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

Technology
Innovation 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 Innovations
They 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 Management
Corresponding 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 Acquisitions

The 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 because
of 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 Technology
Nucor 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 Network

Nucor 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
Threats
Trade Threat
Nucor 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 Invasion

Chinese 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 Competitors
On 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 Analysis

An 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 entrants

First, 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 suppliers

In 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 buyers

Similarly 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 substitutes
Unlike 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 Established
Nucor 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 relationship

Additionally, 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 materials

This 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 Market

Median 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 Objectives
Alliances
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.

Reducing costs
Nucor 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 Margins
A 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 Next Quarter Current Year Next Year

Jun 09 Sep 09 Feb 09 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 Sheet

View: 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 Tech
Moving 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 Shift
As 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 Responsibility
Next, 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.