Nucor Corp (NUE) 2007 Q1 法說會逐字稿

Good day, everyone. Welcome to the Nucor Corporation first quarter of 2007 earnings release conference call. As a reminder, today's call is being recorded. Later we will conduct a question-and-answer session and instructions will come at that time. Certain statements made in this 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. For opening remarks and introductions, I would 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. Our team will review Nucor's first quarter of 2007 performance, and update you on our ongoing implementation of Nucor's strategic plan for growing shareholder value. I will lead off with some overview thoughts, and Nucor's Executive Vice Presidents, Terry Lisenby, Ham Lott, Mike Parrish, John Ferriola and Joe Rutkowski, will provide additional details. First, and most importantly, I want to say thank you and job well done to all the members of the Nucor team for delivering record first quarter earnings for the fourth consecutive year. These results were achieved as our team successfully managed through significant challenges that included the sheet markets inventory correction and extremely volatile raw material markets. Our first quarter 2007 earnings of $1.26 per diluted share exceeded our guidance range of $1.15 to $1.25. Our results also exceeded the average of analysts' estimates of $1.23 for the first quarter.

As always, the Nucor team is working safe, working hard, and working together to take care of our customers. Nucor's most significant competitive advantage remains our employees. The right people, working together as a team. I would also like to extend a warm welcome to the newest addition to the Nucor family, the men and women of Harris Steel Group. With your extremely successful business model in rebar fabrication and other attractive downstream businesses, we are proud and excited to have you join the Nucor team. Together, with Harris Steel Group, now a Nucor company, we have an even brighter future of profitable growth.

After sharing our first quarter performance and our plans for the future, I would like to share with you three very important points. First, Nucor is a proven cyclical growth Company with a strong record of building long-term earnings power and delivering attractive shareholder returns. Second, as always, diversification. Product diversification, that is. It matters. It has been and will continue to be one of our most valuable competitive strengths. Third, we see many attractive growth opportunities still ahead of us, or as we like to say, Nucor's best years are still to come. Each of these three points is critical to understanding our Company.

My first point concerns growth. As I mentioned earlier, Nucor's first quarter of 2007 net income and diluted earnings per share have set a first quarter record. Our team certainly understands the adage that records are made to be broken. This represents the fourth consecutive year of record breaking performance in the first quarter. Nucor's performance for the just completed quarter is building on our strong long-term growth record. 2006 was our third consecutive record earnings year, with net income more than 5.5 times greater than the level reached at the last peak in the economic and steel market cycles in 2000. And Nucor has been profitable every year and every quarter since 1966.

Nucor's growth record is easy to explain. It is driven by our team's disciplined execution of Nucor's strategic plan, our strategy focussed on generating higher highs and higher lows through the economic and steel market cycles. And the keys to executing our four-pronged strategy have been and remain. First, we will optimize existing operations. Second, we will pursue strategic acquisitions and be opportunistic. Third, we will utilize greenfield growth to capitalize on significant cost advantages from new technologies and other unique marketplace opportunities. And four, we will grow globally through joint ventures that leverage our new technologies.

My second point is about the importance of our position as North America's most diversified steel producer. Very few of our competitors can match our performance, delivering both the third consecutive annual earnings record in 2006 and the fourth consecutive first quarter earnings record in 2007. And our performance proves the value of Nucor's product line diversity. For the first quarter of 2007, record earnings from our bar and beam mills offset softness in the flat roll market. With our diversified product portfolio, Nucor's short-term performance is not tied to any one market. Through a number of economic and steel market cycles, relatively better conditions in some markets have cushioned the impact of less favorable conditions in other markets.

Now, for my third and most important point. Looking ahead to Nucor's future growth prospects, I have the highest confidence that Nucor today is better positioned than ever before in our history for growth. Growth in our profitability and returns to Nucor shareholders. We have unrivaled financial strength. We continue to build our position as the steel industry's technological innovator. We have tremendous flexibility with our established and proven multi-pronged growth strategy. In short, Nucor's growth opportunities are much greater than we were when we were a small Company pursuing only one growth strategy, greenfield plant construction. You have heard us discuss on past conference calls our growth projects underway. They are numerous. And they expand our growth platform in a wide range of products, all the way from upstream raw materials, to special bar quality bars, to galvanized sheet, to our proprietary Castrip product, to decking, to rebar fabrication, and to metal buildings.

I'm very pleased to report two major achievements complementing our growth strategy in the first quarter of 2007. The start up of our Nu-Iron direct-reduced iron plant in Trinidad has been extremely successful, and very timely. With annual capacity of 2 million tons, Nu-Iron is the largest current component of our raw material strategy to control 6 million to 7 million tons per year of high quality metallics. Our sheet mills began benefiting in the first quarter from shipments of Nu-Iron's high quality and very cost attractive DRI. Joe Rutkowski has additional Nu-Iron information for you.

And we completed Nucor's largest ever acquisition with our purchase of Harris Steel Group in early March. This acquisition is a major step forward in advancing Nucor's proven and highly profitable vertical integration business model. Most significantly, Harris steel will be a valuable growth platform for Nucor. Ham Lott has more for you on Harris Steel Group as well.

Before concluding my comments, I will note that Nucor remains as strongly focussed as ever on a crucial part of our strategic plan for optimizing our operations and delivering value to our shareholders. That is Nucor's very proactive role in the fight for what real free trade is; rules-based trade. President Reagan got it right back in 1985 when he said to make the international trading system work, all must abide by the rules. Above all else, free trade is by definition rules-based fair trade. Free trade occurs on a level playing field and is driven by true comparative advantage. Massive government subsidies, currency manipulation and abuse of the environment are in no way part of free trade. This is why the economic relationship between the United States and China is not working.

More to the point, the long-term economic prosperity and national security of the United States absolutely requires our restoring of the U.S.-China economic relationship to a healthier balance. There appears to be a growing recognition of this crisis by the public and by government officials. But it is now time for decisive action. It is time for the Congress, the Administration and the American public to make China play by the rules, the rules China agreed to abide by when it joined the World Trade Organization and was granted Permanent Preferred Nation trading status by the United States. The Nucor team will continue to apply its can-do attitude and energy level to supporting legislative and other government actions that enforces the rules of free trade. Nucor thrives in an environment of free trade and rules-based trade. That is a marketplace for success as determined by being efficient, being the innovator and technology leader, and doing the best job of taking care of customers.

So I believe you can see, we are passionate about our work at Nucor, and that passion reflects our excitement about Nucor's future. Quite simply, we see our team's journey as one of climbing a mountain with no top, with our best years still to come. The EVPs will share additional information with you about our business and the growth ventures. I will now ask Terry Lisenby to discuss our financial position. Terry?

Thanks, Dan. Good afternoon. Nucor achieved strong first quarter of 2007 results, despite soft flat roll markets and higher scrap cost. These first quarter challenges included a 10% decline year-over-year in our sheet shipments, a 22% -- a $22 per ton increase year-over-year in our metallics cost, and a $15.5 million increase in our LIFO inventory charge, compared to the year ago quarter. However, first quarter of 2007 earnings before income taxes were $109 per ton or essentially even with the $110 per ton earned in last year's first quarter. As Dan observed, Nucor continues to realize significant value from our position as North America's most diversified steel producer. The composition of Nucor's first quarter 2007 sales tons was 36% sheet, 32% bars, 14% beams, 11% plate, and 7% downstream steel products. Our first quarter earnings benefited from extremely strong earnings from our bar and beam mills, as well as solid profitability from our plate, sheet and steel products divisions.

Nucor's strong balance sheet remains an important competitive advantage in a consolidating and cyclical steel industry. At the close of the first quarter, cash and short term investments were $1.4 billion. And that is after funding the approximately $1 billion cash portion of the Harris Steel purchase. Including $93 million of short term debt we assumed as part of the Harris Steel acquisition, Nucor's debt to capital ratio was 16% at the close of the quarter. Nucor holds the highest debt ratings of any North American metals and mining company awarded by Moody's and Standard and Poor's. The Nucor team is working hard to build upon our Company's long-term record of being an effective steward of our shareholder's valuable capital. This ongoing focus is evidenced by our disciplined approach to capital spending, acquisitions, and returning cash to our shareholders via dividends and share repurchases. As always, we allocate capital to the opportunities that offer our shareholders the highest returns on their investments.

For 2007, we project capital expenditures of approximately $940 million. About $500 million of this spending is for our greenfield growth projects, the Memphis SBQ mill, the Arkansas Castrip plant, the Decatur mill's galvanizing facility, and the Utah Building Systems plant. And Nucor continues to invest capital in our core operations to keep them state-of-the-art and globally competitive. Starting with the May 11th payment, Nucor is increasing our regular quarterly cash dividend rate from $0.10 to $0.11 per share. Nucor has increased its dividend every year since we began paying dividends in 1973. In addition to the $0.11 per share base dividend, our Board approved the payment of a supplemental dividend of $0.50 per share, for a total dividend of $0.61 per share to be paid on May 11th. The May 2007 payment will be our ninth consecutive quarter supplemental dividends. Supplemental dividends are consistent with Nucor's long-standing pay for performance philosophy.

As reported in our press release this morning, our outlook for the second quarter remains positive. Overall, end use demand is very healthy for bars, beams and plate. While we see improving conditions in our flat roll business, this improvement is coming off the very soft sheet market conditions in the fourth quarter of 2006 and the first quarter of 2007. We expect this improvement in the sheet market to continue through the second and third quarters. The cost of ferrous scrap is down sharply for our April buys, and should be down again in May. This will have a positive impact on margins by mid May through the end of the quarter. However, we do expect to see margin compression in some products in the early part of the second quarter, as the first quarter scrap run-up works its way through our inventories.

Risks to our second quarter outlook are scrap volatility, potential surges in imports and any unexpected reversal in the recent progress made by service centers in reducing their inventories. We are encouraged by the service center inventory data released yesterday, reporting a significant drop in March service center inventories, particularly in flat roll products. Nucor will continue its practice of providing numerical guidance near the midpoint of the interval between earnings reports. While we are enjoying our recent success, we are excited about the future. We believe Nucor is well-positioned for another very good year in 2007, and we thank you for your interest in Nucor. Dan?

Thanks, Terry. Now we have Ham Lott who will update us on Nucor's downstream steel products businesses. Ham?

Thank you, Dan. Good afternoon. We are very excited to have completed the acquisition of the Harris Steel Group in early March. With the purchase price of slightly more than $1 billion, this is Nucor's largest acquisition ever. As Dan mentioned, the Harris Steel acquisition is a major step forward in advancing our vertical integration strategy. Moving downstream into value added products has been a highly profitable growth strategy for Nucor for almost 40 years. Nucor is North America's largest producer of rebar, and with our acquisition of Harris Steel, Nucor is the third largest rebar fabricator in North America. Our combined annual rebar fabrication capacity in the United States and Canada is approximately 770,000 tons. More importantly, Harris Steel is set to be a valuable growth platform for Nucor. The management team at Harris has demonstrated an ability to grow profitably beyond the limited regional footprint in the rebar fabrication business. They have done it by providing customers with high margin fabrication solution, delivering a complete package of estimating, detailing, fabricating and installation capabilities. And as a Nucor company, Harris Steel will be able to accelerate implementation of their highly successful growth strategy in rebar fabrication with both acquisitions and greenfield plants.

In addition to rebar fabrication, Harris Steel's other business units provide Nucor attractive vertical integration growth opportunities. Laurel Steel expands Nucor's market leadership in cold finished bars. The annual capacity of approximately 240,000 tons increases our cold finished bar production capacity by nearly 50%. At the same time, Laurel expands the breadth of our cold finished bar product offerings. We also see very attractive downstream growth opportunities for Harris steel metal gradings, steel distribution and steel trading operations. Moving into the seasonally strong months for construction activity, Harris Steel is well-positioned to deliver strong profitability. Fabricated rebar shipments set a first quarter record in 2007. Backlog and bidding activities are very strong and our conversations with engineers and architects suggest a full pipeline of new work coming to market over the next couple of quarters.

Finally, I am very pleased to report that Verco Manufacturing Company continues to deliver very impressive profits. Acquired in early November, 2006, Verco produces steel floor and roof decking at three locations in the Western United States. Verco has greatly enhanced Nucor's market leadership in steel deck. Importantly, it positions us with a national reach in providing U.S. non-residential construction markets with a complete package of joist and deck products. I congratulate our team at Verco on their outstanding early results. We are looking forward to a bright future of profitable growth with the addition of Verco to Nucor's steel products businesses. Dan?

Thank you, Ham. Joe Rutkowski has an update on implementation of Nucor's raw material strategy. Joe?

Thanks, Dan, and good afternoon to everyone on the call. All of us would like to congratulate our Nu-Iron team in Trinidad for their outstanding work starting up our direct-reduced iron facility. Of course, direct-reduced iron is abbreviated as DRI. And the DRI from this facility has been fantastic. We could not have asked for a smoother startup. And from the perspective of the metallics market the timing has been extremely favorable for Nucor. With an annual capacity of 2 million tons, Nu-Iron represents a major step forward in implementing our strategy to control 6 million to 7 million tons per year of high quality scrap substitutes. Nucor's raw material strategy aims to develop new sources of iron units to supply our growing output of value added products. It will also add an element of stability in the volatile pricing raw material world. With its attractive cost structure and favorable logistics, the Trinidad DRI plant will be increasingly important to Nucor.

After beginning operations on December the 30th, Nu-Iron produced 374,000 tons of DRI in the first quarter of 2007. The maximum weekly output of more than 37,000 tons has already been reached, and the quality of this initial output has been excellent, with and the quality of this initial output has been excellent with metallization averaging over 95% and the carbon content averaging 2.3%. Nu-Iron's product has been very well received by our steel mills, with first quarter shipments going to Berkeley, Hickman, Decatur and Tuscaloosa. I'll close with a comment we hear from our mills to the Nu-Iron team: Thank you guys and keep up the great work. Dan?

Thank you, Joe. I'd like to add one thing, that the startup has gone so well and our sheet mills have found that they can use significantly more DRI in their mix than originally thought, that we're already exploring ways to increase the Nu-Iron plant in Trinidad by 15% to 20%. Mike Parrish will now comment on Nucor's Bar Mill Group.

Thanks, Dan. Good afternoon, everyone. Congratulations and thank you to everyone on our Bar Mill Group team for their record earnings performance in the first quarter of 2007. Reflecting overall strong demand in our markets, first quarter shipments were at record levels, as well. The attractive returns that Nucor is earning for our shareholders in the bar business are the payoff from our team's hard work over the past six-plus years. We have completed a number of highly successful acquisitions. We have implemented capital projects to optimize existing operations and we have intensified our drive to improve our cost position and the value we provide to our customers. Even better, we are continuing to build upon a powerful growth platform. We remain optimistic about the outlook for bar markets. As we enter the peak construction season, demand remains very healthy, led by strength in the non-residential mining and energy segments.

Rebar continues to be our strongest market, followed closely by merchants and SBQ. Scrap pricing has been extremely volatile in recent months. However, customer inventories are at reasonable levels. As always, imports are a key variable in all of our markets. We continuously monitor import offerings and their pricing. Nucor remains committed to keeping our customers competitive and successful in the global marketplace. Our team is looking forward to another year of solid profitability in 2007 from the Bar Mill Group. I want to again thank all 3,400 members of Nucor's Bar Mill team for their ongoing strong commitment to taking care of our customers. You are the reason our prospects for 2007 and beyond are very bright. Thank you, Dan.

Thanks, Mike. John Ferriola will update us on our sheet, plate and structural steel businesses. John?

Thanks, Dan, and good afternoon. Nucor's Sheet Metal Group delivered solid profitability in the challenging flat roll market conditions that existed during the first quarter. I want to thank our teams at all four Nucor sheet mills for their relentless focus on providing value added products and services to value appreciative customers. We are building value for our shareholders by providing value to our customers in three critical areas: Quality, service and delivery. Our sheet mill teams are continuing to expand the value added products that we offer to our customers. We are particularly excited about the development of our Dual Phased 590 steel for automotive applications. Our Dual Phase 590 provides Nucor's automotive customers with a product that has superior performance in toughness, crash worthiness and formability. You will be hearing a lot more about this product in the future as its use grows in automotive design.

Nucor Steel Indiana has developed a Type Nine electrical steel for use in industrial motors and transformers. With the successful introduction of this product, we continue to climb the value added ladder in the non-grain-oriented electrical steels. And during the first quarter, Nucor Steel Decatur began site work on its new galvanizing facility. Completion of this project will enable Decatur to offer coated steel in the highly attractive Southeastern U.S. sheet market, and it will increase Nucor's total galvanizing capacity by one-third to slightly over 2 million tons.

Taking a look at current sheet market conditions, we are encouraged by several factors. Service center inventories continue to decline. In the MSCI data released yesterday, March flat rolled inventories dropped nearly 9% from February, with month on hand down to 3.0 from February's level of 3.7 months. The March sheet inventories in tons are now at the lowest level since June of 2006. And as a result, service centers are returning to more normal purchasing patterns. Demand in key end use markets remains steady. These segments include oil country tubular goods, heavy equipment and non-residential construction. However, automotive, appliance, and residential construction markets remain soft. Domestic sheet steel supply remains relatively well-balanced with market demand.

Overall, we expect 2007 to be another good year for our sheet mill [inaudible] and we will continue to benefit from our solid base of contract business. Approximately 55% of our available sheet mill capacity for the remainder of 2007 is under contract. And most importantly, our sheet mill team has the right people to continue to build attractive long-term value for our customers and our shareholders. Our teams at the Hertford County, North Carolina, and Tuscaloosa, Alabama, plate mills generated very strong profits in the first quarter of 2007, even as the plate market worked off excess service center inventories.

On our January conference call, I shared with you the impressive productivity realized by our team at Tuscaloosa. Their full year 2006 shipments exceeded 1 million tons. And those record shipments were 48% greater than their best year prior to joining the Nucor family in 2004. At that time, I commented that they were just beginning to climb the mountain with no top and there would be many new records to be announced by them. Today, I am pleased to report that Nucor Steel Tuscaloosa set a new quarterly shipment record in the first quarter of 2007. Congratulations, and thank you to all the members of the Tuscaloosa team.

As we enter the second quarter, global demand for plate remains strong. Robust end use markets include construction equipment, rail, barge, heavy machinery and wind towers. This healthy demand, combined with further orderly reductions of inventories by the service centers, support a favorable outlook for the plate market. Nucor's plate mills are looking forward to continued success in 2007. After achieving record breaking earnings in 2006, our Nucor Yamato and Berkeley structural steel mills have moved ahead to set first quarter earning records in 2007. Congratulations, and thank you. Special recognition goes to Nucor Yamato for recording its best safety quarter ever in the first quarter of 2007. That outstanding work builds on the record safety year Nucor Yamato achieved in 2006. Well done, and keep it going. There is nothing more important than safety.

Market conditions for all structural products remain at strong levels in the second quarter of 2007. Office buildings and multi-use commercial buildings are the strongest sectors. Demand is also being driven by such energy-related segments as electrical power plants, petro-chemical facilities and environmental projects. We are also very encouraged by ongoing strength in our piling foundation business for both private and public sector work. Nucor's Structural Steel Group is primed and ready to capitalize on these robust market fundamentals. And as always, our team is focused on continual improvement in bringing new, value added products to our value appreciative customers.

As one example, you will be hearing more from us in the coming quarters about Nucor Yamato's exciting work already underway to expand its product range into heavier, jumbo column beams. Nucor Yamato will expand its product offering for jumbo beams from our current maximum weight of 400 pounds per foot, up to 730 pounds per foot. We are expected -- we expect production to begin in the first quarter of 2008. Thank you for your interest in Nucor. Dan?

Thank you, John. I would like to close by thanking our entire Nucor team for our continued success, thank our shareholders for the continued support and interest in Nucor. Nucor's best years are still to come. We would be delighted to take your questions at this time. But first, I will remind you of Nucor's policy of not commenting on marketplace rumors and speculation, including that regarding mergers and acquisitions. Thank you, and we'll take your questions.

[OPERATOR INSTRUCTIONS] Kuni Chen, Banc of America.

Just a question, without getting into specifics, we all know your acquisition strategy is not to overpay, to look for things that are culturally compatible and to stick to businesses that you're already in. Can you remind us about how you feel about tubular, and whether or not that fits with that strategy, and how that fits into your product diversification strategy, as well?

That's a very nice way of asking us about Ipsco, and obviously we're not going to comment. However, in general, I will say that we are focused on our strategy to expand both upstream, downstream, and within our steelmaking group. And that hasn't changed. As you can see by our growth with Verco in decking, with Harris in rebar fabrication, cold finished bars and other fabricated products like grading, we have been very successful in growing in those directions, and we're looking for other opportunities all the time, and we certainly wouldn't rule out the areas that you mentioned.

All right. And just a quick side follow-on. Where was the cash flow statement this quarter? Maybe you could just provide some highlights on working capital and CapEx in the quarter?

Terry?

Sure. Capital expenditures were $91,349,000, depreciation, $98,402,000. I'm sorry. Yes, $98,402,000. Dividends paid are $181 million, minority interest distributions, $105,600,000. I think that's sort of the highlights.

Just to answer the first part of your question, we had not always provided that sheet. We have in recent times. In all honesty, it was not ready. It's not something that is in any way mandatory in our releases, and it will be out in our other filings. But as you can see if you take a look at our balance sheet, you can see where the cash is, where it's gone, and that $1 billion of that went to the Harris acquisition.

Right. Okay. Thanks a lot, guys.

Luke [Bolta], Longbow Research.

Good afternoon. Congratulations.

Thank you.

I wanted to ask first about -- in prior calls you went through your business -- your product lines and talked about the level of backlog. Can you provide some color on what the order book is looking like for second quarter?

You must be thinking of somebody else, because normally we do not provide in our conference calls our backlog information.

Could you speak on that a little bit?

Sure. Basically on all our long products and plate, backlogs are strong and continue to look like they will stay strong. And John, you want to comment on the flat rolled side?

On the flat rolled side, we're basically full through May with limited availability, but basically full through May. And this past -- this week, just three days ago, we opened up June. So we are currently taking orders for June.

As you may recall, our sheet business opens orders on a monthly basis, not a quarterly basis, and we haven't done that for several years.

Okay. Could you talk about where export activity was in first quarter?

Very minimal, if any, export activity. We do look at opportunities from time to time. John, do you have any -- ?

We in the Sheet Group exported about 120,000 tons during the first quarter, outside of NAFTA.

Okay, and one last question. With scrap prices coming up, how confident do you feel about getting the price increases that you announced for May?

On all products?

Just flat rolled, specifically.

We see improving capability to achieve those prices for May and June.

Okay, thank you very much.

Michael Gambardella, JPMorgan.

I have a repeat question from last quarter, just to get an update on the Castrip project and how that's going in terms of licensing the technology to get some positions overseas to have some overseas growth?

I can tell you that I have been in communication as recently as yesterday with a company that we are in, I'd say long in the tooth in getting a licensing and joint venture agreement with. Other than that, not much more to add. But we are active on that and we are in conversations with several people still, and one quite far along.

Anything new on any of the other overseas projects or technologies like [Hismelt]?

As Joe mentioned -- well, I don't think he did talk about the Hismelt project. We're running -- in our most recent campaign, we are running at over 70% of capacity, which is another significant step up. I think the last time we talked to you, we were talking about somewhere in the 50% to 60% range. Joe, do you have anything you would like to add to that?

We had a good run in the first quarter until we were forced to go down for some repairs. But we ran very consistently for a reasonable amount of time, and ran at close to 70% of the capacity -- of the main plate capacity. So it was encouraging, but we had some problems, had to go down. And we're relining the furnace as we speak, and we'll be coming back up.

How about the Brazilian project, [inaudible]?

Well, I think you should have seen in our release that we decided during the quarter to go ahead and sell our participation to our partner.

Okay.

And we have maintained an [inaudible] agreement for the pig iron from that venture. I think we were somewhere in the vicinity of 14%.

We were around 20%.

20%.

Yes.

And -- .

It just made things a lot easier for everybody going forward on decision making. So -- .

There the have been rumors out there for some time, and as you know, Chuck [inaudible] tried to ask questions about what might be going on there, and we declined to discuss things because a number of different possibilities could have occurred. At the end of the day, we decided the best thing to do was to move out of that joint venture. CVRD is an important supplier for us, good partner, and potential partner, but as far as the day-to-day operations in the country of Brazil, it was better for us to just move off into an offtake agreement. So that's what we did.

Okay.

And it was basically [sixes] in terms of whether we got a gain or a loss, probably a slight gain.

Okay. Thanks.

Tony Rizzuto, Bear Stearns.

I've got a couple questions here. First one is a commentary on the structural and the non-residential construction market has been -- was very, very positive. And in looking at the volumes, I guess I would have thought those volumes would have been a little bit higher for the structural and joist markets. And I wonder if you could just describe it. Was it a little bit of a mix issue going on? Or what may have been some of the factors why those volumes maybe were a little bit lighter in the quarter compared to recent quarters?

When you say structural, what are you talking about?

Well, the structural products, as well as the steel joists for non-residential construction.

You mean beams?

Right.

I'll comment on that. Really no issues. As I mentioned during the commentary, market is very, very strong and any decrease in shipments in the first quarter primarily were mix issues. Nothing to do with market issues at all. The -- domestically and internationally, the structural market is extremely strong.

Okay, John.

I think John's comments indicated that both the -- that the beam business was a record first quarter for us.

Okay. And I've got another question too, and it's about -- obviously we've seen some developments out of China in removing the VAT rebate and obviously reducing in other cases. We've also seen the Yuan strengthen somewhat versus a year ago. What other steps, Dan, do you think that we need to see from China in terms of -- ?

From China?

Yes, to make it a more level playing field?

First off, they didn't go far enough. As you know, when they decided they wanted to stop the slow down of the export semi-finished product and focus on getting out finished product, they took the VAT rebate from 17% to putting a 15% -- 10% to 15% tax on that product. Certainly they should have gone all-out, all the way past the zero point to actually putting a tax on the product if they're serious about reducing shipments, exports. The big issue there, of course, is that they're virtually 100% government owned or government financed and government backed and government subsidized. So [inaudible] even one ton of steel come out of China is one ton too many, if you're going to be playing by rules they agreed to when they joined the World Trade Organization and gained permanent market status with the United States. And so more drastic action has to take place.

But at the end of the day, whatever actions they do or don't take place have to show up in their export numbers. And as of right now, they're still exporting at record levels out of China to the world. And they have done nothing to abate their increased addition of steelmaking capacity and they've done nothing to reduce the 120 million tons, by their own admission, of antiquated, inefficient energy consuming, polluting steelmaking capacity that they need to shut down. So a lot of talk, little real impact and action so far in our government. Need to keep the pressure on them, as is the EU and several other governments around the world who have actually joined in on the U.S. anti-subsidies WTO action. So a lot to be done yet. Not a whole lot to show for a lot of verbal discussion.

So as one step to go in the right direction would be go not only for removing the rebate, but go to the tariff -- .

Absolutely.

-- increasing international pressure. I'm seeing some of the similar developments in aluminum, where they had established on the primary side, but they were circumventing that by exporting more material downstream. So my sense is the government is going to come around. Are you also hearing maybe through the channels that the government also is going to move in that direction towards tariffs?

Like, again, what I read and the international press focuses on China, what I read in the industry publications, it all sounds like they're working to move in the right direction. But until you start to see significant shutting down of capacity, it's all talk. And until you start to see a reduction in the amount of exports and a reduction in the amount of additional capacity coming on-board, all of which is not market driven, it's all government driven, until you actually see those numbers, I don't really see anything positive. At the end of the day, it's the results on their actions and not just talk of their actions. There is a lot of talk going on, I'll grant you that.

Sure. Listen, I appreciate your insight.

One last thing. You asked about the joist business.

Yes.

And backlogs are good there. Ham, you might want to jump in there on that.

In the first quarter, joist was a timing issue, Tony. We quoted about what we quoted last year, sold a little more than we sold last year, built the backlog. And it's just a timing of shipment issue. And we just -- we couldn't get the customers to take it, because I'm sure they couldn't get their customers to take it. The work will ship, it just hasn't shipped yet.

All right, guys, I appreciate that.

And they extended the crazy winter that we've had in the first part of this year, which continues to this day, I guess it's impacted by global warming issues.

I think it's global warming. They tell us it's global warming. But we have obviously -- we have got crazy weather all over the place.

It's a little crazy lately, but that certainly has impacted construction projects and the receiving of materials. So -- on the joist side in particular. But we have said, our backlogs have actually grown.

All right. That's positive. Thank you.

Mark Parr, KeyBanc Capital Markets.

I was curious about the scrap market. We seem to have such a -- while we've got a trade imbalance on the one side with Asia, we've got this tremendous trade surplus on the scrap side here in the U.S. And I was wondering if, from a policy perspective, is there -- does it make any sense to try to think about utilizing more of the scrap resource that we have? Instead of exporting scrap, would it make sense to perhaps turn it into -- turn it into steel to export? I just wonder if you have thought very much about that or how the U.S. from a policy perspective, might be able to pursue that?

Well, as you know, Mark, roughly 55% plus of all the steel produced in the United States is scrap-based. And the integrators themselves use a fair amount of scrap in their BOF operations. As you also know, our market is completely open in both directions. And so there are no barriers to export. It's all a matter of price, and we have not had as a domestic industry, any problems obtaining scrap. Certainly the prices have varied quite significantly, sometimes due to demand from offshore, sometimes due to, as in the first quarter, weather issues that are unexpected. We got lulled into a false sense of security at the end of last year with mild winter and it came back with a vengeance. And I think that also impacted some companies buying habits in the fourth quarter of last year that normally would have built inventory. Created kind of a perfect storm in the first quarter. Now we're seeing that back off significantly in April and we project it will back off again significantly in May.

As far as doing anything to limit exports, as long as we can through market forces get the scrap that we need, that's just the way the market operates. The problem that we have is when other countries around the world put barriers to the export of their raw materials, so you can't get stuff out of Russia any more, you can't get stuff out of the Ukraine, India won't let exports of iron ore continue, and they want unfettered access to our markets. That is not appropriate, and we certainly let the government know that they need to take action in those areas to make sure that they want access to buy our scrap, fine, but they've got to give other people access into their markets to buy the raw materials that exist there. That's the only time that we have taken any exception to what takes place in the scrap market.

Okay. Terrific. Thanks a lot. Another thing I was just curious, if I could, on a different tact, in the flat roll market, we did see a very significant acceleration of inventory reduction at the service center level in both February and March. And I'm wondering, John, if you could address how that's translated into your lead times and what -- if you anticipate any incremental reaction from your service center customers in the next couple of weeks as a result of yesterday's data release?

As I mentioned during my dialogue there, we have already seen an increase in the order entry rate from our service centers. They're returning to their normal buying patterns. Typically, we would see what we would say is a pop in the order entry, a seasonal pop, usually around March. We see it coming a little bit later, end of March, early April. So the short answer to your question is yes. Obviously, with the inventories going down, we expect to see a corresponding increase in service center orders into the flat roll business.

Okay. Terrific. Are you seeing any evidence of, or any indication that import momentum could increase in the next couple of months?

We have not seen it yet. Imports are -- appear to be down. But we always have to keep an eye out for that. That's a constant risk to our business. So we are keeping an eye on global pricing. And as you know right now, the global price, especially in sheet products, much higher than the domestic price. And so that bodes well for not seeing an influx of imports.

Also bodes well for achieving greater price -- more pricing [inaudible].

Yes, absolutely. Okay. Well congratulations on the first quarter. Good luck on solid further recovery in the current quarter. Thanks again for the color.

Thanks, Mark. The only other thing I would add to answer your question would be that while the service center numbers got published yesterday, the service centers themselves knew exactly what their inventories were at long before that number got published. And that's why we've already been seeing the reaction in the marketplace back to more normal order entry. Next question, please.

John Hill, Citigroup.

Hello, and congrats on strong operations and good sense of the market.

Thank you.

I was just wondering if we could get a few more comments on the Harris contribution, just in terms of shipments. And we talked a little bit about capacity before, about shipments, about margins, about where this is flowing through the operating tables that you distribute. And then perhaps just a little breakdown on the liabilities that came along with the deal.

John, as you may know, the Harris acquisition didn't really become part of Nucor until middle of March. And so there was very little in the first quarter in the way of contribution from Harris. In addition to that, there will be purchase accounting issues that will have to be dealt with on inventories and what have you going forward. But Ham can comment on how strong, and I think he did in his comments earlier. But Ham, maybe you might repeat how strong their business was during the first quarter.

Harris had a record shipment in the first quarter in fabricated rebar, and frankly they think they'll have a record in the second quarter. Business is good, and it's getting better. As far as the margins in that business and where the money flows through, as you well know, we never comment on those things. But we look for the rebar to be a sizable portion of our business in the future.

And will that show up in the bar products shipments? Or will it show up in a different category?

No, the bar mills are running max now. So I don't know how they're going to make more steel just for us.

It will show up in the fabricated products divisions.

Starting next quarter, we're going to have a rebar category. We didn't put it in this quarter because it was de minimis.

Great. Great. Thanks for the color. Then just revisiting the scrap side, obviously your inputs went up about 6.6% in the quarter. Market went up probably 20. You've indicated there is some more to come through. Should we assume that that cost will go up by let's say another 10% by the middle of the quarter, and then kind of ease down from there. Or will the overall impact be a lot more muted?

I wish it was more of an exact science, folks, and I know every time we answer it this way you all pull your hair out and say come on, guys. But the reality is, depending on the flows, depending on where they come from, what we've bought offshore, what we've bought from different parts of the country, and how they flow into the steel mill yards,and then how they get used, we don't -- we really don't know where we're going to be until we're there.

I would only add one more thing, just to complicate it further. In addition to all of that, it depends upon what products we're making, the mix in our sheet metals. That will determine what kind of scrap we use, how much scrap we use relative to pig iron, DRI. So it's very difficult to project that out in advance.

But in general, we can say that there will be a movement through, as we stated, through the first half of the quarter of the higher price scrap that we bought in the first quarter, and we do have some things that we bought. We've bought pig iron, offshore scrap, our own DRI coming in that were bought back before that price increase that will help mitigate some of that, plus what we had in the yards. But there will be an increase. How much, 5%, 7%, somewhere in that range, possibly. But it's just a guess at this point.

Understood. Understood. And thanks for that. And finally, just on the contract side, you're talking 55% on flat rolled now. It was around 60% last time. Does that just represent the timing of shipments and the desire to keep a bit more open tonnage, given where you think the market is?

Yes. And also, quarter to quarter, depending upon when the contract started, it might expire. We typically -- most of them go January to January. But we do have some that go June to June, and we also have some that go end of first quarter to end of first quarter. So it's just a timing issue. The contracts that will be expiring at the end of June, we're in the process of negotiating now.

Great. Thanks, guys.

[Michael Lillamici].

Just going back to the Harris Steel acquisition. Have you had a chance to estimate what kind of synergies you could, I guess garner from the acquisition?

Well, we think there will be a number of them. In the rebar fabrication, while we were not in that business, we were in joist fabrication, we were in metal building fabrication, so we think there's a knowledge transfer of that. Laurel steel obviously is going to bring a lot of cold finished into the Company. And frankly, most of it is going to be lead-based, which is a different product for us. Fisher and Ludlow, their grading operation, we think will be a very fine downstream product for the both the sheet mills and the bar mills. And frankly, we're excited both about Harris supply solutions, which is a distribution, as well as [inaudible] Steel, which is a steel trading. So we think we can get knowledge from a lot of places.

As far as actual dollar amounts calculated on the synergies side, no, we have not.

I'm just going to repeat what Dan said about the [inaudible], I think we're getting a lot of good market information now on the flat roll side, but also the bar business, so that's really going to be helpful.

The trading operations you acquired, they're mostly centered out of Europe. Is that correct?

Switzerland.

Yes, Switzerland.

How do you see expanding those operations? Would it be mostly through, I guess green -- putting up more offices around the world? Or do you see it through more through acquisitions?

We frankly have not discussed expanding that operation yet. Novosteel is a fairly new acquisition for Harris. They bought three-fourths of it a couple years ago. We're very impressed with their knowledge.

Right now it's been a significant source of intelligence on global markets for us, which has been very important. And we're still learning about how we're going to be able to take advantage of this throughout all of Nucor, as opposed to just within Harris. Here again, we're -- we own Harris. They've been a part of Nucor now for four-and-a-half, five weeks, maybe six weeks.

Six weeks.

So still building those up. Next question, please.

Aldo Mazzaferro, Goldman Sachs.

I just want to ask a question about the supply of steel, and the relationship to scrap. I mean, it seems counter intuitive. But when you guys were cutting back production in the fourth quarter, scrap starts rising. And you guys are raising production back now, scrap's falling. And also, with the imports have gone away, I'm wondering if you can talk about what you think the influences on your pricing will be from the trend in scrap and from the trend in imports. If you look out over the next two or three quarters, do you think your pricing will be more influenced by what happens in raw materials, or what happens in the supply of steel around you?

I think going forward, it will be more influenced by the strength in the market and the relative pricing of our products in the United States versus the rest of the world. And I don't think you'll see a lot of variation due to the scrap. But that's -- we can all be surprised by that, as we were in the first quarter.

All right. And then having been a long-term player in the structural beam mills, Dan, do you -- are there any other producers the U.S. that go up to 750 pounds a foot?

No, there's nobody in the U.S. that makes even the smaller jumbo sections, or just the heavy duty large sections.

Then your competition is basically Mittal and Nippon, then?

Yes, offshore, that's correct. As you well know, the demand for beams of all types offshore is very strong.

And then finally, just a quick one, on the Novosteel you mentioned the trading company in Switzerland. What products are they experienced in trading? Are they steel only, or other things, or raw materials or what?

They are predominantly rebar.

Rebar, not fab, but just rebar products?

Raw rebar. They do a little sheet. To my knowledge, Aldo, all they do is steel.

Great.

Of course, the benefit and the opportunity there is to expand it beyond just rebar into all the products that we're involved in. Certainly from the market intelligence standpoint, but also from an opportunistic standpoint as we grow our businesses, both upstream and downstream.

Great. And then finally, just one quick one for Mike Parrish. Mike, can you give us a rough idea of how much steel Nucor would have sold to Harris over the next 12 months or so?

Well, how much steel we sold to Harris specifically?

Yes, before you bought them. Like how big a customer were they?

We were doing I think around 150,000 tons, roughly.

And we produced how many tons of rebar?

Well, overall we produced around 3.8 million tons of rebar.

And about 150,000 went to Harris and Nucor Harris joint ventures.

And so that represented about what, 20% of Harris' buy, would you say? Or a little more?

No, it was more. But don't confuse what they're doing with so-called capacity. Capacity in rebar is almost never hit because it's more of a selling and project management and detailing solution. I can tell you that Nucor was the largest North American supplier to Harris last year.

You'll also need to remember that a large portion of their operations are in Canada. And I think a large portion of the rebar they brought in imported was into Canada.

Great. Thanks. And then, Dan, one final question. How much debt do you think your balance sheet can support? [ LAUGHTER ]

I don't know. I think we're going to call Keith up and see if we can get a loan from him.

Thanks.

[Hassan Jafar], Seneca Capital.

My questions have already been asked, so thank you.

Timna Tanners, UBS.

Hello, Timna, how is the baby?

He's doing great, thanks. I think the question's been kind of touched on, but I guess I'll kind of come out and ask about exports. You did refer to the fact that overseas prices in many of the long products are higher than the domestic price. And I guess is there anything stopping Nucor from exporting? I know that Harris has that platform. Is that something that you would want to expand on, given the dollar value and some views that that will continue? How do you see the export potential, and what do you have to do to get to perhaps be a bigger player there?

Well, as usual, it depends upon what's actually going on in the marketplace. And from time to time, we've been fairly strong exporters, but nothing on the order of magnitude of the scale of our overall business. And it depends. Now, when prices are higher offshore, that creates an opportunity. But they can't just be higher by a little bit, because they've got to be higher by enough to deal with the freight issues and the cost of getting it to the customer there. So depending on how those numbers continue to develop, there may be opportunities. And if there are, and we have capacity that we're not utilizing domestically, we certainly will take advantage of that. But I'd categorize our export activity, particularly when you consider that the U.S. marketplace is underserved by domestic production, as opportunistic, Timna.

Okay. That's not something that you would look to grow organically or through acquisition, but more as an opportunistic -- opportunities that arise. And even with the beams that, as Aldo pointed out, there is really few other competitors worldwide. Is that something that you would continue to pursue?

Those things are possibilities, but right now, the demand domestically and for the past several years, particularly on the beam side, has been such that there's no room for export.

Okay. So more import substitution?

Yes.

Okay. Great, thank you.

David Martin, Deutsche Bank.

I have two remaining items. First of all, on Ferro Gusa, what were the the proceeds from the sale of the JV?

We have not indicated what those proceeds were.

The net impact was really insignificant. But I don't remember right offhand what the proceeds were.

Okay. And then what was the capacity of the JV? And your offtake agreement is for what percentage of the -- ?

100%.

400,000 tons a year.

400,000 tons a year. Okay. And then secondly, on the Harris acquisition, do you have estimates of what the accounting adjustments would be for inventory, as well as fixed assets at this point?

We're still finalizing the purchase price allocation, so we'll have it on the -- we'll have it in the next quarter. We'll have numbers that are really nailed down.

Okay. That's it. Thanks.

Debra Fine, Fine Capital Partners.

Congratulations on the strong results.

Thank you, Debra.

I have a couple of questions. Could you give us a little more detail on where you see non-residential construction? Are there any signs of slowdown in any parts of the market or parts of the country? Or is it generally just steady?

It's steady and improving. It's not shrinking. It may not be as strong as it was last year in terms of the rate of increase, but it's still increasing. It's not -- non-res, some people might think in terms of buildings, but you also have to put in here the whole energy sector and the tremendous amount of infrastructural work that's going on, as well.

Okay. And then I'm wondering if you would be willing to handicap the likelihood that [inaudible] will greenfield a plant?

No. They're a very, very smart organization, and I'm sure that they will study this to the Nth degree before they make a move. I think it's a fairly bold move on their part. But as you well know, they have their own -- some of their own distribution and processing operations here in North America. And they seem serious about it, but I have no desire to handicap it.

Okay. And then finally, you mentioned just for the next quarter that you're going to have market compressions through May, and then things are going to expand.

In some products, yes.

On some products. Have you -- it's not clear whether you think that's going to net net out positive for you or it's going to be a neutral event over the quarter.

Well, it should be a positive for us. But again, that's yet to be determined.

Okay. Well, I appreciate your not hitting the mute button to discuss it with your colleagues. [ LAUGHTER ]

Okay, Debra, I'll let that one go.

Thank you.

Michelle Applebaum, Michelle Applebaum Research.

I had a couple questions. Can you just revisit -- I know this by heart. You've always answered the question when we talk about going offshore for growth. You focus more on the upstream side, and I just want to check in and ask that question again. When you've talked about would you buy a steel maker offshore, you've always said only as a joint venture. Is that still true? Would you grow offshore?

What we have said is our preference is to do it in a joint venture. [inaudible] the great success we have here with Nucor-Yamato and that joint venture. And also we said do it through applying some of the developing technologies that we have. But we also said that we would retain the -- basically the right to be opportunistic on situations offshore. But our preference clearly is to do it in a joint venture format.

So you're saying never say never?

Never say never in this world, Michelle, you know that.

Well, yes, I learned that with Harris. You now have some unions. So yes, no, it's a good thing. Can you talk a little bit about how your recent addition to the Board, I don't think I've asked you this, or maybe I have, but not all the way. Can you talk a little bit about -- I thought it was an interesting addition. Can you talk about your thoughts about that?

Talking about Bernard Kasriel?

I am, yes.

Obviously he is a man with a wealth of experience running facilities in this country and around the world, and brings a tremendous understanding of global business and global opportunities and hands-on operating experience running very sizable companies. And also, those companies are in the raw materials, aggregate construction end of things. So we're very, very happy to have Bernard as part of our team, and we know he's going to make some major contributions as we move forward in the coming years.

Okay. Great. It's actually been quite impressive, the Board additions the last couple of years and the expansion of the Board overall, also. Particularly compared to 10 years ago. Finally, last question. You mentioned I think that Harris is the third largest rebar fabricator in North America. Is that right?

Well, what we said was that Nucor is -- with the addition of Harris, is now the third largest rebar fabricator in North America. But principally -- .

But there are always rebar fabricators. The answer is yes.

Okay. If you combine one, two and three, how much percent of the North American rebar fab market is that? And I'm trying to figure out opportunities for growth.

There's [buku] opportunities for growth.

Okay. If you combined, one, two and three, what did you say the market share is? Is it less than 50?

Yes.

Okay, less than 25?

No.

Okay. So somewhere in there. I know we don't know this for sure.

Probably -- I mean, we figure about half of the total rebar shipped into the U.S. market goes through fabrication. So that's, what, guys? 5 million?

5 million to 6 million.

And so it's less than 50%, but it's getting up there in the 40% range.

Great.

Plenty of opportunity for growth.

Okay. Fantastic. I better go before I get the cane.

Okay. You got the cane. Bye. I think we're done with questions. Young lady?

We have no further questions at this time.

Good. I would just like to sum up by thanking everyone on the call for their interest in Nucor and for their support of our Company. And we won't disappoint you. There may be ups and downs, and certainly will be as we go forward in the years to come, but there will be more ups than downs. And we will continue to grow our Company and return valuable capital to our shareholders. And thank you to the entire Nucor team for another strong quarter and for the quarters yet to come. Thank you all. Have a nice day.

Once again, that does conclude today's call. We appreciate your participation. You may disconnect at this time.