Nucor Corporation (NYSE:NUE) Q3 2023 Earnings Call Transcript

Nucor Corporation (NYSE:NUE) Q3 2023 Earnings Call Transcript October 24, 2023

Operator: Good morning and welcome to the Nucor's Third 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, Investor Relations. Please go ahead.

Jack Sullivan: Thank you, and good morning, everyone. Welcome to Nucor's third 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 Constructions 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 Markets and Innovation.

A steel rod, bent and contoured to the exact specifications of the company. Editorial photo for a financial news article. 8k. --ar 16:9

We posted our third quarter earnings release and investor presentation to Nucor's IR 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 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 would like to begin today's call by highlighting the tremendous performance of our 32,000 Nucor team members through the first 9 months of the year. The investments we're making to grow our core and expand into new markets are generating strong returns for our shareholders, and our team continues to operate efficiently and safely. In fact, we're on pace to deliver our fifth consecutive year of record safety performance, further proof of the world class performance by our Nucor team members who live our culture each and every day. Looking at our financial performance in the second quarter, Nucor generated approximately $1.8 billion of EBITDA and $1.1 billion net earnings, or $4.57 per diluted share.

This brings our year-to-date net earnings to $3.7 billion, or $14.83 per diluted share. Even though we still have one more quarter to go, our year-to-date earnings through September already represents our third best full year in Nucor's history. In keeping with our investor focused capital allocation strategy, we've returned $627 million to shareholders in Q3, representing 55% of our net earnings for the quarter. On the operation front, total shipments to outside customers was approximately 6.2 million down 5% compared to the prior quarter, and down 3% compared to Q3 of 2022. Total steel mill shipments for the quarter were nearly 5.8 million tons and downstream steel product shipments to outside customers was roughly 1.1 million tons. Earlier this month, we launched a National Sustainability Campaign branded Made for Good, which highlights our commitment to producing the world's most sustainable steel and our efforts to lead others in our industry to adopt practices that reduce emissions.

Our circular recycling based process gives us a competitive advantage, as more customers look to reduce emissions in their supply chain. But we're taking steps to differentiate ourselves even further. We're not just talking about sustainability, we're making investments in forming partnerships to accelerate a cleaner future for Nucor, the broader steel industry in all industrial manufacturers. And in almost every month of the past year, we've done something to move the needle in that regard. We've entered into another renewable energy PPA invested in technologies to develop advanced forms of nuclear power generation and zero carbon iron making, formed a partnership to capture, transport and sequester CO2 emissions from our Louisiana DRI facility, introduced Elcyon, our new sustainable heavy gauge steel plate for the offshore wind energy industry, and help lead the Global Steel Climate Council, a coalition of global steel companies and industry partners to develop a clear and unbiased global standard to measure and report carbon emissions.

Consistent reinvestment in our businesses has played a critical role in our company's growth. We make investments after we identify strategies that have compelling risk adjusted return opportunities for Nucor's shareholders. I'd like to highlight three important milestones we've hit recently across sheet, plate and bar with a reminder of the strategic rationale behind each investment. Starting with sheet, last week, we were joined by hundreds of leaders in West Virginia in Mason County for a groundbreaking event to celebrate the start of a construction of our newest sheet mill. This investment in West Virginia along with additional galvanizing paint in tube lines, we are adding at other sheet mills will enable Nucor to produce higher margin value added products for a broader set of customers, especially those who value high-quality steel with a lower carbon footprint.

By 2026, we will have more than doubled our capacity to produce higher value sheet products compared to our capabilities in 2020. Turning to plate. Earlier this month, we celebrated the official grand opening of our state-of-the-art mill in Brandenburg, Kentucky. This investment positions Nucor as the most capable plate supplier in the largest plate consuming region of North America, able to produce specialty plate products that support our nation's economy and security in critical areas such as wind, long span bridges, military applications, power transmission, amongst many others. And in August we held a groundbreaking ceremony for our rebar micro mill in Lexington, North Carolina. This mill will help us to capitalize on growing demand for rebar in the growing Mid Atlantic in Southeast regions over the coming decades.

The modernized equipment and processes at this new mill will enable us to achieve both improved margins and lower emissions intensity from our rebar operations. The team in Lexington is making great progress on the construction, and we look forward to starting the mill up in early 2025. As we have said many times, the goal of our growth strategy is to expand our capabilities to better serve our customers and grow our earnings for our shareholders. The new capabilities we're adding in our steel mill and steel product segments are diversifying our customer base and creating more opportunities to cross-sell various products. A lot has already been said about the magnitude of the three steel intensive megatrends, each fueled by supportive federal legislation.

We like to think of these three as the rebuilding, repowering and reshoring of the U.S economy. And with Nucor's unrivalled scale and diversity, we are favorably positioned to capitalize on these growth drivers. Investors have been asking where we are in the cycle of these megatrends and what steel products Nucor is best positioned to supply. I'd like to share a few thoughts on that. And since it's baseball playoff season, I'll use a few baseball metaphors to help make my point. Based on current production in order books, it feels like we're still in the early innings across all three. To be clear, innings played is not intended to reflect unshipped and some innings may last longer than others. It's meant to indicate where we believe we are along the continuum from federal and state level appropriations, project engineering and development, the permitting and bidding process and ultimately taking orders in manufacturing steel products.

Well, all three are still early in the process with still plenty of upside to come, we feel like the IIJA has progressed the least with respect to steel related orders. The CHIPS Act has probably had the biggest impact on our order book thus far and the IRA falls somewhere in between. As it relates to the rebuilding effort with funding through IIJA, we have shipped tons related to the first wave of bridge projects involving Nucor plate, beam and piling products. But we believe a lot more has yet to make it out of state level permitting and the bidding processes, especially with respect to highway construction, and power transmission, which will require a great deal of rebar, plate and heavy sheet. Back to my baseball analogy, the game has started and we've probably neared the bottom of the first, but some fans are still tailgating while others are just entering the stadium.

On the repowering front, the financial stimulus under the IRA occurs through tax credits as opposed to the longer allocation process under the IIJA. This probably gives the IRA a slight edge on timing, but renewable and energy storage projects still take a while to secure financing and all the necessary permits. So while we are starting to see more orders relating to ground mounted solar and onshore wind, there's still a lot of upside remaining in the years yet to come. And finally, the reshoring efforts supported by the chips and Science Act has promulgated announcements for at least 37 projects worth an estimated $370 billion. Nucor is already delivering steel products to a few of these. But these projects can take several years to complete and will shift from one steel product to another as construction progresses.

When it comes to an advanced manufacturing facility, including semiconductor, battery and EV plants, Nucor can produce an estimated 90% of the required steel. Some of the higher steel intensity products represent homeruns for Nucor, but there are plenty of companion tons representing base hits. And in many cases, the profit margins of base hits orders can be quite compelling. Needless to say, we're excited for what these megatrends can mean for the U.S economy and Nucor plans to be the leading supplier of the steel with which it's built. With that, I'd like to turn it over now to Steve Laxton, who will provide additional details about our Q3 performance and outlook for Q4. Steve?

Steve Laxton: Thank you, Leon, and thank you all for joining our call this morning. With third quarter consolidated net earnings of more than $1.1 billion, we exceeded the midpoint of our guidance by about 10%. The main driver of this exceedance was better performance in September than we expected from many of our businesses, the most notably in our bar mills and several downstream steel products divisions. The strength of Nucor's business model and growing the earnings power were on display yet again. The third quarter was our 10th consecutive quarter were both net earnings exceeded $1 billion and return on equity exceeded 25% on a trailing 12-month basis. With respect to our operating segment results, our steel mills group generated $883 million of pre-tax earnings in the third quarter, a decrease of 37% from the second quarter.

While volumes declined roughly 4% from the prior quarter, lower realized pricing accounted for most of the earnings decline. As an example, our realized sheet pricing for the third quarter fell by roughly $80 a ton compared to the prior quarter outpacing more modest declines in our cost of scrap and ore base metallics. Our utilization rate for the quarter was 77% down from 84% in the prior quarter. This lower utilization rate was a key factor affecting higher price per ton conversion cost at our steel mills. We continue to see excellent results from our steel product segment. Pre-tax earnings for steel products were approximately $807 million for the third quarter. As you know our steel products business produces the most diverse set of solutions in our industry and were benefiting from this broad range of capabilities.

During the quarter, we saw stronger contributions from areas like rebar fabrication, pre-engineered metal buildings and insulated metal panels. These partially offset some declines in joist and deck and tubular products. While Joist and deck profitability continues to moderate from historically high levels, it remains well above pre-pandemic averages. Although there is a lingering lack of clarity with the overall economy, we're still seeing areas of growth within non-residential construction. Here again Nucor's diverse product range is allowing us to see gains with advanced manufacturing facilities and data centers on the buildings front and transportation and energy on the infrastructure front. Our raw material segment produced pre-tax earnings of $71 million for the quarter compared with the prior quarter we shipped lower volumes and saw lower realized pricing in both our DRI and recycling businesses.

Nucor generated nearly $2.5 billion of cash from operations during third quarter, and $5.6 billion through the first 9 months of the year. This strong cash flow enabled our balanced approach to capital allocation. Our framework for capital remains the same. We expect to maintain a strong investment grade balance sheet, make meaningful direct returns to shareholders and create long-term value by redeploying capital and advancing our strategy. Nucor's balance sheet remains strong with a total debt to capital of just around 24% and more than $6.7 billion of cash on hand at the end of last quarter. This level of liquidity provides support as we move into a period of accelerated capital spending over the next year with large capital projects such as our West Virginia Sheet Mill, while also enabling potential M&A activity.

Nucor has a long track record of returning capital to shareholders. Since 2020, Nucor's returned approximately $9.3 billion back to shareholders through dividends and share repurchases. Year-to-date, Nucor's returned nearly $1.8 billion or 47% of net earnings to shareholders. Turning to capital spending. As you may recall, initial progress on several of our growth projects was slower-than-anticipated. But in particular, our largest project in West Virginia was delayed. Because of the slower spending and timing delays, we're reducing our 2023 capital spending estimates from $3 billion to approximately $2.4 billion, with the difference between those figures being pushed into 2024. For our fourth quarter outlook, we expect consolidated earnings to be lower than the third quarter with declines across all three segments.

At the steel mills, we expect earnings to decrease compared to the third quarter results on lower realized prices and slightly lower volumes. Given that most of our sheet business is sold on contracts, recent improvements in pricing are not expected to improve average realized selling price until later in the quarter. In our steel product segment, we expect slower volumes and lower realized pricing as well. For the raw material segment, we expect lower earnings in the fourth quarter due to margin compression and planned outages at our DRI operations. Looking ahead into 2024, we have attractively priced backlogs into the second quarter for some of our steel products, with continued strong order activity expected in manufacturing, data centers and energy.

So while we remain constructive over the long-term due to expected secular demand drivers, near-term market conditions have softened. We attribute this to uncertainty arising from the United Auto Workers strike, higher interest rates, credit tightening, elevated geopolitical risk and concern about another potential U.S government shutdown. As of today, we expect the sequential declines in our fourth quarter earnings may exceed that of our third quarter decline. With that, we'd like to hear from you and answer any questions you may have. Operator, please open the lines for Q&A.

See also 12 Defensive Healthcare Dividend Stocks To Invest In and 20 Highest Paying Countries for Doctors.

Q&A Session

Operator: [Operator Instructions] The first question is from Tristan Gresser of BNP Paribas. Please go ahead.

Tristan Gresser: Yes. Hi, thank you for taking my questions. The first one is on capital allocation. Could you remind us what is the place of inorganic growth and the strategy? I think you touched on potential M&A. I think in the past you viewed M&A as more on the downstream side, but how do you view the upstream and how do you view the current federal market at the moment? That's my first question. Thank you.

Leon Topalian: Yes, Tristan, I will kick it off and maybe ask Steve to comment on maybe the second half of your question. But if we think about our mission statement that we started when I took over CEO in 2020, it's to grow the core expand beyond and liberal culture. So as we think about growth, it's really against those two backdrops growing our core projects like our sheet mill in West Virginia, which again, we couldn't be more excited about at an incredible groundbreaking last week on Friday of last week with our team and senators and local politicians, and again, couldn't be more thrilled for the location of that, the proximity of that, generating the highest grades and cleanliness of steels in that facility, projects like Lexington, North Carolina are expansions and galvanizing and sheet and painted and galvanized.

So that's the core. The other piece is the expanding beyond things like our investment in CHI in the overhead door business, so racking our warehouse systems, the towers and structures, pieces of Nucor that are going to continue to generate more consistent earnings profiles, a higher high and again a higher low. Because again, many of those businesses as we think about the adjacencies, Tristan, our -- that operate outside the traditional cyclicality of the normal steel curve that we've been a part for so long, so we are balancing that overall portfolio, again, balancing that return profile for our shareholders. And so those are our priorities. As we think about -- we've not broken out dollars to dollars on where we're going to spend x amount of percent in which bucket, what we're doing is looking through, where do we bring value?

Where do we create economic value add and how do we maximize each capital dollar into those projects that are going to come closer near double our cost of capital. Ultimately, with the umbrella or the cultural fits renew core? Do they make sense because ultimately, what drives Nucor and every KPI that you see is the 32,000 men and women who make up this family, it is our culture that drives every result in our shareholders benefit from.

Steve Laxton: And Tristan, the other thing I might add to what Leon said was, you started the question with capital allocation. And just as a reminder, Nucor has been and Leon used the word balance. Balance is really the key summary there. We have a disciplined and consistent approach with returning capital back to shareholders, which we enforced for a number of years, reinvesting in our business. And your question was about how do we look at organic versus inorganic, and as Leon walked through some examples, you can see that we take advantage of opportunity where we can create value. So we don't expressly have an inorganic more M&A strategy. We have a strategy and M&A is a tool by which we use to implement that strategy.

Tristan Gresser: All right. That's clear and helpful. Maybe a quick follow-up on that. But when you look at M&A, are there particular red lines, I mean, [indiscernible] the upstream side, is there potentially interest to go on certain upstream asset to get certain types of grades and quality? I think one of you peer earlier mentioned that the flat rural market was pretty fragmented. Is that also something a view of share?

Leon Topalian: Yes. Tristan, the short answer is yes. If you think about all of that, and another 100 variables of upstream product differentiation other materials, Nucor is -- and our team and M&A team review that consistently. And we've looked and again, one of the great things about having a comprehensive strategy, it informs you as much about what you're not going to do is what you are. So the things that we've made and the investments that I've just highlighted are really reflective of the opportunities that we're going to continue to look for in the pipelines and those megatrends that are existing in archive. They're going to provide a differentiated value proposition for our customers. So the megatrends like towers and structures, the opportunities and sustainability and iconic steel that we're making with zero net carbon footprints, how are we thinking about the manufacturing build out of EVs, battery plants, data centers that, again Nucor is really well-positioned.

And so, what I would tell you is, all the things you mentioned come into the filtering of how we're thinking about M&A. But ultimately, what Steve and I just mentioned, are the drivers of can we create EVA for every dollar invested that it's going to return well above our cost of capital to our shareholders, and also giving us a opportunity to, again, improve the overall volatility of our earnings profile through cycle performance is much more consistent over the long-term.

Tristan Gresser: All right. That's it. That's very clear. Thank you. And if I might just have a follow-up on the rebar market. You just announced you looking for some investment there. Yes, basically, what are you seeing in terms of supply and demand medium term. I know there's been a lot of project be announced. But I'm not sure if they're going through with the interest rate being where they are. So how comfortable are you with the medium term supply and demand balance you're seeing on the rebar market to make this type of investments? Thank you.

Leon Topalian: Yes, Tristan, I'll start it off and maybe ask John Hollatz, our EVP over bar products to comment as well. But, look, we announced an exploration that we're going to look into the Pacific Northwest, as we think about what we've done in the bar group itself in the -- our footprint in rebar is significant. And so, in the micromill strategies and what we've seen in the bar group itself in the -- our footprint in rebar is significant. And so in the micro mill strategies and what we've seen in Sedalia and Frostproof and now what we're getting to see come online in '25 in Lexington, North Carolina, it gives us an awful lot of excitement and optimism, but so do all our other facilities that are running rebar. So the market is growing, we know that.

We know it's going to grow similar to that 2 million ton range. And to your point, there's a lot of announced capacity, not sure all of that will see light of day. But again, we know the Pacific Northwest we have our Seattle operations play. It's been running a long time and consistently one of our great financial performer and return to the team there does an amazing job. And so we know the customers there, we know the growth that's going to be there. And again, we think it holds a great deal of promise as we evaluate this in the coming months. John?

John Hollatz: Yes, thank you, Leon. As Leon mentioned, we're really proud of what our Seattle team has delivered since we bought that mill with the acquisition of Birmingham Steel in 2002. And our team has also done a really good job of positioning us for future success in this market. We're really optimistic about the growth opportunities that we see in the Pacific Northwest and in the Canadian markets. The challenge that we faced with our Seattle facility is it's been in its current location since 1905. And the mill sits on a very small footprint. Over the last century, the city has really grown around us, which has limited our ability to grow our capacity and our capabilities. So the strategy here is really to position Nucor for success for the next 50 years to take advantage of the cost and the efficiencies that we've experienced with our micromill technology as well as increasing our product offerings.

We're certainly well aware of all of the other mills that have been announced. We're following those projects closely. We're really not in a position to speak on that. But we're excited about what we're doing at Kingman. We're excited about what we have coming up in Lexington as well.

Tristan Gresser: All right, I appreciate the color. Thank you very much.

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

Carlos de Alba: Yes, good morning everyone. So -- just on the steel products, the steel fabrication business, you did mention that profitability has moderated, although it remains quite strong above pre-COVID levels. Can you provide a little bit more color regarding your order book, your backlog? Where does it extend to? And any sort of magnitude of the potential deceleration -- continued deceleration, if that is what you're seeing in the fourth quarter and perhaps into the 2024 year in terms of pricing and volumes, anything will be quite important for us.

Leon Topalian: Yes. Carlos, thanks for the question. I'll kick it off and then maybe ask Brad True to comment. Obviously, we're not going to give you pricing speculation into the back half of this year in door 2024. But here's what I would tell you and I think context becomes really important as we talk about our steel products segment of our business. Again, it's generating now 40% of our overall net earnings, and that's been an incredible opportunity for Nucor. We've had seven straight quarters where they generated $1 billion or more. And so again, over the last seven quarters, it generated $7 billion in earnings. It's been an incredible platform for us to continue to grow and continue to think about the diversity of mix that we bring to the marketplace, but it is softening.

It is coming down from our peak highs and historic highs in '21, '22 season. And so again, they're moderating, but there's no cliff. We're not seeing this -- the order books dry up. We're seeing softening in backlog. But again, as compared to sort of pre-pandemic levels, those backlogs are up 20%, 25% still over that period of time. So again, it's softening, but I would tell you that we are still optimistic about as we finish 2023 and head into '24, some of those backlogs are extending out into Q2 already with favorable pricing. So Brad, do you want to add any more detail on that?

Brad True: Yes. Thanks, Leon. As Leon mentioned, backlogs have come down some, but are still well above pre-pandemic levels. And we have strong pricing in our backlog. We'll see some seasonal slowdown as we normally do this time of year. But we'll still have great results and strong earnings in Q4. One thing I would mention in addition is our diverse product portfolio continues to differentiate Nucor. While we saw moderating pricing and volume mainly driven by warehouse demand in our joist and deck business. We saw near record and record earnings in our pre-engineered metal buildings businesses, our insulated metal panel business and rebar fab. All three had stronger earnings quarter-over-quarter. And again, we'll see some seasonal slowdown in construction, but we really believe there's been a structural shift in the earnings profile of our fab product businesses.

The other thing we're seeing is a lot of cross-selling opportunities. We are bringing multiproduct solutions to our customers that bring value to them, bring value to Nucor in a way of we've never done in the past.

Carlos de Alba: All right. Thanks for that. And just if I could maybe press on the point. What do you think has changed versus pre-pandemic conditions that have allowed the company to command a much higher price and therefore, much higher margins than it did in the past. Is there any -- like can you point us to something fundamentally different than what we had before because the construction market is softening, as you mentioned. So wouldn't that potentially make the market a little bit looser and therefore, reduce your pricing?

Leon Topalian: Carlos, look, what I would touch on immediately out of the gate is what Brad just mentioned, which is our product breadth is a key differentiator. So again, we are not under Damian [ph] the entire commercial team at Nucor. We're approaching that market to look and say, how do we provide a solution set not just provide and sell a product. So our teams, our Construction Solutions group, our Energy Solutions groups are going out now and meeting with customers attaching them to maybe areas and products that weren't traditionally purchased either mill direct or that weren't coupled together that we now can bring to bear as an entire offering to provide a solution set. As we think about the manufacturing build out and warehouse build out, how do we now look to offer, again, the complete solution, not just in piece or part on and product of.

And so I would tell you that is gaining a lot of traction and intention. The other piece is the sustainability. There's a lot of people that are trademarked and branded their products in the green space, but very few, if any, in the world at our scale. And so the scale of which we're running our iconic products and net zero products today is getting a lot of attention and not just through the OEMs in automotive. It's a much more diverse customer set today that we're seeing that are demanding those products anything in the industry.

Carlos de Alba: Great. Thank you. Sorry, [indiscernible].

Steve Laxton: Add one other element to that. You'll recall you followed us for a long time, but Nucor took some actions several years ago to restructure a few different businesses in that downstream steel products group. And while that's not something we really love doing. The teams did a wonderful job to bring efficiencies within our own systems there to use it. But the predominant reason is exactly what Leon outlined.

Carlos de Alba: All right. Great. Thank you.

Leon Topalian: Thanks, Carlos.

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

Bill Peterson: Yes. Hi. Thanks for taking the questions. A couple, I guess, market-related questions. So if we think about the steel market today, I'm trying to get a sense of how you're anticipating the market reactions to maybe a prolonged UAW strike versus maybe in the median end and especially in the context of we've seen some mill discipline in the past few months, some of the maintenance extended. Just to get a sense of how the reaction would be under those two scenarios?

Leon Topalian: Yes, I'll start us off with the first one. And I'm not sure I fully caught the second part of the question, Bill, but if I don't, please just reask that second half. Nucor's exposure to automotive today is about 1.5 million tons. So we don't -- that's 5% or 6% of our overall volume. So it's not a huge exposure for us directly. Obviously, we're watching in the automotive sector in the United States and the U.S. economy. We'll potentially the longer it goes, have a more profound impact to the overall industry. But the part that Nucor remains excited and very committed to is to doubling that capacity over the next 3 to 5 years to moving from 1.5 million tons to about 3 million tons of our overall volume and footprint.

And over the last several -- we've continued to grow. We've continued to invent ourselves as a preferred supplier. We've now won the GM Supplier of the Year Award for the last 4 straight years. And so we are excited about those things. We are excited about what our teams are doing to create some of the most advanced high-strength steels in the marketplace. And again, despite some of the rhetoric coming from other competitors, Nucor is positioned incredibly well to make the most advanced grades that they are required by the U.S. auto industry. So ultimately, if you're asking in the broader context, the longer this goes, the more impact we're going to see in the overall economy, not having a massive impact to the overall Nucor footprint. But again, I hope this ends quickly and we can move forward and continue to generate.

There's a lot of demand out there. Even in spite of the strike, I think the overall expectation is in that 15.2 or 3 million units to be produced for 2023. And hopefully, we can get back on track and continue to supply into that market.

Bill Peterson: Yes. No, that addresses the question. I had a question on CapEx. You talked about the CapEx now projected at $2.4 billion versus prior $3 billion. I guess how should we start thinking about next year, I guess, with the additional $600 million? And I guess, even maybe out of a few years, what does the normalized level start to look like for the company given the projects you've outlined?

Steve Laxton: Yes. Hey, Bill. Thanks for the question. So I think it's a good indicator. First of all, we will give guidance on the year after we get approval from our Board on capital spending, which we do at the end of every year. So stay tuned on our next call, we'll give a more precise update. But directionally, you should assume that our capital spending will be heavier than historic averages. When you look at the pipeline, some of the bigger projects coming through right now, you can see that we're going to be spending more over the next year or two. And then just as a framework item for you to help you in some of your modeling, our maintenance CapEx, what we consider maintenance, which we would include spares and safety-related CapEx as well, and that is probably somewhere around $600 million a year.

We have given a little bit of the Investor Relations team put out the slide deck sometime think around the first or second quarter that showed some of the larger product projects, how much is getting spent this year versus next year. So you can use that as a good framework for estimating your next year fee.

Bill Peterson: Great. Thanks for that. If I could sneak one more, kind of, again, a bigger picture. We were aware that the U.S. may be looking to remove the EU tariff rate quotas and understanding that nothing was concluded at this time, and it remains fluid. I guess how would you see this impacting the U.S. steel market? And I guess, what are the potential outcomes should the quotas be increased? I'm asking in the context of Nucor's obviously been an important part of [technical difficulty] of the U.S. steel market.

Leon Topalian: Yes, Bill, look, there's a lot going on. The talks today with the global arrangement in the European Union. And again, we've seen over the last really 3 years, us move from a tariff to a tariff rate quota. And again, the important picture really has been pretty consistent over the last several years, probably still a little high in some areas, but that 20%, 21%, 22% of the overall market. Again, I think, a healthier number is in that 15%, 16%, but I don't see a material change because we have it when we watch the USMCA and get -- perhaps did the Corus agreement with Korea, the agreements with Brazil and other nations, we've not seen that open up the floodgates. One of the bright spots that I've commented too many times, the confidence that we have, and I have in secretary Raimondo, Commerce Secretary or USTR and Katherine Tai, her counsel [indiscernible] they are very accomplished leaders, and they know this industry incredibly well and Nucor will remain a tireless advocate to make sure we create a level playing field of the United States.

And again, those three leaders really understand this industry well, and you're doing a really nice job of making sure that shifting to a TRQ does not open up the floodgates to see a massive uptick in dumping legally or subsidized steels into the U.S.

Bill Peterson: Yes, thanks for those insights.

Leon Topalian: Thanks, Bill.

Operator: The next question is from Martin Englert of Seaport. Please go ahead.

Martin Englert: Hello. Good morning, everyone.

Leon Topalian: Good morning.

Martin Englert: Estimated steel conversion costs for the quarter, they had increased to around, I think, $518 per ton, and while I understand some of it includes some substrate costs, can you discuss some of the sequential impacts from the changes qualitatively both on anything to do with substrate as well as the true underlying conversion costs. I think you alluded to some of this related to the lower utilization quarter-on-quarter in your prepared remarks as well.

Steve Laxton: Martin, thanks for the question. And I think you summed up actually pretty well. Utilization rates have a big impact on the cost that's a major driver, and you highlighted that. We also saw a cost increase really [ph] in supplies and services and consumables. So these are sort of product [technical difficulty]. I think what's important too, Martin, is to keep in mind, in general, when you look year-over-year, commercial costs are down and I think that's encouraging against the backdrop of what we would have had. We were having this conversation a year ago, we were all concerned about inflationary pressures in the cost system. Those appear to have moderated notwithstanding the quarter-over-quarter changes we had, which were predominantly due to our own production choices of the company. Is that helpful?

Martin Englert: Yes, helpful. Anything with pivots with substrate costs or not a material impact quarter-on-quarter.

Steve Laxton: By substrate, you mean raw materials?

Martin Englert: Meaning when you have that [indiscernible], if you have to purchase substrates run across them that wouldn't -- I don't think it's captured in the ferrous cost, right?

Steve Laxton: Yes. That's correct, Martin. That's a good point. The slab purchases at CSI, we record in consumables, not in the raw materials. So that does have an impact. And so that's part of the change that you're seeing that's not reflected in the raw material scrap numbers.

Martin Englert: Okay, got it. And just kind of parsing to your comments about the inflation and the implications there and the concerns a year ago, I guess, when looking back at conversion costs in the back half of last year, presumably, there's some -- you called it out in the qualitative guidance lower volumes anticipated in the steel business quarter-on-quarter lower utilization. So probably some uptick in conversion costs, net-net, although you highlighted this quarter, they were below where they were at a year ago in the comparable period. Is that kind of the right framework to be thinking about?

Steve Laxton: Yes. I think, Martin, if you're modeling out for the fourth quarter, you might see more close to flat cost quarter-over-quarter rather than an uptick, continued uptick. That's just because of where you see some of the trends -- for example, if you look at things like sheet, it likely has bottomed out at this point. So that has an impact on the system and how costs flow through our system. So you may see -- you may not see the same rate of increase on a per ton basis going into the fourth quarter and so in the third quarter.

Martin Englert: Understood. Could we briefly discuss seasonality in 4Q within the steel business? Recent years, some of the sequential declines have been rather steep in excess of 10% but before that, it was kind of around mid single digits. And I think you had commented in prepared remarks earlier in the discussion of about anticipating maybe a small sequential decline in volumes in the fourth quarter here. Any other color to add there or thoughts?

Steve Laxton: Yes. Martin, I think from where we sit today with what Brad highlighted, some comments about downstream products, order book and backlog and where we sit. I think those -- the trend being closer to those historic averages rather than some of the volatility you saw over the last year or two is probably an accurate statement.

Martin Englert: Okay. If I could one last one, again, that's going to come back to some of the prepared remarks on expecting declines on pricing across the three business segments into 4Q here, but specifically narrowing in on steel products here. It was a fairly small decline of about $47 per ton sequentially. Thinking about the commentary on the backlog extending into next year and still good pricing off from peak. But any color regarding the cadence of steel products pricing 4Q versus 3Q, whether it would be something on [indiscernible] $50 or something differing in magnitude?

Leon Topalian: Hey, Martin, it's Leon. I don't know if we are going to provide you any more color on pricing outlook. Again, I think what we've tried to indicate is again, we see some of that softness as we head into the last quarter of this year. But again, context, particularly in our steel products that has generated incredible returns, coupled with Brad's comments earlier, which was to say there has been a fundamental shift in that overall market where we've seen a -- again, a different reset in the pricing levels that we believe are more sustainable. So again, while we see some softness heading into the last quarter, again, the resiliency of that sector has been remarkable, sending all the way back to the pandemic. So again, we see that as one of our strongest performers as we move into 2024 and that to continue to be the case.

Martin Englert: Okay. I appreciate all the color and nice job navigating the down market. Thank you.

Leon Topalian: Thanks, Martin.

Operator: The next question is from Katja Jancic of BMO Capital Markets. Please go ahead.

Katja Jancic: Hi. Thank you for taking my questions. Quickly on the Brandenburg Plate Mill, can you let us know what the production level was this quarter? And how we should think about the ramp-up at the mill in 4Q and also into next year?

Al Behr: Yes, Katja, this is Al Behr. Happy to -- thank you for the questions. Just some comments around the ramp up in Brandenburg. First, there's a lot of things that are going quite well with the capabilities of the mill that was the strategy for us to build Brandenburg, was to broaden our capability in plate. And we've hit several milestones in the quarter. We ran the caster to its full set of capabilities. We've cross rolled plate almost to the full width of the mill, which is 168 inches. We've commissioned our continuous heat treat lines. So the team continues to work really, really hard on hitting some key milestones. You asked about volume. We guided to about 300,000 tons in the second half. We are going to be under that.

We'll probably maybe closer to 160,000 tons. Part of that is just due to the complexity of the mill itself and there's equipment complexity, there's software complexity and automation. Part of that is also a strategic decision for us to make sure we're using Brandenburg to its strategic intent, which was to go after parts of the market where we couldn't compete. So rather than hitting volume targets and impacting the returns at our other two plate mills because we operate a portfolio of mills and Brandenburg is an important part of it, but there's two other legs to that stool. We want to be really strategic on how we bring those tons forward. So that's the best number I could give you for the second half is about 160,000 tons total. And then we're headed in the next year after that.

Katja Jancic: And for next year, is there any color you can provide about the ramp up, or how much it could produce?

Al Behr: Yes. I would say we'd be closer to what we would have intended for the run rate through this half. I think we'll be up north of 0.5 million tons for the year and probably more than that, but we'll continue to stay focused on driving incremental return through the group and being as strategic as we can about using those tons to our best strategic advantage.

Katja Jancic: Perfect. Again just quickly on the tax rate. It seems like the tax rate this quarter was a little lower. How should we think about it in 4Q? Is there anything we should be thinking about there?

Steve Laxton: Yes. I think the guidance on the tax rate is that will move around a little bit with how you believe the year is going to end up. So you pay your taxes quarterly, but it's based on annual estimate. So I'll let you use your own modeling to estimate what you think the fourth quarter is.

Katja Jancic: Okay. Thank you very much.

Operator: The next question is from Phil Gibbs with KeyBanc Capital Markets. Please go ahead.

Phil Gibbs: Hey, good morning. Steve, I just wanted to qualify the comment you made about the fourth quarter decline being more than that of the third quarter decline on a sequential basis. Were you talking about absolute EBITDA dollars? Or were you talking about more of a percentage?

Steve Laxton: Yes. Hey, Phil. Thanks for the question. And on the fourth quarter outlook, that's really more about the total EBITDA outlook. But I think if you're looking at the change that happened in the third quarter, that's a very good indication for the direction that we are seeing headed into the fourth quarter if you want some framework. So again, I'll let you decide how you want to more fit into your own estimates.

Phil Gibbs: And then on Gallatin, did you provide -- I may have missed it, but did you provide any color on the state of that project?

Leon Topalian: Yes, Phil, I'll ask Rex Query to give you an update, part of his group, the Sheet group.

Rex Query: Yes, Phil, thanks for the question. Currently as we mentioned in our second quarter call, we are full run rate capable. With that said, during the third quarter, we continue to work on some of our automation issues, which have impacted our consistency. But really from a production standpoint, as we look at our entire group, we've gauged on what demand is in the marketplace. And that's really what we focused on. But again, just to reiterate, I mean, in Gallatin we are on full run rate capacity at this point.

Phil Gibbs: Thank you. And then lastly for me is on the new announcement on the -- in the Northwest with the rebar micro mill. Guess really what drove that decision? And I guess what are the expectations for when that could be contributing?

Leon Topalian: Yes, Phil, again, it was an announcement that we are going to work through, and John Hollatz and his teams are going to work through and look at the diligence and all the variables that go into bring that project to fruition. But the drivers of that, I think John touched on really well. That mill has been around since 1905 and as that city has grown up expanding that footprint becomes a significant challenge. So how do we do that? How do we continue to serve our customers? How do we continue to serve those markets and gaining new customers. And again, we see some opportunities out there that are compelling that we think the strategies that the team is engaged on are going to potentially effectuate a great long-term outcome.

Again, Seattle has been an incredible producer for Nucor, for our customers, shareholders. And so again, against that backdrop of providing the most capabilities for our customers are really the drivers behind this exploration in our future.

Phil Gibbs: Thanks, Leon. I had one further, and I apologize, but it just popped in my mind here. What's the current appetite for M&A across the spectrum, whether that's in mills or fab or recycling. I know you've obviously made a lot of internal investments. So you can be more in control of kind of the long-term asset quality and cost base of what you're investing in. But what's the appetite to add on that capability with M&A? And how willing are any of the potential targets you're looking at? Thanks.

Leon Topalian: Yes, Phil, what I would tell you is that we've generated an awful lot of free cash flow. We've got a lot of cash. We've got the best credit rating in the industry. So all those things said, there's no desperation -- there hasn't been. There wasn't in '21 and '22 and the record years of Nucor. It was an incredibly disciplined approach to think about growth. But make no mistake, we are going to grow. We are going to invest. We're going to continue to maximize our shareholder returns. We are going to continue to be great stewards of the shareholder capital we are entrusted with. We are going to return our 40%. We are going to maintain an incredibly strong credit rating but we're going to invest further in the future.

We're going to look at so I would tell you the appetite is continually strong with again, a very disciplined mindset that is cash isn't burning a hole in our pocket. We are not going to chase things. We are going to look for the things that create EVA for our shareholders, period, full stop. Again, under the umbrella of the cultural fit that matches Nucor's longstanding traditions of how we know we can maximize that return is through the team, through the incredible culture that Nucor is been a proud part of for 60 years, that is driving and guiding our decisions and how we think about those companies that we choose to engage and bring on in Nucor. Thanks, Phil.

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

Timna Tanners: Yes. Hey, good morning, everyone. I wanted to follow-up on Phil's question and see if I could ask it a little differently. But on a call we were just on and most of us, we heard that there's a view of one of the other steel mills that there could be further consolidation in the flat rolled sector. So do you agree that there's further -- you've been making your investments to grow organically in a lot of ways. But do you think there's also ability to further consolidate without running into any issues in antitrust?

Leon Topalian: Yes. Look, Timna, I think like you, we are watching that play out as well. And so we'll see how that shakes out in the coming weeks and months and years. But again, what I cannot speculate on some of that, what I can tell you for sure is our strategy is clear in how we want to think about growing this company and investing for our future. So historically, what we've seen is the industry is consolidated. That's been a healthy thing for the steel industry. It's been a good outcome. And so whether or not certain companies meet DOJ hurdles, I can't even begin to speculate on, but again, like you, we are watching how this plays out, and we'll stay tuned.

Timna Tanners: Okay. So let me switch gears a little bit and kind of ask, on the flat rolled side, you've been ramping up Gallatin and Brandenburg for a while, but not -- it doesn't seem like you're running flat rolled anywhere near full out. If we look at the sheet volumes, they're down quarter-over-quarter despite Gallatin ramping up. So you're running your sheet at less than full utilization, but you're also starting a new sheet mill. Is that going to displace any capacity? Or are you thinking that will be incremental? Because I know on the rebar side, you've been pretty disciplined and not adding a lot of extra capacity, but is flat rolled a different market for a reason that I might be missing? It would be great to hear your thoughts on that. Thanks.

Leon Topalian: Yes, I'll share a couple of perspectives. The first thing though I want to do is decouple Gallatin and Brandenburg. Brandenburg's not been in the startup for a while. They are on target. They completed that project on schedule, on time and on budget with one of the highest safety outcomes we've ever seen in the history of Nucor. So I couldn't be more proud of how they've executed that and how the plate group is going to market. So I would tell you that's very different from what we've seen in Gallatin, where, again, I'm not sure all of our -- obviously, you've been doing a number of Nucor facilities. When you look in the visits I've made to Gallatin and what they had to do, the integration of we call it a brownfield, but they essentially were greenfield and everything from automation in the control systems that are required to bring that new equipment online was Herculean, the team's worked incredibly well safely, but there were a lot of startup issues that cost us 6 to 8 months of where we thought we were going to be.

Your ultimate question of, are we going to peg the utilization rates to the outcomes? The answer is no. We are going to look at making sure that the tons we bring into the market are balanced. We are not just going to run 1-inch plate at Brandenburg because they can when Hertford or Tuscaloosa can do something already make those tons and serve that customer need. But Rex or Al, any other additional comments you'd like to make.

Rex Query: Tim, this is Rex Query. As I look at our capabilities across our sheet mills, we are positioning ourselves to rationalize product based on -- I'm going to say the capability and the efficiency levels of our various plants. So if you look at our pickle galv line, at Gallatin, which we have continued to support through all of these changes at Gallatin and supply into the automotive market, heavy frame applications. You look at our expansions in the coated side, a new Gallatin announced for Berkley with tremendous automotive supply there from that plant. So we are going to expand capability there, our investments in [indiscernible] so we really look to make sure that we are expanding capabilities, value added we are growing in our capabilities with our customers, not just only in volume. We are going to focus on margin and bottom line profitability. Frankly, that's going to be our focus.

Timna Tanners: Okay. I was just trying to get an answer to the question on the sheet mills. Are they going to be -- the additional Westford industry, will that be incremental capacity? Or like you were alluding to on the rebar side, could it replace existing capacity? And if it's incremental, is there room for another 3 million tons in the market? Thanks.

Leon Topalian: Yes. Look, I think it's a fair question, and it's going to be both. This is the short answer. Part of the driver for that as we think about the sustainability model and where our customer segment is asking us to go and has been asking us to go, that's going to be an incredible need. And don't forget that that mill is going to sit in the largest sheet consuming range in the United States where Nucor is underserved. We don't have as much market share that we know we are going to be able to go in and provide for our customers. So there's no doubt that both pieces of that strategy are going to come into play in the coming years as we ramp that up. And so no, we are not building 3 million tons of capacity that we think we're going to run in 2.1. We have full expectations that we are going to build it to 3, and it's going to run at 3.

Timna Tanners: Okay. Thank you.

Steve Laxton: What you just said, the incrementally in new capacity.

Timna Tanners: Got it. Thanks again.

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

Leon Topalian: In closing, I'd like to thank our Nucor team members for the way you've executed our growth strategy and continue to raise the bar on our safety. Let's carry this performance through and finish the rest of this year and make this the fifth straight year of record performance. I'd like to also thank our customers for the trust you place in us with each and every order. And finally, thank you to our shareholders and the trust you place in us to be great stewards of the capital. Thank you all for your interest in Nucor, and have a great day.

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