Nucor Corp (NUE) 2004 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the 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 should require assistance during today's conference, please press star then zero on your touch-tone telephone. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Dan DiMicco, CEO of Nucor. Mr. DiMicco, you may begin your conference.

Good afternoon and thank you for joining us for Nucor's conference call. I apologize ahead of time if my voice breaks up a little bit, I've been fighting a little bit of laryngitis here for about a week. We will briefly review results for first quarter 2004 and then take your questions. Terry Lisenby, Nucor's CFO, and our other EVPs, John Ferriola, Ham Lott, Mike Parrish, and Joe Rutkowski are with me this afternoon and will be available to answer questions as well.

But first I would like to say thank you to all the members of the Nucor team who are listening in to this conference call on our Nucor website. The 10,000 men and women of Nucor worked hard and worked together to successfully meet our customers' demand for steel at a time of both unprecedented raw material volatility and supply shortages. By taking care of our customers, Nucor is moving ahead toward our goal of being the safest, highest quality, lowest cost, most productive and most profitable steel producer in the world.

Our first quarter 2004 earnings of $1.43 compare against year-ago quarterly earnings per share of 23 cents. These are record quarterly earnings for Nucor and exceeded our increased earnings guidance range of 80 cents to $1 that we provided in our March 19th press release. You will recall that our initial first quarter 2004 earnings guidance given in our year-end 2003 earnings press release in January, was a range of 40 cents to 60 cents.

A few details from the just-completed quarter merit comment. The LIFO and inventory charge for the first quarter of 2004 was $32.2 million. Which includes $7.2 million at our 51% owned Nucor Yamato structural steel mill. Prior year quarterly results included a LIFO charge of $6.4 million with $1.2million of that coming from Nucor Yamato. And first quarter 2004 results included other income of $1.6 million, related to a gain on sale of equipment. The year-ago quarterly results included other income of $2.3 million related to a graphite electrodes antitrust settlement.

A dramatic surge in scrap prices in recent months understandably has received a lot of attention from the press and investors. In fact, many observers expressed concern over the potential for Nucor and other electric arc furnace operators to suffer heavy penalty on their income statements from this surge. Our average scrap and scrap substitute's purchase price did jump from $118 per ton in January 2003 to $239 per ton in March of 2004. An increase of $121 per ton.

However, in December 2003, Nucor took action to ensure that we would be able to purchase the scrap needed to fill our customers' steel needs and to ensure that our margins would be restored to appropriate levels. We were the first major North American carbon steel producer to introduce a surcharge. Many of our competitors followed our lead by introducing their own surcharges. The surcharges work to reduce the time lag in passing through higher raw material costs and adds increased transparency for steel buyers. Most importantly, the surcharge provided us the financial resources required to buy the scrap required to produce the steel demanded by our customers.

As I mentioned earlier, and it merits repeating, Nucor's employees got the job done in an environment where a number of other steel producers had to curtail production and cancel customer orders. We'll also repeat a comment that I made in our last conference call in January, and has been confirmed by the experience of this past quarter. As Nucor has demonstrated for nearly four decades, the winning business model will be the one that does the best job of taking care of customers.

Recently scrap prices have decreased from the peak levels reached in March of this year and the surcharge is working as designed. Our surcharges for both flat products and lump products groups declined in May 2004 by the same amount that the underlying price indexes. The flat product surcharge dropped from its peak level reached in April 2004 of $125 per ton to a May 2004 level of $95 per ton. The long product surcharge dropped from its peak level reached in April 2004 of $120 per ton to a May 2004 level of $68 per ton.

It is important to understand that the surcharges capture changes in scrap prices relative to the base price levels for these price indexes from last fall. The surcharges were not set up to be profit centers for Nucor. They simply captured the direction and magnitude of scrap price changes from the base levels. It has worked well to also note that the selection of scrap market price indices used to calculate the surcharges reflect the input and preference of our customers.

While the action of scrap prices has attracted most of the attention of press and analyst commentary, we see two other forces as more important drivers to our performance in the first quarter 2004. These two drivers are first, an improved U.S. steel market supply demand balance. And second, very significant improvement in the operating performance of Nucor's two newest steel mills, our Hertford County, North Carolina, plate mill, and our Decatur, Alabama, sheet mill.

The improved steel market supply/demand balance is evidenced by increasing base prices in all steel mill product lines during the first quarter 2004 and continuing into the current quarter. Although recent declines of scrap prices have begun to reduce the surcharges rising base price realizations support our expectations for increased margins for the second quarter of 2004. As always, the metal margin spread between steel selling prices and scrap costs is the key variable driving our earnings, not gross selling prices.

We're encouraged by signs of ongoing demand improvement and by signs of reasonable levels of customer inventories. Moreover, increased nonresidential construction activity levels should translate into better results in our downstream steel product businesses later this year.

Our teams in North Carolina and our plate mill there and the Alabama sheet mill delivered impressive turnarounds in performance for the first quarter 2004. Both mills were profitable for the just-completed quarter. Most importantly, we see our teams at both mills as being solidly on track for generating the the attractive and sustainable long-term returns that we expect these valuable assets to generate.

After start-up operations in late 2000 and working through three consecutive years of very depressed market demand, our plate mill has built an attractive market share position. This marketplace success has resulted from new more efficient production technology and Nucor's strong focus on customer service. Our plate shipments for the first quarter of 2004 advanced 52% year-over-year. With the mills annualized production rate actually exceeding our capacity estimate by 10%. Last quarter's breakthrough to profitability by the Nucor team at Hertford County has served only to intensify our focus on setting new records in coming quarters for product quality, conversion costs, and profits.

The Nucor team at our Decatur sheet mill is another example of the Nucor can-do attitude in action. Following its start-up in September 2002, Nucor steel Decatur has successfully worked through early equipment problems, depressed market demand, and the surge of scrap costs. Compared to the year-ago period, Decatur's production increased 55% and shipments increased 59%. The bigger picture at Decatur remains the same. Profitable expansion of our market share in the flat roll business, and of even greater significance, Decatur's equipment capabilities will allow us to expand into higher quality grades of steel.

The record quarterly earnings achieved in the first quarter and the encouraging outlook for the second quarter earnings are the initial payoff from our focused and disciplined strategy for driving long-term growth in Nucor's earning power and raise the returns on our shareholders' valuable capital. In short, Nucor took advantage of difficult economic to steel market conditions over the past three years to strengthen our competitive position.

During 2004 we are continuing to execute our long-term strategy to build sustainable and substantial growth in Nucor's earnings power. The keys to executing the strategy remain, first optimizing existing operations. Second, continued greenfield growth through commercialization of new technologies. Third, pursue strategic acquisitions. And fourth, grow globally through joint ventures.

Again, I emphasize that optimization of existing operations represents one of our largest opportunities for long-term profit growth and increased returns on capital, for this reason, continual improvement is the top priority of everyone in the Nucor team. Our unrelenting focus is on continuing to drive lower our converging costs to produce a ton of steel or steel products.

During the second quarter of 2004, we will complete the final project in our Bar Mill modernization program that began in 2002. The new metal shop in Texas is on schedule for start-up this quarter. We expect the Texas melt shop to provide the same pay-off as we are already beginning to benefit from with the upgrades completed in 2003 at the South Carolina and Nebraska Bar Mills. Higher operating profits through lower conversion costs.

This improved cost structure offers Nucor attractive range leverage as improving economic conditions lead to widening metal margin spreads and volume gains. Our first quarter 2004 results clearly reflect this leverage beginning to materialize. First quarter 2004 steel shipments of 5.1 million tons increased 18% over year-earlier quarterly shipment volume of 4.3 million tons. In our metal margin spread between the steel mill selling prices and scrap cost widened to $237 per ton up from the spreads of $220 per ton for the prior-year quarter. And $196 per ton for the fourth quarter of 2003.

I will also note that all our major acquisitions made over the past three years, Nucor Steel Auburn, Nucor Steel Decatur, and the four operating Bar Mills of Birmingham Steel generated material contributions to our first quarter 2004 profit and cash flow. These acquisitions together boosted our annual steel mill finished product shipment capacity by over 4.5 million tons. Nucor has proceeded carefully in following a disciplined approach to acquisitions. Our acquisition criteria have been and continue to be, don't overpay, stick with businesses we understand, and make sure there's a strong cultural compatibility.

Nucor's ability to and willingness to pioneer new steel-making technologies remains a key competitive advantage of our company. Our team at the Castrip facility in Crawfordsville, Indiana continues to make solid progress towards our goal of full commercialization of this revolutionary technology to directly cast sheet steel.

First quarter of 2004 for Castrip was marked by further improvements in tons produced, prime yield, quality, and tons shipped. New production of shipment records are being set each month. First quarter 2004 tons shipped were up 178% over the year-ago quarter's volume. And were up 83% over fourth quarter 2003 shipments. Today the Castrip team is routinely rolling product as light as 0.045 inches to 0.055 inches and shipping this output to customers as light-gauge hot band. Light-gauge hot band for use as cold-rolled replacement product is a key market niche targeted by Castrip.

Two joint ventures underway with global partners produce high quality scrap substitute products continue to move forward. Our Green Pig joint venture with CVRD is an environmentally-friendly pig iron project using eucalyptus trees as the charcoal source. We finalized to sign our joint venture agreement with CVRD last week.

We're continuing testing a newly-developed charcoal kiln, ordering equipment, clearing land and finishing the permitting process. The first module we utilized two conventional mini blast furnaces to produce 380,000 metric tons of pig iron annually. An annual production has the potential to double from the initial capacity level. At this time we expect production to begin in early 2005.

The hi-smelt joint venture is building a facility in Western Australia that converts iron well finds and coal finds to liquid metal. The hi-smelt process has built the Blast furnace replacement technology and the hot metals source for electric arc furnaces. Annual capacity will be 800,000 metric tons, which is expandable to 1.5 million metric tons at a very attractive capital cost for incremental ton capacity. Our hi-smelt partners again are Rio Tinto, Mitsubishi, and Chinese steelmaker Shogun. At the close of the first quarter of 2004 construction was about 70% complete. We expect production to begin in fourth quarter 2004.

While the Nucor team has made meaningful progress implementing our strategic growth plan for delivering attractive returns on shareholders capital, there remains substantial work and opportunity ahead of us. This is why we are encouraged by first quarter results but we are not satisfied with our first quarter results. In short, we see the first quarter 2004 as a transitioning quarter from the poor profitability of the past three years while the growth platform was being built to the higher profitability of the quarters and years to come. We clearly see Nucor's best years ahead of us. Most importantly we have 10,000 reasons for our confidence. Nucor employees, the right people.

At this time Terry Lisenby will now review results for the first quarter. Terry.

Thanks, Dan. Good afternoon and thank you for your interest in Nucor. Sales for the first quarter were $2.286 billion. An increase of 54% over the first quarter of 2003. Nucor established new quarterly records for steel production, total steel shipments, and steel sales to outside customers. Dan mentioned the 18% growth year-over-year in total steel shipments. Steel production of 5 million tons for the first quarter of 2004 was up 16% over the 4.3 million tons produced in the first quarter 2003.

In the steel products segment, steel joist production of 116,000 tons increased 8% from last year's first quarter. First quarter 2004 steel deck sales of 74,000 tons declined 8% from the first quarter of last year. Our first quarter 2004 average sales price for steel and steel products of $455 per ton, increased $113 per ton from the year-ago level, and increased $78 per ton from the fourth quarter of 2003.

Looking at the year-over-year pricing gains, sheet increased $94 per ton, bars increased $139 per ton, beams increased $107 per ton, plate increased $125 per ton, joists increased $107 per ton, deck increased $25 per ton, and cold-finished increased $102 per ton. Comparing pricing for the first quarter 2004 with the fourth quarter of 2003, sheet gained $94 per ton, bars gained $73 per ton, beams gained $85 per ton, plate gained $104, joists gained $45 per ton, deck gained $4, and cold-finished gained $80 per ton.

The average usage cost of scrap and scrap substitute for the first quarter of 2004 was $200 per ton, up $78 per ton year-over-year. Over the first quarter of this year our long product surcharge averaged $54 per ton and our flat products surcharged average $60 per ton. As Dan discussed, our metal margins expanded as a surcharge reduced the time lag in recovering scrap cost increases and an improved supply demand balance led to base price increases.

Pre operating and start-up costs were $9.2 million for first quarter 2004, down sharply from both the first quarter of 2003 level of $26.7 million and the fourth quarter 2003 level of $26 million. For the just-completed quarter these costs were almost entirely from the Castrip facility. The first quarter 2003 these costs primarily related to the start-up of the Decatur sheet mill and the Castrip facility.

The first quarter 2004 gross margin of 11.8% was up from both the prior year's quarterly gross margin of 5% and the fourth quarter of 2003 gross margin of 3.5%. Earnings before income taxes were $37 per ton for the first quarter of 2004, up from $6 per ton in the first quarter of 2003, and $4 per ton in the fourth quarter of 2003.

It is interesting to note that Nucor's pretax profit per ton averaged $50 over the eight-year period from 1993 to 2000, the years including the last U.S. economic expansion. Over that '93 to 2000 time period the peak annual pretax profit per ton level was $62 in 1995 and the peak quarterly pretax profit per ton was $73, that in the fourth quarter 1996. The effective tax rate for the first quarter of 2004 was 35.9% compared to 21.5% for the first quarter of 2003 and 6.1% for full-year 2003. The higher tax rate is primarily due to the effect of increased pretax earnings.

For the first quarter of 2004 capital expenditures were $66 million, depreciation expense was $96 million. For the full year of 2004 we project capital expenditures of approximately $230 million, and depreciation expense of approximately $385 million. Since increasing long-term returns on our invested capital the objective of our growth strategy, Nucor continues its strong focus on the careful allocation of our shareholders' capital.

Cash and short-term investments totaled $398 million at the close of the first quarter, up from the year-end level of $350 million and from the first quarter 2003 level of $182 million. Approximately $77 million of the April 3. 2004 cash and short-term investment position was held by our 51% owned joint venture Nucor-Yamato steel company.

Nucor's cash provided by operations for the first quarter of 2004 was $201 million. Up from the year-ago quarter's operating cash flow of $128 million. The close of the first quarter of 2004, total debt was $904 million. And our debt-to-capital ratio is 26%. Effective with the May 11, 2004 cash dividend payment, Nucor's quarterly dividend per share has been increased from 20 to 21 cents. Nucor has increased its dividend every year since we began paying cash dividends 31 years ago.

Our first quarter 2004 tonnage data report is posted on Nucor.com with the usual information on production, shipments, orders, and backlogs for our major product lines.

Thank you, Terry. At this time I'd like to turn to John Ferriola for a few comments.

Thank you, Dan. Good afternoon. The sheet mill group's performance in the first quarter was enhanced by record-setting production and shipment in all four of our mills, as well as increased price realization. Our focus on disciplined order book management allowed the sheet mill group to continue to deliver steel on time to our customers while benefiting from timely price realization.

Our reduced participation in contract business during the fourth quarter of 2003 has resulted from depressed contract pricing, allowed the sheet mills to enjoy higher spot pricing in the first quarter of this year. During the first quarter, we resumed accepting contract business at significantly improved pricing levels. Our continuing focus on providing high quality steel on time and with excellent customer service has provided our customers with a dependable supply of steel during these turbulent times. We remain, as always, focused on providing value-added products to value-added customers.

Our newest sheet mill in Decatur, Alabama, continues to show improvements in productivity, quality, on-time delivery, and customer service. During the quarter, we produced at an annualized rate of 1.8 million tons and set facility, monthly, and weekly production records. We will continue to see improvements by the Decatur team and expect to produce 2 million tons at Decatur this year. As a result of these improvements, and improved consistency in our operation, Decatur is now strongly contributing to Nucor's earnings and has become a great compliment to the sheet group and the flat-rolled strategy of Nucor.

As a final note on Decatur a permanent rolling mill gears and related equipment have arrived at the plant. Installation will be scheduled based upon need and market conditions as we monitor both throughout the year. At this time, we do not expect to shut down any time in the near future to complete this repair.

Progress towards commercialization continues at our Castrip facility in Crawfordsville, Indiana. The first quarter saw continuing improvements across the board in tons produced, prime yield, quality, and tons shipped. New production and record shipments are being established each month and we continue to apply this new technology to a wider range of products.

Specifically during the first quarter, we focused on gauge reduction at Castrip. During the first 18 month of operation, most Castrip product was cast to 0.063 inches and reduced further at our cold rolling at our cold mill. It was then shipped as cold-rolled galvanized product. Today, we routinely produce product in the 0.045 to 0.055 range that is shipped directly from Crawfordsville as light-gauge hot band. We have also successfully broken through the one-millimeter hot-band barrier.

At Castrip we have successfully produced and sold hot-band product that was lighter than one millimeter, or 0.040. We believe this is the lightest hot-band product produced and sold in the world today. We continue to advance in our efforts to produce ultralight gauge hot band that can be used by customers as a cold-rolled replacement product.

The new vacuum degasser at our Berkeley division has now produced more than 50 vacuum degas heats since commissioning in October of 2003. We are very proud of the progress being made by the Berkeley team in producing vacuum degassed steel on a CSP mill. Berkeley is the only CSP mill in North America that is able to produce vacuum-degassed steel on a CSP mill.

Using this technology, we have successfully developed a commercially salable, cold rolled, extra deep-drawn product, as well as commercially salable galvanized deep-drawn product. Deep drawing steels will enable Nucor to participate in additional value-added business in the automotive, appliance, lawn and garden, and HVAC markets. The vacuum degasser is capable of producing one million tons of steel per year.

Our Berkeley division is also one of a very select group of steel manufacturers capable of producing hot-rolled, dual-faced steels with tensile strength levels of 500, 600, and 800 megapascals. Dual-faced deals are consumed by the automotive industry as a means of improving vehicle safety, increasing fuel efficiency and lowering the overall weight of a vehicle. An increasing number of new platforms require these advanced high-strength steels. These products will help Nucor advance further into value-added products.

While I'm handing out congratulations and thanks, I cannot neglect the team at our Hickman facility. Our Hickman mill has broken every production and shipment record in both the hot mill and the cold mill during the first quarter. Congratulations to everyone and thanks. Keep up the good work. Thanks, Dan.

Thank you, John. At this time I'd like to ask Mike Parrish to make a few comments.

Thank you, Dan. Good afternoon. The bar group had record shipments for the first quarter, over 1.8 million tons and that was 8% ahead of last year. Looking at the individual markets, the rebar market continues to be a very strong market. Demand and supply are very closely balanced. Merchant bar market, the market continues to improve as we see nonresidential construction, agriculture and mining markets improving.

SBQ, we had record shipments of SBQ in the first quarter as well. SBQ will remain strong. This market has been impacted by some plant shutdowns and also further good demand.

Our bar mills have also instituted a controlled order entry system to minimize hedge buying and to ensure on-time delivery of all of our products. On imports, there's no major change in the import levels and they've been fairly steady.

On pricing, we have announced $75 per ton base price increase for the second quarter for merchant and rebar. We've also announced $70 per ton on SBQ as well.

Operationally, as Dan mentioned earlier, our cost reduction capital projects are going very well as we are realizing those cost savings. In summary we're very excited about the outlook for the bar group for the remainder of the year.

Thank you, Mike. At this time we'd like to take questions.

Thank you, sir. If you have a question at this time, please press the one key on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Our first question comes from John Tumazos from Prudential.

Thank you.

Hello, John.

Congratulations. As your earnings boom, cash is building up very rapidly, it could be $1 billion by the end of next year, looking ahead to 2010 in my spreadsheet numbers like two and a half, three billion can fall out. Should we expect the Company to find new fabricating and manufacturing avenues, invest in iron making, buy stock back, pay special dividends, or how -- it feels like more money than you'd spend building mills or iron plants.

Well, John, I appreciate the compliment. As I cautioned all of our people, one quarter doesn't a year or decade make. We're very pleased with our performance this quarter, and as I mentioned, we see things improving going forward. And, yes, we do have plans and are looking at a number of opportunities as we've mentioned previously, both in downstream operations which include fabricated products, and also in iron making. As I may have mentioned before, our goal is to have somewhere around five to six million tons of captive iron making capacity in the form of pig iron, HBI, VRI, or liquid metal from hi-smelt. Between now and over the next five years develop that capability. So there will be substantial investments there.

As you know, hi-smelt will take considerable capital investments when that technology is proven, hopefully by the end of the year we'll be starting it up and be proving that technology shortly thereafter, and also Castrip. So we have a number of opportunities as we go forward. We would not rule out the acquisition of steel making assets under the right conditions, either. That follow our well-stated approach to acquisitions.

As far as share buyback or special dividends, I think we'll reserve any comments on anything like that at this time and we'll wait for the results of the full year to come in and we'll take a look at things going forward at that point.

Thank you and congratulations.

Thank you, John.

Our next question comes from Mark Parr from Key/McDonald Ohio.

Good afternoon.

Good afternoon, Mark.

I heard you talk about base price increases for bar products, but I missed the comments that you were making regarding base price outlook for flat products. Could you give us -- I mean, maybe I just missed that, or if I didn't, could you give us some color on that area, please?

John Ferriola will give you some information there. Thank you.

How you doing, Mark?

Hey, John.

I'll review for you the last three price increases that we've announced in the flat-rolled. On December 5th, effective immediately, we announced hot-rolled, cold-rolled, and galv increase of $40. On February 15th, also effective immediately, we announced hot-rolled increase in the base price of $80, cold-rolled of $100, and galv, $110. This month, April 16th, effective June 1st, we announced $20 across the board for hot-rolled, cold-rolled, and galv.

Okay. And then just for frame of reference, after the $20 goes through, can you tell us what the base price -- what that represents as far as a base price for hot-rolled?

Again, as a point of reference, I can give it to you, again it's a range depending upon whether it's spot business or contract business or where we stand with that, but we will be in the neighborhood of about a base price of $27 for hot-rolled, $31 for cold-rolled, and $32 for galv, plus the appropriate surcharge at the time. Per hundred weight.

Yeah, per hundred weight. Okay. Terrific. Thank you very much, and it's really nice to see you take such advantage of this environment and I think you guys are doing a good job focusing on the shortage issue that really exists out there.

Thank you, Mark.

Our next question comes from Wayne Atwell from Morgan Stanley.

Thank you. A couple quick questions. Would you say you're in allocation in most of your products?

I would say that we are under controlled order entries on most of them with the exception of beams.

So beams aren't sold out?

No.

And how long does your order book run at this point?

Wayne, this is Joe Rutkowski, I'd like to clarify one thing, because you started off with the allocation word.

Yeah, I know you don't like that.

Mainly because we don't believe that that's the case and why. Just to talk about the plate business. Right now we're pretty well sold out in plate, but the truth is we have gotten tremendous requests from customers who are being let down by some of our competitors which were not steady customers of ours prior. So the people who have been steady customers of ours all along are getting the steel that they need, and so, from our perspective, we're taking care of our customers. We actually do have requests from people that we can't fulfill, but they're not necessarily the customers that brought us to the dance.

Right.

And I think that's true of most of our product lines, so, I just wanted to try to clarify that situation.

What was the second part of your question, Wayne?

How far out is your order book?

We have opened orders for June, flat-rolled.

Actually, right now we are full for June, and that's the only period we have not opened August, July or August at this time. We anticipate doing that in the middle of May.

And how about plate and some of your other products? Have they opened for June as well?

Yeah, we opened up June really last week, and we're getting plenty of orders. We will fill June rather quickly. On beams, we have about an eight-week backlog at this point in time.

Do you have a judgment in terms of guidance for us, what the scrap price might average in the second quarter and what maybe your average price might, too?

As you know, Wayne, the volatility that we've seen over the last 12 months has been quite unusual, and as you also know, scrap went down significantly last month, on the order of $50 to $60 a ton on cut grades, obsolete grades, shredded, and prime grades on the order of $30 a ton, and based upon what we see for the next month's buy, it's going to be down substantially again. But we have no idea at this point in time what those numbers are going to be and whether or not we'll see an uptick in months to come or plateauing out or a continued drop. Right now, the pressure is definitely downward on scrap pricing.

I guess due to the lags, it's hard for us to tell from the outside whether prices will be up or down.

Scrap prices?

Right.

Are you talking about usage numbers --?

Your usage, right.

Yeah. There's lag times from when you purchase it to when you receive it, sometimes we're talking about moving scrap or iron materials over long businesses from Brazil or Europe or elsewhere, and we're buying pig iron and HBI, so, yeah, it's difficult to gauge the phase-in, but the general trend is definitely down right now, virtually all iron units.

Do you have a judgment as to whether your costs would be up or down for usage?

For the quarter?

2Q versus 1Q.

Well, we'll still have some stuff passing through in April from March where we bring in higher priced material. It will probably kind of neutralize itself in May and we'll see some benefits in June, so you might say it will be a wash, but it's really tough to tell, Wayne.

And can you give us a judgment about your production and your shipments for the second quarter?

We're going to be producing and shipping full out. And exactly where we end up, March was a big surprise for us as how well we produced and shipped, probably some people might say how could it be a big surprise. Well, we set records everywhere and those are the nice kind of surprises you want, and we fully anticipate our operations will continue to perform at increased levels throughout the second quarter and so we expect another strong quarter similar to the first quarter.

Would it be reasonable to assume you might squeeze another 5 to 7% out in production?

I wouldn't want to speculate on that. We'll take the good news when it comes.

Thank you.

Our next question comes from Jack Bradford from Bradford Research.

Good afternoon. Could you tell us what you actually paid for scrap in the first quarter?

I think we said that the usage number averaged $200 a ton. On the usage number. On the purchase, we said that March -- did we say 239?

I think that's right.

The average purchase price for March was 239 a ton.

What about the quarter?

Maybe 219, 220.

Okay. And can you talk about the delay in the Green Pig project? You were saying it would start up in the fourth quarter, now you're saying early next year. Was it a permitting issue or what happened?

Two things. This is Joe Rutkowski again. First of all, it did take us longer than we expected to obtain the land and also then the permitting starts from that perspective, so dealing with the government of the state of Prague took longer than we or CVRD expected. I think you have to remember, we're a minority partner in this venture. CVRD and we negotiated the final agreements which took a lot longer than we thought, but also they have a very lengthy approval process, and for this type of a project, as well as the procurement, so we started buying equipment, but we were somewhat constrained by the approval process within CVRD.

As far as the permit itself goes, we don't anticipate any problems receiving the permit, it was just the starting of the application process that got delayed.

Yes.

When do you actually expect to break ground for the blast furnace?

We've already broken ground and are operating charcoal furnace down there, and as far as the blast furnace themselves, Joe, do you have any idea?

I would say in about a week.

Thank you.

Thank you, Jack.

Our next question comes from Anthony Rizzuto from Bear Stearns.

Good afternoon, gentlemen. I've got a couple of questions here. One is on SG&A which was sharply higher than we were looking for, I would presume that was mostly incentive comp and profit sharing.

Exactly.

Is there anything else in here and what should we be assuming for the second quarter?

Nothing else in there. SG&A outside of those things driven by pretax earnings was up a little bit. Maybe 10%. But it's nearly all directly related to the increase in pretax earnings.

All right.

Incentive and comp programs as you said are the cause in there.

And as far as your start-up and pre-operating costs, we're also very impressed, you brought those down nicely, they're going to pick up probably in the later stages of the year, but can you give us some revised guidance as to where you think they might be for the full year and a shot at 2005 at this point?

No, I won't take a shot at 2005 but for the second quarter it's going to be down from the first quarter and right now we don't really expect them to pick up later in the year. If anything they ought to continue to trend down slightly.

Even with the hi-smelt later -- or the Green Pig later in the year?

Remember, we're a minority holder in Green Pig. A relatively small percentage. That just won't be a large impact.

Just one further follow-up, if I may, and I know it's a very fluid situation, as it is for us trying to get a handle on it, but you've obviously announced a lot of base price increases. I was just trying to get a better handle on how you think that might work out in terms of an average basis in 2Q versus 1Q now that it seems like you're basically fully booked in the second quarter.

Should go up some, but we don't -- it's so mix dependent, we don't track mix by product and extras here in the forecast, so I would say the trend is up, but I couldn't give you a percentage.

All right. I mean, it seems as if, with the kind of price increase announcements you've seen, it seems likely that we could see $30 to $50 per ton. Would that be unreasonable?

No.

All right. Thanks very much.

Our next question comes from Brian Rayle from FTN Midwest Research.

Good afternoon.

Good afternoon, Brian.

Actually, one point that I did miss, what was the average surcharge for both flat and long for the first quarter?

Hold on while we flip through the tables to find that.

And my actual second question is, do you expect that there will be any confusion more so, I guess, in the service center channel with regards to the fact that surcharges are coming down, but base prices are coming up? Again, congratulations on a great quarter, but I was just wondering if you've seen any push-back with that in the first round of reductions here.

Absolutely not. Service center customers are extremely happy with the system that we put in place and I think you can judge that by their earnings announcements that they themselves are coming out with. And as far as your first question goes, long products surcharge averaged $54 per ton, and flat products surcharge averaged $60 per ton. For the first quarter.

Thank you and congratulations again.

Thank you.

The next question comes from Aldo Mazzaferro. Hello, Aldo.

Dan, great quarter.

Thank you.

Your hot-rolled pricing seems low relative to the market here at $27.

Remember, that's $27 plus surcharge.

Oh, okay. So the ones that have smaller surcharges are higher on base.

Yeah, I think some of our competitors have surcharges ranging anywhere from $30 to $90 or $100 a ton on the integrated side and similar to us on the mini mill side.

Dan, let me ask you a question about the market overall as you look at it. How would you judge the sustainability of the market going forward? And what would you look for as indicators that would turn it down?

Well, after three years like the industry has had, and the flood of imports back in the late '90s, you're always looking over your shoulder. So as far as risk goes, what happens in the global economy and the demand for steel globally is an issue that has to be monitored closely and we are doing that on personally a weekly basis, sometimes a daily basis with contacts all around the country and the world. And as far as we can see going forward, the market dynamics are very strong, both domestically and globally and we see that continuing at least through the second quarter into the third quarter. But the big issue will be what happens to the global demand for steel, because the thing that derailed the domestic success in the '90s was the flood of imports from offshore after the Asian crisis.

We don't see that reoccurring right now, but we're not sitting here with a crystal ball that goes out real far. That's something you have to monitor, and you guys can monitor that just about as well as we can. The only cautionary note I would put out there, is that at any given time you can find people saying good things and bad things. In general, what we see out there are more positive than negative going forward, and that pretty much sums it up. Domestically, we've got a very good and improving demand situation. And across all our product lines, and so things look good.

Yeah. One other question, Dan. On the acquisition front, you've been mentioned in the press a few times as having an interest in a Korean mill and also a mini mill by the name of Georgetown, and I know there's a few other interested parties in both those assets. Would you have any comment on what you think about the acquisition climate going forward and your interest in it?

Well, as we've said before, we at any given time have a number of acquisition opportunities, both on the steel making and downstream sides in front of us and that continues to be the case. As far as what you've heard about Georgetown, we are not involved in that process. Despite the rumors and what's printed in American metal market. And as far as on the international scene, there has been discussion of Nucor and Yamato looking at participating in the Hambo [ph] auction, and we are.

Okay. Thanks, Dan.

Thank you, Aldo.

Next question comes from David Lipshitz from Merrill Lynch.

Hi, guys. Where are you right now on your contract business, what percentage, I know last period you said around 35 to 40%. Is that sort of where you are now or is it higher?

That's principally a sheet issue and we'll let John address that.

As you pointed out, we were at about 30 to 35% in the first quarter going into the first quarter. Today in the second quarter we're probably at about 40 to 45%. As I mentioned earlier with the increased contract pricing in the market we committed to more contracts. Going forward for the rest of the year, I would say that we're probably 50 to 55% contract tonnage through December 31st.

Thank you.

And, of course, all of our contracts include commitments to surcharge.

Okay. Thanks.

Next question comes from Michelle Appelbaum from Chicago.

Hello, Michelle.

Hello. Glad you're sounding better, Dan.

So am I.

A couple of questions. To elaborate a bit on some comments. First off, you said you're involved in Hambo, right?

Yes, we did.

Okay. Can we get a little bit of background on this largest, I guess, steel mill recycling company, I guess, as your press release says? Tells us they're looking at a Korean acquisition. Can you give us a little bit more color on why and how much and that kind of thing?

What I can say is that we've had a very successful relationship with our partners at Nucor-Yamato and Yamato Kogio [ph]. We have taken a look at the Hambo facility before several years ago, and both Nucor and Yamato got together and thought it would be worthwhile for us to take a look at the assets over there and we've decided to go forward and participate in the first round. That's really where things are right now.

Dan, tell us what are the assets there? Remind us.

Joe, why don't you go through that for us.

Michelle, there's two areas, they call them area A and area B. Area A has an operating rebar plant of about 1.2 million tons per year and it has continued to operate all through the bankruptcy. And they also have a shuttered CSP mini mill there. Area B is an entire integrated side with iron making, with Midrex plants, Corex plants, electric arc furnaces, thick slab casting, cold mills and all that type of thing, and the main reason that we and Yamato are looking at this is Yamato has in the last two years purchased a rebar mill in Korea and has been operating in Korea so they know how to operate and they also understand the rebar market, and that operating rebar plant has proven earnings, and so that's our primary interest. And we'll see how we go further in this.

What about the CSP mill?

What about it?

Well, what's the capacity, and you don't have an interest in that?

We don't know yet. It's too early. We're just beginning the process. All we've done is asked to be included.

Okay. From what I remember it's about 2 million tons. It's large.

That's true.

It's a similar design to yours, right?

Yeah, it's like Hickman.

Okay. What I remember is actually, I think, hearing from you guys possibly many years ago, that this mill put it, went in, and it had a lot of the same technology as your mill but didn't have the Nucor culture. Wasn't this one of those?

Well, we never saw it operating on the CSP side.

It never did, did it?

Yeah, it operated.

Did it? Okay.

Yeah. But the main reason we weren't interested some years ago is China hadn't exploded. In fact, we were there right after the Asian crisis. So the world is a little bit different right now.

So you had looked at this before.

Yeah, '99.

Yeah, we were invited somewhere around '99.

So this isn't something like brand-new? I have this recollection that you might have been asked to consult or something?

I think you're thinking about Thailand.

In Thailand I know you did consult.

But you're also thinking about Carini [ph] and his Birmingham group that did some consulting over there maybe a year ago.

Okay. So this is something that you know and your partner knows the business, I think that's what normally we'd have some concern about. I have a green eye shade question for Terry. Was there any accounting reserve adjustment for environmental?

Basically, no. I think there was maybe around $100,000 charge or $150,000 charge, that was it.

$150,000, okay. We'll be sure to add that back when we make adjustments.

Yeah, you should do that.

I will absolutely do that. I'm going to rewrite my report now. Last question. John Ferriola said you've resumed contract -- he used the word resumed contract business at significantly higher levels.

What I said, Michelle, was that the contract pricing came up to our expectations we began taking more contract tons. So where as we were at about a 30 to 35% level on contract business we did increase that to a 40 to 45% level that we see in this quarter. And again, frankly, right now we see contract pricing again stabilizing, increasing and we anticipate doing more contract business throughout the rest of the year, probably to 50 to 55% level.

And that would be 12-month contracts that will be rolling off as far as the calendar year?

Michelle, it's really all over the board. Okay? Some of it is 12 months, some of it is six months, and, frankly, we have some that are three months.

I see. Okay. I think that sometimes when the analysts talk about contract business, I think the other companies define it as 12 months. So if you were to like cut it by 12-month versus non, what would you --

I don't have that number in front of me. I can tell you during the time periods, for example, we would be committed to about 50 to 55% of our production on contracts from the period during the last six months of 2004.

And can you give me some idea sequentially of how much on average those contract prices were up before surcharge?

Again, depending upon the industry, it varied greatly. Let me just say that at the end of last year we did not feel that it was a good economic decision, commercial decision to move forward with contracts at the pricing levels they were at. Today, pricing levels are such that it makes good commercial sense for Nucor to take contract tons.

Particularly in light of the fact that all contract business is being taken with the surcharges in place.

Exactly. Exactly. Do you get a sense across the industry that new contracts are always now being written with surcharge or escalators? Do you think that's going to be the way the industry goes?

I think a lot of our competitors are following us in leading in that direction, absolutely.

Fabulous. Well, I'll see you in Las Vegas.

Thank you, Michelle.

Our next question is a follow-up question from John Tumazos.

In looking at your guidance for the June quarter, it would appear that something like a $50 higher cost of scrap used and $75 higher gross price realization, or $25 higher overall margin might fit with that. Could you -- if your attorneys let you -- walk us through the assumptions underlying your guidance? Maybe $75 higher scrap and $100 higher selling prices, but something like $25 better spread.

The good news, John, is we can't tell you because we don't know. We build our forecasts up from the division level, so each division makes their assumptions as to pricing and costs. We don't try to consolidate it at that level here. We look at the overall forecast and individual to see if we think they're reasonable. And then we roll them up. We don't do a top-down.

So we can only surmise that $100, $125 million increase without guessing from where?

Listen, what we said, John is that we see price realizations and margins improving, okay, and we see scrap prices coming down. All right? We see volumes at levels we had in the first quarter or better, so, I mean that pretty much defines everything and --.

So you think the cost of scrap in the quotes that we read in the paper will be down or the costs of scrap used will be down?

Making the assumption which, you know what it can do to you and me when we make assumptions. Right now it looks like the next scrap buy will be down and down strongly. We don't know where the June buy will be. We don't even know for sure what the levels will be on it the very next buy. We know we've got significant price increases going into effect in the second quarter and we're not going to give a guidance better defined than what we've given. We feel strongly that that guidance is sound guidance based upon the general concepts that we've shared with you.

Thank you.

Our final question is a follow-up question from Mark Parr.

Thank you very much. Just one follow-up. I know that Mike had talked about import offerings for bars. Just wondering what you're seeing and hearing in the market regarding import offerings for flat products.

Overall import offerings for all products are not an issue today, and we don't see it going forward in the second quarter, and as far as third or fourth quarter goes, it's too soon to be looking at that, but, John, do you have anything you want to add to that?

I think you hit all the major points. We carefully monitor that situation and we will be quick to react to it but at this point we don't see any evidence of it today.

Okay, just one follow-up, if I could. The number -- the 27-cent number you talked about for your current base price for hot-rolled, is that a contract price or is that a spot price that you're talking about?

That's today's spot pricing.

Okay. Is it fair to say that contract pricing would be at a discount to that or at a premium?

Again, that's somewhat industry-specific, but I would say typically it's lower.

Okay.

Contract pricing would be lower.

Terrific. Again, thank you very much.

You're welcome.

There are no further questions in queue, sir.

Okay. Thank you all for being part of our call. Thank you for your questions. And to all the Nucor employees out there, we're looking forward to a strong year, thanks to your efforts, and strong profit sharing year. Stay safe everybody. Thank you.

Ladies and gentlemen, this concludes today's presentation. You may now all disconnect.