Heat Treat Industry News
June 16, 2008
Forging Ahead - Steelmaker's footprint to grow in DeKalb
The Charlotte, N.C.-based steelmaker, which operates plants in St. Joe and Waterloo, was the training ground for the three co-founders of Fort Wayne-based Steel Dynamics.
“We have a very entrepreneurial spirit throughout both companies,” Steel Dynamics co-founder Mark Millett said. “We create a culture in which our employees can succeed.”
Millett worked for Nucor for 12 years, while chief executive Keith Busse spent 21 years at the company and Dick Teets – the other founder – worked there seven years.
Steel Dynamics has experienced consistent growth since it started. Fortune magazine this year ranked Steel Dynamics the No. 1 metals industry leader for 2007 on its 2008 “List of Industry Stars.”
And Nucor, with $16.6 billion in annual sales, is getting its own share of national attention for success.
In March, for the third time in four years, Nucor made the BusinessWeek 50, a ranking of companies in the Standard & Poor’s 500 index with top sales growth and return on investment.
Then Nucor was ranked America’s largest steelmaker according to rankings published in the May issue of American Metal Market, topping the list with more than 22 million tons.
Shannon Phillips, vice president and general manager of Nucor Vulcraft’s St. Joe plant, points out that Nucor has been profitable every quarter of every year since 1966.
But while the company is getting glowing magazine reviews, one analyst said the company’s stock price is not performing as well as some of its competitors.
Although Nucor is based in North Carolina, its northeast Indiana operations are significant. Nucor operates three plants that together employ nearly 900 in DeKalb County.
And by the end of the year, Nucor’s northeast Indiana footprint will likely grow.
The company Thursday announced that its Harris Steel Inc. subsidiary will pay $185 million to acquire Auburn-based Ambassador Steel Corp.
Ambassador is a fabricator and distributor of concrete reinforcing steel and related products. In 2007, the company shipped 650,000 tons of products.
Completion of the acquisition depends on getting regulatory approval, completing due diligence and other closing conditions, Nucor said in a statement.
But the company expects the transaction to be completed in the third quarter.
Nucor has a building systems plant in Waterloo and a fastener plant in St. Joe. In a building next to the fastener plant, Nucor Vulcraft produces building components used in non-residential construction.
Phillips said the quality of the employees in northeast Indiana is the reason the plants are here.
“It’s the people. When you talk about growth, the people are the reason,” Phillips said.
Nucor operates on a pay-for-performance basis, so employees are paid based on how much product they produce, Phillips said.
“It’s the teamwork; that’s really what’s got us where we’re at,” Phillips said.
At Steel Dynamics, employees are also paid on a performance basis, Millett said.
“We incentivize our employees and reward them in lock step with the prosperity of the company,” Millett said. Steel Dynamics has further refined the incentive program given to employees, and all employees at the company are eligible for stock options.
The Waterloo Nucor plant is DeKalb County’s ninth-largest employer and the St. Joe Nucor fastener plant is the 17th-largest employer, said Galen Eberhart, director of the DeKalb County Economic Development Partnership.
Steel is an important industry to DeKalb County. Seven of the county’s top 20 employers are steel-related companies. Eberhart said steel is a good industry for the county because the product has many uses.
“Steel is used in a wide variety of products, and it’s not just automotive,” Eberhart said. “They have a little more diversity.”
Nucor has seen tremendous growth in both its sales growth and stock prices during the past few years. In March, Nucor made the BusinessWeek 50. This is the third time in four years Nucor has appeared on the list. Nucor ranked 25th on the 2008 list, fourth in 2007 and took the top spot in 2005.
“Because of the way the list ranks companies based on growth factors, repeating on the list from year to year is difficult,” Nucor said in a statement.
BusinessWeek department editor Brian Hindo said it is not unheard of for a company to make the list three times in four years, but it is evidence that Nucor is a strong, well-performing company.
While Nucor’s stock performance compared with the rest of the S&P 500 is impressive, it’s not performing well compared with other steel companies such as Steel Dynamics, said Charles Bradford, a metals analyst at Soleil Securities.
Nucor’s net sales have more than doubled over five years, going from $6.3 billion in 2003 to $16.6 billion in 2007. Net income hit a high of $1.8 billion in 2006, a dramatic improvement from the $62 million reported in 2003. But Nucor’s 2007 net income didn’t quite match 2006, coming in at $1.5 billion.
But the company anticipates 2008 will be a strong year. On June 5, citing strong shipments and higher profit margins, Nucor raised its second-quarter earnings expectations from $1.55-$1.60 per diluted share to $1.75-$1.80 per diluted share.
Bradford said the company increased its earning expectations to catch up to the stock market’s expectations.
“I think Wall Street was ahead of them,” Bradford said.
Goldman Sachs analyst Aldo Mazzaferro wrote in a research note that the rising expectations still fall short of his own guidance that the second-quarter earnings will be around $1.90 per share.
“Nucor should continue to benefit from rising metal spreads as steel prices are rising faster than the input costs,” Mazzaferro wrote.
In the longer term, Mazzaferro wrote, projects including a new steel processing center in Mexico, a new galvanizing product line and joint ventures in the global arena should increase earnings.
A May 15 announcement by Nucor that the company applied for a permit to build a $2 billion iron-making plant in St. James Parish, La., caught the attention of Michelle Applebaum Research Inc.
The new plant will help Nucor get the raw materials it needs and help it better predict material costs, Applebaum wrote in a research note. The move could be the first step in building an integrated steel complex, which hasn’t been done since 1968, which Applebaum wrote could be an “industry-changing event.”
“Not since the first Nucor plant began production in Darlington, S.C. in 1969 has there been as significant an industry sea-change,” Applebaum wrote.
But Bradford said he’s not convinced that the company will ever build the plant in Louisiana.
“I think that’s a phony. You won’t live long enough to see it,” Bradford said. “I think the Nucor project doesn’t make a lot of sense.”
Nucor will also face some challenges in the near future, Bradford said. Nucor’s largest market is non-residential construction, which is expected to slow considerably this year and next year.
“Nucor is somewhat resting on its laurels from the previous management,” Bradford said.
At the Vulcraft plant in St. Joe, Phillips said he will continue to watch costs and optimize operations from beginning to end to remain competitive.
Nucor’s biggest challenges are rising energy costs and possible energy legislation, Phillips said. Nucor is instituting several strategies to grow.
“We (Nucor) have had a lot of acquisitions, and we’ve seen a lot of growth, but as a general rule, the entire company is getting better,” Phillips said.
Nucor is also taking steps to remain competitive by expanding into operations overseas and acquiring complementary companies, Phillips said.
For example, in August 2007, Nucor acquired Magnatrax Corp. for $280 million, expanding its building systems division with seven plants and four brands of building products.
Now Nucor has more than 100 plants in 20 states with the capability to recycle 20 million tons of steel into new products every year, Phillips said.
“It’s been a very good company for me,” said Phillips, who began working at Nucor in 1985. “I started on the shop floor and worked my way up through the corporation.”
By Kimberly Peterson
kpeterson@jg.net
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