Nucor Corp (NUE) 2003 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Nucor Corporation's first quarter earnings release conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. If anyone requires assistance during the program, press star then zero on your touch-tone phone. As a reminder, ladies and gentlemen, this conference call is being recorded. Now I'd like to introduce your host of today's conference call, Mr. Dan DiMicco, Vice Chairman, President and CEO. Please go ahead, sir.

Thank you, good afternoon and thanks for joining us for Nucor's conference call. We will briefly review the first quarter and then take your questions.

First, I would like to say hi to all the members of our Nucor team who are listening in to this conference call on the Nucor website. The 9,800 men and women of Nucor have worked hard and worked together to keep our company profitable in the face of the most challenging U.S. deal market conditions in more than two decades. Terry Lisenby, Nucor's CFO and our EVP's John Ferriola, Mike Parrish and Joseph Rutkowski are with me this afternoon and Hamilton Lott is traveling but has joined us on the phone. They will be with able to answer your questions, as well.

For those of you new to Nucor Corporation, allow me to provide a brief description of our business. We are the United States' largest recycler with over 16 million tons expected to be recycled in 2003. With 2002 steel production of 13.6 million tons, Nucor is North America's largest steel producer. Nucor has 45 operating facilities in 14 states and approximately 9,800 employees. We're the most diversified steel producer in the U.S. with products that range from cold-finished steel bars to motor laminated steel to pre-engineered buildings. We're the nation's largest structural steel producer, the largest steel bar producer, the largest steel deck producer and the largest U.S. producer of reinforcing bar. Other major products include hot rolled, cold rolled, galvanized sheet steel, steel plates, fasteners, 409 stainless steel and light gauge metal framing. Excuse me.

Our first quarter earnings of 23 cents per share are down from a year ago, quarterly earnings per share of 26 cents. And reflect ongoing very difficult economic conditions, particularly in manufacturing and a non-residental construction markets. First quarter, 2003 earnings included a two cents per share contribution from a graphite electronics lawsuit settlement received during the quarter. These results, while within the guidance of the 20 or 25 cents per share we gave on the conference call in February are nonetheless very disappointing, but tough markets and tough times are nothing new for our economy or for Nucor. Our Nucor teams meeting head-on to the challenges faces us. We're continuing to focus on revenue growth, cost reduction, productivity improvements, penetrating new markets and the successful implementation of our strategic growth plan. The new records achieved in the first quarter in all of these areas are testimony to that. In 2003, the U.S. manufacturing sector and steel markets are entering the third consecutive year of depressed demand and pricing. As I've noted consistently, economic market and steel market downturns are never easy or pleasant to work through.

With approximately 60% of our end use demand tied to construction, it requires a relentless focused effort from the Nucor team to keep our company profitable as we execute our strategic plan for generating growth and raise returns on capital. Investments in these current tough market conditions should yield very attractive returns over the long run. This long-term approach to managing and building our business over the years has placed Nucor in an unrivaled position of strength in the North America steel industry.

A few statistics highlight the adverse market conditions where most Nucor businesses have been operating in for more than two years. U.S. Department of Commerce indicates that through February 2003, non-residental building construction declined 27% from the peak seasonally-adjusted rate reached in March 2001. Over the same period, the decline in spending within key segments of non-residental construction that are key demand drivers from many of our businesses is even more dramatic, industrial buildings down 59%, office buildings down 47% and hotels and motels down 43%.

Most importantly, Nucor's once again poised to emerge from the downturn stronger than before. A long-standing tradition of your company. Nucor is pressing ahead with our focused and disciplined strategy for driving long-term growth and our company's earnings power and raising returns on capital. In short, we are taking advantage of challenging markets to gain market share, penetrate new steel and steel products markets, implement new, disruptive and lead products technologies and sharpen our cost reduction of quality improvement initiatives. The keys to executing our strategy remain, first, optimizing existing operations. Second, implementing Greenfield growth to capitalize on new technologies and third, the pursuit of strategic acquisitions. We'd recognize that this strategy will further dampen our earnings in the downturn, however, the payoff is much more substantial. It provides a strong foundation for sustained growth in Nucor's earning power. Our financial strength allows us to take a long-term perspective in building our business. Our market share expansion is again evidenced by the new record quarterly steel shipments in the first quarter of more than 4.35 million tons or a year-over-year growth of 33%. This compares against an increase of roughly 5 to 6% in total U.S. domestic steel shipments.

It is worth reiterating that our goal has never been to be the biggest. It is to be the most profitable. And we do see a strong correlation between profitability and market share leadership in our core products. Market leadership is the critical underpinning to building long-term earnings power and earning attractive returns on shareholders capital. Our emphasis is to build profitable market share, Nucor's continued profitability during the continued downturn is evidence to our commitment of the goal.

The acquisition of our new steel mill in Decatur supports our strategy to build profitable market share and broaden our steel product, our sheet product portfolio to include higher quality grades. Decatur's successful start-up continued in the first quarter. For the month of March 2003, Decatur's annualized reduction rate reached 1.2 million tons. Most importantly, the quality of Decatur's product is well-received by customers. We continue to expect full year 2003 production at Decatur of approximately 1.5 million tons.

Nucor's new facility in Crawfordsville, Indiana continues its work with the potentially revolutionary castrip technology to directly cast stripped steel. After starting up operations less than a year ago, the castrip facility evolved into a 24/7 operation. While still very much in the developmental phase, today there is the expectation that salable, prime product will emerge from the end of the line each time a laid of steel is brought to the plant. The Crawfordsville team has established the technical capability of the process to make thin, low carbon replacement product. Additionally, [INAUDIBLE] the standard Nucor scrap mix have demonstrated excellent surface quality. Our focus today is on building it, building to cast commercial quality product every ladle, day in and day out.

Our Bar Mill Group has completed a virtually seamless integration of the four operating mills of Birmingham Steel that we acquired in December of 2002. Excluding the roughly $7.2 million of one-time purchase accounting inventory adjustments for this quarter that we discussed in our last conference call, these mills are already making a positive contribution to Nucor's operating profits. Several of the plants set production records in the just-completed quarter. It should be easy to understand why our excitement over this acquisition continues to build from already high levels. As we become more acquainted with the businesses built from our new teammates from Birmingham, Seattle, Kankakee, Jackson and Florida.

Nucor announced late last month, the purchase of substantially all the operating assets of the Kingman, Arizona rebar and wire rod mill of North Star Steel for $35 million. The purchase price did not include working capital but did include spares and parts inventories. Nucor assumed no material liabilities of the North Star operation. The Kingman mill has an annual melting capacity of 650,000 tons and annual rolling capacity achieving 500,000 tons. North Star stopped operating the melt shop in January 2000 and idled the rolling facility in March 2003. We are evaluating several opportunities to utilize these assets, either as a stand-alone operation in Kingman or placing the equipment in other locations in our Bar Mill Group.

Our commitment to continue improvement is being applied in a number of initiatives, the Nucor best-marking program is identifying and transferring best practices across all Nucor divisions. With optimization of existing operations representing our most potent opportunity for profit growth, the best marking is a top priority of everyone on the Nucor team and our Bar Mill Groups $200 million capital projects program is on target for the scheduled 2004 completion date. Key projects again include modernization of the Nebraska rolling facilities and the melt shop in Texas and the South Carolina mill. And today we announced a joint venture agreement with CVRD to construct and operate an environmentally-friendly pig iron project in northern Brazil. The initial phase of the venture will utilize two conventional mini-blast furnaces to produce 380,000 metric tons of pig iron per year. The charcoal source will be exclusively from eucalyptus trees grown in a cultivated forest, encompassing about 200,000 acres. Significantly, the cultivated forest will consume more carbon dioxide than will be emitted by the mini-blast furnaces.

Nucor's equity investment in the project will be $10 million and CVRD will contribute the land and the forest assets. The venture will be 78% owned by CVRD and 22% owned by Nucor. As the largest purchaser of pig iron in North America, this product helps us solidify a consistent source of supply and takes steps to ensure the sustainability of pig iron production using charcoal from cultivated forests. We're extremely pleased that our memorandum of cooperation signed last year has resulted in such attractive investment projects. Nucor looks forward to working together with CVRD to capitalize on additional opportunities arising from the globalization of steel markets.

Nucor's strategic growth plan is being implemented at a time of significant industry turmoil and consolidation. The consolidation and rationalization of capacity that is taking place and which must continue to take place will increase the probability of a healthier, more stable industry, one where efficient producers can earn in excess of the cost of capital. I will add here that simple consolidation will not cut it. There must be significant rationalization as part of the consolidation that is taking place, that the industry is to return to profitability.

We are also working with the administration and our elected representatives to ensure fair trade in the U.S. steel market. I have pointed out on many occasions that free trade must be fair trade. The lack of rules-based commerce is also known as anarchy. It doesn't work.

As you can see, the Nucor team is busy pursuing a number of initiatives all focused on helping us deliver our earnings of shareholder value objectives. This is why we're very optimistic about Nucor's prospects for the future. We believe Nucor's best years are ahead of us.

At this time, I'd like to ask Terry to now review the results for the first quarter. Terry?

Thanks, Dan. Good afternoon.

Sales for the first quarter were $1,480,000,000, an increase of 37% over the first quarter of 2002 level. Total steel shipments of 4,346,000,000 tons set a quarterly record and were up 33% year-over-year. Steel joists production of 107,000 tons was up 13% from last year's first quarter. Our first quarter 2003 average sales price for steel and steel products of $342 per ton increased 3% year-over-year or $10 per ton. This improvement was driven by a 24% increase in sheet pricing, partially offset by the declines of 17% in structural prices and 9% in joist prices. However, the composite average sales price decreased 8% or $28 per ton from the fourth quarter. This includes declines of 10% in structural pricing, 5% in bar and 4% in sheet prices.

Preoperating start-up and acquisition expenses of new facilities increased to $27.8 million in the first quarter of 2003. From $23.5 million in the prior year quarter. During the first quarter, these costs were primarily attributable to Nucor Steel Decatur and castrip. In the first quarter of 2002, these costs are related to the North Carolina plate mills start-up and the Chemung, New York vulcraft facility.

The average usage cost of scrap and scrap substitutes for the first quarter of 2003 was $122 per ton. Up $26 per ton year-over-year and up $4 per ton from the fourth quarter. A LIFO charge of $6.4 million for the first quarter of 2003 compares to a year-ago quarterly charge of $5.3 million.

Our gross margin of 5% in the first quarter of '03 compares against a gross margin of 9.3% for last year's first quarter. Earnings before income taxes were $6 per ton for the first quarter of 2003, down from $10 per ton for the first quarter of last year.

Cash and short-term investments totaled about $182 million at the end of the first quarter, down from the year-end 2002 level of $219 million. The decline reflects our $35 million purchase of Kingman, Arizona rebar mill assets. Approximately $128 million of the April 5, 2003 cash and short-term investments position was held by Nucor Umada Steel Company, which we own 51% of.

Effective with the May 12, 2003 cash dividend payment, Nucor's quarterly dividend rate has been increased from 19 to 20 cents per share. Nucor has increased its dividend every year since we began paying cash dividends 30 years ago. Total debt at the close of the first quarter of 2003 was $879 million, down $16 million from year-end. Total debt was 26% of total capital at April 5, 2003.

Capital expenditures were $42 million for the first quarter of 2003 and we project approximately $325 million total in capital spending for this year. Depreciation expense for the first quarter of 2003 was $91 million and is expected to be approximately $375 million for the full year.

Reviewing the numbers for the 13 weeks ended April 5, compared to the year ago period, for sheet steel production was up 28%, shipments up 21%. Net orders down 18%, backlog down 39%. For steel bars, production was up 82%, shipments up 92%. Net orders up 136% and backlog up 48%.

For structural steel, production was down 14, shipments were down 12% and net orders up 8% and backlog up 36%. For steel plate, production was up 8%, shipments up 14%, net orders up 16% and backlog up 14%. For steel joists, production was up 13%, quotes up 17%, net orders up 28% and backlog up was 14%. For steel back, production was up 24%, quotes up 18%, net orders up 27% and backlog up 32%. Cold finished steel, production was up 38%, outside shipments up 35%, net orders up 26% and backlog up 21%. Sheet steel average pricing increased by $66 per ton in the first quarter from the year-ago level but declined by $16 per ton from the fourth quarter.

The combination of continued weakness in economic activity and domestic capacity restarts is pressuring sheet steel spot market pricing. Bar selling prices decreased by $14 per ton in the first quarter from the fourth quarter and were essentially flat year-over-year. This was almost entirely due to product mix with the inclusion of significantly more lower price rebar tons resulting from the December 2002 acquisition of the four operating mills of Birmingham S teel.

During the first quarter, a total of $35 per ton in price increases on bar products was announced in response to a sharp rise in raw materials cost. A good portion of these price increases is likely to be realized during the second quarter. Structural steel average pricing decreased by $36 per ton in the first quarter from the fourth quarter and by 67 per ton from the year ago level. This market continues to be burdened by excess capacity and very weak non-residental construction activity. However, we announced two price hikes, each for $15 per ton in February and April. Reflecting the dramatic surge in raw materials cost earlier this year it appears these price increases are being accepted by the market. Average selling prices declined by $12 per ton in the first quarter from the fourth quarter, were up $23 per ton year-over-year. Any further improvement in plate pricing will require improved manufacturing activity and/or the removal of inefficient excess capacity from the plate market. Steel joist average selling prices in the first quarter were down $8 per ton from the fourth quarter and down $57 per ton year-over-year. This is conditions in our joist and metal building businesses remain severely depressed, however, we are encouraged by the strong positive trends seen in the first quarter for orders, quotes and backlogs at all of our joist operations as well as our pre-engineered metal building plants.

Okay, at this time, I'm going to turn the meeting over to John Ferriola, our Executive Vice President over flat-rolled, for him to give a brief update on the flat-rolled sector. Go ahead, John. Thank you.

Good afternoon.

For the sheet group, the first quarter of 2003 was significantly better than the first quarter of 2002. Our average sales price per ton increased by $66. We shipped 1,841,000 tons in the first quarter of 2003, an increase of 325,000 tons or 21% over first quarter of last year. The majority of this increase is attributed to the start-up of our Decatur facility. We expect sheet mill shipments for the second quarter of 2003 to be approximately two million tons.

As we move into the second quarter, market conditions in the sheet products are very soft. The general economy continues to struggle. Consumer confidence is low. There is an excess of domestic capacity and the demand for sheet steel products is weak. Demand for hot-rolled products is the softest followed by cold-rolled and then coated products. A positive factor is that foreign mills are less active in offering steel for the import into the United States. For the most part, second quarter price increases have not been realized and prices have actually slipped anywhere from 10 to $20 a ton in the last few weeks. Steel service centers are reporting that their inventories are high. These reports indicate that the inventories are close to four months on the average. Most service centers are telling us that their business is off 10 to 30% depending on product mix. As a result, -- or as a not adding to their inventory, they're only buying items they know they can turn around quickly.

The export market has also slowed since the first quarter and prices slipped significantly from materials shipping into China. However, certain export markets to Europe as well as South America have remained stable and prices have remained relatively firm. As a result, we will continue to export material through the second quarter for not only hot-rolled and cold-rolled products. It will be at a significantly-reduced volume from the first quarter.

In the first quarter, we exported approximately 270,000 tons. In the second quarter, this number will be in the range of 50 to 70,000 tons. We will continue to pursue export opportunities when they make economic sense. The energy market is strong and as a result, demand within the pipe and tube market is strong.

Nucor has always maintained a healthy position in pipe and tube and as a result continues to benefit from the strong demand in that market. Our second quarter scrap usage costs will be up approximately 4% relative to the first quarter. We expect prime scrap purchases to be down 10 to $15 for the sheet group over the second quarter with the decreases being heavily front-end loaded. We also expect energy prices to ease during the second quarter.

At our Decatur, Alabama facility, we're now fully staffed to continue with production. We have recently set new hot pan production and shipping records of 439,000 tons and 39,000 tons respectively. In one recent three-week period, we hot-rolled 88,857 tons, an annualized production rate of 1.5 million tons. We are still forecasting this facility to produce 1.5 million tons this year. We continue to expand our product offerings by perfecting new grades for this facility. Our quality continues to improve as we gain experience with the pack force rolling technology used at the Decatur mill. We have completed the commissioning of a hot iron top feed systems for both electrical services allowing us to produce heat to steel with only a single bucket charge of scrap. This has decreased our tap to tap times by 45 minutes per heat. Both of our casters -- I'm sorry, have decreased our tap to tap times to 45 minutes per heat. Both of our casters have been fully converted to liquid core reduction capability, giving us the ability to squeeze the cap lab from 90 millimeters to 70 millimeters to produce the products. We are producing product with a gauge of .06 today and we are confident that we will eventually be able to produce gauges of .05 or less. Although we are still in the start mode at Decatur, financial performance of this division is continuously improving and we expect to be profitable later this year.

Progress at our caster facility in Crawfordsville, Indiana continues toward organization. The technology produces lick weed steel directly between rolls to form sheet less than 1 millimeter thick without the need for a slab reheat furnace or multiple rolling mill stamp. During the first quarter of 2003, colder temperatures, frequent power curtailments and a strong export log book, we do see a large amount of liquid steel available for the caster project, however, this does not defer the cast 15 from making a significant break through with the technology in the first quarter. During the first nine months of operations, the team used a special scrap mix and a special chemistry that was readily castable to help the plant start up with commissioning and casting trials. This was not the same scrap mix as used by our existing Crawfordsville melt shop nor was the special chemistry always compatible with ASTM specifications for customer quality requirements. Today, all casting is done with the regular scrap mix and a chemistry consistent ASTM specifications and customer quality requirements. The caster team working with operators from all of our divisions achieved this very significant milestone during the past quarter. Prior to currently being cast to a thickness of 70 to 80,000 or approximately two millimeters or approximately 1.6 millimeters. Casting liquid is determined by the width of the casting rolls, which is currently 53 inches or 1345 millimeters. A long-term objective will be to cap this in as .040 with one millimeter and roll this down to .28 or .7 millimeters. Another long-term objective is the cast width up to 80 inches or two meters wide.

From the start-up in May of 2002 through the end of the first quarter of 2003, caster facility has coiled approximately 25,000 tons and shipped 9,000 tons. During the first quarter of 2003, caster made 10,000 tons and shipped 6,000 tons. We are continuing to execute our strategic plan with improving our product and customer mix. In the first quarter, we continued to improve our market position in our 14 markets, automotive, appliance, motor lamb nations and stainless.

In automotive, we are on track to reach our goal of shipping 300,000 tons this year. We are currently selling on either a direct tier 1 or indirect basis to many of the domestic and transplant automotive companies. As our reputation grows in the market, we have been given the opportunity to trial more products with our existing automotive customers as well as the opportunity to expand our out motive customer base. Presently, we're focusing on nonexposed structural applications. We continue to add the technical resources and the equipment required to move into other applications. The vacuum to gas in addition at Berklessly a prime example of the type of equipment we are installing to support our further penetration into this market. The project is on schedule for start-up in the fourth quarter of this year. Appliance continues to be a good market for our products.

Long guard market has been a particularly bright spot for our Berkeley division. In general, this market has been robust and Berkeley has increased its participation by 6% over last year. This market will continue to be a focus for our group.

In the motor lamb nation market, we now have a position with virtually every major motor manufacturer. This has been an excellent market for us and we plan to continue our growth in this business. On the last call, we projected stainless shipments of 50,000 tons for 2003. We are right on track for meeting that goal and the first quarter we shipped approximately 12,000 tons of stainless, an increase of 50% over the first quarter of 2002. Most of the increase in our stainless shipments went into the automotive exhaust market. We continue to improve our quality and participation in the stainless market.

In summary, the first quarter of 2003 was a quarter of mixed results for our group. We saw pricing pressure along with rising energy and spare costs. On the positive side, we saw continued progress at our caster and Decatur facilities and most importantly, we had continued success pursuing our long-term strategy of improving our product to customer mix.

Thank you, John. At this time, I'd like to ask Mike Parrish to give us a brief update on some of the bar mill projects.

Thanks, Dan. Good afternoon.

Overall, received business condition ease for the bar mill group improving in the second quarter. Scrap prices will be down about 5% from the first quarter. Also, the majority of price increases that we announced in the first quarter should be realized by the end of the second quarter.

In rebar, the demand has been stable over the past several months. There's also been a better balance between supply and demand in the rebar market, due mainly to a reduction in imports this year. Although demand from merchant bar shapes is depressed from a poor construction market, we believe the recent price increases on those products will stick.

As Dan said earlier, our recent acquisition of the Birmingham mills continues to go extremely well. We've set numerous records in the last few months. Based production and shipments, this was the best first quarter that these four mills have ever had in their entire history whether with Nucor or with Birmingham. We are also seeing numerous benefits from our best-marking programs with the new films and our existing ones.

Congratulations and thanks to all these employees but especially to our newest members at Birmingham, Jackson, Kankakee, Seattle and Florida. Thanks.

Thank you, Mike. Joseph Rutkowski will now give an update on the beam and plate business.

Thanks, Dan.

As Dan discussed earlier, the non-residental construction market is very, very depressed. It's certainly effecting most of the moves in the beam and plate markets since these products find the majority of their uses there. However, there are some bright spots. The price increases announced in February and April of $15 each, are being realized on beams. And our bookings in the first quarter on beams and Nucor UMATO were at levels only 14% off our record year pace. There are very few import offerings coming in to disturb the market, but the overcapacity in this market makes it very difficult for everyone. Highway quotes with the most challenging are pricing at very competitive levels. In the plate market, we continue to gain share with our first quarter orders coming in at an annualized rate of over one million tons. Unfortunately, the increases in energy costs and raw material costs have not been able to be mitigated by any price moves because of severe overcapacity in the sector. In both areas, however, our people continue to work steadfastly on efficiencies, best practices and cost reductions that allow to us remain confident in the marketplace.

I'd also like to make a few comments about our pig iron project with our partner, CVRD. As stated in our press release, this is the first phase of production with 380,000 metric tons with the ability to expand. There are a few parts of this project that are worth bringing up. The current Selmar forest, which is controlled by CVRD, has eucalyptus trees currently growing and is already in cultivation. There will be about 82,000 usable acres of cultivated forest there with the remainder of the 200,000 total acre forest staying in natural areas. We will use large kilns with emission controls to make the charcoal and use PCI, pulverized coal injection, for efficient use of the fines into the blast furnaces.

Together, we're also discussing a prototype kiln with newer technology to improve yields and cycle times and help us minimize the amount of trees needed for harvest per ton of pig iron, we also expect that reasonable carbon credits will be coming from this facility. As we stated before, the forest will be consuming much more CO2 than is produced by the smelting in the blast harvests. All of these factors lead to a very sustainable project with the ability for us to expand.

This is in stark contrast to much of the pig iron produced currently Brazil. Many independent producers do not control the wood source nor do they replenish the forests. The indigenous people of the areas often make charcoal and beehive furnaces with no emission controls. This is not sustainable. Nucor's privileged to have found the partners forth right and strong as CVRD. And we look forward to strong partner ship together. Thanks, Dan.

Thank you, Joe. At this time I would like to open the meeting up to questions. One condition, as usual we'd like to limit it to one question at a time from each individual asking question, so we can be sure to get to everybody, then we can come back and take additional questions as time permits.

Thank you, ladies and gentlemen, if you have a question at this time, please press the 1 key on our touch-tone phone. If your question was answered and you wish to remove yourself from the queue, please press the pound key. And if you're on a speaker phone, please lift the handset before asking a question. One moment for our first question.

Our first question comes from Mike Gambardella from J.P. Morgan.

Yes, good afternoon, Dan, how you doing?

Good afternoon, Mike, we're hanging in there, how are you?

Okay. I have a question on scrap. Scrap, your scrap costs were up $4 a ton in the first quarter, just sequentially from the fourth quarter. What do you think they will be up overall in the second quarter because scrap, as far as I can see, in the first quarter, was up, you know, depending on the grade, anywhere from, you know, 20% in some cases, 35, even 40%.

First off, the scrap cost number that you pensioned, Mike, is for usage. Is that the way you understand it? It's a usage number, up $4. Not the purchase number.

Right.

Okay.

Right, right, I understand you have the lags in terms of --

Just wanted to clarify -- Just want to be sure we were talking apples and apples there.

As far as the scrap price increases going forward, prices are already coming down, scrap coming into our yards is already coming in at lower levels than the peak and we will see throughout the quarter a softening off of the maximum. So, our usage numbers will vary dependent upon the actual inventories that each mill had on the ground, some cases, particular in the Bar Mill area, we had very low inventories. So, those lower prices will work their way through rather quickly and some of our larger plants it will take a little bit longer. On average, probably from a scrap standpoint, user standpoint, we're seeing about flat is what we're expecting, because of the Dow we're moving in scrap prices and also keep in mind that usage number is a mixture of scrap units and scrap replacement units and we can vary the amount of the higher-priced stuff, scrap that we use and scrap replacement units dependent upon what's going on in the marketplace.

So, while you saw some product scrap numbers go up for individual scrap prices, we changed our mix to take advantage of lower price scrap so that our average usage cost doesn't see the full brunt of some of those scrapped moves on an individual item by item basis.

So, you're saying that for the first half of the year, your scrap, you know, from the beginning of the year, your scrap costs are only going to be up $4 per ton because you're basically saying there is going to be no change in the second quarter?

Right now, you know, it might be at worst case scenario, some of our plants might be up $5, some of them might be down. On average at worst, it will be another $4 move, but could be as flat.

Okay, I was just trying to reconcile the comment you made in the release I guess about your earnings being flat in the, you know, from first quarter to second quarter, if, you know, I figured you'd get some type of bump-up in scrap in terms of the lag of purchasing you'd have that would push it up in the second quarter and it seems like you're saying that flat-rolled pricing, which is about half of your mix, would be down sequentially.

Yeah, what you've got going forward, if you're looking at, like I think you are here, Mike, is a broad impact on earnings for the second quarter. You've got a number of things working for us and a number of things working against us. The biggest thing working against us is the pricing on flat rolled. Without a doubt. And while we have achieved some price increases early in the quarter as John mentioned over the last few weeks, prices have softened 10 to $20 a ton and about, does the, you know, where we end up for the entire quarter on flat roll pricing is not known at the present, in terms -- it's not going to be down $30 or anything like that because we did achieve some price increases early in the quarter.

On the other side of the equation, you have an improving pricing situation on bar products which is now, you know, six million ton market for us. We've also gone up on our beam prices, $30 a ton. And the market has received those well in spite of the overcapacity situation. And with the moderation of the scrap pricing working its way through quicker because of the inventory situation and the amount of tons we're processing on a quarterly basis, which is, shoot, now it's somewhere around 4.5 million tons or more, of scrap and scrap substitutes. Also, energy costs are coming down dramatically from where they were in the first quarter. We know they were up $4 a ton on average during the first quarter. We may see an equal adjustment downward in the second quarter.

So, there are -- and the other thing that we're seeing is that we do see, as we mentioned, some significant upward movement with respect to orders and backlog and quoting activity on our joist, deck and metal building business. Whether that actually throughout the quarter results in any price increases will probably be minimal but it will have an impact on our operations and our cost of the operations.

So, while the flat roll area is definitely a negative, there are other aspects of our business now that are actually beginning to turn around and beginning to have a positive impact on earnings. So, it's one of the benefits and at times, one of the negatives about being a well-diversified steel producer.

One last scrap issue, on the beam market, so, what you're saying, then; that on beams you can pass through a $30 -- these two $15 increases even though -- I forgot who was talking, but you have significant overcapacity --

Absolutely.

-- and that your scrap is only going up, you know, like 4 or $5.

The market -- remember, you've got scrap going up, you have energy going up when the price increases are put in place, all of the producers, both domestically and also for the most part, internationally, are scrap-based electric furnace producers and the pricing increases have held both the first $15 and the second are being well received. Now, that's on the wide product, on the H-piling as Joe mentioned, that's a much more competitive business right now and at the present time, that's exactly the way it looks. Now, I'll guarantee you that our competition is having a more difficult time earning a profit in the beam business today than we are for a number of reasons, which I won't go into, but some have to do with start-up situations. That's normal when you start up new plants. Whether or not price increases hold depends upon how the competition reacts. You're only a price leader if everybody follows.

Gotcha. All right, I'll pass it on to someone else.

That's more than one question! Now that we've established our strict discipline on the number of questions, we can move on!

Thank you, next is Charles Bradford from Bradford Research.

I'd like to ask about the selling price and scrap cost data that you distributed? Looks like all of last year's numbers were changed for steel, which you noted were changed through a reclassification. Can you explain what the reclassification is?

Chuck, please repeat what you said, I don't think we caught it all. You're coming through a little bit muffled?

Okay, the cable that you distributed was selling prices and scrap costs on a quarterly basis. So, all of last year's data was [INAUDIBLE] to have been changed. You note that the change was due to a reclassification. Can you explain what that reclassification was?

Terry, want to take a shot at that?

It had to do with the reclass of great revenue that we did in the -- I guess it reflected in the '02 annual report.

So, sheet and bar average price was about $13 and structural about $29.

Whatever it is on the sheet, I don't know by product. But that's -- that's the -- that's the change.

Okay. Thank you.

That's the actual revenue change.

Thank you, our next question comes from Aldo Mazzaferro with Goldman Sachs.

Hey, good afternoon. Terry, I wondered if you could talk about the tax rate in the first quarter it was, you know, down the low 20%, 21% or so. And how much of that was the -- your revision for certain issues that you called it and how much was the tax -- investment tax credit? And what's the likely rate that would continue through the year?

Well, we said, I think in the fourth quarter conference call that we had around $10 million of recurring state credits. I think we took $2.4 million in the first quarter and, of course, the impact of that is exaggerated by the low pretax number and the federal effective rate we're using for the year is going to be 27% projected over the full year. Again, the revisions were dollar amounts, so, the same situation, their impact is exaggerated by lower pretax numbers. So, that gives you an idea.

So, there were two different issues, wasn't there? There was the investment credit and then the revision based on certain other...

No, there's no investment credit, just like I said, $2.4 million we took of state tax credits.

We talked about that in our February conference call and in our year-end earnings release.

And the rest are just regular federal adjustments to estimates that, again, it's reflected in a much lower rate because of a lower pretax.

So, Dan, that wasn't a real question, can I ask one more?

Yeah, Aldo, being that we established the discipline, we might as well keep it going.

Great! On the sheet pricing you're seeing now, I know you have some contracts in place established last year that might have been booked at prices higher than the market. I wonder how those contracts are operating in this environment. Are you seeing the guys pay the higher price, are you renegotiating it all? Can you update us on that?

I will let John Ferriola address the issue.

For the most part, contract pricing is just that, contract pricing for a set period of time. And we have a good customer base that is honoring those contracts for the most part.

There are always exceptions.

But when you say down -- pricing could be down 10 to 20 you're seeing in the market recently, you're talking about spot market versus not your overall realized price?

That's correct, we're talking about spot pricing over the last few weeks.

Great, all right, thanks.

Thank you. Our next question comes from Daniel Roling from Merrill Lynch.

Thank you, a simple question on a topic near and dear to my heart, Terry. When it comes down to disclosure, I notice in the release as you're getting more information out here that you say and I quote, "in the first quarter established new records in the steel mills segment." And later you say, "in the steel products segment." Is this a prelude to us getting segment disclosure on the financials as well?

Segment disclosure was in the financial report.

Yes, I understand that, but on a quarterly basis, more specific.

Okay. I -- it will definitely be in the 10-Q when it's filed. When and if we put it in the news release is still a question.

Okay. Well thank you and congratulations on making progress.

Thanks.

Thank you. Our next question comes from Mark Parr from McDonald Investments.

Good afternoon.

Good afternoon, Mark.

Instead of a -- I realize that everyone else has been asking just one question, so, I'd like to be consistent here.

You go right ahead.

Could you give us your expectation for realized price changes for flat-rolled and for bars in the second quarter? Relative to the first. And also could you -- you had made the comment that several of the Birmingham mills added to earnings in the first quarter. And I just wonder if that was net of financing costs and if you could care to quantify the magnitude of contribution, I would appreciate that, as well. Thank you.

As far as the pricing goes, we're not going to really hazard a guess at what the actual realizations will be. On average throughout the quarter. On bar products and beam products, it will be -- it will definitely be up, we do have the 35 ton -- dollar a ton increase in place on bar products, it seems to be -- being received well in the place with few exceptions. Likewise on beams as I've already addressed and -- but as far as what the average price realization is going to be, I think it would be premature for us to take a guess at that.

As far as the -- the other question, which I know was part of your first question -- hit me again with the question!

I wanted to know if --

Oh, about the Birmingham divisions.

Yes, to the magnitude of contribution and what is your comment net of financing costs?

The answer is no it was not net of financing costs and --

It was based upon operating profits.

Based upon operating profit. We don't want to be more specific than that.

Okay.

There was, as we mentioned, that inventory adjustment due to purchased accounting rules that we talked about on our February call and in our earnings -- and our conference call in February that there would be another $7.2 million that would be added to the Birmingham division's cost structure in the first quarter and then it would be gone. That was there and so net of that from an operating standpoint, those four mills had a several million dollar positive contribution.

Okay, thank you very much. And congratulations on a good quarter!

I don't know, Mark. I can't accept that! There's no way in hell that any of us can feel like this is a good quarter, it's relatively good in very ugly situations, but it's nowhere near where we're going to be.

Thank you. Our next question comes from Wayne Atwell from Morgan Stanley.

Thank you, I have one very simple question. Could you give us a review of your guidance? There was a lot of numbers that came out, could you give us a review, I guess you talked about scrap, maybe volume, price, LIFO, energy, earnings, I assume in 20, 25 cents? Could you give us a view that summarizes your guidance for the second quarter?

Our guidance is very simple for the second quarter, with all the give and take that I mentioned that you just gone back through again and I'll be happy to -- it, but in general, what we're saying is that we see the second quarter being similar in earnings to the first quarter where our guidance was 20 to 25 cents. And the reason for that being parallel instead of down as some people might be thinking is because of the improving conditions on the long product side from a selling price standpoint and from a overall scrap standpoint. And also from a reduction in energy cost standpoint and also from an overall improvement in cost due to the higher productivity and efficiencies that we're running at our plants because of all of the improvements being made to our best marking programs and the like.

The negative is without a doubt the downward pressure on pricing in flat-rolled basically because, number one, the market is not good. But number two, there has been a tremendous amount of capacity that has come back and that supply/demand situation is definitely out of whack again.

Could you just go over quickly the numbers again, I mean LIFO and energy, do you have some specific number?

LIFO would be similar to the first quarter, but we don't have specific energy numbers or scrap numbers. A lot of moving pieces, but I don't think we have that much detail on it.

Our best guess on energy, Wayne; that we should see a significant movement away from the positive 4 -- or negative $4 impact that we had in the first quarter. How much of that we'll see depends upon a number of things, including how much spot versus contract we have on our gas pricing and where gas pricing actually moves to on a spot basis. Right now, I read in today's "Wall Street Journal" that the inventory levels of gas in the country are up 60% versus a week ago. And our information is telling us that we'll see some continued softening on gas, which will be directly passed through in our spot purchases of gas at our plants. An actual number, it would be inappropriate for me to give you a hard number. I apologize, but it's not appropriate to do it. And we've already discussed the fact that we're not in the position to give you what we think will be the average realized pricings, up or down, depending on whether you're looking at long products or flat products.

Okay, thank you.

You're welcome.

Thank you, our next question comes from Leo Larkin from Standard and Poors.

Good afternoon. Do you have any guidance for Cap Ex and depreciation in 2004? At least directionally?

Aha! No...

No! Depreciation will probably continue to increase. It's sort of going to depend on how much we add and Cap Ex, it's just too early in the year for to us guess.

As the best comment we can make on that right now would be that in all likely hood, with the way the economic conditions are, we will be -- our capital expenditures again will be lower than our depreciation for the third year in a row.

How much less? Most of our capital expenditure products are already in the works that we've outlined. There's a lot more things that we can do it depends on whether the economy turns around significantly or not. There will definitely be less expenditures than what our depreciation will be. And not by a little bit, I'm sure it will be a significant amount. But it's way too early for -- we don't do our actual budgeting for 2004 until November.

Thank you.

Thank you. Our next question comes from John Tumazos from Prudential Financial.

Good morning-afternoon, Dan, I wanted to make sure I understood Mike's guidance and John's guidance. John said usage was up 4%. He was referring to scrap, melted in the second quarter would be up 4% in price, not volume. And when he said down 10, $15 in the second quarter, I presume he's talking about purchases. Mike, for bar said that scrap would be down 5% from the first quarter, I presume he's referring to the price usage that will hit your impact statement. So --

Yes.

Sheet scrap is up in cost. Bar scrap is down. The net is about flat is what you're saying?

Close to it, yeah.

A little bit depends on inventory mix and quantities because of the ending inventory price of the sheet metal will be quite a bit above the bar mills ending net inventory and net inventory has to flush through early in the second quarter.

The other factor is that the sheet metals have a mix of scrap replacement units that are, you know, very high numbers and their ability to use less of that than they did in first quarter will have an impact, as well. How much of an impact depends where things slide out in terms of what have on hand with inventory and grades to replace the pig iron or HBI product. They did a very good job of it in the first quarter, that's why the usage prices only went up $4.

The bar side doesn't have that, they don't use pig iron or HPI. It will have a tendency to properly balance out. But yes, yes and yes to all of your questions.

In the first quarter, the shipments were 98,000 tons more than the record production of 42/58. Presumably [INAUDIBLE] gets better, cash trip gets better, the Birmingham mills get better, some day Kingman starts up, I'm sure you didn't buy it to let it sit.

So, I presume that you're going to be able to produce something like 100,000 more tons every quarter over the balance of the year. Is the market, while the market is not strong, is it so weak that you won't try to run full? Or should we assume that you produce and sell everything you can? It seems like nobody won't answer that!

I -- we'll -- we will -- we will do what the market will allow us to do.

Should we expect shipments in production to beat 17 million tons for the year?

I think so, yes.

Congratulations, well done.

Thank you.

Thank you. Our next question comes from Adam Graf of Bear Stearns.

Good afternoon, gentlemen. I just have one quick question and that's in regard to the start-up costs. Can you please give some guidance for -- or some clear guidance for the second quarter and for the full year?

A little early for the full year but for the second quarter we think similar, maybe slightly down from the first quarter. So, around $25 million, plus or minus.

Thank you very much.

Sure.

Thank you. Our next question comes from Chuck Harris from Salomon Asset Management.

Good afternoon. Dan, just a quick question for you, again, sort of on the whole pricing issue. I mean, as -- it sounds like in structurals and in barb, you're getting some pricing, but it's -- you're convincing the market to take it because it's a cost-push price. If you're seeing scrap come off and energy prices come off, will you really be able to hold that price through the quarter, through the remainder of the year? Or is it lucky to told for a month or two and then it will ebb off, especially since it sounds like there's more capacity out there than really you need relative to demand. I mean what's been your history that you would expect?

On the bar product side, that is more than just -- the reason why it's sticking is more than just because the raw material costs have gone up, there's actually been a reduced level of imports of rebar, which allowed rebar pricing to remain strong and may continue to strengthen during the quarter.

Okay.

And so it looks good that things will hold where they're at. If you take a look at, you know, the steel industry, they're still not earning their cost of capital, still not making the profits that the industry itself needs to make to continue to reinvest and to stay competitive globally.

On the beam side, that's really to be quite honest with you, I will tell you I'm very surprised that the price increases have held myself. And certainly there's a significant cost differential at the present time between the three different major players in the marketplace. One who's new, one who's been around for a while and the third has also been around for a while, being Nucor and Nucor Umato. There are significant cost differences between those three groups of producers with Nucor Umato and Nucor is still enjoying a significant cost advantage. So, really, it's up to the competition as to whether or not the price increases hold. Certainly, they're not making money at it and there's every reason for them to want to realize higher prices but there's also an excess amount of capacity out there, so, anything can happen on the beam side.

Is [INAUDIBLE] down for a considerable period? Or we don't know that yet?

I'm not aware of them being down --

I thought they had a fire, didn't they?

Oh, I don't know that they're down for an extended period. I know they were looking for some spare equipment around, I don't know if they found any. I think the worst case scenario we heard through the rumor mill was three or four weeks --

I guess every little bit helps!

You know, you never wish any negatives to befall a competitor because what goes around comes around, we're all subject to similar types of problems that can develop.

Fair point. Okay, thank you.

Thank you. Our next question comes from Chris Olin with Long Bow Research.

Hello, Chris. You're back.

Yeah, it's good to be back. Just a quick question, can you tell me how much natural gas you consumed through the quarter? And what was the average cost?

We consumed 7.4 million [DECOTHERM] in the quarter. That's Jim [INAUDIBLE].

And the cost was $5.60 or .70, somewhere in that range per [DECOTHERM].

Great, thanks a lot.

You're welcome.

Thank you, our next question is a follow-up from Charles Bradford from Bradford Research.

I'd just would like to check there is no changes in firm rational reserves or anything like that in the quarter.

The environmental reserves for this quarter over a year-ago quarter were six million less -- let me rephrase that. The first quarter of last year we had environmental reserve that was roughly $6 million reversal that was $6 million more than this quarter. Am I answering that right there?

$6 million reversal last year. This year we didn't have a charge or a credit if that's your question. We had a payment -- I think we had a cash payment of $15 million that went to reduce it, but no expense impact for the quarter.

Okay. Thank you.

Chuck, while you're on the phone, are you clear about the answer to your first question?

Yes. Well, I am as far as the steel products are concerned. I'm kind of curious about the joists and decking prices didn't change.

With respect to the revenue realization?

Well, in reflecting of the freight, accounting change. Because you took -- you added the freight to the steel products, but not to the -- bad terminology, the sheet and bars and the plate but didn't add the freight to the joist and deck and so on.

It was already in -- it was already in those products.

Okay.

And their cost, I think is marketing, admin, and other.

Okay that, explains it.

So, both revenues and cost went up by the same amount so the net impact on earnings was zero.

That's the problem when the accountants go and change the rules!

You said that, Chuck, we didn't!

Well, hey, everybody has the same problem! You go right through the economy.

It was not a reclass we wanted to make because I frankly don't agree with it in theory, but it is -- it is GAAP.

Yep. Understood.

Thank you, our next question is from Michelle Applebaum from Smith Barney.

Michelle, you're getting in under the wire.

I know, and I'm going to work really hard to try to remember what my question was. Oh, I know! I know! Okay! My question was this... I know it's like we're very focused on second quarter here, but life goes on and I wanted to ask you, you know, your seeing kind of interesting things happening in terms of, you know, some of the OEM suppliers, you know, we've got, you know, relatively smaller number left and if you're talking about consolidation in the sector, you're really talking about a lot more consolation on the OEM supply side where you've had the most challenging pricing environment the last decade or so. Can you guys start to speculate, you know, since you're becoming so much more contract oriented, can you start to speculate on what we might see on contract prices?

Going -- for the second quarter or going forward in 2004 --

Going forward. I would imagine there isn't a level of -- I guess when I'm looking out at what will be happening, you've got some 90-days, you've got some six months. But the kind of thing we all focus on the annual. So, we're kind of all sitting here and going okay, there was a buyer's strike for a while because this war thing happened and SARS and all that kind of stuff. And -- but, you know, in terms of the trend of the sector, there's big things happening. And I guess -- I was trying not to give you part of the answer, but what really intrigued me was this Japanese automotive price sheet, price increase kind of thing and what do you see, I mean what kind of pricing could, you know, Mr. Ferriola --

Let me answer the question, I think -- if I don't get it --

Thanks, John.

I know you will let me know! As the consolidation continues and you're right, it has taken place to a much greater extent up until now in the OEMs side of the business, the service center side of the business. As the consolidation continues, you're going to see more and more closely it tied relationships developing between supplier, producer and end user. And in the general sense, I think that's what you're going see. Now, what kind of impact that's had on pricing, boy, Michelle, I couldn't hazard to guess. John, do you want to... Jump in there or stay out of it?

Well, was I agree with what Dan said. I think as we move forward, you will see the closer-working relationship between the supplier and the OEM while the supplier service center processes the OEM. I think that the -- it will be a positive in the sense that there will be more stable pricing as we move forward, there will be less fluctuation, less cycles and highs and lows will be less. So, in general I think it's good. In terms of how it's going to move in the next year, I really couldn't guess.

Okay. That was it.

Okay. Thanks, Michelle.

Thank you, nice job.

Thank you.

Thank you, our next question is a follow-up from Adam Graf of Bear Stearns.

Thank you for taking my follow-up question. On a different subject, the CVRD joint venture, you guys, in Phase 1, you guys are saying you're going to be able to produce 380,000 metric tons of pig iron, I just would like know what percentage of our -- of your current usage that would fill and what percentage of your -- as you see your sort of capacity usage that would fill?

About 20%? Yeah, it's about 16%, I would guess of our current annual usage. We think we can effectively double the plant in the future.

The future meaning the next three years, four years --

Yes.

So, 380 is 16% of current usage.

Approximately. It fluctuated because sometimes depending on price we go from peak to DRI to scrap and things like that. But in general, I would say yeah.

You think it's got the potential to fill 30 or 40% of your usage.

Could very well. And our usage, if we continue to help consolidate the industry as we grow even just or even just organically we will continue to consume more. So, that, you know, the percentage of number, the dividend there is going to get different.

And a related question. What is the progress on high smelt and how do you see that folding into your raw materials usage?

Well, the progress is that we've started construction. I mean it's still a process that's going to take until late 2004 start-up. So, you know, it's -- that's just a construction issue. We feel pretty confident of the technology and we think it fits well because number one, the beautiful thing about high smelt is you're going to be using coal fines and ore fines, which are both in abundance and you don't need cocoa, so, from an environmental answer to a lot of question that integrated companies have, that will be one thing and also, people who have large stockpiles of ore right-hand/or coal fines have have them close to sea born ports will be interested to this because all you need is oxygen source at that point in time and you can start making a reasonable low-cost pig iron.

So, we hope it would spawn additional iron units to be made in the market. We hope it will spawn not the loss of blast furnaces, but the replacement of blast furnaces and, you know, we think it's just sort of complementary and with the pig iron project.

Do you foresee the combination of the JV with the CVRD in the high smelt as being able to substitute for 100% of your current pig usage?

That's not really our goal. I mean there's a lot of independent pig people out there and we would like to see that supply stabilize, we'd like to see that supply, quite frankly in abundance and, you know, we'd like to -- I think from our perspective it gives us a little bit of a hedge. One of the -- one of the things that we will be working out with interested parties on the pig iron side, not only will be be supplying up to between 16% currently and upwards of 25, 30% with the expansion at CVRD green pig project, but we're also more than likely in the next year be working out long-term pig agreements with producers either in Brazil or in Russia and we are having discussions with some people as we speak to put together a long-term supply contract at Nucor on pig, so, we'll be looking to tie up both with our own production capacity and with contractual arrangements a significant portion of our pig, what that will end up being is an unknown right now, but certainly could be upwards of 50-plus percent.

Thank you very much.

Thank you, our next question is a follow-up from Leo Larkin from Standard and Poor's.

Yes, the start-up cost did that hit your earnings by about 257 cents in the first quarter? The $27,800,000.

I think it's about 21 cents. Is that right, guys?

Yeah, about 21 cents.

21 cents. All right. Thank you.

Thank you.

Thank you. There are no further questions in the queue at this time, I'd like to turn the program back to you.

Okay, well, thank you all very much for your participation, for your questions and again, thanks to all of our Nucor team for doing a great job in the quarter and in some very difficult circumstances and let's definitely get to the point where our best years are being realized, not just in front of us. Thank you very much.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.