Nucor Corp (NUE) 2011 Q2 法說會逐字稿

Good day and welcome to the Nucor second quarter 2011 earnings conference call. Today's conference is being recorded. Certain statements made during this conference call will be forward-looking statements that involve risk and uncertainties. The words we expect, believe, anticipate and variations of such words and similar expressions are intended to identify those forward-looking statements, which are based on Management's current expectations and information that is currently available. Although Nucor believes they are based on reasonable assumptions, there can be no assurance that future events will not affect their accuracy. More information about the risk and uncertainties relating to these forward-looking statements may be found in the Nucor's latest 10-K and subsequently filed 10-Qs, which are available on the SEC's and Nucor's websites. 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, either as a result of new information, future events or otherwise.

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

Thank you, Marise. Good afternoon, this is Dan DiMicco, Nucor's Chairman and Chief Executive Officer. Thank you for joining us for our conference call. And as always, we appreciate your interest in Nucor. With me for today's call are the other members of Nucor's Senior Management team. Our President and Chief Operating Officer, John Ferriola, our Chief Financial Officer, Jim Frias, and our other Executive Vice Presidents, Jim Darsey, over our Long Products Group, Keith Grass, over our Raw Materials Group, Ladd Hall, over our Flat-rolled and Direct Produced Iron Group, Ham Lott, over our Fabricated Products Group, and Joe Stratman, who heads up our Business Development Group as well as our Beam and Plate business.

First and most importantly, I want to thank everyone on our team at Nucor and our Harris Steel and David J. Joseph operations for working safely, working hard and working together. In a quarter marked by historically weak construction markets and severe weather issues that impacted a number of our facilities, you delivered impressive results to our customers and to our shareholders. The talent, dedication and can-do attitude that the Nucor team brings to work each day is and always will be our Company's greatest competitive advantage. Thank you.

The second quarter 2011 earnings of $0.94 per diluted share were nearly double first quarter earnings of $0.50 per share, and more than triple year-ago second quarter earnings of $0.29 per share. We are certainly encouraged by this performance, and especially the continued solid profitability of our combined construction products offering from our long products, steel mills and downstream fabrication businesses. These results reinforce our conviction as to the powerful earnings leverage we will see ahead of us, once a sustainable economic recovery inevitably begins.

Our second quarter results also highlight Nucor's position of strength in North American steel industry. We have a business model that is built around operational flexibility, product diversification, market leadership positions, financial strength, and most importantly, our unique culture. Competitive advantages I just described allowed Nucor to profit in a big way in both our core construction product businesses and from the pockets of strength found in the still depressed economy. Additionally, some of our major growth initiatives undertaken during the current economic downturn are beginning to contribute to Nucor's earnings.

Our sheet mills benefited from an upturn in pricing that began last winter and peaked this spring. They also experienced steady to improving demand in several important (inaudible) markets such as energy, transportation, water heaters and HVAC. And there was a strong contribution from the new higher value-added products that our sheet mill teams have penetrated in a big way. Our plate mills capitalized on both improved pricing and solid demand from a number of sectors, including heavy equipment, truck trailers, energy, mining and rail. And our recent product expansion into heat treat plate continues to pay off in a big way.

Our SPQ, our special mark quality mills, including our newest, Memphis, benefited from an extremely tight SPQ market. Our SPQs teams have been and will continue to be successful in growing Nucor's product range and market penetration. Our [gas stream], cold finish bar and fastener businesses, achieved strong profitability in the just completed quarter. And while our long products mills are competing in very depressed construction markets, they nevertheless again delivered solid profits for the second quarter and first half of this year. Nucor's bar mills and beam mills continue to benefit from the market leadership positions, the low cost production, the unrivaled breadth of product offering which are complemented by our fabricated construction products and their coast-to-coast distribution capability.

Quite frankly, when I review our second quarter and first half performance, I am very perplexed by how some financial market participants are so quick to claim that Nucor will underperform its steel industry peers due to our Company's heavy participation in construction markets. Our results for the second quarter and over many economic cycles tell a very different story. Again, the key to our performance, and most importantly, our ability to reward our shareholders, is the flexibility, diversification and sustainability found in our business model. Even better, our business model allows us to focus on the long term and grow stronger during downturns, such as what continues to face the US economy today. Recent economic data are clear.

The US economy is still struggling to emerge from the great recession and unable to move to a path of vibrant and sustainable growth. In June, the real or U6 unemployment rate increased 16.2% from 15.8% in May. Going back to March of this year, the number of unemployed people has increased by 545,000, and today's job numbers were no more encouraging. Meanwhile the US trade deficit widened to over $50 billion in May, its highest level in more than 2.5 years. GDP growth for this year's first half is an abysmal rate of less than 2%. This economic performance, or lack thereof, is not surprising. Our nation has failed to implement real solutions to eliminate the unsustainable structural imbalances that are dragging our economy deeper and deeper into a hole of little or no growth and extreme debt.

As our team has stated on previous calls and in many other forums, the way forward to a stronger and more sustainable American economy is straightforward. Our leaders need to focus on real solutions that eliminate the structural imbalances and at the same time create what our economy needs most, jobs, jobs and more jobs. This could be accomplished with our 3-point plan to achieve [near] energy independence, enforce rules-based free trade, and thereby revitalize US-based manufacturing, and rebuild our crumbling infrastructure. These steps, along with a more competitive global tax system and the unraveling of the massive volume of new regulations that are strangling economic growth, will lead to a significantly stronger economy and provide the tax revenues needed to reduce our national debt, and still provide for those commitments made by our government to the American people.

No other solution will accomplish this and create the 25 to 30 million new jobs we need over the next 5 to 10 years. It is time to stop fiddling and to start doing the right things. Course of the overall economic and the steel market conditions are badly beyond our control. However, one thing is for certain and under our control, the Nucor team will meet any and all challenges head on and turn them into opportunities. This is exactly what our team has been doing for more than 4 decades. At this time, I will now ask our CFO, Jim Frias, to discuss our second quarter results. Following Jim's comments, President and COO, John Ferriola will report on our operations and implementation of our growth initiatives. Jim?

Thanks, Dan, and good afternoon. Second quarter 2011 earnings of $0.94 per diluted share exceeded our guidance range of $0.75 to $0.80 per share. Our results benefited from a stronger than expected increase in steel making metal margins. In the second quarter, the metal margin expanded to $447 per ton, a gain of $82 per ton from the first quarter and an increase of $127 per ton from the trough reached in last year's fourth quarter. This is consistent with the long-established historical experience of our steel mills., where rising scrap prices lead after short lag to higher metal margins. Our downstream fabricated construction products continued to operate in very depressed markets. Despite these difficult market conditions, metal margins improved at our bar and beam mills as our competitive strengths overcame the effects of relatively low utilization rates. As Dan noted, we continue to generate solid profits in our combined steel and fabricated construction product businesses.

In the second quarter, Nucor recorded a LIFO inventory charge of $32 million. That was in line with our first quarter LIFO charge of $31 million. Second-quarter results also included $31 million of pre-operating and startup costs, that compares to first quarter costs of $128 million and $43 million in the prior-year's second quarter. Nucor's financial strength allows us to invest in attractive growth opportunities through the economic cycle. Okay, I'm sorry, let me restate that. That compares to first quarter costs of $28 million and $43 million in the prior-year's second quarter, and that's speaking to pre-operating and startup costs. Nucor's financial strength allows us to invest in attractive growth opportunities through the economic cycle. We view pre-operating startup costs as investments to grow our long-term earnings power.

For example, the investments made during the current downturn in our Memphis SPQ mill and our Kingman, Arizona wire rod mill contributed to Nucor's improved profits in the second quarter and first half of this year. The second-quarter effective tax rate measured as a percent of earnings before income taxes and non-controlling interests was 32.6%. However, after adjusting our profits belonging to our non-controlling interests business partners, the effective tax rate increases to 34.2%. Earnings per diluted share of $1.44 for the first half of 2011 represent a significant improvement of almost 4 times from a year ago's earnings per share of $0.38. Nucor's annualized return on equity through this year's first half exceeds 12%. The Nucor team is achieving this performance in a marketplace where nonresidential construction square footage for 2011 is forecast to be 60% below the peak level reached in 2007. This return on equity performance is also achieved at the lowest financial leverage in the industry. We're excited by the opportunities ahead to deliver higher returns when the inevitable cyclical recovery finally arrives.

At the close of the second quarter, cash and short-term investments totaled $2.3 billion. In addition to that total, we hold $577 million of restricted cash on our balance sheet. The restricted cash is there to fund a significant portion of the $750 million DRI plant we are building in Louisiana. Our healthy level of cash and short-term investments will also allow us to repay long-term debt maturities of $650 million in 2012 and $250 million in 2013. Further, to Nucor's strong liquidity, our $1.3 billion unsecured revolving credit facility is undrawn and does not mature until November 2012. We have no commercial paper outstanding.

Long-term debt totaled $4.3 billion at the end of the second quarter for a gross debt to capital ratio of 36%. Moody's has reported that our debt to capital ratio will be viewed on a net debt basis for any cash and short-term investments balance over $1.2 billion. Using that methodology, our net debt to capital ratio is 30%, and that calculation excludes the restricted cash. Standard & Poor's in its July 1 report entitled US and Canadian metals and mining companies strongest weakness-- weakest again ranked Nucor number 1 for credit rating and credit outlook among the universe of 61 companies. Nucor was the only metals and mining Company in the group that S&P awarded a strong business risk profile, due to our competitive position and product performance relative to our peers.

In 2011, we are continuing to invest in projects that will grow our long-term earnings power and provide attractive returns to our shareholders. We project 2011 capital spending of approximately $500 million. John Ferriola will give you an overview of our capital projects in his remarks. Our outlook for the third quarter is tempered by the impact of new domestic supply and increased imports in the sheet market. For that reason, we expect third-quarter earnings to be lower than the second quarter. Overall demand and in end use markets such as automotive, energy, heavy equipment and general manufacturing, remain relatively strong. Those markets mainly benefit our special bar quality sheet and plate mills. Markets for downstream fabricated construction products remain challenging, but are slowly improving.

Nucor will again follow a practice of providing quantitative guidance around the middle of the final month of the quarter. We are very optimistic by Nucor's ability to continue building attractive and sustainable long-term value for our shareholders. We are confident that our team has the right people and the right business model to get the job done. Thank you for your interest in Nucor. Dan?

Thank you, Jim. I will now ask John Ferriola to report on Nucor's operations.

Thanks, Dan, and good afternoon. Let me begin by thanking all of our raw materials, steel makings and steel product teammates for your outstanding commitment to working safely and to taking care of Nucor's customers. That commitment was severely tested in the second quarter with the major challenges presented by weather-related power outages and historic river flooding. Your response to these challenges again demonstrate that Nucor is North America's most reliable steel and steel products producer. Thank you and keep up the great work.

The impact of these disruptions is evidenced by the decline in our steel mill capacity utilization. It dropped to 70.7% in the second quarter, which is down from 79.6% in the first quarter. By far the biggest challenge we faced was from the loss of full electrical power at our Decatur, Alabama sheet mill for 29 days following the devastating tornadoes that hit that area in late April. But in understanding our Company and how our culture creates long-term value, there is a much bigger story than any short-term loss of production, shipments and even earnings. The biggest story is how our team responded to take care of all of our customers during such a challenging period.

Here is how the Nucor team, the one Nucor team responded. Immediately after power was lost, our Decatur team worked with their sister sheet mill divisions to successfully move all of Decatur's orders to other Nucor sheet mills. Those orders were then produced and delivered on time. And the change in production sourcing within the Nucor sheet mill group was seamless, if not invisible, to our customers. One order from a major coal world OEM customer normally supplied by Decatur was produced as hot-rolled coil at our Berkeley, South Carolina mill. It was then sent back to Decatur, which had restored enough power to run the cold mill for its cold-rolling. Following that, it was delivered on time to our customer's Alabama facility, and all of that took place within 11 days.

There are many other stories similar to this that I could share with you about how the one Nucor team pulled together throughout our Company. The bottom line is that we used Nucor's unrivaled position of strength and flexibility to take care of our customers. We also consider the communities in which we live and work to be our valued customers. In the days immediately following the devastating tornadoes that hit Decatur and Tuscaloosa, while those mills were without power to operate, our teammates from those facilities and many other Nucor facilities facility sprang into action. They worked tirelessly, many on a voluntary basis to assist in the rescue and recovery efforts taking place in those hard-hit communities. Using Nucor supplied chainsaws, Bobcats, generators and other equipment, much of which was sent from other Nucor divisions throughout the country, they proved through their actions Nucor's commitment to being a good steward of the communities in which we live and work. I have never been more proud of the Nucor culture and of our Nucor team. Thank you all.

Since 2008, Nucor has invested over $5 billion of our shareholder's valuable capital so that we can take care of our customers. Those investments enable us to take care of our customers with unrivaled operational flexibility, unmatched product diversification and an absolute commitment to always getting the job done. As Jim Frias noted, the returns from those investments are becoming more evident even in the current distressed economy. And the beat goes on with a number of major capital projects underway for 2011. Raw material initiatives include our Louisiana direct reduced iron, or DRI plant, and our natural gas working interest drilling program. We expect our increased DRI production capacity combined with control over the necessary supply of reductant will establish a significant and sustainable competitive advantage to Nucor's steel-making business. Also, the David J. Joseph recycling operations are growing their earnings power with the addition of more nonferrous metal recovery capacity.

On the steel-making side, we continue to invest in projects that will further expand our product offerings and allow us to move further up the value chain. For example, we are installing vacuum degasses at both our Arkansas sheet mill and our North Carolina plate mill.

I will close my report with our thoughts on the current market conditions. Overall, demand is best described as steady. Some markets are even experiencing some increase in real demand. The nonresidential and residential construction markets continue to suffer from recessionary levels of demand. Market improvements are slow at best. But importantly, service and the inventories remain at relatively low levels. Unfortunately, excess supply in the sheet market is pressuring pricing and margins. In addition to new domestic capacity, imports of sheet steel have increased significantly. Year to date, through May, imports of hot-rolled and cold-rolled sheet steel have increased by 18% over year-ago levels, and it's increased to 1.3 million tons. Unless these supply/demand and pricing dynamics imburse themselves, the sheet market will be the most challenging for the entire industry in the third quarter.

I will also note that we remain very concerned about imports across all product lines. It is important for the US government to vigorously enforce the antidumping, countervailing duty laws. No product line is immune from the negative impact of illegally traded -- of illegal trade, and it is important that existing antidumping orders be maintained in the US industry to remain viable. But whatever direction the economy and the steel markets take in the coming months, the Nucor team is primed and ready to grow stronger. When Nucor grows stronger, we position our Company to new higher highs and cyclical earnings power once a sustainable economic recovery occurs. Our team thanks you for your interest in Nucor. Dan?

Thank you, John. Our team is excited that Nucor's best is yet to come. Before I take questions, I would like to emphasize 1 point in particular. We are encouraged, but by no means satisfied, with the second quarter and 6-month performance. Nucor's annualized return on equity through this first half exceeds 12%. This was achieved with the lowest financial leverage in the industry. We'll continue to put those strengths to work for us, regardless of what direction the economy takes to be an industry leader in profitability and performance. At this time, we would like to take your questions.

Thank you. The question-and-answer session will be conducted electronically. (Operator Instructions) Nate Carruthers with Steel Field Market Intelligence.

Okay, yes, it's Michelle Applebaum with Steel Market Intelligence.

Yes, Michelle, good afternoon.

Hello. I wanted to ask a general question about the flat-rolled markets, sheet and plate. Could you talk a little bit about where you see those markets going, a little bit longer term than the third quarter, and what you see the opportunities in each of these markets are, going forward, beyond the third quarter, more of a longer term view?

Well the short term and the long-term view will both be impacted by the relative demand to supply balance that exists-- that doesn't exist in the equation, whether it be through imports, excessive imports, throwing the balance out, or excessive new capacity coming onstream without any being taken out. So if you're asking me, gees is fourth quarter going to be better than third quarter, demand has got to improve significantly for us to see the kind of performance going forward that will be better than what we've seen in the second quarter. John, do you want to add to that?

No, I think it covers it pretty well. As you know, Michelle, the sheet business, the sheet market pricing peaked early in the second quarter and has dropped dramatically throughout the quarter. We see that-- I mean I believe that-- we believe that we're either at the bottom or close to the bottom of (inaudible) pricing, but we expect it to bump along at the bottom for quite some time until we see some significant change in the demand/supply ratio.

Okay. Well, I didn't mean third or fourth quarter, I meant longer term. You've talked about building a plate mill and so I'd like to get a little bit more color on where you think that market might be and why you might think that that's an opportunity, not this year, obviously, but longer term?

Well, I apologize for not getting your question right the first time.

Apologize for not asking it right.

When you say flat-rolled, I don't put plate in flat-rolled.

My apologizes.

Typically we refer to sheet in the vernacular of the industry.

Absolutely.

On the plate side we have a different story. We believe that there'll be tremendous energy development and infrastructure development coming in the future at some point. It should have been 2 years ago, but it's got to come. There's issues that just have to be dealt with regardless of whose in office. We believe they will get dealt with and we believe that that bodes well for the plate market. In the future, past what's going on now which is a very healthy plate market, and we continue to see that being healthy through the rest of the year.

But we do believe that the opportunity be there for us to expand our existing plate operations with additional heat treat facilities. We are going to be putting a normalizing facility in, in addition to the Q&T, at the Hertford. We're exploring doing something similar in Tuscaloosa, and we are actively engaged in a new plate mill location and-- to serve the market better as we see the growth improving going forward. But it virtually will be in all markets that are strong today. But in particular, the energy markets we see being one who will be strong, the infrastructure markets that'll be strong, and also the heavy equipment markets that we continue to see as strong, particularly with companies like Caterpillar starting to move some more of their production into the United States from overseas.

Okay. I'm sorry, this is still all the same question. So in terms-- my understanding is that you're not serving the entire plate market from where you stand and you added the value-added capability and you discovered that there were a lot of margins in broadening your product mix. And so the new plate mill I imagine is going to serve some markets that you're not in right now, can I get a little bit of elaboration on what the strategy is there?

No.

Thanks.

That strategy remains to be our strategy. But certainly we'll expand our ability to reach markets that we're not strong in today and product lines that we're not strong in today. Other than that, I don't think we should share any more information.

And Dan the only thing I would add is that obviously with the Q&T line, normalizing line we're looking into, and the vacuum degasses that we're adding, we will continue to move up the value chain while maintaining our current position in all of our other markets that applies to both plate and to our sheet business.

Great. Thanks. I look forward to seeing the strategy as it gets unveiled.

Thank you. Next question.

Kuni Chen with CRT Capital Group.

Hi, good afternoon, everybody.

Good afternoon.

Hope you're staying nice and cool down there today.

So far the power companies that I sit on the Board of is delivering power to [East] Charlotte, so so far, so good.

Good. Good to hear it. My question is really on costs and the utilization rate. Can you just talk about where utilization is today, and how much you have been able to bounce back from that 71% level, maybe just talk about the July run rate so far? And then from a cost standpoint, clearly you were impacted a bit in the quarter with a lower mix of sheet, do you get the cost improvement in the third? Assuming that that sheet mix bumps back up, can you just talk about how you see, assuming flat scrap costs, how the rest of your cost mix will change from 2Q to 3Q?

Well certainly, a couple of questions there, I'll answer the last one first. Certainly if you are in a position to be able to recover lost volume due to weather-related issues and get more tons to your facility, your production costs improve dramatically. Particularly at the mill that was influenced the most by the huge power outages that hit the southeast, which was our Decatur, Alabama plant, was down for better part of 5 weeks, I think 29, 30 days. And we lost a few days also at our Tuscaloosa plate mill. We also had some impacts on shipping and raw material flows because of the flooding on the Mississippi that were impacting not only some of the steel mills but also some of our scrap yards. So any time you can see that type of reversal in a quarter, assuming the weather patterns don't reappear of a similar nature, it should have a positive impact on our cost structure.

Now having said that, at the end of the day, the strength of the market will dictate whether or not we're able to achieve those recoveries in volume, or what-- exactly what volumes we will see. We do see, as we've already mentioned, a much more competitive environment going into the third quarter on sheet. And while we plan on being extremely competitive and not losing volume, whether or not there's additional volume to be gained, is another matter. One of the things that we do and probably the whole industry benefits from is the fact that lead times are relatively short. They've been published, so I'm not going to quote what our lead times are, but the industry lead times are fairly well known on the sheet side. And the scrap markets soften, and that profit will pass through immediately in the third quarter. And if there's any relief on pricing during the third quarter, that should flow through fairly quickly as well. But those are the potential positives. Right now, we are very cautious about our outlook on the flat-rolled position in the third quarter. John, do you have anything you want to add?

I would like to take the opportunity, Dan, you mentioned coming back, the teams at Tuscaloosa and Decatur, I have to take the opportunity to thank those teams for the way that they did recover, they came back online well, safely and with the normal high quality, and I just wanted to say thank you to the teams at both of those divisions, and to all of our other teammates who went down to help get our mills back quickly and safely.

The first part of your question on utilization rates and lead times and what have you, that's not something that we talk about on a month to month or week-to-week basis, so we'll report on those as we go through the third quarter and get to our conference call at that time. We certainly do expect to have recovery utilization rates based upon the weather-related issues.

Okay. Thanks.

Luke Folta with Jefferies.

Hi, good afternoon, guys.

Good afternoon.

First question had to do with your SPQ expansion in Memphis. Are you able to give us a sense of how much capacity you have now that you've built that facility? And also I've been reading about maybe you might be looking at adding a forecaster there and doing some other expansions at Norfolk and at Darlington. Can you give us some sense of what your ultimate target capacity is for SPQ?

I'm going to ask John to speak to that. Currently the rate of capacity at that facility is somewhere around 850,000 tons. But that rate of capacity is like most rate of capacities, in time it is exceeded through the normal continuous improvement of our operations. Now we are not -- we're looking at putting the fourth strand on the caster, not a fourth caster, unless I've been left out of the loop on something. So, John, if you want to finish up on that.

Well let me confirm that is definitely a fourth strand, okay, it is not a fourth caster. But it would increase our capacity at the Memphis mill about 30% to 35%. And we plan to grow that business as we continue to move in to the more value-added products and we begin -- we continue to get qualified in the value-added customer base. So the team at Memphis has been doing a great job on getting qualified. Our quality out of the Memphis facility has been outstanding and that facility compliments our Norfolk, Nebraska facility very well which allows us to offer the widest breadth of products and sizes to the SPQ market in North America. So we feel very confident about the SPQ market going forward.

And, John, could you speak a little bit to the point about the expansions and looking at doing more SPQ at different mills, that whole process?

We are taking a look at all of our merchant long product operations and taking a look at how we can reorient our mills to get -- to become more focused on SPQ throughout our Company. We're taking a look at it from the product perspective, from a geographical perspective and a capability perspective. We anticipate having that study done soon and moving forward with those plans.

Preliminary feedback from our team is very, very positive, very much.

But I know you guys had some SPQ capacity before Memphis, so I was trying to get a sense of what-- how much SPQ could you ship today in total?

Total, we would have the capacity to do about 2 million tons.

Plus or minus.

Okay. And a second question, I was interested in the comments you made about the construction market in that we're starting to see some improvement there although it's pretty modest at this point. Are you able to say if you were profitable in Harrison Vulcraft in the quarter? And also, can you maybe kind of tell what the backlog has been doing?

Well our comments on profitability in our construction sector encompasses both the mills and downstream facilities. We don't break out the individual downstream operations or upstream operations on a relatively profitability basis. But I'm sure you can appreciate that working very closely together, our bar mills and our downstream rebar fabrication and Vulcraft operations and fastener operations together both benefit from the team work in approaching the marketplace and maintaining as strong as possible volumes at our operations, which drive our cost down and our profitability up. So the overall performance in those groups has been very strong and it couldn't be done without the fact that we were strong participants in both the downstream and the mill operations.

Can you just talk about the backlog?

We don't share backlog information. This is Jim Frias. But I'll just add 1 thing to Dan's comment. If you look at the sales and earnings chart that we put on our website for the general market you can see that the rebar fab guys had improvement from first quarter to second quarter of about 54,000 tons, more than 20%, and some of that it's seasonable, some of it is improvement in demand as well.

And we're starting to see -- go ahead, please.

I was just going to say thanks.

You're welcome.

Brian Yu with Citi.

Thanks, good afternoon. Dan, in the supplemental information, it shows volume declines in sheet and structural, but that these were also just products that had the greatest sequential average price improvement. And I was wondering if there was some rationalization of your order book during the quarter drive up mix that helps explain some of this outsized price moves?

Well on the sheet side of the business, I think we've pretty well discussed that and answered that question already. And the volume losses principally are due to the outages at the mill that does over 200,000-tons a month. And it was down for better than a month. But the pricing, we also addressed, because we saw pricing increases during the quarter that overcame the raw material increases. On the beam side of the business, I think there's a good argument to be made that the product diversity that we have in that business really helped to-- our margins even though the volumes are down slightly.

Mix. Switch and mix and structural, also had a big impact. The mix of the products produced during the quarter also had a big impact on that.

Can you go into detail to spot the mix side, what are we talking about? And then ensures the sustainability going forward relative to what you're see in the non-resi markets?

Well sustainability going forward is strong, the ability to sustain that is strong, because of the wide product mix that we have on our beam mills. Nobody in the US makes the wide range from the really heavy foot weights to the lightest foot weights to the-- to all the variety of different products that we make on the structural side of things. Joe, do you want to add anything to that?

I agree, Dan, that the product diversity really allows us to sustain through any product mix and area. But what really drives the product mix from month to month, quarter to quarter is the type of project that's going on in the marketplace, not so much anything we do on a marketing perspective. So it's really demand-driven, and that's very hard for us to predict. We do have the ability to sustain it as Dan mentioned, no matter which direction it goes, but the product mix is more project dependant.

Okay, thank you.

Timna Tanners with Bank of America Merrill Lynch.

Hi, good afternoon, guys.

Good afternoon, Timna.

I have 2 questions, if I could. One is just simply looking at the price, the average price realization, in your sheet business first to second quarter relative to what we calculated to be the spot market, the first quarter was a pretty big discount and the second quarter was a pretty big premium. Just wondering if you could help me understand what-- if there might have been some big difference? I know you're doing more value add, but it looks like a $120 swing. Is there anything else I might be missing there?

The other factor that plays into it would be the contract pricing. We have about 35% to 40% of our sheet business is based upon contract pricing., some of which is based on quarterly CIU numbers. So of course the pricing of the first quarter was based on the fourth quarter of last year, CIU average pricing, in the second quarter we benefited from the higher CIU pricing in the first quarter.

So wouldn't that actually help into the third quarter or how do we think about that?

To some level, to some extent, it will.

Okay, great. My other question I have is again in light of the sheet over supply problems you talk about, have you thought about, and I think you addressed a little bit containing production, is there a way that you think about exports, at what price, or at what -- how do you think about the export market as a potential way to address the over supply in the sheet market?

Well our way to address any over supply situation is to be extremely competitive and be successful based upon our cost structures and our customer service and quality and the product -- broad product range we have. As far as exports go, regardless of what's going on in the domestic market, we are active on the export front, always looking for opportunities, and particularly-- and that even, without the additional capacity coming on stream, the industry is not running at full capacity. So it's been a long term focus of ours to grow our exports, we were working on that and exporting quite significantly in 2006, 2007, 2008 and it continues through this downturn as well. So it's not something that would say we would all focus on because of domestic over capacity, that we deal with by being as competitive as possible to get as much business as we can bring into our operations.

That's understood, okay. But do you have the percentage that you've given us in the past in terms of your export trends?

For the second quarter, it was basically unchanged from the first quarter. We were always in that neighborhood of 9% to 11%, and that's what it was for the second quarter, was about 9.5%.

Okay, great. Thanks very much.

Evan Kurtz with Morgan Stanley.

Hi, good afternoon, gentlemen.

Good afternoon.

Hi, just 1 question on the SPQ market. It seems to be very tight, I hear some products are out close to the end of 2012 at this point, and I just want to kind of get your opinion on what the demand for this market looks like longer term? I know that there has been about a million tons kind of knocked off-line by republic but at the same time you've seen a lot of restarts at Memphis and some others kind of offsetting that. And certainly the economy is not running at full speed here, we're no where near 16 million auto builds. So what's really driving the tightness in that market and has something structural changed on the demand side?

It's principally-- automotive has upticked compared to a year ago without a doubt, it's way below it's peak, no doubt there, either. And-- but I think where the agricultural sectors, the heavy equipment sectors, the customers like Caterpillar and John Deere, and so on, that's where a lot of the demand is coming from and will continue to come from.

Okay, great. And-- okay, I'll leave it there. Thank you.

You're welcome.

Arun Viswanathan with Susquehanna.

Yes, thanks for taking my question. I had a question about the capacity additions. You referenced that and definitely I can recognize a threat, is that-- has that been localized to any specific regions or are you seeing the supply kind of hit several different areas?

Any suggestion that it is localized is pure poppycock. We have 1.3 million tons of flat-rolled steel coming into the United States from every direction in the world. So when you put that in perspective with whether or not the excess capacity is coming from Baltimore or Pennsylvania or Alabama or Mississippi, it's immaterial. Everybody feels the pressure of the additional capacity coming to the US market, whether it be domestic or import. And it gets felt by everybody. There's nobody immune from it by any stretch of the imagination. And if you take a look at the history, you'll find that to be extremely true.

Okay, yes, thanks for clarifying that. And similarly, can you characterize it as impacting any one market, product wise versus others?

No, it's one of those things where if it was to be a localized increased capacity into some special sector of the market, then the folks that play in that market would soon move their production capability into the lower end of the market and vice-versa. It doesn't take very long for it to shake out. But it's impacting all of the players.

Okay and thanks. And then just lastly on this issue, I'm just curious, I mean I know that you guys have one of the lowest cost structures in the industry, so you've noted that prices appear to have bottomed. What's the capacity for these folks to continue to be competitive on the pricing front and are you kind of concerned that they -- prices could go lower as they try to steal more share?

Well, first off, as John mentioned in his remarks, our view of pricing at this point in time is that it's at or near bottom on flat-rolled, but that's just our best guess. There has been a significant drop off of pricing, about $190 a ton, and in the published marketplace, this is not our numbers, it's the published marketplace numbers. And I guess you should ask the folks that have to decide on whether they want to be-- whether they want to make any money doing what they're doing or continue to lose money.

When you look at it, Dan, the input costs to the steel-making process, they've held pretty steady.

Yes.

So that will certainly have an impact on everyone's profitability and margins.

And so on that point, do you expect any relief on scrap or for alloys or anything else in coming quarters?

Our view has always been that we're lousy forecasters of what's going to happen on the raw materials side. But I would say that under current conditions, we don't see any severe upward pressure, maybe some slight downward pressure, but pretty much flat as we go forward. But like I said earlier, if there are any decreases in raw material costs, that will pass through to the third quarter for virtually everybody unless they overstock their inventories. And likewise on pricing, any pricing improvements will go through pretty quickly into the third quarter because of the overall lead times in the industry.

Okay. Great. Thanks.

You're welcome.

Mark Parr with KeyBanc.

Hello, thanks very much. Good afternoon.

Great quarter, Mark. (Laughter) I just thought I'd beat you to it this time.

Nice beat. (Laughter)

You left him speechless.

It's what 3.00 in the afternoon. You got to keep this thing rolling, right?

You don't say. Where were we all at about $0.87, $0.88 before you lowered guidance? So that's okay. (Laughter)

I thought I'd give you an opportunity to bring that point up again.

But it's still a nice beat.

We do our best, Mark. We do our best, just as do you.

But it's still a nice beat. Okay. All right. Anyway, thanks for taking my call. I was wondering, on the construction market commentary, that's somewhat new for you in terms of talking about some things showing some modest growth. Could you give us some color on where you're seeing the growth coming from? Is there anything specific that we could look to?

I think for the most part non-residential construction, multi dwelling apartments, there are some slight improvements in activity there. But nothing that we would quantify as being strong by any stretch of the imagination. But you've seen numbers recently where multi-family dwellings are up 30% compared to previous time periods. We're seeing some infrastructure activity but nothing of any major type that is needed in this country. It's just a general fact that we've been at the bottom, and there was no where else to go but up and so we started to see some just gradual increases in activity.

I think we've been very clear that they've modest and small increases. We've been very clear about that.

Yes, no but it's just nice to see what appears to be at least somewhat of an inflection, however tough and modest, but at least it's a beginning. So that's encouraging. Another thing I was curious about, there's-- earlier this week, one of your competitors had indicated some thoughts about potential for sheet pricing to show inflection and moving up. If you look at the futures markets, they've moved actually off of bottom here just in the last week, and the futures prices for moving into the first half are a lot stronger than they are in the fourth quarter. Also the differential between US pricing and Chinese, the Shanghai export price is at, what I would characterize as an unsustainably low level, indicating some upward momentum opportunity for you as sheet pricing. Is there any color that you can give in terms of your own opinion on when you think some pricing inflection might unfold here?

I think we've already made the comments that we feel like the pricing is at or near bottom, so the odds of it going up are greater than going down. But you can't get away from the fact that whether it's imports from overseas, bringing on additional capacity in excess of demand, or it's new capacity doming onstream domestically, that's an issue that has to be dealt with. It can't be ignored, it's real, and it will have an impact on exactly what strengthening takes place in the quarter, and it's way too early to tell how people are going to behave in the marketplace. If everybody's out there trying to do for their companies what they can do to be more profitable and bring in more volume, and so I continue to believe-- we continue to believe it's going to be a very competitive marketplace.

Okay. I'll ask if I could ask just 1 last question. You've certainly --

For you, Mark, absolutely.

You're the best, Dan. You always have been, you always will be. What can I say? Just on the second quarter, there were a lot of unusual issues, which you talked about, is there any help you can give us to try to at least attempt to quantify how much of a cost impact there was?

Well, the impact is in lost volume. And so I mean you imagine keeping all of your teammates employed and actually helping out in the communities where-- and paying them for their efforts to salvage homes, save people who are buried under stuff, and trees and collapsed houses, you name it, and you're not producing any steel, there's a major cost impact. We didn't lay our folks off, we kept them busy. And there was a significant impact, maybe not on existing orders on the books, as we moved them very well to our other operations to fill those orders, but when you're sitting there and you're telling your customer, well the TVA is telling us 3 to 5 weeks and you're probably not going to get the kind of order entry that you're going to need to build your order book at that location going forward.

Right.

So to put a cost number on it is difficult. Now we basically lost a little over a months production at that facility which does 50,000 tons a week or more.

And we did lose some out at Tuscaloosa also. About a weeks production out at Tuscaloosa.

So I can try to work on what that might work out to be. Anyway, I appreciate all of the color and good luck on the third quarter.

Thank you, Mark. And the only thing that I would put in front of you is rather than trying to get too fancy about figuring all that out, just focus on the fact that the profitability in the quarter was extremely strong in spite of that. So next question please.

Aldo Mazzaferro with Burke & Quick.

Hi, Dan. How are you?

Hello, Aldo, we're hanging in there. How about yourself?

Doing fine. I was pretty impressed with your metal spreads in the sheet area and the structural area. But in the sheet area, would it be fair for me to think that some of the pricing improvement was due to the mix and the mix was really due to the outage at Decatur where you kind of saved the high value products and gave up the hot-rolled?

No, no we didn't give up anything. We just made sure we didn't fall down on our customers' needs when they were -- they had the commitment from us to provide them the steel out at Decatur, fill those orders. No certainly mix always has a role to play and I think John talked about it a little bit already. But I wouldn't say in the way that you just put it, Aldo. John?

No, Dan, you're spot on that mix, we had a slightly different mix for the quarter. But it would not have impacted the margins significantly.

I guarantee you if anybody told me to turn away a hot-rolled order they'd be hurting.

So in terms of your third quarter comment that you might have lower numbers, is it-- would it be metal spread considerations that you're looking at when you think that way?

Absolutely. Absolutely. I mean Aldo, pricing has gone from the peak from $890 to $700. You haven't seen scrap come down $200 a ton, have you? Or iron ore, or coke and coal or anything else.

Are you seeing any increased electricity costs on a kilowatt basis or per ton basis due to the heat?

Not really. I think we spoke to our energy numbers in the press release. They were about $3 a ton higher, but nothing out of the ordinary.

All right. Then just finally, how is the European JV doing with the Italian/Greece contango there in the credit markets? And generally are you seeing any improvement, or how is the export potential from the US?

Well, first off, the question related to our joint venture, which is known as Duferfofin, with our partners at Duferco, under the circumstances, and it significantly impacted construction markets in Europe and Southern Europe, they're doing very well. And there are plenty of opportunities for us to improve their cost structure even further. Even these lousy conditions which our teams are working on as we speak, to improve their situation even more. But they are more than holding their own and are not a major drain on Nucor at all.

Great. And any export-- anything on the export front that you can talk about?

I think pricing has gotten more competitive. So I think we'll see some more opportunities. But it's nothing out of the ordinary. And I don't think we expect to see much improvement in the next (inaudible) percentage wise in the third quarter than second quarter.

It'll be about the same.

Right, well thanks for taking my call, Dan. It's good to be back.

It's good to hear from you, Aldo.

Richard Garchitorena with Chester with Credit Suisse.

Good afternoon and thanks for taking my call. Just a quick question, are there any maintenance outages expected in Q3?

We have a few that are scheduled, nothing major. A couple of days here and there during the quarter. But we have no major outages. We do have -- we currently have our Trinidad DRI facility down for a major outage, but that will be returning at the end of this month. The reason it has been down is to expand our capacity from about 1.8 million tons up to 2 million tons in Trinidad.

Great, thank you. And on SG&A, it looks like it went up slightly as a percentage of sales to 2.9, is that related to just the increased profitability or is there anything else specific to that?

Yes, it is profit-sharing increases. Obviously the more profitable we get, so that has to be put aside. So that's principally it.

Okay. Great, thanks.

You're welcome.

Sal Tharani with Goldman Sachs.

Hello, Sal. Good afternoon, Dan, how are you?

Hanging in there, my friend. Yourself?

I'm very well, thank you. Dan, it was very good to see that the equity contribution from unconsolidated affiliates went to positive income for a long time. I believe it's-- were you profitable at (inaudible) or what it all (inaudible) which actually more than offset the Italian joint venture losses?

Actually there's several other items in that category and obviously we don't break them out. So nice try, Sal. We won't be breaking them out any further. But I gave it the overall, it's nice to see that net-net-net of the 4 or 5 things that are in that category turning more positive.

Okay. And do we-- should we expect that? I mean is it something that's changeable there?

I think they've done a significantly better job this year than last year. While we can't give you the absolute numbers, I think the level of improvement has been -- Joe, you got any percentages in terms of --

The level of improvement would be -- I don't have percentages exactly but it would be a factor of more than doubling their performance.

Yes.

Okay. And--

It would be driven by operational improvements, cost improvements. There's been some slight improvement in selling prices, but as Dan said, the markets over there are very weak and demand is weak, so it's really operational and cost improvements driven.

Great. And lastly on the startup costs, how should we figure out over the next few quarters, and Castrip, how long do you think you're going to have the startup over there?

This is Jim Frias. Castrip will probably come out of startup in the next quarter. And we would expect that the overall startup costs would be below $20 million, thereabouts, in the third quarter.

Great. Thank you very much.

You're welcome, Sal.

And it appears there are no further questions at this time. Mr. DiMicco, I'd like to turn the conference back over to you for any additional or closing remarks.

Thank you. Again, I would just like to thank everybody whose interested in Nucor, and our shareholders, our teammates. And while third quarter is yet to be accomplished, you can be assured that Nucor will be there at the top of the heap, whatever that level is, and that we'll be competitive, and that we should be seeing things getting better going forward rather than worse on an overall basis. The sheet market will continue -- will now become one of the more challenging ones because of the capacity situations. It's not the first time that we've met challenges like that before and will again. So thank you all for your interest. And Nucor teammates, thank you all for working safely and for helping us have a great quarter. Bye-bye.

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