Costs Hammer Away at Nucor's Fourth-Quarter 2010 Earnings as Outlook for 2011 Improves

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Researched by Industrial Info Resources (Sugar Land, Texas)--Leading steel product manufacturer Nucor Corporation (NYSE:NUE) (Charlotte, North Carolina) reported a net loss for fourth-quarter 2010 that was largely due to higher costs and expenses, although production and sales improved when compared to the same period in 2009. For the full year, the company saw solid improvements in production, sales and profits when compared to 2009, partly due to stronger pricing.

The company reported a net loss for the quarter of $11.36 million, compared with a net income gain of $58.91 million in the same period of 2009, and net income of $134.09 million for the full year, compared with a loss of $293.61 million in 2009.

Net sales stood at $3.85 billion for the quarter, a 31.17% increase from fourth-quarter 2009, and $15.84 billion for the full year, a 41.59% increase from 2009. Scrap and scrap substitute costs were among the biggest to eat away at revenue in the fourth quarter, increasing 30% from fourth-quarter 2009. Nucor also saw increases in full-year pre-operating and startup costs for new facilities, which totaled $39 million, and $10 million in expenses associated with the closing of a site in Western Australia.

"A sharp escalation in scrap prices late this fall outpaced our ability to realize mill price increases in time to benefit the fourth quarter," said Jim Frias, the chief financial officer of Nucor, in a conference call. "The margin compression was greatest at our flat-rolled mills."

Nucor's mills produced 4.47 billion tons of steel in the fourth quarter, a 20.15% increase from the same period in 2009, and 18.26 billion tons in the full year, a 30.43% increase from 2009. Total shipments from steel mills stood at 4.57 billion during the quarter, a 16.62% increase, and 18.57 billion in the full year, a 32.32% increase. All of Nucor's major segments, with the exception of the Deck segment, saw improvements in sales for the quarter and the year:

• The Steel Mills segment reported sales of 3.84 billion tons for the quarter, a 14.01% increase from the same period in 2009, and 15.82 billion tons for the year, a 31.02% increase from 2009.
• The Joist segment reported sales of 74 million tons for the quarter, a 5.71% increase from the same period in 2009, and 276 million tons for the year, a 4.55% increase from 2009.
• The Deck segment reported sales of 76 million tons for the quarter, a 2.56% decrease from the same period in 2009, and 306 million tons for the year, a 1.29% decrease from 2009.
• The Cold Finished segment reported sales of 111 million tons for the quarter, a 27.59% increase from the same period in 2009, and 462 million tons for the year, a 40% increase from 2009.
• The Fabricated Concrete Reinforcing Steel segment reported sales of 230 million tons for the quarter, a 9% increase from the same period in 2009, and 981 million tons for the year, a 2.83% increase from 2009.
• All other segments reported total sales of 1 billion tons for the quarter, a 21.72% increase from the same period in 2009, and 4.17 billion tons for the year, a 14.55% increase from 2009.

Nucor officials said that the most challenging markets continue to be those associated with residential and non-residential construction, and that raw material costs will remain volatile during first-quarter 2011. But they believe that end markets overall are seeing a real improvement in demand that will continue throughout the year. Positive pricing trends are expected to continue through second-quarter 2011, benefiting the company's earnings.

"As we enter the first quarter, the trend of improving market conditions that began in the fourth quarter has continued," Frias said in the conference call. "We have been able to significantly raise mill selling prices in response to rising raw material costs."

Nucor received air quality permit approval last week for a direct-reduced iron-making plant in Louisiana. This could pave the way for construction to begin early this year on the first phase of a multi-phased $3 billion iron and steel mill complex in Saint James Parrish, Louisiana.

Industrial Info is tracking 32 active Nucor projects in the U.S. that are worth more than $4.3 billion, including a $25 million equipment upgrade at the Huger Berkeley Steel Mill in Huger, South Carolina. The project includes the long-term modification and upgrading of a melt shop, casters, a rolling mill, finishing equipment and supporting equipment to improve operations for potential new markets. For more information, visit Industrial Info's North American Metals & Minerals Project Database.

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