Spire Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
January 30, 2024

There are 13 speakers on the call.

Operator

Good day, and welcome to the Nucor 2023 4th Quarter Earnings Please note this event is being recorded. I would now like to turn the conference over to Jack Sullivan, General Manager and Investor Relations. Please go ahead.

Speaker 1

Thank you, and good morning, everyone. Welcome to Nucor's Q4 Year End 2023 Earnings Review and Business Update. Leading our call today is Leon Tapalian, 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 Simuski, Chief Operating Officer Al Baer, responsible for Plate and Structural Products Brad Ford, Over Fabricated Construction Products Noah Hanners, Raw Materials John Hollitz, Bar and Rebar Fabrication Doug Jellison, Corporate Strategy Greg Murphy, Business Services Sustainability and General Counsel Dan Needham, Commercial Rex Query, Sheet and Talent Resources and Chad Utemark, New Markets and Innovation. We've posted our Q4 earnings release and presentation to the Nucor Investor Relations website.

Speaker 1

We encourage you to access these materials as we will 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 these laws. Actual results may be different than forward looking statements and involve risks outlined in our Safe Harbor statement and disclosed in Nucor's SEC filings. The appendix of today's presentation includes supplemental information and disclosures along with a reconciliation of non GAAP financial measures. So with that, let's turn the call over to Leon.

Speaker 2

Thanks, Jack, and welcome, everyone. I'd like to begin by congratulating our 32,000 Nucor teammates for delivering another strong year of financial results. We closed out 2023 with solid performance, earning $3.16 per share in the 4th quarter, on our way to $18 per share for the full year. This represents the 3rd most profitable year in Nucor's history behind 2022 2021. In fact, Nucor's combined net earnings over the past 3 years exceeds the combined net earnings of the last 20 years.

Speaker 2

This is a testament to the focus and dedication of our team as we our strategy to grow the core, expand beyond and live our culture. In keeping with our commitment to shareholders and our balanced approach toward capital allocation, Nucor invested $2,200,000,000 in CapEx and returned $2,100,000,000 To shareholders in 2023, representing 46% of our net earnings, we are coming off the 3 best years in Nucor's history. But in spite of that, we're even more excited about what lies ahead. The U. S.

Speaker 2

Economy continues to be resilient steel intensive megatrends are starting to drive increased demand for the products we make and our focus on expand beyond businesses downstream are generating excellent returns. Turning to our safety performance, 2023 statistically was the safest year in Nucor's history, making 5 straight years of improvement. We also had 29 divisions going the entire year without a recordable injury. We finished the year with a company wide injury and illness rate of 0.79, which is 17% lower than 2022 and well below the steel industry average. However, with that said, Nucor will not internally acknowledge 2023 as a record year in safety.

Speaker 2

We'll not celebrate 2023 as a record year because on November 3rd, we lost a Nucor team member to a workplace accident. Subsequently, on November 9, we had a company wide safety stand down. It was a chance to honor our fallen team member and his family, reflect on our most important value, safety, and reinforce that the health, safety and well-being of every Nucor team member is what matters most. Our team members come to work each and every day to support themselves, their loved ones, and they must go home each and every day. That is our greatest responsibility to all 32,000 team members who make up our Nucor family.

Speaker 2

Every leader inside of Nucor is committed to delivering our mission to become the world's safest steel company. And there is no doubt in my mind, we will achieve our goals together. Nucor is the largest and most diversified steel producer in North America. We pioneered the commercial application of EAF Steelmaking over 50 years ago. And today, we own and operate 30 electric arc furnaces with 4 more under construction.

Speaker 2

EAF Steelmaking and our unique entrepreneurial culture have made us the industry leader, and our current strategy will keep Nucor out in front As we continue to deliver the financial results and capabilities our investors and customers have come to expect, Today, Nucor leads the North American Steel Industry across financial, operational and environmental criteria. Value creation for shareholders through prudent capital deployment is our primary financial objective. Since the beginning of 2020, we have invested over 12 $1,000,000,000 in CapEx and strategic acquisitions to grow our core and expand beyond. During the same time, our average annual ROE has exceeded 30% and our annualized EPS growth rate has exceeded 40%. In terms of operation, Nucor makes approximately 1 out of every 4 tons of steel produced in the United States.

Speaker 2

We have a highly efficient business model and our unrivaled breadth of products and capabilities serve the widest range of end markets. Sustainability is a key differentiator for Nucor and a major part of our growth strategy. We are the largest recycler in the Western Hemisphere and among the lowest in greenhouse gas intensity across global steelmaking. And we're taking steps to position us even better for the future, supplying customers with the sustainable solutions they've come to expect. That's why we helped create the Global Steel Climate Council and announced a commitment towards net 0 steelmaking by 2,050 across scopes 1, 23.

Speaker 2

Our business strategy and investments are driving growth for shareholders. In raw materials, we are leveraging our market intelligence and flexible supply chain to provide more sustainable inputs. We're investing in advanced scrap separation technologies and near zero emission iron making. And we've partnered with ExxonMobil to capture and store up to 800,000 tons of CO2 per year at our Louisiana DRI facility beginning in 2026. In our Steel Mill segment, we are shifting the mix toward higher margin value added products.

Speaker 2

We continue to ramp up Brandenburg, the most capable EAF plate mill in the world. We're constructing a state of the art sheet mill in West Virginia, And we're expanding our rebar micro mill footprint targeting some of the highest growth regions in the U. S. Turning to steel products, We have a strategic advantage on the supply side given the integration between our mills and steel product teams. We'll continue to leverage this advantage while pursuing more cross selling and companion tons through our solutions teams, and automation and technology to improve efficiency and reduce the risk of injuries.

Speaker 2

And finally, Our Expand Beyond strategy into a steel adjacent platforms is paying off. We are leveraging our core competencies to grow into higher margin businesses Aligned with steel intensive megatrends, we're executing this strategy through a combination of acquisitions and organic growth, including the construction of 2 new utility structure production facilities. For 2023, our ExpandBeyond platforms contributed roughly $415,000,000 in EBITDA led by overhead doors and insulated metal panels. We remain confident in hitting our $700,000,000 EBITDA run rate goal for ExpandBeyond divisions in the coming years. We believe the American steel industry is still on the front end of megatrends working their way into steel markets.

Speaker 2

We are starting to see some increased activity in certain markets like bridge and highway, semiconductor chip plants, EV factories and renewable energy. And as we've shared before, Nucor expects the federal programs that support these megatrends to add somewhere between 5000000 to 8000000 tons of incremental annual demand for steel over the next several years. While the long term trends look favorable, we've seen some pockets of slower than expected activity. For instance, adoption rates for electric vehicles are tracking lower than some have predicted and several offshore wind projects have been canceled or delayed due to supply chain challenges as well as higher costs. Warehouse starts are expected to decline again in 2024, but we still expect them to stay above pre pandemic levels.

Speaker 2

And despite some of these near term headwinds, Nucor remains optimistic about the longer term prospects for these end markets. Non res construction is our largest end market and it is proven to be incredibly resilient. Some of the strongest growth is coming from the sharp rise in advanced manufacturing and infrastructure investment, both expected to rise double digits over the next 2 years according to Dodge Construction Forecasts. This is helping to offset some of the softness we're seeing from more rate sensitive sectors, which should begin to pick up later in the year if interest rate cuts occur as many expect. Before turning it over to Steve, like to share a few thoughts on how Nucor's business model continues to deliver attractive returns for our shareholders.

Speaker 2

From 2020 To 2023, we've generated a combined EBITDA over $30,000,000,000 net earnings of nearly $20,000,000,000 and returned nearly $10,000,000,000 to our shareholders. Throughout it all, we've maintained the strongest balance sheet of any North American steel producer, allowing us to grow the company by investing in higher margin, less volatile businesses. As our results demonstrate, Nucor is a growth company And given our investment plans and the long term outlook for steel in the U. S, we see more opportunities for growth in the years ahead. With that, I'll turn it over to Steve, who will share additional details on our financial results and near term outlook.

Speaker 2

Steve?

Speaker 3

Thank you, Leon, And thanks to our shareholders for joining us this morning. Nucor ended 2023 on a strong note with 4th quarter consolidated net earnings of $785,000,000 including $127,000,000 of pre operating start up cost. We exceeded the midpoint of our guidance due primarily to better than expected performance from our steel mill segment in the month of December. In addition to solid earnings for the quarter, the power of Nucor's business model allowed us to more than $1,500,000,000 of operating cash flow during the quarter with working capital contributing about $250,000,000 of that total. Turning to our operating segment results.

Speaker 3

Our Steel Mills Group generated $588,000,000 of pre tax earnings in the 4th quarter, a decrease of 33% from the 3rd quarter. Total steel mill shipments declined 4% from the prior quarter and realized pricing for the segment was lower across all major products. Our mill utilization rate was 74% down from 77% in the prior quarter, but higher than the 70% in the Q4 of 2022. In the back half of the fourth quarter, we saw an uptick in customer confidence as the UAW strikes were resolved and the Federal Reserve signaled the end to interest rate hikes. Shipment volumes as the quarter progressed and we began to realize higher pricing for sheet steel consistent with pricing trends in the published indices.

Speaker 3

We're expecting further improvements in both shipments and realized pricing to favorably impact results in the Q1 of 2024. Our Steel Products segment delivered another strong quarter with pre tax earnings of $656,000,000 This represented just over half the total segment earnings for the Q4 and is the 6th consecutive quarter with steel products contributed at least 40% of our total segment earnings. For the year, steel products generated segment earnings of $3,400,000,000 its 2nd best year behind 2022. Realized pricing and margins continued to moderate in the 4th quarter, but on an earnings per ton basis for the full year of 2023 only gave up about percentage points. Our raw material segment posted a pre tax loss of about $14,000,000 for the quarter.

Speaker 3

Compared to the prior quarter, pricing was relatively stable, but output was lower and per ton cost rose due to planned outages at our DRI facilities. Now turning to capital allocation with $2,200,000,000 in capital spending and $2,100,000,000 in shareholder returns in 2023, Nucor once again demonstrated a measured and balanced approach to its capital deployment. With respect to our shareholder returns, It's worth noting that next week we'll pay our 203rd consecutive quarterly cash dividend in the amount of $0.54 per share. This represents a 6% increase over the prior dividend. As Leon highlighted, Nucor is taking meaningful steps to grow its earnings power and cash flow potential.

Speaker 3

Since 2018, we've been able to increase our dividend by 42% and reduce our shares outstanding by 23%. For the foreseeable future, we remain confident we'll continue to be able to return at least 40% of our net earnings to shareholders by way of dividends and share repurchases. A cornerstone of our capital allocation framework is a commitment to a strong investment grade credit rating and liquidity that enables our strategy. Nucor's balance sheet remains well positioned to enable continued execution of our balanced capital allocation philosophy with a debt to capital ratio of 25% a debt to EBITDA ratio of less than 1. We have a long history of putting capital to use and returning capital to shareholders.

Speaker 3

Given that principle and our ambitious growth plans, we do expect to end 2024 with a lower cash balance than where we started the year. We finished 2023 with a strong cash position for several reasons. 1st, with more than $7,000,000,000 of cash from operations, We generated robust cash flows throughout the year. 2nd, we experienced some timing delays in our planned capital spending. And finally, we were preserving liquidity for possible acquisition opportunities, which ultimately did not materialize.

Speaker 3

Now that we've broken ground in West Virginia, the pace of our capital spending should accelerate. For 2020 we expect total capital expenditures of approximately $3,500,000,000 with our 7 largest growth projects representing approximately 2 thirds of this total. In addition, we're firmly committed to growing our portfolio of solutions and expand beyond footprint through value creating acquisitions. To that end, we are actively fostering a pipeline of acquisition candidates. As always, we will be selective, opportunistic and disciplined in our approach.

Speaker 3

But unlike our organic growth strategy, the timing and size of potential acquisitions is far less predictable. Looking ahead to the Q1 of 2024, we expect consolidated earnings to be higher than the prior quarter with improved performance from the Steel Mills and Raw Materials segments, partially offset by weaker earnings from the Steel Products segment. For the Steel quarterly earnings to increase due to higher realized pricing and higher volumes in particular from our sheet mills. In the Steel Products segment, we expect lower realized pricing compared with the prior quarter. Across most of our Steel Products groups, Current backlogs are consistent with historic norms, while margins have remained higher than historic averages.

Speaker 3

For the raw material segment, we expect modest profitability on higher shipments and relatively stable pricing. Looking ahead, 2020 4 appears to have a more stable outlook than may have been expected just a few months ago with a reasonable probability of seeing the much discussed soft landing. As Leon mentioned in his opening remarks, the U. S. Economy appears relatively healthy with inflation and unemployment metrics continuing to trend favorably.

Speaker 3

Market expectations for gradual declines in interest rates could result in more demand for consumer durables, light vehicles and increased activity across a broad construction sector. As the most diversified producer of steel and steel products With the widest array of market solutions, these potential expectations bode well for Nucor. Looking beyond 2024, several steel intensive megatrends are only in the early stages. While economic cycles will continue to impact the markets, we broadly see positive demand drivers that provide a constructive backdrop to Nucor's midterm growth potential. With that, we'd be happy to take your questions.

Speaker 3

Operator, if you would, please open the line for Q and A.

Operator

Our first question comes from Curt Woodworth with UBS. Please go ahead. Yes.

Speaker 4

Thank you. Good morning, Leon and team. And I'm sorry to hear that you guys lost a team member in November, but Congratulations on what's been a pretty strong safety performance the past several years. My first question is more and market related. So in your slide deck, you did have a constructive generally constructive outlook to use your words with regards to commercial construction as well as infrastructure.

Speaker 4

But when we look at the volume performance of the bar and beam mills and even played to some degree, it's been pretty choppy to down for almost 2 years now. So I guess, what gives you confidence that that market can inflect, what signs are you seeing in terms of either increased bidding activity on the highway bridge side or how your order book is shaping up?

Speaker 2

Yes, Kurt, I'll kick it off. Then if there's any other comments I'll certainly let them jump in and thank you for the condolences regarding our team member. As we've mentioned for decades now, The health, safety and well-being of our 32,000 new Ford team member family is the greatest responsibility we all bear each and every day. They are the ones that are delivering Every result we're about to talk about. So again, thank you for acknowledging that.

Speaker 2

It's interesting. There's a lot of talk about new capacity, particularly in the sheet. And we get a lot of questions, Kurt, as you know around well, as we think about new market entrants or increased Demand won't that flattening of the cost curve change the profile and earnings. And what I would point to is what you really asked about the loans. As we look at structural and We don't break out the individual structural mill, Newquay, Yamada or Verbally Bean on a financial performance For the individual rebar mills, I would tell you the performance of our long products divisions has been incredible from a financial result.

Speaker 2

They are generating incredible returns for our company. Nucor Yamato is operating at a much higher utilization rate. And so over the last 2 or 3 years and they had the 10 prior. I think prior to the pandemic, Our average utilization rate at NYS, for example, is in the upper 60s to low 70s. That shifted much higher to the mid to upper 70s, low 80s.

Speaker 2

So that flow through and that run rate is generating great return. So I would tell you the outlook and continued demand for our structural products and loan products remains pretty optimistic. And again, we've seen incredibly consistent returns in our lungs products divisions and groups that we think will continue into 2024.

Speaker 5

This is Dan. I'll give a little perspective on what we see in the markets, in particular with the funding programs as Well, but if you think of the trends right now, we're seeing activity in some of the reshoring, the advanced manufacturing. You're seeing it in EV battery plants, those types of things. From a standpoint of IRA chips in the Infrastructure Act, There's more activity going on, on the energy side with the IRA and also with the chips. We're active in shipping to Multiple ships plants that are under construction today.

Speaker 5

From an IRA standpoint, we've seen a lot of activity in solar, Particularly 2023 was a record shipment year for us on torque tube that go into these solar projects. And we see in that growing into 2024, it was about 22 gigawatts built in 2023. We see it go into 20 to about 36 gigawatts in 24. What I would say is some of the headwinds, we see the peak of those activities in the volume and demand coming in the next few years. And the reason for that, there's a couple of things that are headwinds in that.

Speaker 5

One is we've talked about on past calls is labor constraints. That's real out there. A lot of these projects are competing for the same labor pool. So we do see that having an impact. And then the other thing that's also impacting the pace of these projects is really around regulations.

Speaker 5

What I mean by that is getting access to energy for some of these plants is important. That's a slow process. The other thing is environmental permitting. So we're seeing some headwinds with those, but not just delaying the projects. And lastly around the infrastructure, it can take upwards of 18 months to go from when these projects are announced actually when they start getting shipped.

Speaker 5

So that's why we still see some optimism and are very positive in the outlook and We're well positioned to take advantage of all of these trends going forward.

Speaker 4

Great. And then just as a follow-up for Steel Products, you noted incremental pricing weakness in the quarter. Can you just comment can you give any more specificity around how you see margins trending in this quarter or the margin profile of the backlog and obviously there's a lot of moving pieces within the steel product But do you have a view on where margins should normalize? And then with respect to

Speaker 5

getting up

Speaker 4

to that $700,000,000 EBITDA number, Can you do that organically or will you need to acquire as well to reach that? Thank you and best of luck.

Speaker 2

Yes, Kurt, that's a lot to unpack in there. What I would tell you on the macro and I'll let Brett or share a little bit more of the details, Couldn't be more proud of how our products groups and teams and divisions have performed over the last several years. The non res Sector of our economy has remained incredibly resilient. We had 10 straight quarters over $1,000,000,000 earned in that business On the downstream side of our portfolio and while it was a little bit under that in 2023 For Q4 of 2023, its continuing performance is strong. We're seeing order entry rates that are strong.

Speaker 2

As we move into Q1, we see that moving upwards. I'm not going to get detailed on the margins, but we see that improving. And so Hey, Brad, maybe provide a little bit more context to what we're seeing as we enter 2024.

Speaker 6

Yes. Thanks, Leon, and thanks for the question. Like Liana, I couldn't be more pleased with the performance of our downstream product teams, performance and safety, the clear step change in earnings and the solutions and value we're providing to our customers and our team is executing extremely well. Yes, Joyce and Deck tends to get a lot of the headlines. And then while Joyce and Deck is coming off its 2nd best year ever, Nucor Downstream products is far more than just Joyce and Deck.

Speaker 6

For example, our insulated metal panel group is coming off a record year, rebar fabrication record year, pre engineered metal building, 2nd best year ever, Our Tubular Products Group, 2nd best year ever, garage doors, fasteners, towers, structures, warehouse systems, skyline on down the list. This amazing product diversity positions Nucor uniquely to take advantage of strength in a variety of the market segments. As Dan mentioned, we see strength in advanced manufacturing and data centers supported by IRA and chips, infrastructure supported by the IIJA. We also see strength in healthcare, education and warehousing while down is still forecasted significantly higher than pre pandemic levels. Our ability to offer this breadth of downstream products is unparalleled in the industry.

Speaker 6

These are secure, sustainable solutions for our customers and partners that continue to differentiate Nucor as the supplier of choice. We're coming off a period of 21 2022 have extremely high demand. And while we see demand moderating back towards historical levels, It's still quite strong. While volumes have moderated, our backlog remains very healthy and pricing has stabilized at levels far higher than historical averages. In fact, Q4 industry wide bookings in Joyce and Deck were the highest in 6 quarters and 40% higher than Q4 of last year.

Speaker 6

So we're optimistic and we're entering 2024 with more market activity and momentum than we entered 2023.

Speaker 4

Great. Thank you very much.

Speaker 5

Thanks, Kurt.

Operator

Our next question comes from Katja Jansick with BMO Capital Markets. Please go ahead.

Speaker 7

Hi, thank you for taking my question. At your Investor Day in 2022, you provided an EBITDA bridge that would get you to normalized EBITDA of about $6,700,000,000 Can you provide an update on how you're progressing on reaching that goal?

Speaker 2

Yes, I'd actually be pleased to. So in November of 2022, we stood in New York and rolled out the most comprehensive detailed analysis that we've ever published before to show you as the analyst what we were going to do and the accountability by which we were going to hold ourselves to that through cycle EBITDA with the completion of our CapEx investments would yield about a $6,700,000,000 through cycle EBITDA performance. I tell you at 7.4 for the 3rd best year in Nucor, we're doing really well. And that's going to continue to improve because not all those projects have come to fruition yet. We've got galvanizing being built.

Speaker 2

We've got our new micro mill being built in Lexington, North Carolina. We've got the investments in Kingman, Arizona that we're making, we're expanding our resource pool and how we bring these products to market. So I would tell you we're doing incredibly well. And again, we'll look back at times and look Coming out of the cycle that we hit the trough and what I would tell you is I'm really proud of our earnings. I'm proud of The way the team has been able to accomplish those and then again the results that we've been able to see as we shared with you on the opening remarks To generate $30,000,000,000 over the last 4 years, dollars 20,000,000,000 in net earnings and 10% or $10,000,000,000 given back to our shareholders has been an incredible well disciplined growth strategy and that's going to continue.

Speaker 2

We're going to be very disciplined how we think about capital Allocation moving forward, Steve, anything you'd like to add on as we continue to grow and looking at that run rate of 6.7 Yes.

Speaker 8

And Kachi, just to add on to what Leon said, a lot of our a lot of those projects are still ahead of us. Take a look at some of the biggest ones in our company's history like West Virginia, those are only in the early stages of their project life. So they haven't even started to contribute. And in terms of our ExpandBeyond investments, we told you that we felt Confident those investments would hit $700,000,000 in EBITDA and we still we reaffirm that today. And Tidy, we feel very confident we'll hit 700 of the run rates at the end there.

Speaker 8

So there's still more to come in that. And like we said cycles go where they go, but We're continuing to execute on our business on all fronts.

Speaker 7

And maybe just quickly on the Brandenburg plate mill, what do you how much do you expect the mill will produce in 2024? I think previously you were expecting about 500 1,000 tons?

Speaker 5

Yes, Kalia, this is Al Baer. That's still our number for 2024. I would expect to be there or north of it. Yes. I'm just super proud of that team and how they've worked through the ramp up there.

Speaker 5

We continue to be focused on The new part of the market that we can't service out of our existing portfolio, but we remain mindful of the returns we generate through there at Hertford and Tuscaloosa that contribute to the strong results you see in front of you. And we want to add to that out of Brandenburg. So we're going to continue that thoughtful process. But Q4 was a meaningful productive quarter for that team. We continue to set new standards.

Speaker 5

We shipped another first of 120 foot long plates to a bridge fabricator, 30 tons apiece. We ship them by truck and by rail. So these are the kinds of things that we'll be able to do on a Brandenburg that's never been done before by New Moore or perhaps the rest of the industry and we're just excited as we roll into this year. But that remains our number and we're confident in that.

Speaker 7

Thank you.

Speaker 2

Thank you.

Operator

The next question comes from Timna Tanners with Wolfe Research. Please go ahead.

Speaker 9

Yes. Hey, good morning, team. I wanted to ask a little bit more about capital allocation. I guess, first off, The comment on lower cash balance, what do you think is the right level? Because clearly it's been running kind of high recently, so just to get a little more color there.

Speaker 9

And secondly, you made mention of preserving liquidity for potential M and A and acquisition that you thought and didn't. And here at an industry conference, there's a lot of chatter about Nucor's, supposed involvement in the acquisition process for U. S. Steel. Just wondering if you can comment on that or give us some more color perhaps on your M and A pipeline, what that might look like, what types of companies, etcetera?

Speaker 2

Yes, Tim, I'll kick it off and then let Steve. So I'll begin with the second part of your question, which again, obviously the proxies have. Nucor took a hard look at some of these select assets within the U. S. Field portfolio.

Speaker 2

But at the end of the day, We're not going to overpay for any assets. We're going to continue to be very disciplined in how we think about growth. Some of the cash generated was just stronger results and stronger shipments and some pricing that had flowed through that We didn't fully anticipate, but I would tell you again from my perspective, we continue to remain an incredibly undervalued stock as we think about the growth and metrics that I've already shared, won't repeat again, but at 7.5 times EBITDA, I think we are a Great value in terms of the things that we're doing and producing in regards of who ends up owning U. S. Steel's assets.

Speaker 2

Nucor today's market cap is larger than the next 3 largest combined steel companies in North America. We are the industry leader. And so again, as we look at our strategy and our growth, we're going to be incredibly disciplined in making sure The investments we make in our core and ExpandBeyond are delivering the results our shareholders expect. And then the ExpandBeyond particularly that is providing some insulation to the traditional cyclicality of steel that we're looking for in the steel adjacent Downstream businesses that, again operate a little countercyclical to what we're seeing in steel and we're seeing those Again, manifest themselves with CHI, the megatrends that we're seeing in Towers and Structures and some of the other businesses that we've acquired over the last 3 or 4 years.

Speaker 8

Hey, Timna, this is Steve. I'll just add to what Leon said that we don't We have such a good opportunity in front of us and he highlighted the areas that we think about growth. So we're always going to keep enough liquidity to move on the things we need to move on. And we also highlighted that we will spend around $3,500,000,000 CapEx in this year. So that's a higher rate than our historic averages.

Speaker 8

And despite that, we will Leon highlighted this one we still feel like our stocks are good buy here. So you'll see us at a higher pace for share buybacks in Q1 than we did last year.

Speaker 9

Okay. That's super helpful. Thank you for the color. I guess one quick one if I could add. I know there is a question already about Brandenburg run rate, but I was just wondering, is there still more room to see Gallatin on an annualized basis ramp up or is it already pretty fully running out, with the expansion?

Speaker 9

Thanks again.

Speaker 2

Sorry, was your question on Gallatin's ramp up?

Speaker 9

Yes. The status of that, if you could, please.

Speaker 2

Okay. Yes, I'll provide some high level. What I would tell you in the last 3 or 4 months of 2023, The team has executed incredibly well. We've seen daily, weekly, monthly production records set at that facility. They have realized the full run rate potential of that mill and now are operating at an extremely high level.

Speaker 2

So They have turned more than turned in the quarter and again are producing atornearrun rate capabilities and we'll continue that as we move into 2024.

Speaker 9

Okay. Thanks again. Appreciate it.

Speaker 8

Thanks, gentlemen.

Operator

The next question comes from Bill Peterson with JPMorgan. Please go ahead.

Speaker 10

Yes. Hi, good morning and thanks for taking my questions. So I guess first on the plate market, I guess what are your views on the plate market given the step up in service center inventories we saw in December and year on year decline in shipments despite Brandenburg's ramp. And I guess following up on that Brandenburg sort of ramp Commentary, when can we expect to see Brandenburg turn profitable this year?

Speaker 5

Yes. Thanks, Bill. It's Al Baer again. I'll comment on the flight stuff. We did have an increase year over year in shipments, about 11%.

Speaker 5

And part of that is of course Brandenburg. But just speaking about the plate market overall, I'd say we're reasonably optimistic. I mean there's areas of A weakness that gets some headlines and higher interest rates are a compressive force when it comes to vertical construction where plate is used. But There's plenty of bright spots in other areas like power transmission and railcar manufacturing. Heavy equipment is still strong.

Speaker 5

It's Probably declining, but it's still strong and a good pull through for us. So and then of course, you've got the bridge and highway tons that are mostly yet to come and that will come for years in the future. So, our Skyline business that Brad mentioned pulls a lot of plate tons through almost all of their work is infrastructure related, not bridge and highway, but many other types of projects. So our view is not that the flight market is going wildly robust, but it's going to remain pretty steady and has plenty of tailwinds to offset some of the other forces working against us.

Speaker 10

And on the brand number profitability timeline?

Speaker 5

I'd expect we hit a run rate of breakeven sometime in the middle of the year.

Speaker 10

Okay. Thanks for that. 2nd question is a little bit longer dated, longer focus. But in the last few earnings presentations, you've been certainly less on the decarbonization efforts. But with the team having many multi faceted approach across biocarbon, green pig iron, the CCS you mentioned, power generation, 0 emission iron and so forth.

Speaker 10

I guess, are any of these showing up in 2024 within your investments in CapEx, for example, the CCS program that you have planned for 2026. I guess, how should we think about these programs in terms of what's leading and how they flow through over the next several years?

Speaker 2

Yes. Look, I'll begin and Greg Murphy, our EVP in Business Services and Sustainability can jump in as well. But from a high level, look, it's a great question. One of the beautiful things about Nucor and our positioning This is one of the top 5 recyclers in the world and certainly the largest in the Western Hemisphere. Our EAF Deal making technology means that we don't have to take the 1,000,000,000 and 1,000,000,000 and 1,000,000,000 of dollars of profit we're making in pivot In transition from the old style integrated facilities, you're seeing headlines around the world.

Speaker 2

Companies in Europe that are have made the pledge to 100% switch to EAF Steelmaking Technologies because they have no choice. The question In my mind isn't about and if this nation is going to move to a greener, more sustainable platform as we rebuild, reshore continue to grow the digital economy. The real question in my mind is the pace in which we changed. Do we have the infrastructure? Do we have the grid hardening?

Speaker 2

Do we have the resources across the United States to be able to effectively help The EV users power their cars at homes and everything else. But it's a long winded way to get to the answer of your question. As you think about The VPPAs that we're part of, you think about some of these investment projects, the Louisiana partnership and Exxon, They didn't cost us anything because of the strength of our balance sheet, the strength of Nucor's leadership position. It wasn't a huge, alley of cash. You think about some of the other investments, they're smaller in size.

Speaker 2

So they're not they're tens of 1,000,000 rather than 100 or 1,000,000,000. It's positioning ourselves and finding partners out there that are doing different things with carbon and biochar. We're looking at technologies in Europe that are producing pig iron atornearnet0embodiedcarbon. So there's a number of things that we're examining that are not at this point large scale from a CapEx standpoint. Greg, anything you'd add to that?

Speaker 2

I guess on

Speaker 5

the timing issue, we see the Louisiana project beginning to pay dividends probably in 2025. But as Leon said, that is not at all a capital intensive investment for Nucor. We were able to structure that as an over the fence solution, Working with a partner who really understands the geology and the petrochemical attributes there in ExxonMobil and with the 45Q tax Credit that has proven to be a financial winner for Nucor really from beginning to end. And a lot of the other strategies that we will deploy as An EAF producer go to things like our source and supply of raw materials and how we can get lower embodied carbon raw materials, how we can use obsolete scrap and extract some of the tramp elements from that and use that to replace things like pig iron. So from a capital intensity standpoint, Leon nailed it.

Speaker 5

We are in a well positioned place. And really what we're trying to do is to take a world class level and make it even better. And we're very, very excited. The last thing I would mention is Scope 2 emissions, that's a big opportunity for Nucor. You've seen us make investments in both nuclear vision and nuclear fusion technology.

Speaker 5

We believe that's going to be an essential element in delivering reliable affordable baseload power in the future that's 0 carbon. That's still going to be a number of years out into the future, but we believe it's going to be absolutely essential to supplement the solar and wind and other renewable clean sources in the future. But again, we don't want to build nuclear power plants. We want to be the off takers and use that power.

Speaker 10

Thanks for the comprehensive answers and good luck ahead here with the execution.

Speaker 6

Thanks, Bill.

Operator

The next question comes from Martin Englert with Seaport Research Partners. Please go ahead.

Speaker 11

Hello, good morning everyone.

Speaker 9

Good morning.

Speaker 11

Question on conversion costs, They were pretty similar year on year around, dollars 4.65 per ton. Just wanted to see if What's your thoughts were if this was a reasonable range to expect on a go forward basis considering today's operating structure? Or is this something that has an opportunity to come down as startup costs start to subside from some of the growth projects?

Speaker 5

Yes. This is Dave Smutsky. Certainly, some of the growth projects, especially Gallatin has That's increased our cost based on some of the things that we've done up there and some of the it was a little bit slower at the start than we had expected. So We can expect the costs come down a little bit,

Speaker 6

but not a lot.

Speaker 5

And Gallatin is running at a really good rate now. We offset we're probably near full run rate. So we're going to be in a good spot this year.

Speaker 11

Okay. And I just wanted to circle back on the discussion of plate and structural and this is From the mill perspective, looking at the plate volumes and the beam volumes, there was just year on year divergent trends when you look at the quarterly where you saw pipe come down in 4Q but had been growing and then you had the opposite in Structural Products, anything else to add there as far as color as to why those would have pivoted so differently through the course of the year?

Speaker 5

Sure, Martin. Hey, this is Albert again. I'll start with plate. So, yes, year over year growth, but you see same quarter year over year, we took a step back. A lot of that is just we're not going to chase cheap tons.

Speaker 5

And in Q4, we had some imports come in and those spreads just got to be where we're not going to load our books with tons that aren't profitable and aren't going to drive returns for us. So I think that'll change as we move forward. And I spoke to our outlook for 20 24 in plate. In beams, yes, you saw a really great quarter in beams. Part of that speaks to the resiliency of the market and Brad spoke to that.

Speaker 5

We spoke to that. It just remains a resilient market and there's plenty of areas of strength where we can go and compete and win and you see that. But Part of that is also the breadth of Nucor's portfolio and some of those tons you see in the Beam Group are tons to our downstream customers, Skyline being one of them that won some nice projects and you'll see them ship those tons through the first half as they convert and perform. So There's just always Nucor success is a multilayered story. There's always the cylinder firing and The numbers that you see, I think just reflect that especially on the beam side.

Speaker 11

The color. Thank you and congratulations on the long term return profile.

Speaker 5

Thank you, Martin.

Operator

Next question comes from Tristan Grasser with BNP. Please go ahead.

Speaker 12

Yes, hi. Thank you for taking my questions. The first one is on capital allocation and thank you for touching on The M and A situation, if I could just have a quick follow-up there. When you look at the pipeline of opportunities, Is it fair to assume the most well, all those opportunities are inside the U. S.

Speaker 12

And you're not looking at opportunity, it's abroad. And in the past, When you look at the balance between organic and inorganic, I wonder if you could comment a little bit where in the priority list greenfield projects are essentially? That's my first question. Thank you.

Speaker 2

Yes, Tristan. I'll kick it off and certainly let Steve, lacks didn't share any additional comments. But if you look at our M and A pipeline, you think about our strategy, as we think about growing the core and expanding beyond, what we said is roughly we expect over the next 5, 6 years that we would begin to generate about 20% to 25% of our overall revenues through expand beyond businesses. So We're moving to that. So it sort of gives you a rough breakdown to where you're going to see us continue to think about growth, where we're going to continue to channel our capital dollars.

Speaker 2

Regarding the geography, I would tell you, it's Probably a safe bet that Newport is going to stay in North America. That's the sector of this economy that we know the best where we have the most Advantages to use the strengths of Nucor from our culture, our team, our conversion model and understanding As the market leader in 12 of the 14 major steel market end categories, we've been in business a long time. We understand The boundaries around this industry and we also understand our customers where they're wanting to go. We're making investments not for our benefits. We're making investments not to be the largest by volume.

Speaker 2

We're being disciplined in those investments to create capability sets that our customers can continue to grow their businesses and continue to flourish.

Speaker 12

All right. That's helpful. Moving on to maybe the rebar market. Can you discuss a little bit the demand trends you've been seeing there over the past couple of weeks? And we've seen the price hikes coming Through putting an end to some metal spread compression, do you see any reason on the ground to expect further moderation or you believe the

Speaker 5

Yes, Tristan. This is John Hollis. We did see some improved margins in rebar in the Q4. And over the course of the year, rebar remained pretty steady. As we've talked about these infrastructure projects and other demand in construction continuing to grow, we're bullish on the rebar market for the future.

Speaker 12

Okay. That's clear. Maybe last question then on plate. I know it has been discussed a bit, but in your outlook, the weakness you're seeing in heavy equipment or Earth moving machinery, how new is that? How severe is it?

Speaker 12

And in terms of outlook, I think You mentioned something you said it would be steady. Should I understand it as weakness, those incoming part of portion of weakness being offset by more supportive construction infrastructure that's coming on?

Speaker 5

Yes, Tristan, Al again. Is your question primarily just around that heavy equipment piece? I want to make sure I get that right.

Speaker 12

Yes. The kind of the red dot you put in your in the table and that includes heavy equipment, moving machinery, so some weakness you're seeing there, just trying to figure out if that's new and if it's severe. And then when you look at the outlook for metal spreads for plate, they've been pretty steady in January. Is that something you expect to continue? Or do you that weakness you just flagged is could potentially imply some further moderation there?

Speaker 5

Okay. Let me address the heavy equipment piece. My comments about it declining, I wouldn't say are new in terms of the line in that sector, that's been happening through the second half of the year. I wouldn't say we see that as a really strong decline going into 2024 because there's obviously with infrastructure, there's going to be some spending in that end use market that will keep that somewhat buoyed, but we do see it continuing to decline a bit as one of several end markets where we serve with plates. So All of that put together with non res construction and some of the other highlights that we talked about In those markets, our outlook for plate is relatively optimistic just in terms of small, like low single digit incremental growth year over year that there's plenty of different parts where we can compete separate from the ramp up that we'll have in Brandenburg, but we'll grab incremental tons, just by that alone.

Speaker 5

Is that helpful?

Speaker 12

Yes, that's really helpful. Thank you for the color.

Speaker 2

Thank you.

Operator

The next question comes from Curt Woodworth with UBS. Please go ahead. Thanks. I just had a

Speaker 4

quick follow-up on capital spending outlook. So of the Growth capital you've outlined for this year, how much of that will carry over into next year? And can you just remind us on the timeline of when you think West Virginia will start to ramp. And then you also noted a potential, I think, new micro mill bar project in the Pacific Northwest. If you could just comment on that?

Speaker 4

Thank you.

Speaker 8

Yes. Kurt, this is Steve. The $3,500,000,000 projection is our expectation for 2024. And I think if you're trying to extrapolate what future years are going to be some of those projects like West Virginia are going to push our capital spending into 25 higher than historic averages. But likely, if you're penciling out something, it's probably below that $3,500,000,000 if you're trying to look for a direction, but north of 3, if I would guess.

Speaker 8

And in terms of when West Virginia is completed, it'll be in 2026. So that's a project that

Speaker 5

will keep going for some time for us.

Speaker 2

And then, Kurt, your last question on the exploration of the Pacific Northwest. What I would tell you is We're doing just that. Again, it's a market we've been in for 2 decades. Our team in Seattle continues to do an incredible job. And we're going to continue to evaluate that market, recognizing the customers that we serve in that market and where does that most make sense and Yes, stay tuned.

Speaker 4

Thank you.

Operator

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

Speaker 2

In closing, I just want to say thank you to our Nucor team members for another great year in 2023. As we begin 24, let's make sure we take care of our most important value, the health, safety and well-being of our new core family. Thank you to our customers for the trust you placed in us with each and every order and thank you to our shareholders for the valuable capital that you entrust us with each and every day. Have a great day.

Operator

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

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Spire Q4 2023
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