Q1 2022 Nucor Corp Earnings Call
Street in tubular products.
Mary Emily slate responsible for our enterprise commercial strategy and Chad you to Mark responsible for fabricated construction products.
Last year, we achieved record safety performance, beating the safety record, we set in 2020 and the Nucor team is off to another strong start in the first quarter of 2022, we continue to see excellent safety performance across our divisions as our teams work to meet strong demand from our customers I am proud of our team.
His commitment and progress towards achieving our goal of becoming the world's safest steel company.
Team together, let's set another record in 2022.
Turning to our financial performance, we achieved record first quarter results with earnings per share of $7 67.
The quarter was marked by pronounced volatility as Russia's invasion of Ukraine impacted commodity markets and the supply chains of nearly every industry.
While the Ukraine, Russia conflict, certainly is having an impact on our industry. The much larger concern is your humanitarian disaster that has unfolded in Ukraine. The images coming out of Ukraine are heartbreaking and our thoughts and prayers are with Ukrainian people, who continue to endure significant suffering due to the invasion.
The onset of the pandemic in March of 2020, and the Russian invasion of Ukraine are two recent events that up ended markets and showed the resilience and sustainability of our business model, our flexible production process and diversified product portfolio have helped us to thrive in the volatile market conditions that followed.
I am extremely proud of how our Nucor team has navigated the pandemic and several unexpected supply chain disruptions over the past two years.
We are on the cusp of completing $4 1 billion in strategic organic growth investments by the end of 2022. We have also completed $2 1 billion in strategic acquisitions and returned approximately $4 8 billion in capital to our investors through the last five quarters.
Our balance sheet remains under Levered, and we have a fresh series of new organic growth initiatives that are just getting underway.
Nucor delivered breakout record performance in 2021, and now we are beginning 2022 with a new quarterly record, which we expect to surpass again in the second quarter.
Our team's ability to navigate the current disruption to the seaborne pig iron markets highlight the benefit of nucor's powerful and adaptive business model.
Big Iron makes up roughly 10% of nucor's overall metallic supply in a typical year, Russia, and Ukraine have historically accounted for over half of that supply.
However at the outset of this war, we immediately ceased all purchases of pig iron and any other raw materials from Russian suppliers.
We could do this without disrupting customer supply or quality, because we have worked over the years to effectively manage the risks related to our raw material needs.
While we have not been able to source material from Ukraine. Since the war began we look forward to partnering with her Ukrainian suppliers when conditions in the region permit.
We have several advantages that are enabling us to manage through this disruption, including good long term relationships with numerous pig iron producers globally.
Reliable DRA production capabilities in Trinidad and Louisiana that are particularly helpful. In this environment.
The ability to increase our production of low copper shred and to continue to invest in additional technologies for high quality metallics, especially those that can help us further reduce nucor's carbon footprint.
And our D. J J brokerage arm that has once again proven its value as it utilizes its broad network to ensure our steel mills have the scrap they need to meet our customers' requirements.
Turning to current market conditions, we continue to see robust demand across the key end use markets we serve.
Some markets like automotive continues to be constrained due to supply chain issues.
Last year, we realized outstanding results, despite key markets, such as automotive and energy being challenged and well below the averages and our initial expectations. The first quarter of 2022 was similar with very strong overall demand. Despite continued supply constraints production challenges in automotive and <unk>.
<unk> tepid response for energy products, despite strong pricing for hydrocarbons.
And now let me provide a quick update on some specific growth initiatives.
During the first quarter, we completed our acquisition of a majority stake in California steel industries and.
As we've discussed on our last call this $400 million investment expands our geographic reach in the sheet market to the west coast grows our portfolio of value added sheet products and create supply chain efficiencies with nucor's downstream businesses in the region, including <unk> and Hannibal industries, we will.
CSI teammates to our Nucor family.
We also announced plans to modernize and expand the product capabilities of our sheet mill in Crawfordsville, Indiana by adding a construction grade continuous galvanizing line.
And pre paint line the construction grade continuous galvanized will have a capacity of 300000 tons per year, while the prepaying line. We will have an annual capacity of 250000 tons per year Crawfordsville was our first female pioneering eas thin slab casting.
These projects and Indiana will enhance crawfordsville ability to competitively serve regional construction market.
Earlier this month, we announced plans to build our third rebar micro mill in <unk> North Carolina, We've had great success with our micro mills in Missouri in Florida, and saw a real opportunity to supply rebar to fast growing region between Washington and Atlanta.
Population growth in this region, along with a new federal infrastructure spending is increasing rebar demand. This site in Lexington is near abundant scrap supplies and transportation corridors, allowing us to efficiently deliver rebar to customers in the mid Atlantic and southeast.
We're really excited to be growing our presence in creating jobs in our home state of North Carolina with.
With regard to our modernization and expansion project at Gallatin. The team there has completed commissioning the EIF and LMS.
The caster and second down Qoyllur will be commissioned during the coming weeks. Following that we will have seven day outage in early June to commission, the Roughing mill and Hotmail crop share by June all of <unk>, new capabilities and capacities will be online. We're currently anticipate shipping approximately half a million tons of <unk>.
Capacity in 2022 by Q3, Gallatin should be able to produce at a 3 million ton per year rate.
Our team continues to receive recognition from our customers for the high quality products, we provide.
For the fourth year in a row Nucor's received GM supplier of the year Award we remain the only eef steelmaker to receive this award.
In addition, <unk> received Gms Overdrive award for supplying them with our iconic products GM is our first customer to receive these products and it is an example of how we work and listen to our customers to help them achieve their sustainability goals.
These awards also demonstrate the benefits of investments, we are making to serve our automotive and other customers with demanding applications for lower <unk> intensity steel.
Our Nucor team you should be extremely proud of receiving this recognition for four years running.
<unk> is just one example of our focus on sustainability, while our greenhouse gas emissions are just a quarter of the global average for the steel industry. We continue to look for ways to further reduce our emissions.
We have supported the development of solar and wind energy projects by signing three power purchase agreements for roughly 600 megawatts of renewable power generation capacity.
And earlier this month, we announced an investment in new scale, a leading developer of new nuclear power technology called the small module reactor. This investment in new scale complements these efforts to help the United States develop new sources of clean power.
And effective electric grid requires both base load and intermittent power sources, which is why we believe that both nuclear and renewable energy must be a part of the solution to achieve carbon reductions while maintaining grid reliability.
On the trade front unfairly traded imports remains a concern the us ITC is conducting five year Sunset reviews. This year of key trade orders on flat products, including cold rolled steel and corrosion resistant steel. These orders are important to market stability and industry performance.
Nucor will vigorously work to ensure that they remain in place.
We view our advocacy for effective trade law enforcement is in central component of Nucor's efforts to take care of our customers teammates and shareholders.
Nucor's investing more than $7 5 billion and our steelmaking operations over the 2019 to 2025 period.
These investments are expanding the nucor team by approximately 3000 jobs and are driven by exciting opportunities to compete in a global steel marketplace, where winners are determined by real cost and quality advantages that create sustainable value for consumers and not by government subsidies or other non economic factors.
I'm incredibly proud of the Nucor teams exceptional focus on delivering world class performance.
Every area of our business, particularly our record breaking results in safety and profitability. We are grateful for the trust our customers place in the Nucor team with every order and we strive to offer exceptional customer value by being leaders in delivering the cleanest and most sustainable steel solutions.
In the world.
Our key forward looking indicators for 2022 remained favorable and we expect another strong year in both earnings and cash generation.
Now Steve will action will provide more details about our first quarter performance Steve.
Thanks, Leon I wanted to start out by thanking all my Nucor teammates for their outstanding work in the first quarter as they've done over my 19 years with Nucor the men and women of this team continue to inspire me by what's achieved working together and.
And I'm honored and privileged to be working alongside you in my new role as CFO .
As Leon mentioned first quarter of 2022 earnings of $7 67 per share establishes a new first quarter record more than doubling the prior record of $3 <unk> said last year in the first quarter. These results also exceeded our guidance range of $7 20 to $7.
<unk> per diluted share better than forecast earnings for the month of March were achieved across a broad array of businesses, including our rebar and merchant bar Mill's sheet Mills building systems and raw materials businesses the.
The value of Nucor's unrivalled product diversity, coupled with our highly variable and adaptive cost structure was on display yet again in the first quarter.
Comparing the first quarter of 2022 to the fourth quarter of 2021, a number of our businesses achieved strong earnings growth and providing an offsets to weaker pricing and volumes that impacted our sheet business.
Our steel products segment profits of $684 million was the highest quarterly results ever we fully expect the segment to set a new quarterly earnings record in the second quarter as nonresidential construction demand remains strong and margins continued to expand and joist and deck metal buildings in tubular products.
It's worth noting here that over the last 10 years the period ending in 2021, our steel products segment EBITDA increased from $66 million in 2012 to just under $1 $5 billion last year.
Over time, we've intentionally developed a diverse portfolio of market, leading businesses that provide a wider set of end market solutions.
These include joist deck tubular products cold finished bars metal buildings fasteners, and most recently insulated metal panels and racking systems.
These last two additions made in 2021 make a fantastic complement to nucor as they set of the confluence of our core capabilities and growth sectors of the economy.
Strong net earnings for the quarter translated into strong cash flows from operations, which amounted to approximately $2 5 billion.
We redeployed a portion of this cash via cash expenditures and acquisitions totaling almost $800 million.
These strong cash flows also positioned us well to continue to deliver on our commitment to provide attractive cash returns to our shareholders.
Capital returns during the period totaled over $1 billion.
Or about 50% of quarterly net income.
They consisted of dividends of $137 million and share repurchases of $905 million or approximately 7 million shares.
Financial strength remains a critical enabler of nucor's ability to create incremental value for shareholders.
Our company continues to have the strongest credit rating and the North American steel sector.
At the close of the first quarter, our cash short term investments and restricted cash holdings totaled $4 3 billion.
Nucor's liquidity also includes our Undrawn $1 75 billion unsecured revolving credit facility, which matures in November of 2026.
Total long term debt, including current portion was approximately $6 7 billion at the end of the first quarter. This includes $1 1 billion of bonds, we issued last month.
Half of these are 10 year notes with a coupon rate just above three 1% and the other half are 30 year notes with a coupon rate just under three 9%. These proceeds will be used to redeem our $600 million of four and one 8% notes due this September and our $500 million of 4% notes due in August .
2023.
On March 25, we issued a notice to redeem all $500 million of the 4% notes, excluding the debt being redeemed this month and the debt maturing in September gross debt as a percentage of total capital was approximately 26% at the close of the first quarter.
And now I'd like to spend a minute or two on capital allocation Nucor has a clear capital allocation framework that remains unchanged. Our first priority for capital is to create additional value through deployment that leverages, our existing capabilities and positions of strength, our second priority is to maintain and grow.
A healthy regular dividend.
We've done for 49 straight years without fail.
Lastly, we remain committed to sharing upside returns directly with our shareholders, specifically, we target a minimum of 40% of our earnings going directly to shareholders via cash dividends and share repurchases.
The execution of that first priority is how we create meaningful long term value for our shareholders.
<unk> successes, we are realizing today are a result of our team's consistent focus over our company's long history on disciplined execution of our business model and growth strategy today.
Today, we are laying the foundation for our future further value creation.
Let me highlight here a summary of some of the key activities.
Leon mentioned with the completion of Brandenburg later this year.
We will have deployed approximately $4 1 billion of capital over the past few years on 10 significant projects that enhance nucor's competitive position across its product portfolio.
We remain confident that these 10 projects will generate annual EBITDA of at least $600 million during normal market conditions during stronger environments, such as 2021 and 'twenty two we can expect far better results from them.
You may recall that during our fourth quarter earnings call. We noted that five completed projects accounting for approximately $1 billion of capital spending generated about $675 million in EBITDA during 2021.
Looking further ahead, we have roughly another $3 5 billion of incremental capital spending on significant projects planned for the coming years, including our North Carolina Rebar micro mill enhanced capabilities that are of Gallatin in Crawfordsville Mills, and our West Virginia sheet mill.
We expect that once fully ramped up these facilities will be able to generate around $700 million of incremental EBITDA annually for nucor again during normal market conditions in.
In addition to our organic growth opportunities Nucor continues to engage in strategic and targeted M&A activity.
As Leon mentioned, we've deployed about $2 $1 billion in capital via acquisitions during his tenure as CEO .
Collectively these investments further differentiate nucor and create a powerful catalyst for future sustainability and shareholder value.
We expect to add more than $1 $6 billion today of course run rate EBITDA in future years from these already completed and underway investments.
We're excited about these opportunities to grow substantial shareholder value in the years ahead, we will have a short slide deck summarizing and posted on the IR page of Nucor Dot Com later today.
As Leon mentioned demand remains strong across our key end use markets. We expect that the second quarter of 2022 will be the most profitable quarter in nucor's history, surpassing the previous record set in the fourth quarter of 2021.
Second quarter earnings will be driven by the increased profitability in steel product segment I mentioned earlier. In addition, the steel mill segment earnings are expected to strengthen due primarily to increased profitability of our sheet and plate Mills Nucor's raw materials segment is expected to generate increased profits in the second quarter due to relatively higher selling prices.
For raw materials.
Thank you for your interest in our company operator, we're now ready to take questions.
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 allow your signal to reach our equipment again. Please press star one to ask a question, we'll pause for just a moment to give everyone an opportunity to signal for questions.
We will take our first question from Emily Chang with Goldman Sachs. Please go ahead.
Good afternoon, Leon and Steven.
Thank you for the update today.
My first question is just around the volumes that we did see in the first quarter. It looked like there was some declines in plate and maybe modestly lower sheet shipments sequentially.
Any sort of end market, that's particularly driving that and then expectations for the rest of the year as you progress and maybe on that same note.
<unk>.
And steel mill operating rates did.
Following a 77% is that just a function of a higher denominator.
Good morning, Thank you for the questions.
If I forget the second or third largest please remind me, but let me let me begin with.
Kind of the backdrop of what we saw in Q1 and I'll begin with sheets.
<unk>, our EVP of sheet, Mike jump in here for a point or two but as we saw it did move from Q4 it really.
Historic year in all of our product groups and company in 2021 into 2022.
We obviously saw.
About three factors.
Culminating in the end of the year one was imports.
Coming back in largely from Mexico, and Canada to the distributors really got full and in three of the mills all caught up sort of at the same time and so is <unk>.
<unk> 2022.
With pricing going a little bit down in.
Weakening on the sheet side.
Yes, so some softening there the large piece of our business is contract base and so we made some deliberate decisions at that time to focus on our maintenance took some outages at different facilities to to really ensure that we were.
Cable and ready to go and that Tinder came in obviously that came in just a few weeks later, but also.
Sure we the only that we also made a strategic decision to not.
Put tons out there in the spot market when we didn't believe that.
<unk>, which support that and so we didn't chase tons and as a result, you saw some of our Utilizations dropped some.
But again as we see the.
Underlying demand in sheet and plate continues to be incredibly resilient and as we.
Steve just shared with you earlier, we expect Q2 to be an incredibly strong position further as we talk about profitability for Q2 part of the reason why we see Q2 being a record is because.
Our approach.
Roche commercially and how we're moving through this year youre going to see there was higher priced Toms again that pivot coming in February into early March flow through into Q2 very very quickly.
Anything you'd add to that on the street side than maybe a comment or two on plate.
Thanks for the question.
Well covered I can only had a few items I think we did well is setting the stage what's happened late in the year as we progressed and basically what we saw.
Was.
Those conditions being corrected as we entered early into the first quarter. So the second part you asked was about expectations for the remainder of the year and I'll tie that in with the utilization.
Utilization at 77% you mentioned, we're going to see a substantial increase for that we positioned ourselves well with the outages. We've had in the maintenance work that occurred.
Be able to do that and ramp up.
For the remainder of the year.
I can speak for the next.
Coming months bookings have been very strong backlog has increased and we see strength underlying demand in our core segments that we have in the economy in general are very strong. Thank you rich.
Yes, I would.
The story on place very similar Emily I'll, just add a couple more comments in detail when we look at the market. We look at a couple of levels. One is that the end user level, where the consumption actually takes place and as Leon covered we saw.
Strong demand there I would say fabricators remains noteworthy and their strength in the construction business heavy equipment remained noteworthy and its strength in several areas there where that poll.
The consumptive side was strong as we look at the distributor level, we did see through the quarter some inventory adjustments as they work their inventories lower and that created some weakness in the spot market that frankly, we chose not to not to chase those tons. We kept a long term focus on profitable tons.
And use that as an opportunity to take some outage time and do some preventative maintenance and get our operations in a position to where they sit today.
Great position to capitalize on the improving market conditions, improving pricing in the improving activity and we would expect to run in Q2 and significantly higher utilization and likely higher margins.
Thanks for the question.
Alright.
Alright.
No that was very clear.
I do have a follow up and it's just around the raw material mix and I. Appreciate the comments that you provided earlier my question is around the Cri component.
I appreciate that you've got a couple of assets there in Trinidad and Louisiana, How should we think about the utilization rates at those two assets and what's the opportunity to continue to increase production.
Yes, I'll ask Doug Johnson, our EVP of raw materials to comment I would just provide maybe a high level first the.
Flexibility of Nucor's business model.
Enabled us to pivot I couldnt be more proud of Doug.
David Joseph team and the entire raw materials team for how they've responded because quite frankly outside of supply chain disruptions that really are inconsequential. When we think about the humanitarian crisis thats existing in going on right now in Ukraine.
It really pales in comparison, all that being said the day after the invasion happened.
Stopped buying materials immediately from Russia and has taken nothing from that we pivoted very quickly to other sources around the world.
And again, our customers are not going to Miss a beat and delivery and our quality and so maybe just touch on the.
On the DIY side, and how you see that moving forward.
Thanks Lee.
Both of our DRA facilities.
We're running well very very high world class reliability rates.
We are seeing.
A little bit of the production.
Production went down in the first part of the quarter and now we're bringing those back up and would expect to run near full capacity in the balance of the year.
Wanted to touch on the flexibility internally.
Demand, where we can shift some products.
Yes, a number of things.
I'll touch on so historically, we've run about 10% pig iron in our mix as we had mentioned in the opening comments.
We've adjusted that today, we're running about 6% of our mix as pig iron.
We also historically in our sheet business run about 25% prime scrap so the DRA you can see gives us a very different mix in our profile going into our sheet mills.
Leon mentioned the team has done an outstanding job of really just turning things around literally overnight.
That doesn't happen overnight that happens from years of investment in training and developing of the team and understanding the market and being able to read the signs and react quickly.
Okay.
Great that's very clear thank you.
Thanks Emily.
We will take our next question from Carlos de Alba with Morgan Stanley . Please go ahead.
Yes. Thank you very much good afternoon, everyone. So maybe just follow up on the metallics mix.
How do you complement the rest of Europe , right now running around 7% pig iron and 25%, Brian Brian described how do you see the component of our strategy scribe there.
What else can you tell us on that front and then more broadly on the cost side.
How are you dealing with the cost pressures on the labor side on the energy front when the natural gas what can we expect there going forward.
Okay.
Let me maybe start with the latter and then Doug maybe some other color on as you talk about the raw material Carlos we have an incredibly flexible supply base. It really gives us the ability to switch between prime and low copper shred were doing a lot of things internally as well as looking at technology externally that continue to move.
US up from a sustainability standpoint.
Bringing the <unk> products into our mix, but also to give.
We give ourselves the opportunity to rationalize how do we use that DRA across Nucor fleet.
Okay.
I think the second part of your question was.
Carlos.
Youre asking about cost inflation pressure really and when you think about nucor.
Inside of our mills.
Like is it roughly 70% of the cost.
And that is typically correlated highly with steel demand.
Not going to move in particular.
Sensitivity TCR.
Any kind of inflation indexes or things of that nature and then when you think about other major cost components at least four new or not for steelmaking in general because of the efficient highly variable cost model that we have a little bit different.
In our case energy is a very large portion of that remaining costs and most of our energy comes from electricity.
And most of that is under tariff rate programs and varies from state to state. So theres not a direct and immediate exposure necessarily there are natural gas nucor is extremely well positioned on that we typically we.
Use a hedge program and we have physical capabilities to produce gas.
Combined to fit today about 50% of our expected needs for 2022, and we're already hedged with about 40% of the expected to use for 2023 and 2024, all those prices are well under the current strip prices.
Because of the active hedge program that we've had in place for a number of years. So we're relatively.
We're not immune to inflationary pressures, we certainly see that in freight and other areas, but we are pretty well positioned to manage through those changes.
Thanks, Steve Doug anything you would add on the raw materials, yes, Carlos just one more comment on the shred. It don't have a specific number for that because all of those numbers change really daily weekly to give us the optimum cost in it but what we have worked on and we've worked on for a number of years is.
Low copper shred, we've always had a presence and producing low copper shred.
But.
Depending on the economics, there's times, where it makes more sense that not in right now in this market with the spread between the obsolete grades in the private rates. It makes a lot more sense and we're putting a lot more.
Not only short term, but long term development into the low copper shreds, which will again increase our flexibility.
Understood and just maybe another question what are you hearing from the from the auto guys.
Our auto customers.
Good to hear.
The sector.
Challenging there.
Using some production run rates or production rates.
When do you see.
Conversations when do you see potentially a pickup on an auto rates.
Look fair question, what I would tell you is again, we've been in the business a long time, we have a very very long term established relationships with our customers.
We know them personally we know their needs and again the investment strategy is to invest not for capacity, but for capability, but specifically to answer your question.
Carlos were not Steve mentioned immune to recognizing what's happening in the marketplace with inflation with interest rates.
Every one of us.
Our team driving to the gas stations everyday to see the impact.
Across the U S. I would tell you, though the demand drivers in non res construction in the digital space digital warehousing, it's been inflation I want to say, it's resilient would be an understatement.
And so those jobs are being what daily and so in many of those cases, our backlogs are at record backlogs and we're closing the order book because we don't want to go out as far as some of our customers would ask us to.
If there's one area that's again been slow to come back obviously, the automotive piece of that as a general but nucor continues to gain market share because it's not a huge piece of nucor's overall mix today, it's in that 5% six percentage point range about $1 five $1 6 million tons, a year, we expect to double that in the coming years, but.
It is really on the energy side and while you are seeing some signs of life in rig counts moving up somewhat it's been a much slower recovery out of the pandemic and that's probably the one area that <unk>.
Continues to have some some opportunity, but overall and again the end markets that we serve with the underlying demand remains incredibly robust.
I appreciate the color. Thank you Liana Steven.
Thanks Charles.
We will take our next question from Timna Tanners with Wolfe Research. Please go ahead.
Yeah, Hey, good afternoon guys.
Good afternoon.
And so the past couple of months have seen unprecedented volatility and I'm just trying to unpack that the way it has impacted new car because it's hard for me to <unk>.
Contemplate like prices for hot rolled fell dramatically then doubled and <unk> cost.
Cost of scrap it had gone up unprecedented amounts and so I'm just trying to think about if you have a lag in terms of that contract pricing are you not seeing some of those lower prices for Q1 and to your Q2 numbers can you remind us about the mix of that and can you talk to us a little bit how to think about the scrap sequentially into second quarter.
Yes, maybe I'll jump in first and then Rex on the sheet side and Doug If there's anything you want to add on the raw materials side, but typically we're in that 75% contract rates on our sheet group. So that's the highest.
Contract rate, we have in any of our product groups. The sheet demand has been again through 'twenty. One was unlike anything I've seen in my 25 years to your point as we entered 2022, we did see some softening saw softening on pricing, which really.
Drove some of the late Q3 early Q4 import buys that you saw and we're seeing now really come into the U S market, where the delta between hot rolled coil in the U S and the rest of the World was way too high again.
That recovered or more equalized in early part of 'twenty two.
And again as we.
We maintain our market perspective, and how we wanted to serve this market is Rex in both Alan and played a shared we didn't go out and chase.
<unk>, we didn't want to.
Just simply look to.
To bringing content if.
Our profitability was going to be impacted and we just made some other decisions as we looked at the quarter and not thinking about market share, but also to look at how do we balance that approach moving forward. So to answer your question as we've looked through that Q2 is going to.
Increased profitability.
And why we stated already we believe that's going to be a record is largely because of the recovery and how quickly the sheet pricing is going to move through into the order book of Nucor or the bottom line of Nucor and thats going to happen.
Again in weeks instead of months and again over the years in conversations with you Theres been times that lag has been way too long and again youre going to see a very quick recovery. The other thing you look at in Q1 is there a breakdown of EBITDA per ton in our EBITDA per ton.
Maximize that value and I think thats going to reflect very strongly against our competition and again flows through to our bottom line for our shareholders. We're ex anything you'd add on the sheet side.
Yes.
Very clear on your premise for your question what I would tell you if we if we had seen a protracted.
And slower decrease you can see that extend out further possibly on the recovery.
We get such a quick deal.
Decrease and then rebuild that youre going to see.
The majority of that move through very quickly as Leon stated in a matter of weeks versus months. The other thing I would tell you is that the vast majority of our contracts.
Are geared towards monthly mechanisms versus something thats a longer timeframe. So we have a small amount that would be quarterly but again with the quick decrease and the rebound that's got it.
Push through pretty quickly.
Other than I would say as Leon mentioned.
As we saw the spot pricing decrease we didn't go in place take the orders for that so now as we have that opportunity the market strengthening we do have the opportunity to place spot tons at higher pricing than we would have a matter of weeks ago.
So thats actually going to help bolster the price and kick it up even quicker so actually understand the premise.
But we see it being tempered by how we manage through this.
Okay. That's helpful on the monthly.
Timna. This is Doug one other thing.
As a little bit different is how we're leveraging our vertical integration and we have a much tighter tie from commercial operations in raw materials.
The reaction time to prices moving against scrap is much much quicker than we've seen in other swings. So building on what <unk> said and stuff, we expect that lag to be shorter.
And last point Kevin is.
As we've seen throughout the years and decades.
Scrap prices are really high so our steel prices and again, thats, where youre seeing today and thats, reflecting in the bottom line.
Got you and if I could have a follow up just to understand the answer to Emily's question and I know you mentioned that commercial strategy, but prices were weak in the first quarter, but demand was strong and.
From everything I heard from me, if I misunderstood correct me, but your volumes fell 20% year over year on sheet. There are only up like <unk>, 4%, despite strong construction and bar products and like.
If prices fall as nucor withholding tons or is it more about demand and how do you ramp up gallatin environment, where seasonally demand slips in the second half just trying to square that if you don't mind.
Yes, no. It definitely was demand demand definitely dropped off in Q1 as we saw.
Softening in the sheet market. So yes, it was not a.
The same environment, we saw in Q3 or four 'twenty one at all again pricing was dropping I think there is some.
Wondering in the market, how long how protracted what would that be and it was a great time for nucor to capitalize on the maintenance outages that we delayed and many of our sheet mills and get caught up.
And again as pointed out earlier not to chase tons and so we.
We didn't do that and again a very deliberate.
Mindset on our part too.
To do that the other piece of that is in the distribution side.
As those supply chain side of distribution.
Was full.
And then.
We didn't enter the market nearly as aggressively as we would have typically seen in years gone by in the early part of.
January or February timeframe trying to understand what the market was going to do longer term into the back half of Q1 into Q2, I think again that pivot came very quickly.
Those tons are back and flowing and so I think youre going to see I know youre going to see a significant increase in utilization rates.
Both our sheet and plate groups.
Got it okay. Thanks again guys.
Thanks.
We will take our next question from Seth Rosenfeld with BNP Paribas.
Please go ahead.
Hi, good afternoon, thanks for taking our questions today.
If I can ask a follow up with regards to the outlook for Dallas I believe in your prepared remarks, you've targeted I think half a million ton shipments from 'twenty two versus prior guidance last quarter of 800000 tons you guys.
A bit of color on what has led to a reduction in guidance.
And then the subsequent ramp up schedule.
Later quarters.
Separately, if you can give us a bit of color also on Brandenburg.
Remember the schedule for late 'twenty two into 'twenty three what was the volume through the interest anymore.
Yes, great questions I'm going to turn it to.
We're actually right now Barry to give you a more detailed update on Gallatin in Brandenburg alright.
Alright this is <unk>.
Sheet regarding Gallatin.
We had an extended outage.
As we were in December into January and we encountered some unique challenges in the demolition, which frankly delayed equipment install by a few months. So that's the short answer.
Team responded really well safely proud of what's been done and as Leon mentioned in the opening remarks.
In a matter of weeks six to seven weeks will be fully commissioned with all pieces of the equipment, there and operating so subject to market conditions, we would expect to be running really at nameplate capacity during the third quarter.
And that's going to be an additional 500000 tons majority is that during the second half of the year.
So this is Allen on Brandenburg.
They're in Brandenburg continues to do an outstanding job of executing on that in that project and they've come through COVID-19 to come through supply chain issues and they remain on track for startup at the end of the year.
Late Q4 of 2022 in terms of meaningful production tons I would expect those in Q1 of 'twenty three.
I don't have a number to share with you other than to say well that's largely market dependent so typically in the first year of startup we aim for a run rate by the end of the year of three quarters of capacity, but how that looks through the year was determined on where the market sits at that point in how we can respond to it.
Thanks Al.
Thank you and if I separate question, please with regards to steel products.
In your prepared remarks, you touched on strength in the construction market, we heard from one of your peers earlier today.
Discussing the really excellent margin youre, saying going into Q2, and then beyond that later quarters of this year could you give us a quick update on the strength of that backlog, both in volume and pricing terms and how you'd expect margins to develop not for Q2, but if you can later quarters of the year. Please.
Yes, certainly Seth I'll ask Chad to Mark to comment on that just as a backdrop. The performance of our products groups has been spectacular and again I couldn't be more proud of how they responded again, what they've done and how they are achieved.
We expect continued great things and improving things.
And throughout the year, but Chad you want to provide a little more detail on the products.
Thanks Leon.
Sure.
As mentioned, we continue to see very solid seasonally adjusted quoting activity.
Q1, and as we head into Q2, and our overall backlogs are very strong and I would note with improving margins.
Our customers are overwhelmingly bullish on 2022 demand.
I would remind you that.
A new course portfolio of downstream businesses. It gives us a really good.
Annuity into into that space with our rebar fab steel piling pre engineered metal buildings racking now in the portfolio of steel tubing, we've got insulated metal panels, joist and deck and steel conduit. So overall, we were very excited about the demand picture looks like as we head into 'twenty.
'twenty two.
We've mentioned this before but.
Im still amazed that the strength of the digitized economy. The green economy. They are just stronger creating significant demand for distribution centers warehouses server storage facilities and EV related.
Facilities as well and we're also seeing manufacturing growth plants being.
Being built manufacturing plants across the country. So we're excited.
Yes.
Steve I, just want to add on to.
Chance comments here.
Our product segment our downstream.
Products group is it.
Meaningful part of our portfolio and I think that's one of the real Differentiators for Nucor versus many people in our space, we offer a wide array of end market solutions.
Just in the last quarter that group contributed just over $760 million in EBITDA.
To give you a sense of scale on that and we projected second quarter will be even stronger so.
That's a real lever and.
A positive attribute of our.
I know that some folks don't have.
Okay. Thank you very much.
Thank you Sir.
We will take our last caller from Curt Woodworth with credit Suisse. Please go ahead.
Yes, Hey, good afternoon.
I wanted to follow up.
Wanted to follow up a little bit on the steel products segment as well I know you've done a fair amount of acquisitions.
And that business. So I guess when you look at the backlog and kind of the long term.
The earnings power of the business do you feel like the <unk> run rate.
Is there and then in terms of <unk>.
Just given your guiding to earnings being up even though you have some spread compression.
Potentially in the long product side of the portfolio it seems to imply that.
EBITDA would be up pretty significantly in the steel products business I was wondering if you could give any.
More granularity on that.
The first question.
Yes.
Thank you Kurt and we're not going to guide to a specific target EBITDA for that group at this point in time, you know we provide.
Quantitative guidance much later in the quarter, but.
We will see the end market demand is strong across the board and backlog are strong.
That already from us today.
And.
Again. These businesses are ones that are very responsive in terms of your ability to generate upside cash flow benefits to the company.
Strong so I think thats one of the things that.
The highly variable nature of the cost of these products.
And these groups are differentiated in any way.
I would just add.
Due to seasonality that run rates will pick up as we move into second and third quarter construction projects are in full swing and again the backlog is strong. So again, we have many different businesses. So im careful when I say in general.
But overall I would expect to see some of the run rates in most of our businesses pick up some.
I encourage you mentioned long.
<unk> provided a very quick comment on logs, if you think about the 10 year history.
<unk> Mill for example, probably averaged 70% utilization over the last decade, as we entered 2021.
That increased over 90% and so that that beam mill in that market leadership position, we have in structural creates a.
Incredible, earning power and again that demand in those drivers remain very strong both in beans, and rebar and most of our longs businesses that are generating.
Incredible returns for our company.
Okay, and then with respect to M&A.
We expect to continue to deploy more capital into the steel products.
Segment and then.
Are you evaluating any potential increased investments, let's say further.
<unk>.
Our other sorts of ways to get more captive pig iron Prime scrap thank you.
Okay.
Look as we continue to again set the first quarter record as we said.
Record earnings in 2021.
Over $6 billion of earnings.
We're continually looking for ways to deploy that capital as Steve laid out earlier in his comments about our capital allocation framework and philosophy is first to reinvest in.
And growth and we're going to do that in a multitude of ways are our mission statement is they were just grow the core expand beyond and live our culture. The core being those core assets. So, yes, youre going to see US continue to do things like the micro mill like the West Virginia plant like the expansion at crawfordsville than on the expand beyond piece.
The cornerstone acquisition of the insulated metal panel building were Hannibal industries, and bringing on the racking those things will continue to.
To be great opportunities for Nucor to continue.
To diversify and grow our portfolio and then there's a whole bunch of irons in the fire hurt that I can't talk about that we're going to continue to look and bring it in.
Maximize shareholder value that we're really excited about.
Okay, great. Thanks very much.
Thank you.
Ladies and gentlemen. This concludes today's question and answer session. At this time I'd like to turn the conference back to Liam.
The <unk> for any additional or closing remarks.
Thank you as we conclude the call today I just wanted to thank our team for your continued focus and delivering on our most important value the safety health and well being of all 30000 men and women, who make up the nucor family to our customers. Thank you. Thank you for the trust that you place in the Nucor team with every order our investment strategy.
He has to build the capabilities to serve you today and well into the future and finally to our shareholders. Thank you for trusting inflation in us with your valuable shareholder capital, we look to assure that well maximizing your returns. Thank you for your interest in Nucor and have a great day.
Ladies and gentlemen. This concludes today's conference. We appreciate your participation you may now disconnect.
Okay.
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