As a leading steel and steel products supplier to the construction industry, Nucor (NYSE:NUE) is well-positioned to benefit from the infrastructure spending over the next several years that will be part of the federal government's stimulus programs.
In addition, the decline in product sales for General Motors (NYSE:GM), Ford (NYSE:F), and others in the auto industry will hurt Nucor less than many of its competitors. That's especially true of the integrated steel producers like U.S. Steel (NYSE:X) and AK Steel (NYSE:AKS), which have a greater reliance on the U.S. auto industry for their higher-margin products. While the industries that Nucor serves may also be hurt, the company's operating efficiencies put it in a better position to ride out the downturn.
Nucor's competitive edge
In a recessionary economic environment, companies that are well-capitalized, that are free of the weight of post-retirement health-care obligations, and that have greater flexibility in managing labor costs will emerge as stronger competitors, better able to fill the vacuum left by insolvent or bankrupt industry participants.
With a flat organizational structure that minimizes corporate overhead costs, as well as a non-union workforce that allows flexibility in job assignments -- thereby creating efficiencies unrivaled by its unionized brethren -- Nucor has built a competitive advantage as a low-cost producer in the commoditized steel industry.
Community relations
Nucor has strengthened its low-cost position by securing favorable tax and utility rates in many of the communities where it has built its steel plants. It has emphasized incentive-based compensation to empower its employees and help combat the omnipresent threat of unionization at its many operating facilities.
It has also benefited from a broad customer base owing to its wide range of products and services -- from the manufacture of steel bolts and fasteners to the fabrication of non-residential building products like steel joists and decking to the rolling of sheet steel used in automobiles.
Focus on the future
Nucor has also differentiated itself from the competition by focusing on the development of new-generation technologies like the Castrip facility in Crawfordsville, Indiana.
Castrip, to which Nucor holds exclusive rights in the United States, is a method of thin-strip casting that produces thin-gauge sheet steel directly from molten steel, bypassing several steps in the rolling process.
In the conventional process, thick slabs are cast from the liquid steel and are put through several rolling mills to reduce the steel from thick slab to thin sheet steel, which can then be more easily shaped by steel processors into any one of various end uses. The company is in the process of building its second Castrip facility at a greenfield site in Arkansas.
Flush with cash
Further, Nucor's decades-long string of profitable years in the notoriously cyclical steel industry has allowed it to amass $2.3 billion in cash and cash equivalents as of Dec. 31, 2008.
This stash will not only provide some cushion over the next couple of quarters -- rough ones, likely, as steel demand slacks off in the shrinking economy -- but it could fuel a strategic acquisition or two as well. The company could seek to gobble up a weaker competitor or expand its presence downstream in raw materials or upstream in steel fabrication and processing, if the price and fit are right.
Although it's not clear whether it will pursue such an acquisition, we do know that Nucor's years of operational excellence have it primed to roll the competition.
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