SOLUTION: San Diego State University NUCOR Case Study Questions

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CASE 27
Nucor Corporation in 2018:
Contending with the Challenges
of Low-Cost Foreign Imports and
Launching Initiatives to Grow
Sales and Market Share
Arthur A. Thompson
The University of Alabama
D
espite the headwinds of a 15.5 percent increase
in foreign steel imports and mounting evidence
that many of Nucor’s foreign steel competitors
received subsidies from their governments—in direct
violation of prevailing trade regulations—to support their low-ball pricing in the U.S. steel markets,
Nucor’s sales and profitability improved in 2017 over
2016. During 2017, Nucor Corp., already the largest
manufacturer of steel and steel products in North
America and the 13th largest steel company in the
world based on tons shipped, launched a series of
strategic initiatives to further expand its production
capacity and improve its cost competitiveness against
rival products of steel products. Not only was Nucor
Corp. regarded as a low-cost producer, but it also had
a sterling reputation for being a global first-mover in
implementing cost-effective steelmaking production
methods and practices throughout its operations.
Heading into 2018, Nucor had 25 steel mills with
the capability to produce a diverse assortment of steel
shapes (steel bars, sheet steel, steel plate, and structural steel) and additional finished steel manufacturing facilities that made steel joists, steel decking, cold
finish bars, steel buildings, steel mesh, steel grating,
steel fasteners, and fabricated steel reinforcing products. The company’s lineup of product offerings
was the broadest of any steel producer serving steel
users in North America. Nucor had 2017 revenues
of $20.3 billion and net profits of $1.38 billion, the
tho75109_case27_C296-C330.indd
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company’s best performance since its 2008 pre-­
recession peak of $23.7 billion in revenues and
$1.8 billion in net profits. During the 2009 to 2016
period, Nucor’s performance was weak to mediocre,
chiefly because of eroding market prices for many
steel products and a sharp falloff in customer orders in
several major product categories, both largely due to
a surge in ultra-cheap imported steel products coming
from a variety of foreign sources (but mainly China).
COMPANY BACKGROUND
Nucor began its journey from obscurity to a steel
industry leader in the 1960s. Operating under the
name of Nuclear Corporation of America in the
1950s and early 1960s, the company was a maker of
nuclear instruments and electronics products. After
suffering through several money-losing years and
facing bankruptcy in 1964, Nuclear Corporation of
America’s board of directors opted for new leadership and appointed F. Kenneth Iverson as president
and CEO. Shortly thereafter, Iverson concluded that
the best way to put the company on sound footing
was to exit the nuclear instrument and electronics
business and rebuild the company around its profitable South Carolina-based Vulcraft subsidiary that
was in the steel joist business—Iverson had been the
Copyright ©2019 by Arthur A. Thompson. All rights reserved.
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Case 27
head of Vulcraft prior to being named president.
Iverson moved the company’s headquarters from
Phoenix, Arizona, to Charlotte, North Carolina, in
1966, and proceeded to expand the joist business
with new operations in Texas and Alabama. Then,
in 1968, top management decided to integrate backwards into steelmaking, partly because of the benefits
of supplying its own steel requirements for producing
steel joists and partly because Iverson saw opportunities to capitalize on newly emerging technologies
to produce steel more cheaply. In 1972 the company
adopted the name Nucor Corporation, and Iverson
initiated a long-term strategy to grow Nucor into a
major player in the U.S. steel industry.
By 1985 Nucor had become the seventh largest steel company in North America, with revenues
of $758 million, six joist plants, and four state-ofthe-art steel mills that used electric arc furnaces
to produce new steel products from recycled scrap
steel. Moreover, Nucor had gained a reputation as
an excellently managed company, an accomplished
low-cost producer, and one of the most competitively
successful manufacturing companies in the country.1
A series of articles in The New Yorker related how
Nucor, a relatively small American steel company,
had built an enterprise that led the whole world
into a new era of making steel with recycled scrap
steel. Network broadcaster NBC did a business documentary that used Nucor to make the point that
American manufacturers could be successful in competing against low-cost foreign manufacturers.
Under Iverson’s leadership, Nucor came to
be known for its aggressive pursuit of innovation
and technical excellence in producing steel, rigorous quality systems, strong emphasis on workforce
productivity and job security for employees, costconscious corporate culture, and skills in achieving
low costs per ton produced. The company had a very
streamlined organizational structure, incentive-based
compensation systems, and steel mills that were
among the most modern and efficient in the United
States. Iverson proved himself as a master in crafting and executing a low-cost provider strategy, and he
made a point of practicing what he preached when
it came to holding down costs throughout the company. The offices of executives and division general
managers were simply furnished. There were no company planes and no company cars, and executives
were not provided with company-paid country club
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Nucor Corporation in 2018
C-297
memberships, reserved parking spaces, executive dining facilities, or other perks. To save money on his
own business expenses and set an example for other
Nucor managers, Iverson flew coach class and took
the subway when he was in New York City.
When Iverson left the company in 1998 following disagreements with the board of directors, he
was succeeded briefly by John Correnti and then
Dave Aycock, both of whom had worked in various
roles under Iverson for a number of years. In 2000,
Daniel R. DiMicco, who had joined Nucor in 1982
and risen through the ranks to executive vice president, was named president and CEO. DiMicco was
Nucor’s Chairman and CEO through 2012. Like his
predecessors, DiMicco continued to pursue Nucor’s
longstanding strategy to aggressively grow the company’s production capacity and product offerings via
both acquisition and new plant construction; tons
sold rose from 11.2 million in 2000 to 25.2 ­million
in 2008. Then the unexpected financial crisis in
the fourth quarter of 2008 and the subsequent economic fallout caused tons sold in 2009 to plunge
to 17.6 ­million tons and revenues to nosedive from
$23.7 billion in 2008 to $11.2 billion in 2009.
Even though the steel industry remained in the
doldrums until he retired in 2012, DiMicco was
undeterred by the depressed market demand for
steel and proceeded to expand Nucor’s production
capabilities and range of product offerings. It was his
strong belief that Nucor should be opportunistic in
initiating actions to strengthen its competitive position despite slack market demand for steel because
doing so put the company in even better position to
significantly boost its financial performance when
market demand for steel products grew stronger.
DiMicco expressed his thinking thusly:
Nucor uses each economic downturn as an opportunity
to grow stronger. We use the good times to prepare for
the bad, and we use the bad times to prepare for the
good. Emerging from downturns stronger than we enter
them is how we build long-term value for our stockholders. We get stronger because our team is focused
on continual improvement and because our financial
strength allows us to invest in attractive growth opportunities throughout the economic cycle.2
During DiMicco’s 12-year tenure, Nucor completed more than 50 acquisitions, expanding Nucor’s
operations from 18 locations to more than 200, boosting revenues from $4.8 billion in 2000 to $19.4 billion
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C-298
PART 2
Cases in Crafting and Executing Strategy
at the end of 2012, and transforming Nucor into
the undisputed leader in providing steel products
to North American buyers. When DiMicco retired
at the end of 2012, he was succeeded by John J.
Ferriola, who had served as Nucor’s President and
COO since 2011. Ferriola immediately embraced
Nucor’s strategy of investing in down markets to better position Nucor for success when the economy
strengthened and market demand for steel products
became more robust.
Going into 2018, Nucor was the biggest, most
cost-efficient, and most diversified steel producer
in North America. It had the capacity to produce
29 million tons of steel annually at its 25 steel mills.
All of its steel mills were among the most modern
and efficient mills in the United States. The breadth
of Nucor’s product line in steel mill products and
finished steel products was unmatched; it competed
in 12 distinct product categories. No other producer
of steel products in North America competed in
more than 6 of the 12 product categories in which
Nucor competed.3 Moreover, Nucor was the North
American market leader in 9 of the 12 product categories in which it had a market presence—steel
bars, structural steel, steel reinforcing bars, steel
joists, steel deck, cold-finished bar steel, metal buildings, steel pilings distribution, and rebar fabrication
and distribution.4 In two other categories in North
America where Nucor competed, it ranked #2 in
sales of plate steel and #3 in sales of sheet steel.
With the exception of three quarters in 2009,
one quarter in 2010, and the fourth quarter of 2015,
Nucor earned a profit in every quarter of every year
from 1966 through 2017—a truly remarkable accomplishment in a mature and cyclical business where
it was common for industry members to post losses
when demand for steel sagged. As of February 2018,
Nucor had paid a dividend for 179 consecutive quarters and had raised the base dividend it paid to stockholders for 45 consecutive years (every year since
1973 when the company first began paying cash
dividends). In years when earnings and cash flows
permitted, Nucor had paid a supplemental year-end
dividend in addition to the base quarterly dividend.
Exhibit 1 provides highlights of Nucor’s growth and
performance since 1970. Exhibit 2 shows Nucor’s
sales by product category for 1990 to 2017. Exhibit 3
contains a summary of Nucor’s financial and operating performance from 2013 to 2017.
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NUCOR’S STRATEGY TO
BECOME THE BIGGEST AND
MOST DIVERSIFIED STEEL
PRODUCER IN NORTH
AMERICA, 1967–2016
In its nearly 50-year march to become North
America’s biggest and most diversified steel producer,
Nucor relentlessly expanded its production capabilities to include a wider range of steel shapes and more
categories of finished steel products. However, most
every steel product that Nucor produced was viewed
by buyers as a “commodity.” Indeed, the most competitively relevant feature of the various steel shapes
and finished steel products made by the world’s different producers was that, for any given steel item,
there were very few, if any, differences in the products of rival steel producers. While some steelmakers
had plants where production quality was sometimes
inconsistent or on occasions failed to meet customerspecified metallurgical characteristics, most steel
plants turned out products of comparable metallurgical quality—one producer’s reinforcing bar was essentially the same as another producer’s reinforcing bar,
a particular type and grade of sheet steel made at one
plant was essentially identical to the same type and
grade of sheet steel made at another plant.
The commodity nature of steel products meant
that steel buyers typically shopped the market for the
best price, awarding their business to whichever seller
offered the best deal. The ease with which buyers
could switch their orders from one supplier to another
forced steel producers to be very price competitive. In
virtually all instances, the going market price of each
particular steel product was in constant flux, rising or
falling in response to shifting market circumstances
(or shifts in the terms that particular buyers or sellers were willing to accept). As a consequence, spot
market prices for commodity steel products bounced
around on a weekly or even daily basis. Because competition among rival steel producers was so strongly
focused on price, it was incumbent on all industry
participants to be cost competitive and operate their
production facilities as efficiently as they could.
Nucor’s success over the years stemmed largely
from its across-the-board prowess in cost-efficient
operations for all the product categories in which
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Case 27
EXHIBIT 1
Nucor Corporation in 2018
C-299
Nucor’s Growing Presence in the Market for Steel, 1970–2017
Earnings
before
Income Taxes
(in millions)
Net Earnings
(in millions)
Attributable
to Nucor
Shareholders
Year
Total Tons
Sold to
Outside
Customers
1970
207,000
$245
$50.8
$2.2
$10
$1.1
1975
387,000
314
121.5
11.7
30
7.6
1980
1,159,000
416
482.4
76.1
66
45.1
1985
1,902,000
399
758.5
106.2
56
58.5
1990
3,648,000
406
1,481.6
111.2
35
75.1
1995
7,943,000
436
3,462.0
432.3
62
274.5
2000
11,189,000
425
4,756.5
478.3
48
310.9
2001
12,237,000
354
4,333.7
179.4
16
113.0
2002
13,442,000
357
4,801.7
227.0
19
162.1
2003
17,473,000
359
6,265.8
70.0
4
62.8
2004
19,109,000
595
11,376.8
1,725.9
96
1,121.5
2005
20,465,000
621
12,701.0
2,027.1
104
1,310.3
2006
22,118,000
667
14,751.3
2,692.4
129
1,757.7
2007
22,940,000
723
16,593.0
2,253.3
104
1,471.9
2008
25,187,000
940
23,663.3
2,790.5
116
1,831.0
2009
17,576,000
637
11,190.3
(470.4)
(28)
(293.6)
2010
22,019,000
720
15,844.6
194.9
9
134.1
2011
23,044,000
869
20,023.6
1,169.9
53
778.2
2012
23,092,000
841
19,429.3
697.0;
27
409.5
2013
23,730,000
803
19,052.0
808.6
31
499.4
2014
25,413,000
830
21,105.1
1,147.3
42
679.3
2015
22,680,000
725
16,439.3
241.9
6
80.7
2016
24,309,000
667
16,208.1
1,298.6
50
796.3
2017
26,492,000
764
20,252.4
1,750.0
65
1,318.7
Average
Price
per Ton
Net Sales
(in millions)
Pretax
Earnings
per Ton
Note: In 2016, Nucor changed its method of accounting for valuing certain inventories from the last-in, first-out (LIFO) method to the first-in,
first out (FIFO) method. The information in this table for the years 2012 to 2017 reflects this change in accounting principle.
Source: Company records posted at www.nucor.com (accessed February 1, 2018); Nucor Annual Report for 2016, p. 47; Nucor Annual
Report for 2017, p. 11–15.
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PART 2
C-300
Cases in Crafting and Executing Strategy
EXHIBIT 2 Nucor’s Sales of Steel Mill and Finished Steel Products to Outside
Customers, by Product Category, 1990–2017
Tons Sold to Outside Customers (in thousands)
Steel Mill Products
Year
Finished Steel Products
Rebar
Cold
Finished Fabrication
(2018
Steel
Steel
Steel
Steel
Structural
Steel
Sheet
capacity
(2018
Deck
Joists
Total
Plate
Steel
Bars
Steel
capacity of ∼1.75
(2018
(2018
(2018
(2018
(2018
(2018
(2018
million
of
capacity
capacity capacity capacity capacity capacity capacity
tons) and
∼1.1
of
of
of ∼12.1 of ∼8.5 of ∼3.25 of ∼2.8 of ∼27
Other
million ∼745,000 ∼545,000 million
million
million
million
million
Products**
tons)
tons)
tons)
tons)*
tons)
tons)
tons)
tons)
Total
Tons
Sold
2017
9,311
5,838
2,303
2,249
20,618
472
457
487
4,458
26,492
2016
9,119
5,304
2,319
2,023
18,846
445
442
426
4,150
24,309
2015
8,080
4,790
2,231
1,905
17,006
427
401
449
4,397
22,680
2014
8,153
5,526
2,560
2,442
18,681
421
396
504
5,411
25,413
2013
7,491
5,184
2,695
2,363
17,733
342
334
474
4,847
23,730
2012
7,622
5,078
2,505
2,268
17,473
291
308
492
4,528
23,092
2011
7,500
4,680
2,338
2,278
16,796
288
312
494
5,154
23,044
2010
7,434
4,019
2,139
2,229
15,821
276
306
462
5,154
22,019
2009
5,212
3,629
1,626
1,608
12,075
264
310
330
4,596
17,576
2008
7,505
5,266
2,934
2,480
18,185
485
498
485
4,534
25,187
2007
8,266
6,287
3,154
2,528
20,235
542
478
449
1,236
22,940
2006
8,495
6,513
3,209
2,432
20,649
570
398
327
174
22,118
2005
8,026
5,983
2,866
2,145
19,020
554
380
342
169
20,465
2000
4,456
2,209
3,094
20
9,779
613
353
250
194
11,189
1995
2,994
1,799
1,952

6,745
552
234
234
178
7,943
1990
420
1,382
1,002

2,804
443
134
163
104
3,648
*In 2016 and 2017, the total in this column includes production of tubular steel products, a steel mill products category that the company
entered in the fourth quarter of 2016; tubular products production was 917,000 tons in 2017 and 82,000 tons in 2016.
**Other products include steel fasteners (steel screws, nuts, bolts, washers, and bolt assemblies), steel mesh, steel grates, metal building
systems, light gauge steel framing, scrap metal, and
tubular steel products.
Source: Company records posted at www.nucor.com (accessed February 1, 2018).
it elected to compete. Nucor’s top executives were
very disciplined in executing Nucor’s strategy to
broaden the company’s product offerings; no moves
to enter new steel product categories were made
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unless management was confident that the company
had the resources and capabilities need to operate
the accompanying production facilities efficiently
enough to be cost competitive.
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Case 27
Nucor Corporation in 2018
C-301
EXHIBIT 3 Five-Year Financial and Operating Summary, Nucor Corporation,
2013–2017 ($ in millions, except per share data and sales per employee)
2017
2016
2015
2014
2013
$20,252.4
$16,208.1
$16,439.3
$21,105.1
$19,052.0
17,683.0
14,182.2
15,325.4
19,255.9
17,624.0
687.5
596.8
459.0
520.8
467.9
(41.7)
(38.8)
(5.3)
(13.5)
(9.3)


244.8
25.4
14.0
 173.6
 169.2
 173.5
 169.3
 146.9
18,502.4
14,909.5
16,197.4
19,957.9
18,243.5
1,750.0
1,298.7
241.9
1,147.3
808.6
369.4
398.2
48.8
368.7
214.9
1,380.6
900.4
193.0
815.8
593.7
61.9
104.1
112.3
101.8
94.3
$1,318.7
$796.3
$80.7
$679.3
$499.4
$4.11
$2.48
$0.25
$2.22
$1.52
4.10
2.48
0.25
2.22
1.52
$1.5125
$1.5025
$1.4925
$1.4825
$1.4725
FOR THE YEAR
Net sales
Costs, expenses and other:
Cost of products sold
 Marketing, administrative and other
expenses
 Equity in (earnings) losses of
minority-owned enterprises
Impairment and losses on assets
Interest expense, net
  Total
Earnings before income taxes and
non-controlling interests
Provision for income taxes
Net earnings (loss)
Less earnings attributable to the
 minority interest partners of Nucor’s
joint ventures*
Net earnings (loss) attributable to
Nucor stockholders
Net earnings (loss) per share:
Basic
Diluted
Dividends declared per share
Percentage of net earnings to net sales
6.5%
4.9%
0.5%
3.2%
2.6%
Return on average stockholders’ equity
17.2%
10.4%
1.0%
8.4%
6.2%
Capital expenditures
$448.6
$617.7
$364.8
$568.9
$1,230.4
Acquisitions (net of cash acquired)
544.0
474.8
19.1
768.6

Depreciation
635.8
613.2
625.8
652.0
535.9
820
690
690
921
859
Cash, cash equivalents, and short-term
investments
$999.1
$2,046.0
$2,039.5
$1,124.1
$1,511.5
Current assets
6,824.4
6,506.4
5,854.4
6,808.8
6,814.2
Sales per employee (000s)
AT YEAR END
(Continued)
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