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In the words of James Joyce: "A man's errors are his portals of discovery."
Here at The Motley Fool, we don't just own up to our mistakes, we revel in them. You see, if we had never used the wrong year as a starting point to calculate long-term investment returns from shares of Nucor (NYSE: NUE ) , then we would not have received a most gracious correction from Nucor's CEO Dan DiMicco, and we may never have discovered that the man at the helm of the top U.S. steelmaker reads The Motley Fool regularly.
The most exciting portal of discovery, however, was the resulting opportunity to discuss some poignant topics -- relating to the outlook for the domestic industrial base and the U.S. economy overall -- with one of the most outspoken and straight-talking leaders in American industry. Like Joy Global (Nasdaq: JOYG ) in the equipment manufacturing space and Diana Shipping (NYSE: DSX ) in the dry bulk sector, I have identified Nucor's management as this Fool's go-to source for insightful analysis and discussion.
Setting the record straight
Before we open that portal, let's close the door on two important corrections. In my October article comparing third-quarter earnings results among domestic steelmakers, I swapped capacity utilization data for the industry at large with data specific to Nucor. As it turns out, Nucor's sequential improvement in capacity utilization -- from 46% in the second quarter to 69% in the third quarter -- outperformed the industry average by a very significant margin. The domestic steel industry as a whole operated at 55% during the third quarter.
The sources of Nucor's outperformance speak to several of the company's key competitive advantages. For starters, Nucor's unconventional no-layoffs policy kept workers ("teammates" in the Nucor lexicon) on-site and ready to respond to the uptick in orders. Second, like smaller competitor Steel Dynamics (Nasdaq: STLD ) , Nucor employs electric arc furnaces in steel production that are easier to restart than traditional blast furnaces. The result is a limber company that is able to adjust efficiently to shifts in demand.
The second correction we need to make relates to David Gardner's article linked at the outset above. That article listed an impressive 15% compound annual growth rate (CAGR) for Nucor shares dating back to 1985. In truth, this understates the actual performance, and for a more complete picture we extend back to 1972 when Nucor first moved to the big board. A fortunate Fool with the foresight to purchase $1,000 worth of Nucor stock in 1972 would be sitting on at least $293,000 today, for a 16.59% CAGR over 37 years, and that's not even including the impact from 146 consecutive quarterly dividends. Now that's a stainless track record of long-term appreciation for shareholders!
Foolish portals of discovery
I am a sucker for socially responsible corporations, and the commitment that Nucor demonstrated to its teammates by refusing to incur layoffs even as steel demand tanked to heart-stopping levels is an achievement that I find particularly laudable. I point this out not to vilify competitors like U.S. Steel (NYSE: X ) , Arcelor Mittal (NYSE: MT ) , and Schnitzer Steel (Nasdaq; SCHN) that did reduce their U.S. workforces, but rather to acknowledge how rare it is for large corporations to adopt such a humanistic and long-term-focused policy. Intrigued by the accomplishment, I asked Dan DiMicco to explain how they made it happen:
Most of our teammates are on short work weeks as a result of the continuing economic crisis in the United States. [ ...] Our culture -- which is Nucor's real competitive advantage -- has been built (and continues to grow each year) by the strong loyalty shown both ways between Nucor and its employees.
We can do this because we have a long term view of doing business and once you adopt that view all your practices and policies stem from that. We are who we are because of our Culture and our People and you don't build ownership by disowning people when times get tough! You must have strong profitability, a strong balance sheet, and long term commitment to team building to make it possible!
The discussion continued:
Christopher Barker: Back in June, you shared your projection for the "granddaddy of all jobless recoveries," and earned this Fool's deep respect as a "champion for truth in a world full of parroting cheerleaders." Has your outlook changed substantially since that time?
Dan DiMicco: No, unfortunately not. We are extremely disappointed that our nation's leaders -- both Democrats and Republicans -- continue to fail to recognize and address the real problems facing our economy: the need to create real jobs by rebuilding our nation's crumbling infrastructure, restore our nation's energy independence, and improve our trade balance (and thus restore our manufacturing-driven economy versus a phony services / financial services-driven economy).
Barker: Third-quarter metrics for the domestic steel industry showed substantial sequential improvement, with capacity utilization rebounding from 45% to 55%. With some portion of that boost generated by inventory restocking, can you characterize where the underlying real demand will guide sustainable capacity utilization rates as we head in to 2010? Does a long-awaited boost from the $787 billion stimulus package figure prominently into such projections?
DiMicco: Real or end-use demand has not improved to any significant extent over this period, and we do not expect any improvement anytime soon. The "stimulus" package has not worked. It was a welfare package that did nothing to create jobs.
Barker: That has been my view as well. On a separate topic, now that we know you read The Motley Fool, can we confirm we have a steel industry CEO as a registered Fool? Of course, we would be delighted to have you join CAPS as well, where 1,634 Fools like me have selected Nucor to outperform the S&P 500. You may even be interested in hearing what investors are saying about steel on the CAPS blogs. Might we look forward to the occasional cameo appearance within our online community of investors?
DiMicco: While I am not currently a registered Fool, I am a big fan, and I read all of your articles that show up on companies I follow ... and of course on Nucor. I have communicated many times with your staff on articles they have written. It will be my pleasure to go ahead and register over the holiday.
Barker: Mr. DiMicco, you will be most welcome as a Fool, and our community appreciates the time you have taken to share your valuable perspective.
It's your turn, Fools. Mr. DiMicco and I agree that the $787 billion stimulus package has proven entirely ineffective, and we view the restoration of America's manufacturing-driven economy as the only sustainable path to economic recovery. Take our Motley Poll, and post your comments below to share your thoughts on the matter.