Nucor Corp (NUE) 2005 Q1 法說會逐字稿

Good day, everyone, and welcome to the Nucor Corporation first quarter of 2005 earnings release conference call. As a reminder, today's call is being recorded. Later we will conduct a question-and-answer session, and instructions will come at that time.

Certain statements made in this call are forward-looking statements that involve risks and uncertainties. Although Nucor believes they are based on reasonable assumptions, there can be no assurance that future events will not affect their accuracy. Some of the important factors that may cause actual results to differ from our predictions are listed in Nucor's SEC filings. The forward-looking statements made in this conference call speak only as of this date, and Nucor does not assume any obligation to update them.

For opening remarks and introductions, I would like to turn the call over to Mr. Dan DiMicco, Vice Chairman, President and CEO of Nucor Corporation. Please go ahead, sir.

Good afternoon, and thank you for joining us for Nucor's conference call. We will briefly review our results for the first quarter of 2005 and provide an update on our progress implementing Nucor's strategic plan for growing long-term shareholder value, and then take your questions.

Terry Lisenby, Nucor's CFO, and our other EVPs John Ferriola, Pam Lott (ph), Mike Parrish and Joe Rutkowski are with me this afternoon and will be available to answer questions as well. First and most importantly, I would like to say hello and a big thank you to all the members of the Nucor team who are listening into the conference call on the Nucor website. I also extend a very warm welcome to our newest addition to our Nucor family our team at Nucor Cold Finish in Wisconsin.

Additionally I would like to say hello to the soon-to-be newest members of our Nucor team at the Marion Steel Bar Mill in Ohio. Nucor's employees are the right people for our firm's most important assets. They will ensure our future success. The 10,800 men and women of Nucor work hard and as always work together to again deliver strong profitability in the first quarter for our shareholders. By taking care of our customers, the Nucor team 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 earnings of $2.20 compare against year ago quarterly earnings of $0.72 per share. These results represent record first-quarter earnings, breaking the previous record established in last year's first quarter.

Our first-quarter 2005 results also exceeded our earnings per share guidance that was increased in our May 11th press release to a range of $1.95 to $2.15. In the first-quarter 2005, earnings per share guidance was a range of $1.70 to $1.90. As always, the Nucor team is focused on meeting or exceeding the financial targets we set forth to our shareholders, and our $2.20 earnings per share in first quarter did that.

Nucor's first-quarter 2005 highlights the value of our position as the most diversified steel producer in North America. Our product line diversity is important in that Nucor's short-term performance is not tied to any one market. The vast majority of recent steel market press headlines and analytical commentary have been directed at softness in sheet markets by operation. By contrast, our first-quarter results benefited from Nucor's having a diversified product portfolio.

A look at the composition of our first-quarter 2005 sales (inaudible) is instructive. 41% sheet, 27% bars, 13% beams, 12% plate, and 7% downstream steel products that include a total of joists, deck, cold-finished, filling systems and fasteners. Very attractive profits were generated in this year's first quarter by our long products, sheet, plate and downstream steel products operations. Strong first-quarter performance at Nucor's Bar Mill group reflected both our very successful acquisitions and benefits from our recently completed modernization programs. We are realizing impressive returns from our expanded presence in the plate market, and our beam business continues to perform well in a market that has being challenging for several years.

Among the downstream businesses, we continue to be very pleased with the performance of our rebar fabrication joint venture established in 2004 with Harris Steel Group. Finally, it is important to remember that Nucor's Sheet Mill group locked in during last year second-half approximately 65% of our sheet mill's tonnage for 2005. Those contracts carry attractive fix-based prices, as well as either raw materials surcharges or scrap buyback programs.

Our record first-quarter profit is also the payoff from execution of Nucor's strategic planned. The object of our long-term approach to building our business and raising returns on our shareholder's valuable capital is to generate higher highs and higher lows in profitability throughout economic and steel market cycles. The keys to executing the strategy have been and remain first, Nucor will optimize existing operations. Second, Nucor will continue greenfield growth via the commercialization of new technologies. Third, Nucor will pursue strategic acquisitions. And fourth, Nucor will grow globally through joint ventures.

Optimization of existing operations is a critical component of our growth strategy. At Nucor our passion is continual improvement on safety, quality and cost. As we remind ourselves on a regular basis, we're climbing a mountain with no peak. I will highlight important progress our teams achieved during the first quarter of 2005 on several key initiatives to optimize our existing operation.

Nucor Sheet Mill group announced in February plans for the addition of 2 vacuum degassers, one each at Decatur, Alabama and in Arkansas. These two degassers will give us additional high value-added product capability of about 1 million tons annually. Total capital expenditures for each project are estimated to be less than $20 million. The degassers are expected to be operating in the first half of 2006.

Complementing our existing degassers at our South Carolina and Indiana sheet mills, the new degassers will advance our strategic plan for greater participation in higher value-added sheet markets. Adding the degassers at our Alabama and Arkansas mills will position our Sheet Mill group to increase Nucor's participation in the automotive and appliance markets, particularly in the southern half of the United States and Mexico.

Importantly, Nucor already holds the distinction of being the first mini mill and possibly the only mini mill in the world to successfully operate vacuum degassers and sheet mills to produce interstitial free extra extra deep drawing steels.

Nucor's very proactive role in the fight for free and fair trade is a crucial part of our work to optimize our existing operation. The first quarter of 2005 is marked by two major achievements by the U.S. steel industry in the trade arena. First, the U.S. Department of Commerce moved in March to extend and expand the steel import monitoring and analysis system. This is system is used by the steel producers, importers and customers to track imports of steel into the United States on a timely basis. It is a critical tool to address import searches and illegal trade practices before they destabilize the U.S. steel market.

And second, the U.S. international trade commission voted this month to extend for an additional five years the antidumping and countervailing duty orders and suspension agreement covering imports of hot-rolled sheet steel from Brazil, Japan and Russia. This decision resulted from the ITC's "sunset review" of the orders and suspension agreement. These measure will continue to play a significant role in supporting the stability and profitability of the U.S. hot-rolled sheet steel market.

Nucor is encouraged by both these actions by the U.S. government to enforce our nation's trade laws and maintaining an effective import monitoring system. However, more work remains to be done by the global steel industry and by governments to end the subsidization of existing and new capacity. Most importantly, Nucor will continue to apply our firms can do attitude and energy level to global steel trade issues.

Our strategic plan recognizes that technical innovation must remain a major competitive strength of Nucor. Our success has been and will continue to be driven by our Company's ongoing ability to adapt and continually improve our cost position relative to our competitors. Nucor will continue to grow to greenfield plant construction when we have the opportunity to exploit significant cost advantages by applying new and disruptive technologies.

On our last conference call, we reported to you that our team at the Castrip facility in Crawfordsville, Indiana has fully commercialized revolutionary new technology to directly cast sheet steel into final shape and thickness.

We also reported that we have formed a team to select a location for Nucor's second Castrip production facility in the United States. (inaudible) continues and we expect to announce the site during the third quarter of this year. Our initial market studies indicate the site of our second Castrip plant should be located in the South Central region. For that reason, we are looking closely at our steel mills in Arkansas and Texas as potential sites.

Nucor's disciplined acquisition strategy over the past four years has greatly expanded our platform for generating earnings and attractive returns on our shareholder's capital. Our discipline is anchored by three principles -- don't overpay, stick with businesses we understand and make sure there is a strong cultural compatibility. We're continuing that work again in 2005.

In February we purchased the assets of Fort Howard Steel's cold-finished bar operation in Oak Creek, Wisconsin. The Oak Creek facility has annual production capacity of approximately 140,000 tons. Nucor cold-finished Wisconsin also has broadened our cold-finished productline to include sizes up to 6 inches and more leaded bars.

I'm very pleased to report that our team at Nucor cold-finished Wisconsin set a new monthly production record in March during the first full month of ownership by Nucor. Importantly, the production record was set accident free.

With the combined annual production capacity of approximately 490,000 tons from our four facilities, Nucor cold-finished is now the largest producer of cold-finished bars in the United States. Our strategy of building market leadership positions and attractive downstream value-added businesses has consistently generated very attractive returns on assets to the economic cycle.

Early this week we announced that Nucor is entered into an agreement to purchase substantially all of the assets of Marion Steel Company. The purchase price is approximately $113 million in cash, which includes approximately $28 million of working capital. This bar mill has annual capacity of about 400,000 tons and is located in Marion, Ohio, a prime location which is close to 60% of the steel consumption in the United States.

Similar to our experience with the Auburn steel and the Birmingham steel bar mills, we're excited about what we see at Marion -- a good combination of talented people and solid assets which will only get better. We look forward to growing the Nucor culture together with the new members of our Nucor family.

The acquisition of Marion will enhance our leadership position in the bar business, which has been a major part of Nucor's success in the steel business for more than three decades. With the addition of Marion, our nationwide network of 10 bar mills brought a total annual production capacity of approximately 6.9 million tons. We expect to complete this transaction by mid-June, and it is expected to be immediately accretive to our earnings.

You will recall that our strategic plan also calls for Nucor to develop attractive supplies of high-quality scrap substitutes. We are implementing a raw material strategy to control about one-third of our earned used consumption or between 6 million to 7 million tons per year, high-quality scrap substitutes at our current consumption rate.

Our raw material strategy which has been underdevelopment over the past several years is driven by Nucor's ongoing expansion of our sheet steel product portfolio into higher quality grades and our SBQ business.

We made good progress in the first quarter of 2005 in implementing three raw materials projects that should provide Nucor control over a minimum of more than 2 million tons per year of high-quality scrap substitutes. With our new iron project, we are relocating to Trinidad from Louisiana direct reduced iron or DRI plant that we acquired last year. Trinidad's site will benefit from a very competitive and long-term supply of natural gas, as well as favorable logistics for receiving iron ore from Brazil and shipping DRI to our sheet mills in the United States.

Our team has finished disassembling the DRI plant in Louisiana, and the first barge left last Sunday for Trinidad carrying large plant sections. We expect to have the final shipment loaded and on the way to Trinidad by the end of next month. Having recently received our environmental permit, work is commencing in Trinidad. When construction is complete, new iron will begin operations in 2006 with annual capacity of 1.8 million metric tons of DRI.

Our HIsmelt joint venture with Rio Tinto and other partners has completed construction of a facility in western Australia that converts iron ore finds and coal finds to liquid metal. The HIsmelt process is both a glass finish replacement technology and hot metal source for electric ark (ph) furnaces. Annual capacity initially will be 800,000 metric tons, which is expandable to over 1.5 million metric tons at a very attractive capital cost per ton of incremental capacity.

A major milestone was achieved on April 1st when the HIsmelt team successfully commissioned the induction furnace and the pig caster. We are decidedly on target for a full start of our operations at HIsmelt this quarter in a matter of weeks.

Our Faragousa Carazache joint venture with CVRD is an environmentally friendly pig iron project using cultivated eucalyptus trees as a charcoal source. The first module utilized two conventional mini blast furnaces to produce 380,000 metric turns tons of pig iron annually. Charcoal production has already begun, and construction of the furnaces and (inaudible) is nearly complete. We expect full operation at Faragousa Carazache to commence later this year.

We recognize that the steel industry today is a globally competitive business, and Nucor will grow internationally using innovative technologies and joint ventures with world-class metals and mining companies. Our Castrip LLC venture with BlueScope Steel will be an extremely valuable asset in diversifying Nucor's geographical presence and growth opportunities. We expect to establish at least one overseas joint venture partner before the end of 2005.

In the first quarter of 2005, we significantly strengthened Nucor's manpower resources dedicated to capitalizing on our international growth opportunities. In February we announced that Executive Vice President Joe Rutkowski is responsibilities are exclusively focused on business development on both a domestic and global basis. His prior responsibilities overseeing our plate and (inaudible) businesses will transfer to Executive Vice President John Ferriola. We are excited that Richard Wechsler has joined the Nucor team as General Manager of International Business Development. In addition to his extensive knowledge of Castrip technology, Richard brings to our team a wealth of experience built over a 37-year career in the international steel industry.

Following a record smashing year in 2004, we are off to a strong start in 2005. Clearly the sheet business is working through excess inventories built up in last year's second-half. Our sheet stock pricing has softened in 2005. However, Nucor continues to benefit from our significantly higher contract business in sheet at 65% of total volume.

Productline diversification and strengthening demand in construction-related products. These benefits are reflected in our second-quarter 2005 earnings guidance of a range of $1.95 to $2.15.

Looking further ahead we expect the growing economy will add strength to our business in the third and fourth quarters of this year. While the inventory overhang in sheet has lasted longer than anticipated, recent reports shows those inventories are declining. We also expect imports to drop-off significantly by the end of the second quarter and through most of the third quarter, which will enhance this decline further. We expect that trend to benefit our sheet business by June and moving forward.

The Nucor's team strong focus remains fixed and continuing to build sustainable earnings power, and the return is that we reward our shareholders. Knowing that the Nucor team has the right people and a sound strategic plan, Nucor's best years are still ahead of us.

Terry Lisenby will provide further details on results for the just completed quarter and our financial position.

Thanks, Dan, and good afternoon. Sales for the first quarter of 2005 were $3,323,000,000, up 45% from the year ago quarter and up 8% from the fourth quarter of last year. First quarter of 2005 total steel shipments of 5,043,000 tons decreased 2% from the year ago quarter. Excluding the tons sold from our Alabama plate mill acquired last July, shipments declined 6% from the year ago level.

Nucor's goal is to generate a reasonable profit per ton of production and an attractive return on capital, not to maximize absolute tons of production regardless of the profit generated. Reflecting seasonal trends, first-quarter total steel shipments increased 13% over the fourth quarter of 2004.

First-quarter 2005 steel joist production of 123,000 tons was up 6% over the prior year quarter and was down 2% from the fourth quarter of 2004. Steel deck sales of 8000 tons for the first quarter gained 8% over the year ago quarter and declined 14% from the fourth quarter of last year. First-quarter 2005 cold-finished bar sales of 89,000 tons increased 20% over the year earlier quarter and 48% over last year's fourth quarter. Excluding the volume contributed by our recently acquired Wisconsin plant, cold-finished sales were up 3% over the prior year quarter and up 27% over the fourth quarter of last year.

Our first-quarter 2005 average composite sales price for steel and steel products of $663 per ton was up $208 per ton from the year ago level but was down $34 per ton from the fourth quarter of '04.

Looking at the quarter-over-quarter pricing changes by product, sheet decreased $42 per ton, bars decreased $32 per ton, beams increased $2.00 per ton, plate decreased $16 per ton, joists increased $11 per ton, deck increased $44 per ton, and cold-finished increased $18 per ton. Also comparing the first quarter of 2005 to the fourth quarter of 2004, our average raw material surcharge per sheet products declined by $67 per ton, while our bar, beam and plate average raw material surcharge declined by $18 per ton over the same period.

Our average usage costs of scrap and scrap substitute for the first quarter of 2005 was $272 per ton, up $72 per ton over the year ago quarter and down $6.00 per ton from the fourth quarter of 2004. From the most recent peak reached in November of last year, our purchase scrap costs has declined by $47 per ton through March of this year. Our spread between the average steelmill selling price and the usage costs of metallics was $357 per ton for the first quarter of '05. The metal margin spread widened by $120 per ton over the prior year quarter, but narrowed by $26 per ton from the fourth quarter of 2004.

For the just completed quarter, we incurred a LIFO inventory credit of 26.1 million, which included 8.1 million in our 51% owned Nucor-Yamato structural steel mill. Generally in times of decreasing cost, we will record a LIFO credit. At the close of the first quarter of 2005, our LIFO inventory reserve stood at $507 million. Earnings before income taxes for the first quarter of 2005 of $115 per ton were up sharply from $37 per ton for the year ago quarter, but were down from $125 per ton for the fourth quarter of 2004.

Nucor's effective tax rate was 35.6% for the first quarter or down slightly from the year ago quarter effective tax rate of 35.9. Our cash provided by operating activities for the first quarter of 2005 was 588 million compared to 201 million for the prior year period. Cash and short-term investments totaled over $1,200,000,000 at the close of the first quarter of '05.

For the first quarter, capital expenditures were 71 million, and depreciation expense was 91 million. For the full year of 2005, we project capital expenditures of approximately 415 million and depreciation expense of approximately 400 million. The 2005 capital budget includes expenditures of more than 150 million for greenfield projects, primarily the new iron DRI plant.

At the close of the first quarter of 2005, our debt to capital ratio was 19%. Nucor's debt is rated A+ by Standard & Poor's and A1 by Moody's, the highest debt ratings awarded to any North American metals and mining company. We view Nucor's strong balance sheet as an important competitive advantage.

Effective with the upcoming May 11th dividend payment, Nucor is increasing our regular quarterly cash dividend rate from $0.13 to $0.15 per share. In addition to the $0.15 per share base dividend, our Board of Directors approved the payment of a supplemental dividend of $0.25 per share for a total dividend of $0.40 per share. This supplemental dividend is consistent with our pay for performance corporate culture.

Nucor has increased its cash dividend every year since we began paying dividend in 1973. We also plant to reactivate our stock repurchase program. Approximately 8.5 million shares remain available for repurchase. The supplemental dividend and the buyback program demonstrate our ongoing focus on the careful allocation of our shareholders' valuable capital.

As Dan discussed in his comments, we believe Nucor is well positioned to continue it strong performance in 2005.

Thank you, Terry. At this time, I would like to ask Mike Parrish to talk about our bar products business. Mike?

Thank you, Dan, and good afternoon. Looking at the individual bar markets, the rebar market is very good and continues to strengthen. Demand is increasing in most regions of the country, and inventory levels are now in line with the market. Consequently rebar shipments will improve in the second quarter. We see rebar transaction prices slightly increasing over the next few months.

The merchant bar market continues to be slower then rebar with demand at moderate levels. However, we see good signs of the merchant bar market picking up in the second half of the year.

Currently our Vulcraft fabrication divisions have solid backlogs and a strong quote activity. This bodes well for the merchant bar market as these divisions have always been a good barometer for merchant bar demand. We expect merchant bar pricing transaction pricing to remain steady over the next few months. The SBQ market remains strong, and the demand outlook for SBQ is favorable. Currently one-third of our SBQ business is under contract that includes a surcharge mechanism. Our primary market focus continues to be heavy equipment, machinery, manufacturers and some automotive. We expect SBQ transaction pricing to remain at their current high levels.

As Dan mentioned earlier, we are very proud of the production and safety performance at our newest division, Nucor Cold Finish Wisconsin. Congratulations to all the employees there on this wonderful achievement.

The bar group is also very excited about the recent announcement on the Marion Steel acquisition for several reasons. First, it fits very well strategically and geographically into our existing bar mill group. Second, Marion Steel has a great reputation for excellent customer service and quality products. Third, the purchase price compares favorably with our previous bar mill acquisition. For example, if you look at the Enterprise value per ton of capacity, the Birmingham acquisition was $308 per ton, the Auburn acquisition was $288 per ton, and Marion Steel was at $283 per ton. And if you look at the value per ton of capacity less working capital, Birmingham was at 248 per time, Auburn at 202 per ton, and Marion Steel at $212 per ton. The Marion acquisition also includes a highway signpost business and a scrapyard facility. And last but definitely not least, Marion Steel provides a wealth of talented and experienced employees that will be a great addition to the bar mill team.

Thanks, Mike. I would like to turn now to John Ferriola to talk about our sheet plate and beam business.

Thanks, Dan, and good afternoon. First quarter was a strong quarter for the sheet group. Production and shipments increased Q1 over Q4 despite the groups moving three maintenance outages scheduled for later in 2005 into the first quarter. We have continued to implement our well-defined strategy of managing our business and focusing on profitability. We continue with our strategic direction of providing higher value products to value appreciative customers.

Our team at Berkeley continued to optimize their vacuum tank degasser moving further into high-strength (inaudible) steels used in the automotive and appliance industries. Also, during the quarter, our Decatur, Alabama team successfully rolled 1 millimeter .040 inch hot band. This is a major accomplishment which allows us to participate in the ultralight hot band market.

Despite a market that was weaker than we anticipated for the first quarter, we remain optimistic about the strength of the market for the remainder of 2005. The market weakness we experienced in the first quarter was a result of inventory overhang that did not dissipate as quickly as we expected. The major reason was the continued high rate of imports. Although down from their peak rates in the second half of 2004, imports were 20% higher in the first quarter of 2005 than they were in the first quarter of 2004. However, end use demand to service centers is reported to be stable, and we expect their inventories to continue to decrease, returning to normal levels late in the second quarter. In the meantime we expect pricing pressure to continue.

Fortunately the pricing adjustments we saw during the first quarter were gradual enough to allow scrap cost adjustments to keep pace and in many cases surpass hot band pricing adjustments. Although we saw our average sheet pricing decrease by 6% Q1 over Q4, the prime scrap price dropped from a high of $430 in November of 2005 to this April's price of $270, a decrease of $160 per ton or about 38%.

Other indicators that contribute to our optimism are a domestic economy that continues to grow at a healthy rate of about 3%, the continued growth in the Chinese economy, and the resulting increase in steel consumption in that country, a favorable ITC ruling which will help ensure that foreign producers will have to compete in the U.S. on a level playing field and finally continued consolidation in our industry. We believe very strongly that continued consolidation bodes well for market stability and will be a positive for the major steel producers, the distribution sector and our customers.

During the first quarter, we continued to set new records at our Castrip facility in Crawfordsville, Indiana. February was a record production month with over 22,000 tons quarterly. February and March posted new back-to-back shipping records of over 15,000 and 16,000 tons respectively.

During the first quarter, we passed the 200,000 ton coiled to date milestone. We are currently coiling 5 to 6000 tons per week, and we expect to coil 350,000 tons in 2005. The quality and market acceptance of the Castrip product continues to improve. We are also currently expanding the ranges of grades that we are successfully producing at Castrip.

For our structural products, the market remained stable throughout the first quarter with some recent positive signs for the demand outlook. For example, fabricators are reporting that bidding activity is improving, and they are optimistic that the market will continue to improve during the year.

Our piling business was strong throughout the quarter. Also, during the first quarter, our Nucor new model structural mill continued to develop new products such as PZ-40 and PZ-35 that are meeting with commercial success. Import activity on structural is low. We have heard of a few offers in late January and early February, but we have not heard of any significant firm offers since that time.

The first quarter was also very successful for Nucor in our plate business with both of our plate mills running at capacity. Pricing remains strong, and production, as well as shipments, have increased to record levels at both mills. Second-quarter bookings are currently open, and business conditions remain positive.

While we are currently seeing some mild inventory adjustments out of distribution at our distributor-based customers, demand remains strong with our OEM customers. As we move into the second quarter, we will remain focused on profitability and continue to supply value-added products to our value appreciative customers. Thank you.

Thank you, John. At this point in time, we would like to open the floor up for questions.

(OPERATOR INSTRUCTIONS). Michelle Applebaum, MARI.

I -- you know -- really incredible quarter. I know that your prior peak operating profit per ton was 55 -- $59 in December quarter of '95. So it ain't all bad news. I wanted to ask you if you could comment -- obviously in retrospect going to these contract arrangements on the flat-rolled side was kind of either very brilliant or very lucky last June right at the peak of the market.

Thank you, Michelle.

Is that John there, correct? John taking a bow.

It has been both lucky and good.

Yes. Right. No, just kind of amazing i guess because it was in contrast to Nucor's historical pattern. Have you had -- I have not heard this at all. Do you have people coming back to you trying to renegotiate terms on those things?

Really we have seen very little pushback. Obviously we're constantly talking to our customers, and they are always constantly talking to us. But we continue to supply the steel to the firm contract customers, and they continue to pay. We have not had a major issue on contract business.

Okay. I have not heard that, so I just -- the history in the industry, though, you start to wonder.

One point that I might add is that our contracts have surcharge included, so it is a base price plus a surcharge. And as you know, the scrap price is moving with the market. So our contract customers see that.

Right, except for right now it is starting to change.

We have got one month worth of scrap prices going back up, but throughout this entire period, their total transaction price has gone down significantly, so.

Okay. So they have kind of benefited from that as well? (multiple speakers). They have not been hurt.

Definitely kind of -- like $160 a pop.

Kind of. So the real question is, how much of that rolls over as we move forward, and what kind of gap did we start to see in terms of the pricing in your book?

Well, actually most of our contracts, the vast majority are annual contracts that began in January. We typically enter into the contract negotiation season during the third quarter, and frankly we have not begun that yet. So I cannot comment on what is going to happen in the future.

Okay.

Thank you, Michelle. You'll get a chance to ask some more questions later. I appreciate your questions, but we have a lot of folks, and we're going to limit it to one question per analyst as we go through here. Thank you.

I would have asked a better question if I knew that.

Well, the operator (multiple speakers)

Go on, go on, go on.

Michael Gambardella, J.P. Morgan.

How do you evaluate the use of capital between your projects and your acquisitions? It seems like you have an abundant amount of new projects at appealing cost as we have seen with Marion recently and the buyback program given that the stock is currently trading at only about 12 times the first six months of earnings.

Well, that is obviously what got us interested in reactivating the buyback program. But I don't know that we have any formula for allocation. Price dependent I would say.

Have you used any of that reactivated program yet in the second quarter?

No.

It is currently in a blackout period, and policy is not to do anything until we come out of that. So we have not done anything up until this point.

Christopher Olin, Longbow Research.

Just a quick question. I was wondering what happened to the third-quarter guidance. During your preannouncement, you suggested that third-quarter earnings would be pretty strong. I want to know if you have changed your outlook for that?

We have not changed any outlook with respect to third quarter. Are you talking about the second quarter?

Well, I think you said that second quarter would be stronger than first, and then the press release say something along the lines of the third quarter would be strong as well?

What we said was that we saw second-quarter and third-quarter demand being stronger than first quarter, and we expected that earnings would be stronger than our original forecast of 170 to 190 going through the second and third quarter. As it turned out, we were pleasantly surprised with the way the operations shipped and the cost structure that we had. So our earnings guidance in the first quarter went up to -- and as you know, we ended up with 195 to 215 and with a 220 final number, and we expect continued strength in earnings through the second and third quarter of this year and improving demand as we go forward.

So you did not suggest that the third-quarter earnings would continue to improve? Right?

We said that demand would be stronger, and that should be reflected in our earnings. We did not give any specific earnings guidance for the second or third quarter in the press release, and we have not given any until the press release today which is 195 to 215. As you have seen over the last year, we have consistently beat those expectations.

Mark Parr, KeyBank Capital Markets.

Congratulations on a fantastic quarter. One thing I wanted to ask (multiple speakers) pardon me?

Thank you.

This is just a minor question. What is the width capability of the Decatur mill? And does the addition of the degasser at Decatur along with the 5 inch thick slab, does that have any implications as far as Nucor's desire of getting into exposed automotive or into more aggressively into some of the automotive transplant opportunities?

We may have to ask you to repeat some of that question, but, John, go ahead and take it.

The first part was the width of the Decatur mill, I believe it is 65 inches. And the second point you were asking about the 5 inch slab, it is a 90 millimeter thick slab just to correct that point. But I wonder if you could repeat what was the question relative to the thickness of the slab.

No, I just -- there was -- I don't want -- I know there's a lot of questions. We can talk about that off-line I guess. I just thought a thicker slab meant -- was something that automotive companies could produce a higher quality surface.

That is absolutely correct.

Keep in mind, Mark, if I could, that thin slab casting is 1.5 to 2 inches thick. We're talking about a little over 3 inch thick here for the Decatur casting. So it is significantly thicker than conventional thin slab casting, so you're right about that. It just was not 5 inches, it is 3 inches.

I apologize for that. I misspoke. What I was curious about is what that means as far as your desire to have a larger automotive book for the Decatur mill and I guess also for the mill in Arkansas?

We definitely feel that Decatur was well suited not only because of the thickness of the slab, but also due to the fact that we have a very good coal mill at the end of the mill with a tandem coal mill.

Yes, that is the old Worthington mill.

Yes, the old Worthington -- it is the former Worthington (multiple speakers)

Yes, the former. Not the old mill, but the former Worthington (multiple speakers)

Not the old mill. It is a great mill. I wanted to correct that. It's a great mill. The equipment there is absolutely outstanding, and the employees there are doing a great job of doing that facility up to speed.

But to your earlier question, yes, we do feel that Decatur is well suited for the automotive industry and also frankly for appliance industry, a higher grade appliance industry.

One final point, Mark. If you go back and check all the information we put out when we bought that formerly Trico now Nucor Decatur facility, we said from day one that it would be directed towards the higher quality automotive appliance market because of the increased capabilities given to us by the thicker slab, and we also reiterated that at the time that we bought the coal mill from Worthington that that would be part of our approach.

So thank you for your questions.

I was just checking. Thank you, again.

Timna Tanners, UBS.

I will just ask an easy one if I could. (multiple speakers). On the other income item on the income statement, there is a 9.2 million benefit. Could someone explain to me what that is?

Sure. It is not unusual for us to have minuses and pluses that develop on special issues during the course of a quarter. This one happened to be an insurance settlement in our favor for about that entire amount.

Exactly that amount.

David Lipschitz, Merrill Lynch.

Can you talk about the pricing environment you're seeing in Europe and Asia and how this is affecting import prices here in the United States?

Yes, actually if you go back over the last nine months, we have gone from a situation where U.S. pricing was higher than international to a position where over the last quarter we have been lower than international. In fact, we believe that will translate into significantly lower imports starting somewhere in the second quarter, probably towards the mid to latter part of the second quarter and continuing to the third quarter.

So right now internationally and for some period of time now prices in the U.S. marketplace, when you take into account international pricing, trade issues and what have you, currency issues, particularly with respect to non-Asian countries, it has been a environment where we have had lower pricing here.

Do you think that is going to continue or --?

I don't have that crystal ball, but right now that is the situation we are in. I would say that is that with the majority of the world steel production being blast furnace, coke oven oriented with the extreme increases in iron ore, coking coal and coke, I think that the likelihood of prices staying higher internationally than here are good.

If the worst-case scenario was to develop and prices were to change, it would be because of a major global softening, which would impact our major raw materials costs and our major cost component, scrap, and so that would act to help keep the electric furnace steel producers in this country much more competitive on a both domestic and international basis versus the integrated producers. So either way we have got an optimistic view of what is going forward.

John Hill, Smith Barney.

Congratulations on a great quarter. It is always nice to see companies returning cash to shareholders.

Thank you.

I was wondering if I could ask an inventory question. It looks like there's some crosscurrents. The dollar value on the balance sheet went down, yet production running again above total sales. I was wondering if you could characterize for us the inventory picture in terms of a), the balance sheet, b), the raw materials holdings, any prebuy, etc., and then c), in terms of finished products. Thank you.

No large prebuy. Quantities are down as are prices in inventory at the end of the first quarter. So we really did not have any inventory build. So really nothing unusual, sort of inventories to support the business level we are at.

It went down a point. So that is raw materials and scrap, etc.. Would that apply as well to finished product understanding that shipments have run below production for two quarters, although that gap appears to be narrowing to a pretty narrow one at this point?

Yes, pretty narrow, and I think that is true. We're not uncomfortable with our finished inventory levels anywhere.

How would you characterize the scrap inventories in terms of months of consumption and relative to normalized?

Probably about at normal, maybe just on the high side of normal, maybe six weeks a good guess, five to six weeks.

We traditionally shoot for about five to six weeks, and we might be just a hair above (multiple speakers)

Aldo Mazzaferro, Goldman Sachs.

How are you? I have a question on the raw materials. I can follow all the progress on investing for the substitutes on scrap. I am wondering going forward how do you feel about controlling more of the scrap collection? Is that something you might be looking to invest in?

We have obviously considered all options when it comes to raw materials, including that option, and we have obviously not done anything along those lines except by virtue of other acquisitions that included a couple of scrapyards with Birmingham and the most recent one with Marion. And at this point in time, scrap is down quite a bit. It is readily available. We see that continuing through the rest of the year, and we have no immediate plans to move in that direction. But you never know.

Do the Birmingham yards and the Marion yards have any material impact on your percentage, or is it all mostly steel joists (inaudible)?

No, it's a very very trivial percentage in actuality when you think last year we did 17 million tons worth of scrap, and maybe we are talking about what, 100,000 tons? A little more than 100,000, maximum 150,000 tons in those facilities.

Right. I will get back in queue again.

John Tumazos, Prudential.

Congratulations on the great results. How much steel did you export in the first quarter, and should we infer from the nondisclosure startup loss that Castrip earned more than any new efforts cost?

I think on the latter point you can infer that there was very little startup costs in the quarter, and it was an insignificant amount by GAAP standards or any standards for that matter.

As far as the first part of your question --

We exported probably about 50,000 tons of sheet products.

And that includes sales to Mexico and Canada?

I don't think we shipped much into Canada. (multiple speakers)

Yes, that is everything. To Dan's point, he is correct. I don't think we shipped anything to Canada. If anything, it was a very small amount.

Wayne Atwell, Morgan Stanley.

You mentioned a possible foreign joint venture. Is that in the form of possibly a mill maybe in Latin America or maybe somewhere in Asia? Are you actually thinking about producing and processing steel, or are you will still thinking raw materials?

No, the joint venture is using technology that we talked about, and we have mentioned this in numerous previous calls, Wayne, is the Castrip and HIsmelt in particular most recently Joe and his team have been working on numerous steel companies globally who are interested in partnering with us on Castrip. Joe, do you have anything you would like to add to that?

I think we have got sort of a multi-prong approach, and honestly almost all of our raw materials charges are going to be overseas. If you're going to do something overseas, you most likely look for a local partner and pretty much the same thing on the Castrip or downstream side of that business.

Any thoughts on timing?

As we mentioned in the proper of our presentation, we will have a joint venture put together actually before year-end. So whether -- when we actually start construction, it will probably be in the following year. But we certainly are in a position to have numerous opportunities if we so choose to act on them.

So with the one we will be doing in the United States and one international joint venture outside of the United States, for the first year we think that is enough. In second through five -- years two through five, we plan on doing upwards of three to four Castrips a year, and we also have a multiplan approach to the whole Castrip process of marketing, which will include everything from licensing to joint venture partnerships, possibly even to franchising in various areas of the world. But thank you for your questions.

Did you say for the third to fourth year you would be doing three a year or three total?

Per year.

Three Castrip --

What I said was two to four per year.

Two to four Castrips per year?

That is what we're focusing on. What we actually do will depend on market conditions and a few other things. But that is what we're focusing on.

John Novak, CIBC World Markets.

If you go back a couple of quarters ago, it was indicated that there was likely about 500 to 700,000 tons of incremental capacity at the various bar mills that could be brought on with limited capital. I just wondered why or what was it about Marion that made you decide to spend the money to pick up that asset when it sounded like it would have been more cost-effective just to pick up the incremental capacity from existing assets?

Well, first off there are numerous reasons for the Marion acquisition being a very good fit. One of them is the geography. That operation sits smackdab in the middle of 60% of the U.S. consumption of steel and construction products, and that is a very important part of the acquisition.

The other part is we're able to pick it up at a price that was at a peak in the market that was compatible to what we were picking up assets at the pits of the market a year and a half to two years ago. So it was a very good buy. And the people there are top-quality, excellent people as Mike has already alluded, and we are always looking to bring good people into the organization and expand our pool of human resources. We still have that incremental capacity to bring on stream anytime. So it's not a negative at all. It's a positive, and the opportunity was there and we took it.

Mike, do you have any other comments?

Just to add that it would be also a lot cheaper than greenfield equipment to add at this point in time, too.

Even if you tried to just do it from the capacity that was already in place at the other bar mills?

No. It would not be cheaper than that. But like I said, when you have the opportunity in front of you to expand your geographical position, which has been part of our strategy all along and our bar mill acquisitions, as well as in our sheet acquisitions, you take that opportunity. And again, the 500,000 tons of incremental improvements that we see that we can get out of that that will happen through continual improvement. It won't require us spending a significant amount of money. It is just something that will happen as time goes along. Our teams get more efficient at what they are doing and as we expand our reach into the marketplace. So that opportunity is still there, and it's not viewed as a negative whatsoever.

Would you niche focus that mill and take the rebar from that mill and put it in (inaudible) and do longer runs at Marion?

We are still looking at the product rationalization on that and how that mill fits in the best. So we really comment exactly what we are going to do with that.

Rest assured we will certainly look at what makes the most sense across all of our 10 bar mills. Next question, please.

Tony Rizzuto, Bear Stearns.

Solid performance. I wanted to know what you guys are building in in terms of your guidance for the second quarter in terms of the LIFO situation? And then if you could quickly help me with how much of the cash at the end of the quarter was the Yamato share?

Okay. The LIFO assumption baked into the second quarter was basically the same as the first quarter.

Okay. It would be another LIFO credit?

Right, another relatively small credit. And the first quarter cash for Nucor Yamato was $126 million.

Of which half belongs to Nucor and half to our partners.

One clarification on the LIFO. In the press release, we put 26 million and the presentation it is 26 million. We also indicate that included in that was 8 million or so of Nucor Yamato, which we have 51%. So Nucor's -- the contribution to earnings of the Nucor portion of that LIFO is $22 million roughly.

Thanks very much, Dan. I did catch that. Thank you.

Brian Rayle, FTN Midwest Research.

I was wondering if you could give us at least qualitatively what you're expecting for your second-quarter earnings guidance? Whether in terms of shipments up, down, sort of scrap and the price spread if there is any -- do you expect that gap to keep widening and head down, or do expect the reverse? Any kind of color would be helpful.

Well, if you look across all our product lines, we expect consistent shipments. We expect scrap will fluctuate over the next few months up and down about where it is at. And we expect that whatever pricing erosion might take place in one product line and some of it will be made up in other product lines, and with the continued downward move in the scrap usage that we will benefit from from the lower scrap buys in the first quarter. So that's a qualitative field for things.

Michael Lucas (ph), Appaloosa Management.

I actually have a question on something that Aldo had asked before, something I have been thinking about for awhile. Why wouldn't it make sense in terms of shareholder value to buy one of these scrap guys? I'm just thinking in terms of a long-term view, you know ISC (ph) when they had their contract with (inaudible) could have bought the whole company for $400 million now that the Enterprise (inaudible). I'm trying to think it fits you guys' long-term view, if you actually believe the market adds 200 million tons of steel capacity or adds demand to the next seven years or so, and that you used .15 tons of scrap for that. Do you think there is incrementally enough scrap around the world for you to get 30 to 35 million tons into an all blast furnace, and why would that make sense at this point to buy one of these guys?

Two things on the logic that you're using. It is certainly logical to think that way. But keep in mind two points. One, there is additional scrap substitutive capacity that is coming on stream and will continue to come on stream. We ourselves will be bringing on 6 to 7 million tons over the next five years. We're not the only ones in the world doing that.

Secondly, keep in mind that the majority of steel capacity (inaudible) united globally, the vast vast majority is iron ore based.

And third, keep in mind that the countries -- when you talk about increased demand for production of steel, you have got to remember it is going someplace. And a generation of scrap and manufacturing facilities both wherever products are being manufactured and (technical difficulty).

My best guess would be that Japan got self-sufficient and started exporting scrap after about nine years or about nine years ago, and Korea is just about getting there now. China will probably get there even faster. So as these countries develop their manufacturing infrastructure, they will be generating more and more prompt types of scrap, and there will be an impact also of the increased scrap replacement unit production that comes on stream. While we have not said that we will or will not go after scrap assets, that is not part of our first strategy to do that. And whether or not their good buys today or not is debatable, and I will not get into that.

Could I follow up on just one thing? I mean I guess my basis of the incremental steel tone is I was saying that it was all blast furnace because my assumption is that you use (inaudible) blast furnaces use 15%. Is that the right economics to use, or do you just disagree with that number?

They use 15% maybe. It depends on the market conditions, the relative price of scrap and a whole bunch of other things. But a fair amount of that is also home generated scrap.

And then lastly, I just wanted to clarify. Maybe I have bad information. I was told that in industrializing the economy that is moving upscale in terms of the impact to curve, it does not really start producing any scrap in that country until somewhere around 10 to 15 or even 20 years. You are saying it is like nine; do you think China will be faster? I just want to clarify that.

Do you know of anything today that does not happen faster than it did yesterday?

Well, I guess things to happen faster, but this is something different (multiple speakers)

That is my answer to your question. The other thing is there is still million and tens and hundreds of millions of tons of obsolete scrap in the world that have not been touched yet, particularly in Eastern Europe and Russia and the Ukraine.

Daniel Rolling, Merrill Lynch.

Gentlemen, the production that is going to be coming out of HIsmelt now in Australia by the end of the year, where do you think that is going to go, and when do you think the DRI in Trinidad will be up and running?

The pig iron produced in Australia will find its way one way or another into our operations either directly or via barter, or depending on market conditions, we could sell it over there and use the proceeds to buy pig iron out of Brazil. There are certainly plenty of ships going back and forth that we could move pig iron from Australia to the United States without much problem.

Joe, do you want to speak to the DRI project in Trinidad?

Well, first of all we do at least expect the first shipment out of HIsmelt to come to a Nucor facility, and there are several reasons for that. But the main reason is both our partners in HIsmelt as well as Nucor belief that coming to a Nucor facility offers a lot of ability to track the value and use of that particular material and to be able to get a better read on the value in the marketplace of that material.

So after that, again as Dan said, it would really be up to market conditions and availability of ships and things like that. As far as our plant in Trinidad, we would expect startup in the second half or so next year. (multiple speakers)

Aldo Mazzaferro, Goldman Sachs.

I wonder if you could just tell us a little bit about the cash levels that you think about. You got 1.2 billion, buying back 8.5 million shares would cost you at this price under 500 million. You generated about that much, a little less than that in the quarter. A lot of it came out of growth in payables.

I'm just wondering generally two questions. How much cash do you think you need to run the business? And number two, do you expect the working capital to continue to be a source of funds going forward the next few quarters, or do you expect it to level?

I will answer the second part first. I would expect it to sort of level. It may generate a little bit more, but probably not much.

As to how much it takes to run the business, certainly not $1.2 billion worth, but we don't have a real finite level we are targeting. We're just looking for good opportunities to put it to use.

You ran the business in the past with probably less than 50 million, right?

Yes. (multiple speakers)

It was a lot smaller business, too.

The other thing, how much of the stock we buy back and when will depend upon where the price of the stock is as well.

Christopher Olin, Longbow Research.

Just a quick question. What is your average length of a contract business in the sheet area? And is it safe to say that contracts will probably be down in the third quarter based on what we're seeing in terms of market weakness?

The average length is 12 months, and again we have worked hard to establish a good relationship with industries and customers that have a tendency to use contracts. So I cannot comment on what the pricing is going to be, but I don't expect a major difference. We're going to work hard to maintain that strategy going into next year.

Michelle Applebaum, MARI.

Oh, good. I will pick carefully. Okay. You are adding a lot of capability to do neat things with automotive at a couple of your plants. Can you talk about the incremental tonnage, the market size that that reach could get you into?

I will make a comment in reference to what our strategic plan would like our participation to be in automotive. We have said for a longtime that somewhere between 5 and 10% of our total sheet production we would like to see in automotive, not more than that.

I have to qualify that with again talking about market conditions in that industry and in other industries. The products that we're developing, our higher value products can be used in automotive, on appliance, in HVAC, in many many different applications. Depending upon the markets and the demand and the pricing in those industries, we will make decisions upon what level we will participate.

That is a real key point because how much we go into automotive will depend upon how we see the relative profitability of automotive. Clearly with the vacuum degasser addition and (inaudible) the two additional degassers going into Alabama and Arkansas, we are focusing on automotive more than we have than the past. We have had that designed to do that since we bought Trico, Nucor Decatur. You know we also plan on expanding, as John said, into the appliance business both in the U.S. and in Mexico.

One more point I would like to add with the vacuum degassers and opportunities it presents for us, a great one is electrical steel. A very high value market in the United States, and we think there is an opportunity to grow in there. We have grown substantially in the last five years.

I was going to say you have a great presence in that business.

Well, we do now. (multiple speakers)

And that is a great entry to appliance, too.

Absolutely.

Absolutely.

Okay. I was trying to you know -- maybe this is a hopefully shorter answer -- I mean this is all good stuff. I was trying to figure out like in terms of percentage of the market how much more market reach -- you know, I'm respecting that you want to keep this exposure small and I think it makes sense. But in terms of how many new tons you would have access to, I mean this is a big number, isn't it?

It could be as much as a million additional tons.

Okay. Thank you.

Thank you very much, and thank you to all of you for your questions. We appreciate it, and I would like to signoff by saying thank you again to all of our employees and our shareholders for supporting Nucor, and we will not let you down. Thank you very much.

That concludes today's conference. Thank you for your participation.