Nucor Corp (NUE) 2006 Q2 法說會逐字稿

Good day, everyone, and welcome to the Nucor Corporation second quarter of 2006 earnings release conference call. [OPERATOR INSTRUCTIONS] Certain statements made in the 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 effect 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 of this date and Nucor does not assume any obligation to update them. For opening remarks and introductions, I would now like to turn the call over to Mr.Dan DiMicco, Chairman, President and Chief Executive Officer of Nucor Corporation.

Please go ahead, sir.

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 second quarter 2006. Then provide an update on our progress implementing Nucor's strategic plan for growing long-term shareholder value and finally take your questions.

Terry Lisenby, Nucor's Chief Financial Officer and three of our other Nucor Executive Vice Presidents, John Ferriola, Mike Parrish and Joe Rutkowski are with me this afternoon. And will also be available to answer your questions. Pam White is travelling today. First and most importantly, I want to say thank you to all the members of the Nucor team for delivering record quarterly and first-half earnings again. The 11 ,600 men and women of Nucor work safely, worked hard, worked smart, and worked together to take care of our customers. Nucor's most significant competitive advantage remains our people. They're bright people working together as a team. Great job and thank you all very much.

I also extend a very warm welcome to our newest addition to our Nucor family, our team at Nucor Steel Connecticut. Completed in May, our most recent acquisition brings us attractive new downstream product offerings and the rebar and wire mesh markets. Nucor second quarter, 2006, earnings of $1.45 per diluted share represent our third consecutive record for second quarter earnings. Increasing 44% from last year's second quarter-- diluted earnings per share in last year's second quarter was $1.01.

And second quarter of 2006 results exceed by 12% our previously, our previous record for quarterly earnings of $1.30 per diluted share, set in the third quarter of 2004. The Nucor team's performance for the second quarter of 2006 highlights once again the importance we place on meeting or exceeding the commitments we make to our shareholders. Nucor's second quarter of 2006 earnings were ahead of our original quarterly guidance range of $1.10 to $1.20.

As well as our revised guidance that was increased in our June 13th press release to the range of $1.25 to $1.35. Record first half of 2006 earnings of $2.65 per diluted share increased 26% from the $2.11 we earned in the first half of 2005. I can very easily explain the Nucor's team record-setting performance. It is driven by a disciplined execution of our strategy for growing Nucor's long-term earnings power and increase the returns in our shareholder's valuable capital. Over the past 6 years, we have focused on continually improving operations and expanding Nucor's platform for generating earnings.

And over the past 2 1/2 years, cumulative net income of more than $3.2 billion and cumulative cash provided by operations of more than $4.1 billion tell the story of our success. It is worth remembering that prior to the onset of our strategic plan implementation, our previous record for annual earnings was a net income of $311 million in 2000. In our first half, 2006, steel shipments of 11.6 million-tons exceed full-year 2000 steel shipments of 11 million-tons.

In addition to dramatically expanding our platform for generating earnings, our strategic plan has strengthen Nucor's position as North America's most diversified steel producer. The composition of our sales tons for the first half of 2006 with 39% sheet, 30% bars, 14% beams, 11% plate, and 6% downstream. Nucor's product line diversity is important, because our short-term performance is not tied to any one steel product market.

Our new quarterly earning record established in the second quarter of 2006 proves again the value of our diversified product portfolio. We broke Nucor's prior quarterly earnings record set in the third quarter of 2004 even though our our second quarter of 2006 sheet average sales price of $625 per ton was $68 per ton lower than our third quarter of 2004 sheet average sales price, which was $693 per ton. Second quarter of 2006 performance benefited from impressive record-setting earnings from our Bar Mill Group and our beam mills, as well as strong year-over-year earnings gains from our sheet, plate, cold finish, fasteners and building systems. As encouraging as these results are, I have even better news to share with you.

The Nucor team's journey is one of climbing a mountain with no peaks. Our work continues implementing Nucor's strategic world plan with many attractive opportunities still ahead for us. As you've heard me say many times, the objective of our growth strategy is to achieve higher highs and higher lows through the economic and steel market cycles. Nucor's growth plan is flexible and disciplined with a focus on long-term results. The key to executing to the strategy have been and remain first, Nucor will continually optimize existing operations.

Second, Nucor will pursue strategic acquisitions. Third, Nucor will continue greenfield growth exploring new technologies and other unique marketplace opportunities where we can demonstrate a major cost advantage over the competition. And, fourth, Nucor will grow globally through joint venture that leverage new technologies. This multiprong strategy along with our unravelled financial strap allows us to be patient and to go where the growth opportunities are at any point in time.

As you've seen with our recent press release, our team is busy pursuing a number of new initiatives. Exciting projects to build even more long-term earnings power for Nucor. I will provide a quick overview of our newest initiatives with more details filled in for you by our Executive Vice Presidents and their reports. The foundation of our strategy is optimizing existing operations and both sustaining and building upon our strong competitive position of global steel industry. We announce on June 14th that Nucor's Sheet Metal Group will construct its fourth galvanizing facility to be located in our Decatur, Alabama, mill.

This is the logical next step at Decatur in our ongoing focus on supplying value added products to value appreciative customers in the sheet market. On May 18th, we announced plans to construct our fourth metal building systems plant to be located in the western United States. As 45,000-tons annual capacity facility will expand Nucor's building systems total capacity to approximately 200,000-tons.

With an approved national reach, we will be well positioned to advance our strategic objective to develop a market leadership position in this core business. Another crucial part of our work to optimize existing operations is Nucor's ongoing very pro-active role in the fight for free and fare trade on a level playing field. You can expect Nucor to continue to take of our customers by building grassroots support, reinforcing our nation's trade laws, our manufacturing sector and the steel industry are the backbone of America's economy. Make no mistake about that.

Earlier this month, our firm's can-do attitude and energy level help highlight an economic analysis of the massive subsidy the Chinese government provides to its domestic steel industry. Virtually every ton of steel exported out of China should have a major cost penalty added to it by the world trading organization for the Chinese government's blatant disregard of their WTL commitments on their subsidy violations. Nucor's management team is constantly monitoring global steel product pricing levels and import offerings, excess capacity remains a serious problem in the world steel markets. Because of that surges of imports that result in illegal dumping are still a risk to the future profitability of our industry, both domestically and globally. I reiterate what I said many times before.

Nucor and the industry stands ready to act quickly in conjunction with the appropriate government officials to address any enforcer [inaudible] -- dumped in illegally traded steel before they destabilize the U.S. steel market. And it's critically important that our government enforces U.S. trade law that is appropriately penalize those that abuse our markets. An upcoming sunset reviews of antidumping duties, up plate, coated sheet and high-rolled sheet, these duties should be kept in place against these countries that clearly violated U.S., international trading laws.

On July 11th, we announced our plan to construct a special bar quality product steel mill in the southern United States. This growth project provides our Bar Mill Group an exciting opportunity to capitalize on a significantly better cost structure compared to key competitors in the SPQ market both domestic and foreign. Our SPQ mills continues casting technology will allow us to produce large balloons that have a minimum 5 to 1 reduction ratio to final product. Nucor will be only -- excuse me. Nucor will be one of only a very limited number of producers globally with this capability. Giving us a significant quality advantage in the 6 to 9-inch rounds product range.

At the same time, our new mill will be building on the SPQ market success of our Nebraska and South Carolina bar mills. Our strategy is to create the most diverse, highest quality and lowest cost SPQ product offering available in North America. Previous conference calls and discussions I have shared with you my strongly held view that there's a significant disconnect between the stock market's valuation of Nucor and our company's fundamentals. We will continue to answer with disparity with our results. Delivering attractive returns throughout the economic and steel market cycles.

It is certainly worth noting that our upcoming quarterly dividend will base plus supplemental benefits totaling $0.60 per share represents an annualized dividend yield of approximately 5%. Nucor is generating its strongest growth ever and at the same time, providing extremely attractive cash returns to our shareholders. Our press release this morning reported our view that the strong business condition is experienced in the second quarter will continue through third quarter. In addition to the strong volume, we see Nucor's third quarter earnings benefiting from increased sale price realizations per sheet, plate, beams, and bars. The scrap prices relatively steady, metal margins should widen. We expect a third quarter earnings will be at least as strong as the second quarter.

As you probably noted, this quarter's release did not give specific guidance for earnings per share. Given our repeated positive revisions to forecast given in the past several quarters, we have decided to give our specific numerical guidance closer to the midpoint of the interval between quarterly earnings reports. We will continue to give a qualitative assessment with each quarterly earnings report. With more data in hand, we should be able to improve the accuracy of our forecast. 2006 is on tract to be our third consecutive record earnings share.

My excitement about Nucor's future has never been greater. The future where Nucor's best years are clearly still ahead of us. Terry Lisenby will now provide comments on our results and our financial position. Terry?

Thanks, Dan, and good afternoon. Second quarter of 2006 total steel shipments were 5 million 895,000 tons, a new quarterly shipment record and an increase of 16% from the year-ago quarter. First half 2006 total steel shipments of 11 million 616,000 tons were also a record. Increasing 14% over the first half of 2005. Our second quarter of 2006 average steel mill selling price of $622 per ton was up $24 per ton from this year's first quarter, and was up by $43 per ton from last year's second quarter. Most notable among the year-over-year pricing changes, beams increased by $93 per ton and bars increased by $68 per ton.

Our average usage cost of scrap and scrap substitute for the second quarter of 2006 was $247 per ton. Up $10 per ton from the first quarter of this year, and up $1 per ton from the second quarter of last year. With selling price increases exceeding the increases in the metallics costs, Nucor's second quarter, 2006, metal margin spread increased by $14 per ton over the first quarter of 2006. An increased by $42 per ton over the year-ago quarter. Earnings before income taxes were $126 per ton for the second quarter of 2006, up from $110 per ton for the first quarter and up from $104 per ton for last year's second quarter.

Nucor's effective tax rate was 34.8% for the second quarter of 2006 and 35.2% for this year's first half. Our cash provided by operating activities for the first half of 2006 was $941 million. Cash and short-term investments totalled $2 billion 154 million at the close of second quarter. Our debt to total capital ratio was 16%. Nucor holds the highest debt ratings of any North American metals and mining company awarded by Standard and Poors and Moody's. We view our strong balance sheet as an important competitive advantage in the consolidating and cyclical industry.

For the first half of 2006, capital expenditures were $137 million, depreciation expense was $182 million. For the full-year 2006, we project capital expenditures of approximately $437 million, and depreciation expense of approximately $380 million. During the second quarter and first half of 2006, Nucor team continued to build upon our company's long record of being an effective steward of our shareholders' investment.

Our ongoing focus of the careful allocation of our shareholders' valuable capital is evidence by the disciplined approach to organic growth projects, acquisitions, supplemental cash dividends and share repurchases. Quite simply, capital that cannot be reinvested over the long run in our business for returns at or above our hurdle rate will be returned to the shareholders. Cash dividends paid for the first half of 2006 were $210 million, a 66% increase over dividends paid in the first half of 2005. Effective with the August 11th dividend payment, Nucor's board of directors approved a payment of supplemental dividend of $0.50 per share for a total August 11th dividend of $0.60 per share.

This represents the second time our supplemental dividend has been doubled since we began paying supplemental dividends in May, 2005. The second quarter of 2006, Nucor repurchased 3.6 million shares of its common stock at a cost of $186 million. Or an average cost of about $52 per share. This was of a significant increase over first quarter of 2006 repurchases of 200,000 shares.

Since reactivating our share repurchase program in the second quarter of 2005, Nucor has repurchased approximately 15 million shares, approximately 22 million shares remain authorized for repurchase under the current program. As Dan noted in his comments, we expect the third quarter of 2006 to be another very strong quarter for Nucor. And we believe Nucor's well positioned to continue delivering attractive returns to our shareholders through the economic and steel market cycles. We'd like to thank you for your interest in Nucor. Dan?

Terry, thank you. Mike Parrish will now give us an update on Nucor's Bar Mill Group. Mike?

Thanks, Dan. Good afternoon. The Bar Mill Group continues the record pace in '06 as we had our best second quarter and best half in our history with record earnings and shipments. We continue to see solid markets in all of our product lines as strong demand and order entries supports a very good backlog. Rebar demand continues to lead the way with an excellent market and pricing level. The light structural merchant bar markets are very good as well, as nonresidential construction, manufacturing and highway projects remain strong.

SPQ and coal finished products also continue at a steady pace and pricing levels remain high. We are very excited about the recent announcement of the new special bar quality mill in the south. This state-of-the-art facility will produce high-quality carbon in [LA rom] and round corner squares in the size range from 3 inches to 9 inches. Balloon casting with a minimum reduction ratio of 5 to 1, along with vacuum degassing will result in a product with the highest quality steel offered in the automotive, heavy equipment and service center markets.

High quality semi finished balloon and billet sale will be a significant part of our sales strategy. Balloon and billet sales will be made internally to other Nucor divisions as well as forgers and various external customers with high-quality applications throughout the the world. Combining these new products with our SPQ Nebraska mill will give us one of the most diverse SPQ product offerings ranging from 7/32nd to 9-inch round. It also dovetails well with the work that our flat mill group has been doing and concentrating on higher quality automotive markets and value-added business. The high quality, the diverse product offerings and the low cost structure will rival that of any domestic or foreign producer and will position Nucor steel as the market leader for SPQ products.

This facility will have a total capacity of approximately 850,000 tons with employment of approximately 225 people. We estimate 60% of this capacity to be finished product with the remainder coming ing semi finished products. We plan to start up in phases beginning in the fourth quarter of 2007. Phase-in should take approximately 2 years with an estimated 400,000 tons being shipped in the first 18 months and ramping up from there. Future plans also call for downstream operations on site such as enameling, straightening and turning. In several weeks, we will select the site and we expect construction to begin sometime in the fourth quarter of this year.

Total capital costs will depend on the final site selection. Finally, I would like to congratulate and thank everyone on the Bar Mill Group team for an outstanding effort and excellent first half and another record performance. Thanks, Dan.

Mike, thank you. And thanks to the entire Bar Mill Group. John Ferriola will give us an update on Nucor sheet plate and structural steel business at this time. John?

Thanks, Dan, and good afternoon. Nucor Sheet Mill Group had an excellent second quarter. Reporting strong product growth over both the first quarter of this year and last year's second quarter. Our team has done an outstanding job capitalizing on solid sheet market demand. We are well positioned to benefit from such robust markets as oil [inaudible] goods, nonresidential construction, appliances and HVAC. Our sheet mill shipments increased 11% year-over-year for the second quarter.

We expect the sheet market to remain solid through the third quarter. Service center inventory remain lean while end use demand continues steady. Domestic supply remains relatively flat due to planned and unplanned outages, as well as the ongoing walkout at AK Milltown facility. Import arrivals should decrease through the second half of the year. Service center customers report that import offerings of sheet products for the fourth quarter are limited and are priced similarly to domestic products.

During the second quarter, a significant gap between U.S. spot sheet pricing and international pricing was closed. As international prices increased dramatically. Our Sheet Mill Group's order book is essentially full through September. 81% of our sheet mill capacity for the second half of 2006 is under contract.

Including quarterly agreements and committed spot tonnage 87% of our capacity for the second half of this year is under firm price and volume agreements. We are at work securing contracts for 2007 production. Nucor's Sheet Mill Group remains strongly focused on profitable long-term growth, providing value-added products to value appreciative customers. Our team continues to develop attractive new business with a wide and growing range of deep foreign steels for automotive, appliance and HVAC applications.

New markets are also being penetrated with our deep drawing offerings and motor lamination steels and enameling steels. Nucor steel frame continues to build upon the marketplace success enjoyed by its hot rolled and coated dual-phased steels. Our dual-phased 600 product for the automotive market has shown some exciting properties, in fact, our initial test data indicates that Nucor's product has excellent formability and welding properties. Has dual-phased product usage gain momentum in the automotive markets, Nucor is primed and ready to gain market share with its value-added product.

With our proprietary Castrip Technology, we continue to refine the process and the product. Our work is targeted to key customers to develop and use applications. In May, our Crawford Castrip team set a new record for sequence length, 9 ladle cast over 12-hour period. That beat the prior record of 7 ladle cast over a 10-our period. And I should note another milestone.

During the second quarter our fourth first long-term contracts was signed with customers for the supply of Castrip products. We are moving ahead with our project to build a second Castrip production facility at Nucor-Yamato mill in Arkansas. Engineering work for Castrip II should be completed during the third quarter. As an added bonus, equipment that will be used at Castrip II will enhance Nucor remodel development of jumbo beams up 730 pounds per foot In June we announce that we will construct a galvanizing facility at our Decatur sheet mill. Annual capacity will be approximately 500,000 tons and this facility will have the ability to produce a 12 72-inch wide sheet. We expect total cost of this project to be about $150 million.

Building on our successful acquisition of Decatur cold mill in 2004, this is a logical and exciting growth opportunity for us in the expanding southeastern U.S. market for value-added steels. Looking at another attractive growth opportunity for Nucor's Sheet Mill Group, we have established a sales office in Monterrey, Mexico. We have grown our business in Mexico over the past few years and we expect more growth in the years ahead. The plate market remains healthy across all sectors with our teams at Hertford county and Tuscarora Mills posting strong profitability for the second quarter and first half of this year.

First half of 2006 plate shipments of 1.2 million tons advanced 13% over last year's first half. Plate pricing has improved through the 2006 with additional interest is being implemented moving into the summer months. Plate import levels have been elevated through this year's first half. However, inventories remain in balance with imports being absorbed by the strong market demand, import offerings of plates for the second half of 2006 are being made at increased prices.

We see continued vigorous demand for construction equipment, heavy machinery, rail, barge, distribution and wind pallets. Nucor expects plate market to remain steady through the third quarter and we are optimistic of the outlook through balance of 2006. Congratulation to our teams at the Nucor-Yamato Steel and Berkeley Beam Mills for record earnings achieved in the second quarter and in the first half of 2006. Beam demand has strengthened. Non-residential construction square footage is forecasted to grow 6% in 2006.

In addition to traditional non-residential construction market segments, our business is benefiting from increased activity in energy markets, including oil and gas exploration and power plant construction. And our shipments of sheet piling products are on pace to exceed 2005's market volume as infrastructure work expands in the United States. Leading indicators point to continued beam market strength throughout the the balance of this year and into 2007. While service center inventory levels have grown slightly, they still remain at low levels.

Additionally, the international beam market has strengthened as evidenced by increased worldwide pricing, the structure of steel and low import activity. In summary, Nucor's sheet, plate and structural steel businesses are taking care of our value-appreciative customers with value-added product. Thank you for your interest in Nucor. Dan?

Thank you, John. And thanks to our sheet plate and structural groups for their record-setting performances. Joe Rutkowski will now update us on implementation of our raw material strategy, Joe?

Thanks, Dan, and good afternoon to everyone on the call. The Nucor team made excellent progress in the second quarter, 2006, implementing our raw material strategy to develop supplies of high quality scrap substitute much these products exert critical underpinning to Nucor's expansion into the higher quality sheet at SPQ products. And our work will reduce Nucor's risk exposure to fluctuation to supply and pricing at low residual grade to scrap.

Our Hismelt joint venture with Rio Tinto and Mitsubishi and Shougang continues startup of its facility in western Australia. The Hismelt process converts Iron ore finds and coal finds to liquid metal. It's both a blast furnace replacement technology and a hot metal source for EAS. Initial capacity is expected to be about 800,000 metric tons, which can be expanded. Plant recently completed an ironmaking campaign that stretched to over 60 days of continuous production and at times reached capacity utilization as high as 70%. Building on this, our team has embarked on a new campaign focused on achieving further gains.

I'm pleased to report that Hismelt's first pig iron shipment is in route to Charleston and will arrive early next month. Our Berkeley Sheet Mill is looking forward to consuming the nearly 36,000 metric tons of pig iron. In Brazil, our Ferro Gusa Carajas joint venture with CVRD offers Nucor access to environmentally sustainable pig iron production. The first nodgel consists of 2 convectional blast furnaces which we expect to provide 380,000 metric tons of annual pig iron. Our team has been running the first furnaces full capacity and last week production started in the second furnace.

I'm also pleased to report that the first shipment of pig iron from Ferro Gusa Carajas arrived in New Orleans in early July. The 69,000 metric tons of pig iron is being consumed now by our sheet mills in Alabama, Arkansas, and Indiana and also by Nucor-Yamato Steel in Arkansas. Our new iron direct reduce iron plant in Trinidad is also on track to begin production in the fourth quarter of this year. The annual capacity of that plant is expected to be 1.8 million metric tons of DRI.

On the international front, we continue to have discussions with a number of potential partners regarding Castrip joint ventures and other opportunities where we can cooperate. Thanks, Dan.

Thank you, Joe. I'd also like to thank our teams at Nucor Building Systems, Nucon, Vulcraft and Fasteners for a great quarter as well. At this time, we'll be happy to take your questions.

[OPERATOR INSTRUCTIONS] We will take our first question from Michele Appelbaum with Michelle Appelbaum Research.

Hi.

Hello, Michele.

Nice quarter and I like this idea of, you're going to be doing general guidance during the conference call on what's happening in your business, and volumes and stuff like that. And then you'll be putting an EPS number out at the middle of the quarter?

At the middle of the period between the previous conference call and the following conference call. So as we do this quarter, we did it on June 13th.

Okay

To about midpoint between the today's conference call and our last one.

Okay. So, kind of 45 days from today will be the next --

Yes.

And it will be locked in stone that day so we'll know it's coming, no big surprises. Can you just talk about what brought this on? Are other companies doing this? I've never seen this before. Companies in other industries?

Nucor previous occasions has indicated, you know, that we don't feel really comfortable with quarterly focus. As we're a long-term-focus company. But we play the game and what we're doing here is, you note that if you go back for several quarters now, almost 2 1/2 years, we've been significantly beating our original guidance, having to come out mid quarter with upgraded guidance. We thought that rather than continue to go through that transition, we would give a general qualitative indication of how we saw the upcoming quarter and then give more accurate guidance numerically around mid quarter. We felt that that would be a reasonable thing to do and a way to just be more accurate in what we're giving to our shareholders and to the analysts. And Nucor's regularly done thing that is no one else does before. So this may be a trend-setter.

Okay. Well, I really like it. I think the guidance, I think sometimes just adds volatility. So, you know, I for one think this is a terrific idea. Can I ask another one?

You get one more.

The pressure. Just talk for a minute about, there was a little bit of controversy on your beam pricing in August, Chaparell raised prices and UN Steel dynamic's held prices constant. The beam market just looked so strong. Do you want to comment on what the strategy was behind that?

John, would you like to make a comment?

Well, we always take a look at -- the rest of the competition is doing. At that time, we felt, given where we were with the scrap movement, we felt that we brought stability to the market by staying where we were.

As you know, Michelle, this is not the first time in history of Nucor -- that we have done something like this where the market was extremely strong but we worked to keep steel competitive in a positive way with other materials, particularly concrete. And it turns out if you take a look at the last six months, the steel market share and building structures has gone from 47% to 53% market share. Which is a significant move. It's there for a number of reasons.

Cost competitiveness, availability of cement, but also the building types that are being built in nonresidential construction and so -- that is added to the strength of the marketplace and that is brought about by the increase of nonresidential construction in general. So, you know, we have, always believed that we have responsibility to make good profit for our shareholders but yet to be responsible to our customers and make sure that we have competitive material both from a domestic standpoint and an international standpoint. That doesn't mean that prices won't go up in the future. But at this point in time, we felt that was the best thing to do.

That's great. Great answer. Thanks.

Next question.

[OPERATOR INSTRUCTIONS] We will take our next question from Michael Gambardella with JP Morgan.

Good afternoon, Dan.

Good afternoon, Michael.

And congratulations on another great quarter. I just wanted to --

Thank you.

I would also say following up on Michelle's comments, I agree, I like this format of guidance better in terms of not giving the numerical and coming out and revising it a couple of times, hope it works out. Not to beat a dead horse, but earlier this morning, there was a Blomberg article that suggested that by not putting out the guidance, you know, last time you didn't put out guidance was when you were heading into a trough of your business cycle. That's not what you're saying, obviously.

No, absolutely not. As should be evidenced by the qualitative strength of our forecast for the third quarter and the fourth quarter. And I will say one thing about that one previous situation. We made an attempt to get away from guidance. Period. Which turned out to be not a very good thing to do, because the analyst community proceeded to forecast ridiculously high projections for that coming quarter and we had to come out and say whoa, guys, you got too far away here with a public announcement. And you saw the stock at that time took like a 20% hit that day. So, you know, the reason for why we did that in the past had nothing to do with where we were in the market as much as it was again our focus on the long-term and not the quarterly. Certainly didn't happen during that period of time. But what we're seeing today is not in any way, shape or form a similar period from the standpoint of business conditions and how we see the picture.

And also, given the fact that today you have a lot more of your business contracted out not only over the quarter but the past half of the year to give you more confidence as well.

Absolutely. And as you know, Mike, the raw materials markets, the energy markets, have been pretty volatile. And in a company our size, it can be difficult to actually forecast how those trends are going to be, particularly when some of the stuff is done on a month to month basis. So, again, we feel like this will get us away from double revision that is we've been having.

Okay. And just last question, the nonresidential construction business obviously very strong. You've benefited a lot from that. But how much of the gulf coast reconstruction have you seen yet?

At this point in time, it's very infancy. We've seen some of the structure work, some increased sheet piling usage, but as you well know, we have not as a nation done as good a job done there in rebuilding and the reasonable time frame. They have a lot of work to do and really most, 95-plus% of the additional use of materials in construction down there is yet to come. Yet to come, as well as the scrap is being generated from the debris.

Okay, great. Thanks a lot, Dan. And congratulation one against.

Thank you, Michael.

We will take our next question from Timna Tanners with UBS.

Good afternoon.

Hello, Timna. How are you?

Thanks, good. I'd like to ask about the scrap market a little bit. Wanted to know if you could give color, on the release you talk about steady scrap pricing. Given that you're getting some shipments from your scrap substitute ventures and that's starting to come through, can you give us an idea of what that will do to your sequential scrap pricing and on a go-forward basis, what you're seeing in the market right now?

Well, it certainly is very satisfying to be receiving our shipments, which are, will be our in excess of about 100,000 tons of pig iron. But that still is small amount compared to the total raw materials scrap and scrap substitutes that we use. And nowhere near what we're looking to do as you well know, to be in the 6% to 7% of our total consumption. In the coming years. As far as the scrap market itself goes, it seems to have quieted down, both domestically and internationally. But we've also seen that that can change pretty much in the 30-day period. Right now, our forecast would be for flat to maybe slightly down through the remainder of the year.

And anything that's driving that in particular? Is it slower demand in general [inaudible] -- cells between the two, people talk about a lot. Is that -- expecting in the steel price outlook?

I think it's more due to the fact that there's a massive amount of scrap that's been coming through the systems. And even though manufacturing is nowhere near where it has been in this country, we're still generating increasing amounts of top scrap and so it's as much to do with the supplies that are being generated as it does with anything else. The demand that is still very strong for our products and our forecast are very strong for production and shipments. And scrap usage will continue to be very strong.

Okay. Excellent. Thanks very much.

We will move next to Mark Parr with Keybanc Capital Market.

Good afternoon, guys.

Good afternoon, mark.

Hey, I was curious, if you could help us with some color on your outlook for volume in the third quarter compared to the second quarter.

It's going to be strong. John? Mike? You have anything you want to add to that?

We think that from the sheet and plate and beam side, that the demand will be great. We have a small, a slightly less number of shutdowns in the third quarter than we had in the second quarter. So we will see a small increase in our overall production.

Shipments?

On shipments.

On the bar side, we're seeing the same thing, strong order entry, strong backlog. And we expect to ship very strong at least what we did in the second quarter.

Okay. I appreciate it very much. Could I make a comment for just a second?

Please, mark.

All right. I just want to say that historically there seems to be a fairly good correlation between scrap prices and the introduction of new supply into the market. And I just wanted to add, at least your comment if you have one about how the green pig, how the Hismelt and the HBI introduction of that material into the market could have somewhat of a dampening effect on metallic input costs, independent of underlying steel prices.

That's a good observation that you will see that happen. But particularly it will be impacting the prime grades of steel. As you well know, there's been a little bit more of a separation between the prime grades and the obsolete grades or the prop grades and the absolute grades, depending the terminology you want to use. And I think that what the increase supply particularly with the Nucor of our own high-end raw materials, it will help to shrink that divergence back to more historical levels.

And as you well know, that supply and demand has an impact on the pricing and what is brought into balance or there's an excess or an increased amount being generated, it will have a tendency to have a moderating effect on pricing. But a lot is also going to depend on where things are with respect to the demand situations, increase production in the United States were still only running in the low to mid-80s in capacity utilization as an industry. So, there's a number of factors to get in there. But definitely it will have that all things being equal, will have the effect that you're talking about, Mark.

I appreciate that color, Dan. And congratulation on a fantastic result.

Thank you.

And from Citigroup, John Hill has our next question.

Thank you and congrats again on a solid result and a very informative presentation as always.

Thank you, John.

You're welcome. Just a quick question on the 81 to 87% sheet contracts going out the rest of the year. Necessity comments on pricing on those relative to what we saw in the second quarter?

Yes. We expect our price utilization to be up in the third quarter. Contract pricing is strong and as you know, it's all margin protected.

Great. And then on the Castrip side this first contract that you signed up there, is anything unusual about it or anything notable that we should be informed of?

Well, first of all, let me correct you. It was more than one contract. We start signing long-term contracts for Castrip material and I think it's an indication of the confidence that the market is having in the product.

The quality and the reliability and delivery and just general improvement that we expect that will continue to happen within the Castrip process in Crawfordsville.

Great. And then last but not least, it definitely seems like you're driving pretty impressive financial efficiencies. You're EBITDA for ton up almost 12% and that far out stripping the gain in average pricing or metal spreads, et cetera. Any comments on that?

Other than the fact that through a lot of hard work, smart work, we're achieving those results and we're obviously very pleased. We've mentioned in the press release and our script, that margins have expanded, energy costs have dropped off. And certainly our efficiency, product at this time and conversion costs have improved as a result of the record production at virtually all of our facilities

Great job.

Thank you.

We'll take our next question from Michael Willemse with CIBC World Market.

Thank you. You announced the plan for the galvanized mill and new bar mill over the past couple of months. I was just wondering what your next kind of next projects are on your wish list for greenfield expansion. And also if you could comment, you mentioned you're still looking at an international partner for the Castrip, just wondering on the timing for that.

The answer the last question first, the timing on the Castrip International j.v. has been a little disappointing. In some cases for factors that have nothing to do with did Castrip technology. They have to do with other situations with the potential partners that they had to deal with. In this world. There's a lot going on. And as far as I'm sorry, what was the first part of your question?

Just now that you've announced the bar mill, just wondering what your next two or three projects on your wish list would be for greenfield projects.

Our wish list is basically that the next two or three projects be extremely profitable, high returning projects. As you well know, we can't get into telegraphing what the acquisition or greenfield. But suffice to say in general, we will be working to continue to increase our market leadership in our existing product lines. And move up the value-added chain as well.

Okay. Thank you.

And from Goldman Sachs, Aldo Mazzaferro has our next question.

Thank you, how are you doing?

Good, Aldo, how are you?

Good. There's been a lot of talk recently about steel pricing being near peak, at a peak, past the peak and maybe from concerns on the demand side and global issues. And we're also in July. I'm just wondering if you could help us under how much you think of the market is being seasonally soft or whether you see any changes in the market that you'd be concerned about at this point.

This is going to be kind of a little bit off the wall comment, okay?

Okay.

It has to do with markets in general, whether they be the financial markets or the commodity markets or what have you.

Okay.

News travels so quickly today, and it's almost instantaneous that there's so much knee jerk reactions generated that you have people going in 12 directions at once. What they're seeing, what they're hearing, what's going on. You can read at any given time in the press, globally, in our industry, prices are going up, prices are going down. Prices are staying the same. Whether it be for raw materials or for steel products.

In general, what we see domestically, globally is a very strong market for the types of products that Nucor and other steel producers make. We see that as part of a fundamental trend that is going on globally and will continue to go on here because we will have it continually growing economy, whether it's 4% or 5% or 3% or 3.5%. And we will see some things going on structurally globally and domestically, it will continue to drive a very positive environment over the next 10, 15 years for our products. And I've said that before. I still believe that. And I think even today, you'll have three different directions pointed out in the marketplace at the same time. Bottom line at the end of this is, what is going on over the longer term? And not to get caught up in this, the news of the moment. And that's, you know, I mean it's very hard to do. But the reality is, there's much too much knee jerk reaction going on in the stock market and in our market. I don't know if that enlightened you Aldo or confirm anything.

It always is, Dan. The other question I had was on your stock buyback, Interesting to me that you bought only 200,000 shares in the first quarter and then in the second quarter you bought 3.6 million shares, it was mostly around the same pricing. And I'm just wondering if that indicates some change in strategy, or a different view of what you see in the market and then the follow up would be you got $2 billion in cash right now and you got 22 million shares left on your authorization which means you could use half of your cash and finish up pretty quickly.

Well, Aldo, you got the future all laid out there.

Then you still of a billion left to pay dividends. [ Laughter ]

One thing we have to always be careful of is not getting too carried away with the success that we experience at any given period of time. And certainly, something that we all have to be aware of in this business, we can celebrate, we need to always remember that there will be a tomorrow, it will be tougher. Which will be surpassed by tomorrow that will be better. In general, the reason for the 200,000 to the, you know, 3.6 million, is basically a renewed confidence in what we see going on from a cash generation standpoint for our company. You didn't see us cut back on dividend, you saw us increase, you didn't see us cut back on share buyback , you saw it increase, you didn't see us stop doing projects, you saw new announcements.

Again, I would have to say that's very consistent with our view that over the next 10 to 15 years, we're going to have more up years than down and the up years are going to be stronger and the down years aren't going to be as weak. And so we're doing things that are really focusing on the fact that we do have a strong cash generation, we can do multiple number of things. In today's environment. And that's really what's driving that.

Great. All right, thanks, Dan. Congratulation on the quarter. Tremendous.

Thank you.

John Tumazos with Prudential has our next question.

Congratulations on all the good problems.

Thanks, John.

Your scrap cost has been pretty stable the last couple quarters. What we read in things like the American metal market moves around a lot more. What percentage of virgin metallics have you been using?

It varies by product line and by plant with any given product line. John, do you have any insight on that?

I can talk in the terms of groups. We buy at about 2 million, 3 million a year. Today it's probably close to 2.2 million, 2.3 million-tons a year. And again, it depends also on the market which right now is very strong. So we are using a lot more virgin iron to get high levels of production out. In our sheet metals, we're probably averaging again across the product line, in the neighborhood of 40%. And in beams, it's a little bit less but still we are using some pig iron for productivity purposes -- model will probably 15%, something like that today.

Overall, you look at our total steel production, it's somewhere around 10%.

Overall, yes.

Is the 2.2 to 2.3 the total company or just the flat roll position?

That's really the total company. But most of that is being used in the flat roll division. Bar products aren't using any, the plate, I don't think, is using it any. And but the most of the pig iron is used in the sheet group and with a little bit more productivity purposes --

If I could direct a second question to Terry. Why does the practical constraint on your rate of share buybacks, would it be a reasonable assumption that maybe 20 days a quarter, there's some news or legal reason why you might buy in 40 days a quarter you could buy? And is 100 or 200,000 shares a day practically as much as you think the market offer you?

Really, with a plan in place, you can buy every day. As long as you have a plan on file. We were fine we were buying 100,000 shares a day, we would be limited to -- does anybody know the calculation? There's really not a real practical limit to the day we purchase.

So, for example, today when your stock is down $2, we shouldn't assume that because it was the hours before your conference call, that you weren't able to buy because you're going to buy the same amount every day? Is that what you're saying?

That is correct on a plan.

The structured buying plan that just buys x shares per day.

That's put in place for a period of time.

A certain period of time.

Could be 30 days, could be 60 days, could be 90 days.

And it's not constrained by trading volume? You might be buying 100,000 or 200,000 shares a day, regardless of whether you trade a quarter million shares or a million shares a day?

Right. There is a limit, based on the when we set the plan up as an average daily volume. But we're nowhere near that level.

Thank you.

We'll move to our next question from Barry Vogel with Barry Vogel and Associates.

Good morning, gentleman.

Hello, Barry, how are you? Where did you disappear to? North Carolina, huh?

Now I'm in Cape Cod.

You're in Cape Cod. No wonder you're not returning your calls.

I see. Anyway, can you tell us, Dan, about the SPQ announcement? Is that a greenfield mill?

When we yes, it's basically a greenfield mill. But we have several options for location. And we announce those it will become clearer as to what when we announce the final location, it will be clear to what type of project it is. But we are looking at this as a greenfield addition.

So does that mean new felting facilities and finishing facilities.

Yes.

Can you give us the approximate cost?

Nope. But it's nowhere near what people are guessing, they're way too high.

Now, can you give us the operating rates today at the various steel product areas?

Let me clarify one thing. The cost of the project would be defined by exactly what location we pick. And the timing of the construction process and that may be close by the location. But what was your latter question?

Can you tell us today, what your utilization rates of capacity are in structural, plate, bar, and sheet?

We can give it to you overall.

By segment. By steel --

I have it overall, Barry.

The total steel group was 91% for the first quarter. I mean, for the second quarter.

What was it the first quarter?

In the first quarter, it was 93%. So roughly the same quarter- to-quarter. Steel products was only 80%. That's all steel products -- building systems. 80% in the second quarter.

Okay. Has that gone up going into the third quarter? 91%, has it gone up?

No, it's probably about flat going into the third quarter.

Of course, we have most of the third quarter ahead of us, Barry.

It would look like it's going to be similar to that. You always have ship downs impacts it. It depends when the shut downs are scheduled

Thank you.

Second quarter has a tendancy to have quite a bit of shutdowns., planned maintenance shutdowns Usually one-week duration per plant.

Thanks.

We'll take our next question from Frank Dunau Adage Capital.

I'm a new guidance policy, when you issue the mid quarter guidance, should I add 10% to get to the number?

I always appreciate your sense of humor, Frank.

And the second question is, you're not the only steel company that's complaining about a lot -- disconnect between the stock market and its fundamentals. Does that create opportunities for you, looking at other people?

The world is full of opportunities, Frank.

All right. That's it, thanks.

Okay.

Tony Rizzuto with Bear Stearns has our next question.

Thanks very much, good afternoon, gentlemen.

Hello, Tony.

How you doing, Dan? I hear your comment about --[inaudible] all of this negative new that is we're hearing about ultimately could impact capital spending plan. You guys obviously of a great -- into the construction markets. Everything sounded very positive. Is there any area that you guys see that may not be quite as positive or maybe showing a not, you know, not an acceleration and maybe a slowing in any particular region and maybe some spending plans might be delayed? Are you guys seeing anything out there at this point in time?

In general -- more details. But obviously residential construction has been a slowing area. But steel intensity of nonresidential is much greater. Within the nonresidential section, we're not impressed with the a increased manufacturing capacity as being added in manufacturing construction. In that segment of nonresidential. But at this point in time, other than that, I wouldn't have any other information that I could comfortably share with you that I knew was accurate. John, Mike?

As I look through our major products, I'd say automotive gives me a little bit of concern. Looks like that's flat. But the other markets are very -- appliance, strong, HVAC is very, very strong. Is strong.

That's my best shot at it, Tony.

Appreciate that. Just a follow-up on the residential side, how quickly might we expect something to come about with the joint venture you guys have with [inaudible]

It's already come about. We announce that next spring operation in California -- to get into it, but we are currently in an ongoing joint venture building palms using new-car technology -- in California and a couple of other places and there will be more coming.

Do you see big opportunities given legislative changes and building codes?

Absolutely. Absolutely. Steel will be choice, material of choice, for residential framing in the future. Without a doubt. And particularly driving this toward -- faster fashion is what's happening with Mother nature. And it's one of the reasons why steel and overall nonresidential construction -- it's a better performer and earthquakes and hurricanes and what have you than -- materials.

Thanks very much, Dan.

Some of the things that are kind of unique here, that I hadn't thought of in the past, but as I went around talking with people in the business building residential homes, mold is a big issue. And mold doesn't grow on steel. And of course termites and things like that. People say yeah, yeah, but they really have a significant impact in total, insurance costs are lower, from a fire standpoint, from a wind standpoint, hurricane standpoint, natural disaster standpoint. So it's going to continue to be a very strong-growing market. Overcome the hurdles of codes, standards, tooling and with the new -- technology, labor, which is the biggest thing that is holding it back, switching from carpenters and framers and their comfort factor with building homes out of wood with the new kind of system that's going to be a non issue going forward. Next question.

And our next question will come from Chris Brown with Longbow Research.

Good afternoon.

Good afternoon, Chris.

What is your outlook for the rebar market in the second half? Should we anticipate any mix changes going forward?

That's the one market that is really strong. For the second half, we really expect to be at least as strong as we saw the second quarter. We see that very consistent for the remainder of the year. Infrastructural growth has been very strong. Not only just in the north America, but through the the world.

And are you mix changes going forward?

Mix changes? In terms what?

Product mix.

On what product line, the bar product line?

Yes, bar product line.

I wouldn't think so, no. I think our mix would stay through the the year.

Okay, great. Thanks.

And our final question today will be from Dave Martin with Deutsche Bank.

Thank you much. Just wanted to come back to your comments about the auto business being flattish. Could you remind us what your auto percentage is and then also comment on the impact, production cuts from someone like Ford, which I guess the announced 15% production cut yesterday would have on your business? And give us any comments maybe some of your current, auto customers have been making in recent weeks?

The overall automotive market has been somewhat flat. Production actually up until July has been up a little bit, 2% in auto motives. But today, 9% or 10% of our total flat roll product goes into automotive. We have quite a mix of customers. And we have some activity with the three original domestics and the new domestics that are out there in the southeast. So although we see some weakening from the big three, there's some improvement in sales and the production from the new domestics. So overall for our business, we see it consistent through the the rest of the year. Our presence in the southeast gives us a lot of access to the new domestics. So that's where we have really been poke cursing our growth and they seem to be doing stronger than the big three that you mentioned.

Okay.

Talk to Honda, Toyota, some of the specific customers, I don't hear the same kind of production cut back that we hear from some of the other customers.

Thank you, much.

Thank you, Dave and thank you all for your questions. And I just want to again thank our Nucor team through the the United States and Australia and Brazil and Trinidad for doing a great job for us. And thank you in advance for what will be another good quarter in the third quarter. So thank you all very much. And again thank you for your questions.

That does conclude today's conference call. We thank you for your participation and have a great day.