melted poured and shipped over 130 million tonnes of steel rebar plate structural beams sheet and countless other steel products, we are well positioned and ready to help our nation build back better.
Turning to the automotive market, we expect the industry to produce approximately 16 million vehicles. This year.
The shortage of semiconductors severe weather impacts and other issues have hurt recent production volumes in the auto market.
We expect the difficulties to continue into the third quarter.
Even with these disruptions our mills have been running full out to satisfy customer requirements from the auto sector.
It's also worth noting that light vehicle demand is very strong and inventories are quite low we expect that sector will be running hard to get caught up with the demand for at least the rest of the year.
We continue to see strong demand in the renewable energy market and we believe that the steel needs of this sector will grow rapidly in the coming years debt.
<unk> administration has set a goal of deploying 30000 megawatts of offshore wind power by 2030. This could require as much as 8 million tons of steel we look forward to supplying the requirements of the renewable power sector with steel and steel products that have much lower levels of embedded <unk> emissions.
And those of competitors and are a natural fit for the renewable energy applications.
We have the right capabilities to provide steel products to this market.
Executing power purchase agreements like the ones, we have concluded with or stead, and EDF helps us to develop constructive commercial relationships in this sector, while lowering our overall <unk> intensity even further.
In other markets agriculture trucks, and other heavy equipment are all showing strength the oil and gas market is improving with rig counts climbing gradually from the depressed levels seen last year. The appliance market is benefiting from the economic rebound in direct payments people are receiving as part of the Covid relief p<expletive>ed by Congress.
Now I'd like to give you a brief update on the progress of several of our strategic growth projects.
Following a pandemic related delay commissioning resumed last fall at our galvanizing line JV with <unk> in Mexico. The team there is busy trialing and qualifying product with automotive customers as well as shipping product for alternative end use applications. While this work proceeds.
The commissioning of our new Gen. Three galvanizing line at Nucor Steel, Arkansas is expected to occur in the third quarter with prime production off that line to follow soon after we are excited about the advanced capabilities. This project will give them mill and I think it is fair to say that our customers are excited as well.
The expansion and modernization project at Nucor steel Gallatin in Kentucky is on track to produce steel by the end of the year to prepare for commissioning the Gallatin mill will be shut down for three weeks sometime in the fourth quarter.
We are anticipating a gradual ramp up of the incremental capacity at gallatin expecting to achieve 1 million tons of incremental output from the upgraded facilities in 2022.
And to achieve the full benefit of the added production capability of one 4 million tons in 2023.
We also remain on schedule with the construction of our new plate mill in Brandenburg, Kentucky, We see Brandenburg commissioning timeframe, which is scheduled for startup in late 2022 is ideally suited to serve the offshore wind market Nucor steel Brandenburg will be one of only a very few mills in the world capable of reliably.
Buying steel plate suited to offshore wind market applications and expectations.
Now Jim <unk> will provide more details about our record financial performance in the first quarter Jim.
Thanks, Leon first quarter earnings of $3 10 per diluted share were at the high end of our guidance range.
Nucor's record quarterly earnings were driven by strong performances across our broad portfolio of steelmaking downstream and raw materials businesses and highlights the success of our 26000 team members at building, a stronger and more profitable nucor.
The performance of our steel products segment was perhaps the biggest surprise of the quarter as it delivered improved earnings over its very strong fourth quarter results.
Entering the normal seasonal trend and overcoming the impact of a temporary margin squeeze due to the quick run up of steel prices.
The just completed quarter included some initial returns from our multiyear growth investment projects, our Hickman, Arkansas sheet Mills specialty cold Rolling mill is rapidly expanding its portfolio of high strength lightweight products increasingly demanded by OEM customers the.
The mill ran at 111% of nameplate capacity in the first quarter.
With cash flow and profit contribution well ahead of the project's capital authorization budget.
Our new Gallatin, Kentucky Hot band Galvanizing line production rate in the first quarter was 116% of its design capacity with cash flow and profit contribution substantially exceeding our capital budgets projections are galton teammates are building a strong portfolio of automotive and other customers in the underserved.
Midwest heavy gauge galvanized hot band market.
The Sedalia, Missouri Rebar micro mill completed its first year of production in February with cash flow and profit contribution also significantly ahead of the projects budgeted performance.
So Dave you have Spooled rebar product continues to enjoy strong commercial success.
Our second rebar micro mill located in <unk>, Florida began production in December and achieved profitability for the month of March we congratulate our <unk> team for their incredibly fast ramp achieving this significant milestone well ahead of schedule.
Our Kankakee, Illinois merchant bar Rolling Mill completed equipment commissioning in December.
<unk> trials in February and achieved positive cash flow for the month of March.
Further upgrades to <unk> melt shop are proceeding and non scheduled for completion later this year.
With its new capabilities Nucor steel Kankakee is well positioned in the heart of the Midwest and BQ market to serve our customers with a state of the art mill and an unrivaled product portfolio.
We are delighted with the successful ramp up of these important new additions to new course capabilities.
We believe this validates both our strategies and the team's consistent focus on execution.
We are confident in these projects prospects to continue generating attractive returns with reduced volatility throughout the economic cycle.
We again generated strong operating cash flow during the first quarter, enabling us to fund, our capex and to post free cash flow of about $217 million for the period.
Financial strength continues to be a critical underpinning to our company's ability to grow long term earnings power.
At the close of the first quarter, our cash short term investments and restricted cash holdings totaled just under $3 billion.
Total long term debt was approximately $5 3 billion gross debt as a percentage of total capital was 31% while net debt represented only 13% of total capital.
We generally seek to keep net debt to total capital within a range of 18% to 23%.
We feel this is consistent with a strong investment grade credit ratings that Nucor has strategically maintained through economic cycles over the years at.
GAAP President of course, we are somewhat under leveraged.
This reflects our conservative approach in early 2020, when the economic outlook was more uncertain.
We will continue to manage to this target capitalization and we'll adjust going forward by returning excess capital to our shareholders just as we have in the past.
We took some steps in that direction during the first quarter.
Cash returned to shareholders was 45% of net income or $425 million, including the repurchase of five 4 million shares at an average price slightly above $56 per share.
And with the payment of our February quarterly dividend Nucor has increased its base dividend for 48 consecutive years or every year. Since we first began paying dividends and $19 73.
Our highest capital allocation priority remains investing in our businesses to ensure our continued growth and long term profitability.
We continue to estimate total capital spending for 2021 of approximately $2 billion.
Approximately 80% of the 2021 capital spending is for improved product capabilities and cost savings projects.
Half of the anticipated total 2021 capital spending is for our three remaining major projects the.
The expansion and modernization of the Gallatin, Kentucky sheet mill the.
The generation three flexible galvanizing line at the Hickman, Arkansas sheet mill, and the Greenfield Brandenburg, Kentucky plate mill.
Yeah.
Turning to the outlook for the second quarter of 2021.
As Leon mentioned, we are optimistic we see improving or stable market conditions for the vast majority of the end use market served by Nucor.
At the same time inventories throughout the supply chain remain lean.
Earnings from the second quarter of 2021 are expected to again set a new record for the company.
The primary driver for this increase is further margin expansion at our sheet and plate mills.
Our first quarter record performance reinforces our confidence in the value being created by our strategic initiatives.
The opportunities ahead for the Nucor team are exciting we have great determination to deliver increasing long term value for our shareholders. Thank you for your interest in our company operator, we are ready to begin Q&A.
Thank you, ladies and gentlemen, if you'd like to ask a question. Please signal by pressing star one on your telephone keypad using a speaker phone. Please make sure. Your mute function is turned off to let your signal to reach our equipment.
Again, Please press star one to ask a question.
Well pause a moment to <expletive>emble our queue.
Okay.
We'll take our first question from Carlos de Alba with Morgan Stanley. Please go ahead.
Yes. Thank you very much everyone. Congrats from the strong results.
Maybe if you could.
Yes.
James can you please come.
Comment on how do you see the ramp up of the plate meal.
That is still a little bit away, but.
But important for the company so with a strong demand and we may have we may see from offshore wind.
Turbines, how do you see the ramp up of these of these meal and the volume contribution in the coming in the coming quarter when Youre coming years from 2003 onwards.
Okay. Carlos Thank you for the question and we appreciate the congrats we're really proud of our team's execution.
To take care of our customer base.
We're incredibly excited about our facility in Kentucky, the Brandenburg plate mill, we believe ideally positions nucor to be the.
A strong marketing leader in play in the largest plate consuming region in the United States.
The team has done a phenomenal job there, but I'm going to turn the.
The rest of the question over to out there our EVP of plate products and give you a little more detail and background on the startup.
How that team is maintained.
Its ramp up and despite of the challenges of 2020 and into 'twenty one yes.
Yes. Thanks for the question Carlos I appreciate the opportunity to talk about that project.
John budget is on track for startup in late 2022. So everything is going just exactly as we would plan you mentioned the offshore wind market. That's obviously something we're watching very carefully very excited about as Leon mentioned, the positioning of Brandenburg within that market is a truly ideal theres many things about the capability of that mill that journey.
Great competitive advantage for us one of them is the width with the capability up to 14 feet Thats, an advantage within the offshore market as well as many others.
The exceptional quality capabilities out of that mill create advantage for that market as well as the grade and chemistry range. It's got an outstanding great range and it's really squarely aimed at the offshore wind market. So we're watching that very very carefully the timing of the mill coming up at the end of 'twenty two based on the information we have.
About planned projects announced project permitted projects all offshore wind is really just ideal so very very exciting.
Project for US, we're excited to get that Ron and I. Appreciate your question about it.
You're talking about.
Thank you Ed could.
Could you comment on maybe what is the production that you expect to see out of that in 2023.
Carl.
What I would tell you is the ramp up is.
We expect to come on very quickly is that team.
Navigate to the challenges of commissioning, we expect 23 to two.
To be a pretty strong year, I don't want to quote numbers, but its share.
I really think.
Be approaching 75% to 80% of nameplate easily by the end of 'twenty three.
Perfect. Thank you very much.
Maybe I missed it but.
What is the outlook for Capex.
In the coming years, particularly in 2020 cyclicality here in 2022.
We're going to spend about $2 billion. This year, that's what our internal projections today.
Roughly a $1 billion is going to be spent over the next three quarters.
The big projects that are coming near completion different phases of completion. The Gen. III Galvanizing line Hickman Galton expansion and of course, the Brandenburg plate mill.
<unk> not made any any comments about 2022, but with galton essentially complete and.
And the cold mill at Hickman complete.
Unless we come up with some new project is probably going to be lower than the $2 billion that we're going to spend this year, but we've not actually put together a budget yet for the 2022 expansion but.
Our strong free cash flow company and so we've got plenty of liquidity to invest in at least that much if we wanted to.
Alright, Thanks, John Thank you very much.
Thank you.
We will take our next question from Emily Chang with Goldman Sachs. Please go ahead.
Good afternoon, and thanks for taking my question today.
My first Mike just on what Youre seeing end market demand from.
Construction segment in particular and in particular, the non res segment. It sounds like your order books are still variable.
Are you taking share from others is that a partial restocking at this price channel.
Is it really true demand strength that we're seeing there and if there's any particular segment outside of the warehousing cost.
Our net debt you think could maybe be.
Surprised to the upside here that'd be helpful.
Yes.
Emily Thank you for the question and maybe ask Chad you to Mark our EVP over fabricated.
Construction products to vote crafting for Cohen, our building systems to answer as well and so what I would tell you is approximately 46% of new cores.
Products moving into the construction sector as I mentioned in my opening comments, we're really excited about our launch of the construction solutions team and that team is doing it and really positioning nucor differently to better utilize the breadth and the capabilities of Nucor, we're not about getting bigger in capacity, we are about enhanced capabilities.
To serve our customers and by launching the construction solutions are and the branding of products like truly.
Truly differentiates us in the marketplace and so that value capture now and helping architects engineers fabricators designers to recognize had it fully utilized the complement of new course offerings is really a unique strategic advantage as you think about the backlog strength in the non res construction market all of those indicators that we track.
<unk> are very very strong.
Again, as we think about how we leverage the breadth of that market.
It's something that we spent a great deal of time on and again I'm very proud of the construction solutions team, what Mary Emily and her team have done in that market.
Maybe just provide a little more color and backdrop into the segments. It irresponsible for yeah. Thanks Lee.
For the question as you know we have many downstream businesses.
Touch many aspects of the non res construction market as we've been mentioning for several quarters. We are really excited about the resiliency of the non res construction market.
As we look out over we believe non res construction will remain solid through 2021 and into 2022.
Our quoting activity.
It continues to be very robust.
Furthermore, most of our businesses have very strong backlogs and in some of our downstream businesses all time record backlogs.
As we move through Q2 and into the second half of the year, we do expect to see significant earnings from these businesses.
You asked about specific markets and obviously warehouses distribution centers data centers are driving.
This demand, but it's really across almost all sectors were seeing.
Solid demand Adi just came out and talked about residential commercial industrial institution. So.
Non res industry is firing on almost all cylinders.
Okay.
Great. That's helpful color and if I can follow up with one question.
Across the steel industry globally, including Decarbonization.
Big things to look forward to.
So wondering if you had come out yesterday with the net debt.
Our target for the longer term.
I guess, clearly nucor being any ias operator in North America has a big advantage, but aside from the Ppas that you're signing is there anything that we should be focused on from an ESG perspective that you'd highlight.
To come.
Yes, absolutely Emily.
We've discussed in the past.
Nucor is the largest recycler were committed to sustainability. We believe today, we're one of the most sustainable steelmakers on the planet so that things like the PPA agreements that we've signed.
Part of the steps that we're going to continue to take to make sure. We're on the very leading edge of the cleanest most sustainable steelmaking.
Steelmakers in the world and so in the coming months Youre going to see Nucor launch a very open and public conversation about releasing our scope, one and two emissions as well as setting very clear targets for our improvements and the expectations, we expect to see in the coming years, So again stay tuned.
Come out again in the next few months, we're going to highlight and make some very strong commitments to.
What we think is already best in cl<expletive> to become even better.
Great well looking forward. Thank you.
Thank you.
We will take our next question from Seth Ross excuse me Seth Rosenfeld with Exane. Please go ahead.
Good afternoon, Thanks for taking my questions today.
I've got two separate questions first on raw materials, and then secondly on working capital. Please.
The raw material from it obviously had really remarkable performance. This past quarter can you walk us through the drivers of that either with regard to scrap or cycling or the DIY business.
And with increasing expectations for potentially tighter.
Tighter for longer client scrap market can.
Can you give us update on how your DIY volumes are progressing any upside to that looking forward I'll come back on working capital. Please.
Okay, Yes.
Actually I'll turn this over to Doug Jamison.
Let me begin and maybe you can chime in at the end.
Thanks for the question.
The team through the quarter did a great job of safely approaching levels.
Pretty challenging quarter as you saw the increase in demand.
Short term weather challenges transportation challenges, but.
We've spent a great deal of time preparing for these things and the proof is in the execution in this quarter.
Our recycling yards had a record volume quarter.
<unk> had solid production.
From a financial standpoint, there is a lag as the markets go up and our raw materials are.
Based at a lower cost as we come in so the first quarter will be our best performance, but we expect to see strong performance throughout the rest of the quarter.
In terms of DRA.
We had been performing well, we will expect them to continue to perform well we do have some scheduled outages in may in December so the volumes will be off a little bit, but those are planned and anticipated adjustments.
Good morning.
Okay.
Yes. Please.
Very significant investing in working capital in Q1.
So unit business.
Can you walk us through what we might expect looking for Q2 in the back half of the year do you think there's a need for further cyclical invested in working capital or have you been able to reset the value of inventory for example, Q1 new.
Thank you.
Yes, so receivables were up a fairly large percentage and it was driven by a combination of volume, which was up 13, 5% price was up by 21%.
And so.
We will take next quarter volumes will be close to the same and so we're going to just have a price driver. We will see some increased pricing. So how much receivables go up will depend on how much pricing goes up we generally collect receivables in about 30 days so what's outstanding on our balance sheet just roughly.
30 days of sales to our outside customers relative to inventories our inventories went up in the neighborhood of 6% of course, the cost per ton went up a significant amount because of scrap and pig iron and dry prices being up as well and so inventories.
Or again likely not to go up in volume next quarter, I think youre going to be relatively flat.
So we shouldn't see quite the same increase in inventories that we saw.
The first quarter much should be much smaller and receivables will be less too, but maybe closer to the same just because we're going to have another big increase in pricing in Q2 compared to Q1.
Okay.
Okay. Thank you very much.
Okay.
We'll take our next question from Timna Tanners with Bank of America. Please go ahead.
Yeah, Hey, Dan good afternoon, everyone.
Good afternoon agenda.
Hope you, Dan while I wanted to probe a little bit more the first quarter as expected.
That makes sense, but I wonder about long products, although they were better than your second to fourth quarter run rate were still below year ago levels. So just wanted a little color on that and if we should expect that to go up going forward based on the comment just now on kind of a flatter volume so kind of wanted to get a little color on that and then if I could on top of that.
You comment on why utilization has seemed to barely budge and the industry.
Given the volume improvements and restarts that we hear about and customers clamoring for supply it I'd really like to hear your take on that thanks.
Yes, maybe.
I'll try to start with the last and I certainly can't speak to our overall competitor.
Utilization rates, but again moving from roughly 80, 586 last quarter and the fourth quarter of 2020 to over 95% for this quarter for US was a significant move and we saw much of that come in place.
Plate and sheet, but also our structural mill rebar mills.
And secondly, up and their utilization rates, we're seeing incredibly strong backlogs at Nucor, Yamato steel and FERC <unk> and so the backlog side of the structural market than I am.
Not sure I fully understood. The question you were driving at structurally but that demand in the backlogs there are.
<unk> historic but they are very very strong probably the strongest since.
Last decade anyway, so as we see that moving forward that sector those markets that they serve.
We think will not only be robust, but continue well into <unk>.
And for the year.
Anything you would add on the structural side. Yes. This is a couple of things Tim that you picked up on it right. We were slowed up a little bit in first quarter Theres a couple of things in the <unk> group. One was the winter storm that came through and impacted Texas, and Arkansas that impacted our Arkansas mill to some extent and the other thing was a project from the fourth quarter that we highlighted.
Significant modernization upgrade of that mill that was tremendously successful, but it's got such a broad product range that has stretched into January before we get fully shaken out the entire product.
Cycles, so that bill today is running as efficiently as it ever has been a very successful upgrade so to your point about Q2, we expect Q2 run rates to be from the excellent Leon made the point about backlogs they've improved significantly even just in the last couple of weeks and are at an all time record.
But the year over year number ticked down just a little bit as you pointed out and those are the reasons why.
Okay. That's super helpful. I wanted to ask another question if I could just switching gears a bit on the Greenfield topics. Obviously as you said Nucor has always been green and that's part of your whole history, but I just wanted to get a little bit of sense on the customers. How many of your customers can you quantify that are that are actually clamoring for green.
Is there a way to quantify that and then on the renewable side I know you mentioned $8 million for wind and I hear when does indeed debt.
New Jersey is gonna be the Saudi Arabia, So theres only net of opportunities potentially there, but is that 8 million tons over time is that over a couple of producers can you help us get a sense of that and solar and that opportunity. Thanks a lot.
Yes, I think theres, two two shifts and Mary Emily if there's stuff I missed on the solar side. Please jump in but as we think about the win there right now two very meaningful large scale offshore wind projects that are approved up.
And we'll begin starting production of those.
'twenty two 'twenty three so as that ramps up really we see the timeframe of 22 to $26 seven to eight is kind of that build out. So yes that 8 million tons will be over a period of several years 345 years, we don't know exactly what I do what we do believe is when the president signing an executive order.
<unk>.
30000 megawatts of offshore power, that's going to drive an awful lot more activity behind this these two projects. So we expect that to ramp up and that number could increase.
As we move forward again with the startup of Brandenburg and late 'twenty two it really is positioned incredibly well to capitalize and take full advantage of that opportunity in the marketplace on the solar side, a little bit like we mentioned in the construction solutions team and actually I won't steal <unk> Thunder why don't you just kind of share with Timna.
What we're doing in that and how the solar.
Go to market strategy is being run absolutely. Thanks for the question Ken.
So there is absolutely a target market just like construction and we see that as a growth market. We will see growth over the next few years, especially with the administration change and if you saw the announcement on it.
A significant amount of the production will actually target the solar industry first four kids.
Their fleet positioned with the Gallatin galvanizing line, they're feeding that Mel will make it such an efficient.
Supply chain, so our expectation just like construction installations, we've got a group that's working with those companies as they grow to provide solutions to make them get to market.
Oster.
And then maybe the last comment I'd make is.
I appreciate that we have been green I've been part of our company now for 25 years I can remember when I started with Nucor, Berkeley, when we're building at making decisions to put equipment in that wasn't regulated that wasn't required by state or federal law. We did it because it was the right thing to do but one of the things we've not done as good a job on is actually telling that story.
Much more proactively much more offensively minded and sharing our data much more openly youre going to see a significant step for nucor to do that and again in the coming months this year.
Be very transparent again, not just verbally but through the commitment of sharing our full scope, one and two emissions and how that impacts because we believe we can stand up to anyone in the world and.
So helping the industry to say Hey, we've got to do better and we think we can.
Okay. Thanks, guys.
We'll take our next question from Andreas <unk> with UBS. Please go ahead.
Thank you very much just wanted to quickly follow up on <unk> question.
The scrap market, especially on prime I mean, I'm, obviously show you've seen kind of all the commentary out there some people, believing that it's going to be super tight Prime marketing, yes, yes producers are going to be high cost from here on in and so on so forth.
I'm, <expletive>uming that you kind of know the answer to the question, but where do you come out on all of those in terms of a tight price market.
Potentially some supply relief.
Related to that question as well.
From a technical point of view do you have any ability to.
Let's <expletive>ume for a moment it does become a great type prime market.
Relative to loans are the feedstock into the furnaces like Dr Roy or pig or anything like that that kind of offset any tightness.
Prime prices.
Any forward.
Yeah, let me start and answering that Andreas.
The second part of your question about product mix, yes, we have flexibility we used most of the prime scrap and substitutes which include pig iron.
We used most of those products at the sheet Mills, we can use some at the plate mills as well as some of the other mills, but it's primarily consumed at the sheet Mills and we're already using those products and we think we've got the most flexible supply chain, probably because a lot of our larger mills are on deepwater ports, where they can via barge for other vessels.
Receive shipments not only from domestic supplier suppliers, but from offshore suppliers very efficiently again because of our our positioning of our locations being on the water soften times, but yes, we mix we changed the mix of feedstocks based on.
Whats available and what the costs are.
Fairly regular basis, and so that's a part of our strategic business plan in terms of tightness in prime scrap markets long term. We saw this coming several years ago and that's why we started building dry plants. So we've got <unk> that helped give us an option in our supply chain and when it makes sense to use more eight H b.
We Max out the usage of what we see as an API.
All one question, we often get is should we built more.
I'm sorry.
<unk> a follow up question, we get is should we build more plants and.
Our view right now is not today, if we have so much to youre right that we keep prime scrap prices depressed, we are helping our competitors with our capital investment.
The price for Prime scrap is tight and we get an advantage that we can capture with products at the direct price them. We have a competitive advantage against other mini mills that makes sheet steel and I would say that look at our profit, let's see what profits get published by integrated Mills and then asking me. If you really think that we have a cost disadvantage against <unk>.
Great.
Right right.
Sorry go ahead.
No no no. Please I was just going to really reiterate that exact point, Jim did let our results speak for themselves.
And you can decide where the cost structure is in terms of our delivery and our performance.
That makes a lot of sense I appreciate the answer and then maybe one follow up question on the technical side. I mean is there is there any way of saying how low you can go on private consumption.
Realize that referring this is different and so on so forth.
Can you go to zero can you go to 20% is there any way to kind of think about that going forward.
Exclude prime altogether, if you wanted to.
Okay.
This is day mosquito.
Certainly the product mix is going to that's going to be very dependent on the bar side. We can go with zero Prime we do go to zero.
In almost all cases on the sheet side.
Yes.
It can vary.
But you're probably going to still need to be in the 30% range, but we can move that around.
<unk>, yes, we can do substitutes in the neighborhood of 50%, which was 30% price good you're at 80%.
Alright against 20% of obsolete.
That's very clear I appreciate that and then final question just shifting gear as well, obviously, if steel price continue to go up.
Any updated thoughts on capital allocation from dividends share buybacks. So on so forth.
Versus your commentary during the fourth quarter.
Yes.
If you listen to my comments I talked about for the first time, we've actually published our targeted net debt to capital range as being 18% to 22%. We've not published that in the past that was a new disclosure that hopefully folks picked up on and our net debt capital numbers like 13% right now so we're technically under leveraged and so I would expect us to.
Continue buying back stock.
As the year progresses, we're going to be very very profitable for the balance of the year and we're going to have plenty of free cash flow and we don't want to get further under leveraged.
That's very clear I appreciate all the answers thank you very much.
Thank you.
We'll take our next question from Phil Gibbs with Keybanc capital markets. Please go ahead.
Hey, Thanks, good afternoon.
Good afternoon.
Question just here on the intercompany eliminations. They were obviously sizable and I know that tends to move around and with the inflation that we saw intra quarter that clearly was something that produced an outsized number.
Jim where do you expect that.
To shuffle as the.
A year goes on as we see did we see peak intercompany eliminations in Q1.
We did been hang on let me find my cheat sheets I could give you more detailed color because they do have a cheat sheet on that bear with me Okay sure.
Total intercompany loans corporate loans were $451 million of the pieces work.
Intercompany profits was $183 million that was a $175 million more than it was in last year's first quarter. It was $125 million more than it was in the fourth quarter of last year. So that was a big number and it's going to be lower in the second quarter, Alright fair amount, we're not targeting a specific number but thats going to come down.
Profit sharing which is 10% of pre tax profits with significant it was $123 million were going to make more money next quarter. So that's going to go up so based on your profit projection you should put more money in that pool.
Other incentive comp that isn't profit sharing related debt.
Other incentive comp was up $50 million to $60 million net is probably going be in a similar range other than in the second quarter, We grant stock compensation, our shoes in Germany, there is a <unk>.
<unk> to $30 million hit because of the timing of that debt to tap in the second quarter, so that'll be extra.
Other corporate expenses.
We're up about $40 million I would expect that is going to be flat with next quarter and interest expense was I'm sorry, it was $41 million I expect it to be the same next quarter and interest expense was $37 million I expect that to be about the same next quarter.
Okay.
Thank you thank you regarding that.
And then as it relates to.
To nonresidential construction.
Some of those leading indicators that you guys said are pointing to.
Some growth in nine to 12 months you have the lagging indicators well actually there is some are leading as well at the starts data. We got hit hard last year. They are clearly parts of the non res market that are better to your point deck and joist was up a lot, but rebar fab was down a lot. So help us just kind of put this.
To put this together a lot a lot of mixed signals out there right now.
Sure.
Yes.
This is Chad again.
And you are correct, we have a portfolio of downstream businesses that serve different markets and some are hotter demand is stronger.
But in general.
Across the businesses of joist and deck building systems.
I look at our backlog and I listen to our customers. We are sitting on record high level record backlogs.
Through the rest of this year and already starting to look at next year and so we are we're excited about the future in that segment of the business and I think as the company starts to reopen.
Youre already seeing people going out to eat more and wanting to go to concerts things as more people get vaccinated. So I think that commercial world that was so strong for so long we will we will come back I don't know that will come back to the levels, we were seeing but.
And then an infrastructure bill there's a lot of rhetoric around it I don't know that it will happen, but we expect it to and I would hope that that would.
Fuel to the strength of this non res market, so someone else to Jonathan yes. So the only other thing I would add is I think that your comment is accurate, but it's also relative as you look at the restructuring Nucor has done over the last couple of years with our.
Fabricated construction products groups.
Well, we don't breakout the individual profitability of certain segments I would just tell you that their profitability and what they've contributed to nucor is the strongest it's been maybe ever so they're realizing some from some very strong returns and their businesses and again, we expect that to continue.
Chad a little bit more on rebar fab, we had a fabulous profit quarter in rebar fab. The volumes may have been down and I think this was more timing related and could you speak to that a little bit the strength in the rebar fab market as well or I'm, sorry, Dan pointed out.
Personally I forgot I can certainly do that Phil this is dan need them.
I appreciate the question that you gave but actually right now we are sitting on record backlogs for our rebar fabrication.
The outlook in terms of demand in projects.
Coming about is looking very good for us at this point.
Okay.
I appreciate that and then I have about if I remember 10 years ago, maybe maybe even longer it could have been closer to 15 years ago. There was a big increase.
And usage of <unk>.
Still two by fours and things of that nature win.
Lumber prices got high during the housing boom.
Are you guys seeing any any pushback to steel in terms of some of this this wood.
I.
Would use back into some steel as lumber just goes astronomically.
Higher and I know would had obviously taken some share in some applications over the last five or six years.
But just curious in terms of some of those those conversations with lumber being an amount a bull and a lot of cases in the short run.
Hey, Bill this is.
This is Dave again.
I'll start that one off all commodities are going up in price.
The cost to build buildings.
With both Ford and steel.
Would be rising so.
And it's going to take some time to switch back. So we haven't seen any any switchback, yet when we talk about it a lot.
And trying to understand or to some opportunities either way.
Thanks, so much guys.
Thanks, Phil.
Phil One last comment I just wanted to make in the Abi you see the numbers and obviously I think Leon mentioned those in the script debt of $55 six from the highest index as we've seen since I was seven but there's another marker that day.
Publishing it's the pace of inquiries.
And that number is almost 67% and that is the highest number they've seen since 1999, so just the amount of inquiries coming in.
Is.
A pretty strong signal to us that there is this pent up demand to build things into expand across many different platforms and yes. There are certain markets that may be a little weaker a little stronger, but overall, the view IC and thats pretty strong.
Chat or would that would that pace of inquiries also.
Include the potential for people just are just asking for Rebids and re quotes and obviously coming up.
Pumping up coming up lame with the fact that the market keeps running on them.
Okay.
I think it could it could but again with.
Our direct.
Conversations with customers and we see cancellations on our backlogs, we're just not seeing them.
Yes at this point is an architectural index architects don't work for free and give quotes fuel companies get coach how the time, they don't turn in orders, but architects don't work for free so if theyre getting inquiries.
It's not just people getting quotes.
Thanks, guys.
Thanks, Phil.
We will take our final question in the queue from David Gagliano with BMO capital markets. Please go ahead.
Alright, thanks for taking my questions.
Just I wanted to switch gears, a little bit on the longer term capital allocation thoughts.
Obviously low hanging fruit from a restart perspective is kind of done now the pipeline on the Greenfield side.
Fairly well defined and you know getting to being to the point, where its behind the industry in certain respect.
Obviously nucor over the last few years shifted to much more aggressive.
Our growth profile, including steelmaking capacity. So Mike My question really is considering the landscape everything you see out there.
Should we be thinking that Nucor will continue to add steelmaking capacity meaningful steelmaking capacity like we've seen with galton.
Brandenburg.
And if so when should we start hearing about that.
Yes, David Thank you for the question.
I'll kick it off and James if Theres anything you want to add.
Number one we're coming off a capital campaign over the last several years of over $4 billion. Our number one focus today is to safely and reliably bring that capacity on line, which culminates with the startup of Nucor Brandenburg in late 2022, So our very short term focus is to execute really well.
And returned significant amounts of capital back to our shareholders at the same time, David We're a growth company, we're not satisfied with the position where we're at today. So I and our team are challenged to think about where do we grow I can tell you that we're looking hard to continue to invest in our downstream operations.
<unk> us well for the future as I mentioned earlier, our investment strategy isn't to get bigger by volume, it's to add strategic capability and how we differentiate ourselves from our competition.
By doing so our investment in Hickman, Arkansas to be the only EIF producer anywhere to make a full gen. Three product for the automotive industry is going to be a differentiator for nucor. So we're going to continue to look hard at how we continue to grow for the long term investment in Brandenburg isn't a one or two year play, it's a 30 or 40.
50 airplanes and so as we think about the opportunities before US again, it begins with executing really well and culminating in finishing the $4 billion.
Sort of campaign, we've been on and then how do we think about growth and where does that need to include and I wont get much more detailed than other than to tell you. We're looking really hard at and continuing.
How to position Nucor for the future.
The only thing I would add beyond this kind of dovetails with what <unk> talked about the idea that we have commercial strategies like serving renewables like serving certain sectors of the marketplace and so it's going to be driven partly by where we see those opportunities to better serve customers and leverage into those markets with a portfolio that gives them more.
Our complete solutions and they can get any place else.
Okay.
Okay.
Helpful. In terms of just from a timing perspective.
These are decent lead time projects I'm, <expletive>uming so when would you.
When should we expect to hear more from Nucor. If there are some big Greenfield projects and the worst winters, we expect to hear more from Nucor.
Yes look I don't want to get very specific David what I would tell you is when we're ready to announce those.
You'll be the first day here and so as we.
Okay.
Got to think through that strategy all of our executives are challenged and committed to delivering growth in each of their respective areas and so I'm excited about our future I'm excited about the discipline, we've maintained and executing our capital.
Strategy and Thats going to continue as we move forward. So it will be very deliberate, but we're not going to stay where we're at we're not going to stand still and we will continue to grow.
Hey, guys. Thanks for the help.
Thank you David.
Ladies and gentlemen. This concludes today's question and answer session. At this time I'd like to turn the conference back to Leon Topalian for any additional or closing remarks.
Thank you before we sign off let me just say that Nucor has been preparing for years.
And economic conditions like the one we're experiencing now.
I want to again, thank my Nucor team for all you do and our focus on keeping all of our facilities running safely and smoothly. So that we can all benefit from the market opportunities available to us today and thank you to our customers for the opportunity to serve you and your needs both today and tomorrow.
Through the challenges presented by the pandemic last year, we learned how resilient our company and business model are we said repeatedly that we wouldn't just come out of this crisis.
Survive. This crisis, we would thrive coming out and here we are I want to thank everyone for your interest in our company. We truly appreciate the support from our shareholders customers suppliers communities and team. Thank you and have a great day.
Ladies and gentlemen. This concludes today's conference. We appreciate your participation you may now disconnect.
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