Dividend Aristocrats In Focus Part 10: Nucor Corporation (NUE)

Business Overview

Nucor operates in three core segments, which are Steel Mills, Steel Products, and Raw Materials. Nucor operates a diversified business model.

Source: Nucor Annual Report, page 24

The Steel Mill involves steel mill facilities and a steel foundation distributor. Nucor operates 24 scrap-based steel mills. Nucor has 13 bar mills in the U.S. that manufacture steel products. It also has five sheet mills that produce flat-rolled steel for the automotive, appliance, construction, and other industrial and consumer applications. Nucor also has two structural mills that produce wide-range steel beams and pilings for construction companies and other steel service centers.

The Steel Products segment produces reinforcing products. Nucor’s subsidiary Harris Steel fabricates, installs, and distributes rebar for highways, bridges, and other infrastructure. The major businesses in this segment are steel mesh, grating, and fasteners.

The Raw Materials business has a sole function, which is to lower costs. That is because scrap and scrap substitutes represent Nucor’s biggest cost. The company has a long-term raw materials investment strategy to reduce the cost structure of its core steelmaking function, which is critical to boosting profitability. This business includes Nucor’s scrap recycling operations.

Growth Prospects

Nucor Corporation (NYSE:NUE) has struggled over the last several years. This is the inevitable struggle of operating in a highly cyclical, commodity-based industry. In addition, Nucor is getting undercut by cheap imports from international markets. This has had a negative impact on steel prices.

Source: Nucor Annual Report, page 26

Last year, finished imports represented 29% market share, which was the second consecutive year in which imports claimed a historically high level of market share. Imports in 2015 were 27% higher than in 2013. Nucor’s average sales price per ton fell 13% last year.

This pressure from cheap imports caused Nucor’s sales and earnings-per-share to decline 22% and 50% last year, respectively.

The damage has been long-lasting. Over the past 10 years, Nucor’s earnings per share declined 80%.

The good news is that there are glimmers of improvement so far in 2016. Over the first nine months of the year, net sales declined (2) 6%, but earnings per share rose 38%, thanks largely to 5% growth in total tons shipped to outside customers.