Nucor Corporation (NYSE:NUE) Q2 2023 Earnings Call Transcript

Nucor Corporation (NYSE:NUE) Q2 2023 Earnings Call Transcript July 25, 2023

Operator: Good morning and welcome to the Nucor Second Quarter 2023 Conference Call. All participants will be in listen-only mode. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Jack Sullivan, General Manager of Investor Relations. Please go ahead.

Jack Sullivan: Thank you, and good morning, everyone. Welcome to Nucor’s second quarter 2023 earnings review and business update. Leading our call today is Leon Topalian, Chair, President and CEO, along with Steve Laxton, Executive Vice President and CFO. We also have other members of Nucor’s executive team with us, including Dave Sumoski, Chief Operating Officer; Al Behr, responsible for Plate and Structural Products; Brad Ford, over fabricated products; Noah Hanners raw materials John Hollatz, Bar Products and Fabrication; Doug Jellison, Corporate Strategy; Greg Murphy, Business Services, Sustainability and General Counsel; Dan Needham, Commercial Strategy; Rex Query, Sheet and Tubular Products; and Chad Utermark, New Products and Innovation.

We posted our second quarter earnings release and investor presentation to the Nucor Investor Relations website. We encourage you to access these materials, as we’ll cover portions of them during the call. Today’s discussion will include the use of non-GAAP financial measures and forward-looking information within the meaning of securities laws. Actual results may be different than forward-looking statements and involve risks outlined in our Safe Harbor statement and disclosed in Nucor’s SEC filings. The appendix of today’s presentation includes supplemental information and disclosures, along with a reconciliation of non-GAAP financial measures. So with that, let’s turn the call over to Leon.

Leon Topalian: Thanks, Jack, and welcome, everyone. I’d like to begin by thanking the 31,000 members of the Nucor team for delivering another outstanding quarter. The investments we’ve made in recent years to grow our core and expand into new markets for generating strong returns for our shareholders, increased capabilities for our customers, and the Nucor team is executing safely and efficiently. In fact, through the first half of 2023, we’re on track to set another annual safety record for the fifth straight year. Further proof of the world-class performance by Nucor teammates who live our culture every single day. Looking at our financial performance in the second quarter, Nucor generated approximately 2.2 billion of EBITDA and 1.5 billion of net earnings or $5.81 per diluted share.

On a year-to-date basis, we’ve generated 4 billion in EBITDA and $10.26 earnings per share, representing our second-best start to any fiscal year in Nucor’s history. Each of the three reporting segments saw higher earnings in Q2 compared to Q1 with the largest gains coming from the steel mill segments, which saw higher realized pricing. The steel mills orderbook remains healthy, with strong demand from automotive, energy, heavy equipment, bridge construction, data centers and manufacturing. And within steel products, Q2 marks the fifth consecutive quarter with segment earnings of approximately $1 billion or higher, and we continue to see a healthy backlog at attractive margins through the remainder of the year. Looking ahead, we believe steel market for the remainder of the year will remain healthy, driven by strong manufacturing investment and infrastructure spending.

U.S. GDP growth forecasts for 2023 have been revised upward on multiple occasions in response to economic data that continues to demonstrate the resiliency of the U.S. economy. Turning to our growth strategy, we’ve completed slightly more than 50% of our $10 billion CapEx plan to grow our core steelmaking operations. Several of these investments are already generating incremental earnings and growing our share in key markets. Over the next several years, we’ll continue to execute on our CapEx plan to better position Nucor with more value-added steelmaking capabilities. In our sheet mill group, we’ve continued our ramp up in Nucor Steel Gallatin in the second quarter. The Gallatin team has achieved full run rate production levels in June and saw increasing levels of profitability each month of the quarter.

I’d like to congratulate our entire Gallatin team for their continued focus on safely bringing the facility to full run rate production, as well as taking care of our customers during this time. At Nucor Steel West Virginia, we expect to begin construction in the coming weeks. We remain excited about this transformative project to serve the heartland of American steel consumption, with a considerably lower carbon footprint. In our plate mill group, the Brandenburg team in Kentucky continues to ramp up production at the most advanced EAF plate mill in the world as we shared before, our focus at Brandenburg in 2023 is on improving our capabilities rather than maximizing output. We spent the first half of the year dialing in the caster and downstream operations, and we’re now producing finished products ranging in thicknesses from 1 to 12 inches.

In the second half of ’23, we expect to produce approximately 300,000 tons and turn profitable by year’s end. Our customers continue to express strong interest in Brandenburg’s capabilities, and our team there is working to ensure we can provide a full range of plate solutions. Finally, in the Bar Mill group, construction on our new rebar micromill in Lexington, North Carolina, broke ground in May and is slated for completion by early 2025. This highly efficient 430,000 ton bar mill will serve the growing construction markets throughout the Mid-Atlantic and Southeast regions. Our steel products segment continues to generate strong earnings with nearly 2 billion of pre-tax earnings year-to-date, representing 45% of Nucor’s earnings mix for the first half of 2023.

This is a testament to our industry-leading capabilities across a broad array of engineered steel construction products and solutions. Today, Nucor can produce an estimated 90% of the steel intensity of a typical manufacturing facility, or large warehouse. With over 100 fabrication centers throughout North America, we are the leading supplier of the steel products most commonly used in non-residential construction. Last year, we provided solutions to more than 5000 steel products customers, with non-representing more than 5% of consolidated revenue. And we’re leveraging our channels to market in broad capabilities to cross-sell products such as overhead doors, racking and other solutions. In recent years, our customers are attributing more value to the solutions we provide helping to depart from the traditional cost-plus paradigm.

They recognize the incremental value we provide through engineering, detailing, fabrication, custom finishing, and our nationwide logistics capabilities. As a result, products such as joist and deck, pre-engineered metal buildings, and insulated metal panels command higher margins than in years past. Our performance also reflects some fundamental changes we’ve made to improve efficiencies in metal buildings and rebar fabrication, which are now driving better results for our customers and our shareholders. Turning to our expand beyond strategy, we’re pleased with the initial success of our four new growth platforms, and we continue to develop a pipeline of potential growth opportunities. During the second quarter Nucor towers and structures announced the location of our second new production facility in Crawfordsville.

Indiana. There is considerable growth potential in the utility infrastructure market with a need to expand and harden transmission infrastructure, while accelerating the connection of distributed renewable energy to the grid. As we evaluate and pursue new expand beyond platforms, we’re focused on opportunities that leverage our core capability as an efficient industrial manufacturer and are aligned with steel intensive mega trends or themes. Passage and implementation of the infrastructure Bill IRA in CHIPS and Science Act are helping to drive these megatrends and Nucor intends to capitalize on them further to grow and diversify our earnings potential. The goal of our growth strategy is not simply about being the biggest steel company. It’s about providing a differentiated capability set for our customers and creating long-term economic value for our shareholders.

We aim to generate returns over the economic cycle comparable to the best manufacturing companies in the world. That’s why we’re seeking opportunities with attractive growth rates, stronger free cash flow, great synergy potential and more stable earnings profiles. Before turning it over to Steve, I’d like to provide some updates on our sustainability strategy. In May, we announced an MOU with NuScale to explore locating NuScale small modular reactor power plants near certain Nucor Steel mills. In June, we announced a partnership with ExxonMobil to capture, transport and store CO2 emissions from our DRI plant in Louisiana. We believe this is the first carbon capture project of any DRI facility and will enable us to produce the lowest embodied carbon DRI in the world.

Even though our emissions intensity is already 60% lower than the global steelmaking average, Nucor continues to aggressively pursue strategies that further differentiate itself as the leader in sustainability for our industry. With that, let me turn it over to Steve, who will share additional details about our Q2 performance, as well as our outlook for Q3. Steve?

Steve Laxton: Thank you, Leon. Nucor just completed another terrific quarter, the company had consolidated net earnings of nearly $1.5 billion, resulting in return on equity of 30% over the past 12 months. In fact, the second quarter of this year marks our ninth consecutive quarter where both net earnings exceeded $1 billion and return on equity exceeded 25%. These results highlight the advancement of our strategy and the growing earnings power of Nucor’s diversified portfolio, and industry-leading capabilities. It also demonstrates solid execution by the Nucor team and ongoing favorable conditions across important steel consuming end markets such as construction, automotive, energy and industrial equipment. At the segment level, our steel mills group delivered $1.4 billion of pre-tax earnings in the second quarter, an increase of 68% over the first quarter.

This was due to higher metal margins, especially at our sheet mills, as gains on realized pricing on steel outpaced higher prices for both scrap and ore base metallics. Second quarter steel shipments were similar to that of the first quarter. During the period, we realized slightly lower conversion costs including lower energy rates. Turning to our Steel Products segment. We saw another period of outstanding performance with segment pretax earnings of just over $1 billion. We continue to realize attractive pricing and margins, even as some subsectors like warehouses continue to moderate from their historically high levels of 2022. While Nucor operates a diverse portfolio of downstream steel products, some of the strongest contributions came from our joist and deck business and our pre-engineered metal buildings group.

We also saw improved results in our rebar fabrication and Tubular Products businesses. In addition, as Leon mentioned, we’ve seen very positive contributions from our newly acquired Expand Beyond platform businesses. Our raw materials segment produced pretax earnings of $138 million for the quarter. Relative to the first quarter of the year, we realized higher volumes and pricing in both our DRI and recycling businesses. During the second quarter, we also continued to generate strong free cash flow, with cash from operations totaling $1.9 billion for the quarter and $3.1 billion year-to-date. This strong cash flow allowed Nucor to continue its balanced approach to capital allocation. In the second quarter, we deployed $525 million in capital expenditures as we continue to enhance and grow our core.

We also returned $580 million to shareholders, including approximately $130 million in dividends and $450 million in share repurchases. Year-to-date, we’ve returned roughly 44% of our net earnings to shareholders through dividends and share repurchases. Nucor’s balance sheet strength continues to be a fundamental underpinning of our current and future success. At quarter end, Nucor had approximately $5.4 billion in cash and short-term investments, and our revolving credit facility remains undrawn. This strong liquidity position enables us to continue our balanced approach to capital allocation. Leon referenced the progress we’re making on our $10 billion capital spending plan to leverage and grow our core, but we still have significant spending in our largest project ahead of us.

We expect capital spending related to our West Virginia sheet mill to accelerate in the near term as we begin the construction phase of this project. And as mentioned earlier, we continue to cultivate a viable pipeline of growth opportunities to expand into new adjacent businesses. Maintaining the strong balance sheet and sufficient liquidity are centrally important to enabling and positioning Nucor for continued future success. Turning to our outlook for the third quarter, we currently expect consolidated earnings to be lower than the second quarter. At the segment level for the third quarter, we expect earnings from steel mills to decrease compared to the second quarter on stable shipments but lower margins as we’ve seen prices come down for sheet and, to a lesser extent, long products.

In our Steel Products segment, we expect performance will continue to moderate from the record-setting earnings of recent quarters due to modestly lower pricing and stable volumes. For the raw materials segment, we expect lower earnings in the third quarter due to margin compression of our DRI and scrap processing operations. Overall, non-residential construction remains elevated with especially strong activity from infrastructure spending, data centers and manufacturing. In addition, positive trends continue in the automotive and energy sectors. In short, we believe medium and long-term fundamentals of our industry and key demand drivers remain very healthy. This coupled with our strategy to grow our core and expand beyond position Nucor for strength well into the future.

With that, we’d like to hear from you and answer any questions you might have. Operator, please open the line for Q&A.

Q&A Session

Operator: [Operator Instructions] And our first question comes from Alex Hacking of Citi. Please go ahead.

Alex Hacking: I guess just my first question, just drilling down on demand a little bit. If we look at shipments of long steel, bars and structurals, it’s down about 10% year-over-year. I guess what’s driving that kind of year-on-year decline? Thanks.

Leon Topalian: Yes, Alex, I appreciate the question. As we look over the course of this year compared to last, we’re coming off historic highs, historic backlogs in volumes. And so some of that’s moderating. We’re seeing, again, continued robust demand in many of those sectors, particularly around non-risk construction, auto advanced manufacturing and the likes. Maybe provide a little more context on some of those long products and what we’re seeing in the marketplace today.

John Hollatz: Good morning, Alex. This is John Hollatz. I’ll speak specifically to long products. So you’ve got to keep in mind that when it comes to Nucor’s long products portfolio, we have the most diverse offering of any long product company out there. We’ve got rebar, merchants, SBQ and rod all mixed into those numbers. The rebar demand has remained steady. That’s about even with where it was last year as we would expect. Where we’ve seen some declines on the rod side and on the SBQ, you’ve seen inventory buildups over the course of last year that have been making their way down over the course of this year, and we’re feeling some impact of that. But again, the bigger portion of that is the rebar side, which remains very consistent.

Alex Hacking: Thanks Leon and John. It’s very helpful. And then I guess my second question, I guess, turning to the sheet side, shipments there modestly lower year-on-year despite adding 400,000 tons from Gallatin, your peers have generally been reporting shipments higher year-on-year. Sitting on the outside, it looks like maybe Nucor is happy to concede a little bit of market share in the short-term. Is that a fair assessment? Or is there kind of something else going on? Thanks.

Leon Topalian: Well, yes, I appreciate that. And a couple of things to note. And again, context is important in a number of different aspects, not the least of which. The second quarter of last year was historic for Nucor and really our industries. And so at that time, we’re peaking and setting records in about every category that you can imagine, including about 7 million tons of shipments in that quarter alone, 2.5 of which was in our sheet group. And so what I would tell you is we look at Q2 of this year, we’re not conceding market share. And in fact, we’re growing some of that. And I’m going to ask Rex Query to touch base and give you a little bit more flavor of that. Nucor is focused on providing a capability set out for our customers, again, not just volume.

At the same time, we’re not going to concede market share. We’re going to be delivered and how we ramp up. We’ve thought very deliberately about how we bring Gallatin on. I’m proud of what they and their team have done from a safety standpoint, from a reliability standpoint. And again, really taking a complete brownfield revamp of that facility while delayed, I’m really proud of the efforts that the team has made and now profitable and running at full run rate level. So Rex, provide a little more clarity for Alex around that in our market share gains.

Rex Query: Yes, Alex, appreciate the question. As Leon mentioned, second quarter last year really was extremely high in volume. So it matters where you start at when you look at that from — just a relative tonnage standpoint. So you saw, I would tell you, basically been stable. And as far as market share, if you go back to that time frame versus now in the last year, we picked up a couple of points of market share. For first quarter, we’re up about 4 points in market share. So from that standpoint, we’ve grown it imports, have decreased slightly over that time. So from a standpoint of someone else growing, they’re getting that from somewhere else, not from Nucor. At the same time, we’re expanding our capabilities. So you’re seeing us expand market share, but also expand our capabilities into our customers for higher quality products.

Alex Hacking: Thanks Leon and Rex. I appreciate the context and clarification.

Operator: The next question comes from Timna Tanners of Wolfe Research. Please go ahead.

Timna Tanners: I wanted to ask a bit more about your backlog. I know you talked about healthy backlogs. You alluded to some of the weakness in warehouses, but also talked about a healthy government program support. So just wondering if you could provide any further color, recent warehouse starts up on over 50%. Have you seen much weakness yet? What are your customers saying there and what are you seeing in terms of evidence of the government spending so far in your backlog?

Leon Topalian: Yes. Thanks, Timna. I’ll kind of start it because there’s a few different prongs that I want to touch on and maybe ask John Hollatz to touch on some of the flow-through effects that we’re already seeing in our order books. But I want to begin with the backdrop. If we take a point in time like June’s numbers of a drop of 53%. If you look at the overall year average, it’s about down 25%. And again, the 2023 overall forecast is 27% down year-over-year. But you’re coming off, again, historic highs. However, June, I think what you’re asking is June, an indicator that we’ve reached some different in a bigger decline that’s going to stay with us. I would tell you that it’s not indicative of what we’re seeing in our quoting data or backlog data.

And as we talk to our customers, customers the feedback, reports that we’re getting is, again, pretty resilient through the rest of the year. So it is off 2022 peaks. But again, as we think about maybe a 2017 to ’19 average, it is still significantly higher than that period of time. So John, maybe just provide a little context around what we’re seeing in terms of the infrastructure chips and IRA flowing through our mills.

John Hollatz: Yes. Thank you, Leon. Good morning, Timna. On the infrastructure bill, we’re really seeing still design and budgetary work being done on those projects. So we expect that would flow our way probably more at the end of this year, beginning of 2024. On the chip side, those projects are currently in motion. They are sitting in our backlog. Some have actually been delivered, and we’re seeing the benefits of that specifically on the rebar and rebar fabrication side. You asked about backlogs, I’ll touch on rebar fabrication. I’m really proud of what our team at Harris Rebar fab has done over the last year. We are comfortably going to have a record year in that business and the margin in our backlog right now is higher than it’s been at any time in our history since we have owned this business.

Our backlogs are down just slightly year-over-year. That’s by design where we were coming off of a record backlog a year ago. But we’re positioning ourselves because of our geographic footprint across the entire country to take advantage of this wave of work that continues to come with the CHIPS act and the infrastructure bill.

Timna Tanners: Okay. Thanks for that color. Very helpful. If I could sneak another one in. I just wanted to kind of clarify. I sensed a couple of comments from you guys about potential interest in further downstream M&A. Did I catch that right? And if so, can you elaborate on any of the criteria that you’re looking for in markets geography? Anything that you want to provide would be great.

Leon Topalian: Yes, Timna, I’ll touch on that. And part of the expand beyond for us is a few filters that I’ll share with you. One is a marriage up where we bring value as an industrial manufacturer, right, that there’s something to that we bring to bear. We’re not looking for disparate businesses, certainly not looking to become a conglomerate and again, having things that don’t marry up or we don’t bring value to. So that’s one. The second is scalable with that we can maintain or grow into a market leadership position. Third is looking for adjacencies that operate somewhat out of the traditional cyclicality of the steel mill world, right? So how do we provide a more stable earnings profile through the long-term. And again, the best example of that is our CHI overhead door business that is operated prior to us acquiring them at a 10% CAGR for 20 years.

And so their stability in that earnings profile is something that we look for a lot is we’re continuing to look. There are a lot of irons in the fire. I won’t get specific into the sectors, but other than to say as we look at the mega trends that are happening in our industry in the long-term, how do we continue to broaden that portfolio and again, increasing our value and capability set for customers and the returns for our shareholders.

Operator: The next question comes from Lawson Winder of Bank of America Securities. Please go ahead.

Lawson Winder: I just wanted to start off with your commentary on steel products and for those to moderate in Q2. And I ask whether you might be able to provide some more specific direction in terms of what moderation means? Like for example, would that be down like 2%, 5%, 10% versus Q2? Thanks so much.

Leon Topalian: Yes. Lawson, I appreciate the question. And I don’t know we’re prepared today to talk about that and provide that exact in that one specific end market. What I would tell you as we look to Q3, we expect volumes to remain pretty stable. Again, we think that business segment is pretty resilient. And again, we do see some slight contraction on the overall pricing that’s going to flow through. But again, at this time, I’m not going to provide a specific number.

Lawson Winder: Okay. That’s fine. I mean, that’s helpful what you’ve provided. And then I just also wanted to ask on Brandenburg. You continue to expect profitability in Q4. How does Q3 look? And then looking into 2024, how would you describe the profitability outlook for Brandenburg then?

Leon Topalian: Yes. I’ll ask Al Behr, our EVP over plate products to touch on it. I would just point out and tell you the excitement of Brandenburg to us internally and then to our customer segment in the marketplace has been extraordinary. It is the most diverse capable plate mill in the Western Hemisphere. The team has done a phenomenal job. Again, I shared earlier in my opening remarks about their ramp up and their ability today to produce 1 to 12 inches. Again, we’re excited about being in the heartland of the largest plate-consuming region in the United States. Al, do you want to just maybe provide a little bit of insight into Q3 and that ramp up and again our expected profitability by Q4.

Al Behr: Yes. Thanks. And I don’t know, Lawson, if I’m in a position to comment beyond on the profitability, what we’ve given you about achieving it in Q4. But I can talk a little bit about volumes as we look at the second half. And it’s heavily weighted towards Q4. So of the 300,000 tons, I’d say you’d see 100 that in Q3 and 200 of that in Q4. So that might help you to kind of pencil out what that looks like for the year. But as Leon said, we remain focused on the capabilities of that machine, which are extraordinary. We’ve hit several milestones even within the quarter over rolling a 12-inch finish plate. We’ve cast a 12-inch slab at that caster. We just continue to grow our capabilities in all the casting, rolling and finishing breadth that plant can do. We’re going to be strategic about rolling the tons out. We’re going to be careful and thoughtful about it, but I’ve given you about the best estimate we have on how the second half would look.

Lawson Winder: That’s super helpful. Thanks, Al. And then, when you think about profitability in that sector as well in terms of pricing, I mean, would you expect premium value-add pricing to start coming through in sort of 2024, just given the range of products that you guys will be producing there and the focus on those higher value-add products? Thanks.

Al Behr: Yes. Well, with regard to pricing, ultimately, the market is going to decide the pricing and supply and demand dynamics do that. I would say Brandenburg is primarily a discrete plate mill and discrete plate does carry a premium over hot-rolled coil plate so that mix will be helpful as you look at just backlog pricing and overall mix pricing, but that’s probably as much granularity as I could give you as we just look into the next year.

Lawson Winder: Okay. That’s all very helpful. Thanks very much guys.

Operator: The next question comes from Bill Peterson of JPMorgan. Please go ahead.

Bill Peterson: You discussed some fundamental changes that helped improve the efficiencies in the metal buildings and rebar fabrication. I can recognize that customers are realizing value in the business, but can you elaborate more on, I guess, what you’re doing internally, the internal efficiencies that led to the fundamental change or is there any room for further improvement down the road?

Leon Topalian: Bill, I appreciate the question. Over the last couple of years, really 3, 4 years, we’ve taken some very, very strong looks in evaluating our own internal portfolio, where do we gain efficiencies, how do we do align certain operations. And we largely feel that the overall footprint today geographically where we’re positioned as well as the product offering is a really good balance into the marketplace that in customer segment that we’re attached to and the dealer networks that we continue to have support and ultimately supply into. So I would tell you on that internal footprint, I think we feel very well positioned with the moves we’ve made to date. And while there will be continued efficiency gains, there’ll be more smaller in nature. We don’t see at this time further consolidation or closures in the future.

Bill Peterson: Okay. I appreciate the color there. Maybe turning to CapEx. It looks like you spent a little more than $1 billion in the first half of the year. How should we think about the cadence of CapEx in the back half of the year, I guess, taking into account projects like the West Virginia site or any other projects?

Steve Laxton: Yes. Hey Bill, this is Steve. Thanks for the question on there. And the back half is definitely going to be a much heavier spend on CapEx. We guided earlier in the year to an estimate of around $3 billion on the year. And of course, we spent only about $1 billion of that so far and the largest project that we have by far is West Virginia, and we’re about to enter a phase of construction there. So that’s going — in particular, that asset is going to ramp up rather quickly in the second half.

Operator: The next question comes from Carlos de Alba of Morgan Stanley. Please go ahead.

Carlos de Alba: You mentioned that you saw a lower cost conversion in the steel segment in the second quarter. I wonder if you can provide a little bit more color in terms of what do you expect for the third quarter, maybe the second half and what is driving those cost reductions? And then, yes, I have a second question, if I may, after.

Steve Laxton: Carlos, this is Steve. I’ll take that question. Generally, what you’ve seen since the midpoint roughly of last year is overall moderation in cost in general. And of course, that’s been reflected in the CPI data and more broadly in the economy, and we’re not any different than that. But in particular, energy is down around 20% year-over-year, for example. But you’re seeing some moderation in freight cost and supplies and services in particular. Those are some areas we’re seeing the biggest declines year-over-year in cost.

Carlos de Alba: And do you expect the level of declines in the second half to remain close to the 20% so that you mentioned for instance on energy?

Steve Laxton: Yes. I don’t know but I would project further decline necessarily, but we’re not seeing the increases that we saw last year.

Carlos de Alba: All right. Thanks Steve. And the other question I had is, so what we’re seeing is that in terms of square footage, commercial warehousing construction is coming down, manufacturing plant is increasing, but warehouse is just far much bigger in terms of area than manufacturing plants, at least where we stand right now, infrastructure is also picking up. I mean, how much exposure do you have to each one of these different segments between the non-residential construction sector? And how quickly, for instance, if you had more exposure to the commercial warehousing, how quickly can you adapt your product mix? So that you can sell more to those areas that are seeing expansions?

Leon Topalian: Carlos, I will attempt to answer that. So starting with the back half of your question first, our ability to pivot is instantaneous. And so again, we’re not making products for our own edification, it’s to deliver solutions to our customers that again, now Nucor has an incredibly wide and diverse portfolio this year on the website or looking at that slide deck. Today, Nucor produces and supplies into that typical warehouse structure. About 90% of the steel intensity needs are already being met. But you also have to keep in mind, and I’m not going to detail out what individualized percentage of the overall portfolio. But the warehouse piece for us is only a small piece of the overall mix when you think about insulated metal panels racking the joist and deck, the buildings, the towers and the entire portfolio of what Nucor brings to bear.

Again, the overall matrix for Nucor and that revenue stream continues to look very robust. And so while you’re seeing and you’re right about the reduction in overall square footage, Nucor’s earnings potential and you’re seeing our volumes pretty stable. We think there’s going to be a little bit of pressure as we get into Q3. But again, volumetrically, we have a very stable picture as we look out in the future. So again, I think it’s going to be a strong year for Nucor in our total portfolio of our downstream products. But again, I’m not going to break out the individual revenues for each of those components.

Operator: The next question comes from Cleve Rueckert of UBS. Please go ahead.

Cleve Rueckert: I think a lot of it’s been covered already. But Leon, I wanted to follow up on Timna’s question and just curious to understand what, in your opinion, needs to happen for you to generate returns comparable to the best manufacturing companies in the world. I mean is this really about vertical integration, or is there an opportunity to get there within your current business mix? And I’m just kind of curious what direction you are trying to –..

Leon Topalian: Fair question. And again, as you think about that as a backdrop, it really goes back to our launch in my time on taking over as CEO, where we rolled out our mission statement to grow the core, expand beyond and live our culture. So the expand beyond piece was really the lens in which we’re looking on, how do we continue to generate long-term growth and long-term earnings power for our shareholders. Part of that analysis and strategy has come back and embedded in the expand beyond that we are looking for businesses that generate more consistent through-cycle earnings profiles than the traditional cyclicality of the steel business. So at the heart of what we do well, we’re an excellent industrial manufacturer. So part of that overall analysis and backdrop is, well, if you want to be comparative against the industrial manufacturers, we’ve got to bring our cyclicality of earnings closer together.

We’ve got to provide a more stable return performance and profile to our shareholders. And so that’s really where the entirety of our time and spend and looking at expand beyond and what businesses we want to onboard that fit the long-term profile for Nucor that does just that, again, stabilizes that through cycle performance and again, generating higher highs and higher lows for our shareholders.

Cleve Rueckert: Yes. I appreciate that. I remember you had a slide kind of comparing the — I think it was HRC, margin versus the rebar margin in your Investor Day. So I guess, I’m just curious about whether you think you can achieve that margin stability in the steel industry? Or you need to kind of continue with the expand beyond strategy and —

Leon Topalian: Yes. Look, fair enough. And so I think there’s two things to think about there. One, we have seen substantive shifts in the industry. We’ve seen consolidation. We’ve seen rationalization, and we’ve seen a massive change in trade. If we go back 5 or 6 years ago in trade, for example and we have 50 cases that the industry had won against bad actors that were legally dumping or subsidizing steels. Today, that’s over 120. So while the overcapacity situation in the world will never ever be gone or advocacy has got to remain vigilant, Secretary Raimondo or Katherine Tai – USTR understand that incredibly well and are very supportive of the industry as well as the manipulation that can occur. When you look at the consolidation or rationalization in our industry it has created some outcomes that are much more advantageous that are stabilizing those earnings.

So I think with that, we’re going to get a much more consistent outflow. You saw back in November when we had our earnings day, our projected through-cycle EBITDA with the online of West Virginia. It’s about $6.7 billion so that’s the through cycle. So we expect peaks to be much higher. And quite frankly, we don’t expect the troughs that we saw pre-pandemic to occur for us. Additionally, though they expand beyond sort of shores that up. It embeds in that. And again, go back to CHI, we bought it at 13x today with the performance that it’s generated, it’s calculating now more like a 9.2x or 9.3x on that EBITDA value. So they continue to perform because there are synergies inside of Nucor that are going to grow that platform in that business segment.

Again, so together, I think that creates a very compelling case for why we believe we’re one of the best industrial manufacturers and certainly in the industry, while we ought to be — have a compelling story to trade at a higher multiple.

Cleve Rueckert: Got it. Thank you for all the detail. I appreciate that. And then just sort of one other follow-up on the demand side. We talked about it a little bit already, but you mentioned that the CHIPS Act is helping drive some rebar demand. On the infrastructure spending that’s been very slow to develop, but it sounds like it’s starting to kind of shift from planning to execution later this year. Where do you expect that to drive volumes within your portfolio? Is that again about rebar? I think in the past, we’ve talked about plate demand. Is it both — do you see a skew one way or the other as that spending gets unlocked?

Leon Topalian: Yes, look, fair question. I think you’re going to see it across our portfolio as you’re going to see in plate, you’re going to see it in longs and bar beams, you’re going to see in joist and deck, you’re going to see it in racking. You’re going to see it through the Nucor warehouse systems group and again, that build-out. So I think there’s going to be a fair distribution across Nucor’s portfolio that’s going to see an increase. The other thing to keep in mind Nucor’s overall volume, about 50% of that flows through the construction end markets in some form or fashion, and that’s targeting right in line with that all three pieces of those legislative investments from our nation and passages. So the position Nucor sits in today across those spectrums are well suited to deliver those outcomes. But again, you’re going to see that mix distributed fairly well across several of our product groups.

Operator: The next question comes from Tristan Gresser of BNP Paribas Exane. Please go ahead.

Tristan Gresser: The first one is basically a follow-up on the rebar. It seems manufacturing investment is supporting rebar spread at the moment. And if I understand your comments earlier, we’re still waiting for Infra to really kick in and that’s the most rebar-intensive part, I believe. So my question is, is infra to flow through? Do you see any reason why rebar metal spreads should actually fall into H2, and also, how do you address the input risk? The orbs are clearly open. We’ve seen rebar imports picking up in recent months. If you could comment on that as well.

Leon Topalian: Yes. I’ll kick this off, Tristan, maybe ask John to make a few comments. But again, our longs businesses, in general, have been our most stable earnings performers over many, many years. And so as we look to the back half of the year, yes, there’s some downward pressure. But again, the overall demand picture remains pretty robust. So we — like you, I don’t see this collapse in the second half of 2023 because, again, the underlying demand or backlog and again, having the breadth of exposure that we have knowing the customers the way we do. We again think 2023 will shape up to be another very strong year for Nucor again our customers. John, anything you want to add on that because I don’t know that I fully understood the second part of your question, Tristan, but any comments on the opening question?

John Hollatz: Yes. Tristan, ultimately, the market is going to demand margins on any products that we would produce, and we’re going to monitor that closely to making sure that we’re taking care of our customers. You had mentioned imports on rebar. Year-over-year, import volumes on rebar are down slightly. We’ve seen a reduction from Turkey. I think everyone’s well aware of what’s happening over there. You’re seeing some increased volumes coming out of Algeria, Egypt and Mexico. But overall, year-over-year, it’s actually down by comparison.

Tristan Gresser: Okay. So that’s really helpful. So the real pressure of late from imports. Okay. And my second question is pretty similar, is actually on plate. If you can discuss a little bit the demand outlook. I mean it seems you haven’t seen also the impact from higher infrastructure spending, which I think can benefit a lot your plate business. But can you also discuss a little bit what you’re expecting in terms of the ramp-up of offshore onshore wind in the U.S. and how could that carry you maybe in the back half of this year, but especially in years moving forward? And any type of pressure you are also seeing maybe on plate metal spread recent months in the near term? Thank you.

Al Behr: Yes. Tristan, this is Al Behr. I’ll speak a little bit to plate demand. When we just look at the general market. There are several areas of strength that we see carrying through the rest of the year. Ag and heavy equipment remain fairly strong. Onshore wind has picked up with the passage of the IRA and brought some clarity to opportunities there, service center buying has picked up versus a year ago. So those are all tailwinds to demand. And we think the plate market will continue to be fairly strong through the rest of this year. You asked about offshore wind. That’s certainly a big opportunity for plate, and we watch that closely. The easiest way I can tell you is it takes about 250 tons of steel for every megawatt of offshore wind put in place.

So you really have to come back to what you think is going to be built in any period of time offshore, and there’s a wide spread in those estimates, but it takes about 250 tons per megawatt to execute that. We don’t see that coming this year or even much into next year. But I think it’s a huge opportunity for plate that as the years beyond that start to play out, there’s a lot of tons that feature that math. Closing up real quickly on the other infrastructure parts and the spending you asked about. We do see that in plate. There is a lot of opportunity that creates in plate. We’re starting to see that today with Bridge work, especially much more to come and it’s just in its early stages, but that money on those opportunities are starting to present in the market.

Operator: The next question comes from Martin Englert of Seaport Research Partners. Please go ahead.

Martin Englert: Wanted to switch. There’s been a lot of conversation about government spend and incentives, but about private sector and what’s happening with manufacturing. What conversations are you having, if any, with customers that may be in the process of reshoring manufacturing or considering it in the future regarding their steel and metals needs when you think out several years ahead here?

Leon Topalian: Yes. Maybe I’ll kick it off and let Dan Needham, our EVP over commercial, maybe give some broad context. But we’re having a lot of those conversations and have actually for the last year, and year-and-a-half about what does that look like? Again, with all the negatives of COVID, one of the things that it did and I believe in this country is it showed our overdependence to foreign nations on many, many things, not just steel, but pharma and PPE and medical devices and the like. And so you’re seeing that move come back and you mentioned the semiconductors, and I’ll touch on that and turn it over to Dan. But when we were running short on semiconductors, it obviously has massive impacts through the automotive sector, but others as well in HVAC and other industries that are dependent on those.

So with the CHIPS and Science Act, $55 billion piece of legislation passed that now put to date, 34 projects on the books to be built in the United States, totaling $374 billion of build-out, very steel-intensive type buildings. And some of those individuals are massive, $20 billion, $23 billion, $25 billion investments in single plants. So as we talk to those customers and the GCs and the architects and engineers, to partner with them. The size and scale of that reshoring effort is massive. It is not inconsequential. It is a significant overall volume of the ADC. But Dan, maybe just provide it as well another backdrop as we think about our customer interactions with infrastructure and IRA.

Dan Needham: Sure. Appreciate the question, Martin. If you think about the breadth of our capabilities today that we’ve talked about throughout this call, our ability to go into customers now today and give them opportunities or solutions around how we can help them with this reshoring is unbelievable. And that’s what we’re doing every day today. Taking advantage of that, having those conversations, leveraging our groups, what we call solutions, particularly construction solutions where we have technical capabilities. We have the breadth of our capabilities throughout Nucor to go in and provide solutions in a lot of ways, turnkey solutions to what they need going forward. So we’re having many of those conversations today, and that’s our focus as we go forward.

Martin Englert: Okay. And looking past the build-out of these facilities. So just taking it a step or two forward, I guess, if a semiconductor plant is built in producing, it’s probably not moving the needle for steel and metals demand. I guess I’m curious maybe next step, what you’re seeing as far as like steel and metals intensive consuming industries like after the build-out or if you’re having customers that are talking to you about needs there, hey, we’re sharing whatever type of manufacturing facility that’s going to be consuming more steel and what you’re hearing there anecdotally.

Leon Topalian: Yes. Martin, look, I think anecdotally, you’re right, a single individual plant may not move the needle for Nucor a 30 million tons a year of capability and capacity. However, if you look at the aggregate, if you look at the next 10 years, which is really the cycle these legislative bills are built up on or you’re talking about somewhere between 6 million and 8 million tons of steel demand annually for 10 years. Well, that’s 7% or 8% of our overall ADC in this nation. And so it’s not going to spike the United States as an industry to move from 105 million or 110 million tons of steel consumed to 180 or 190 but it’s a strong indication of a long-term trend that’s going to be here. But the other pieces of that, and I think at the heart of your question are — and what are those regions that Nucor is positioning itself to offer?

Well, one of those, for example, is towers and structures. That is a massive growing industry. We’ve announced our small acquisition with some in industries we’re very excited about. We just announced our two greenfield plants that are going to be built to continue to ramp that business up and growing it because every one of those transmission lines, every one of those towers and structures are individually designed by the utility themselves. So again, with our breadth of exposure and engineering and pipeline, we marry up really, really well to serve that industry and that market again for a long period of time. So while the individual plan, you’re right, may not move the needle. You’re also talking about a decade worth of work. So this is not short-term in the legislative side, but the other investment piece that you’re seeing at Nucor is to identify those megatrends that will be growth platforms, again, for many, many years to come that are outside of those legislative windows as well.

Automotive being another one, energy and renewables out touched on the plate. We are the only producer in the Western Hemisphere that can make the monopiles for the offshore wind, what position [indiscernible] Brandenburg for the long term build-out of the renewable sector in this nation. So there are many of those industries that we’re coupling and again, building capability sets today because that’s where we know the industry is moving.

Steve Laxton: Martin, I’d just add one thing to what Leon said, anytime you see manufacturing growth, there’s a multiplier effect in the economy, and there’s a rippling and cascading effect for years to come. So all the jobs to get created from those various investments create follow-on subsequent investments, things like schools, housing, non-risk construction group, and that typically shows up a number of years later has, like I said, a cascading sort of effect. So that CHIPS Act will promulgate an awful lot of value for new form in the steel industry over — longer time.

Martin Englert: That’s a fair point. I appreciate you highlighting that. One quick follow-up. On the Colors & Structures business, if you look through the supply chain there, are there any other adjacent businesses that made sense to pair up with that, or there be synergies and potential scale and fits the framework that you previously detailed for the beyond strategy here? Or is it more so there’s steel in the supply chain that’s kind of fits with that and some engineering capabilities and then it’s right to the customer and there’s not something more vertical or horizontal that might pair up with it?

Leon Topalian: Well, now we need to bring you in the executive strategy session we have. So the answer is yes to all of the above as Nucor and Chad Utermark leads our new markets and innovations team, the towers instructors team, the M&A team are all sitting down, identifying and doing exactly what you just shared. Where are the trends? Where are the supporting structures unintended to augment this business to continue to provide adjacencies where we believe there is value to be added. We’re doing the same thing as you look at the slides on the warehouse buildings and structures where else can Nucor marry up. So as Dan Needham pointed out, we can walk in with a complete packaged solution for our customer set. We’re doing the same thing in automotive.

And you’ll see in the coming months that we will release the same type of slide that does the cross section of the automobile. Where are we today? What are we targeting and where will we be in the next 3 to 5 years because our anticipation is that we’re going to double our volumes into the automotive industry. West Virginia, for example, is targeting about roughly a third of their overall mix to be in automotive that from an individual plant standpoint would be the largest volume per capita into that sector. So again, we’ve got a lot of plans built into how we continue to grow this company and where we’re going to position it for future growth.

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Leon Topalian for any closing remarks.

Leon Topalian: Thank you. And I want to thank the Nucor team for delivering a great and safe first half of our year. Let’s continue to make sure we take care of our most important value, the health, safety and well-being of the entire 31,000 Nucor team member family. Thank you to our customers as well and allowing us the privilege to serve you with each and every order. And finally, thank you to our shareholders for the trust that you’ve placed in us to be great stewards of the valuable shareholder capital that you’ve entrusted us with. Thanks for your interest in Nucor and have a great day.

Operator: The conference has now concluded. Thank you for attending today’s presentation and you may now disconnect.