Nucor Corp (NUE) 2014 Q4 法說會逐字稿

Good day, everyone, and welcome to the Nucor Corporations Fourth Quarter and year-end 2014 earnings call. As a reminder, today's call is being recorded. Later we will conduct a question-and-answer session, and instructions will come at that time.

Certain statements made during this Conference Call will be forward-looking statements that involve risks and uncertainties. The words, we expect, believe, anticipate, and variations of such words and similar expressions are intended to identify these 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 risks and uncertainties relating to these forward-looking statements may be found in Nucor's latest 10K and subsequently filed 10-Qs, which are available on SEC's and Nucor's website.

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. And for opening remarks and introductions, I would like to turn the call over to Mr. John Ferriola, Chairman, Chief Executive Officer, and President of Nucor Corporation. Please go ahead, sir.

Thank you. Good afternoon. Thank you for joining us for our Conference Call. As always, we appreciate your interest in Nucor.

With me for today's call are the other members of Nucor's Senior Management Team, Chief Financial Officer, Jim Frias, and our other Executive Vice Presidents, Jim Darsey, Ladd Hall, Ray Napolitan, Joe Stratman, Dave Sumoski, and Chad Utermark. The entire executive Management team would like to thank everyone from our Nucor, Harris Steel, David J. Joseph, Duferdofin, NuMit, Steel Technologies and Skyline's field teams for a job extremely well done in 2014.

You worked hard, worked smart, worked together, and, most importantly, worked safely to deliver solid improvements in our performance despite field industry conditions that remain very challenging. I am pleased to report that full-year 2014 net income increased significantly by 46% to $714 million.

We also achieved very robust growth in our cash generated from operations. 2014's operating cash flow represents our strongest performance since 2008 demonstrating the strength of our business model. Best of all, our more than 23,000 teammates continued their excellent work implementing our Company strategy for profitable growth.

Subsequent to the last cyclical peak in the steel industry, Nucor has invested significant capital in a large number of projects that improve our cost structure and expand our product portfolios to include more value-added, higher margin offerings. In 2014, we began to see some of the early benefits from these strategic investments.

There are more to come. In 2015, these investments will enhance our ability to navigate through the current challenges presented by MG Industry turbulence and high levels of imported steel.

I will now ask our CFO, Jim Frias to review Nucor's Fourth Quarter performance and financial position. Following Jim's comments, I will update you on current market conditions and execution of our strategy for long-term profitable growth. Jim?

Thanks, John. Fourth Quarter of 2014 earnings of $0.65 per diluted share exceeded our guidance range of $0.50 to $0.55 per diluted share. This outperformance was largely driven by better than expected results from our sheet mills, joist and deck business, and our direct reduced iron plant in Trinidad.

Newly acquired Nucor Steel Gallatin made solid contributions to our Fourth Quarter earnings and cash flow even after absorbing about $9 million or $0.02 per diluted share after-tax of purchase accounting expenses early in the quarter. We are encouraged by our Fourth Quarter performance given the strong seasonal and other influences dampening volumes during the period.

Total sales tons to outside customers declined 10.5% in the Fourth Quarter compared to the Third Quarter. Our strong full-year 2014 earnings improvement highlights the value of Nucor's industry leading product diversity. We are North America's only manufacturer of all four major steel mill products, bars, beams, plate, and sheet.

Our steel mill shipments of 22 million tons increased more than 6% year over year, which is more than double the US steel industry's overall growth rate. The increased steel mill volume was further leveraged by steel mill metal margin expansion of $32 per ton, as a $37 per ton gain in our average steel sales price outpaced a $5 per ton increase in our average cost of iron units consumed.

In addition to the strong profit growth at our core steel making operations, Nucor's downstream steel product segment more than doubled its profitability in 2014. These businesses are benefiting from the initial stages of recovery in non-residential construction markets. Particularly strong volume growth was achieved in our joist, decking, and rebar fabrication products.

Nucor's 2014 earnings improvement was achieved despite a significant operating loss at our new DRI facility in Louisiana. Nucor Steel Louisiana's 2014 operating loss totaled $135 million or $0.28 per diluted share after-tax and $35 million or $0.07 per diluted share after-tax for the Fourth Quarter.

Production operations at the Louisiana facility have remained suspended since the process gas heater experienced a failure in early November. Due to the lead times on the specialty steel pipes that must be replaced, we estimate that the plant will not resume operations until late in the First Quarter.

The process gas heater is not part of the DRI technology utilized by Louisiana, but it is ancillary equipment required to operate the plant. The DRI technology itself has worked well and established new world-class quality levels as measured by metallization rates and carbon content.

Although Louisiana has been a challenging start up, it will be a major step forward in the implementation of our long term raw material strategy. The recent declines in iron ore pricing and the Fourth Quarter profits generated by our DRI facility in Trinidad provide further validation to our work over the past decade establishing and growing Nucor's DRI production capacity.

A quick comment about our tax rates since it can be confusing due to the impacted profits from non-controlling interests. After adjusting up profits belonging to our business partners, effective tax rate was 33.6% for the Fourth Quarter and 35.3% for the full year of 2014.

Nucor's financial position remained strong at the end of 2014. Our gross debt-to-capital ratio was 37%. Cash and short-term investments totaled more than $1.1 billion at the close of 2014, putting our net debt-to-capital ratio at approximately 31%.

Our next significant debt maturity is not until December of 2017. Nucor's strong liquidity position also includes our $1.5 billion unsecured revolving Credit Facility, which remains undrawn.

The facility does not mature until August of 2018. Nucor is the only North American steel producer to hold an investment grade credit rating.

John mentioned our very robust operating cash flow generation in 2014. Cash provided by operations of approximately $1.3 billion comfortably exceeded capital spending of $668 million combined with cash dividends paid to our shareholders of $475 million.

In 2014, Nucor's strong balance sheet, liquidity, and cash flow again allowed us to take advantage of attractive opportunities to build long-term earnings power. During the Fourth Quarter, we completed our purchase of all of the equity of Gallatin Steel for a cash purchase price of approximately $779 million.

The acquisition was funded from cash on hand and the issuance of approximately $300 million of commercial paper. By the end of 2014, we had reduced the acquisition related commercial paper outstanding by half to about $151 million.

For 2015, we estimate capital spending will be approximately $500 million. Most of our recent larger scale projects have been completed or are nearing completion. Our capital spending forecast also reflects our joint decision with Encana, our natural gas working interest partner, to extend our drilling suspension through the end of 2015.

This year's capital spending for drilling will be very modest and consists of drilling a few wells required to maintain leasehold rights. Depreciation and amortization for 2015 is expected to total about $700 million.

Nucor's financial strength, as evidenced by our strong balance sheet and healthy cash flow generation through the economic cycle, is the bedrock foundation to our mission of growing shareholder value. From this position of strength, we are able to allocate our shareholders valuable capital to the most optimal or attractive usage at any given point in time.

Our financial strength allows us to invest in capital projects during severe industry downturns, when the long-term returns are most attractive. It allows us to make strategic acquisitions when the right assets at the right price become available in the marketplace. And just as importantly, it allows us to reward our shareholders with a steadily growing base dividend, supplemental dividends during up cycles, and opportunistic share repurchases.

During the current downturn from 2009 to 2014, our investments totaled nearly $6 billion with about 2/3 going to capital spending and 1/3 going to acquisitions. These diverse projects all grow Nucor's long term earnings power by expanding our product portfolios into higher value-added offerings that are less vulnerable to imports, by improving our cost structure, and, finally, by building upon our market leadership positions.

Growing stronger during downturns is a long tradition of Nucor. It is how we achieve higher highs and profitability from one cyclical beat to the next. With our disciplined approach to capital allocation and success in building long-term earnings power, Nucor is able to reward shareholders with attractive cash returns.

Our base (inaudible) dividend has more than tripled since the end of 2007. With the increase affected with next month's quarterly dividend payment, Nucor has increased its base dividend every year since it first began paying dividends in 1973 for 42 consecutive years.

During the last industry up cycle from 2004 to 2008, Nucor paid a total of $5 per share in supplemental dividends. And over the 10-year period ending in 2014, Nucor returned a total of $6.7 billion of capital to our shareholders through dividends and opportunistic stock buybacks. The Nucor teams unrelenting focus remains on continuing to build upon our record of being an effective steward of our shareholders valuable capital.

First Quarter of 2015 earnings will be impacted by the significant headwinds that developed for the steel industry at the end of 2014. The collapse in oil prices has triggered inventory reductions amongst pipe and tube producers, an important customer group for Nucor and the overall steel industry.

At the same time, imports are up dramatically entering 2015. Now, on the positive side, we continue to see favorable trends in non-residential construction markets that will benefit both our steel mills and fabricated construction products.

Overall, we expect First Quarter 2015 earnings will decrease in Fourth Quarter to a level slightly exceeding First Quarter of 2014. Nucor will, again, follow our practice of providing quantitative guidance in the final month of the quarter.

Whatever short-term economic and steel industry conditions we face in 2015, Nucor's unrivalled position of strength will allow our team to continue to execute on our proven strategies for delivering profitable, long-term growth. We appreciate your interest in our Company. John?

Thanks, Jim. It certainly has been an abrupt change in the near-term outlook in recent weeks. The two headwinds mentioned by Jim, collapsing oil prices and surging imports, will certainly challenge our team during the First Quarter, but that's okay.

Our team has faced and overcome challenges and adversity in the past, and we'll do it again. Energy is an extremely important driver of demand for steel in the US and here at Nucor.

Pipe and tube producers serving the energy markets represent approximately 10% of our steel mill shipments. Meaningful production and inventory adjustments on our pipe and tube customers are currently under way.

Following this period of marketplace adjustment, we believe the future remains very positive for low cost energy production in North America. Importantly, lower energy costs over time should support increased US manufacturing activity and consumer spending. That is all very positive for Nucor.

The other major headwind is from a renewed surge in import activity. Full-year 2014 imports of finished carbon steel products are estimated to have jumped to an unreasonable and unacceptable level of approximately 34 million tons.

That's an increase of about 37% over 2013 and just under 2006's record level of 35 million tons. Indications are that January 2015 finished steel imports may set a monthly record of around 3.9 million tons. These short-term headwinds are significant, but Nucor is extremely well positioned to navigate through them, and we will.

Some key advantages of our Company come immediately to mind. We will benefit from our low and highly variable cost structure. Additionally, we expect continued growth in non-residential construction activities.

Iron ore are our largest single-cost item. As previously mentioned, profitability at our DRI plant in Trinidad is benefiting from the large declines in iron ore costs. After resuming production, the Louisiana facility will also benefit from what appears to be an over supply in all market or at least the next several years.

Continuing on the raw material cost topic, we believe that the US scrap is currently significantly overpriced versus iron ore and global scrap markets. Based on increased import steel penetration, slack international demand for US scrap, the strength of the US dollar, and moderating US demand for scrap, we expect scrap prices to fall dramatically in early 2015.

During this period of transition, Nucor will continue to utilize our unmatched Global Supply Chain to optimize our raw material costs. Our investments in DRI and in scrap yards, as well as our access to international raw material markets, gives Nucor best-in-class capabilities and flexibility in approaching the market buying units.

Non-residential construction markets account for more than half of the in-use demand for Nucor's products. As measured by square footage, US non-residential construction activity increased by 6.7% in 2014. We expect continued improvement in 2015.

It is worth noting that the 2014 square footage activity level represents only about 56% of 2007's peak activity level. So there is plenty of room for additional improvements. Whenever the steel industry and the economy hit unexpected periods of turbulence like what we are experiencing now in early 2015, Nucor will do what Nucor always does.

We will grow bigger, stronger, and more profitable. And we will outperform our competitors. Here are the reasons why Nucor will do this.

Our balance sheet and (inaudible) cycle cash flow generation is unrivalled by any of our competitors. Our industry leading product and market diversity continues to grow as we move up the value chain in all of our businesses.

The recent expansions in our offerings include normal lines and E-treated plates, wider and lighter sheet steels, additional SVQ and wider rod products, and new filing sections. All of these products are less impacted by our rationally priced imports.

Our low cost structure will benefit from increased DRI production capacity as our new Louisiana facility completes its start-up process this year. Our commitment to achieving commercial excellence by leveraging Nucor's competitive advantages, such as product diversity and operational flexibility, to create more value for and build stronger relationships with each of our customers.

And most importantly, Nucor's employees. The right people. They are our companies greatest assets and our greatest competitive advantage.

Here are just a few of their 2014 achievements implementing our strategy of investing for long-term profitable growth. In the Fourth Quarter, our Nucor-Yamato structural steel mill began prime production of its new sheet filing sections.

The initial outpoint was sold to Skyline Steel, a filing distributer, and will be installed next month at a construction project in New Jersey. Nucor-Yamato expanded its product portfolio to include wider piling sections that are lighter and stronger, covering more area at a lower install cost.

The market for these high value added niche products is currently large in supply for imports. In addition to taking advantage of Nucor-Yamato's world class structural steel manufacturing capabilities, our customers will benefit from this new domestic solution, which will create valuable synergies with the other products and services offered by Skyline steel.

Acquired in 2012, Skyline is the market leader in its business with an unrivalled package of engineering support, stocking locations, processing centers, and dedicated sales teams. In 2014, our Nucor steel Hertford County plate mill leveraged their T-trading capabilities to capture a growing share of the market for value-added plate products.

For example, in 2014, Hertford County has more than doubled its share of the bridge market during the current steel industry downturn. Over the same period, shipments to higher margins OEM customers have doubled as a percent of the mills total volume. These value-added products are also less vulnerable to pressure from commodity influence.

Our Nucor steel Berkeley sheet Mills successful start up in 2014 of its wide light capital project continued to build momentum. Shipments of the new wide light products totaled over 120,000 tons in the first year. Berkeley now has the lightest hot rolled gauge capacity capability of any sheet mill in the Southern US market and with a finished product width of up to 72 inches.

We estimate the size of the new market segments now available to Berkeley to be approximately 4 million tons annually. Of particular importance, the upgrade allows Nucor to produce thinner, high strength field grade that could be used to develop lightweight automotive applications.

In closing, based upon all of these strategic factors and the faith, the absolute faith I have in our teams ability to face and overcome challenges, I remain very confident that Nucor's best years are still ahead of us. Thank you for your interest in Nucor, and we'd now be happy to take your questions.

Thank you.

(Operator Instructions)

We'll take our first question from Luke Folta with Jefferies.

Hi, good afternoon.

Good afternoon, Luke. How are you?

Good. First question is on -- in the release you talked about what you're expecting in terms of demand in First Quarter. And you made some comments around an expectation for significantly lower scrap prices.

Just trying to get a sense, if you could give us some more color around what your price expectations are heading into 1Q? What's baked into the assumption that earnings should be slightly higher year on year? And also, if you could give us some sense of what your LIFO expectation would be as well that'd be helpful.

Well, let me start with the first part of the question. Then I'll turn it over to Jim for the LIFO comment. Let me start by saying that our First Quarter outlook is based upon what we see today in the current scrap prices.

As I mentioned in the script, there's numerous reasons why we believe that that pricing will climb dramatically in the early part of the year. We believe probably in the First Quarter. One of the biggest drivers for that is when you look at our scrap pricing, excuse me, our steel pricing, our steel pricing has already gone down. And its decreased across products maybe $50 to $100 a count.

As a result, scrap pricing has to follow that steel pricing down. We see the pricing, steel pricing under pressure because of the imports that are coming in that's produced with iron ore and giving them a cost advantage today over our scrap market. That has to, and we believe will, adjust.

There are several other reasons we believe that we're going to see the scrap pricing drop significantly over the next couple of months. You've got the strength of the US dollar. Global scrap markets are lower.

Scrap imports are bound to start coming in. And as I mentioned, decreased demand for steel scrap, as a result of decreased production of steel, because of the pressure that we're seeing both because of the imports being produced by of the iron ore, and because of the oil pricing as we mentioned in the script. So given these reasons, we believe very strongly that we will see a dramatic drop in scrap pricing in the First Quarter.

The other thing I would want to mention is that we are seeing some impact from the lag of scrap pricing moves due to inventories in our mill. So we have currently in our Mills higher priced scrap because there's usually a four to six week lag time in our use of the inventories.

So given all of those reasons, we believe that, A, scrap pricing is going to come down dramatically. And I want to stress that it's following steel pricing now. The steel pricing has come down. Scrap pricing must follow.

And I also want to mention that, again, that we based our First Quarter outlook based upon current scrap pricing. Jim, do you want to touch upon the LIFO adjustments?

Yes. Luke, we're assuming a $25 million LIFO credit for the year. And obviously, you can tell if prices fall as dramatically as we think they could, we'll end up having a larger credit as the year advances. But we're going to start the year off looking -- I think it comes to $6.5 million in expense in the first quarter for a $25 million annualized base.

Okay, so just to be clear, whatever big scrap move that we could see in February -- I think last update some of the people we were talking to were looking for down [30 to 50]. Maybe that's changed over the past week or so.

But your expectation now would be -- your guidance is based on today's scrap price before big down move in February? Or would that be including that? (multiple speakers)

Luke, as John was explaining, we tend to have scrap on the ground. And so when we made the forecast, we're assuming that the benefits of the foreign scrap price -- we don't know if it's going to fully come through in February or part of it leak into March -- that we'll just start to see some of the benefit in March. And so if we see it sooner, our results could be better.

But our forecast probably is a bit conservative in terms of receiving any benefit from scrap prices, if that helps. We don't like to go to specific, here's the number, because, quite frankly, we don't have that. It's a bottoms up forecast with every business unit individually making a forecast.

Got it. That's helpful. Thank you. And then just the second one, in terms of your energy demand, your shipments. John, I think you said it was 10% or so of your total steel shipments.

Can you give us some sense of how that breaks out by product from flat-roll versus SBQ? And anything in terms of the magnitude of how that's changed just over the past month or so, or in the First Quarter, would be very helpful, thank you.

Well, see, the vast majority of it occurs in our sheet products. Probably about three quarters of our shipments come out of our sheet products, maybe 75%, 80%. There's a small amount that comes out of our SBQ.

As I mentioned, we've seen a significant adjustment by our customers who produce it, pipe and tube that just goes into the oil business. They're adjusting their inventories. And we're seeing that impact upon our order book.

I do want to stress, as I mentioned several times in the script, the investments that we've made over the last several years in diversifying our products and our markets will help us get through this period. Just as one tidbit of information, when you look at just in 2014, there's about 700,000 tons of product that is either new or value-added product or product that we can now supply into markets that we could not supply into previous through these investments.

So although we're going to be taking a hit on the oil and gas -- no doubt about it, 10% of our shipments go into that -- we believe that through the investments we've made in diversifying our products will mitigate that impact. I'll also stress, as I mentioned in the script, that 50% of our products go into non-residential construction. And we expect to see continued improvement in that market.

Thanks a lot, gentlemen.

And we'll take our next question from Matt Murphy with Union Bank of Switzerland.

Good afternoon. A question just on your order book. How do you -- what sense are you getting? Are customers holding off waiting for the market to find a bottom? Or are you finding pretty healthy inquiries out there?

Again, other than the pipe and tube that's oil and gas related, the rest of the markets are okay. Certainly there's a lot of doubt about what's going to happen, both on pricing, but I think more particularly on what the customers view might happen with scrap pricing, which is why I'm once again emphasizing that it's an unusual event where we're going to be seeing scrap pricing following steel pricing down.

Typically its reversed. This time because of the pressure from imports and from our competition that is ore based, we are seeing inverse effect take place. Steel pricing has gone down before scrap pricing.

We believe that, as I mentioned, scrap pricing will follow it down. And it will happen pretty quickly and pretty dramatically. So again, it's following the steel pricing down, not the other way around.

And I think our customers understand that. And so they're not expecting large price decreases as scrap continues to move down because we've already seen the impact of that on our pricing.

One other, important that I mention, in terms of just booking as a general statement, we talk about imports being high. And although we've been successful in some of our trade cases on rebar and hot rolled coil and wire rod, there's still a lot of that imported steel that's in inventory that is impacting our order book. And we'll see that for the next couple of months.

Sure. That's helpful. And then when you talk about repeatedly your strategy of going into higher end product, how are you finding competition from imports in the higher end categories? And if that remains a better business for Nucor than for imports, is it fair to say maybe we would see imports continuing to attack in some of the lower end applications?

So maybe you don't get the volume growth, but you still get the margin growth from the higher end products? Maybe if you could just talk through how that might look, thanks.

Well clearly, the higher valued products have a greater resistivity to imports, as well as having higher margins. So you kind of get a double benefit of that. In terms of your comment about would we expect to see volumes not growing, I would not agree with that statement.

We expect to see our volumes grow in the higher value-added products just as we continue to develop them being more and more market share. And has its always been Nucor's policy, we don't give up on the lower commodity products. We're in this game across the full spectrum.

We're just as interested maintaining our market share in rebar as we are in developing the advanced high strength steels. We'll grow in all of the products that are out there. We will not concede market share easily to beat our competitors or from our imported pressure.

We will continue to fight. In other words, we will gain higher ground without giving up on what we already have. That answer your question?

Perfect, thanks.

And we'll take our next question from Evan Kurtz with Morgan Stanley.

Good afternoon, everyone.

Good afternoon.

I had a question for you. I'm guessing, John, that you're following this leveling the playing field act that Senator Blair introduced last December. And I was just wondering if you could walk us through what that might actually mean for the steel industry?

How could that benefit Nucor? And this might be asking too much, but you're coming handicap and whether the [Senator's] legislation might be able to make it through republican Congress?

Oh, I'm going to ask our political guru here (inaudible) to answer that question to the level that we can answer it.

That legislation, it's going to be good for us. But it's something that's very difficult to get through the system. So I really don't want to go into it on this call, but I'd be happy to talk to you afterward.

Okay.

Give us a call later in the day or tomorrow, and we'll give you some more color on that.

Great. I will definitely follow up. Maybe I'll just ask about the trade case on the coated flat-rolled products. Where does that stand right now?

I know it's hung up a little bit because of the concerns about the injury determination. With pricing rolling over as much as it has over the past quarter, are we getting a little bit closer to the point where we may actually see something pretty soon?

I'm not going to answer that specifically. I will say that I'll make a general statement that we will be proactive, and we will be aggressive. The level of imports, as I mentioned, have reached absolutely ridiculous levels, and we believe that there's a potential for action coming up.

We're monitoring the situation very closely, and we'll be aggressive. When we look back at the last couple of cases and the success that we've had over those cases -- we had the rebar case against Mexico -- we were very successful in that case, and we saw rebar imports from Mexico reduced by about 70%.

We've seen wire rod, the case against China, result in virtually eliminating the Chinese wire rod from the US market. And then, finally, I would mention the suspension agreement, the elimination of suspension agreement for hot rolled coil against Russia.

And we've seen significant -- we anticipate continuing to see significant reductions in Russian hot rolled coil coming into the country. So based upon those recent successes, we feel pretty good about our chances going forward.

I'm going to leave it at that. We'll monitor it closely. We'll be aggressive, and we'll be proactive in pursuing cases when it's appropriate.

Great, thanks, I'll follow up offline.

And we'll take our next question from Sal Tharani with Goldman Sachs.

Good afternoon.

Good afternoon, Sal.

A couple of questions. First on the end Markets, more than 50% is [non-flat], 10% energy. Anything big you want to mention after these two?

I would mention, as we've mentioned several times on past calls, automotive. And we're looking at about 10% of our automotive qualified steels will go in today, 10% of our steels that are qualified to move to automotive. We're shipping into that sector.

If you look at our total tonnage, about 5% of that would be going into automotive today. Obviously, we don't normally count structural steel beams. Not much of that can go into the automotive, so we don't factor that in.

But if you look at what is possible to go into automotive, we're shipping about 10% of that flat-rolled SBQ into automotive today. SBQ has just picked up a little bit in SBQ over the last year. It might have bumped up to about 11%. But again, flat steel represents the vast majority of product that we're putting into automotive.

Got you, and you postponed the drilling this year. How long can you do that? Is that part of contract? Or do you pay if gas prices to remain low? Do you have ability to continue postponing it?

We can continue to postpone it as long as we and our partner, Encana, agree to do that. And as we've mentioned several times, we have a great relationship with them. And we constantly communicate with them.

We made a decision this year to suspend drilling other than the few wells that are necessary to maintain the lease holds. And we'll take a look at the situation again during the course of the year. If we should see a sudden increase, sporadical increase in pricing, we'll begin drilling. If we don't, we will suspend it again.

The key thing to remember about this agreement is that the gas is in the ground. It's not evaporating. It's not going anywhere. It's there waiting for the right, the optimal opportunity for us to take it out of the ground.

Are you hedged for gas this year?

We are partially hedged for gas. It's a percentage of production at the Louisiana plant, which we're using, obviously, at our steel Mills that are operating.

Great. I'll get back in the line with some more questions. Thank you.

And we'll go next to Brian Yu with Citigroup.

Great, thanks. Hey, I want to go back to the comment you made earlier about your scrap prices. And as I think about it, at first it's going to start with the scrap yards.

And I was wondering if you can share with us, what's happening with the buy prices that you're getting at the yards that you operate? How much are those down say as you go into February?

I'm not going to get into specific numbers. But I will say that they are down. They're down significantly. And we expected that, and we're reacting properly to it. But I'm not going to give, obviously, any specific numbers. Our competitors would love to hear that number.

Okay. On the energy side, obviously that's having an impact. Can you give us a sense of how much have orders dropped so far in the year versus, say, what you were seeing back in 4Q? And is there any backlogs when you ship to the OCTG manufacturers that you're working off of now?

There's a small backlog that we're working our way through. We're working with our customers. We understand the situation that they face and the inventory problems that they're looking at, so we've been working with them on that.

As I've said before, we've seen significant drop in the orders for our flat-rolled product going into oil and gas. Our other markets remain very strong. Heavy truck is still looking very good.

Automotive is still looking very good. So there are areas where we feel confident that our order book remains strong. But we have seen a significant drop in our orders for, specifically, pipe and tube that goes into the energy markets.

Okay, can I get one more in?

One more, that's it.

All right, thanks. Gallatin, I think roughly half of the shipments go to the energy markets. Are there other end markets -- (multiple speakers)

I apologize, but I've got to correct you right off the bat. It's true that about half of that product is the pipe and tube. But the vast majority of that goes into structural tubing. Only about 10% of Gallatin's products or shipments go into energy related pipe and tube, which is similar to our number here at Nucor.

Okay, got it. Thank you.

And we go next to Timna Tanners with Bank of America, Merrill Lynch.

Yes, hey, good afternoon guys.

Good afternoon. How are you?

All right, thanks, that's my dog in the background, sorry. I wanted to just ask you about there's some talk about blast furnaces idling capacity in response to the level of import and the destocking on energy tubulars as you mentioned, so two questions I guess.

One is, how long do you think this destocking might last? And secondly, would Nucor be among those that's preemptively idling some capacity in response to the large level of imports? Thanks.

Well, it's hard to predict how long this is going to last. That's somewhat of a function of how long and how deep the oil pricing situation goes on. And you get all kinds of predictions on that.

Frankly, as far as I'm concerned, it's anyone's guess at this point. It's entirely up to the producers and how much oil they start pumping out of the ground. But currently, if we were to remain at today's levels of oil pricing and we look at the inventories, we would be looking at probably around six to seven, eight months of inventory on the ground at today's usage.

Now, having said that, there's always a shock to a system when something has a radical change. And we see that happening today. Big change people throughout the entire Supply Chain are caught with inventory on hand. So it's a major change, major reduction in the orders.

Given that, there will be a period of time when all of this works out and starts flushing through. And we'll begin to see the orders for pipe and tube going to energy returning to our new normal level, albeit less than where it was.

But there will be some level greater than where it is today, but less than where it was a year ago. The other thing that I would mention about that is that you asked about shutting off, reducing our capacity.

As you know, Timna, our furnaces are extremely flexible. We make that decision on a weekly basis. We want our mills to fill orders. And given our variable cost structure and the flexible schedules that we have, we can react extremely quickly to any changes.

Whether or not we see some improvement in that energy market quicker than we anticipated or whether we see an uptick in one of our other markets, we stand ready to be very quick in responding to any changes in the market. Again, when you compare our operations to those of a blast furnace, clearly once you shutdown a blast furnace it's down for awhile. And we have much greater flexibility.

We don't need to shutdown an EAF. We can simply skip a couple of heats or skip a couple of shifts and come back in a couple days if we see the order book warranting that.

Okay, that's helpful. If I could, I also just wanted to see if you could give a little bit more color on the plate and SBQ markets, given that they have some energy exposure, and just haven't heard as much about them lately.

We haven't seen that much of an impact on either the plate or the SBQ Markets. Now certainly, there's some, a small amount. But a lot of our plate that goes into what we would call energy might go in to wind towers and other applications that really aren't impacted this heavily by the oil price going down.

As I mentioned earlier, SBQ does sell a little bit into that. Its been growing. We've been focused on that as a growth area, but it's not that heavy for us.

Where we see the bigger impact, frankly, on our order book in both SBQ and, particularly, in plate is due to the imports, (inaudible) imports. So we see some impact due to the oil pricing, but frankly, a larger impact due to imports.

Okay helpful, thank you very much.

Timna, one more thing that I might mention because you mentioned specifically about the plate market. When you think about some of the infrastructure, although it's coming way too slowly, there are some infrastructure repairs being made particularly in the bridge.

And there's a couple bridges going on, some bridge fabrication, bridge repair. And our plate business is doing well in that arena. So we've seen some pick up in our plate order book as we sold to general infrastructure and particularly bridge fabrication.

Okay, thank you.

And we'll take our next question from Michael Gambardella with JP Morgan.

Hey, John. Good afternoon.

Hi, how are you?

Good, very good, and you?

I'm warm and dry.

That's good. Me too. I have a question just about this whole change in the raw material markets here, particularly with the scrap move and the lack of the scrap move relative to iron ore in the past six months. But when you look forward, I would think in the next few months would be a great opportunity for you to gain share particularly on the sheet market, not to close down your production. Because you're going -- if you're not already -- you're going to become the low cost producer in market for sheet.

And when you look at the sheet market, it's about two-thirds iron ore or integrated based on about a third, even the rest of mini-mills on the sheet side.

And you've been suffering from a relative cost disadvantage that scrap didn't come down relative to iron ore in the last six months, and now it is. So my question is going forward you've seen the worst scenario. You relative to integrative [Licax] and AK. But isn't there a great opportunity to pick up some share as your costs drop and their costs basically don't?

Well I'll say that we have seen the worst of the times relative to our position because we do believe scrap is coming down. I will point out that we fared a little bit better on our cost side relative to most of our EAF-based competitors because of our DRI situation.

We call that -- with the iron ore pricing going down, our DRI cost of production has been going down also. And so we've seen a benefit at our Trinidad facility. And we will see a benefit as our Louisiana facility comes back into line.

So yes, we believe we've seen the worst of the times. Yes, we've seen scrap pricing going down, and we will benefit from that. Yes, we fared better than our other competitors in the EAF arena because of our DRI capabilities.

I'm not going to comment on just what all of that means going forward. We will stay competitive. We will take care of our customer needs. We will continue to supply our customers with high quality fairly priced product on time with great service, and we'll see how it plays out in the marketplace.

Okay, thanks a lot, John.

Thank you.

And we'll go next to Andrew Lane with Morningstar.

Hi there, good afternoon.

Good afternoon.

Given the significant declines in both iron ore and natural gas prices since this time last year, do you expect to achieve profitable DRI production in Louisiana shortly after the facility is restarted? Or will it likely take some time to ramp up production before your output is profitable?

Well, it will take some time to ramp up our production. And it will also take some time to work through the iron and higher cost iron ore inventory that we have on the ground, iron ore that was purchased last year that we have now worked our way through because the facility has been out of commission.

So it will take time to work through that inventory. It will take some time to get up to full production. But we expect to see the Louisiana facility running well and profitable by the end of the year.

Okay, great. And then to change gears, you mentioned that the energy end market represents about 10% of your steel mill shipments. Could you provide a split as to how much of that total is directly associated with the shipments for oil and gas drilling projects, and how much is associated with shipments for other energy related applications, such as power generation?

Well, we don't break it down that definitively. I would say to you that, probably -- if you look at the energy pipe and tube as opposed to other oil and gas applications, you're looking at probably 90% going directly into the energy pipe and tube that would be associated with drilling and maybe 10%. These would be rough numbers here, maybe 80/20, 90/10 somewhere in that area.

Okay, that's helpful, thanks. If I can just ask one last question. Would you be able to provide an update as to how the integration process is going through the Gallatin Steel operations? And are the incremental 2015 benefits you initially expected still intact?

I would love to do that actually. The integration is going extremely well. We expected that it would go well. The team there is a great team and management style. Their culture is very similar to our Nucor culture. So we anticipated a smooth integration.

But I have to tell you what, its gone even better than we anticipated. Those guys are doing a great job. The financial team there, I'd give a call out to them. They've very, very quickly integrated into our financial programs.

I'm surrounded by some financial people in the room here, and they're all nodding their heads, saying what a great job the Gallatin financial team did in getting up to speed very quickly, converting the systems, integrating the systems. I would also make that statement relative to the commercial team, they integrated extremely well with our commercial team. We're enjoying the synergies that we anticipated from that, and, hey, its going great.

Okay, all very encouraging, thanks.

And this does conclude the question-and-answer portion of today's Conference Call. I would like to turn the call back over to John Ferriola for comments and closing remarks.

Well, thank you. Let me just conclude by saying thank you to our shareholders. We certainly appreciate your confidence and your support. Thank you to our customers. We appreciate your business.

And I want to say thank you to all of my Nucor teammates for creating value for our customers, generating attractive returns for our shareholders, and building a sustainable future for all of us. And most importantly, thank you all for doing it safely. And to everyone on the call today, thanks for your interest in Nucor. Have a great day.

And this does conclude today's conference. We thank you for your participation.