Nucor Corp (NUE) 2007 Q2 法說會逐字稿

Good day, everyone, and welcome to the Nucor Corporation second quarter 2007 earnings release conference.

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 risk and uncertainties. Although Nucor believes they are based on reasonable assumption, 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 program over to Mr. Dan DiMicco, Chairman, President, and Chief Executive Officer of Nucor Corporation. Please go ahead, sir.

Thank you.

Good afternoon, and thank you for joining us for Nucor's conference call. We greatly appreciate your interest in Nucor. Our team will review Nucor's second quarter 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 you with additional information. First and most importantly, I want to say thank you and job well done to all of the members of the Nucor team for delivering solid second quarter profitability.

Our team managed through a number of challenges in the quarter, which included slower growth in the U.S. economy, (inaudible) scrap pricing, inventory adjustments in the bar market, and ongoing softness in the sheet market brought on by the continued [clog] of 100 government subsidized flat role and sheet steel products in China. As always, the more than 15,000 men and women of Nucor team have proven that Nucor's most significant competitive advantage remains our people. The right people working together as a team to take care of our customers.

We also extend a warm welcome to our new teammates at Harris Steel Group. The second quarter of 2007 was Harris Steel's first full quarter as part of the Nucor family, and thank you for a strong profit contribution in the second quarter. Harris Steel's extremely successful business model and rebar fabrication and other attractive downstream businesses will be an increasingly valuable growth platform for Nucor.

We are also excited about our recently announced agreement to acquire Magnatrax Corporation. The addition of the brands, facilities, and most importantly people of Magnatrax will position Nucor as a market leader in the metal building systems business. We look forward to welcoming the Magnatrax team into the Nucor family.

I would now like to share with you my overview thoughts regarding recent and developments. Our second quarter 2007 earnings of $1.14 per diluted share was at the upper end of our guidance range of $1.05 to $1.15 per diluted share. These results are down from the first quarter of 2007 earnings of $1.26 per diluted share and the year-ago quarterly earnings of $1.44 per diluted share.

I'm proud of the work that was done by our team in a very difficult quarter in both the overall economy in several of our markets. We operate in a cyclical business, and our job is to do exactly what we are doing, generating attractive returns throughout the cycle.

Most importantly, Nucor's second quarter and first half of 2007 performance provides further evidence of the strong payoff from our team's disciplined execution of our growth strategy. As you have heard us say many times before, our strategy is focused on generating higher highs and higher lows through the economic steel market cycles. Here are the numbers that tell the story.

Second quarter 2007 net income of $345 million and diluted EPS of $1.14 per share exceeded annual earnings in 2000 at the last peek in the U.S. economy. In fact our quarterly earnings for the past seven consecutive quarters have exceeded the prior cyclical annual earnings peaks, and first half 2007 earnings are more than double full year 2000 results as is the EBIT return.

Our work over the past seven years has greatly expanded Nucor's platform for generating earnings. Our second quarter and first half 2007 earnings performance also highlights the ongoing value of Nucor's diversified product portfolio, in fact, execution of our growth strategy enhanced our position as North America's most diversified producer of steel and steel products.

We have expanded our market positions across the board from bars to sheet to plate to downstream steel products. The first half of 2007, Nucor benefited from record earnings from our beam and bar [moves] as well as strong contributions from our downstream products, particularly our recent acquisitions.

Nucor's product line diversity has allowed us to generate solid profitability despite the extremely weak sheet market conditions experienced so far this year, and in the second quarter of 2007, the impact of a 16% decline in Bar Mill shipments in the first quarter was softened by strong quarter-over-quarter profit gains contributed by our recently expanded downstream businesses in our beam mills. Product diversification remains extremely important and distinguishing strength of Nucor.

When you study these results generated by our growth strategy, I urge you to also look ahead with our multi-prong growth strategy and our reliable financial strength, tremendous growth opportunities are still ahead for the Nucor team. Our strategy works, it delivers attractive returns to the owners of Nucor, our shareholders.

Here again are the four prongs. First, Nucor will optimize existing operations, maintain the world (inaudible) class. Second, Nucor will pursue strategic acquisitions that fit with our overall strategy. Third, Nucor will continue greenfield growth where we can capitalize on significant cost advantages from new technologies and unique market niches. And fourth, Nucor will [grow global joint] and leverage new technologies and other partnerships.

With the Nucor culture's focus on profitable growth and continual improvement, our team is better positioned than ever to continue our disciplined execution of Nucor's strategic plan. 2007 has seen very dramatic acquisition activity in the North American steel industry.

Two noteworthy transactions are the announcement in May of SSAB's deal to by Ipsco at an enterprise valued multiple of approximately 8 times EBITDA, and lastly the announcement of the Gerdau Ameristeel's deal to buy Chapparelle for a multiple of approximately 9 times EBITDA. It is our opinion that strategic buyers are making strong statements, statements with cold cash that (inaudible) financial markets are undervaluing steel-making assets.

As we have commented on previous conference calls, we continue to believe it's time for a serious upward re-evaluation of the PE multiples in this industry, at Nucor particularly. The global steel industry has undergone significant rationalization and has more (inaudible) and discipline than ever before in my 32year career in this business.

There is one exception that we saw in these trends, the exception is a big one. It's China, and one that represents the greatest risk to the global steel industry. In Nucor and other industry leaders are not afraid to engage in a plain talk discussion of this situation.

Quite simply, we have a fiduciary responsibility to our shareholders, employees, and customers to address this most important issue and risk factor. As you have heard us say before, the facts are that China is making a mockery of what real free trade is. Free trade is low-based trade, and is driven by true competitive advantage, by contrast China' exporting machine with a staggering amount of excess (inaudible) capacity is driven by massive government subsidies, current manipulation and abuse of the environment. This is why China cannot be considered a responsible member of either the global trade community or the global steel industry.

We are encouraged that there appears to be growing recognition of this crisis by the public and our government officials. On July 10th the United States International Trade Commission voted unanimously to maintain anti-dumping duties on Chinese rebar. These duties have been in place since 2001.

Also after review the decision, the IPC maintains duties and rebar from six other countries. We are pleased that the IPC recognized the importance in maintaining these orders. These countries must not be allowed to solve their excess production capacity problem by breaking the law and dumping steel in the U.S. market or any other market.

And on July 12th, the United States Trade representative requested the WTO, World Trade Organization, to establish a dispute settlement panel regarding subsidies provided by China that are prohibited by WTO rules. Nucor applauds the U.S. Trade representative for this action. It continues the initiative begun earlier this year in February to hold China accountable for its trade distorting subsidies that are prohibited by WTO rules.

While these are encouraging developments, much work remains to be done, the Nucor team will continue to apply a can-do attitude and energy level supporting legislative and other government action that enforce the rules of free trade. Nucor thrives in an environment of free and rule based trade. Our team has always succeeded and will continue to succeed in a marketplace where a producer wins by being efficient, being an innovator, and a technology leader and doing the best job of taking care of the customer. Our focus remains on the future, a future where Nucor's best years are still ahead of us and we will not shirk from our responsibility to use all resources neccessary to us to ensure that success.

I will now ask Terry Lisenby to discuss our financial position and our work as effective stewards of our shareholder's valuable capital. Terry?

Thanks, Dan, and good afternoon.

Dan's opening comment about the Nucor team's outstanding work this quarter is reinforced by a review of our LIFO inventory activity. For the second quarter of 2007, Nucor incurred a LIFO charge of $66.5 million, up from charge of $24.5 million in this year's first quarter, and charge of $15.5 million in last year's second quarter.

Despite the significantly greater LIFO charge and the other challenges discussed by Dan, our second quarter 2007 earnings before income taxes were an impressive $101 per ton. Nucor's strong balance sheet remains an important competitive advantage in a consolidating and cyclical steel industry. At the close of the second quarter, cash and short-term investments were $975 million. Our total debt was $946 million, and our debt to capital ratio was 15%.

Nucor holds the highest credit ratings of any North American metals and mining company awarded by Moody's and Standard & Poors. Our financial strength provides us superior flexibility in taking advantage of opportunities that arise. It also enables Nucor to take a long term perspective in building our business, long standing tradition of Nucor. Our team is working hard to build upon Nucor's long term record of being an effective steward of our shareholder's investment.

Our ongoing focus on the careful allocation of Nucor's shareholder's valuable capital is evidenced by our disciplined approach to organic growth projects, acquisitions, dividends, and share repurchases. Our decision making process is very simple, we allocate capital to the opportunities that offer the owners of Nucor the highest returns on their investment.

Capital expenditures for the first half of 2007 were just under $200 million. For full year 2007, we project capital expenditures of approximately $700 million. Major projects underway include the Memphis SBQ mill, the Arkansas cast strip plant, the Decatur sheet metal galvanizing facility, the Utah building systems plant, and a number of projects at existing operations to keep them state of the art and globally competitive.

In March of this year, we completed the acquisition of Harris Steel Group for a purchase price of slightly more than $1 billion. This is Nucor's largest-ever acquisition. Since 2001 our acquisition program has invested more than $2.4 billion of capital to expand Nucor's steel mill and downstream businesses.

Nucor's return on stockholder's equity provides strong evidence of our ability to invest in high return capital projects and acquisitions. Our return on equity has averaged 37% over the past three years, and Nucor was the steel industry ROE leader in 2006. Our disciplined approach to capital allocation is also demonstrated by our returning cash to Nucor's shareholders, via dividends and share repurchases.

Nucor paid cash dividends of $366 million in the first half of 2007, up 74% from the $210 million paid in last year's first half. This gain follows a more than nine fold increase in annual dividends over the preceding three years. The upcoming August 10th dividend payment will be Nucor's 10th consecutive quarter of supplemental dividends. Supplemental dividends are consistent with Nucor's pay for performance philosophy.

In the second quarter of 2007, Nucor repurchases 2.5 million shares of its common stock at a cost of approximately $154 million, or about $62 per share. Since reactivating our share repurchase program in the second quarter of 2005, we have repurchased 25.3 million shares at a cost of slightly more than 1 billion, or about $41 per share. Approximately 11.6 million shares remained authorized for repurchase.

As reported in our press release this morning, our outlook for the third quarter is in line with the results reported for the first six months of this year. We expect improved bar shipments over the second quarter pace, the sheet market conditions are likely to remain challenging due to imports from China, and the continued softness in the automotive and housing sectors. Demand should remain strong for our beam mills and plate mills, and the second half outlook is good for our downstream business. Our team has never been more excited about the opportunities to profitably grow Nucor's business and continue delivering attractive returns to our shareholders.

Dan?

Thank you, Terry. Ham Lott will update us now on Nucor's downstream steel products businesses.

Ham?

Thank you, Dan. Good afternoon.

I am very pleased to report that both of our recent steel products acquisitions, Verco Manufacturing Company and Harris Steel Group are delivering very attractive profits. Acquired in 2006, Verco expanded Nucor's market leadership in steel [debt] and with its three plants in the Western United States, Verco positions us with a national reach in supplying non-residential construction markets with the complete package of joist and deck products.

I congratulate our team at Verco on their outstanding results achieved in the first half of 2007. As we expected, Verco is proving to be an extremely valuable and profitable addition to Nucor's steel products businesses.

After joining the Nucor family in March our team at Harris Steel Group is also off to an excellent start. The particularly strong results were achieved by the rebar fabrication and the steel trading businesses. I also want to congratulate our teammates at Harris Steel on their second quarter profitability.

Harris is Nucor's largest acquisition ever, and is a major step forward in advancing our vertical integration strategy. We are looking forward to a bright future with Harris Steel as Nucor's growth platform, and rebar fabrication, and other attractive downstream opportunities.

In June, we announced an agreement to acquire Magnatrax Corporation for a cash purchase price of approximately $280 million. Magnatrax is a leading provider of custom engineered metal building systems. This transaction is expected to close in the current quarter, and is expected to be immediately accretive to earnings.

Magnatrax has four separate building systems companies or brands as they are known in this industry. The largest is American Buildings Company. American has four plants located in Alabama, Illinois, Nevada, and Virginia.

The other three Magnatrax companies each have a single plant, CBC Steel buildings in California, Gulf States Manufacturers in Mississippi, Kirby Building Systems in Tennessee. With estimated annual capacity in excess of 250,000 tons the acquisition of Magnatrax will increase Nucor's metal building systems annual capacity by approximately 175% to 400,000 tons, and the combination of Nucor and Magnatrax will create the second largest metal building systems producer in the United States. We are excited by the upcoming addition of the Magnatrax's people, facilities and brands to Nucor's building systems group.

Vertical integration has been a highly successful strategy for Nucor for almost 40 years. In addition to consistently generating very attractive returns through the economic cycle for our company, these downstream businesses provide a profitable base load of volume for Nucor's steel mills. With the acquisition of Verco, Harris, and Magnatrax, Nucor will have increased in less than a year it's value-added steel products annual capacity by more than 70% to more than 3.3 million tons. Our Nucor steel products team is excited by the opportunities ahead for profitable growth.

Dan?

Thank you, Ham.

John Ferriola will now update us on Nucor's sheet plate and structural beam steel business.. John?

Thanks, Dan. Good afternoon.

Nucor's sheet mill group delivered solid profitability in the very challenging sheet market conditions of the second quarter, first half of 2007. I want to thank our teams in all four sheet mills for their relentless focus on providing value-added products and services to value appreciative customers.

In my comments each quarter I point out that our sheet mill teams are continuing to expand the value-added products that we offer to our customers. In some cases, these are unique products not offered by other domestic steel makers. This quarter, we are particularly excited by Nucor steel's Berkeley's development of a new complex phase steel for the automotive market. Berkeley has become the first domestic steel supplier to develop, qualify, and supply this unique grade of ultra-high steel--(inaudible) steel to a strategic global automotive manufacturer.

Success stories like this continue to dispel the myth that Nucor is unable to successfully compete in the integrated mill-dominated market segment of high strain value-added steels. The reality is we can and we do. You will continue to hear more about exciting new products developed by the Nucor sheet mill group as we execute our strategy of growing shareholder value by increasing our range of value-added products we provide our customers.

We expect the challenging sheet market conditions of the first half of 2007 to continue through the third quarter. Automotive and residential construction segments remain weak. Demand continues to be solid from the non-residential constructions and energy markets with the exception of pipe and tube. Service center inventories have declined for seven consecutive months, but they still are at higher than desired levels.

Meanwhile imports have also declined, they continue to be at historically high levels. We are concerned about the ongoing surge of imports from China of galvanized sheet, cold-rolled sheet, and hot-rolled sheet in the form of type and tube mill products.

Although the third quarter will be challenging for all competitors in the sheet market, Nucor Sheet Metal Group will benefit from our solid base of contract business, which represents approximately 50% of our available capacity for the second half of 2007. Our Nucor sheet mill teams will continue to build attractive long-term value for our shareholders by delivering outstanding service, quality, and on-time delivery to our customers. As always I thank our sheet mill team members for accomplishing this so consistently.

Our teams at Hertford County, North Carolina and Tuscaloosa, Alabama plate mills generated very attractive profits for the second quarter and first half of 2007. The productivity remains a focus, actually, a passion of both teams. Hertford County achieved record quarterly and record first half shipments in 2007, second quarter and first half respectively. Tuscaloosa achieved record first half cut plate shipments. Congratulations and thank you to our teams at Hertford County and Tuscaloosa.

As we enter the third quarter, global demand for plate remains healthy. Particularly strong and used segments include (inaudible), heavy machinery and, (inaudible). Our outlook for plate in the third quarter is favorable with steady demand, balanced service under inventories.

Our teams at the Nucor-Yamato and Berkeley structural steel mills continue their record setting performance with second quarter and first half 2007 earnings. At the same time many new safety, quality and productivity records have been established at both mills this year.

Here is an excellent example. Nucor-Yamato, (inaudible) team set back to back weekly production records on their way to setting a new monthly production record in June 2007. Congratulations and thank you to our teams at Nucor-Yamato and Berkeley, well done. Please keep it going.

The core markets served by our structural steel mills continue to be strong. Both non-residential construction and tiling activity are growing on a year-over-year basis. Especially robust sectors within the non-residential construction are the energy, education and healthcare sectors. It is worth noting that structural steel continues to grow as the material of choice in green building specifications, with structural steel having an average recycled content of 95%. Based on the feedback we received from our customer base, we expect structural steel market to remain strong into 2008. Thank you for your interest in Nucor.

Dan?

Thank you, John.

Mike Parrish will now share with us his thoughts on Nucor's Bar Mill Group. Mike?

Thanks, Dan. Good afternoon, everyone.

Congratulations and thank you to everyone on Nucor's Bar Mill Group team for their record earnings performance in the first half of 2007. Our team is building on their prior impressive achievements of having set annual earnings records over the past three years. I believe it was clear that our teammates refused to set limits on what they can achieve, with their skills and their hard work.

As we discussed in our June 11th earnings guidance press release, second quarter 2007 bar shipments were reduced by customer hedge buying in March that produced record first quarter shipments. As a result, second quarter 2007 bar shipments declined 16% from both first quarter and year ago second quarter shipments.

However, first half 2007 bar shipments were down only 4% from the prior year first half. I will also note that our second quarter margins and profits were very healthy despite this decrease in volume.

Nucor's press release qualitative guidance for the second half of this year stated that we expect improved bar shipments over the second quarter pace. Underlying demand for bar products is good as our markets are benefiting from continued strength in infrastructure spending. As always, Nucor is strongly focused on maintaining our market leadership position in the bar business, nevertheless, imports are always a key variable in all of our markets.

Nucor's Bar Mill Group used the ITC's ruling to maintain the dumping duties on rebar from China and six other countries, as a very significant and appropriate decision. Our nation's trade laws are consistent with WTO rules, and it is essential that our government enforce them as they have with this decision.

With rules based free trade, Nucor will be able to continue making the capital investments required to keep our customers competitive and successful in this global marketplace. We are optimistic about the outlook for all of our bar markets, our team is looking forward to another year of very attractive profitability in 2007 from the Bar Mill Group.

I want to thank, again, all 3,421 members of Nucor's Bar Mill team for their ongoing commitment to taking care of our customers. You are the reason our prospects for the second half of 2007 and beyond are very, very bright.

Dan?

Thanks, Mike. Nucor's years are still ahead of us, our best years are still ahead of us.

At this time, we would like to take your questions.

Thank you. (OPERATOR INSTRUCTIONS)

Our first question will come from Kuni Chen, Banc of America Securities.

Thanks very much, and good afternoon.

Good afternoon.

Question for Terry, just to start off, just on the CapEx, I noticed that the guidance for the year came down from I think $900 million before down to $700 million. What changed within the last quarter to bring that down so sharply, is that a timing issue, or is something else going on there?

No, just mostly timing.

Any particular projects that that's related to?

Oh, I would say several, but nothing--I don't-- not one in particular.

Okay. All right. That's fine. I'll move on. As far as the outlook goes, obviously the second half trend still looks strong for bars, plate and structural, offset by continued weakness in sheets. So in your view does--do the stronger trends in those markets offset sheets, or is sheets a trend still- is sheet going to be a greater offset due to the weakness there?

I'm not quite sure I caught all of that question, but in general, I think that the--we will continue to see similar balancing that we have seen throughout the first six months of the year. At this point in time, I don't think we anticipate a greater softening on the flat roll side, but a continuation of the soft condition really, that we have seen now through the fourth quarter of last year and first quarter and second quarters of this year.

Okay, and then ust one last question and I'll turn it over. Just on the import side, obviously steel prices are lower today than elsewhere in the world, the dollar remains weak. So why--why do you still seem to be somewhat cautious on the import situation in the second half?

Because there's nothing to indicate that the import situation has significantly reduced it's impact, it's still there in the second quarter, it was there in the first quarter. The levels that are coming in have not fallen off to the levels that are not still at historically high levels, (inaudible) because of 400,000 to 500,000 tons a month of steel and steel products and pipe and tube that are coming in from China, and until we see that reduced significantly more, we're going to maintain that cautious view of the situation.

Obviously with the softening and demand of some markets, in particular, the flat roll, the increased levels of imports over historical levels are not allowing pricing to recover up to this point in time, and how we see things going forward will depend a lot on the inherent demand in the economy, how the customers go about reordering product and whether the imports start to decrease again or stay where they're at or increase, and that is a month to month situation.

Generally believe a whole lot of what you read in the press because one minute you hear people talking about, well gees, there's no offers, then the next minute you read about 2.8 million tons of steel products that came in from overseas and 0.5 million tons from China alone. So at the end of the day you got to wait until all of the facts are in to be able to help explain what is going on in the marketplace.

Okay. Thank you.

Thank you our next question will come from Michelle Applebaum, Michelle Applebaum Research.

Hi.

Good morning, or good afternoon.

Yes, okay. My question for you is can you give me some perspective, or give us all some perspective, you talk about China a lot, and Nucor never talked about imports and in fact Nucor was actually--you guys used to--you would argue that point, I think with some of your peers from time to time, and can you talk about what is different about China, and why Nucor is the one talking about imports a lot--or China a lot?

First off, Michelle, Nucor is not alone in its discussions about imports. As a member of International Iron and Steel Industry Board of Directors, recently former member of the executive committee, I can tell you that it is a global issue under global discussion, including at the executive committee meeting, where Bow Steel and other Chinese producers which jointed about a year ago sit and it's a constant subject of discussion, and amongst those members of the executive committee, and you can find out who they are, but they do include (inaudible) and John Surma and Europeans and also the Japanese, so it's not just Nucor.

But Nucor as usual is not afraid to take on a leadership role in issues important to our employees and our shareholders, and so this issue is not just something being talked about by one person. I can go back again over the reasons why today and for the last six years Nucor has taken a more active role on this front. It really boils down to, can I rescind (inaudible) all well and make sure we used every resource available to us to maintain and enhance our competitiveness in the marketplace.

There was a time that a 2 to 3 million ton a year steel producer with no presence in products like beams or sheet or plate that had a more international presence in our marketplace, where we did not have to go and fight those battles, and we left it up to other folks to fight those battles. As we grew to become one of the nation's largest steel producers over the last six years, we recognized that that is something we could no longer not participate in a leadership role.

It really all started back in 1998 when Ken Iverson and John [Kareny] were here in Charlotte, and Nucor remodeled, and the person and my myself and Mr. [Henneway] approached Nucor and said the Koreans and the Japanese are flooding our market with dumped, illegally traded material and we need to fight back and we need to fight back with our trade laws, and both Mr. Iverson and Mr. Kareny gave us approval to go forward, and we won that case, and it had a dramatic impact on the fortune as well as all the beam producers in this country. Because we held people accountable to playing by the rules.

So it has been an evolving process, and there's been an absolutely critical one, and not taking a leadership role in that would be completely against standards that we are all taught about and trained with, and indoctorated at Nucor to use all of the resources available to help our employees and shareholders to be successful, and that's the story. And --

Do you think--do you think--is any part of your thinking that because Nucor historically had not been part of the dialogue and the others had been such a loud part of the dialogue for so many years that perhaps Nucor might have more credibility? Or maybe that's not for you to say.

There's no doubt that the mini mill segment, including Nucor, but not alone to Nucor but certainly including Nucor, when we stepped up to the plate in '98 and then as an industry stepped up prior though 2 '01 findings, there's no doubt that this administrations great intention because of the most efficient steel products in the world stood up and said this isn't working, and they took notice.

We were told that point blank, and since that period of time, obviously our integrated competitors have done a real good job of improving their competitiveness, and overall the U.S. steel industry is staying extremely competitive, but there certainly was an enhanced credibility there back in the early part of this process. No doubt about it.

Okay. Thank you.

We go next to Fritz von Carp, Sage Asset Management. Please go ahead with your question.

Good afternoon, Fritz.

Next question.

We go down to Bob Richards, Longbow Research.

Hello, Bob.

Good afternoon, thanks for taking my call, guys.

No problem.

In the first quarter 10-Q you offered that Harris would have contributed about $0.02 a share had it been part of the Nucor family for the full quarter. Are you guys going to give any guidance as to what maybe it's earnings contribution was for this quarter?

No. It was accretive for the quarter, strongly accretive operationally, but we're not going to break it out separately.

Okay. Sir, appreciate that.

My second and last question, sir, is scrap pricing do you think it's kind of in line with current finish product pricing, and should we expect--or do you guys expect further volatility should we not see any fluctuations in finished steel pricing? Is scrap pricing where it should be right now in your eyes?

All of the scrap suppliers are all anxiously listening for the answer to this question. Our view on scrap going forward is that we see things--unless there's a dramatic change in the demand supply situation for all steel products, and the economy itself, we see scrap pretty much going sideways to down for the rest of the year, but not--the volatility will not be wild in either direction. That's our view. We have been probably wrong as much as we have been right on that, but that's our view at this time.

Okay. Thanks again for taking my call, and best of luck.

Thank you, Bob.

We go next to John Hill City Investment and Research.

Hello, John.

Very good. Thanks for the great presentation as always.

Looking at margins in the quarter EBIT per ton $101, EBITDA margin 17%, how much was this affected by any purchase accounting affects; that is, any of inventory that was essential I will mark to market and therefore sold inexpensively?

I think for--I think year to date it's about $23 million.

Okay. Was there a meaningful component in the second quarter or not?

Yes, most of it would have been second quarter.

Okay. Very good. That's--that's helpful.

Is there much left to come in the next few months, or are we pretty much through all that?

No, we're done on the inventory.

Okay, great, and then since we're on the subject of inventory in general, obviously you have modulated some production on the bar side, maintained pricing, that's great. But the question for many investors is going to be, to what extent has there been a build up at the mill level of inventories, either a flat product, bar product, etc. on the balance sheet where $1.6 billion was $1.4 billion last quarter about $1 billion through most of last year. Are mill level inventories above normal at this point?

No, a good chunk of that increase is because of Harris, and a lot of the rest of it is increase in scrap. So no inventory issues out there.

Great, that's going to be very important. And then if I could just--last, finally, if you could summarize a couple of comments on the subsegments within bar, cold finish versus SBQ versus rebar, you've talked about auto versus housing, versus non-residential construction, but I just wonder if you could sort of click through those a little bit for us.

I'm not sure I'd cold, but on SBQ, Mike would you like to comment on that?

Yes, let me talk a little bit about the different markets. First of all on merchant and rebar margins remain strong. We think the inventory trends are down, and we think inventories are in pretty good shape. Rebar--the market is good, but we are seeing some discounting out there occasionally that we're going to have to watch if it increases.

SBQ we feel that we're getting towards the bottom of the cycle, and we should see the second half of the year starting to pick up, both in SBQ and cold finish. Ag is up, energy, and machinery, obviously automotive and especially heavy truck is way down, and we do expect, especially heavy truck to pick up near the end of the year, and obviously first part of next year, but that's kind of an overview of our different markets.

Great thank you very much.

Our next question comes from Mark Parr, KeyBanc Capital Markets.

Hi, thanks a lot.

Good afternoon, Mark.

Hey, Dan. Good afternoon to you too.

I had a couple of questions, first I was wondering, I may have missed this, but did you talk at all about export opportunities that you are seeing, either directly through the mill level or from the Harris trading operation, and could you give us some color on where you would expect export tonnage to be through the rest of the year?

We have not given any flavor yet on the export situation. Suffice to say that as the dollar continues to weaken disproportionately against the Euro and some other currencies, those opportunities will do nothing but to increase as long as demand, obviously is good in those markets. And so we see that there's a likelihood of greater opportunity going forward, should we need to do that.

And as far as what is actually going on there, I'll let John Ferriola fill you in.

If you look at the second quarter, our non-NAPTA exports were about 120,000 tons in the second quarter very similar to the first quarter, and in both of those quarters we shipped about 50,000 to 60,000 tons into Mexico. So that will give you some idea of where we stand to date. We would expect that to be fairly constant through the rest of the year.

That's helpful.

One clarification, we view Mexico as part of our domestic market. NAPTA is part of our domestic market, not exports.

Okay, I understand, I'd feel the same way if I was in your chair. I had another question, if I could, in trying to get a little more detail on your outlook for the third quarter, I was looking at the second quarter, as far as the basic metal spreads, meaning--looking at the change in price realizations for the various steel product categories against the change in scrap costs, and it looked like you had improving metal spreads across all four of your product categories in the second quarter relative to the first. I was wondering if you could perhaps help us think about the direction of spreads as we move into the third quarter given an outlook for flat to down scrap prices?

At the end of the day, I wouldn't say that the margins on all our products expanded during the first quarter, and certainly look at scrap and selling price, you might come to that conclusion, but when you take into account all of the cost factors and the LIFO it wasn't a case of where there was any significant winding of margins.

They were still very healthy in most of our products, and as far as going forward, if scrap goes as we see it going, which obviously should be a positive for us, but at this point in time, we don't have a good handle on where selling prices will go on a month to month basis. We believe that they'll hold up well in all markets, the most questionable one is flat roll where everyone is seeing softening over the past quarter or two.

Okay, if I could ask just one more question, is there--if you were going to pick a time where you thought that an inflection point in the flat roll market could be reached, recognizing we have got very short lead times right now, we're in the middle of kind of the July vacation, August vacation season, how soon could it be before you might see the market begin to tighten up a bit?

John, you want to contain a shot at that.

As we said we expect the challenging conditions to exist through the third quarter. It's possible that we'll see some improvement in the fourth quarter, but frankly it's really too early to tell.

Okay, well anyway good luck, I hope it happens sooner rather than later, and congratulations on all the great success.

Mark, just a final point on that, the biggest thing that will impact what happens going forward is how supply and demand balance themselves in the marketplace and again, that falls back on to where our customers are, what the [RevCo] is both OEMs and service center and where imports go.

Do you think it's more of a demand issue at this point, Dan?

I think it's both.

Okay.

Absolutely both. If the demand levels of imports are more of a historical nature, things would be more balanced, and obviously if the demand was where it was 12 to 18 months ago, it would be a different story as well.

Yes, okay, all right, thanks.

Thank you.

We go now to Michael Willemse, CIBC World Markets.

Great, thank you. Dan you mentioned the Ipsco Epps acquisition, there has been a large number of acquisitions in the tubular space over the last year at pretty attractive--pretty expensive multiples, and now I would say there's pretty much nothing left as far as tubular assets to acquire in North America, yet, imports are still about half the market, so you could suggest that there should be opportunities for Greenfield building in the tubular space. Is Nucor considering some Greenfield projects in the tubular space?

Well, first off, it's not the type of thing we would telegraph if we were getting ready to do it or not do it, but let me speak more to the bigger picture on that. Had the administration followed through with the ITC's recommendation on tubular, it would be a different story today and you probably would be seeing a lot of Greenfield construction taking place..

Now you have seen some, and obviously we have seen an increase in activity in the acquisition of those assets, but I think before people do any major Greenfield projects, I'm talking in general now, more than what have already been announced, there has to be some accountability on the part of our government towards the Chinese for doing what it is doing and dumping their product into the U.S. market and not just the U.S. market, but globally, but in particular where we have our influence.

Certainly the demand picture, if we do put together a real energy policy in this country that helps us to become significantly more self-sufficient, and that opportunity is there to do it in an environmentally friendly way, if we do that then the dynamics change considerably, but the if there is depending upon folks in Washington, and I wouldn't want to put a time line on that.

Okay. Thank you. Just one more follow-up question.

If I look at your cost per ton in the quarter, I estimate it increased by about $75 a ton, now your scrap costs were up about $30 a ton versus the first quarter, your energy costs were up about $2 a ton, Terry, you mentioned the purchase accounting that probably was about $4 a ton. What else would have accounted for the increase in cost per ton? Is some of it is just a matter of assimilating the Harris Steel operation?

LIFO is in there too because it's not included in the scrap cost.

Oh, LIFO is not included in scrap? Okay.

No, no it's not.

Thank you.

You you're welcome.

We go down to Timna Tanners with UBS.

I wanted to take a step back from the quarterly discussion to just talk about your strategy, and I know that in your presentations you highlight 10% compound annual growth rate through the cycle until terms of--I understand earnings year-over-year, and this year we are on track to do less than $5 versus over $5.60 last year. So in that context I'm trying to understand what the initiatives are that are going to get the Company back to the track rate, I think that you have targeted for yourself.

And maybe, correct me if we're wrong, but it looks like consensus earnings are for less than a 10% increase in the next couple of years. So I'm wondering if you could talk a little bit in that context about your cash use, you've brought down the CapEx number and explained that, but when you look at your options, as you have outlined them in terms of the buybacks and the dividends, and organic and acquisitive growth, what do you think looks attractive here, you pick up your buybacks a little bit from nothing last quarter, do you think your shares are attractive for your shareholder capital this year? Is this a point where you'd get more active in that space, can you just talk a little bit about your initiative with regard to cash use.

Okay, good afternoon, Timna, that was a lot. I think I got most of it, but whatever I forget, I know you'll remind of.

Yes.

Starting at the end there in terms of capital allocation, as you know we have been very aggressive with our extraordinary dividends which we firmly believe are part of our pay for performance philosophy that we've extended to our shareholders, separate of what happens to our share price, and we have no plans--our plans now are to continue that. We have also said that share buybacks are the lowest item on our totem pole, nothing has changed there, you will see us moving in and out of doing that, and we'll tell folks at the end of the quarter what we have or what we haven't done.

We have a number of projects, we have already talked about that in the vicinity of $1 billion in expenditures for capital projects, not as--in the Greenfield as well as in our existing operations, that is a significant use of our cash. We also deserve, as we always have, the ability to be opportunistic as we continue to work on numerous growth opportunities, and both vertically, upstream, downstream and within our space. There are multiple opportunities out there to do that. With respect to our earnings growth targets, remember that's throughout the cycle.

Right.

That's not a year to year situation, there's going to be years that it are up, there's going to be years that are going to be down. But over the course of, what, 7 to 10 year period, we believe we'll be able to deliver on that growth target. I think we have been doing that, and the fact if some people view this as a down part of the cycle for steel, and it's a pretty high bottom, and great platform to move up from as we continue to grow our company.

There are initiatives at each of our operations to move up value added product categories, which will increase our margins. The Harris rebar business model will include more than doubling that capability over the next couple of years, principally through acquisition but also through Greenfield, and--so these are all initiatives that we have in place to do that, and at any point in time, we're always looking at acquisition opportunities, of which obviously we cannot talk about specifically, but we've always said that there's plenty of arrows in that quiver, and we're not looking for them today anymore than we were 7 years ago. There's actually more in front of us, so we believe we have demonstrated a very healthy, positive use of our shareholder's capital over the last 7 years, and there is no reason to doubt that you won't see the same type of performance going forward.

Okay, and I mean, there was a pull-back in your net cash position in the quarter which looked like a positive, I suppose in terms of the buybacks you did and the acquisition, but just to make sure I understand that the options are buybacks at the lowest if you don't see any opportunities, you do buybacks, or does it have to do with the share price or both?

It probably has to do with as much on execution of different parts of our strategy. If we end up with a $200 million acquisition or $1 billion acquisition, or whatever, that will influence what we might do from one quarter to the next with respect to buybacks, and determine whether or not we do more of it or less of it or none of it.

Again, it's--as we look at the opportunities to grow our earnings and to deliver in excess of that 10% target. We're not saying we won't buy back stock. Obviously we have done that, over 25 million shares and we still have 11 million shares currently left approved, we can go ahead and do that at any time, but it will not be the first move.

We believe that our shareholders-- particularly our long-term shareholders have been very, very pleased with our 10 quarters now of extraordinary dividends that we have been paying at about a 4% return rate, and on top of what our stock performance has done, we've had a very profitable 3.5 years around here. Acquisitions are number two on our list.

Investing in our existing operations, where you can get the biggest bang for your buck in incremental (inaudible), you are moving up the quality level of the products you are producing to increase your margin that way, that's number one on our list. So, again, there's plenty of uses, and if we do buy share buyback it's because we feel like that we have some excess cash that may not at the present time be going to those other areas, but we may be willing to do that, but not as the number one driver.

All right, got it thank you very much.

And our next question will come from Barry Vogel with Barry Vogel and Associates.

Good morning, gentlemen

Hello Barry, how is North Carolina?

Not bad, I'm in Cape Cod right now.

Oh, tough life.

It's too hot in North Carolina.

I have a few questions, Dan, the first question goes back to acquisition. If we go back to your last three acquisitions, including Magnatrax, you spent $1.5 billion essentially in downstream operations. The question is, why haven't you acquired steel making assets during this period?

During what period, Barry?

Since you bought, what it is Verco? So I guess Verco was closed when, in October, November of '06? If we count the Verco acquisition, the Harris acquisition and the Magnatrax, it's about $1.5 billion.

Right.

My question is these are all downstream operations.

Absolutely.

And the question is why haven't you bought steel making assets during this period?

Because the downstream acquisitions have a better return potential than the steel making opportunities that have been out there to acquire.

Even though you have been marvelously successful in your purchases of steel assets?

Absolutely. Remember our number one tenant when it comes to acquiring companies is not to overpay.

That I know, but sometimes you have to pay up for--you have to pay up sometime. Okay, that was my first question--

Are you suggesting that we over paid, Barry?

No I said you have to pay up. I didn't say overpay, I didn't say overpay.

No, when you go through the process, Barry, that fine line between payup and overpay is a very fine line.

I understand. I understand.

The second question is on your press release, I was a little confused by your comment on page two where you talked about earnings in the second half of the year will be in line with the results of the first six months. Can you explain what that means?

Obviously we will come out later in the quarter with our quantitative assessment, but it really means nothing trickier than what it say. You take a look at what our performance was on average through the first half of the year, we're saying our performance in the second half will be in line with that. We have not put a numerical range on things, but certainly, it's--it's a fair conclusion to come to that where the investment community has investment now is a lot higher than what we're forecasting.

Okay, and if I was a choice business, I was a little surprised that it's down in the first half in terms of tonnage. Could you give us some color on that, why you think it was down in a strong non-residential construction market?

It was all down in the first quarter, Barry, second quarter was actually higher than last year.

But, Ham was only up 1.4% in the second quarter.

That's true. I was just pointing out that it was the first quarter where it was really down. We are not seeing the opportunities in the open web steel joist market that they are seeing in the structural steel market. The bigger buildings, the heavier buildings, the ethanol plants are making up a fair amount of that, rather than the traditional type of non-res construction that (inaudible) sees.

You are saying basically the joist business is flat at best in the first half of the year despite the strong non-residential market?

Yes.

Okay.

Terry Lisenby, I have a question for you.

I wouldn't want to be left out, Barry.

No, I have been so proud of you with your enhanced transparency over the last few years, and all of a sudden I noticed you pulled out average prices for the steel products business. Now considering that you are making a big push in to downstream operations by spending $1.5 billion why are you taking transparency away at this stage?

Well, we actually added it because before we had not had all of the steel products in there. So that includes all of the steel products. Before there were categories that we showed no average price for, so now we're starting to--

Right, but you have it lumped in one number, you don't break down the joist, you don't break down any of the other stuff.

That's right.

I think everybody who follows your company would love you to give us total transparency.

We break it out in volume, Barry, but we're not going to break those prices out, some of that is for competitive reasons.

Even though you have done it for years?

Well remember, we have more categories now.

Well I know, I know you don't like to use more than one page when you do these things.

Barry, just think about what the major acquisition we have added to that category, and the competitive market conditions in that area. Plus our competitors don't don't break it out, we're not going to break it out, another way to not break it out and report something that significant is to put it all together in the fabricated products--

Okay. I was just--I'm surprised. All right, hank you very much. Keep up the great work.

The world is full of surprises, Barry, hopefully more positive than negative.

I know that.

Thank you, Barry.

You're welcome.

Our next question comes from Anthony Young with Bear Stearns.

Hi, all my questions have been answered.

Thank you, Anthony.

Thank you, we'll move on to Mark Par with KeyBanc Capital Markets.

I'm all set as well. Thanks again.

Thanks, Mark.

And our final question will come from Bob Richards, Longbow Research.

Thanks again. Hey, real quickly, don't need an exact number, but your month over month increase in consumed scrap price, was that mostly pricing or a little bit of mix there?

Excellent question.

It's usually both, but I don't know predominantly what --

Well, I can say on the flat role side it would be mix

It depends on the product

It depends on the product grouping, because on the flat roll side they'll use DRI, HBI, and pig iron, in significant quantities and on the (inaudible) product side we don't use any of that. So it's a combination of both.

Okay. Thanks again, and best of luck.

Thank you, Bob.

And, that would conclude our question-and-answer session. At this time, I would like to turn the program back to our speakers for additional or closing comments.

Thank you, and thank you again to all of our teammates for helping us to continue to have strong success in our businesses and growth in our company, and thank you to our shareholders for their continued support of Nucor. Thank you all.

Thank you, everyone, for your participation on today's conference call. You may disconnect at this time.