Last time our consulting firm found several major points of question and recommended solutions. Some of these recommendations were implemented with excellent success. The first and most arduous problem we examined was of expansion. Our recommendations for expansion were put into effect with several projects in various stages. In the past several months, the company has announced plans to build a structural mill next to its flat-rolled plant in Berkeley County, South Carolina; a mill for pickling and oiling, cold rolling and galvanizing hot-rolled coils in Hickman, Arkansas, and plate mill in Hertford County, North Carolina. The second task we dealt with was whether or not Nucor should add another layer of management. Our second recommendation toward adding another layer of management was also implemented. Nucor Corp. promoted two plant managers to newly created position of executive vice president. The addition of a layer of management is a response to the Nucor’s significant growth over the past several years and signals that it might be interested in acquiring other businesses.
According to October issue of Wall Street Journal, the steel-makers have the capacity to produce 869 million metric tons, or 956 million short tons, of steel annually – 15% more than can be consumed. Even though the consumption of steel is below average, Overall companies continue to expand production about 2% year in a losing attempt to gain profit. Nucor Corporation is still the king of mini-mills and is currently the second largest steel-maker in America, which produces 9.7 million tons of steel in 1999, up 15% from the year before. Nucor has accounted for 83% of the U.S. steel industry’s growth in shipments during last decade. This is because of Nucor’ s diverse product mix and low cost structure (scrap-based, non-union mini-mill) were clear factors in Nucor’s earnings out-performance this year, and should further differentiate Nucor over the next year if the steel market remains weak.
Despite Nucor’s superior attributes and ability to generate strong earnings and free cash flow even during trough market conditions, the share price has suffered along with all steel equities as driven by a severe weakening in the steel cycle over the past five months. However, we feel it is important to note that Nucor is partially insulated from volatile steel markers owing to its steel consuming business (steel joists and decking), which account for more than 25% of sales and even more of profits and provide the company with geographic and product diversity. Also, the price for scrap, which account for 60% of total cost, has continued to trend downward (along with steel pricing), which should provide further support for margins in the next year.
