Nucor Corporation (NUE 0.31%) had a good year in 2017. Revenues increased 25%, driven by selling more steel at higher prices, and earnings advanced by 65%. That's the kind of story you want a CEO to tell when they hold an earnings conference call.
But those are just the headline figures -- Nucor's CEO John Ferriola had a lot more to say. Here are five key highlights from the call.
1. Imports are still an issue
Perhaps the number one problem facing U.S. steel mills is a global oversupply of this key metal. That's largely driven by China, which makes more steel than it needs. That steel gets pushed into the global market, causing a domino effect that has led to increased imports of cheap foreign steel into the U.S. market. That, in turn, has put pressure on the prices that domestic steel makers can charge. The U.S. government has been putting tariffs in place to help stem the flow, but that's only helped so much.
Image source: Getty Images
According to Ferriola in 2017, "Finished steel imports captured an estimated 27% share of the U.S. market." As long as that number remains elevated, Nucor and its peers will face pricing headwinds. The key takeaway here is that, despite strong results in 2017, imports are still an issue investors need to monitor.
2. We're rewarding our investors
With such strong financial performance in 2017, you might not be surprised by Nucor announcing a dividend increase. In fact, you might have expected it. But there's a lot more to the dividend story at this steel giant.
CFO Jim Frias summed it up by simply saying, "Our February 2018 quarterly dividend will mark 45 consecutive years of increased regular or base dividends for our Company [sic]. Nucor is one of only 32 publicly held companies that have increased their dividend for 45 or more consecutive years."
Step back for a moment to appreciate the power of this statement. Steel is a highly cyclical industry, but Nucor has managed to provide consistent dividend growth through good and bad years alike. In fact, Nucor is a member of the elite Dividend Aristocrat group. That's something that you shouldn't take for granted, especially given that the long steel downturn following the 2007 to 2009 recession led to deep losses for peers like United States Steel Corporation and AK Steel (AKS). These companies ended up cutting and eliminating their dividends, respectively, because of weak performance.
3. We ran the plan
Now that the steel market appears to be strengthening, Ferriola wants to make sure you understand that Nucor isn't just benefiting from an upturn: It was preparing for the industry recovery all through the downturn.
NUE Capital Expenditures (TTM) data by YCharts
According to the CEO, "We are ready and eager to realize [the] significant pent-up earnings power we have built with more than $8 billion invested during the steel industry's lengthy downturn that began in 2009. That number includes capital spending of more than $5 billion and acquisitions totaling slightly less than $3 billion."
Investing in the bad years is a classic Nucor tactic. The goal is to exit a downturn in better shape than when you entered. And this downturn was no different. That current upturn shouldn't distract you from that fact.
4. We're not done growing
Spending on growth doesn't stop, however, when an upturn hits. Nucor is always looking for ways to improve its operations or expand its industry reach -- geographically and by product offering. Which is why Ferriola noted that, "Nucor's Sheet Mill Group is implementing three major growth initiatives." And also, "During the fourth quarter, we announced two major growth investments for our bar mill group."
CFO Frias provided some specifics here: "We have six particularly significant growth projects under way this year. First, a specialty cold-rolling facility at our Arkansas sheet mill. Second, hot-band galvanizing line at our Kentucky sheet mill. Third, a sheet galvanizing facility in Mexico being constructed with our joint venture partner, JFE Steel. Fourth, a rolling mill upgrade at our Ohio bar mill. Fifth, a rebar micro mill in Missouri. And sixth, a new merchant bar rolling facility at our Illinois bar mill."
There are obviously more details to understand about these plans. But the real takeaway is that Nucor still sees opportunities to expand, and an industry upturn isn't going to lull management into a state of complacency. So look for more growth ahead for this steelmaker and keep a close eye on its capital plans.
5. Solid as a rock
All of this brings us down to the foundation of any company: the balance sheet. There are many different ways to look at financial strength, with CFO Frias noting, "Nucor's financial position is strong. With total debt outstanding of $3.8 billion, our gross debt-to-capital ratio was 29% at the end of 2017." He added further that, "After paying off the $600 million of 5.75% 10-year notes that matured on December 1, our year-end cash and short-term investments totaled approximately $1 billion. Nucor's strong liquidity position also includes our $1.5 billion unsecured revolving credit facility, which remains undrawn."
NUE Financial Debt to EBITDA (TTM) data by YCharts
At the end of a long industry downturn during which Nucor invested for the future, this U.S. steel company still has a rock solid balance sheet. Compare that to a competitor like AK Steel, which ended 2017 with a cash balance of just $38 million and negative shareholder equity, which means that debt makes up more than 100% of the company's capital structure. Yes, that's cherry picking a particularly weak peer, but Nucor's financial strength really does stand out in the industry. And that's by design, since being fiscally conservative is another of the company's core goals. But it's exactly what allows the company to thrive when others are struggling to survive.
A wonderful call
Even taking into consideration the downbeat update on the import issue, Nucor's fourth quarter 2017 conference call was a delight to listen to. Although Nucor's stock is hardly cheap today as the company and its shares are benefiting from the industry upturn, shareholders should be pleased with the key corporate updates. Perhaps the most important takeaway, however, is that Nucor is still working the same playbook that's driven its long-term success.
