When Nucor (NUE -0.26%) announces quarterly results on April 21, North America's largest steelmaker expects to report a new record for first-quarter earnings. This comes on the heels of a blowout record year in 2021, when the company earned $6.83 billion, nearly triple its previous record, set in 2018. Thanks to a steady stream of share repurchases in recent years, the company more than tripled earnings per share, too.
Supply-and-demand dynamics sent steel prices soaring during most of 2021, which helped the top and bottom lines of steelmakers like Nucor. Its stock price rose almost 115% last year. With steel prices ticking back up after a drop-off that began in the fourth quarter, investors should examine whether Nucor is likely to offer market-beating returns again in 2022 and beyond.
Image source: Nucor.
Investing for the long-term
Like stock investors looking to build their retirement portfolios, Nucor management has been investing in its business for long-term gains. The company has been making growth investments over the past five years, as the following chart shows.
Image source: Nucor. Chart by author.
It has spent nearly $9.5 billion on acquisitions and new growth projects in that time, and many of them are now in operation -- and benefiting from the strong pricing environment. These projects included rebar micro mills in Missouri and Florida, which were announced in late 2017 and early 2018, respectively. Those have been so successful that the company recently announced it would spend another $350 million to build a third in North Carolina.
Multiyear projects
These projects are capital-intensive and take years to build and bring into full operation. But the company's steady commitment to growth has given it the capacity to boost its sales and shipments to outside customers.
| Metric | 2021 | 2020 | 2019 | 2018 | 2017 | 2016 | 2015 |
|---|---|---|---|---|---|---|---|
| Net Sales (in billions) | $36.5 | $20.1 | $22.6 | $25.1 | $20.3 | $16.2 | $16.4 |
| Tons of steel sold* (in millions) | 28.3 | 25.5 | 26.5 | 27.9 | 26.5 | 24.3 | 22.7 |
*Tons sold to outside customers. Data source: Nucor.
As its new facilities come online, the company's production capacity will further increase. With steel prices at historically high levels, ample cash flow should allow Nucor to continue investing at a strong pace while still returning plenty of capital to shareholders.
What to expect
When the company reports its Q1 earnings later this month, it may well forecast that earnings will drop in 2022 compared to last year's record result. Even if it delivers its best-ever first-quarter numbers, that wouldn't be overly surprising considering that steel prices are now nearly 25% below last year's peak. But any sell-off by investors disappointed at that prospect would be a buying opportunity based on Nucor's cash flow, new projects coming online, and future profit potential.
Even without a new earnings record, 2022 will undoubtedly be a strong year that dwarfs past years, excluding 2021. And management will also likely remind shareholders how much has been returned to them through dividends and share buybacks, on top of the investments that are growing the business. In 2021, Nucor raised its dividend payout by 23%. If it raises its payout in 2022 as expected, this will be the 50th consecutive year of payout hikes, earning the company a spot on the list of Dividend Kings.
Steel is a cyclical sector, and some traders focus on trying to buy and sell around its troughs and peaks. But long-term investors in Nucor own a solid company that has plenty of growth ahead, and they should welcome a chance to add to their positions if short-term thinking in the market causes the stock to drop later this month.
