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Case 16 Teaching Note Nucor Corporation in 2014
496
nEmployees were kept informed about company and division performance. Charts showing the division’s
nNucor plants were linked electronically to each other’s production schedules, and each plant strived to
All of these actions, in conjunction with one another, have combined to make Nucor a very efficient operator
6. What specific factors account for why Nucor has been so successful over the past
several decades? Do these factors have more to do with great strategy, great strategy
execution, or great leadership?
Students ought to single out several factors that account for Nucor’s growth and market success over the
years:
1. The company’s aggressive pursuit of cost-saving efficiencies and the achievement of low costs per ton
produced.
2. Nucor’s series of acquisitions (largely at bargain-basement prices) have led to its being able to supply
3. All of the operating practices, policies, and procedures identified in the answer to question 5 above—
Nucor has had great strategic leadership, especially in the case of Ken Iverson and Dan DiMicco—it is too
All three, taken together, go far towards explaining why Nucor is a standout company in an industry that is
Key Teaching Point. Nucor provides a classic example of why great strategy + great strategy execution
7. What does a SWOT analysis reveal about Nucor’s situation? Does Nucor have any core
or distinctive competencies?
Nucor’s Resource Strengths and Competitive Assets
nProven capability in identifying and implementing innovative and cost-saving steel-making technologies.
nState-of-the-art plants which are kept in tip-top shape with regard to production efficiency and the latest
equipment—the company’s production facilities are among the most modern and most efficient in the
Case 16 Teaching Note Nucor Corporation in 2014
497
nNucor’s strong top management—this is a very well managed company that has avoided making
nProven skills and expertise in keeping costs low (via lean corporate management, excellent use of
nA productive, motivated, and well-compensated labor force—strong emphasis on continuous
improvements in labor, strong reliance on production incentives (which appear to be highly effective!!),
nA broad, diverse line of steel products
nNucor’s proven ability to gain sales and market share in the product categories it has entered—see
nNucor’s recent strategic initiative to shift a growing percentage of the production tonnage at its steel
nImproving foreign sales capabilities via the (1) various international sales offices, (2) the joint ventures
in steel-making in Europe with European-based partners (although the joint ventures have struggled to
NuMit LLC owned 100% of the equity interest in Steel Technologies LLC, an operator of 25-sheet steel
processing facilities throughout the United States, Canada, and Mexico. The NuMit partners agreed
nThe stress that Nucor management placed on continual improvement in product quality and cost at
each one of its production facilities. The company had a “BESTmarking” program aimed at being
the industrywide best performer on a variety of production and efficiency measures. Managers at all
nA thrifty, no-nonsense, stripped-down organization; few corporate perks, Spartan corporate facilities; a
nGood information systems to monitor/track operations; and employees are kept well-informed about
plant performance, division performance, and company performance (plant personnel know what the
profit performance of their division is!). In addition, Nucor plants were linked electronically to each
nThe company’s recent investments in Louisiana and Trinidad to produce its own supplies of direct
reduced iron (which could be used as a substitute for scrap steel in making various steel products.
Nucor’s backward vertical integration into raw materials for steel-making was aimed at achieving greater
Case 16 Teaching Note Nucor Corporation in 2014
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nNucor’s 2008 acquisition of the David J. Joseph Company (DJJ). DJJ was one of the leading scrap metal
companies in the United States, with 2007 revenues of $6.4 billion. It processed about 3.5 million tons
of scrap iron and steel annually at some 35 scrap yards and brokered over 20 million tons of iron and
steel scrap and over 500 million pounds of non-ferrous materials in 2007. Within months of completing
the DJJ acquisition (which was operated as a separate subsidiary), the DJJ management team acquired
nNucor’s low costs per ton of steel produced put Nucor in a competitively strong position to more fully
nHeavy reliance on an empowered plant workforce to identify and implement efficiency-increasing ideas.
nA relatively strong financial condition that enabled Nucor to make acquisitions and finance cost-saving
Nucor’s Resource Weaknesses and Competitive Liabilities
nThe economics at Nucor’s steel-making facilities was heavily dependent on favorable scrap steel prices
nToo much idle production capacity—which prevents the company from spreading fixed costs out over
nAs can be seen from case Exhibit 2, the company’s percentage of long-term debt to total capital has
been rising in the past several years. While the company’s debt level is by no means alarmingly high
and the company would seem to have adequate working capital and additional debt capacity, efforts to
use debt to make sizable new acquisitions could put some strains on Nucor’s balance sheet. The debt
nAdverse economic conditions in the European steel market are dragging down Nucor’s earnings because
Nucor’s Market Opportunities
nGrowing the company’s sales and market share in those product categories where it already competes
nExpansion into additional product categories
Case 16 Teaching Note Nucor Corporation in 2014
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Threats to Nucor’s Well-Being
nRising prices for scrap steel (could cut Nucor’s profit margins)
nContinued weak global demand for steel, due in large part to stagnant economic conditions across many
parts of the world
Conclusions: Nucor is a very well managed company with a strategy and resource strengths that have
enabled it to grow competitively stronger over the past two decades.
Nucor has proven competencies in
nimplementing new innovative and highly cost effective steel-making technologies,
There should be no doubt in students’ minds after reviewing the SWOT lists and Nucor’s performance
(as presented in case Exhibits 1, 2, and 3) that Nucor is a pretty impressive company, that it is a strong
8. Which, if any, of Nucor’s resource strengths and capabilities qualify as core or
distinctive competencies?
We see three areas where Nucor has core competencies (all of which may qualify as a distinctive competence):
nNucor has a core competence—and most probably a distinctive competence—in identifying and
nNucor’s proven skills and expertise in (1) keeping operating costs low (via lean corporate management,
excellent use of incentives, a cost-conscious corporate culture) and (2) operating its plant facilities in
nNucor’s proven expertise in acquiring the production facilities of other steel companies at inexpensive
Case 16 Teaching Note Nucor Corporation in 2014
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9. What is your assessment of Nucor’s financial performance the past several years?
How strong is the company’s financial condition?
Students should critically review the numbers in case Exhibits 1, 2, and 3 as a basis for evaluating Nucor’s
performance and financial condition. Case Exhibit 1 clearly indicates that Nucor has been able to grow its
And these CAGR’s would have been greater were it not for the sales and profit declines Nucor experienced
in the 2012–2013 period.
The data in Case Exhibit 2 document the improved performance that Nucor achieved during 2010–2013
following the dismal recession-induced performance of 2009. While the company is in the process of making
nNucor’s net sales fell precipitously from $23.66 billion in 2008 to $11.19 billion in 2009 (a drop of
nNucor’s net earnings plummeted from an all-time record $1.831 billion in 2008 to a net loss of $293.6
million in 2009 (the company’s first annual loss since before 1970). However, the company returned to
nNucor’s diluted net earnings per share of common stock increased from a loss of $0.94 per share in 2009
nThe EPS rollercoaster prevented the company from increasing its dividends more than a token amount
nNucor’s expense ratios during the 2009–2013 were as follows:
2013 2012 2011 2010 2009
Cost of products sold
as a % of net sales 92.6% 92.2% 90.3% 94.7% 98.6%
nClass members should also take note of the weak returns on average stockholders’ equity in 2009–2013
nNucor’s cash position and working capital (defined as current assets minus current liabilities) remained
Case 16 Teaching Note Nucor Corporation in 2014
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nEven though Nucor’s long-term debt increased from 2009 through 2013, the company has the ability
to handle the higher level of debt (as indicated by the tolerable percentages of long-term debt to total
All things considered, Nucor is in decent financial shape as of 2013 despite the toll the tough economic
climate has taken on its sales and earnings.
The data in case Exhibit 3 tell an impressive story about how fast Nucor boosted tons sold during the 1990-
This is a good point to quiz the class on what factors are most responsible for Nucor’s weak financial
performance in 2009–2013 as compared to its performance in 2004–2008.
We think class members should be able to point to three big factors:
• The steep drop in market demand for steel and steel products that accompanied the Great Recession.
• The high levels of idle production capacity that pressured many steel producers to engage in widespread
• The very slow economic recovery from the deep recession of 2008–2009—the sluggish recovery has
However, Nucor’s seems to be well positioned to dramatically improve its financial performance when
national and global economic conditions improve significantly, the demand for steel and steel products
10. Based on your analysis and assessment of Nucor’s situation, what issues does Nucor
management need to address?
We think it is always wise to push the class to sum up its analysis and assessment of a company’s situation
by identifying and precisely stating what issues need to be on top management’s “worry list.” Zeroing in
on exactly what strategic issues that company managers need to address—and resolve—for the company
to be more financially and competitively successful in the years ahead forces students to think strategically
In our classes, we stress the importance of stating the issues and problems clearly and in precise terms. The
Case 16 Teaching Note Nucor Corporation in 2014
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In Nucor’s case, we see the following issues that students ought to single out:
nWhether to continue to expand the company’s steel-making capacity and, if so, what balance to strike
nHow best to deal with the threat posed by the growing volume of low-priced foreign imports in Nucor’s
nWhether to invest additional resources in producing substitutes for scrap steel (as a way of combating
nWhether to continue to focus on the market for steel in the U.S. or to put increased emphasis on further
11. What recommendations would you make to John Ferriola?
The actions that students recommend should probably involve the following:
nContinue to aggressively pursue the longstanding low-cost provider strategy—it is clearly the best
nContinue to seek out profitable opportunities to expand the company’s production capacity. Nucor has
done a great job of taking sales and market share away from higher cost steel-making competitors and
growing its lineup of steel products via acquisition. It should be able to continue to do so and it has
the financial resources to invest in additional steel-making capacity via either making acquisitions or
Near-term, building additional plant capacity is likely to have the most appeal outside of the U.S.—in
steel-importing countries where domestic steel-making capacity is limited. In times past, Nucor has
proven it can be successful via both new acquisition and new plant construction. But in the years ahead,
nThere are really only two primary ways to deal with the threat of low-cost foreign imports: (1) continue
to be aggressive in seeking out and implementing ways to lower the company’s cost of making steel
products and (2) continue efforts to persuade the U.S. government to protect U.S. steel companies from
nIt is probably wise for Nucor to be cautious in making big additional investments to produce greater
volumes of DRI or other low-cost substitutes for scrap steel (as a way of combating the company’s
dependence on scrap steel and its vulnerability to rising scrap steel prices)—especially in light of its 2008
Case 16 Teaching Note Nucor Corporation in 2014
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nExpanding further into the markets of foreign countries needs to be pursued cautiously. Wading deeper
into foreign markets seems risky unless Nucor can do so with a cost advantage over rivals (perhaps
Epilogue
For the first nine months of 2014, Nucor reported consolidated net sales of $16.1 billion, up 13.4% over the $14.2
billion in sales for the first 9 months of 2013. Nucor’s third quarter earnings were $503.5 million (equal to $1.57
per diluted share) versus earnings of $317.5 million (or $0.99 per diluted share) for the first nine months of 2013.
Total tons shipped to outside customers increased 9% from the first nine months of 2013, while average sales
price per ton increased 4%. Overall operating rates at Nucor’s steel mills increased to 81% in the third quarter
of 2014 as compared with 79% in the second quarter of 2014 and 78% in the third quarter of 2013. Steel mill
utilization increased to 78% in the first nine months of 2014 from 74% in the first nine months of 2013.
The table below provides more details on production and shipments at Nucor for the third quarter of 2014 and
the first 9 months of 2014.
TONNAGE DATA (in thousands)
Three Months (13 weeks) Ended Nine Months (39 weeks) Ended
Oct. 4,
2014
Sept 28,
2013
Percentage
Change
Oct. 4,
2014
Sept. 28,
2013
Percentage
Change
Steel mills production 5,412 5,2
0
24% 15,93
0
14,912 7%
Steel mills total shipments 5,
7
41 5,359 7% 16,65
0
15,459 8%
Sales tons to outside customers
Steel mills 4,851 4,64
0
5% 14,
0
97 13,248 6%
Joist 128 86 49% 317 248 28%
Deck 113 9
0
26% 3
0
1242 24%
Cold finished 129 113 14% 4
00
359 11%
Fabricated concrete
reinforcing steel 342 3
0
512% 9
0
2813 11%
Other 1,221 932 31% 3,326 2,8
0
119%
6,784 6,166 1
0
%19,343 17,711 9%
Cash and cash equivalents and short-term investments totaled $1.40 billion as of the end of the third quarter
of 2014. After the quarter ended, Nucor closed on its purchase of all the equity of Gallatin Steel Company for
approximately $770 million, which was paid for in cash. Subsequent to the end of the third quarter, Nucor issued
approximately $300 million of commercial paper to help fund the Gallatin transaction. Gallatin Steel owned and
operated a at-rolled steel products mill on the Ohio River in Ghent, Kentucky; the mill had annual capacity of
approximately 1.8 million tons. Adding Gallatin to Nucor’s four existing at-rolled mills increased Nucor’s total
at-rolled product annual capacity by 16%—to approximately 13 million tons.
The average scrap and scrap substitute cost per ton used in the first nine months of 2014 was $387, an increase
of 3% over $376 in the first nine months of 2013.
During the third quarter of 2014, Nucor incurred an operating loss of more than $45 million (approximately $0.09
per diluted share) at the company’s new direct reduced iron (DRI) plant in St. James Parish, Louisiana, despite
the plant’s continuing ability to achieve excellent quality and volume levels. Production outages in June, July
and September were necessary to implement changes intended to improve consistency in the production process
and material yield performance. An additional factor affecting the performance of Nucor Steel Louisiana was the
impact of consuming higher cost iron ore purchased early in the year under a quarterly lag pricing mechanism.
As a result of the process improvements and lower iron ore costs at the plant, combined with a steady run-rate,
Case 16 Teaching Note Nucor Corporation in 2014
504
Nucor management expected significant improvement in the performance of the Louisiana DRI facility in the
fourth quarter of 2014 and profitable results during the first quarter of 2015.
In September 2014, Nucor’s board of directors declared a cash dividend of $0.37 per share payable on November
10, 2014 to stockholders of record on September 30, 2014. This dividend was Nucor’s 166th consecutive
quarterly cash dividend.
In announcing its third quarter results, Nucor management said the following about the stiff competition being
encountered from imports of foreign steel:
The biggest risk to our outlook for our industry continues to be excess global steel capacity that has resulted
in large quantities of steel illegally dumped into the United States. Nucor and other steel producers in the
U.S. are working hard to bring attention to the need for free and fair trade, which is simply rules-based
trade as established by the World Trade Organization or WTO. We applaud several recent actions by the
U.S. government to enforce our nation’s trade laws. Last week, the U.S. Department of Commerce notified
the Russian government that it is terminating the suspension agreement for hot-rolled sheet steel imports.
Russian hot-rolled sheet imports have surged by more than 2,500% or 25x in the first 9 months of 2014. The
suspension agreement will be replaced by an anti-dumping duty order, which we expect to be more effective.
Earlier this month, the U.S. International Trade Commission, in a unanimous 6-0 vote, ruled that the
domestic rebar industry is materially injured as a result of dumped and subsidized rebar imports from Turkey
and Mexico. In August, the ITC found that domestic oil country tubular goods, or OCTG, producers were
materially damaged by dumped and subsidized imports of OCTG from South Korea and 5 other countries,
and duties have been assessed by the Commerce Department.
Nucor is the market leader in serving these highly valued customers in the pipe and tube industry. In July,
the Commerce Department issued positive preliminary determinations on dumping duties against wire rod
imports from China. While we are encouraged by these several rulings, we realize that more work remains in
a fight for effective and timely enforcement of rules-based trade. Supporting our mission is the indisputable
fact that our domestic industry is among the lowest-cost producers of steel in the world.
There were no other developments of strategic and operating significance at Nucor to report at the time this TN
was prepared.
For the very latest information on developments at Nucor, we urge that you check the press releases and the
investor relations sections at www.nucor.com.
