Earnings Call Transcript - NUE Q2 2025

Operator, Operator

Good morning, and welcome to Nucor's Second Quarter 2025 Earnings call. Today's call is being recorded. I would now like to introduce Jack Sullivan, Vice President, Treasurer and General Manager of Investor Relations, to begin your call.

Jack Sullivan, Vice President, Treasurer and General Manager of Investor Relations

Thank you, and good morning, everyone. Welcome to Nucor's second quarter earnings review and business update. Leading our call today is Leon Topalian, Chair, President and CEO; along with Steve Laxton, Executive Vice President and CFO. Other members of Nucor's executive team are also here with us today and may participate during the Q&A portion of the call. Yesterday, we posted our second quarter earnings release and investor presentation to Nucor's IR website. 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 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.

Leon J. Topalian, Chair, President and CEO

Thanks, Jack. Now I want to begin by thanking our 33,000 Nucor teammates for delivering a solid quarter, both in terms of financial results and our safety performance amid all the uncertainty and distractions you have remained focused on executing our growth strategy and creating value for our shareholders, customers and communities. And you did it all while setting another all-time safety record for the first half of any year. Thank you for your vigilance and focus and never losing sight of our most important value. Let's continue to carry that momentum into the back half of the year. To recap some of the second quarter financials, Nucor generated EBITDA of approximately $1.3 billion and earned $2.60 per diluted share. This represents a significant improvement over our first quarter results driven by higher average selling prices in our steel mills segment and stable realized pricing and higher volumes in our Steel Products segment. During the quarter, we returned $329 million to Nucor's shareholders through dividends and buybacks, bringing our total capital return to shareholders for the first half of the year to $758 million. Capital expenditures for the quarter totaled $954 million and we remain on track to deploy approximately $3 billion in CapEx for the year. Our team continues to execute well, and I'd like to highlight just a few of our accomplishments for the quarter. Production levels and shipments at our Brandenburg plate mill trended higher for a sixth consecutive quarter. Shipments in June reached another record, helping Brandenburg achieve positive EBITDA for the quarter. Meanwhile, Brandenburg's product development team continues to strengthen its market position with key customers for complex grades of steel plate that we have not been able to produce prior. I'd also like to recognize our entire sheet making group for shipping nearly 3.1 million tons during the second quarter, marking the second consecutive quarter where the Sheet Group has set a new shipment record. In particular, I'd like to congratulate our team at Gallatin sheet mill in Kentucky for setting a new monthly shipping record during the quarter. On our first quarter earnings call, I mentioned our structural steel backlog reaching historically high levels, and that set us up nicely for strong shipments in the second quarter. Nucor's Beam team delivered shipping over 630,000 tons in generating the highest quarterly earnings for this business since 2022 and the fourth highest of all time. On the growth front, our construction teams continue to make great progress as we near completion of several important capital projects. Our rebar micro mill in Lexington, North Carolina recently rolled its first heat and is now in the early stages of ramping up production. And the team in Kingman, Arizona has successfully melted, cast, and rolled several heats out of its new melt shop, and it will be ramping up production throughout the third quarter. For Nucor Towers and Structures, pole production and galvanizing operations in Alabama are set to begin by September, with customer shipments beginning in the fourth quarter. Our Indiana greenfield project is set to commence full operations by the spring of 2026 with customer shipments beginning in the second quarter. Within sheet, we remain on schedule to complete our coating complex in Crawfordsville, Indiana by the end of 2025 and our galvanizing line in Berkeley, South Carolina by the middle of 2026. And the construction of our new West Virginia sheet mill is nearly 60% complete and remains on track for completion by the end of 2026. A key driver of our quarterly results came from the strong performance of our Steel Products group. We have grown this business to become the broadest and most diverse portfolio of downstream steel products in North America, allowing Nucor to offer a wide variety of solutions for our customers. For the entire segment, second quarter pretax earnings were $392 million, a 28% increase over the adjusted results of the previous quarter. In fact, pretax earnings for each of the main product groups comprising this segment were in line with or above Q1 levels. On an LTM basis, the Steel Products segment accounted for 45% of Nucor's total pretax segment earnings with EBITDA margins of approximately 16%. Both of these metrics remain significantly higher than their respective pre-pandemic averages. Tariff policy continues to evolve but has been positive for the steel industry overall. We support the administration's recent actions to strengthen the Section 232 program by increasing the tariffs to 50%. We also applaud the Commerce Department's decision earlier this year to expand the review of steel derivative products covered by the Section 232 tariffs and for implementing a transparent inclusions process. These steps will help to curb the volume of unfairly traded imports and protect our national security. However, dumped and subsidized imports continue to persist and the vigorous enforcement of our trade laws is needed now more than ever. Nucor and other domestic producers have been injured by elevated levels of unfairly traded corrosion-resistant imports in recent years and filed trade positions on core imports from 10 countries last September. Nucor is pleased with the preliminary determinations from the U.S. Commerce Department and U.S. International Trade Commission in these investigations and we anticipate affirmative final determinations from both agencies later this summer and fall. The Commerce Department and ITC have also initiated investigations into rebar imports from 4 countries, with the ITC issuing an affirmative preliminary injury determination earlier this month. Affirmative determinations in these cases and other trade proceedings are critical to ensuring a level playing field for the steel industry in America. We are optimistic that the administration's vigorous enforcement of our trade laws and the strengthened Section 232 program will result in a sustained reduction of imports into our market. We're also monitoring the evolving country-specific tariff negotiations and their impact on raw material cost. Nucor's raw material supply chain is advantaged by having a broader set of capabilities than any other steel producer in North America. That diversity, along with our world-class sourcing and logistics teams gives us flexibility to source raw materials in a way that optimizes our cost structure and adapt to this highly dynamic situation. Beyond trade policy, we were pleased to see the tax provisions and manufacturing incentives contained in the new legislation signed into law earlier this month. We expect the bill will lead to further economic growth and boost our competitiveness as a nation. It will unleash new investments in steel-intensive projects and promote the reshoring of vital manufacturing while enhancing our national security. And as North America's largest and most capable steel products company, Nucor is incredibly well positioned to support this growth. With that, let me turn it over to Steve, who will share additional details about our second quarter performance, the current demand environment for steel and our outlook for the third quarter.

Stephen D. Laxton, Executive Vice President and CFO

Thank you, Leon, and thank you all for joining us on the call this morning. During the second quarter, Nucor generated net earnings of $603 million or $2.60 a share, right at the midpoint of our earnings guidance range. This represents a substantial improvement over the prior quarter adjusted earnings per share of $0.77 and is similar to the reported $2.68 earnings per share during the second quarter of last year. Year-to-date, Nucor's adjusted earnings were $782 million or $3.37 a share. Our second quarter results included preoperating and start-up costs of approximately $136 million or $0.45 per share. This is down $34 million compared to the prior quarter and in line with the prior year second quarter. Turning to the segment level results for the quarter. The steel mills segment generated $843 million of pretax earnings, more than triple that of the prior quarter. Higher average selling prices, particularly in our sheet and plate operations were the largest drivers of the change in profitability. Total volume for the steel mills segment was in line with prior quarter as increases in sheet, plate and beam shipments were offset by lower bar shipments. We continue to see solid and steady booking rates and our steel mills backlog at the end of the second quarter was up nearly 30% over this time last year. To comment briefly on the pricing environment, we would describe it as broadly stable. Our published consumer spot price for HRC has been within a 5% band of either side of $900 a ton for the past 16 weeks. During this period, we shipped record sheet volumes, and our sheet backlog at the end of the second quarter was 15% higher than the same time last year. As for rebar and MBQ products, we've recently announced price increases that take our average selling price for both products above the respective 13- and 52-week averages. We continue to see healthy overall demand for long products, and we expect lower rebar imports during the second half of the year. Turning to Steel Products. As Leon mentioned earlier, we saw another strong performance in this segment. During the second quarter, Steel Products generated pretax earnings of $392 million, up 28% over the prior quarter's adjusted basis. Results were driven by stable realized pricing and higher volumes, leading to our best earnings quarter for this segment since the second quarter of 2024. Similar to steel mills, our backlog levels for the Steel Products segment remained healthy, up approximately 20% from a year ago and extending into 2026 for some products. We continue to see strong demand as evidenced by robust coating activity and believe this reflects improved business confidence among our customers servicing the construction and infrastructure markets. In Joist and Deck, we are now seeing pricing for new orders at levels that are approaching our average backlog pricing. As a result, prices and margins in this business are expected to stabilize above pre-pandemic levels by end of the year. Turning to raw materials segment. We realized pretax earnings of approximately $57 million for the quarter, an increase of approximately 95% over the first quarter. Results were in line with expectations with stable volumes in pricing and lower operating expenses. Moving to the balance sheet. Nucor remains committed to maintaining a strong investment-grade credit profile. Nucor's credit ratings are the highest of any North American steel producer, and we have long believed that our financial strength is a competitive advantage, allowing us to execute our strategy through various phases of the economic cycle. During the quarter, we retired $1 billion in long-term debt with proceeds from our senior notes issued in March. We ended the second quarter with a total debt to capital ratio of approximately 24% in cash of approximately $2.5 billion. Our next substantial maturity is not until 2027 and more than 80% of our long-term debt maturities are after 2030. In addition to maintaining a strong balance sheet, a cornerstone of Nucor's capital allocation framework is to provide a meaningful direct return to shareholders. During the second quarter, we returned $329 million to shareholders in the form of dividends and share repurchases. When combined with the first quarter, we've returned $758 million of cash to shareholders, representing nearly 100% of Nucor's year-to-date net earnings. During the same period, we've repurchased approximately 4 million shares at a weighted average value of approximately $124 a share. Leon covered some of the factors impacting our markets. But now I'd like to touch on 4 of the larger macro themes that are driving demand. First, technology and advanced manufacturing. Since the passage of the CHIPS Act in 2022, we've seen announcements of over 90 technology and advanced manufacturing projects totaling over $450 billion in private investments and that momentum has accelerated in 2025. These projects take time to move from announcement to construction, but we're seeing increased bidding and new order activity. We're currently supplying steel to 8 large semiconductor facilities now under construction, which all require beam, rebar, joist and deck and other downstream products. Second, infrastructure demand remains strong, driven by funds allocated and now flowing to projects under the IIJA. We've seen notable increases in public transit, highway, bridge and tunnel contract awards, and our bar and plate teams are responding to this demand. Nucor's bar shipments were 13% higher in the first half of the year while Nucor's plate shipments to the bridge market hit a record in the second quarter and rose 35% for the first half of 2025. We also anticipate higher steel tube demand later this year as contracts progress for unfinished sections of the border wall. Third, energy. In the Energy sector, Nucor is seeing exceptional growth in power transmission with the first half shipments to this market up 88% year-over-year. We've also seen significant increases in steel shipments related to solar and onshore wind projects and the recently enacted tax policy will likely lead to some incremental pull-ahead tons over the coming year. Additionally, our Brandenburg facility has been certified to supply line pipe for both LNG and oil pipeline projects, opening up new opportunities in this expanding market. Last but not least, data centers. Construction in this market remains particularly strong. According to the Dodge Construction network, spending from construction starts is projected to grow 18% this year and an additional 26% in 2026. Our beam orders for this segment have increased significantly and serve as a precursor to incremental demand for a variety of downstream products that Nucor supplies. We expect these growing market segments will continue to drive demand for steel and steel products for the foreseeable future. Turning to the third quarter outlook. We expect Nucor's consolidated earnings to be nominally lower than in the second quarter. In the steel mills segment, despite resilient backlogs and stable demand, we expect modest margin compression compared to the second quarter. In both the steel products and raw materials segments, earnings are expected to be similar to the second quarter. For Steel products, we expect slightly lower profitability in Tubular and Joist and Deck, offset by improved performance in other business lines. As we look ahead to the second half of 2025, our expectation is that domestic steel demand will be higher than it was in the second half of 2024 and with the broadest range of capabilities in the North American steel market. We are confident in our ability to create value for our customers and shareholders as we capture a healthy share of that demand. And with that, we'd like to hear from you and answer any questions you may have.

Operator, Operator

Our first question comes from Bill Peterson from JPMorgan.

William Chapman Peterson, Analyst

On Steel Products, you mentioned the margin compression. Can you break that down for us? Is that a statement of higher input cost? I guess how should we think about pricing directionally kind of flattish on a blended basis? From the second to the third quarter? Trying to get a sense before the margin expands in the fourth quarter and how we should think about the puts and takes.

Leon J. Topalian, Chair, President and CEO

Yes, Bill, let me start by thanking the men and women of the Nucor family. This has been the safest start to the first half of any year in our company's history, and I am incredibly proud of how our team supports each other. Every metric and result we will discuss today comes from our team members, and to see this value reflected in such a safe first half is a remarkable achievement. Thank you for that. Now to address your question specifically, it's a great one. We were discussing earlier this morning the resilience of non-residential construction and the general construction market, which has been strong since post-COVID and is expected to remain so. While 2024 may not look particularly strong, the strength of their backlog is pushing out 6 to 9 months. The nominal pricing adjustments we see are not due to weak demand drivers; rather, they are a lag effect from orders taken in late Q4 or early Q1 being realized and sold at those prices. In fact, we recently announced a price increase last week. The demand drivers for this segment remain strong, and we expect them to continue that way throughout this year and beyond. It’s an important and strong contributor to our business, and we are proud of all the groups within that segment. Looking ahead, we see strength in that market.

John J. Hollatz, EVP of Steel Products

Yes, Bill, this is John Hollatz. It's quite common for us to experience margin expansion and contraction due to fluctuations in steel prices. Steve highlighted the Joist and Deck market and our expectations for it in the latter half of the year. Keep in mind, we operate a dozen different businesses in our downstream portfolio, with some backlogs extending nine months out, which gives us good visibility on margins. Other backlogs are only six weeks out, leading to significant variation. It's crucial to recognize that many of these downstream businesses involve custom-engineered products with value-added solutions, and our teams have effectively managed pricing separately from raw material movements, enhancing the earnings profile of these businesses. As Leon mentioned, demand remains strong, and we are optimistic about the future of our downstream products.

William Chapman Peterson, Analyst

Also thanks for highlighting the safety performance, strong results on that. My second question is on the steel mills and nice to see utilization trends in the first half of the year. But among the Steel products, which are running at relatively lower utilization or said in another way, what is your biggest or best opportunities to displace imports as we look out to the second half of the year?

Leon J. Topalian, Chair, President and CEO

Yes. Look, I'd tell you that, that really sits across the board. Our capability set is the most diverse within all North American steel producers. So whether we're talking of Tubular, Joist, Deck, Rebar, but there are some opportunities, right? We're running roughly 85% utilization rates across the steel mills segment. So again, there's more opportunities in sheet. There's more opportunities in our plate group. We have more opportunities in rebar and some of our long products. But again, we're well-positioned to supply those. And again, we don't just simply produce to stack backlogs up. We're producing the orders in most every case. And so we're meeting the demand where it's at and again, have the flexibility to adapt and adjust very quickly. But we're pleased to see what import levels are doing and coming down in that 20%, 21%, they're still too high. We need to be in the low teens. And quite frankly, the North American steel industry can supply the needs of what's being required without having those imports come in the United States. So we're going to continue to advocate for strong fair trade and balance trade for, again, legal imports being dumped and subsidized on the shores of the U.S.

William Chapman Peterson, Analyst

Thanks, Leon. Congrats on the strong execution.

Operator, Operator

Our next question comes from Lawson Winder from Bank of America Securities.

Lawson Winder, Analyst

Thank you, operator. And good morning, Leon. Good morning, Steve. Thank you for today's update. If I could ask about Lexington and Kingman and those ramp-ups. Congratulations on getting those to the cost of being fully operational. Could you speak to the preoperating start-up costs and the period-by-period outlook for those assets as they start contributing to EBITDA positively?

Leon J. Topalian, Chair, President and CEO

Yes. Well, look, I'm going to touch on a couple of things, and then I'll let Steve kick off into the preoperating sort of cost as they move through that start-up. But I want to begin with thanking our Lexington, North Carolina team in that micro mill and their start-up and congratulating them on their safety and how hard they've continued to focus on our customers and bring that mill up. We're excited about what this mill is going to do. It's our third micro mill in the fleet alongside Frostproof and Sedalia. And again, it's a market segment, we know really well. We're excited about where that's geographically located as well in the Atlanta corridor. And so again, we look for great things to come from them as they continue their start-up into Q3 and 4. And as well in Kingman, Arizona, we're proud of the team that they've started their mill shop up now, and we'll continue to ramp up and in that asset. Again, it's geographically positioned incredibly well also in a market that's growing and continues to grow. The other point I'll mention maybe before Steve or Randy may want to share a few additional comments is you're starting to see the move into Nucor's bottom lines throughout the segment of contributors like our team at Nucor Brandenburg and the plate mill and the things that they've done, they are ramping up Nucor, Gallatin and our sheet mill and their delivery. But we've got yet to fully realize the impacts of all of that to the bottom line. So Brandenburg is going to continue to ramp, Gallatin, Lexington, North Carolina, Kingman, Arizona or towers and structures plants in Alabama, Indiana that we'll start up later this year in the spring of next as well as the Utah Towers plant that will begin late next year. The galv lines at Crawfordsville and Nucor Berkeley and finally, West Virginia. So you're seeing the start of the bottom line being impacted today, which again will decrease the overhang of the preoperating and start-up costs but the momentum in the pent-up earnings power of Nucor is just now coming online. And so over the next months, in years. I love our strategy, our positioning, the customers, and capability sets were to be able to serve and how that's going to position Nucor to achieve the highest highs we've ever achieved and the highest lows. So with that, Steve, maybe make a few comments on our free operating costs.

Stephen D. Laxton, Executive Vice President and CFO

Yes. The pre-operating start-up costs decreased significantly compared to the previous quarter. The main factor contributing to this is the Brandenburg team's achievement of breakeven, which has had a greater impact than some of the bar mills, although they are performing well too. The size of the Brandenburg operation is what has affected the costs the most. If you are considering projections for the second half of the year, it's reasonable to estimate around $140 million to $150 million per quarter for that period. Leon mentioned our progress, as we are approximately three-quarters through our major capital investment plan aimed at repositioning our company. While he touched on this, you will see those figures decline a bit later, as this will lag behind our capital spending plan.

Lawson Winder, Analyst

That's fantastic guys. If I could follow up on Brandenburg, what utilization rate is the asset now currently operating? And then just how do you see that trending for Q3 and Q4?

Brad Ford, SVP

Yes. Lawson, this is Brad Ford. I'm happy to take that one. First of all, I like to just congratulate that Brandenburg team and really the entire plate group for the major step forward in Q2. We had record production, record shipments. The team achieved some pretty significant reductions in operating expenses and efficiencies. And then we also had some key achievements in product development, all contributing to that EBITDA positive Q2. Those are all records we expect to continue to break every quarter going forward, right, simply in Q3 and again in Q4. So we're very proud of that team. One of the things we talk about at Brandenburg versus you talk about capacity utilization, it's really the story is around the capabilities of that mill, and what that brings to the Plate Group. And we saw that play out in some key end-use markets in Q2, specifically in the bridge side. Bridge demand has been very, very strong. And over 20% of our Plate group shipments in Q2 were only Brandenburg sizes. So prior to Brandenburg, tons that we couldn't participate in customers we couldn't participate with. On the energy side, we saw onshore wind, power transmission and line pipe, all very robust. As we mentioned in the opening comments, Brandenburg was approved by some large line pipe manufacturers. We expect this to be a larger part of our order book in the quarters ahead. So really, it's a story of capability over capacity and the addition of Brandenburg's capabilities has us extremely well positioned to really be the supplier of choice. And we're pretty excited about the balance of this year and as we roll into '26.

Operator, Operator

Our next question comes from Katja Jancic from BMO Capital Markets.

Katja Jancic, Analyst

Maybe going back to the 3Q outlook, specifically to the mill segment. So you expect volumes and pricing to be relatively stable, but also are calling for margin compression. Can you talk a bit more about what's driving that margin compression expectation?

Leon J. Topalian, Chair, President and CEO

Yes, Katja, I'll touch on that. Look, it's a few things. One, if we step back and look at the entire tariff picture, we certainly looked at that and bake some of that into our forecast. So as we think about the impact to slabs, the impact to raw materials, if the impact of the tariffs to Brazil come into effect on Friday, and that still remains to be seen that could have some impact. However, I'll touch on that in a moment. But that's a part of it. And the second part of that forecast is really around, again, the lag effect. We touched on that a few minutes ago with the impact to our product segment where they're realizing that pricing delta that's now flowing through the system that is at lower pricing levels. But again, the drivers and the demand drivers beyond that remain incredibly robust. So as we move into Q3 and beyond, we're going to start realizing those higher selling prices. And again, that will adjust. But those are the 2 drivers that are impacting why we potentially see a nominal adjustment. But again, there's some upside as well if certain things happen. But I don't want to just leave that overhang there with a comment around the tariffs. As we think about the raw material flexibility that we have, it's as broad and vast as any steelmaker in North America. So maybe just touch on a few of the things that we're doing, the flexibility of our raw materials and why if, again, Katja, the tariffs go into effect on Friday, why we will not feel the full impact of those to our bottom line.

Allen C. Behr, Raw Materials EVP

Sure, Leon. I'll be happy to. Katja, it's Al Behr. So back a bit what Leon is mentioning there. I'd start with those comments about our raw materials team, having the broadest capability of any steel producer in North America. In simple terms, we're built for this. This is why we stay in game day shape, and we're ready to play right now. And that team is getting it done. This is their time to shine, and they are really performing. When we think about Brazil, there's really 2 key inputs that we buy from Brazil. One is the DRI pellets and the other is pig iron. And so as we think about DRI pellets, we've already taken the steps needed to mitigate that 50% tariff from Brazil. And so we've done that through changes to our supply, our global sourcing for those pellets and through the mix that we feed those DRI plants. So the DRI issue is largely taken care of. When we shift to pig iron, then I think it's helpful to first put our usage into perspective. So today, Katja, pig iron represents 7% to 8% of our mill across the enterprise. If you look back 5 years or so, that would be double that. And so 1 example of this flexibility was the invasion of Ukraine. At that time, Russia and Ukraine were 50% of our pig supply. And we pivoted very quickly in a very agile fashion and never missed a quality spec, never missed a customer commitment and shifted our supply pulling the levers we have to pull to react and respond. So as we sit here today then with pig iron, we would expect to do largely the same thing and pivot our supply and pull the levers that we have to pull. Some of those are shifting to alternative supply like DRI, like low copper shred. If you think about our DRI supply, it's internal, it's stable. Both of our DRI plants are world-class amongst their peers, absolutely world-class and then become a top performer for the supply chain for our steel mills. The other is low copper shred that's not directly an HQ high-quality metallic substitute, but it's part of that picture and we've grown significantly in low copper shred production, and we expect to grow more into the future. So I just summarize our positioning in this way that this environment it's very challenging, and it's very fluid, but it's exactly the type of environment that we've built this team to handle, and they're executing that strategy with scale and precision, and it just gives us other options that other producers don't have.

Katja Jancic, Analyst

That's very helpful. To clarify, what I understand is that you are preparing for the 50% tariffs from Brazil to take effect on August 1. If those tariffs do not go into effect, does that create an upside to your current expectations? Is that correct?

Leon J. Topalian, Chair, President and CEO

Yes. I believe there are many factors that could lead to positive outcomes. However, our responsibility is to provide you with a realistic forecast of what we expect earnings to be. Let's reconnect in a week, and we'll update you on whether these possibilities materialize. Until then, I prefer not to make any assumptions about potential outcomes, but our models have been adapted to address this accordingly. We have also implemented risk management strategies to ensure we can respond quickly if needed.

Operator, Operator

Our next question comes from Tristan Gresser from BNP Paribas.

Tristan Gresser, Analyst

I just want to follow up on the raw material cost. Have you noticed any cost increases from tariffs related to DRI purchases in Q2 or anything else? Was there a change in the average cost in Q2?

Leon J. Topalian, Chair, President and CEO

No. No, we did not, Tristan. No.

Tristan Gresser, Analyst

All right. That's clear. And then my second question, I think in your presentation, you talked about the beautiful bill potential impact. Could you maybe go a bit more in detail and if you've been able to quantify it and time those impacts, that would be appreciated. And maybe just a last question on the working capital. Look, you had a big build in H1. I'm not sure if that's also some raw material inventory strategy ahead of the tariffs. If you can share any type of outlook into H2 for your working capital, that would be great as well.

Leon J. Topalian, Chair, President and CEO

I understood the first part of your question but not the latter, so I'll let Steve address that. Starting with the macro perspective of the significant bill, the corporate tax rate will definitely play a role. We can start developing certain elements now, and there are strong incentives for reshoring. Nucor is at the forefront of this, being the most diverse and well-prepared steel company to meet various needs. Our wide range of capabilities presents fantastic opportunities. I’m not sure if Brad mentioned this earlier, but when we consider Brandenburg, it currently offers the broadest and heaviest selection of fleet-capable products in the U.S. As we look at long-term partnerships in defense and military applications, this provides excellent exposure and sales potential for our other products. Within that bill, there’s $47 billion allocated for the border wall, and we're ready to fulfill that requirement, having done so in the previous administration. There’s also $29 billion earmarked for shipbuilding, which ties back to Brandenburg and our extensive capabilities. Additionally, with $150 billion in defense spending, we believe we are in a prime position to supply these needs. If I zoom out a bit, in the past six months, top Fortune 50 companies have committed $2 trillion to invest in the U.S. Nucor is strategically positioned to engage in various sectors such as data centers, energy, clean manufacturing, advanced manufacturing, and projects ranging from shipbuilding to defense. Overall, I see this bill being highly beneficial for the steel industry and manufacturing in general.

Stephen D. Laxton, Executive Vice President and CFO

Tristan, this is Steve. To address the last part of your question regarding changes in working capital, it is closely related to Leon's comments about some positive demand trends. The increase in working capital significantly contributed to our negative free cash flows in the first half of the year. In the second quarter alone, we utilized just over $620 million in our operating working capital. This isn't unusual given the price and volume trends we've observed. However, it sets the stage for a positive shift in the second half of the year, where we anticipate a significant improvement in our free cash flow profile compared to the first half. This is partly due to the working capital usage earlier in the year, but also because capital spending was very high in the first half. Overall, the market conditions and our positioning bode well for a strong free cash flow outlook in the latter half of the year.

Operator, Operator

Our next question comes from Phil Gibbs from KeyBanc.

Philip Ross Gibbs, Analyst

Sticking with the big beautiful bill question, Steve, are there any direct tax benefits to you all in the back half of the year for 2026?

Stephen D. Laxton, Executive Vice President and CFO

Phil, actually, it's relatively limited. The construct of that bill is a little bit forward facing, if you will, in that many of our projects are already underway. Some of the largest spend we've got, it does probably have the most pronounced effect for us in R&D spending and the ability to accelerate that into expensing that right up front rather than amortizing it over 7 years. So we'll have some very positive net present value benefits with that regard. But maybe not as large as you might expect, given the capital spending that we're undertaking.

Philip Ross Gibbs, Analyst

Okay, I have a follow-up regarding costs. It seems that the slab component involves purchasing foreign slabs for CSI on the West Coast. My initial assumption is that this business will start to experience higher costs in the third quarter, which I believe aligns with your earlier comments. Additionally, could you provide insights on your energy and electricity costs and how they are trending overall?

Leon J. Topalian, Chair, President and CEO

Yes. Look, Phil, a few things. And yes, it's a short answer. The tariffs on slabs have already been taken, already are in effect. And so that change is already upon us. But again, Noah Hanners in the Sheet Group continue to do a great job. We have not unlike our raw materials and incredible flexibility to pivot and again, self-supply if we chose. But Noah, you want to just touch base on a few of the things that you and your teams are doing there to, again, mitigate some of this impact.

Noah C. Hanners, Sheet Group Executive

Yes. I just want to add a few small points. As Leon mentioned, and as reflected in our raw material strategy, we have the capability to source materials both globally and domestically. Our team effectively utilizes this capability and is skilled at identifying the most cost-effective solutions. While we are facing some impact from the Brazilian tariff, which has slightly affected our outlook for the third quarter, we have the option to self-supply. We are shipping finished top rolled tons internally that CSI has transformed at very competitive costs. Additionally, we can source from various international suppliers at competitive rates. Our team is doing an outstanding job managing the tariff impacts, allowing us to continue serving the West Coast market profitably.

Stephen D. Laxton, Executive Vice President and CFO

Yes, Phil, to complete your question on energy. Year-over-year, energy costs have increased slightly. They have decreased quarter-over-quarter, but for us, they are just over $40 a ton in our steelmaking. Looking ahead, we expect them to remain relatively flat in the next few quarters.

Operator, Operator

Our next question comes from Mike Harris from Goldman Sachs.

Michael Dwayne Harris, Analyst

As we look at the steel products segment, what would you guys call out as potential gaps in that portfolio? And maybe speak to some examples of what type verticals could bring material synergies to the table.

Leon J. Topalian, Chair, President and CEO

Yes, Mike, as John mentioned earlier, that group is made up of about 12 different businesses, including overhead doors, insulated metal panels, joist and deck, and building systems. Overall, we are seeing either flat or improving conditions across the board. There aren’t really any notable low points, although there is some lag in realized margins and net earnings that will carry into Q3 and beyond. If we look back 6, 7, or 8 years, this group represented about 15% of Nucor's total net earnings. Today, that figure is closer to 45% or 46%. As we consider the core development of our steelmaking capacity, those earnings will continue to transition into our adjacent businesses, all of which fall under this products category. Thus, we expect continued growth for Nucor in this area. We are optimistic about that, and both our internal and external forecasts for nearly all these segments indicate improving conditions.

Stephen D. Laxton, Executive Vice President and CFO

Yes. Mike, maybe I'll add just a little bit to what Leon said there. If you go back to pre-COVID levels of EBITDA margins for the Downstream segment, we're doing 9% or 10% EBITDA at that time. And now we're doing 16%, 17%, depending on whether you want to talk first half or fourth quarter. And I think that speaks to what Leon is really hitting that with where we will allocate capital going forward, which is kind of the heart of your question about what gaps are in the product suite. We continue to find ways to add to our portfolio that improve our margins, improve free cash flows and offer a wider range of solutions in the marketplace and fit our business model. That's probably the most important aspect. We fundamentally create incremental value with these businesses when we add them and fold them into our portfolio. So we're not going to ever tell you the specific targets, but we will keep marching in the same direction that we have you've seen us do in the past.

Michael Dwayne Harris, Analyst

No, that's very helpful. And I guess in the spirit of full disclosure, I was looking at Slide #6, where you talked about the evolution of the business. And I was just trying to make sure I understood that future. Was that because you were just making the best better? Or did you not feel you had enough to fight with already, and it sounds like it was the former. That's really all I had, guys. I mean, you've answered a lot of my questions already, so I'll get back in the queue.

Leon J. Topalian, Chair, President and CEO

Thank you, Mike. Appreciate that. And yes, your comment about the former is accurate. It is continuing to pull more arrows in our quiver to deliver more capabilities for our customer sets.

Operator, Operator

Our next question comes from Carlos De Alba from Morgan Stanley.

Carlos De Alba, Analyst

Just wanted to explore a little bit more the margin compression expected in the steel mills in the third quarter. Can you provide maybe some color by different products, sheet, plate, bars, beams, are there any of those products that you would highlight where you expect the biggest margin compression, maybe you see some margin expansion in some of them, that would be great.

Leon J. Topalian, Chair, President and CEO

Yes. Carlos, look, we touched on that a little bit a few moments ago. I think the potential for some pressure in flats, sheet in particular, could impact the earnings segment in Q3. And that's why, again, we've highlighted that. We've touched on that. Part of that is what Noah just mentioned a few moments ago regarding the slabs coming in from Brazil. So again, we have some mitigation strategies already being worked and put in place, which could mean we supply self-supply there through our own sheet mills. And again, we have a very adaptive capability set. But again, that's 1 area. But as we talk about that, yes, I think there's a ton of upside as we think about the potential continued growth in what Brandenburg is doing in the plate group, what John and the team are doing in products, what Randy and his group are doing in our long products, in rebar and MBQ, we didn't talk about it on this call, but our beam mills in both Arkansas and Berkeley are performing at near historic highs. Their backlogs are at near historic highs. And all of that backlog, like hundreds of thousands of tons is actual orders. They don't produce anything for stock. Every one of those are direct quotable and billable order. And so that's going to continue to fuel Nucor's earnings power. And again, so there's a lot of segments that we're very excited about. Again, the megatrends across the U.S., the start-up next month of our Towers and Structures plant gives us incredible excitement, again, to be able to move into that market. And then by early spring, the second plant and late next year, the third. So again, there's a number of different elements here that our investment strategy that we deliberately and focused on 5 years ago we're beginning to pay those dividends today and the investments that are just beginning to start up now are going to continue to pay for the next 20, 30, 40 years.

Carlos De Alba, Analyst

Great. Could you elaborate on the bar and beam segments? Specifically, regarding the price increases in MBQ and rebar, do you anticipate margin growth in the bar business and possibly in the beams as well?

Leon J. Topalian, Chair, President and CEO

I'll discuss beams and then let Randy Spicer, our EVP, cover our bar products. The opportunity for longs is significant. We've been involved in this area for a long time and have a strong customer base along with a substantial market share in beams. However, that mill has been operating at about 70 percent capacity for an extended period, indicating a lot of potential for growth. Additionally, it remains one of the top profit generators in the company consistently over the years. We are very optimistic about the ongoing work and the prospects for expanding margins. I do see opportunities on the beam side. Randy, please address the longs, bars, and MBQ.

Randy J. Spicer, EVP over Bar Products

Thank you, Leon, Carlos. Thank you for the question. Definitely, the same, I would say, on the bar side, the momentum is very strong. We have continued to see robust order entry across all of our regions as we start looking in the key end markets, as we've talked about several on the call, the infrastructure work, again, continued big projects with the chip plants, warehouses and data centers. The support that we get from our downstream businesses has been just tremendous. When you look at the macro signals, the momentum Index is showing up 20% on a year, which again is letting us know there are even more projects that are coming into the planning phases. So when we look at our long products, our backlogs are at multiyear highs and our lead times continue to extend. So we are very confident in a very strong second half.

Operator, Operator

Our next question comes from Alex Hacking from Citi.

Alexander Nicholas Hacking, Analyst

Apologize I missed the first couple of minutes of the call. But just wanted to check, the CapEx guidance is unchanged at $3 billion, and therefore, we should expect a pretty significant decline in 2H. And then just as a follow-up. If I look at Slide 5, all the projects nearing completion. Beyond that, you've got the sheet mill, you bought the Utah towers, the Pacific Northwest rebar mill. Is there anything else that I'm missing that's kind of coming beyond what's on Slide 5?

Leon J. Topalian, Chair, President and CEO

Yes. Alex, it was a riveting couple of minutes. And so we'll catch you up very quickly. But yes, you touched on most of them. A couple that I would add to that list are 2 galvanizing lines at Crawfordsville, Indiana as well as Nucor Berkeley that will come online next year. The third towers plant in Utah as well next year. And so again, we're starting to see the contributions from the investments that were made several years ago, like Brandenburg, Gallatin and now Kingman and Lexington are in startup mode now, commissioning is done, and now their quest is to ramp those facilities up, serving our customer base to continue to generate stronger sustainable less volatile earnings for our shareholders and for the future. So yes, as we see that pent-up earnings power is starting to flow through and will continue over the next couple of years. But those were the couple I would add that you didn't call out.

David A. Sumoski, Analyst

Alex, this is Dave Sumoski. I also add CSI galv line in late '27 start-up.

Stephen D. Laxton, Executive Vice President and CFO

Yes, Alex, your calculations are correct. We anticipate reduced capital spending in the second half of the year, and along with slightly lower working capital usage, we expect to see a significant improvement in free cash flow in the latter half compared to the first half of the year.

Operator, Operator

We currently have no further questions in the queue. So I'd like to hand back to Leon Topalian for any further remarks.

Leon J. Topalian, Chair, President and CEO

Thank you for joining us again today, and I'd like to thank our Nucor team for delivering an incredible first half of the year regarding safety as well as our solid financial performance. I'd like to thank our customers for the trust that you place in us with each and every order. And finally, thank you to our investors for trust that you place in us with your valuable shareholder capital. Thank you for your interest in Nucor, and have a great day.

Operator, Operator

As we conclude today's call, we'd like to thank everyone for joining. You may now disconnect your lines.