Business Study Nucor Steel
Historical Performance Review vs. Goals
The performance of Nucor Steel has been one of volatility in their earnings and demand for their products. Part of the reason of for this, is because of the sharp contraction in demand for steel (due to the server implosion in economic activity). At the same time, the traditional volatility of industry would cause the company’s earnings to become even more unpredictable. A good example of this can be seen by looking no further, than comparing revenues with the net income between 2006 and 2008. Where, revenues would climb from $14.7 billion in 2006 to $22.6 billion in 2008. While the net income, would become more unpredictable during the same period of time going from: $1.7 billion in 2006 to $1.4 billion 2007. At which point, they would begin to climb again, with 2008 net income coming in at $1.8 billion. (“Nucor Corporation,” 2009) This is important, because it shows a divergence is taking place in the company’s earnings, as the severe effects of the recession are starting to be felt. To corroborate this trend, we examined the recent quarterly earnings of Nucor, which highlights the volatility that is being experienced. As the company, would report net earnings for the first half of 2010 of $145.5 million or $.46 cents per share. However, when you compare this to the trend in quarterly earnings, the company is continuing to experience tremendous amounts of volatility. Evidence of this can be seen by comparing third quarter 2010 results with: the same time period in 2009 and the second quarter of 2010. In the third quarter 2009, the company would report a net loss of $29.5 million or $-.10 cents per share. While in the second quarter of the 2010, Nucor would report net earnings of $91 million or $.29 cents per share. (“Nucor Reports Quarterly Results for the First Nine Months of 2010,” 2010) This is important, because it shows how the underlying amounts of economic uncertainty are having an impact upon the company’s bottom line.
Yet, to fully understand the impact that recession is having on Nucor Steel, requires understanding how the various financial measures could have effect on the strategic accomplishments of the business. One way that this can be conducted is by looking at: the market capitalization of the company and their total number of employees in comparison with competitors. Currently, Nucor Steel’s market capitalization is $12.3 billion. This is much smaller than some of the other players in the industry to include: POSCO ($32.24 billion), Arcelor Mittal ($51.70 billion) and Nippon Steel ($19.53 billion). However, it is important to note that the Nucor Steel has a higher market cap in comparison with U.S. Steel (which is $6.4 billion). As far as the number of employees are: concerned; this can vary from one company to the next. Where, the market capitalization of one manufacturer could be smaller in comparison with Nucor, yet they have more employees working for them. A good example of this can be seen with U.S. Steel, which has 43,000 employees working for them in comparison with the 20,400 employees working at Nucor. (“Nucor Corporation,” 2010) This is important, because it shows how Nucor is maintaining balance as far as size is concerned. Where, the company wants to hire a certain amount of employees, in relation to their overall market cap and dominance in the industry.
When you compare how the company has been performing with it stated objectives, it is clear that volatility has been having an impact. Where, the company would make the following statement in their third quarter earnings report, “Operating results excluding LIFO deteriorated from the second quarter, primarily due to lower margins stemming from lower realized selling prices on most steel mill products. This performance is consistent with our comments at the end of the second quarter in which we noted that there was a general slowdown taking place across all product lines. The economy has entered into a period of increased uncertainty, both in the U.S. And globally. The fourth quarter may indeed turn out to be the most challenging quarter of the year.” (“Nucor Reports Quarterly Results for the First Nine Months of 2010,” 2010) This is significant, because it shows how the historical trends of the company are having an impact upon the way it will achieve its stated objectives. Where, this will force them to make changes to their business model and operations (because of business / economic conditions). Once this occurs, this will have ripple effects on the strategic objectives of Nucor Steel.
Environmental Analysis as Appropriate Conduct a SWOT (Strengths, Weaknesses, Opportunities & Threats) and SWOT on Nucor’s Competitors
As far as strengths are concerned, Nucor has many different advantages to include: technology, innovation, great management and prudent acquisitions / strategic partnerships. When you compare this to their competitors, the biggest strengths that they would have are: size, they are better capitalized; some players have been established in the industry for many decades (giving them a more favorable image) and the various partnerships that they have formed with suppliers / distributors. (“Nucor Corporation,” 2009)
When you look at the different weaknesses, it is clear that Nucor has their fair share of them the most notable include: a concentration on the U.S. market, exposure to the real estate / auto industry and a constant focus on their own business model. The biggest weaknesses as far as competitors are concerned includes: exposure to changes from price increases by suppliers, changes in demand from consumers / businesses and the threat of new products being used in place of steel (i.e. aluminum). (“Nucor Corporation,” 2009)
The different opportunities that Nucor has includes: its alliance with Hismelt Technology (this new technology the company is using to improve productivity / reduce pollution) and it has large network of rail cars. The biggest opportunities for competitors are: the improvements in technology are allowing them to become more competitive and long-term demand from the emerging economies will provide consistent stability. (“Nucor Corporation,” 2009)
The various threats that Nucor Steel is wrestling with includes: protectionism, increased domestic market penetration, possible threats from local competitors and changes to environmental laws. The possible threats facing the industry includes: the introduction of substitute products, a continued lack of demand, protectionism and possible trade wars. (“Nucor Corporation,” 2009)
What this shows, is that both Nucor and the industry are facing similar challenges and possible opportunities. As changes to the world economy; are forcing the industry to innovate, in an effort to remain competitive.
Nucor’s competitors are more than likely responding to various innovations and changes, by introducing their own. This is because the industry is highly sensitive to changes in steel prices and the cost for raw materials. When Nucor is introducing changes to their business model (such as the use of technology to improve innovation), this creates a shift in the industry itself. The reason why is because, competitors do not want to their market share damaged by new innovations that a rival is introducing. At which point, they will begin to implement their own changes in their operations. This will force Nucor to seek other advantages to increase its competitiveness. A good example of this can be seen when Zinc prices would decline last May, with Nucor being the first company to lower the costs that they are charging for coated steel. This would have an impact on competitors, who would look at the changes that Nucor was making and would consider making changes to their own pricing structure. (Packard, 2010) This is important, because it shows how the reaction from Nucor, would have ripple effects on the industry. At which point, the company will more than likely continue to find other ways to reduce prices and increase efficiency.
Nucor Corporation. (2009). Scribd. Retrieved from: http://www.scribd.com/doc/21947260/Nucor-Report
Nucor Reports Quarterly Results for the First Nine Months of 2010. (2010). Nucor. Retrieved from: http://www.nucor.com/investor/news/releases/?rid=1485562
Nucor Steel. (2010). Yahoo Finance. Retrieved from: http://finance.yahoo.com/q/co?s=NUE+Competitors
Packard, John. (2010). Nucor Lowers Galvanized Coating Extras. Steel Market Update. Retrieved from: http://www.steelmarketupdate.com/pub/blog/posts/2010/5/28/nucor-lowers-galvanized-coating-extras/
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