Nucor Corp (NUE) 2006 Q1 法說會逐字稿

Good day, everyone. Welcome to the Nucor Corporation first quarter of 2006 earnings release conference call. As a reminder, today's call is being recorded. Later we will conduct a Question and Answer Session, and the instructions will come at that time.

Certain statements made in this conference 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.

At this time for opening remarks and introductions, I would like the turn the call over to Mr. Dan DiMicco, Vice Chairman, President and Chief Executive Officer of Nucor. Please go ahead, sir.

Thank you. Good afternoon and thank you for joining us for Nucor's conference call. We appreciate your interest in our Company.

We will first briefly review our results for the first quarter of 2006, and then provide an update on our progress implementing Nucor's strategic plans for growing long-term shareholder value, and then take your questions. Terry Lisenby, Nucor's CFO, and three of Nucor's other EVPs, John Ferriola, Ham Lott, and Mike Parrish, are with me this afternoon, and will also be available to answer your questions. Joe Rutkowski is traveling today.

First and most importantly, I must say thank you to all the members of the Nucor team for delivering the third consecutive first quarter earnings record. Once again, the 11,300 men and women of Nucor, worked safely, worked hard, worked smart, and worked together, to take care of our customers. I will repeat what I have said many times. Nucor's most significant competitive advantage remains our employees. The right people working together as a team. Great job, and thank you all.

Nucor's first quarter 2006 earnings of $2.42 per diluted share exceeded by 21% our original quarterly guidance of $1.90 to $2.10, and also exceeds our revised earnings guidance that was increased in our March 10th press release, to a range of $2.20 to $2.40 per diluted share, and our results exceeded the revised First Call average analyst estimates of $2.30.

To review our first quarter of 2006 performance, highlights again two key attributes of Nucor. First, an extremely important and distinguishing strength of Nucor is our position as North America's most diversified steel producer, and second, but equally important, our team is building impressive long-term earnings power. Please note I said is building, and did not say built. As encouraging as our results have been over the past nine quarters, since the current steel industry upturn began, the Nucor team's journey is one of climbing a mountain with no peak.

Quite simply the Nucor culture has always refused and will continue to refuse to set limits on what our team can accomplish with our long-term approach to building our business. Our level of product diversification is unrivaled by any other steel company in North America, if not the world. Nucor's product line diversity means that our short term performance is not tied to any one steel product market. It is worthwhile to review the composition of our sales tons in the first quarter of 2006, which was 40% sheet, 29% bars, 14% beams, 11% plate, and 6% downstream steel products.

Nucor's earning growth in the first quarter of 2006 compared to a year ago quarter, was driven by especially strong contributions from our bar group and our beam mill groups. Additionally, we benefited from earnings improvement over 2005 levels, and are building systems, cold finished bars, and joist businesses. Our sheet metals and our plate metals delivered very strong profitability, and with an impressive trend of improvement moving out of last year's fourth quarter, and through this year's first quarter.

For the second quarter of 2006 we see continued very strong business conditions, and an increasing pricing environment across all our products. The big unknowns relate to scrap pricing and import levels. But at this time they both appear to be more positive than negative.

Let us now take a look at our success in expanding Nucor's platform for generating earnings. Our strategy is targeted to drive long-term growth in Nucor's earnings power with the objective of achieving higher highs and higher lows in profitability throughout the economic and steel market cycles.

I mentioned earlier the first quarter of 2006 represented the third consecutive year that the Nucor team has established a new record for first quarter profitability. The progression of setting and then breaking first quarter earnings records over the past three years, tells the story of Nucor's expanded earnings power. In the first quarter of 2004, we earned 113 million, or $0.72 per diluted share. These results set a new first quarter earnings record, exceeding our prior first quarter earnings record set in 2000 of $81 million, or $0.47 per share.

Our team proceeded to break that first quarter record with a first quarter 2005 earnings of 354.7 million, or $2.20 per diluted share, and today we reported our first quarter of 2006 earnings of $379.2 million, or $2.42 per diluted share, more than 4.5 times greater than the level reached at the last peak in the economic and steel cycles in 2000. Over the same period, steel shipments increased from 2.9 million tons in the first quarter of 2000, to 5.7 million tons in the first quarter of 2006. This growth is fueled by both our strategic acquisitions, and is our ongoing work to optimize existing operations.

Significant volume growth has occurred across a broad range of products, including plate, rebars, merchant bars, sheet, and cold finished bars. Just as important to these expansions, Nucor has maintained the strength of our market leadership positions in beams, joists, and deck. We have formed joint venture with two leaders in rebar fabrication industry. Partnerships with Harris Steel and Ambassador Steel, that will allow to us grow in the reinforcing steel construction market.

While we are encouraged by the results our team has achieved over the past nine quarters, our view is that this is just the initial payoff from our focused and disciplined strategy for driving long-term growth in Nucor's earnings power, and raising returns on our shareholder's valuable capital. The keys to executing this strategy have been and remain, first Nucor will optimize existing operations. Second, Nucor will pursue strategic acquisitions. Third, we will continue greenfield growth via the commercialization of new technologies, and fourth, Nucor will grow globally through joint ventures that leverage new technologies.

Quite simply, the Nucor culture remains focused on growth and continued improvement. Our work continues. I will now update you on our recent progress implementing Nucor's strategic growth plan.

On March 21st, we announced an agreement to purchase substantially all the assets of Connecticut Steel Corporation for a cash purchase price of approximately $43 million. This bar products rolling mill and mesh fabrication plant has annual capacity of approximately 300,000 tons of wire [ride] and rebar, and approximately 85,000 tons of structural mesh and wire mesh fabrication. We expect to complete this transaction in early May.

The acquisition of Connecticut Steel 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. Connecticut Steel will allow us to expand the breadth of our construction product offerings, to include structural mesh and wire mesh, while once again pursuing Nucor's proven downstream vertical integration strategy.

Equally important this acquisition will expand Nucor's production of coiled rebar. In addition to these complementary products and the expanded coil rebar output will better position us to better take care of our customers in the construction markets. We look forward to growing the Nucor culture together with our soon-to-be newest members of the Nucor family, the Nucor Steel Connecticut team.

Nucon Steel took a major step forward in establishing it's platform for expanding the use of it's load bearing light gauge branding products on March 17th, Nucon Steel and the subsidiary of Lennar Corporation, announced the formation of a joint venture to provide comprehensive like-gauged steel framing solutions for residential construction markets across the United States.

NEXFRAME's growth potential is exciting. Joining together Lennar's homebuilding expertise and Nucon's steel products manufacturing capabilities. NEXFRAME's initial operation is based in Stockton, California. The time is right for steel, a better builder. Just start adding up some of the compelling benefits of light-gauge steel framing, termite protection, earthquake protection, hurricane and wind storm protection, fire resistance, mold resistance, and of course, the environmental sustainability of green building with recycled and recyclable steel.

To capitalize on the market potential, Nucon Steel and NEXFRAME will continue their focus on increasing consumer value, by providing comprehensive light-gauge framing solutions. Our solutions-based approach is targeted to simplifying the construction process, providing value to our customers through process improvement, efficiency gains, and cost reductions.

Looking at our work under way to optimized existing operations, the Nucor team made excellent progress in the first quarter of 2006, implementing a raw material strategy to develop supplies of high quality scrap substitutes. This initiative is a critical underpinning to our Sheet Mill Group's ongoing expansion at the higher quality grades. Importantly, successful execution of this strategy will reduce Nucor's risk exposure to limitations and the supply of low residual grades of scrap. Our objective is to control between 6 million to 7 million tons per year of high quality scrap substitutes, or about 30% of our current iron use consumption.

With our iron product, with our Nucor new iron project, we have relocated to Trinidad from Louisiana, a direct reduced iron and DRI plant. Our Trinidad facility will benefit from very cost attractive and long-term supplies of natural gas, as well as favorable logistics for receiving iron and shipping DRI to our sheet metals. With approximately 70% of the project already completed, our new iron team is solidly on-track to begin DRI production in the fourth quarter of this year. Annual capacity of the plant will be 1.8 million metric tons.

Our Ferro Gusa Carajás joint venture with CVRD, is an environmentally friendly pig iron project in Brazil, using cultivated eucalyptus trees as a charcoal source. Our team has continued to build on the first blast if you are -- excuse me, continue to build production on the first [mini] blast furnace and with some very encouraging initial production rates, modifications to the charcoal handling system from the second furnace are complete, and the production is set to begin shortly. The two furnaces together will provide 380,000 metric tons of annual pig iron production, most importantly Ferro Gusa Carajás offers us access to environmentally-sustainable pig iron production in Brazil.

Our high smelt joint venture with Rio Tinto and other partners, continues start up in the facilities in western Australia, converting iron ore finds, and coal finds with liquid metal, a high smelt process in both the blast furnace replacement technology, and a hot metal source for electric arc furnaces. This technology promises significant environmental and energy efficiency benefits.

Initial annual capacity of this facility is expected to be 800,000 metric tons which we believe can be expanded to over 1.5 million metric tons at very attractive capital costs per ton of incremental capacity. We continue to be encouraged by the progress achieved by our talented team at high smelt, as they tackle and resolve the technical challenges that arise from new technology.

Our growth strategy recognizes that technical innovation must remain a major competitive strength of Nucor. We understand that success in the marketplace demands and we continue to improve our cost position relative to our competitors. Our Castrip technology is an important step forward, building on our long history as a global leader in commercializing these steel making technologies. This revolutionary technology to directly cast sheet steel into final shape and thickness, has become increasingly valuable in today's high energy cost environment.

Our team at the Castrip facility in Crawfordsville Indiana continues to refine the production process and expand the applications of the technology. We are moving ahead with our project to build a second Castrip facility at Nucor [Umidal] Steel. We expect to complete during the third quarter our engineering work for Castrip 2, and we plan to establish later this year, our first overseas joint venture partnership utilizing the Castrip technology.

While we are encouraged by our progress over the past five years growing Nucor's long-term earnings power, we are never satisfied. Nucor's team focus remains on the future, a future where Nucor's best years are still ahead of us.

Terry Lisenby will now provide you with additional information on our results and our financial position. Terry.

Thanks, Dan, and good afternoon. Sales for the first quarter of 2006 were $3 billion 545 million, up 7% from the year ago quarter, and up 11% from the fourth quarter of last year. First quarter 2006 total steel shipments were 5,721,000 tons, a new quarterly shipment record, and an increase of 13% from the year ago quarter. Our prior record for quarterly total steel shipments was 5,358,000 tons in the third quarter of 2005.

In our steel products businesses for the first quarter of 2006, steel joist production of 139,000 tons is up 13% from the year earlier quarter, steel deck sales of 85,000 tons increased 6%, and cold finished steel sales of 96,000 tons were up 8%. Nucor continues to be well positioned to benefit from improving nonresidential construction markets. Our first quarter of 2006 average steel mill selling price of $598 per ton, was down $31 per ton from last year's first quarter, but was up $8 per ton from the fourth quarter of 2005.

Our diversified product mix allowed us once again to benefit from the relatively healthier pricing of long products and fabricated products. Looking at year-over-year pricing changes, bars increased by $29 per ton. Beams increased $44 per ton, and joists increased by $2 per ton. Flat-roll pricing continued the improving trend that began in the fall of last year. While down by $81 per ton from the year ago quarter, our average sheet sales price for the first quarter of 2006 was up $11 per ton from last year's fourth quarter, and was up $71 per ton from last year's third quarter. We expect further improvement in sheet pricing during the current quarter.

Our average usage cost of scrap and scrap substitutes dropped to 237 per ton for the first quarter of 2006, down $35 per ton from the first quarter of 2005, and down $3 per ton from last year's fourth quarter. With the lower metallics cost, our metal margin spread increased by $11 per ton over the fourth quarter of 2005, and increased by $4 per ton over the prior year quarter. The Nucor team has done on excellent job of managing through the volatile scrap markets of recent years, and our highly variable cost structure remains a key attribute of our Company.

Earnings before income taxes were $110 per ton for the first quarter of 2006 compared to $115 per ton for last year's first quarter, and $108 per ton for the fourth quarter of 2005. The quarter's effective tax rate was approximately 35.6% for both the first quarter of 2006, and the year ago first quarter.

Cash provided by operating activities for the first quarter of 2006 was $567 million, cash and short term investments totaled over $2,200,000,000 at the close of the first quarter, and our debt to capital ratio was 16%. Nucor holds the highest debt rating as any North American metal and mining company awarded by Standard & Poor's and Moody's. We view Nucor's strong balance sheet as an important competitive advantage in a consolidating and cyclical industry.

For the first quarter of 2006 capital expenditures were $70 million, depreciation expense was $91 million. For full year 2006, we project capital expenditures of approximately $396 million, and depreciation expense of $380 million. The Nucor team is working to build upon Nucor's long-term record of being an effective steward of our shareholders investment.

Our ongoing focus on the careful allocation of our shareholders valuable capital is demonstrated by our disciplined approach to acquisitions, supplemental cash dividend payments, and share repurchases. Quite simply capital that cannot be reinvested in the business for attractive returns will be returned to shareholders. Effective with the upcoming May 11 dividend payment, Nucor is increasing our regular quarterly dividend rate by 33%, to $0.20 per share from $0.15 per share. Nucor has an increased its cash dividend every year since we began paying dividends 33 years ago in 1973.

In addition to the $0.20 per share base dividend, our Board of Directors approved the payment of a supplemental dividend of $0.50 per share, for a total May 11 dividend of $0.70 per share. This supplemental dividend of $0.50 per share, represents a portion of a total supplemental dividend estimated to be $2 per share that Nucor's Board expects to declare and pay, over this and the next three quarterly dividend payments.

We expect the second quarter of 2006 to be another very strong quarter for Nucor. Our news release this morning gave a second quarter earnings guidance range of $2.20 to $2.40 per diluted share. We believe Nucor's is well positioned to continue delivering attractive returns to our shareholders through the economic and steel market cycles.

Thank you for your interest in Nucor.

Thank you, Terry. At this time I would like to ask Mike Parrish to talk about our bar product segment.

Thanks, Dan, and good afternoon. The bar group had a great start to '06 as we got our best first quarter in our history with record earnings and shipments. We continue to see strong markets in all of our product lines, as order entry continues at a record pace, and supports a good backlog going forward.

Rebar demand continues to lead the way with a strong market and good pricing levels. The light structural and merchant bar demand continues to gain momentum since last year. We fully expect continued strength here, as nonresidential construction, manufacturing and highway projects remain strong. SBQ and Cold Finished products are also off to a good start in '06.

Summing up the bar market picture, our customer and supplier inventory levels are well balanced with demand. Selling prices and metal margins remain strong, and continue to be competitive with global markets. Rebar imports are currently arriving at a record annual rate. However, they do seem to be in-line with demand. On the other hand, merchant and SBQ imports are at normal levels. Always always, we will continue to monitor all market activity closely, and respond as necessary, in order to remain price competitive.

We are optimistic about the second and third quarters, as our customers report very solid backlogs and order books. We are looking forward to completing the acquisition of Connecticut Steel in the next few weeks, and welcoming the 222 new team members. We are excited about Connecticut Steel, as it gives us several and new product offerings in rebar and wire mesh markets, and helps further develop our downstream growth strategy.

Finally I would like to congratulate the entire Bar Mill group team for a record first quarter performance, and always thanks for your continued focus on safety, teamwork, and continual improvement. Dan.

Thanks, Mike. Mr. Ferriola, John Ferriola will talk about our sheet, plate, and beam group activities.

Thanks Dan. Good afternoon. Our sheet group had an outstanding first quarter. Market demand was strong through the entire period. We expect this strength to continue through the second quarter, and into the second half of 2006. Service center inventories remain low, and end use demand continues steadily throughout many of our market segments. Domestic supply remains relatively flat, due to a number of maintenance outages, and the ongoing lock-outs at AK Steel.

Given these trends we expect the sheet market to remain solid through the third quarter. Our sheet mills are especially booked through the first half of this year. We expect imports to increase during the first half of 2006. However, our sheet service center customers are reporting that import offerings for delivery in the third quarter are limited, and pricing is similar to domestic price levels. Therefore we expect the level of imports to subside in the third quarter.

Our price realization for sheet products increased first quarter 2006 over fourth quarter of 2005 levels. We expect price realization to increase again in the second quarter. We currently have 55% of our sheet capacity for 2006 under contract. We define contract as a six-month or longer volume and price commitment. As a result of the strength in the market, our contract business is continuing to grow and we are already seeing some customer interest in contracts for 2007. In fact, we currently have 7% of our 2007 capacity under contract.

During the first quarter our Castrip team in Crawfordsville continued to focus on improving the quality of the Castrip product, as well as the efficiency of the Castrip process. Castrip product flatness and shape improved significantly, as new X-ray gauges and shape control software were commissioned.

Also during the first quarter a new record was established for average casting sequence length, a key metric which has a major impact on process efficiency. During March they surpassed the previous record by about 23%. Trials continue with new customers and new applications, as we continue to expand the market for Castrip products.

Planning continues on our Castrip 2 facility, which will be built at our new model plant in Blytheville, Arkansas. The success enjoyed by our sheet mill group during the first quarter, was a result of our well-balanced customer mix, and our continuous achievement in providing our customers with high quality steel, on time, with excellent customer service.

We will continue to focus on supplying value appreciative customers with value-added products. This has been our strategy and I want to thank the entire sheet group team for doing an excellent job of executing this strategy.

The plate market is healthy across all sectors. End users are forecasting steady demand through the third quarter, and service center inventories remain low in comparison to the same period last year. Imports are available, however they have been absorbed into the market. Lead times of plate products extend through mid-June. Plate prices have been increased $20 a ton through May by most domestic mills. Our average sales price for plate increased in the first quarter 2006 relative to the fourth quarter of 2005.

We expect this trend to continue and expect the second quarter beam pricing to be slightly higher than the first quarter. Bridge fabrication is beginning to increase with even more demand expected in the second half. End users in the construction equipment industry are providing steady demand. Demand in capital equipment, heavy machinery, and other plate consuming industries have held plate demand steady, and we expect this to continue through the balance of the year.

Nucor Tuscaloosa had a record shipping quarter in Q1, and is on-pace for its first million ton year. Congratulations and thanks to the entire team at Tuscaloosa. The momentum in nonresidential construction bodes well for beam demand in 2006. Nonresidential construction square footage finished 2005 unchanged from 2004. However, first quarter indicators point to an improving market for 2006.

Our beam, order entry and backlogs remain very strong. Metal service center institute shipments have trended up since the beginning of the year, and although our inventories in the service center have increased slightly, they remain in balance with demand. Imports are quoted for the year-to-date appear manageable.

Our average sales price of beam increased in the first quarter relative to their fourth quarter of 2005. We expect the second quarter beam pricing to be slightly higher than first quarter. 2005 represented record shipments of our Z piling sections, and 2006 is on-pace to repeat or exceed those shipment levels.

Nucor Yamato Company reached a significant milestone in January, when it shipped its 30 millionth ton. Congratulations to all our Nucor Yamato employees past and present on achieving this milestone. Thank you.

Thanks, John. At this time we would be happy to entertain your questions. I would only ask that no one questioner monopolize a long period of time, try and keep your questions to one, maybe two, and allow us to go through the rest of the people in queue. Thank you.

[OPERATOR INSTRUCTIONS] Our first question will come from David McGregor from Longbow Research. Please go ahead.

Good afternoon. Dan, in your prepared remarks you talked about the two big uncertainties being scrap and imports. As you guys went through the individual segment reports, it sounded as though everybody was pretty comfortable with the existing import situation. Can you talk about just where you see the risk on the import side, and just what are your specific concerns at this point?

On the import side, the imports have been very strong, at least as indicated by actual deliveries in January and February, and import monitoring data for March and beginning of April. However, right now there seems to be a situation where people have slowed deliveries from offshore, particularly in an attempt to get prices higher, which they have done, we see as John mentioned, a considerable fall-off in offers and availability come July, and what we're reading into this is while imports have been extremely high during the first quarter, they really are being soaked up by the demand in the marketplace, the actual inventory have dropped based upon some of the data I saw just recently coming out of the MSCI, and dropped rather surprisingly.

We also heard that the number of the imports that were scheduled to come in not only were going through price negotiations but renegotiations, but were also not coming in, and so, yes, if the first quarter's numbers were to carry through for the full year, we would probably be in a situation where we had a record import year, but it appears that at the present time, that may not continue based upon the information we've been getting from the marketplace, and certainly it has not impacted the pricing environment because the materials that are coming in now are being offered now, are at or above current market pricing for some of our products, or most of our product.

The concern always is in the three-month period this can turn on a dime, but right now all indications are imports are manageable, and we'll see how the year goes. It does cause us to be somewhat conservative looking forward into the end of the second quarter, and the beginning of third quarter, and as we go through the second quarter obviously our confidence will build or wane, depending on what we see in the marketplace. Right now things look like they are manageable.

As I indicated the prices environment is one where pricing will be increasing virtually across all of our product lines by virtue of the demand. We have already announced several increases, and so we'll just have to play it by ear, as we usually do from quarter to quarter.

If we explore the hypothetical situation here where imports don't pick back up tremendously, and we don't get a surge of imports through the balance of the year, it sounds as though based on the forward visibility you do have in your book right now, that the prospects for the additional price increases in the second half might be pretty good, not to put words in your mouth here, but I am interested in your assessment in that scenario of the potential for further price realizations.

The market strength is there to support the current pricing. Our backlogs are at record levels across all of our product lines, and are very strong and order entry continues to be strong, and in this kind of environment it doesn't take a lot to see that if that continues, that there will be pricing opportunities, price increasing opportunities in the future. Whether we go ahead with them or not is another thing, but the market certainly is set up right now to support that.

Just last question. In the event you were to go through with those price increases, would it be because of a concern about inducing imports.

It could be for a number of reasons. Certainly that could be one of them, and probably would be one of them, but you don't know until you get to that period of time. Other things would involve competitiveness with other materials, certainly in the beam side of the business, you have to be constantly worried about being competitive with concrete, and also in the sheet side of the business with other competing materials, so issues like that will act to moderate our thinking, or could act to moderate our thinking but not necessarily will, but could.

Thank you very much.

And our next question will come from John Hill from Citigroup. Please go ahead.

First of all, congratulations on a great result and delivering for both customers and shareholders.

Thank you.

Given the record level of shipments across the various groups and of course the series of asset acquisitions, I was just wondering if you could speak to essentially capacity utilization in sheet and bar and et cetera. In other words, are we running full out, or is there more to come in the next couple quarters?

For the quarter on the steel side in total, we ran about 93% capacity, higher in bar, and lower in sheet and structural.

If you looked at what we said have that our total capacity would be on the annualized basis, it is just shy of 25 million tons, and we ran it the first quarter at 23 million tons, so there is some room for growth there, particularly on the beam side of the business we're not running at capacity.

The market is fairly balanced, but we're not running anywhere near our record levels in years past. Plate is continuing to be in the area where we're continuing to improve our operations at Tuscaloosa in particular, but also in Hartford, and at our sheet metal in Decatur. We have never reached what we believe to be full capacity there. It is in excess of 3 million tons, and that will take some additional capital expenditures but not significant ones, maybe an additional metallurgy furnace, or something like that. We're not running at full capacity, but we are running strong.

Very good. Thank you.

Our next question will come from Timna Tanners from UBS.

I wanted to ask about your guidance to understand what it might incorporate, given that the outlook is for prices to rice across the board as you said, and I don't know if that assumes further price increases, or if we pretty much expect price increases are done for the second quarter, but I wanted to understand what it might include, in terms of volumes, or if we're assuming the price increases are only offsetting scrap, if you could help with that a little bit on what your guidance is to.

As far as our guidance goes, what we basically said in our press release and what we said today on the conference call is that the second quarter is going to be another very strong quarter, similar to the first quarter. Could be better.

At this point in time, because of unknowns on where scrap might move to, and unknowns on where we might actually see come out of the import situation towards the end of the quarter, what's been coming in the first quarter has any impact later on, so as typical we have to be conservative and under promise and over deliver, as we have consistently.

If we see things different come mid-quarter, we'll come out with a revision, and that revision will be dictated by whether we see things improving or not, and at this point in time, though, there is still some elements of risk, we have seen scrap in the past move 50, 60, $70 in a month, and who's one to be conservative? Right now we don't see those kind of pressures in front of us at all, just the opposite, but it is not something that we're willing to go out at this point in time and say that that couldn't happen.

Great. Thanks very much.

And we will now move onto Michelle Appelbaum from [Marion] Investment Research. Please go ahead.

Did you just say that your guidance of 2.20 to 2.40 assumes some significant cost pressure, because I also don't understand how you would have these price increases that you talked about, some of which have already been announced, and then not have at least flat earnings into the second, so if prices move 50 to 60 for scrap, we would still be in a comfortable earnings guidance range you're saying?

Well, first off, Michelle, the earnings range we gave should imply a flat performance, not a worsening performance. And we said that we expect to have another very strong quarter, and issued the same guidance that we gave at mid-first quarter, so we're not saying that we're expecting things to be worse in the second quarter at all.

At worst, we're expecting things to be flat, but they could be significantly better than that assuming two things, one, that we don't see an impact on shipments at the end of the second quarter due to an unknown uptick in the effect of the imports that we've seen coming in, or that scrap will make a major move, and we didn't have scrap pricing established for June, and we haven't bought scrap for June yet, and so if things don't change significantly from where we are today, we should have at least a strong a quarter as we've had, but we're not willing to go out and say at this point in time, that we're going to forecast significantly better. That's why we do typically a reasonable conservative estimate of our earnings forecast at the outset of the quarter and come out, other people don't necessarily do this, but we have.

We come out and give revised estimates when we think things are clearer, and when you have potential scrap moves of 70 to $100 a ton in one month, on our side of the ledger, as electric furnace producers it is foolish to go out and be overly optimistic about things, and so while we see things moving in the right direction for the rest of the quarter, and into the third quarter, we are not at this point in time going to be coming out and saying that earnings are going to be significantly better than what they were in first quarter.

Okay. That makes a lot of sense, so you have left yourself in the things that are almost random that can sometimes move in a vertical manner like scrap or imports, and you have left yourself a lot of leeway for the period of time remaining in the quarter where you just don't have any visibility, okay, that makes a lot of sense and really clarifies it. I wanted to ask another question.

If you were in a position like right now, where you thought you were going to be raising prices and this kind of addresses a question earlier, would you be sharing that with us right now, or I have noticed that it seems to be more of a vendor to customer kind of situation. I don't see any press releases on price increases in the industry, the way things seem to be a lot more visible in '04 when prices were escalating.

Michelle, we haven't changed our pricing policies at all. Maybe other people have, but we announce our pricing based upon what's happening in the scrap market as we instituted three years ago, a major scrap surcharge mechanism, along with several other people, and so pricing has pretty much been a month to month.

We got out of pricing on a quarterly basis which would have caused us to preannounce pricing for an entire quarter two years ago, two and a half years ago, and so our pricing other than contract business, which can fluctuate with the scrap surcharge, spot pricing we have never been public about that, in terms of what the absolute level of spot pricing is, because that's what spot is all about. You get the highest price you possibly can in the marketplace given the market conditions on a spot basis. That's what you work for by definition, certainly not the lowest prices. You work to get the highest prices.

Where you actually end up on that can vary depending on when you've taken the orders at any given point in time. In a strong pricing environment, you got maybe $10 here, and the next time you around you might get $20, depending upon what's going on in the marketplace.

What we're saying today is that based upon what we see in front of us right now, the marketplace will be supportive of a price increase. It doesn't mean that they will occur. It depends on whether the market continues to reveal itself going forward as it has up to this point in time.

Okay. Great. Thank you.

You're welcome.

And we will now move on to [Mark] Parr from Keybanc Capital Markets for our next question. Please go ahead.

Good afternoon.

Is this Mike Parr or Mark Parr?

I had a name change. Thought I would spring it on you all at once. Great quarter.

Thank you.

I had a couple questions. One, if I could get you Dan just to share a little bit about your thoughts related to the next step in your vertical integration plan for raw materials, and then I have another one after that if I could follow up.

Our next steps will be to take and expand two of the three projects that we're working on, one would be as you mentioned before we had plans all along to expand the project with Ferro Gusa Carajás project with CVRD as partners, we haven't decided to go ahead and actually do that at this point in time, but plans were to double that capacity.

And the second part of the, next move would be, and this would be even bigger than the Green Pig project, would be the successful commercialization of the High smelt technology, which would enable us to go and build one or two or three of these High smelt plants, both here and around the world, to produce iron units for the marketplace and in particular for us, and we do have a few other things we're looking at that we haven't talked about publicly, and aren't prepared to yet, but they would be further down the line.

Okay. All right. Just to kind of summarize where you plan to be from a supply standpoint of vertically integrated or internally supplied raw material, could you just update us on how many tons of material you would expect to in '06 and '07?

In '06 we're probably looking at a couple hundred thousand tons coming from the Green Pig and the startup of the DRI plant, a lot depends on where that startup actually occurs towards year end. Do you want to add to that?

I think you're in the ballpark there. I would hope it would be closer to 500,000.

As far as 2007, hopefully we'll be up to full production at the DRI plant, which could mean in excess of a million and a half, and also on the Green Pig projects, which would be another 400,000 tons. We could be in excess of 2 million tons in 2007.

Terrific. That's really helpful. One other question I had which was a little more conceptual, and this is kind of one of the best problems any CEO has to deal with, but you've got such strong financial strength, and yet you're clearly doing an awful lot to enhance the profitability, the predictability, the sustainability of your existing businesses.

That's correct.

What can you tell us about Nucor's vision as far as growth, and I would characterize that in terms of unit growth, tonnage growth. How do you view the growth objective for the Company over the next three to five years? I am saying in terms of internal versus external, or however you would like to characterize it?

We're talking conceptually.

Yes.

Conceptually our philosophy has always been to grow our profits, to grow profitably, not to grow just to grow.

Okay.

We have no designs on being 100 million ton a year steel producer, to be 100 million ton a year steel producer. If that was happening, it would be because it was driven by the ability to grow profitably to that kind of level. We have no focus on a certain tonnage level.

We do have a focus on being a market leader in all the products that we're in, so we will continue to grow our ability to produce in each of our operations that currently exist in the Company, every month these guys are setting new records. We're tweaking things here and tweaking things there, and when you're tweaking things on a 20 million-ton a year base, 25 million ton a year base, you're talking about some significant tweaks, and as far as acquisitions, those things happen as, you know, as they happen, as people come together and say this makes sense and that can beat our criteria of not over paying, and being culturally compatible and consistent with our market leadership position, and of course we have a lot of growth planned to do, with respect to Castrip, and there are other products that we can get into in our existing product groupings, like bar products.

We can grow significantly in SBQ and continue to grow in cold finished, and so what kind of tonnage levels we end up at, if you ask me, Mark in 2000 when we first, this new management team, first embarked on it's strategy, it's four-point strategy we indicated earlier in the call, would we be at 25 million tons of capacity in 2006? We would have said AHH. That's where we got to. Opportunities showed themselves, and we were flexible enough and had the financial ability and flexibility to act.

Those kind of things will continue to be opportunistic as we go forward. But the growth will have to be meeting our criteria to enhance our market positions to improve our downstream penetration, and to improve our upstream penetration in raw materials. John, do you have anything you would like to add to that?

I think the only thing I would add is we will continue to move up the value added chain, and we continue to focus on improving our product mix, our customer mix, are always driving to bring more stability into our business, by offering higher valued products.

Just have a couple of new announcements with customers who are locating value-added operations at our plants. Our Hickman plant, Wolcotters, and one at our Decatur plant, which is Friedman Industries.

Just another example of how we continue to work on bring our customers higher value products.

Mike, do you have any comments you like to make on that?

I would just underline the fact there is opportunities in SBQ, and also again underline the fact that downstream opportunities and rebar fabrication.

Mike and his team keep coming up with these little significant add-on's like Marion Steel and Connecticut Steel, which people say those are little things. What are you going to do with all this money you're generating? But those little things add up, because they've added up to about a million tons in our last three bar mill acquisitions, and that's significantly increasing our Bar Mill leadership position in the industry, and they've all been very, very good success stories, and we're looking forward to Connecticut Steel being another one.

Okay. I appreciate it. Thanks very much for the color, and congratulations. Look forward to a couple more, at least a couple more really good quarters.

Five or six more years will do.

Don't get ahead of yourself.

Our next question will come from John Tumazos from Prudential Equity Group. Please go ahead.

Congratulations. Follow the money. You're going to become a banking company pretty soon I guess.

We'll probably go into business with Wal-Mart. Thanks, John.

Your output, or in shipments grew more than 10%, and your press release which we know is very succinct described the declines in scrap, LIFO, not a decline, but a relatively small LIFO charge, and energy. There must have been some other costs that went up a little bit, stock options, profit sharing, refractories, electrodes, we don't know, but I know you know better than we. Could you just describe some of those other items that escalated? Otherwise the volume gain might have driven even better result.

We continue to have costs associated with our start-up operations with Castrip, and with some of the other projects that we're working on around the Company. Our marketing administrative expenses, Terry you want --

Of course profit sharing goes up in relation to pre-tax earnings. We had a small charge for adopting stock option expensing, only $2.5 million. LIFO turned around. It was a charge this quarter instead of a credit. Like you said, a smaller charge, $9 million.

Nothing else really stands out. We did not have a benefit this quarter from settling natural gas hedges. A cost of about 5 million in settling hedges for the quarter. Those are just the things that come to mind, nothing striking.

Was the start-up cost closer to 5 million, 10 million, 20 million?

Closer to 5 million.

Thank you.

Our next question will come from Daniel Roling from Merrill Lynch. Please go ahead.

Thank you. Gentlemen, could you review for us again your natural gas usage volume costs, and any hedges on it?

[Jim Frios] will give you some updates on that.

First of all our settlements, to give you a quick recap, in fourth quarter of last year we picked up $12 million in gains from settlements, and then in first quarter this year we had $5 million in expenses, or pay outs on settlements of our financial hedges.

Our hedge positions going forward, let me give you volume numbers first, we used about 3 million mmBTU's, or 300 contracts per month, and we have a long-term goal to try and achieve somewhere in the 70 to 90% range hedged. We are currently 40% hedged for now through March of 2007, and an average price of somewhere in the neighborhood of $6.50, and then we have a 20% hedge covering our April through October of 2007 season at a higher price, something just north of $8.

Thank you, and then just a general question. As I look at the AISI data and watch the capacity utilization numbers, they seem not to correlate very directly with the steel production. You would have the same utilization rate at different points in time and different production. Is there something mystical about that?

Talking about the AISI data?

Yes.

You would have to ask them, because a lot depends on the reporting, who is reporting.

So they don't have a consistent denominator that you're aware of, where they leave the capacity alone?

It changes and they usually come out and let people know when it changes. Last time it changed, I think it may have been a year ago January. You really have to ask Andy Sharkey, or someone there that heads up their statistics department about that.

We'll do. Thank you, Dan.

Thank you.

We'll now move onto Tony Rizzuto from Bear Stearns for our next question. Please go ahead, sir.

Thanks very much. Good afternoon, gentlemen, and congratulations on the strong first quarter performance. I don't want to beat a dead horse so I won't ask a question about the guidance or anything and I think everybody respects your conservative views and the way you guys build in assumptions. Perhaps maybe we can talk a little bit about what your view is, and how they might have changed in the last couple of years, perhaps about the view of longer term hot-roll pricing, if you care to give us any of your thoughts today about how that may obviously with the consolidation we've seen in the global industry, certainly regionally here in the United States, and given the cost structure, could you give us any of your thought process where you think that kind of long run price might be today?

Long run meaning five years out, two years out, twelve years out?

Maybe over the next three to five year period.

First off, raw material and energy prices will have as much to do and transportation costs, will have as much to do with where that price settles out as anything, so the cost issue is going to have a lot to do with where pricing settles out, and whether you ever see it go back to the historically low levels that we have seen in the past, I would say no, you're not going to. People just can't afford to do that, and they're not going to be able to get away with dumping the product on the world marketplace any more.

The consolidation that is in the industry certainly helps, because it gets rid of the weaker players not pricing for profit, but pricing strictly to generate some cash to stay alive, and the consolidation has taken place globally, it really hasn't reduced the competition because there is plenty of competition, and the industry is still very, very fragmented, even with the consolidation which has been significant, but you do have people who are profit motivated, and the lone exception for that right now would be industries that are owned by their governments.

As everybody knows, China is the 800-pound gorilla in the room on that, and how they behave in the world marketplace and as a government-owned entity, will be important to dictating future pricing for some time to come, and what happens in places like India, but all indications are that the cost structure has increased permanently, and that the pricing will be higher going forward than the, significantly higher, and that with the global demand driven by global growth, and it will continue to grow because we have not seen the consumer side of things really take off in China yet, when they get to the currency to the point where they are fairly valuing the marketplace, it will increase the buying power of their own citizens by 50 to 60%, and then you'll see a real consumer society take off in China.

And just as they did in Japan and Korea after they stop and get their currencies to large extents, so the outlook is very good for strong demand continuing, the strong cost structure will have to support that, and we're probably in a 10 to 15-plus year full run on commodities. There will be ups and downs but overall what is going on in the world is going to dictate a much stronger marketplace for pricing in the future.

John, do you have anything you want to add to that?

I think you covered a lot of the key points, the raw material costs going in, the cost of transportation, it is just simply not possible to remain in business with some of the numbers that existed five years ago. I think the demand in the world is going to continue to grow as you pointed out, and ultimately that will drive supply and demand will drive pricing.

How do you see, when you guys with the Castrip, how does the interaction of the technology play into this, so you can significantly lower the barrier to entry, although obviously you guys will have that along with your partners there to be able to utilize that technology, and to do with it what you will, but how do you see that playing out with the ability to go from hot metal to the strip?

Certainly having a technology offers you the opportunity to significantly reduce your energy costs, your operating costs, is a big positive. The idea there, is to make yourself more competitive when the ties that you have to be competitive, and to make more money in the times when the market allows you to make more money and not to be giving it away, so in the environment as you see it going forward, which is more optimistic than negative, with the caveats about imports, and with the caveats about global supply and balances, the environment would allow us to just increase our profitability using a Castrip technology, as opposed to drive prices down.

You have obviously given it a lot of thought, and I appreciate your insights, guys.

You're welcome.

We will now move onto CIBC World Markets, Michael [Williamson] for our next question. Please go ahead.

Hello, Michael.

With the Connecticut steel acquisition, what mostly wire rod mill, or what's the split between wire rod and rebar?

The split is basically the capacity of the mill is around 300,000 tons. Right now they're doing around 85,000 tons of downstream wire mesh and structural mesh. The game plan there would be to do more coiled rebar, and actually develop more wire mesh business, so that in the end we're probably doing anywhere from from 100,000 to 150,000 tons of actual wire rod business.

I am surprised the interest in wire rod. Most other steel producers say it is a business they wouldn't like to be in. Is it a market that you might, is there any other acquisitions you might look at in the wire rod business?

Like I said we're not really looking at developing the rod business, but really the downstream actually products in the wire mesh and the structural mesh, and that dovetails in well with the rebar fabrication business.

We're also looking at being able to produce a wider range of braids of coiled rebar that we don't really have the capacity in the Company today to produce, because it has the specific type of cooling bed that allows for delaying head, that allows for more uniform generation of properties, and producing various strength braids that we don't produce today, because we don't have the capability in coiled rebar, so both of those, the wire downstream and the coiled rebar will take down a bigger portion of that product off of that mill as we go forward.

Sounds good. Thank you.

And our next question will come from Liz Barney from Eagle Capital. Please go ahead.

Congratulations on a great quarter.

Thank you, Liz.

Just a quick question on the structural products on the beams. You guys did 763 tons this quarter, so if I annualize that, that gets me to just over 3 million tons, and you said that you're not running a capacity, it seems capacity there is 3.2 million tons, so I am wondering if you can just comment on upside for the rest of this year, and in '07 on the beam products. It seems like non-res is really picking up, imports don't seem to be a huge threat right now for that product?

First off, just to correct the capacity numbers on structural it is about 3.7.

Oh, okay. Thank you very much. Sorry about that.

That's at our Berkeley beam mill and our Nucor remodel beam. That product makes an influence where you end up with an actual capacity, but those are capabilities are well within both of those facility. I am sorry, could you repeat that John, did you catch all of the question?

No.

Could you repeat the question again? I would appreciate it.

I am just wondering if you can comment on potential upside in the beam market, nonresidential seems to be running very strong, the backlogs you said are very strong and Steel Dynamics reported the same thing. If we could see volumes up 20% this year, or 20% next year, if that's possible, are we going to get to use that additional capacity?

I know the market is very strong. I don't think the market is in excess of the capacity of the existing beam mills in this country produced by any means. There has been an uptick in imports while we see things very strong going forward, I wouldn't want to go on record as saying that we're going to see a 20% growth or anything like that next year.

Okay. So very strong, which will support good pricing, presuming that imports don't come in, but volumes might not take off?

That's correct.

Okay. And then just one other quick question, thanks so much. I think you guys said it was a record year for your Z-piling shipments last year?

That's correct.

I am wondering if you can tell me how many tons you guys shipped of the Z-pilings last year?

We don't break out that information.

Thanks so much. Congratulations and good luck.

And we will now move onto Goldman Sachs, Aldo Mazzaferro for the next question.

Hi, Dan. If I remember correctly the Connecticut Steel mill does not have a melt furnace, are you guys supplying billets to there, and how many more or less?

We have supplied billets and we plan on supplying billets, and we also will be allowing them to buy billets on the open market as they see fit.

That's exactly what we're going to do.

You say you do about half the billets there?

We can do 100% or we could do nothing, depending on what are business levels are elsewhere, we do have some excess capacity in our melt shops versus our rolling mills some of our plants, but where the mix would actually end up could be anything from 0 to 100%.

And although it is going to depend on grade well.

I am just wondering in terms of the last six months or so, if you want to say. That's all right.

In terms of what we supplied over the last six months, no we wouldn't want to get into that.

Any guidance on what LIFO may be next quarter, and any guidance on what your change in energy cost might be next quarter compared to first quarter?

We put 10 million charge in the forecast for LIFO, and we really don't forecast energy separately for the forecasts, though.

Right.

Energy costs will be down, though. The hedge is lower than the current market, and the market is down from where it was in the quarter.

Okay, guys. Thanks very much.

Thanks Aldo.

We will now move to Deutsche Bank, David Martin for our next question.

Thanks. I had a couple remaining items. Dan I wanted to go back to your comments about scrap, and I apologize for doing this. I think you mentioned that of your scrap requirements it is only June, that you haven't met so far, and therefore you're being conservative, but wondering if that's true, when do you do that, and how do you go about doing it?

We buy on a month-to-month basis except for the pig iron or HBI that we might buy in the global market. We also do buy some scrap on the global market out of Europe on a regular basis, but basically the majority of our scrap is done on a month-to-month basis. We won't start buying scrap for June until middle of May.

Middle of May. Okay. Thanks, and then secondly and lastly coming back to John's comments about the order book, I think you mentioned that your sheet, that order books are basically 55% full for the whole year. Can you give me a sense of what that is quarter by quarter?

Well, first quarter was full. Do you mean the percentage of contract business quarter by quarter?

Well, whatever applies to the 55% number you quoted.

It was 55% I was referencing our contract, our firm contract business.

Okay.

For what period of time, John?

For the year, over the course of the year, 55% of our full year capacity.

Do we have some contracts that are quarterly contracts that are not included in that.

Yes, we have quarterly contracts that would not be included in that, and we also have obviously we sell six weeks in advance because of the lead times, so we have some tons sold out also.

Percentage if you look at the total year of our capacity, and what we have presently sold, so we know we will have fixed margins forward, that would be roughly 76%, of our full years capacity. And that's just sheet? That is correct.

That includes the first quarter?

Yes, that's the full year.

Okay. Thank you.

We will now move on to a follow up from Longbow Research's David McGregor for the next question.

Thanks. You were talking about growth and discussion about pricing and volume. Could we talk about the expansion to higher grades, products and specifically within the sheet category, and I know that you're doing a lot of work, in terms of developing pure iron products, DRI, and you also have a vacuum to gas at Berkeley that you have been working on.

Can you talk about the ability to really grow your [interstadial] free sheet product, and really the extent to which you think that will allow you to start competing with the integrated and certain end products?

Mr. Ferriola will tackle that question.

That kind of questions excites me. I think it is a great opportunity for our Company. We have done things in a mini-mill environment that people thought could never be done. Today we participate in the automotive market, at levels that surprise our integrated competition.

On the electrical steel side we have just developed a type 9 modal lamination product which will be able to compete with the higher level lamination electrical steel products, so right now I don't see a limit to what we're going to be able to do. We've vacuumed the gaser at Berkeley has performed extremely well, and again we just continue to go grow in appliances, HVAC, we're getting higher quality product, lighter gauge, so in every avenue, we've been able to advance our value-added products.

Can you help us understand just how much, how fast?

Well, let's see. If I tried to put it in terms of percentages, I could talk in terms of how we've grown in automotive, and in terms of electrical steels, I would say in the last two years we have grown 10 to 15% in those higher value-added products.

Great. Congratulations on all the progress. Thanks.

We will now move onto our final question today, and that will come from UBS' Timna Tanners.

Yes, I have a final question if I could. Certainly it just surprised me a little bit that no one has really asked pore pointedly about what you're doing with your cash balances, and I know you have addressed this in the past, and I think it is appropriate to ask a little bit about an update on the timing, or any of your current thinking about how you might deploy that capital. There is certainly a lot of rumors out there if you can address any of your latest thinking.

Do you have a calculator with you, Timna.

Sure do.

What's $2.80 a share times 160 million shares.

$2.80 a share.

Times 160 million shares.

450.

$450 million in dividends this year is one nice way to do something nice for your shareholders with the cash, particularly at the tax rates on dividends. We are continuing to buy back stock. I get nervous a little nervous buying back stock at over $100 a share. But that's a good problem to have, and we continue to buy stock today, and we have a number of projects that we have mentioned several times that we're developing, and we'll be commercializing over the next five years which will take quite a bit of cash, and as we've said our strategy to be opportunistic on acquisition and joint ventures, and sometimes they are modest in size and sometimes they're significantly bigger, and that opportunistic capability is here for us.

And so we will keep looking at those opportunities both domestically and internationally, we will be reinvesting quite a bit continually in our existing operations, which there is significant infrastructure there, but times are good and cash is growing, and we will continue to investigate the most effective way to invest that for our shareholders returns, and all options are open to us.

Great. Thanks.

At this time, there are no further questions. I would like the turn the call back to you, Mr. DiMicco for any additional or closing remarks.

Thank you very much. First off, I would like to thank everybody who participated in the call, both from Nucor and from the callers, and with all the questions. Thank you very much for your support. Thank you to our shareholders, our employees, many of them or most of them who are shareholders, for another great quarter, and we're looking forward to continued success as we go forward. Thank you all very much.

Thank you everyone for your participation. That does conclude today's conference. At this time, you may now disconnect.