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Nucor Corporation (NYSE:NUE)

Q3 2009 Earnings Call

October 22, 2009 2:00 pm ET

Executives

Daniel R. DiMicco - Chairman, Chief Executive Officer, and President

Terry S. Lisenby - Chief Financial Officer

John J. Ferriola - Chief Operating Officer, Steelmaking Operations

Keith B. Grass - Executive Vice President

Ladd R. Hall - Executive Vice President

Hamilton Lott - Executive Vice President

Michael Parrish - Executive Vice President

Joseph Stratman - Executive Vice President

James D. Frias - Vice President and Corporate Controller

Analysts

Kuni Chen – Bank of America Merrill Lynch

Brian Yu – with Citi

David Lipschitz - CLSA

Timna Tanners – UBS

Unidentified Analyst

Luke Folta - Longbow Research

Mark Parr – Keybanc Capital Markets

Sal Tharani - Goldman Sachs

Operator

Good day and welcome to the Nucor third quarter earnings release conference call. Today’s conference is being recorded.

This webcast may contain forward-looking statements as defined in section 27A (NYSE:I) (1) of the Securities Act of 1933 as amended including statements regarding, among other things, the company’s business strategy and growth strategy. Expressions that identify forward-looking statements speak only as of the date this statement is made.

These forward-looking statements are based largely on this company’s expectations and are subject to a number of risks and uncertainties, some of which cannot be predicted or quantified and are beyond their control. Future developments and actual results could differ materially from those set forth in, contemplated by, or underlying the forward-looking statements. In light of these risks and uncertainties there can be no assurances that the forward-looking information will prove to be accurate.

At this time I would like to turn the conference over to Mr. Dan DiMicco.

Daniel R. DiMicco

Thank you for joining us for Nucor’s conference call. We appreciate your interest in our company. Joining me for today’s call are Chief Financial Officer, Terry Lisenby; Chief Operating Officer of our Steelmaking Operations, John Ferriola; and Executive Vice Presidents; Keith Grass, Ladd Hall, Ham Lott, and Mike Parrish. Joe Stratman is joining us by phone and will be available to answer questions. Joe Rutkowski is traveling on business today and will not be available for the call or questions. Also joining us is Jim Frias who will be succeeding Terry Lisenby as CFO when Terry retires at the end of this year.

After briefly reviewing our third quarter results, we will as always take your questions.

First and most importantly, as always, I want to say thank you to all members of the Nucor team for getting the job done best as they always do, through your strong commitment to safety, continued improvement, and taking care of our customers. Such is this time of hardship and difficulty for everyone on our team at Nucor and our Harris Steel and David J. Joseph subsidiaries. I want to say how extremely proud I am of the way our people are responding to these unprecedented challenges. They are signing with their “can do” attitude as they take personal responsibility to add value to Nucor, and their work is positioning our company to come out of this downturn stronger than we entered into it. Again, thank you; keep up the great job each and every one of you is doing for the Nucor team. We’re working together safely to see that Nucor’s best years are still ahead of us.

Third quarter 2009 total steel shipments and production increased by more than 40% from second quarter 2009 levels. With the flexibility of both our people and our equipment, Nucor’s steel mill teams are able to respond quickly to our customers’ needs in today’s market environment of tight credit and low inventories. John Ferriola will discuss further this very important point in his remarks. The Nucor team’s constant drive for continual improvement is already delivering big payoffs in cost, quality, and new product development. I am always amazed and impressed how the ingenuity of my teammates on our division share with me examples how they have figured out new ways of taking cost out of the business and broaden our product ranges. And while many of our competitors lay off employees and depress markets, Nucor’s teammates are still on the job doing things to make our business better.

All of this highlights the value of Nucor’s business model. During the good times we run our business so that we’re ready for the inevitable cyclical downturns and during the downturns we’re well positioned to take advantage of the inevitable opportunities to grow stronger. Nucor team has worked hard and worked efficiently in managing our working capital and cash flow. As part of these actions our sheet mills have done an excellent job accelerating the consumption of inventories of high-cost pig iron purchased prior to the collapsing economy and raw materials pricing late last year. While severely penalized, our reported earnings for the first time much of this year, it was a good business decision to accelerate the consumption. It has improved both our cash flow generation this year and our operating flexibility moving forward. Our team’s talent drive will continue to pay off for Nucor’s shareholders in the ongoing challenging steel market conditions.

Apparent demand did increase in the third quarter due to the end of customer destocking. However, there has been no meaningful real improvement in end-use demand. The fourth quarter will also present the usual seasonal issues driven by the holidays and the year-end plant shutdowns by customers. While our fourth quarter results will benefit from significant improvements in raw material costs, our results could be negatively impacted by the potential of lower operating rates in both sheet and bar products. Customers are currently taking advantage of short mill lead times which adds to the difficulty of forecasting volumes for the fourth quarter. We will again provide quantitative guidance in the final month of the quarter.

Consistent with views we expressed in our last conference call, we believe real demand is in for a long slow recovery. This outlook reflects the very serious structural imbalances that created the current economic crisis. The imbalances are excess of leverage, artificially induced consumption from the credit bubble, and mercantilist trade abuses. Even worse, our nation’s leaders, both the Democrats and Republicans have yet to define properly the real problem facing our economy and our nation. These structural imbalances must be fixed with pro-growth policies. While we argue over healthcare and global warming for short-term tax cuts and tax fair handouts, the US economy continues to suffer a massive hemorrhaging of jobs.

Since the current recession began in late 2007, job losses in the United States now total over 8 million jobs. In addition, our economy needs to be generating about 150,000 new jobs every month just to provide enough jobs for those entering the workforce after completing their education. If you add these to the needed new jobs, not created to hold those lost job creation need over the next 5 to 10 years is huge, totaling 11 million jobs, we have a jobs creation crisis in our midst. We’re not done losing jobs and not done creating the need for new ones; so those numbers will be getting bigger over the years. We should also keep in mind this is not inclusive of the 4 million manufacturing jobs that disappeared between 1999 and 2007.

Unfortunately we’re still not done because when you factor in part-time workers unable to find full-time jobs and discouraged workers who have given up finding a job, the real unemployment rate is closer to the U6 Bureau of Labor statistics analysis of 17.5%, but the numbers are bigger yet. Again, these are not our numbers, but US Bureau of Labor Statistics Unemployment Measure, known as U6, as opposed to the commonly reported U3 unemployment number of 9.8%. At 9.8% U3 number again does not include involuntary part-time workers and discouraged workers who have given up looking for work, both at record highs.

You decide which unemployment measure is more accurately affecting our true economic reality. Better yet, ask those Americans. You can start by talking to all the Nucor teammates who have not been laid off but are working part-time today. The time is long over due for policies of the United States which attacked the real problem; jobs, jobs, and jobs. We do this by rebuilding our balance in trade, rebuilding our credential and infrastructure, and rebuilding our energy infrastructure. Failure to implement policies to accomplish this will only give us the grand-daddy of all jobless recoveries and a longer, slower, protracted economic recovery. The current macro-economic and industry conditions are what they are. The Nucor team looks ahead with great determination and great confidence in our ability to continue to be a steel industry performance leader regardless of the economic landscape. Our team will find a way to get it done as they always have and they currently are doing.

The foundation of Nucor’s business model is the adaptability and flexibility throughout the cycle which has been proven over more than four decades. Whatever path the economy or the steel industry condition has taken in the months ahead, Nucor is extremely well positioned to deliver attractive returns to our shareholders. As you’ve heard me say many times before, the key building blocks of our business model are both simple and powerful. They include Nucor’s strong balance sheet, Nucor’s highly variable and low-cost structure, Nucor’s diversified product portfolio, Nucor’s highly flexible production process, and most important of all, Nucor’s highly productive people, the right people with a ‘can do’ attitude to get it done.

At this time I would like to ask our CFO Terry Lisenby to fill in some of the details.

Terry S. Lisenby

Nucor reported a third quarter loss of $30 million or $0.10 per share. Our guidance issued last month was for a loss in the range of $0.15 to $0.20 per share. The third quarter results represent significant improvement from this year’s second quarter loss of $133 million and the first quarter loss of $190 million. As Dan noted we had a substantial burden from accelerated consumption of high-cost iron units purchased prior to the abrupt downturn in economic activity late last year. For the third quarter we estimate this negative impact was approximately $180 million, about $0.37 per share after tax. For the first nine months the negative impact was approximately $420 million or about $0.87 per share after tax. That compares to our reported losses of $0.10 for the third quarter and $1.12 for the first nine months. By the close of the third quarter we completed the usage of those high-cost raw materials.

Pre-operating and start-up cost of new facilities have increased this year. For the third quarter these costs were $47 million, up from $32 million in the second quarter and $30 million in the year-ago quarter. For the first nine months they were $112 million, up from $75 million last year. In 2009, these costs primarily relate to the SBQ bar mill in Memphis, Tennessee, the Castrip facility in Blytheville, Arkansas, the proposed iron-making facility, and the galvanizing line in Decatur, Alabama. These are all attractive investments that will grow Nucor’s long-term earnings power.

Our success in reducing inventories allowed Nucor to enjoy healthy cash flow in this period of very depressed economic activity. Cash provided by operating activities for the first nine months of 2009 was $958 million. During cyclical downturns, Nucor’s cash flow benefits from a counter-cyclical cushion provided by lower scrap and steel prices reducing the working capital requirements of our businesses. In contract, a year-over-year adverse swing of $2.1 billion in net income for the first nine months, cash flow provided by operating activities declined by only $364 million over the same period.

Nucor’s liquidity position remains extremely strong. At the close of the third quarter, cash and short-term investments totaled over $2.2 billion. Our liquidity position is enhanced by the fact that we have no borrowings under our $1.3 billion unsecured revolving credit facility which does not mature until November 2012 and we have no outstanding commercial paper.

Debt totaled $3.1 billion at the end of the third quarter for a debt-to-capital ratio of 29%. Our next debt maturity is not until 2012, and $2.1 billion or 70% of Nucor’s total debt matures in 2017 and beyond.

Nucor’s shareholders continue to benefit from our work raising capital in the first half of last year. We issued $2 billion of equity and $1 billion of long-term debt on very attractive terms. It has allowed us to avoid any costly capital raising in 2009’s difficult capital market conditions. Our team is also very proud of the fact that we have maintained Nucor’s strong financial position without laying off a single Nucor employee through this unprecedented downturn. I agree with the point made by Dan in his comments. This no-layoff practice over more than 40 years is a direct result of our employees’ productivity and constant focus on adding value to Nucor.

Capital expenditures for the first nine months of 2009 were $316 million. For full year 2009 we project capital spending of approximately $400 million. First nine months of 2009 depreciation and amortization was $422 million and we expect about $570 million for the full year. Nucor is in a position of strength to build on our company’s long tradition for being effective stewards of our shareholder’s valuable capital. My confidence has never been greater that Nucor’s best years are ahead of us. The reason for my confidence is this; the Nucor team has the right people to get the job done.

Earlier this week I announced my plans to retire from Nucor at the end of this year. After a 24-career with Nucor and serving as CFO for the past decade, I feel that the time is right to transition to the next generation of financial leadership of Nucor. My successor will be Jim Frias who is currently Vice President and Corporate Controller. Jim is an 18-year veteran of Nucor. He brings to the job valuable experience in financial leadership roles, both at operating divisions and here at corporate. Jim has especially demonstrated his leadership skills of Nucor’s very successful capital raising work in 2007 and 2008. Jim is ready for this job and he will be an excellent Chief Financial Officer, and as always, thank you for your interest in Nucor.

Daniel R. DiMicco

Thank you Terry and thank you for the outstanding contributions you have made for our team over the past 24 years. Even after you retire you know you will always be a member of the Nucor family and we will be calling on you for your advice and guidance on a regular basis. I also want to second Terry’s comments about Jim Frias. Jim is ready, capable, and looking forward to working with the rest of the team in his new capacity.

I will now ask John Ferriola to report on our steel mill and raw material business.

John J. Ferriola

Let me begin by thanking all team members at our Nucor steel mills, at our David J. Joseph and New Iron Raw Material operations for your outstanding commitment to working safely and taking care of our customers. I am extremely proud of the work you’re doing in these very challenging market conditions. I will again emphasis the importance of everyone staying focused on safety. Our hard work today is going to pay big dividends to Nucor in the future. We want all of our teammates to be around to enjoy the benefits of their hard work.

Dan has already touched upon one of our most important achievements of the third quarter. Nucor Steel Mills were able to quickly respond to increased demand from our customers after their inventory destocking ended this summer. Our steel making assets and most importantly our people are powerful, competitive advantages for taking care of our customers in a quickly changing market, one where steel buyers want to minimize their inventory levels. The keys to this operational flexibility are our equipment and the Nucor employees who operate our electric arc furnaces production process which can be turned on and turned off very quickly, literally in a matter of hours, and since we have continued our longstanding no-layoff practice through this downturn, our people are on the job, ready to take care of our customer’s needs for high-quality steel.

Third quarter steel mill capacity utilization rates tell the story of Nucor’s operating flexibility. Our third quarter rate of 69% is up from 46% in the second quarter, and it compares to an industry third quarter average rate of 55%. Our utilization rates were up in all products, but most dramatically in sheet and plate. In a still very unsettled economic environment, we will continue to capitalize on our production flexibility as well as Nucor’s unmatched product diversity that provides our customers with one-stop shopping opportunities.

I also want to thank our David J. Joseph teammates for their excellent work capitalizing on the strong ferrous and non-ferrous scrap markets of the third quarter. DJJ has already been an excellent addition to the Nucor family, and it will continue to provide attractive returns going forward.

Steel demand remains weak across all product roots. The increase in the overall US industry average utilization rate to the current level of about 60% is the result of customers no longer destocking their inventories. It is not the result of any improvement in real demand. End-use markets remain very soft while the cash for clunkers program did create a temporary spurt in automotive demand, it is already apparent that heavily indebted consumers are again staying away from the automotive showrooms, and the impact on infrastructure spending from the US Government’s economic stimulus package has been nonexistent. I will repeat what I said on our last call back in July. Our expectation is for no significant improvement in end-use demand over the balance of this year. Our view remains the same today; however, on a positive note service center inventories remain at relatively low levels. Months of supply for all products were 2.3 in September.

Nucor steel mills and raw material teams are not sitting back waiting for a better economy. Our focus remains on outperforming our competitors with superior quality, service, and delivery. For Nucor, downturns do not create challenges. For Nucor, downturns create opportunities. We have a number of exciting projects underway to continue Nucor’s proven track record coming out of downturns stronger than we enter them. We’re continuing to grow our earnings power for the years head.

Here are some quick updates on just a few of the projects. Our new galvanizing facility at our Decatur, Alabama sheet mill began production in the third quarter and is also in excellent stock. In fact, customers have told us that the surface quality of the initial output has far exceeded their expectations. By the end of November, our Decatur team will have successfully produced to the full width and gauge of the equipment capability. Congratulations team Decatur and thank you.

Commissioning has begun on our second Castrip production facility which is located at our Nucor model mill in Arkansas. Our Castrip Arkansas team supported by the Castrip Indiana team did an outstanding job of completing this project on time and on budget. They have had a great startup and expect to have product available for customers by the end of this year.

In November, we will begin commissioning our Arizona wire rod and bar mill. With an investment of just $50 million and an annual production capacity of 500,000 tons, this is a very attractive asset that will allow us to better serve our wire rod and rebar customers in the south western US markets. When there is sufficient recovery in market demands, our Nucor team will be ready to roll in every sense of that word.

We continue to grow our international footprint. Exports represented about 11% of our steel mill shipments in the first nine months of 2009. Nucor is uniquely positioned among US steel producers to capitalize on attractive export opportunities. Over 60% of Nucor’s steel production capacity is on the quarter. In the third quarter we opened a sales office in Rio de Janeiro to serve the important markets of Brazil and Central America. In the fourth quarter we will open our first international sales office in the Middle East located in Dubai. This office will complement our existing international sales offices in Europe, Mexico, and Brazil. We will continue to grow our international sales and trading platforms.

In conclusion, we’re very excited about the opportunities we see ahead to grow our long-term earnings power in Nucor’s steel making and raw material businesses. And as always, we appreciate your interest in our company. Thank you.

Daniel R. DiMicco

I would now ask Ham Lott to update us on Nucor’s fabricated construction products businesses.

Hamilton Lott

Demand remained extremely weak for fabricated construction products through the first nine months of 2009. Compared with the year-ago period; steel joist production decreased 50%, steel deck sales declined 40%, metal buildings volumes fell 53%, fabricated rebar tonnage did increase 11%, but this was due to the volume contributed by the Ambassador Steel Fabrication Plant acquired by Harris Steel in August 2008.

Nucor has over four decades of experience in managing through down cycles in fabricated construction products markets. Our people take advantage of the downturns to grow stronger and that is exactly where our energy is focused in the current economic turmoil. I want to say thank you and keep up the good work to all of our team members at Harris Steel, Nucon Steel, Nucor Buildings Group, Verco, and Vulcraft.

Daniel R. DiMicco

I would like to second a thank you to those teams. At this point in time, we’re done with our presentation and would now be happy to take your questions.

Question-and-Answer Session

Operator

(Operator Instructions) The first question comes from the line of Kuni Chen with Bank of America Merrill Lynch.

Kuni Chen – Bank of America Merrill Lynch

Just to start off the question on utilization rate and sustainability there, three months ago, I think you had seen utilization in the mid 50% range, and you said at the time that you did not see a lot of upside from there, and certainly the way you guys ran in the quarter suggested there was meaningful upside, so perhaps you’re a bit too conservative last quarter, but do you worry at this point that you perhaps overshot the market a bit? Obviously maybe there is some downside here in the fourth quarter, but do you look at 70% as a steady-state utilization as you look into 2010?

Dan DiMicco

Kuni, all along what we said is that with respect to the demand in the marketplace, the apparent demand will continue to increase to meet real demand as we work through this year and customers work down inventories to what they found as acceptable levels in these tight credit markets and with the economic slowdown that we’re all facing. So as far as where the utilization rates ended up at any point in time, we knew that they would be improving, but we did not in all honesty anticipate they would be improving particularly in some products the levels we saw in the third quarter, and we were pleased with that, and our team was able to respond that, and as far going forward, what we stated in our press release and in our conference call notes really should be taken to heart because in the fourth quarter typically you have issues with the holidays and with seasonal shutdown at many of our customers’ facilities. Of course with the economic conditions being what they are, those could be extended or compounded in terms of how many days are actually taken and shut down. In addition to that, we do not believe that real demand, as John had mentioned and I talked about earlier, has really improved much since the end of last year, and we don’t see things in the economy from a flat roll standpoint or long product standpoint whether you’re talking automotive, construction, housing, non-residential construction, oil county goods or what have you, we don’t see that there is a real uptick in the demand there, and a lot will depend on how our customers approach the year-end and their inventories and what they want to be carrying on their books and their order entry rates as to whether or not they continue to order at real demand levels or back off. There is a tremendous amount of uncertainty with respect to the fact that lead times at all mills are very short, and the customers because of the credit crunch, because of their own cash considerations, and again the slowdown in the economy which has not picked up despite what a lot of people like to talk about in the press and maybe Wall Street, the segment of the economy that we serve which is the real core of the economy is not improving, so what we are looking at is a situation where that uncertainty could translate into less volume coming in, lower capacity utilization in the fourth quarter, but it’s just not something that we can forecast because of the short lead times that our customers are taking advantage of and they are smart to take advantage of. It would be exactly the way that we would be running those businesses if we were in their shoes, so that all compounds the situation. We do a significant drop off in raw material costs that we will see in the fourth quarter, but how much benefit we get from that will depend on what the actual volumes are, so when you see that $180 million number that we talked about for third quarter and second quarter with respect to the pig iron additional cost associated with the higher pig iron consumption, that would only be a similar number if we produced and shipped the same number of tons or greater in the fourth quarter than we did in the third quarter. So you have to take the volume and factor into account there, the potential for a slowing in order entry activity because of the situations our customers at year end will find themselves in and the seasonal shutdowns, so we are cautious about that. We’re not going to get out upfront on this thing, and we will update everybody when we get to the later part of this quarter to give you more quantitative sense for where things are at. We certainly at this point in time are feeling better about the profitability in the fourth quarter, but we know that there is still a lot of uncertainty and an opportunity for there to be some reduction in capacity utilization. Whether it is a peak for any period of time or just a short-term peak due to fourth quarter concerns remains to be seen, and we’ll know more about that when we get into next year.

Kuni Chen with Bank – America Merrill Lynch

Can you just give us some sense on the backlog across your different product lines just trying to get a sense as to your visibility into the quarter at this point?

Dan DiMicco

Our backlogs have improved throughout the year, but again because of the customers taking advantage of the shorter lead times, the backlog is not enough to say that we’ll be running at a certain level for the entire quarter.

Operator

The next question comes from the line of Brian Yu with with Citi.

Brian Yu – with Citi

Dan, with regards to pricing in the flat roll segment, it wasn’t quite at the level of the “increase” that the spot markets would suggest. Can you comment if this is just merely a lag effect or is there something else going on?

Dan DiMicco

Certainly, there is a lag effect involved. If you went month by month through the quarter, you would see the pricing move up significantly throughout the quarter, but at the same time what has been very well published in the press is that there is a definite softening on flat rolled pricing in the marketplace as we speak. Where it goes from here is anybody’s guess. So depending on how far things soften with respect to pricing, it’s not just here by the way, if you read the press, you’ll find out that that’s occurring globally, so we may have experienced a peak in pricing at the end of the third quarter and beginning of the fourth when it comes to flat rolled, whether it be hot rolled, cold rolled, or galvanized.

Brian Yu – with Citi

Would you expect your realized prices on the sheet size to be higher in the fourth quarter?

Dan DiMicco

Because of what I just explained, I think it would be foolish for us to give that kind of forecast. As to what is spot pricing, it will be what it’s going to be, and we will be competitive in the market place.

Brian Yu – with Citi

Just a followup question, this might be a better one for John, throughout the year and all through your segments, milled products and raw materials have been posting loses. Is there any one of them that have started to turn a profit in the third quarter?

Dan DiMicco

Not all of our segments have been in the red. In particular, our bar product segment has been profitable all year, and several of our raw material segments have been profitable, and our rebar fabrication segments have been profitable. And our structural beams at both of our operations have been profitable.

Operator

Your next question comes from the line of David Lipschitz – CLSA.

David Lipschitz - CLSA

I have a question on service centers. Some of the service centers have said you shouldn’t lower prices because there is no real demand. I was just wondering what you thought of those comments and how do you react to that?

Dan DiMicco

I think we do what the market tells us to do. I think we do what our customers tell us to do, and that’s how we price our product, and if we had some kind of control over what was going on, we certainly would be pricing things differently. The rollercoaster ride on flat-rolled products over the last several years has been quite exceptional and quite interesting.

David Lipschitz - CLSA

The pricing in your downstream products obviously is low overall and upstream was higher. Can you comment on the margins for the downstream? Do you worry that as some of the hot-rolled has gone higher that you’re getting squeezed on the downstream side?

Dan DiMicco

The biggest issue facing our downstream construction markets is just the massive slowdown in non-residential construction that’s taken place. So it’s a volume issue more than anything, and that unfortunately is not going to change for sometime.

Operator

Your next question comes from the line of Sal Tharani - Goldman Sachs.

Sal Tharani - Goldman Sachs

First, Terry, good luck and all the best for your retirement, and Jim, congratulations and we look forward to working with you. Dan, I just wanted to ask you two questions. First, I want to understand the sales pattern of the steel mills. If I look at the third quarter so far announced earnings, the volume has significantly improved second to third quarter for you and your competitors. But if I look at the service centers, the inventories have not been building at all, and service center shipments actually were up only 5% during the quarter. Has something changed that you’re reaching out more to the end users, or you’re getting more demand directly from the end users? Certainly, your shipment volumes have significantly improved.

Dan DiMicco

I think the end users have actually behaved very similarly to the service centers. They had their inventory issues and certainly there was an uptick from the automotive segment with the cash for clunkers program. That was very short term, but the reason why everybody’s volume is going up is because the customer base including service centers started to order at real demand levels as opposed to the inventory adjusted apparent demand levels, and that’s pretty much where the customer base including service centers are today, and until real demand shows any measurable improvement, that’s probably where they’re going to stay.

Sal Tharani - Goldman Sachs

You’re opening offices for export in international markets. Is that a long-term opportunity you’re seeing for export? Are you developing that part of the business, and would you mind letting us know what your export volumes are over the last nine months and also the third quarter?

Dan DiMicco

I’ll let John address the last part. We did mention some of that in our notes, Sal. For several years now we’ve stated that we believe that the US will be structurally a better exporting market going forward than it has been in the past because of the inevitable weakening of the US dollar because of the significant trade and budget imbalances and the amount of debt we owe to the world, and those things have just gotten worse and not better. So we believe that we’ll be in a position to be able to export a significant part of our business and have it be in world markets for us. That will ebb and flow with obviously international market conditions and the amount of oversupply that exists in China, in particular. We have entered into the trading business and we’ve grown that trading business, and we plan to see that as a growth market for us going forward. John, would you like to comment?

John Ferriola

In the third quarter, we exported about 12.5% of our total shipments. That number year to date is just about 10.5%, and we do see it as an ongoing strategic opportunity. As Dan mentioned, the value of the dollar continues to decrease, and also the location of our mills gives us a great opportunity to export products into Mexico, South America, and we see those as growing markets that we have a long-term opportunity to exploit.

Dan DiMicco

Sal, with our presence in Italy, we have taken advantage of and plan to grow that advantage in terms of packaging product that’s produced at our Nucor-Duferdofin joint venture, package products that they don’t make with products that we do with size, ranges, where they don’t overlap and what have you to be able to supply products throughout the Mediterranean area, the Middle East, and Eastern Europe. So we will parlay into that, and with any future growth opportunity that we initiative internationally from a steel making standpoint.

Operator

Your next question comes from the line of Timna Tanners – UBS.

Timna Tanners – UBS

I wanted to ask if you could for starters give us a breakout please on your utilization and export by product.

Daniel DiMicco

No, we’re not going to do that, but thanks for asking.

Timna Tanners – UBS

Can you suffice to give us a direction in terms of like flat roll versus long products? I suppose a lot of the utilization improvement was more in the flat rolls.

Daniel DiMicco

John mentioned that both flat roll and plates saw strong increases in capacity utilization during the quarter over the previous quarter. Bar utilization has actually been good all throughout, relatively good.

Timna Tanners – UBS

Given the discussion of how Nucor has navigated past downtrends, what kind of signals would you be watching for to get more confident on your visibility for any non-residential construction improvement?

Daniel DiMicco

Obviously, there are indices out there that everybody follows, whether it be the architectural index or the Dodge report and the like. You will see those things turn positive before we start to see the actual order entries improve in those areas just because of the engineering work that need to take place on those projects and the lead times for that. That’s why the architectural indices are a good leading indicator of the direction of the non-residential construction markets.

Timna Tanners – UBS

Anything from stimulus that you’re expecting to see from what your conversations tell you?

Daniel DiMicco

The so-called stimulus has been extremely disappointing from the standpoint of steel consumption and infrastructure work, and whatever has been ballyhooed in the press has really been of insignificant nature, and our customers will second and third that.

Operator

Your next question comes from the line of Elliott Glasser with [inaudible].

Unidentified Analyst

Can you give us any details on Q3 volume in flat rolled as far as any kind of benefit that you received from the cash for clunkers, and I’m assuming in the absence of that program that flat rolled will be down comparatively in the fourth quarter? Is that true?

Daniel DiMicco

If you take a look at what the published numbers were for the cash for clunkers program, it was about 700,000 units. Those were smaller cars as opposed to larger vehicles or the normal mix of vehicles, which will tend to be larger. So you’re looking at somewhere around 1500 pounds per car in a normal mix; it may be obviously a little less than that because of smaller cars. On the scrap side, when the dealers finally got their money out of the government, there was a pretty hefty push of cars in a very short period of time off the dealer’s lots to get rid of them. I think Keith would verify that, and in terms of the actual orders for steel tied to an increase in production, I’ll let Mr. Ferriola talk to that.

John Ferriola

Only about 10% of our sheet product was into automotive, so that impact that we would be expecting from the automotive decrease after cash for clunkers would be minimal to our sheet operations.

Daniel DiMicco

It was also minimal on the uptick as well, right John?

John Ferriola

Yes.

Daniel DiMicco

Probably the biggest place where it would show an impact was on scrap flowing to the yards. It probably created a little bit of congestion at the yard site. Is that right, Keith?

Keith Grass

A little bit in a few, and particularly in the self-serve auto parts.

Operator

Your next question comes from the line of Luke Folta - Longbow Research

Luke Folta - Longbow Research

First with the sequential increases in beam products and re-bar fab, is that seasonality share gains? Can you give us a feel for what’s happening there?

Daniel DiMicco

As Sam mentioned, the rebar fab, the increase there was really due to the acquisition of Ambassador that closed in August, and that rebar fabrication business started to be added into what we already had in place with the Harris and Barker acquisitions, so it was through the acquisitions that we saw that 11% uptick. As far as the beam business goes, Joe, do you want to speak to that?

Joe Rutkowski

I think it’s both, Luke. I think it’s seasonal, and I also think we have improved market share on the beam side.

Luke Folta - Longbow Research

You had said startup cost of about $47 million in the third quarter. Are you going to see some more of that in the fourth quarter?

Daniel DiMicco

Yes, we will.

Luke Folta - Longbow Research

Fairly comparable amount?

Daniel DiMicco

It should be down a little bit because I think they were well on its way through to startup phase. I’m not sure if the caster could be down or up. We started it into production, but could still have startup phase in that for a while, and Memphis is still going through their startup and approval process, and we’ll be bringing into that a new area—the Hertford County Plate Mill with our heat treat lines which are being constructed, and I don’t know what the timeline is on that.

Joe Rutkowski

They’re due to be commissioned in the fourth quarter of 2010.

Daniel DiMicco

So it may be comparable. It could be down a little bit. Jim, do you have any comments on that?

James Frias

We just had a chart that went through which was a little bit unusual. I think it will close with a net of small decrease for that reason.

Luke Folta - Longbow Research

With your long-term outlook for a pretty slow recovery, can you give us a feel for where the pig iron facility falls on your priority list? Is that something that could be delayed a couple of years out at this point?

Daniel DiMicco

All of our strategic growth initiatives were put on hold about a year ago because of the economic collapse and financial crisis. Things are proceeding in terms of conversations and what have you still with all the parties that we talked with then, including with respect to this project. We’re still working on getting our permit. We’ve not gotten the permit yet. There’s been some minor litigation that has been filed. We’re working through that as we speak, and we’re also sitting here wondering exactly what’s going to happen with our enlightened congress with respect to global warming legislation, what if any carbon costs might be associated with the project that might cause us to reevaluate the returns that we would get from that, but what I can tell you is that we will be continuing to grow our low residual iron production capabilities, and the pig iron project is certainly in that mix as well as future DRI opportunities in addition to what we already have in Trinidad.

Operator

Your next question comes from the line of Mark Parr – Keybanc Capital Markets.

Mark Parr – Keybanc Capital Markets

I wanted to Terry the best. He’s definitely been a tremendous steward of the financial resources of your company, and good luck to Jim. Sorry to see you go, Terry, but everyone’s got that last 15 or 20 hunting trips on their agenda that they’ve got to fill out.

Daniel DiMicco

I think the hunting is going to be more from the back of a boat or the yacht as the case may be.

Mark Parr – Keybanc Capital Markets

Can you give us any color on where you might see the SG&A line come in for the fourth quarter? I think there is a fair amount of profit sharing built into that number, and I was just wondering how we might want to think about modeling it?

Daniel DiMicco

Are you talking about talking versus last year?

Mark Parr – Keybanc Capital Markets

Versus the third quarter.

Daniel DiMicco

There hasn’t been any profit sharing built into any quarter this year or bonus payments to really speak of for the executive teams. Versus the fourth quarter, you’ll see a significantly lower SG&A.

James Frias

Mark, actually it’ll be probably similar to Q3.

Mark Parr – Keybanc Capital Markets

When you came out with your third quarter guidance, I think you provided two numbers. Again, I apologize if I missed this, but did you quantify the magnitude of the pig iron run through in the third quarter when you finally got done with it?

Daniel DiMicco

Yes, we did. It was a number that was reported in today’s press release. We did quantify that because it was virtually identical to the second quarter.

Mark Parr – Keybanc Capital Markets

I was wondering, John, if you might be able to help us to quantify the difference between domestic and export pricing, and I know the dollar has been weak; I am just curious in terms of what sort of opportunities you’re seeing for ’09 and how you’d view the profitability of that business relative to the domestic operations?

John Ferriola

Clearly, it goes on a product by product basis, so there is a little bit of difference, but in general to date this year, the export pricing has been just about similar to domestic pricing.

Mark Parr – Keybanc Capital Markets

That would be what—an FOB port price?

John Ferriola

Correct.

Operator

Your next question comes from the line of Sal Tharani - Goldman Sachs

Sal Tharani - Goldman Sachs

Dan, are you taking any major downtime in the fourth quarter?

Daniel DiMicco

Nothing out of the ordinary. All of our downtimes will be dependent upon obviously order entry, what our customers do in terms of their downtimes or their ordering patterns, but we have nothing out of the ordinary planned in terms of taking additional time down at year end. We remain open for business.

Joe Rutkowski

We have all of our facilities in tiptop shape, and if we have the orders, we will run.

Sal Tharani - Goldman Sachs

Lastly, I don’t know if you have any view on the scrap prices over the next couple of months. We’ve seen scrap come down this month. People are talking it will come down next month. I just want to understand if your scrap cost for the fourth quarter will be directionally lower than the third quarter.

Daniel DiMicco

Yes, because of the fact that we’ll be consuming the normal levels of pig iron compared to what we have been consuming at normally high levels over the last 2-1/2 quarters. As far as scrap pricing goes, I’m going to let Mr. Grass give you some input on that.

Keith Grass

We’ve seen obviously pricing move down in October, and that was a result of certainly reduced domestic demand and also a falloff in export demand. The export market had driven a lot of the scrap markets most of this year until the domestic business kicked in earlier this quarter. [inaudible] are staring to see a dropoff, but I would imagine that looks like it’s going to continue at least for another 30 days or so.

Operator

That concludes the question-and-answer session today. I’d like to turn the call back over to Mr. DiMicco

Daniel DiMicco

I would like to close with this observation. The work we did in the 2001-2003 cyclical downturn enabled Nucor to achieve record earnings in 4 out of the following 5 years and near record earnings in the fifth year, and the work the Nucor team is doing today is laying the foundation for future record years to come. That’s why our best years are still ahead of us, and I want to thank again every member of our executive team here, throughout the company, and every teammate for doing their job well and doing it safely, and for being ever ready to produce as much steel as our customers are willing to place orders with us. We thank our customers for the business, and wish everybody a more profitable 2010.

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Source: Nucor Corporation Q3 2009 Earnings Call Transcript
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