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Case 27 Teaching Note Nucor Corporation in 2016
11
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.
So proficient is Nucor at identifying and implementing innovative and cost-saving technologies that its
capabilities here qualify as a very strong core competence and very likely a distinctive competence.
nState-of-the-art plants which are kept in tip-top shape with regard to production efficiency and the latest
and a no-layoff policy. The company’s HR practices are very well-matched to the company’s low-
cost provider strategy. Executives at Nucor had a longstanding commitment to provide the company’s
work force with the best technology available to get the job done right in a safe working environment.
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
the data in case Exhibit 3 showing how fast Nucor had boosted tons sold in newly-entered product
categories.
nNucor’s recent strategic initiative to shift a growing percentage of the production tonnage at its steel
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
Case 27 Teaching Note Nucor Corporation in 2016
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Nucor management viewed the task of pursuing operating excellence in its manufacturing operations as
a continuous process. As former CEO Dan DiMicco was quoted as saying in the case:
We talk about “climbing a mountain without a peak” to describe our constant improvements. We
can take pride in what we have accomplished, but we are never satisfied.
nA thrifty, no-nonsense, stripped-down organization; few corporate perks, Spartan corporate facilities; a
very cost-conscious corporate culture
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
purchased in 2014 at the fourth quarter of 2014 that could not be used until 2015 when the facility
resumed operations after equipment repairs were made and (2) a planned maintenance outage in Q4 of
2015. Due to adverse market conditions that forced Nucor’s steel mills to operate well below capacity
in 2015, the Louisiana DRI plant did not resume operation until early 2016.
While in 2014, a Nucor official had indicated that Nucor’s use of DRI in its steel mills was expected to
give the company an approximate $75 per ton cost advantage in producing a ton of steel over traditional
integrated steel mills using conventional blast furnace technology, so far the Louisiana DRI plant’s
problems had prevented Nucor from realizing any cost-saving benefits from its $750 million investment
in the plant, and all activities relating to a second 2.5 million ton DRI facility, a coke plant, a blast
furnace, an iron ore pellet plant, and a steel mill at the St. James Parish site in Louisiana had been put
on hold. Nonetheless, Nucor management believed that the recent investments in its two DRI plants
(in Trinidad and Louisiana) had put the company in better position going forward to manage its overall
costs of metallic materials and the associated supply-related risks.
Case 27 Teaching Note Nucor Corporation in 2016
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nNucor’s low costs per ton of steel produced put Nucor in a competitively strong position to more fully
utilize its production capacity as compared to higher cost rivals.
Nucor’s Resource Weaknesses and Competitive Liabilities
nThe economics at Nucor’s steel-making facilities was heavily dependent on favorable scrap steel prices
and adequate supplies of scrap steel (all steel producers cannot employ electric arc furnace technology
to recycle scrap metal—some producers must make steel from scratch).
nToo much idle production capacity—which prevents the company from spreading fixed costs out over
more tons of steel produced and sold and thus impairs profit margins
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
Threats to Nucor’s Well-Being
nRising prices for scrap steel (could cut Nucor’s profit margins)
Case 27 Teaching Note Nucor Corporation in 2016
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nContinued high levels of idle steelmaking capacity worldwide (which acts to depress the prices of steel
products and incentivizes some low-cost foreign steel producers to “dump” their products into the U.S.
Nucor has proven competencies in
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
competitor, and that its future prospects are quite promising. Making steel is a tough business with cyclical
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
implementing innovative and cost-saving steel-making technologies at its plants, thus enabling it to
have a eet of state-of-the-art plants that are very cost-efficient.
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
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
business very consistently over the years. Eager beaver students may run the numbers in case Exhibit 1 and
come up with the following compound annual growth rates (CAGR):
CAGR in total tons sold to outside customers 1970-2015: 11.0%--this percentage would be higher were
it not for the significant drop in tonnage in 2015 (due to “dumping” by foreign steel companies)
Case 27 Teaching Note Nucor Corporation in 2016
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CAGR in net earnings 1970-2013: 13.7%
And these CAGR’s would have been greater were it not for the sales and profit declines Nucor experienced
in 2015 and to the weak demand for steel during 2009-2015.
The data in Case Exhibit 2 document the improved performance that Nucor achieved during following the
dismal recession-induced performance of 2009. But headed into 2016, Nucor still has a long way to go to
return to the record earnings of 2004-2008.
Using the financial ratio information provided in Table 4.1 in Chapter 4 and carefully examining the statistics
in case Exhibits 1 and 3, students can determine the following:
nNucor’s net sales fell precipitously from $23.66 billion in 2008 to $11.19 billion in 2009 (a drop of
52.7%), before climbing to $15.8 billion in 2010 and to $20.0 billion in 2011, then slipping to $16.4
billion in 2015. Net sales in 2015 were 30.5% below the 2008 level.
nDespite significant declines in EPS, the company boosted its dividends from $1.4525 in 2011 to $1.4625
in 2012 to $1.4725 in 2013 to $1.48 in 2014 to $1.49 in 2015.
nNucor’s expense ratios during the 2011-2015 were as follows:
2015 2014 2013 2012 2011
Cost of products sold
as a % of net sales 90.4% 91.0% 92.6% 92.2% 90.3%
Marketing, administrative
and other expenses as a
% of net sales 2.80% 2.47% 2.53% 2.34% 2.60%
Case 27 Teaching Note Nucor Corporation in 2016
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nEven though Nucor’s long-term debt increased slightly over the 2011-2015 period, its percentage of
2008 period in each of the product categories where it competes—and its total tons sold have held up during
2009-2015 despite adverse market and competitive conditions . The strong gains in rebar since 2006 are the
result of major acquisitions.
This is a good point to quiz the class on what factors are most responsible for Nucor’s weak financial
performance in 2009-2015 as compared to its performance in 2004-2008.
We think class members should be able to point to three big factors:
nThe steep drop in market demand for steel and steel products that accompanied the Great Recession and
the years since 2010.
nThe high levels of idle production capacity that pressured many steel producers to engage in widespread
price discounting in order to boost sales volumes and revenues—such price-cutting has resulted in lower
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
about the results of their industry and competitive analysis and their evaluations of the company’s situation,
competitiveness, and performance. The challenge here for students is to get a clear fix on exactly what strategic
Case 27 Teaching Note Nucor Corporation in 2016
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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
between making additional acquisitions versus building new greenfield plants.
nHow best to deal with the threat posed by the growing volume of low-priced foreign imports in Nucor’s
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
strategy for Nucor and is well-suited for competing in the steel industry. No major changes in Nucor’s
competitive strategy are thus called for.
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
proven it can be successful via both new acquisition and new plant construction. But in the years ahead,
the balance between acquisition and new plant construction should be governed by whichever capacity
expansion option presents the best (least cost) option in a given product category or geographic region
where growth opportunities are identified. However, the apparent industry overcapacity worldwide
and especially in certain geographic parts of the world argues for making acquisitions rather than
building new production capacity.
Case 27 Teaching Note Nucor Corporation in 2016
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Epilogue
For the first nine months of 2016, Nucor reported consolidated net sales of $12.3 billion, down about 6% from
the $13.0 billion in sales for the first 9 months of 2015. Nucor’s earnings during this same period were $574.6
million (equal to $1.79 per diluted share) versus earnings of $419.7 million (or $1.30 per diluted share) for the
first nine months of 2015.
Total tons shipped to outside customers for the first nine months increased to 18.5 million tons from 17.5 million
tons for the first nine months of 2015. from the first nine months of 2015, while average sales price per ton
decreased 10%. Overall operating rates at Nucor’s steel mills decreased to 71% in the third quarter of 2016
as compared to 83% in the second quarter of 2016 and 69% in the third quarter of 2015. Steel mill utilization
increased to 76% in the first nine months of 2016 from 69% in the first nine months of 2015.
The table below provides more details on production and shipments at Nucor for the third quarter of 2016 and
the first 9 months of 2016.
TONNAGE DATA
(in thousands)
Three Months (13 Weeks) Ended Nine Months (39 Weeks) Ended
October 1,
2016
October 3,
2015
Percentage
Change
October 1,
2016
October 3,
2015
Percentage
Change
Steel mills production 5,012 4,942 1% 16,292 14,896 9%
Steel mills total shipments 5,213 5,166 1% 16,790 15,401 9%
5,889 5,883 —18,494 17,573 5%
The average scrap and scrap substitute cost per ton used in the first nine months of 2016 was $225, a decrease of
21% from $285 in the first nine months of 2015.
Cash and cash equivalents and short-term investments totaled $2.35 billion as of the end of the third quarter of
2016.
Case 27 Teaching Note Nucor Corporation in 2016
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In July 2016, Nucor announced it had agreed to acquire Joy Global’s steel plate mill in Longview, Texas, for
approximately $29 million. The mill produced carbon and alloy plate products with heat-treating capabilities and
had an annual capacity of 180,000 tons.
Nucor announced in September 2016 that it had agreed to acquire Independence Tube Corporation (ITC), a
Also in September, Nucor announced the construction of a Specialty Cold Mill Complex at its Nucor Steel
Arkansas division. The Specialty Cold Mill Complex would expand Nucor’s capability to produce advanced high-
strength, motor lamination, and high-strength low-alloy steel products. The new mill and expanded annealing
capacity was projected to cost $230 million to build and was expected to be in operation in approximately two
years. The addition would give Nucor the capability to produce products the company currently did not make,
interest in Hunter Ridge Energy Services LLC to Encana. Nucor also entered into long-term agreements directly
with existing third party gathering and processing service providers to support its operating and potential future
well developments in the South Piceance Basin. These transactions provided Nucor with capital exibility and
preserved long-term access to low cost gas resources in support of its raw material strategy.
In December 2016, Nucor announced that it had agreed to acquire Southland Tube, an independent manufacturer
our recent acquisition of Independence Tube in the HSS steel tubing market. We see this market as a great
opportunity to leverage Nucor’s capabilities and strengths while also adding to our portfolio of products and
services for our customers.”
In October 2016, John Ferriola was elected to a 1-year term as Chairman of the Board of Directors of the World
Steel Organization at the organization’s 50th Annual Conference in Dubai, United Arab Emirates. Worldsteel
16, 2016 to stockholders of record on September 30, 2016. This dividend was Nucor’s 174th consecutive
quarterly cash dividend.
