Nucor Corp

NYSE:NUE

Earnings Call Transcript 2020-Q2

[Operator]

Good day, everyone and welcome to the Nucor Corporation’s Second Quarter of 2020 Earnings Conference Call. As a reminder, today's call is being recorded. Later we will conduct a question-and-answer session and instructions will be given at that time.

Certain statements made during this conference call will be forward-looking statements that involve risks and uncertainties. The words we expect believe anticipate and variations of such words or similar expressions are intended to identify those forward-looking statements, which are based on management's current expectations and information that is currently available. Although, Nucor believes they are based on reasonable assumptions, there can be no assurance that future events will not affect their accuracy.

More information about the risks and uncertainties related to the forward-looking statements may be found in the Nucor's latest 10-K and subsequently filed 10-Q, which are available on the SEC's Nucor Web site. The forward-looking statements made in this conference call speak only as of this date and Nucor does not assume any obligation to update them, either as a result of new information, future events or otherwise.

For opening remarks and introductions, I would now like to turn the call over to Mr. Leon Topalian, President and Chief Executive Officer of Nucor Corporation. Please go ahead sir.

[Leon Topalian, President and Chief Executive Officer]

Good afternoon, and thank you for joining us for our second quarter earnings call. As we continue to navigate the COVID-19 pandemic, we want to again thank the doctors, nurses and AMTs and other first responders for their efforts in this fight. I would also like to thank our team who have continued to serve our customs throughout this pandemic.

Joining me today on the call are the members of Nucor's executive team, including Jim Frias. our Chief Financial Officer; Al Behr, responsible for Plate and Structural Products; Craig Feldman, responsible for Raw Materials; Ray Napolitan, responsible for Engineered Bar Products, as well as Nucor's Digital initiatives; MaryEmily Slate, responsible for Sheet and Tubular Products; Dave Sumoski, responsible for Bar, Rebar Fabrication, and Construction and Engineering Services; and Chad Utermark, responsible for Fabricated Construction Products.

Before going over our financial performance for the quarter, I want to congratulate our team on our safety performance. We began the year with a challenge to become the world's safest steel company and I couldn't be prouder of our efforts on the most important value we have as a company. While the current pandemic has challenged all of us, it has also allowed our team to expand how we care for the safety, health and wellbeing of one another.

I want to take a moment to recognize Nucor Steel Arkansas and Nucor Castrip Arkansas, for going more than one year without a recordable injury, an impressive accomplishment for one of our larger more complex steel mills. I'd also like to congratulate Nucor Steel Connecticut for going three years without a recordable injury, congratulations to our teammates at these divisions. We look forward to replicating these results across more of our operations, so that this becomes the new normal at every location.

Safety also means creating a more diverse and inclusive company. With the events gripping our nation, we are committed to taking the necessary steps to ensure that every team member in our company feels safe, not just in how we produce our steel but safe in every sense of the word, safe in how we treat one another regardless of the color of our skin, our religious beliefs, age or sexual orientation, or political views. Our culture is the foundation that has made Nucor the preeminent North American steel producer for over 50 years, and we are committed to ensuring that our culture remains the hallmark of our success for the next 50.

Turning to second quarter financial performance. earnings were better than we anticipated due to our diversified product mix and strong position in non-res construction markets. We continue to see the benefits of our recent initiatives to improve the performance of our businesses that serve these markets, specifically in rebar fabrication and metal buildings. I want to thank those teammates for embracing the changes we've made in these business units.

During the quarter, we had very strong cash flow and increased our financial flexibility with the issuance of $1 billion of new notes. Jim Frias will discuss this more in detail in a few minutes. As we discussed in our last call, all of our domestic steel and steel product operations are considered to be an essential business and has stayed operating since the pandemic began. Our ability to continue operating, along with proactive engagement with our customers, has enabled us to grow our businesses with existing customers, as well as develop new customer relationships.

We're also getting inquiries in conducting trials with customers, who are planning to reshore their manufacturing operations. In the uncertain environment created by COVID-19 pandemic, our team’s reliability and resilience is appreciated by our customers. I want to thank our teammates for their dedication and commitment to living our culture over these last few months, which is why we were able to exceed our customer's expectations.

During the quarter, we were pleased to receive two awards from General Motors. For the second consecutive year, Nucor has earned GM supplier of the year award. We remain the only EAF based steel maker to receive this prestigious award. We value the partnership we have built with GM and look forward to growing that partnership in the future. Congratulations to all of our teammates who are successfully executing our strategy to grow our share in the automotive market.

In addition, Nucor Steel Berkeley was recognized by GM for excellent quality and responsiveness, and received the Supplier Quality Excellence Award. My congratulations and thanks to the entire Berkeley team for this outstanding achievement. We're very proud of your success.

Now, I'd like to provide some updates on growth projects we recently commissioned. Progress continues at our Hickman Specialty Cold Rolling mill. The mill is already producing 980 mega pascal strength steel with just five passes through the mill versus 25 or more passes required to produce comparable material at a conventional reversing cold mill. Hickman is continuing to trial advanced high strength steels with both existing and potential customers.

The new galvanizing line at our Gallatin sheet mill is fully operational, and the team continues to focus on optimizing yield and productivity. The mill received IATF quality certification in May and is working on qualifications relevant to other markets, including ring bins and cooling towers. Gallatin also received a new supply award from a major automotive OEM, and they continue to see strong performance in the solar market. Our new Sedalia Rebar Micro mill Missouri has already achieved positive EBITDA from June. We forecast that the mill will be bottom line profitable by September, and will be capable of full production capacity early in the fourth quarter.

The spooler of commissioning has been completed and spooled product is being well received in the market. We are growing our number of active customers each month. Our Kankakee, Illinois division has continue to commission equipment and starting to develop a wide range of products on our new MBQ mill there. We will start to ship orders to customers this quarter. While market conditions are difficult to forecast, we're optimistic that we will achieve positive cash flow from this project by the end of the year.

We also continue to make progress on several projects that are currently under construction, including Frostproof, Florida rebar micro mill is on track start up in the fourth quarter. The Hickman Generation 3 Flex galvanizing line, the team progressed with building construction and installing equipment foundations during the quarter. We were targeting startup of the line there for the second half of next year.

Finally, with respect to the Gallatin modernization and expansion and the Brandenburg plate mill, we are greenlighting each of these projects to move ahead at full speed. Our decision is guided by the incredible market opportunities these investments afford us, our strong operating cash flow and the adjustments we have been able to make across the company in response to the pandemic. We did receive our air permit for the Brandenburg plate mill, and we have remained on track with our timeline there by continuing to push ahead on the engineering work for the project. Despite the significant challenges posed by COVID-19 pandemic, the 26,000 men and women of the Nucor team worked hard to maintain profitability during this challenging quarter. I'm especially proud of how our team has come together and continues to live our culture.

With that, I'd like to now turn it over to Jim Frias.

[Jim Frias, Chief Financial Officer]

Thanks, Leon. Our second quarter results demonstrate once again the strength and resilience of Nucor's business model, with the Nucor team delivering better than expected earnings and robust cash from operations in a very challenging and uncertain environment.

Second quarter earnings of $0.36 per diluted share exceeded our guidance range of $0.10 to $0.15 per diluted share. Results for the month of June exceeded our forecast at several businesses, including our rebar and merchant bar mills, rebar fabrication, joist and deck, tubular products and at our sheet mills. Cash provided by operating activities exceeded $1.1 billion for the quarter, with working capital contraction on the inventory receivables and payables line items totaling $650 million.

Working capital reductions generally provide a counter cyclical benefit to Nucor in downturns like the current one, enhancing our cash flow and liquidity. Scrap inventory has been an area of particular focus as the pandemic has unfolded. Today, we are much leaner in this area than we were at the pandemic’s outset. And I think we will be able to use this experience to stay lean when growth resumes and prices rebound, reducing the asset base that we require to generate strong profitability.

Our cash provided by operating activities for the first half was $1.35 billion, our second best first half performance in terms of operating cash flow. It exceeded our year-to-date capital expenditures and cash dividends to shareholders by more than $300 million. During the second quarter, we took advantage of attractive market conditions and Nucor’s strong credit profile to issue low coupon debt. $500 million of five years senior notes with a coupon rate of 2%, and $500 million of 10 year senior notes with a coupon rate of 2.7%. Concurrent with our capital raise, Standard and Poor's and Moody's both reaffirmed their Nucor credit ratings of A minus and BAA1 respectively, while also maintaining their stable outlooks. We continue to hold the highest credit ratings of any steel producer headquartered in North America.

At the close of the second quarter, our cash and short term investments totaled more than

$3 billion, more than double our cash and short term investment position of about $1.4 billion at the end of the first quarter. Nucor's liquidity also includes our undrawn $1.5 billion unsecured revolving credit facility, which does not mature until April of 2023. Our next significant debt maturity is not until September of 2020, $600 million of unsecured notes with the coupon rate of 4.125%. The flexibility provided by Nucor's low cost operating model and financial strength has been and will continue to be a critical underpinning to our company's ability to grow long term earnings power and reward our shareholders with attractive returns on capital.

On our April call, we reported that we had revised our full year 2020 capital expenditures budget down to less than $1.5 billion. While that measure was taken to maximize our flexibility in light of a dramatically different economic outlook than we anticipated at the beginning of the year, we have not slowed any capital spending related to safety, operational reliability or environmental compliance.

With respect to our most significant organic growth projects, the Brandenburg Plate mill and the expansion and modernization of our Gallatin heet mill. As Leon has already indicated, we have decided to reaccelerate investment in each of them. We are taking the step after a thorough review of these projects and their compelling economic returns, as well as our cash flow performance. This will mean the CapEx in the second half will be approximately $250 million higher than it would have been otherwise. We now project our total capital spending for 2020 will be in the area of $1.7 billion.

Before I turn the call back over to Leon, let me provide a few comments about the outlook. While the current environment is highly uncertain with sheet plate and raw material markets remaining challenging. At this point, we expect Nucor's third quarter earnings to be similar to our second quarter results. Our long products and downstream businesses continue to benefit from solid non-residential construction market conditions. And our teammates continue to capitalize on Nucor's advantaged cost position, flexible production capability and financial strength.

Thank you for your interest in our company. Leon?

[Leon Topalian, President and Chief Executive Officer]

Thanks, Jim. Before we take your questions, I just want to comment on a phrase I hear regularly, getting back to normal. I've overheard this phrase over the last few months and I recognize that our team and folks in our communities are saying it to simply indicate they wish the pandemic was behind us. I wish that too for sure. But in the sense, I also reject this as an aspiration. We see at Nucor our goal, our aim and our focus, isn't simply to return to pre-COVID operating levels.

When I think about getting back to normal in terms of safety, I don't ever want to go back to normal. I want to replicate the performance that I’ve shared earlier on Nucor Connecticut and Nucor Castrip and Nucor Hickman, Arkansas, I want every operating division, the entire team, to go without a single injury for an entire year, because then from there we can replicate that over and over. Our focus to become the world's safest steel company is uncompromising.

And also from a financial standpoint, I don't want to return to pre-COVID operating or performance levels. I want us to continue to focus on the things that we've been able to do over the last five months that will be a part of our business as we move forward. We appreciate the valuable shareholder capital that you entrust us with every day, and our goals and our aim and focus is to return in maximizing the profitability back to each of our shareholders and our team.

And finally, we want to continue to strengthen the relationships that we've built with our customers a over long periods of time. However, during this pandemic, it has created unique ways for us to connect and develop those further and fuller so that we continue to be the supplier of choice in meeting their needs. We appreciate the trust you put in our company in place with every order that you entrust us with. While it has been a challenging first half of the year, I truly believe Nucor will come out of this crisis a stronger, more profitable and more inclusive company.

With that, we'd now be happy to take your questions.

[Operator]

Thank you [Operator Instructions]. We'll take our first question today from Chris Terry with Deutsche Bank. Please go ahead.

[Chris Terry, Deutsche Bank]

I had a couple, just wondering if you could comment firstly on your expectation for the utilization rate in mills in 3Q?

[Leon Topalian, President and Chief Executive Officer]

Chris, I appreciate that and certainly when I look at that forecast each of the groups, but I would tell you in general, we would anticipate utilization rates to be improving as we go into Q3 and beyond.

[Chris Terry, Deutsche Bank]

And then the CapEx plans, you've gone to 1.7 for 2020. Can you talk through the speed cadence into '21 and maybe just the target for '21, I think originally it was to $2 billion and $2 billion for 2020 and 2021. Just wondered if you could comment on the '21 picture? Thanks.

[Jim Frias, Chief Financial Officer]

Yes, it's too soon for us to predict our 2021 capital spending, but we're going to use the same discipline in making capital investments next year, because we don't expect the pandemic and pardon me for saying this, Leon, from being completely behind us. Back to your comment. We're always going to invest in safety and specifically in reliability no matter what the economic environment. We will look forward with our significant strategic investments, which include Brandenburg and plate mill and the Gallatin sheet mill modernization and expansion. So, we will selectively invest in projects with returns -- the returns are so compelling that they shouldn't be deferred. But I would expect it to not reach $2 billion but we’ll update on that probably in January, because in February we'll go to the Board of Directors for approval for that 2021 budget and then we'll share that when we get to that earnings call in January of '21.

[Chris Terry, Deutsche Bank]

And the last one from me, just if you could give an update on the DRI facilities.

[Leon Topalian, President and Chief Executive Officer]

Maybe, I'll kick it off and then I ask Craig Feldman over raw material to provide some more detail. But as we look, certainly there has been an awful lot of pressure based on where iron ore pricing are. At the same time, I want to congratulate our NSLA team who is working incredibly hard through this pandemic, as well as the new iron team in Trinidad who are now operating. They had a period of time where they were taken down by the Trinidadian Government and now we’re back up and running. But in particular with NSLA, as you know, the reliability has not been what we have come to expect.

In the third quarter of last year, we took a 60 day downturn to improve the reliability that started back up in November of last year. And over the last nine months, I would tell you NSLA, our DRI plan in Louisiana has run at the best reliability levels we've ever seen. And so, we're very proud of those accomplishments. There's still more work to do. And again, the pressure on our results and our performance there, because of iron ore pricing, will probably be with us for some period of time. But Craig, do you want to provide detail?

[Craig Feldman, Raw Materials]

You hit a lot of the high points, so just a couple of things. I'd echo your appreciation and gratitude for the teams in both Louisiana and in Trinidad they've done a remarkable job. And right after the second half shutdown of last year, the Louisiana plant is running incredibly well. In fact, this week continuing today, they continue to set continuous operational records of 57 days today. So, they've run incredibly reliable since the improvements were made last fall. We feel really good about that, proud of that team, very appreciative.

The other point, and I guess the point about 57 days is, it may not be completely intuitive to everybody but just 24x4 continuous operation. So that 57 days of uninterrupted production is quite a milestone. The other thing I'd point out is relative to the DRI, just how it fits in the overall raw materials sourcing strategy. It really gives us unique flexibility in the industry to really flex and shift between various metallics. Now obviously, big iron, as well as DRI, as well as scrap. So reallly well-positioned and I would say that unique flexibility is really unparalleled in the industry.

[Operator]

Thank you. We will now hear from Seth Rosenfeld with Exane BNP. Please go ahead.

[Seth Rosenfeld, Exane BNP]

If I may, I have one follow-up with regards to the growth projects from one of the outlook for the plate market. With regards to the Gallatin and Brandenburg, can you just confirm the expected timeline for development and ramp up these projects, recognizing the recent delay? Obviously, only one quarter in nature. But should we expect these to be going roughly in line with prior targets or something a bit slower? And then secondly, with regards to the U.S. plate market outlook. Obviously, this has been one of the areas that weighed on performance of late. Wondering if you can comment on whether or not there's any conditions emerging for some potential improvements into the second half of the year? Just looking at second quarter performance as well, it looks like your volumes fell much more sharply than your peer SSAB offering that your ASPs are much more stable than SSABs. Can you just comment on the competitive dynamic between yourself and your largest competitor there? Thank you.

[Leon Topalian, President and Chief Executive Officer]

Seth, I'll try to make sure we answer all of them. And if I don't, please remind me, because there's a few questions in there. But let me begin with your first question, which is the expected anticipated time frames for start ups at both Gallatin, as well as the Brandenburg plate mills. I would tell you at Brandenburg, despite slowing down the CapEx spend, the team has done a great job. And what we didn't feel around, Seth, at this point, was the engineering design work that was being done over the last few months. Our anticipation is that we would have no delay in the start up of Brandenburg, and we expect that would be late fourth quarter of 2022 is still on track.

With respect to Gallatin, while it may be a couple of months delay, the team is going to work very hard to bring that again and sometime in mid next year, I think is the target. And so, it may be a couple months delay on that but we're still trying to work through that and then figure out if we can make up that time still. But again, worst case scenario, it's a couple of months.

I'll probably turn it over to Al out here to add some more. We'll provide more information regarding the overall plate market, and I'm not going to speak very directly to our competitors. As we think about these investments and think about the plate market in general, we share about a third of the market. What we’ve recognized and realized overtime in about nine of the 13 markets that we serve, Nucor is the market leader.

We understand what that means and the opportunities that affords us. And so with Brandenburg coming online, it also provides the widest most diverse product mix offering of any plate mill in North America. So that, on top of being located in the largest plate consuming some region in the Midwest, it's going to afford us a freights advantage from our current mills that are supplying that market. So, we're very excited about it.

And as Jim mentioned, we're going to be very deliberate in how we spend our capital, maintaining our financial flexibility moving forward. But the normal cyclicality of the plate marketer in general the steel markets is something we've grown accustomed to and have lived in for 50 years. However, this black swan even of this pandemic has certainly given us some pause but we believe we're at the trough of the market and things will begin to, to continue to improve as we enter Q3 and Q4. Al, anything you'd like to add on the plate market in general?

[Al Behr, Plate and Structural Products]

Yes, and I'd echo Leon, just your excitement, our excitement about that project in Brandenburg and during our period of capital preservation, we remain very busy. We've got a small team on the ground in Kentucky that's navigating that project and doing an outstanding job focusing on the less capital intensive parts of the project. So that when we move back to full throttle as we are today, we can take advantage and maintain our end of 2020 start up. So we're on track, we're excited and we're headed towards that.

In terms of the plate market in general, our utilization was down in Q2, as you would expect. It was largely with the market that the market data for June has not yet published, so we don't know industry statistics just yet. But our indicators say that we probably gave up a couple points of share. And in Q2, we had gained share in Q1 a little weaker in Q2, largely due to a strategy to resist some of the price erosion we saw as the pandemic unfolded. So year-to-date, we're confident we’ve picked up some share in place.

When we talk about the outlook for second half, it’s very clearly cloudy as it is in a lot of our segments, but we see some recovery coming back in parts of energy, not overall but power transmission. So, some bright spots, parts of heavy equipment show perhaps some uptick. We do expect some restocking and some regular buying from service centers to occur over the second half. So, we do expect some modest recovery in those utilization rates and some upward movement. But the farther out we go, the harder it is to really predict what it looks like.

[Operator]

Thank you. We’ll hear next from Timna Tanners with Bank of America.

[Timna Tanners, Bank of America]

I wanted to start out and just ask a little bit more about what you're seeing in the construction arena, and knowing that you mentioned that it's been pretty steady. So, I just wanted to square that with some of your other comments. So on the volume decline, would that be fully function of inventory destocking? And if that's the case then I would expect maybe a restocking, in which case, I would expect more volumes into Q3, and you're expecting kind of steady results. So just trying to square those things, and was hoping you could provide a little more color?

[Leon Topalian, President and Chief Executive Officer]

I think the first part of your question was around, on construction. And so as we look at our numbers today that end market for us and the construction market has shown incredible resiliency. I really want to call out our partnership and the jobs our teams have done in Vulcraft/Verco and our Decking group, our Skyline business and piling and really the relationships still with our fabricators over a long period of time that end market has held up incredibly well. And it's not to say it's guttural and we hope things go well in Q3 and Q4, our backlog, for example, are almost 10% higher year-to-date than they were a year ago. I mean, last year for our construction businesses in the Decking and Vulcraft side was a record year. So, our backlogs, our order rates, our shipment rates continue to be very encouraging.

At the same time, look, we are watching all the metrics in terms of entry rates, all the billing indexes and looking out to okay does that mean a slowdown at the end of the year Q1. But again, as several has mentioned, it's a little too early to begin to predict what the uncertainty may look like. I would just tell you in the next few quarters, we anticipate that that will remain pretty strong. So, I don't think it's a destocking issue. I think inventory levels are relatively low quite frankly. But distributors are very cautious about adding inventory right now, which is understandable. So, I don't think that's the case. And then what was the second half of your question, Timna?

[Al Behr, Plate and Structural Products]

She was asking about where volumes went down a little bit. And if may be I could chip in here, Leon. I would say that, first of all, we had some reduction in volumes at all of our steel mills. But the biggest reductions were in our engineered bar mills and our sheet mills. And the long term story is excellent. We are gaining share in those places. Our share in '19 for sheet was greater than it was in '19 and it's greater in '20 in the first half than it was in '19. But at the same time, we are heavily weighted and we have both engineered bar and in sheet in both auto and in energy, oil and gas. And those markets took the biggest hit of all the markets we serve in second quarter.

I think for sheet [variables] is like 10%, energy 10%, automotive. So 20% of our sheet market went away and similar problem level, maybe even greater and or higher as a percentage of our market for each new bar went away. But the good news is relative to that is auto is coming back. So to the extent we're expecting things to be similar next quarter, part of it is that we think that the volumes are going to pick up but margins are compressed right now. So, we're starting the quarter with lower margins than we last quarter. So net net, we think those things resulted in close to same performance. It's really a bit of a guessing game right now.

Does that answer your question about why we're saying flat performance and we see upside. And then to energy, some of our bigger customers in the tube space that make products at our sheet mills serve the energy market. They think by the end of the year, they’re going to see some pickups as well. So, we're hoping that's going to happen but we're seeing it more clearly today in auto, we’ll pickup the demand both in engineered bar and in sheet.

[Jim Frias, Chief Financial Officer]

If I can make one comment. Year-over-year, we're up 8% in rebar and then 3%. So on the construction, on construction product side we were actually up this year.

[Leon Topalian, President and Chief Executive Officer]

Yes, I was just talking about the sequential quarters. So we were down in all products, I think in Q2 versus Q1.

[Timna Tanners, Bank of America]

I mean, I'm looking at structural down pretty big and bars even year-over-year and quarter-over-quarter, and I think of those as construction, that's why I was asking. But I don't want to belabor it. I did want to ask…

[Leon Topalian, President and Chief Executive Officer]

Most of the budgets down is in the engineered car, that's where the reduction is.

[Timna Tanners, Bank of America]

My other follow-up was just to ask a little bit more about how we see the market shaping up in the second half, because clearly automotive is recovering but at the same time with several blast furnaces are restarting and the steel price has been slipping. And so, it's a strange combination of more supply but more demand. And you say you're taking market share and dynamics of the taking market share. And just wondering how we see this playing out in the balance of the rest of the year with the growth in supply and demand and how that plays out? And if you could also comment on the lag effect on some of your sheet pricing for CRE contract. Is that still a factor? Thanks.

[Leon Topalian, President and Chief Executive Officer]

Sure. I'll start this us off, and then I'm going to ask MaryEmily Slate to jump in, in particular on the sheet side. And look Timna, the question you asked on the front end of that is something we're looking at every day. The supply demand ultimately is the economic driver of our business. And so as we think about third quarter or moving into the end of the year, how are things going to shape out. Well, what we think is by August, we're going to see 13 to 14 blast furnaces come online. But we also saw something through this pandemic that maybe I've not seen in my 25 years in this business, and that was a shedding of about 20 million tons of supply come out of the market very, very quickly.

So where we sit today we're forecasting somewhere around 10 million tons of restarts. So 10 million tons still offline, most of that in the sheet arena, flat arena, or all of that in flat, most of it in sheet. We anticipate that the projects that Nucor has, as well as some of the other markets expansions, are going to be still low under the 10 million tons that I'm not sure ever restarts. And again, I don't want to predict that. What I would tell you is the ultimate driver is the low cost producer win. And so, Nucor’s focus and taking care of our team from a safety perspective is also matched by ensuring that we remain in low cost position so that we can continue to be the supplier of choice and/or market share.

With regard to automotive though, while we're not GM, or Ford, or BMW, or Mercedes Tier 1 biggest supplier, we’re working hard every day to be their best supplier. And so, the things that that team has done have really resulted in why we've been selected to have big name the GM supplier of the year award back to back here. So even though autos - will be down this year and really probably for the next year in terms of pre-COVID levels, our share of that opportunity is going to grow. And we think by the end of the year, we will surpass shipping level of what we did in ’19. MaryEmily, would you like to make a few comments on the sheet market in particular the pricing?

[MaryEmily Slate, Sheet and Tubular Products]

About 70% of what we sell in the sheet market is contract time, so we still have about 30% of our books that’s associated with spot pricing, and that 70% is divided between a lot of different metrics. So there will be some lag effect in pricing but we also feel that with oil and gas as low as it has been, which drives a lot of the hot roll price, we feel like we’re at a bottom and there's an inflection point coming. So we will see some correction in this market.

[Operator]

Thank you. We’ll hear next from David Gagliano with BMO Capital Markets.

[David Gagliano, BMO Capital Markets]

The first one, I just want to ask you question about the second quarter results actually. The 13 days before the end of the quarter, the guidance was, I don’t really remember it was $0.05 to $0.10, or $0.10 to $0.15, or something like that, it came in way better. I'm curious what changed in the last 13 days? It looks like our numbers, the EBITDA came in over $1000 million higher based on the guide that was 13 days before the end of the quarter. And just trying to figure out what changed.

[Leon Topalian, President and Chief Executive Officer]

We're not proud of the fact that we're not the greatest forecasters in the world. We really aren't. And our business units more than doubled their forecasts for June in terms of division contribution, which is an EBIT like number. So, most of that beat happens on the steel side. And so, I would just say that our divisions were probably a bit conservative in their expectations for June and that's why we ended up missing high by such a large margin.

[David Gagliano, BMO Capital Markets]

And just sort of such a wide gap this quarter…

[Leon Topalian, President and Chief Executive Officer]

We’re a company with 27 million tons a year capacity, and we’re making low numbers, $0.15 a share, $0.30 a share. Those are low numbers relative to our capacity. And so, it's a big miss in terms of it. If you just look at the number, when you think about it on a per ton basis, when you think about it in terms of our capacity to generate earnings it's a small list. So, I agree with you, but just that little caveat.

[David Gagliano, BMO Capital Markets]

Just on follow-up a bit in terms of the prior questions and on the comments around supply demand. Three months ago, there was a pause obviously in Gallatin and market prices have weakened and obviously don't make decision I know that's the answer you will make decisions on 20 year investments in three month move in pricing. I totally get that. But is there anything else that changed in the last three months that gave you so much confidence to bring Gallatin back on and still shoot for mid-2021 start up when you do have all this capacity coming on, restarting all blast furnaces, you mentioned 10 million tons plus other projects coming online. What's changed in the last three months specifically that prompted the quick turnaround?

[Leon Topalian, President and Chief Executive Officer]

Yes, David, I'll start and maybe Jim can jump in, because I want to make sure I articulate this point well. I would tell you it was less of a change in terms of, either there’s no change in strategy. What I would tell you was when we went into early March and shared on the call in April, our view of what the COVID pandemic was going to mean, how deep it was going to hit, how long it might be with us. We certainly recognized it as a black swan event, gave us pause and what we wanted to do at that time was ensure.

We maintain the financial flexibility to do the things that we were committed to doing, like providing our dividend, making sure that we could fund our capital needs in terms of maintenance CapEx. And so really it was a pause to recognize this effect. But make no mistake, it never changed our focus and our thought process around those two projects being strategic and long-term decisions that were the right for our team and for our shareholders moving forward. Jim, anything you want to add?

[Jim Frias, Chief Financial Officer]

When we made the decision to slow spending down, it wasn't in isolation. We wanted to maximize liquidity in the second quarter, because of this unknown of what COVID is going to do to us. And so, our strategy was to cancel non-essential projects, slow the big projects down, not stop and slow them down temporarily but continue forward with the number of projects, including the Frostproof micro mill, which is so far down path, and do those things to maximize liquidity in Q2 and we accomplish that.

Separate of the of the debt issuance, we increased our cash by $600 million in the second quarter. And so, our free cash flow is extremely strong and we wanted to demonstrate that we could have strong free cash flow for the year. And so now that we have that confidence and we also have a better understanding of how we're being impacted in the economy by COVID, those things together are the underpinnings for saying let's go forward on those projects. So it was combination of our results in terms of liquidity, as well as our understanding, our better understanding of how much we’re being impacted by COVID.

[David Gagliano, BMO Capital Markets]

But specifically on the supply demand perspective. Is your view that the Gallatin, specifically the Gallatin mill will be almost entirely going after market share?

[Leon Topalian, President and Chief Executive Officer]

Of course, it will. So, long-term, our strategy is to grow our share in sheet. It's one of the places where we're a little underweight relative to the market. We’re market leader in most of the places we compete. And Gallatin is 1.5 million tons, 1.4 million tons of incremental capacity that moves up that needle a little bit. So certainly our goal is to gain share in sheet.

[David Gagliano, BMO Capital Markets]

And then last question, I'll turn it over. I just wanted to confirm the CapEx for the two projects. Is it still expected total CapEx for Gallatin $650 million and then also at Kentucky plate mill, I think 1.4 billion of those numbers unchanged in total?

[Leon Topalian, President and Chief Executive Officer]

Both the numbers at Gallatin -- the Gallatin number is not changing. And I think we reported in our last call that Jim did it was $1.7 billion Brandenburg plate mill, which is…

[Jim Frias, Chief Financial Officer]

Yes, we noted that the increase in our call last quarter.

[Operator]

Thank you. We’ll hear next from Phil Gibbs with KeyBanc Capital Markets.

[Phil Gibbs, KeyBanc Capital Markets]

Just to piggyback up of what Dave just asked. It doesn’t sound like there's been much spent to date on Brandenburg and then on Gallatin, maybe a little bit relative to that $700 million? Is that right?

[Leon Topalian, President and Chief Executive Officer]

You want the breakdown of what we spent on those projects so far this year, is that what you are asking for?

[Phil Gibbs, KeyBanc Capital Markets]

Just to date, yes, I mean, not necessarily this year but just how much have you spent in terms of where we are right now?

[Leon Topalian, President and Chief Executive Officer]

Yes, I have the outlook but I don't have the history. I'm sorry, I don't have it at fingertips, I'm sorry. Dave, could you give us what the information is?

[Dave Sumoski]

Yes, Brandenburg, we spent $150 million before the pause. We spent about $245 million throughout the rest of the year now that we picked it back up. At Gallatin, we expect $220 million before the pause and we're going to spend another $160 million.

[Leon Topalian, President and Chief Executive Officer]

Did you get that, did you hear those numbers?

[Phil Gibbs, KeyBanc Capital Markets]

I did. Thank you. And then I know from last call your target inventory for the year, I think you said you wanted to take out a billion of inventory. Is that still something that you think is achievable?

[Leon Topalian, President and Chief Executive Officer]

We said we wanted to reduce inventory significantly and we thought it could be up $2 billion. We’ve got scrap inventory down by about 850,000 ton. And so, I don't know that that itself is a billion dollars, I think it is. But we made a significant progress in scrap. In fact scrapping from I think 3 million tons-ish at the end of Q1 to somewhere around 1.3 million tons at the end of Q2, maybe little more than that, or 2.2 million…

[Phil Gibbs, KeyBanc Capital Markets]

The D&A numbers, look like they're coming in a bit higher than what we have forecasted, I mean this includes amortization but I have almost $200 million a quarter for Q1 and Q2. Is that something that should be repeated for the rest of the year?

[Leon Topalian, President and Chief Executive Officer]

Yes, I think that's going to be about right for the year. Our full year forecast is #720 for depreciation and just over 84 amortization.

[Phil Gibbs, KeyBanc Capital Markets]

And then on the side of the tax, the deferred tax benefits with these project time lines essentially intact, and I know that there were some benefits this year next year and then in 2022. Maybe just remind us what those are and how much maybe you received thus far?

[Jim Frias, Chief Financial Officer]

We get it in terms of, we get it in two points. First of all, to the extent we're making money, we could offset those profits and not pay taxes. So how much we get this year probably depends on how much we make. We think the benefit this year is going to be in the neighborhood of $200 million and some of that will be NOLs that we’ll have to go through a process to get from the government. But this year’s benefit we think it as being $200 million, and the cumulative benefit over three years is expected to be in the neighborhood of $700 million.

[Phil Gibbs, KeyBanc Capital Markets]

Jim, how much of that $200 million have you got so far this year?

[Jim Frias, Chief Financial Officer]

Well, look at the income statement, everything that we've got is tax expense we haven't had to pay.

[Operator]

Thank you. We'll take our next question from Andreas Bokkenheuser with UBS.

[Andreas Bokkenheuser, UBS]

Just a quick clarification. I think you kind of answered the question already, but there's been obviously a lot of talk about taking market share and you guys have been doing that and then you continue to do so, and we've seen you do so as well before in the past in these kind of price trough markets. We're obviously seeing some of your competitors raising sheet prices now, which of course you could do. But in doing so of course, some of the integrators could restart capacity. So, I guess the question is, is the focus on your second half strategy or maybe your 12-month strategy more on continuously taking market share kind of in line with what you've done in the past in these kind of trough markets?

[Leon Topalian, President and Chief Executive Officer]

Look at the end of the day, Andreas, our focus is to serve our customers well and make sure we're providing a differentiated value proposition. And so as we think about moving forward, our pricing decisions are going to remain independent of what our competitors are doing. We will evaluate for ourselves where we believe the market's at and if it would be time to raise pricing. So as we move forward, we absolutely want to grow in market share.

And as I mentioned, nine of the 13 markets we serve we are market leaders. We are not market leaders today in plate. Brandenburg will help provide that differentiated value proposition where we would be. And also in sheet today, we are somewhere in the 16%, 17% of the overall market range. We have an awful lot of opportunity to grow in that, as Jim commented too earlier. So again, as we move forward, like we do in every product group and have made pricing decisions, we will evaluate that independent of what our competitors are doing.

[Andreas Bokkenheuser, UBS]

And then maybe as a followup to that, when we kind of look at Q3 and there's been some talk about expectations of scrap prices and then raw material prices kind of pulling back in August. And so would you say that from a raw materials price environment point of view that the environment is supportive of margin expansion into the third quarter, all other things equal. I mean, leaving the price aside but from raw material price point of view that there should be some margin support there. Is that fair to say?

[Leon Topalian, President and Chief Executive Officer]

Yes, look, very fair question and obviously, we track and follow that. And the scrap market volatility over the last several months is certainly something we watch. Craig Feldman over our raw material. Craig, why don't you comment to what you're seeing and how you look at the market over the next few months?

[Craig Feldman, Raw Materials]

Relatively stable, I guess is our overall outlook. There’s been some recent activity, particularly export activity in China and Turkey, really driving things a little more active. But it's a fairly well-balanced market from the supply demand standpoint. And certainly wouldn’t see any major moves in the near-term. I'd hate to venture, I guess, much beyond the next 60 days or so. But I think our outlook is relatively stable. It could be some modest moves in the short-term, a little bit of dislocation in certain regions with some of the coastal export activity you could see some pricing pushed a little bit but for the most part we see the outlook stable.

[Operator]

Thank you. We'll take our last follow-up question from Phil Gibbs with KeyBanc Capital Markets.

[Phil Gibbs, KeyBanc Capital Markets]

The raw material side, I think there were a couple of pretty big outages in Q2 one at Louisiana because of COVID and the one in Trinidad, because of COVID. But the results on the raw material segment were a lot better than I would've thought. You now have those operations back online. So, I would've thought you would've gotten some better momentum in the third quarter relative to the second. So just curious in terms of how how we see that interplay, why it's down, why the second quarter was, I guess, so good and the activity was even probably better than the expectation that you had for yourselves?

[Craig Feldman, Raw Materials]

Yes, definitely it was better than we had expected, to the question earlier about the forecast. The real headwind has been and continues to be, as you well-know, DRIs, I'd say stubbornly high iron ore prices. So that was a bit of headwind. What really picked up from the team at David Joseph's recycling [operations] really done a nice job and really outperformed in the quarter. So that was a big pick up driving those results. And as you know, we don’t release the individual unit results but that was probably the biggest upside that we got, it was from the DJJ recycling operations in Q2. And certainly going forward, I don't know that we're going to see much change in that iron ore pressure we talked about a number of times on these calls about the margin pressure. I think that we continue to see and depending on where iron ore prices go, we expect to get some relief at the DRI operations, but your guess is as good as mine as far as where iron ore prices go down the road.

[Operator]

Thank you. That does conclude our question-and-answer session for today. I'd like to turn the conference back over to Mr. Topalian for any additional or closing remarks.

[Leon Topalian, President and Chief Executive Officer]

Before concluding our call today, I want to express our appreciation to our shareholders. We value your investment in our company and we take the obligation seriously that comes with it, we will treat your investments with great care. I also want to thank our customers. We're excited about the capabilities we're building to better serve you today and most importantly for tomorrow. Thank you for the trust and confidence that you placed in the Nucor team each and every day to supply your needs.

We look forward to building powerful partnerships to generate powerful results. And to our Nucor team, thank you for what you're doing every day and taking care of our customers. And most importantly, thank you for doing it safely. We are committed to strengthening this core value and by doing so help to improve the safety of our Nucor family and our industry. I'm excited for Nucor’s future and for all of us working together to expand beyond and take Nucor to new heights. Thank you to everyone on the call for your interest in Nucor and have a great day.

[Operator]

Thank you. And that does conclude today's conference. Thank you all for your participation. You may now disconnect.