Nucor Corporation

What does a SWOT analysis reveal about Nucor’s situation? Does Nucor have any core or distinctive competencies?

In the case of Nucor Corporation there are several factors that need to be addressed while doing its SWOT analysis. Nucor steel is made up of approximately 21,000 employees and their main goal is to take care of their customer which is stated in their mission statement. Nucor has remained to be an innovative company focusing on finding out and implementing new technologies to cut costs and become more productive.

Nucor’s corporate directional strategy distinctively comprises growth concentration strategies (enveloping vertical and horizontal). Ken Iverson initially focused Nucor in the joist business before incorporating vertical growth through backward integration into steel mills as their core business to reduce supply costs; forward integration into miscellaneous steel product industries e.g. fasteners, bolts and bearings; and strategic alliances in Nucor e.g. CVRD. Collaterally, Iverson expanded Nucor through various acquisitions (such as Sumitomo Corp and Auburn Steel) to fuel horizontal growth.

Strengths

TechnologyInnovation and technology has been the integral strength for Nucor Co. They are always into searching for new mediums and technology in the production side. The major benefit that they get from it is the amount of resources that they save and the improved efficiency levels.

Continuing InnovationsThey also have plants with low pollution levels. The ability for Nucor to use this to its advantage allows them to be more competitive with the market by substantially lowering their production cost. It also allows them to be environmentally friendly a huge worldwide concern these days. Continuing Innovations allows Nucor to continue to hold its technological edge on the competition. Nucor is always moving and always improving its business cycle through the use of continuing innovation. Nucor is an industry leader when it comes to innovation.

Lean ManagementCorresponding to their lean business style, Nucor is constantly striving for improvement. A constant goal to reduce production cost is always a priority and ultimately helps to lower costs of steel to buyers. Additionally, a focus on treating employees well helps reduce employee turnover and increase productivity. Employee wages provide another example of Nucor’s respect for employees. Nucor’s employees are often paid up to three times the local average manufacturing wage. All in all, the high level of employee respect helps Nucor to employ workers that care about their job and thus work harder and are more productive then others in outside manufacturing firms.

Joint Ventures and AcquisitionsThe very recent acquisition of the David J. Joseph Company, one of the leading scrap companies in US has allowed Nucor to basically own its primary supplier of scrap metal along with 2,000+ rail cars for transportation between business entities. It has essentially guaranteed Nucor an in house supplier.

Weaknesses

Location: Congregated itself in US

A major weakness for Nucor is that it has congregated itself in US. All of the 14 plants of Nucor are located within different states in US. The major problem that arises due to this is that Nucor cannot effectively cater to international markets as compared to its competitors who have plants worldwide. Distribution and shipping costs are very high in the steel industry and shipping it to overseas countries is a lot difficult and expensive for Nucor. Nucor needs to re-position itself in the market to effectively compete with its competitors. Secondly, Nucor does not also gives deals on its quantities purchased.

US Real estate and Auto-market

Nucor also does not give deals on quantities purchased. Nucor’s most significant weakness lies with its domestic market. With the US market being Nucor’s primary customer base, Nucor is not able to offset losses becauseof a diversified location worldwide. This is the current large problem Nucor faces along with a few others that will be mentioned later in the threats section. Nucor is currently in a Market where growth is declining significantly. Real Estate sales are down substantially because of the sub-prime mortgage problem. Nucor has to also be concerned with the failing domestic auto industry. The production of the big-three has substantially declined over the past 5 years and is not close to rebounding anytime soon.

Focus on Competitors

The case shows that Nucor have always focused on themselves which has yet to cause detrimental ramifications. However, just like in the military, manufacturing companies have to pay attention to their competitors just as much, especially with the escalating threat from global competitors.

Opportunities

Hismelt TechnologyNucor has a significant opportunity to continue innovating with the Hismelt Technology or liquid iron project in Australia. If successful it could help give Nucor additional advantages to manufacturing and reduce pollution. This is a significant project because it will allow for Nucor to continue spreading its brand name as an innovator in the industry. It will also allow them to offset operating cost.

Rail Car NetworkNucor also has a possible opportunity with the 2,000+ rail cars acquired with the purchase of DJJ Company. Nucor could use these cars to setup a more effective delivery system for Scrap metal and could also lease cars to move scrap to customers.

• The rise of the demand on steel products as the result of the disastrous hurricane Katrina

• Vertical Integration with the nuclear plants to enable the low cost energy to produce steel products

• Expansion on the foreign markets• Exploiting new technology in steel productions to lower the costs,

modernization• Horizontal integrations or acquisitions to improve market position• New big construction projects - floating city, big bridges, new ships

constructions

ThreatsTrade ThreatNucor faces significant threats through the global market and at home. In the global market the Chinese continue to dump steel. The competition with Chinese steel makers hurts Nucor because there are very little government regulations in China. Plants in China are integrated mills with large scale pollution impacts on the environment.

Domestic Market InvasionChinese officials do not regulate this to the extent US officials do. Chinese companies do not have to pay significant fines and conform to environmental standards like in the US. Many Chinese steel plants still burn coal for an energy source to produce steel. These coal burning steel factories are cause about 400,000 premature deaths a year.18 Particles of sulphur compounds, carbon and other by-products of coal combustion originating from China have been found in California, Oregon, and Washington.18 Even plants who use electric power in china are directly linked to coal based power plant.

Local CompetitorsOn the home front Nucor faces a threat from ThyssenKrupp AG, a German company announcing plans to build a manufacturing plant in Alabama.19 The plant is expected to open in 2010. ThyssenKrupp also made away with tax breaks and a $400 million incentives package approved by the legistlature.18 This is a serious threat to Nucor because of the invasion of the domestic market by the outside German company. Nucor itself has yet to leave the US.

Environmental Laws• Throughout Nucor’s existence they have had a few issues with

environmental and political regulations. • For example, in 1998, Nucor’s mill in Crawfordsville, Indiana, was cited

for alleged violations of federal and state clean-air rules. Specifically, the U.S. Environmental Protection Agency showed concerns about the state’s decision to allow the company to start construction of the mill before an environmental review was completed.

• Concerns about the approval of the facility built in Hertford County posed environmental threats as the plant was located on the banks of the Chowan, on one of the most sensitive stretches once home to the state’s vibrant river-herring fishery.

• Nucor received criticism due to incentives that were given by the state to build a mill in North Carolina. Many were upset about the $155 million in tax breaks the state was giving Nucor, despite the promised 300 jobs they were going to offer (Barnes and Tyler, 259-260). These regulations and concerns provide a threat to Nucor. A bad reputation is promoted and stakeholders become upset about the concerns.

Porters 5 Forces AnalysisAn industry environment analysis through Porters five forces of competition model helps to better outline the current state of the industry and represent the intensity of competition within it. The model is broken up into five parts—

threat of new entrants, bargaining power of suppliers, bargaining power of buyers, threat of substitute products, and rivalry among competing firms.

Threat of new entrantsFirst, the threat of new entrants is relatively small. This is derived from the extremely high barriers to entry. Starting a company in the steel industry is very costly and calls for huge capital requirements due to expensive up-front machinery requirements. Additionally, the competition is simply too fierce from larger firms. The steel industry offers little room for product differentiation and so larger companies can offer the low prices that buyers want which cannot be duplicated by new entrants.

Bargaining power of suppliersIn the steel industry, the supplier group is powerful due to the importance of raw materials in the manufacturing process. Basically, the supplier group has control due their critical role as satisfactory substitutes to scrap metal and iron ore are not currently available. As supply decreases for raw iron ore, prices increase. Furthermore, scrap metal offers the same results.Again, company size helps here where essentially it’s the bigger the better. Suppliers will often be more inclined to sell to larger steel manufactures as order quantities are higher.

Bargaining power of buyersSimilarly to the bargaining power of suppliers, the power of buyers is high here as well. As previously mentioned, due to the lack of product differentiation, cost is the key driver. Competition from foreign steel manufacturers is fierce and steel imports in the United States are high due to steel often being able to be produced and sold cheaper then domestically.

A great portion of steel profits are derived from these large buyers. A couple key examples are large scale construction and the automobile industry. It’s critical for steel manufactures such as Nucor to try to establish strong relationships with these buyers to generate large, long-term profits. Finally, switching costs for buyers is low. Buyers can import steel or purchase from another domestic company with lower prices. In order to stay competitive, steel manufactures must keep costs to a minimum and use strategic organizational and management styles to be able to offer the lowest price.

Threat of substitutesUnlike the other sections of the model so far, the threat of substitutes is relatively low. Essentially, no other metal can offer equal benefits per cost that steel currently can. Aluminum is probably the biggest substitute product to steel for most applications. However, aluminum is not nearly as strong. Many of the applications for steel need huge strength requirements (such as infrastructure) that aluminum simply can’t offer.

Rivalry among competitors Again, as previously discussed, rivalry is huge in this industry. The key driver is cost due to lack of product differentiation. This creates major competition between firms and outlines the importance of cutting costs in manufacturing.

Additionally, joint-ventures are very common and crate huge companies that dominate the marketplace through economies of scale. Corresponding, labour laws within the United States increase production costs that international firms often don’t have. Moreover, there is pretty low switching costs as previously mentioned. The industry is pretty saturated and provides buyers with a wealth of options when looking to make purchases. Steel manufactures that can offer the lowest price will generally get the sale.

External Factors

Economic Environment

• The automobile industry plays a major role as well due to the large percentage of steel that goes to them and their role as a major customer for steel companies. Essentially, if the automobile industry is slow and demand is decreased the steel industry will typically have excess product and overcapacity. Thus, prices must be decreased and there is the high probability of layoffs and increased costs.

• Construction companies are another major buyer of steel. Therefore, if the economy is in a contraction or recession stage the steel industry will take a major hit due to decreased levels of infrastructure building. Nucor will also suffer additional losses due to their specialization in joists. Reduced building construction will drastically lower the demand for joists and will result in a state of overcapacity—a major threat for Nucor.

Key Success Factors Nucor has done an amazing job in an industry where key success factors will make or break your company. There is generally about five to six key success factors (KSF) for any given industry. The steel industry is no different and offers five dominant KSFs.

Well EstablishedNucor is a well established firm. Sheer size gives the firm advantages of more bargaining power and larger contracts. Corresponding, it gives the firm the ability to meet demand and fulfil larger orders which helps to increase market share.

Reputable and Strong buyer relationshipAdditionally, it is critical for the firm to be reputable. The firm must be well known and have strong buyer relationships. They must also maintain these relationships despite competition in order to retain market share. Closely relating, the firm must have strong supplier relationships as well.

Access to raw materialsThis will provide them with easy access to raw materials and lower costs for the materials. Third, it is very important to have low manufacturing costs due to the cost-driven nature of the industry. Costs can be decreased by

identifying bottlenecks and staying on top of innovations. Nucor does well in cutting costs through the use of division managers. For example, a Vulcraft manager cut 55 people from his plant while still maintaining the level of production before the reduction in overhead.

As Daniel R. DiMicco CEO of Nucor stated, “We maintain low costs by keeping the employee force at the level it should be, not doing things that aren’t necessary to achieve our goals, and allowing people to function on their own and by judging them on their results” (Barnes and Tyler, 252). However, Nucor’s overall success in production costs does not mean there is not room for improvement. Expansion outside of the United States could be a viable way to further decrease costs due to decreased labor costs.

Q. What is your assessment of Nucor’s financial performance the past several years? How strong is the company’s financial condition?

Financial Analysis

The year 2007 was a hard year for Nucor. The company saw an 8% decrease in ROA and ROE. Though still very profitable, it was one of their roughest years since the 2001 economic downturn. Inventory turnover and total asset turnover were positive and closely in-line with past results. Nucor maintains the ability to draw class AA investors with its relatively strong financial performance, though down a bit from previous years.

As globalization and acquisition is the focus, the leverage ratios are important.Debt has remained relatively low as compared to assets and equity, 23% and 44% respectively. The current strategies may require short-term loans to finance acquisition. With these ratio levels, Nucor is in the position to shop for good interest rates. Total cash reserves for 2007 were roughly $1.4B, which will directly aid a globalization and expansionistic approach.

Nucor Income Statement

2008 2007 2006

Revenue ($ mil.) 23,663.3 16,593.0 14,751.3

Gross Profit ($ mil.) 4,051.0 3,130.1 3,468.1

Operating Income ($ mil.) 3,194.9 2,552.3 2,875.7

Total Net Income ($ mil.) 1,831.0 1,471.9 1,757.7

Diluted EPS (Net Income) 5.98 4.94 5.68

Nucor Competitive Intelligence

ArcelorMittal USA Commercial Metals United States Steel

Annual Sales ($ mil.) 12,899.0 10,427.4 23,754.0

Employees 20,500 15,276 --

Market Cap ($ mil.) -- 1,623.5 3,481.3

Nucor Financial Ratios

Company Industry

Median

Market

Median1

Price/Sales Ratio 0.59 0.34 0.97

Price/Earnings Ratio 7.35 6.25 12.20

Price/Book Ratio 1.75 0.71 0.99

Price/Cash Flow Ratio 5.55 3.81 6.04

Financial ObjectivesAlliancesAlliances with other US steelmakers can solve many problems that plague the US steel industry, such as inept management and duplication of capacity. Steel companies throughout the world are aligning with each other to strengthen their market position. They have paid the price early to modernize their equipment and manufacturing process. Nucor is in a unique position to strong-hand their domestic competition and make the same moves within the US, and subsequently position their company as a strong global competitor. This strategy is just the next step for its domestic acquisition.

Reducing costsNucor has shown a special knack for starting up new facilities with minimal costs. They also have improved the steel-making process by eliminating wasteful procedures, thereby again reducing costs.

Profit MarginsA worthwhile financial objective is to further increase their profit margins in steel products that they specialize in, such as the joist business and steel decking. These areas, and similar niche products, will allow them the capital needed to develop future technology on a global scale.

Financial and operations analysis

Nucor managed to turn profits around in 1966 by focusing their business where it was making profit. Careful investments in new technology allowed it to gain market share in other areas while staying ahead of the competition. Nucor recognized the importance of keeping costs down.

Management practices emphasize autonomy and focus on results. This is seen throughout the company. Incentive programs are disbursed accordingly, and even top management is not afforded normal corporate luxuries. If the expenditure does not support improving their business position then it does not happen. Bonuses are given for exceeding the productivity standards.

Nucor has avoided the chasm that usually separates labor and management. They also do not waste resources on "lab coat" employees to help justify

decisions. They allow the people who are doing the job to make the decisions on how to run the process and what equipment to use.

Nucor Financial Forecast

In-Depth Earnings Estimates

Current Quarter

Jun 09

Next Quarter

Sep 09

Current Year

Feb 09

Next Year

Feb 10

Average Estimate $0.01 $0.72 $0.92 $3.85

Number of Analysts 11 10 11 8

High Estimate $1.66 $1.77 $4.61 $8.28

Low Estimate ($0.70) $0.27 ($0.60) $2.00

Year Ago EPS $1.94 $2.31 $5.98 $0.92

Growth Rate (99)% (68.87)% (84.54)% 316.15%

Nucor Corporation has many different competencies that allow them to hold a strong position in the steel industry. The company has marvellous industry position and positive financial results for the past 40 years, but as with any company in a mature industry, times are always changing. Globalization is a major threat to the steady profits and financial returns from an acquisition policy. This policy will allow increased capacity and will also enhance efficiencies. Additional efficiencies will be felt through a strong centralized push towards technological integration and advances.

Technology will be extremely important; as, a major weakness for Nucor is its geographic concentration in the United States. The United States steel industry is very mature and has to look internationally for profits and growth. Nucor boasts one plant in Trinidad, but will need to think about further

international operations for the future. Joint ventures are one route Nucor has established to accomplish international growth. There are numerous more opportunities in this area especially as government protectionism surges.

Alliance Strategy

Alliances with other US steelmakers can solve many problems that plague the US steel industry, such as inept management and duplication of capacity. Steel companies throughout the world are aligning with each other to strengthen their market position. They have paid the price early to modernize their equipment and manufacturing process. Nucor is in a unique position to strong-hand their domestic competition and make the same moves within the US, and subsequently position their company as a strong global competitor. This strategy is just the next step for its domestic acquisition. The financially healthy position of Nucor places it as a leader and will allow it to increase market share.

Financial crisis and Nucor

Nucor Corp., the largest U.S. steel maker by production, on 23rd April 2009 reported its first loss ever as a severe recession sapped demand for the metal. It forecast an even bigger loss for the second quarter, calling conditions the worst it's ever seen.

Like other steel companies, Nucor has been hit particularly hard by a shrinking economy, which has undermined demand for the metal in major markets such as construction and autos. Steel prices, which soared to record highs last summer, collapsed after demand virtually vanished late last year.

Nucor's loss, which was expected, totaled $189.6 million, or 60 cents per share, for the first quarter ended April 4. That reversed a profit of $409.8 million, or $1.41 per share, a year earlier.

Revenue fell 47 percent to $2.65 billion. Shipments dropped 43 percent and average prices slipped 7 percent.

"These are the most challenging steel market conditions we have ever seen," Dan DiMicco, chief executive of Nucor, said in a conference call. "Conditions have continued to worsen with each successive month so far in 2009."

Results included a charge of about $60 million to write down steel inventories to market levels. Nucor did not provide an adjusted operating figure, but analysts had expected a loss of 57 cents on revenue of $2.97 billion. Those estimates typically exclude one-time items.

The loss was Nucor's first since its founding more than four decades ago.

The U.S. recession and global fiscal crisis has dragged down steel consumption for autos, machinery, household goods and public works projects. A slump in consumer demand has decimated car sales while the

bursting of the housing bubble has slammed construction, an industry that Nucor supplies with bars and beams for hospitals, schools, and airports.

The downdraft of the economy has pulled on steel companies, leaving Wall Street experts pessimistic about its prospects.

Nucor, which makes steel from scrap metal and uses electric rather than traditional blast furnaces, said the rate at which it produced the metal fell rapidly during the quarter. Its mills operated at just 45 percent of capacity, down from 92 percent a year earlier and 48 percent in the fourth quarter.

That meant energy costs raised about $11 per ton because its furnaces continued using large amounts of power but produced less steel.

Still, its costs generally are lower than those of integrated steel companies, such as U.S. Steel, which make steel from raw materials such as iron ore. That's because Nucor's electric furnaces can be turned on and off more quickly to adjust for fluctuating demand.

Shares of Nucor slid $4.07, or 9.2 percent, to close at $40 on Thursday. During the quarter, the stock lost about 17 percent of its value.

Nucor Balance SheetView: Annual | Quarterly $ Millions

Assets Dec 08 Dec 07 Dec 06

Current Assets

Cash 2,355.1 1,576.4 2,196.3

Net Receivables 1,228.8 1,611.8 1,067.3

Inventories 2,408.2 1,601.6 1,141.2

Other Current Assets 405.4 283.4 270.2

Total Current Assets 6,397.5 5,073.3 4,675.0

Net Fixed Assets 4,131.9 3,233.0 2,856.4

Other Noncurrent Assets 3,345.1 1,519.9 353.5

Total Assets 13,874.4 9,826.1 7,885.0

Liabilities and Shareholder's Equity Dec 08 Dec 07 Dec 06

Current Liabilities

Accounts Payable 1,665.2 1,122.8 1,450.0

Short-Term Debt 189.0 22.9 --

Other Current Liabilities -- 436.4 --

Total Current Liabilities 1,854.2 1,582.0 1,450.0

Long-Term Debt 3,086.2 2,250.3 922.3

Other Noncurrent Liabilities 1,004.8 880.9 686.7

Total Liabilities 5,945.2 4,713.2 3,059.0

Shareholder's Equity

Preferred Stock Equity -- -- --

Common Stock Equity 7,929.2 5,112.9 4,826.0

Total Equity 7,929.2 5,112.9 4,826.0

Shares Outstanding (mil.) 314.0 288.0 300.9

Strategic objectives and Recommendations

Strategic objectives should include positive measures to enter new markets with their successful no-frills business model. This plan must be tempered with keeping a focus on their core business so as not to stray to far from what their expertise is founded on. The move toward more levels of managerial control is a necessary evil that comes with successful growth. It does not mean that they should eliminate the autonomy of different business units that has been their trademark of success. It is essential that the new levels not impede quick reaction and decision making or discourage the risk-taking culture that has proven so profitable.

I.Q TechMoving on, Nucor should set up another department called ‘I.Q. Tech’ (innovation, quality and technology) that will be charged with outsourcing efforts, internal feedback, information gathering and research covering the aspects of:•Improvements in processes•Monitoring technological developments in the industry•Evaluating opportunities to ensure quality improvements will still help to keep costs low in the long run. Additionally, they will be charged with implementing a new feedback policy that enables any employee or group of employees to provide feedback through a convenient medium. Small monetary incentives will be given for problems or areas for improvement identified that are deemed existent by the department upon discussion and investigation. Any suggestion that leads to a cost savings per unit of output will result in larger bonuses meted out.

Paradigm ShiftAs Nucor has been accustomed to focus on themselves rather than on competitors, a paradigm shift has to be realised and led by the management. The strategic planning department should be boosted with academically astute and proven personnel with diverse disciplines e.g. finance IT and entrepreneurs to keep tabs on environmental and industry behaviour. They will also conduct strategic analyses of their main competitors to determine where Nucor is stronger and where requires improvement. They should have a strong horizontal linkage with the I.Q. Tech department.

Social ResponsibilityNext, to further set Nucor apart from being an outstanding employer, they should keep up with the ‘social responsibility’ trend and set up an environment-friendly recycling plant that will be located at a relatively central location from all its plants. They will again assign their personal relations people to run campaigns across the nation to all sources of steel ranging from large manufacturers to vehicle workshops and even dumping grounds to set aside scrap steel for recycling. Nucor would then collect these scrap steel whenever delivery trucks make return trips around the vicinity. These scrap steel would then be recycled for Nucor’s production and a portion of profits from these scrap steel would be donated to domestic charities.