Nucor Corporation Business Information, Profile, and History
Management Philosophy--The company's success comes from its more than 11,300 employees. Nucor seeks to hire and retain highly talented and productive people. Nucor has a simple, streamlined organizational structure to allow employees to innovate and make quick decisions. The company is highly decentralized, with most day-to-day operating decisions made by the division general managers and their staff.
History of Nucor Corporation
Nucor Corporation ranks among the largest steel producers in the United States. Its approach to steel production has been predicated upon drastically undercutting both foreign and domestic competition, a feat it accomplished through no small amount of hard work, risk-taking, and visionary thinking. For all practical purposes, Nucor launched the steel minimill industry in the late 1960s. Thereafter, minimills increasingly edged the large integrated steel companies out of most niche markets, and, led by Nucor in the late 1980s, made a bold entry into the flat-rolled steel market, the last domain of Big Steel. Maintaining profitability and a furious growth rate through difficult economic times, when the industry was virtually at a stand still, Nucor set its sights on becoming the nation's number one steelmaker by the year 2000. The company had been a perennial favorite of Wall Street into the mid-1990s; however, increasing competition in the areas that Nucor pioneered presented the company with significant challenges. But following a boardroom coup in 1999, Nucor headed into the 21st century full steam ahead.
Origins Dating to 1904
Nucor traces its origins to the early years of the 20th century, when automobile inventor Ransom Eli Olds founded the Olds Motor Works in Lansing, Michigan, with the considerable aid of venture capitalists. In 1904 Olds, dissatisfied with his lack of control over the business, abandoned it to found a new company, R. E. Olds Company; the name was quickly changed to Reo Motor Car Company to avoid a lawsuit over the use of the "Olds" name. From 1904 until 1924 Olds served as president of the company, before turning to real estate speculation, an unfortunate business move that ultimately led him to sell most of his Reo stock. When demand for the luxury cars manufactured by Reo plummeted during the Great Depression, the plant began making a number of other products, including lawnmowers and the Reo Speedwagon delivery truck. Olds died in 1950, and his namesake company, which had survived one bankruptcy, was now headed toward another. By December 1954 the company was all but dead; however, when stockholders were informed of plans for liquidation in 1955, a small, contentious group found a glimmer of hope in a tiny Reo business property, Nuclear Consultants, Inc. According to Nucor chronicler Richard Preston, what followed was "a forced takeover, an unusual move in corporate finance, wherein the dissidents forced Reo to take over Nuclear Consultants against Reo's wishes." When the paperwork was complete, Reo was reborn as Nuclear Corporation of America and became the first publicly traded nuclear company. Various publicity stunts and the power of the word "nuclear" propelled the company and its stock skyward. Yet its business endeavors in nuclear instrumentation, nuclear energy, chemicals, and electronics bordered on the illusory. A series of largely unrelated acquisitions, funded through stock offerings, sustained the company. One of these subsidiaries, Vulcraft, led to the establishment of Nucor.
In 1962 F. Kenneth Iverson, then a young mechanical engineer, became general manager of Nuclear's Vulcraft division in Florence, South Carolina. It soon became apparent that Vulcraft, a metal fabrication business specializing in steel joists and girders, was virtually the only healthy division in the conglomerate. A string of money-losing years led the Nuclear Corporation to the verge of bankruptcy in 1965. By this time Iverson had been elevated to group vice-president and transferred to the parent company's headquarters in Phoenix. Essentially, Nuclear was a business with $20 million in sales and $7 million in assets that was losing $400,000 annually. Two major loan defaults that year caused the president to resign and the board to appoint Iverson as the new president and CEO; the logic governing the decision was that Iverson had been in charge of the only divisions within the company that were profitable.
Taking over at mid-year, Iverson dumped half the divisions, reduced management positions from 12 to two, and posted the last loss ever for the company, some $2.2 million. Now came decisions regarding Nuclear's future operations. At this point, Vulcraft, with its South Carolina plant and another in Norfolk, Nebraska, held the greatest promise for growth. In 1966 Iverson committed himself to Vulcraft's steel joist industry, relocating to Charlotte and establishing corporate headquarters in a modest 2,000-square-foot office. During the first three years under his management, Nuclear's net sales rose from $21 million to $35 million, largely on the virtue of Vulcraft's dominant 20 percent share of the joist market. Although profits kept pace with this growth, Iverson was concerned with Vulcraft's dependency on others for its steel. Until Vulcraft graduated from steel fabricator to steel producer, its earnings were entirely dependent on steel prices outside its control.
In 1968 Iverson, in the first of several momentous decisions for the company, prepared Nuclear to become a minimill steel producer. His initial goal was to manufacture bar steel at a price competitive with foreign producers, who had been supplying up to 80 percent of the company's raw material. The goal was perhaps unrealistic, for Iverson would also be taking on such giants as U.S. Steel, a chief Vulcraft supplier. Furthermore, the construction cost for a traditional coke-and-iron steel mill was prohibitive. However, steel could be created another way: by melting scrap steel in electric-arc furnaces. Iverson took the gamble by effectively mortgaging the company for a loan of $6 million. The money was used to erect a plant in rural Darlington, South Carolina, and purchase the necessary equipment, a furnace, a continuous casting machine, and a rolling mill. According to Success, Iverson "recruited farmers, sharecroppers, and salesmen to do the dirty, often dangerous work of making steel. High technology and untrained troops made for a volatile mix, and delays and catastrophes caused stock prices to drop to pennies. But a legendary company culture was born: inventive, resourceful, team oriented, inspired by impossible challenges."
The delays and catastrophes centered around the plant's casting machine, which experienced regular breakouts of hot steel from the time production began in June 1969 until late 1970, and the newness of the venture in general. Depressed earnings finally rebounded spectacularly in 1971, jumping 140 percent. In 1972, they leaped another 70 percent. This same year, Iverson dropped the company's outmoded title and renamed the business Nucor Corporation. Nucor was now at the brink of the so-called golden era of the minimills. It had two successful operations: Vulcraft, which supplied joists to the construction industry, and Nucor Steel, which produced low-cost bar steel, largely for Vulcraft. Both posed a threat to the big steelmakers, but they were slow to respond. A flurry of minimills arose during the 1970s, following Nucor's lead and producing bar steel for the joist business at prices that eventually drove Bethlehem, Republic, and others out of the market.
In 1977 Nucor launched its second assault on Big Steel by branching out into steel decking, for use in floors and roofs supported by its Vulcraft joists. Two years later the company again led the minimills by manufacturing cold-finished bars, employed in shafts and precision parts. By the end of the decade, Nucor ranked among the top 20 steel companies in the country, with sales of $430 million and net earnings of $42 million. Within a five-year span, it had more than tripled production through a series of new mill constructions. Its core business, Vulcraft, had also expanded through new plant openings and had virtually secured its position as the biggest steel joist producer in the United States. The one blemish on these years of fast-paced growth was a mill fire accident in 1974 that killed four Nucor employees.
The company would later face criticism from its competitors, the media, and community leaders that its operations were needlessly dangerous. Much of the criticism stemmed from the fact that Nucor's workforce remained nonunion and was therefore subject to lower wages and less assurance that a certain working environment would be maintained. Nevertheless, the dynamic Nucor work ethic and corporate culture, shared by management and employees alike, offered something unions would find impossible to provide during the 1980s: job security. In an industry plagued with plant closings, cutbacks, and layoffs, Nucor stood out as one company firmly committed to its steelworkers. No Nucor employee had ever been laid off; to hold down costs during difficult downswings, Nucor instead asked its workforce to reduce hours. As for wages, the company's stringent team performance standards offered incentives to employees to exceed production goals and, as a result, receive bonuses that could more than double their annual wages. The employees also benefited from such unusual policies as guaranteed college scholarships for their children, a policy first established when Iverson wanted to help the families affected by the 1974 accident. Nucor attributed much of its success to its nonunion, nonurban employees. As its brochure The Nucor Story stated: "A major ingredient in Nucor Corporation's success has been its commitment to locate its diverse facilities in rural locations across America. As a result of deliberately selecting non-urban locations, Nucor has been able to establish strong ties to its local communities and its work force. The ability to become a leading employer and pay a leading wage has been a key to attracting hard-working, dedicated employees."
Such simple, effective strategies became the trademark of the company and its CEO. Another important ingredient in the company's success was its sparse management staff. Only four management layers existed inside the company, beginning with the CEO and leading directly down through general managers, department heads, and foremen to the general laborers. All wore identical hard hats, as a tribute to teamwork and as a further sign of differentiation from unionized companies. The small staff, modest headquarters, and relentless drive to become a world-class competitor made for a supremely cost-conscious corporation in which new technologies were seized, decisions made swiftly, and production encouraged apace.
Iverson's races into new steel industries and new technologies during the 1980s were necessitated not by Big Steel, which was floundering, but by other American minimills and by the new world leader, Japan. In 1986 the CEO decided to tackle the last frontier, sheet steel, an expensive and prized market that no minimill had dared to consider. Start-up costs for manufacturing sheet steel were enormous, at more than a quarter of a billion dollars. At the time, Nucor's assets amounted to little more than twice that figure. Annual revenues stood at just $755 million. Nonetheless, Iverson took the plunge, first by exploring possibilities within the company to produce a state-of-the-art casting machine whose efficiency would trounce the competition. Although the in-house project held promise, Iverson was anxious to be the first to acquire and implement the technology, and an invention already in progress, by West German engineering firm SMS Schloemann-Siemag A.G., was chosen as the best candidate for Iverson's plans. Called the compact-strip-production machine (CSP), the invention was over 1,000 feet long and composed of some one million parts. Most experimental and most crucial to its success was a casting tower, supposedly capable of producing sheet steel just two inches thick instead of the conventional ten inches. According to Preston, "Inventors had been trying to invent a machine that would make an endless strip of steel since 1856, when Sir Henry Bessemer had tried it and failed. ... Any company that could solve the problem would by definition become the global leader in the manufacture of steel." Assembly of the machine began in 1988 at a new plant site in Crawfordsville, Indiana, and by mid-1989 the first experiments were begun. Throughout the period, the Crawfordsville Project and the CSP attracted a shower of criticism from the big steel companies, as well as a jumble of stock trading and public speculation.
Under plant managers Keith Busse and Mark Millett the CSP was eventually completed, and despite delays, breakouts, and one fatal explosion in January 1990, the Crawfordsville plant was soon operating near capacity, producing flat-rolled steel in one-fourth the time of its competitors at $45 less per ton. Busse had said, "What we're doing in Crawfordsville is like taking a Conestoga wagon for the first time across the plains." Iverson, looking to the future, had remarked, "We are going to leapfrog Japan." Neither was overstating the enormity of the Nucor gamble. The freak accident, caused by a broken cable that sent a ladle of molten steel crashing to the plant floor, left one dead. OSHA (Occupational Safety and Health Administration) inspectors poured over the evidence before levying a $30,000 fine. The victim's family also sought settlement with the company. What arose from the tragedy was a renewed commitment to plant safety: a Nucor study undertaken a few years later showed that the company ranked in the top third among steel mills in terms of safety.
The company remained committed to aggressive growth, opening a second thin-slab sheet mill in Hickman, Arkansas, in September 1992. Soon, however, Nucor was facing a potential setback: the high-quality scrap on which its sheet-steel production relied was in short supply, with prices jumping 55 percent in 1993. The shortage was only expected to intensify as Nucor and other minimill operators increased their capacity. Seeking an alternative to high-quality scrap, Nucor, with its characteristic entrepreneurial flair, built an experimental $65 million plant in Trinidad and Tobago that would process cheap iron ore from Brazil to make iron carbide, an economical substitute for direct-reduced iron. The plant had an annual capacity of 320,000 tons.
Unfortunately, the plant was plagued by start-up woes. Although the conversion process itself worked flawlessly, the rapid transition from limited testing to full-scale operation encountered engineering snafus and mechanical breakdowns. A year behind schedule, the plant was registering cost overruns of 30 percent. Nucor's stock dropped precipitously on the news of the problems in Trinidad.
Domestically, Nucor continued its heavy investment and expansion. In 1993 the company opened a second mill in Blytheville, Arkansas, at a cost of $200 million, and spent $65 million to upgrade its plant in Darlington, South Carolina. While observers questioned whether Nucor could maintain its fast and flexible corporate culture as it expanded, employees and managers alike pursued the relentless innovations that kept it a step ahead of the competition. In just one example, from 1992 to 1994 employees reduced the time it took to melt steel from 72 minutes to 65 minutes, which allowed them to pour 25 additional tons of steel during a 12-hour shift. Larry Roos, manager at the Crawfordsville plant, maintained that there was so much experimentation in his shop that "half the time I don't know who's doing what out there."
At the same time, competitors in the minimill business were increasing dramatically in numbers and advancing rapidly in technical sophistication. By 1995, competitors had ten new minimills on the drawing board for launch by 1998, with an expected increase in total capacity of 40 percent. Undaunted, Nucor set its sights on being the largest steelmaker in the industry by the year 2000, in part by diversifying into new products and heavily targeting international markets.
Nevertheless, as the economy slowed and orders for sheet steel dropped off in mid-1995, Nucor was forced to cut prices, and its stock continued to take a beating. Its shares declined by more than 30 percent from 1994 to 1995.
In January 1996, COO John D. Correnti succeeded Iverson as CEO, with Iverson remaining on as chairman of the board. Said Correnti, "I just want to keep the train on track, steaming ahead."
Indeed, Nucor's growth continued unchecked. In 1997 the company announced that it would build a $150 million steel beam mill in Berkeley, South Carolina, to open in late 1998. Nucor also intensified its plans for international expansion, and, like many of its competitors, targeted India, China, and Brazil, markets where demand was expected to grow at three times the rate of U.S. demand. Nucor's plans included a Brazilian joint venture to build a $700 million plant in the state of Cear, which Correnti called "a chance to whet our appetite in the international market, and to make money." Gunning for that number one position, Correnti would need both.
Fired Up: 1999-2005
Nucor produced 9.6 million tons of steel in 1998, shipping 9.4 million tons. John D. Correnti was named Steelmaker of the Year by New Steel magazine. At year-end Iverson stepped down as chairman. H. David Aycock, who served as Nucor's president and COO from 1984 to 1992 and had continued as a director, was named chairman. Correnti was asked to leave, within six months of Iverson's exit, and Aycock added the roles of president and CEO. According to Business Week, Correnti and Iverson were pitted against an Aycock-led group of directors regarding the future direction of the company.
Aycock, the victor in the conflict, pulled the plug on Nucor's unprofitable Trinidad iron-carbide plant for starters and planned acquisitions in the bar products and engineered building sectors to provide new growth. Berkshire Hathaway doubled its stake in the company, during the year, to 4.1 million shares.
Nucor's net earnings climbed to a record $310.9 million in 2000, up from $244 million in 1999, according to Business North Carolina. In contrast, Forbes reported, six of the top eight publicly held steel makers lost money despite positive economic conditions. The industry, set back on its heels by a one-two punch of cheap imports and rising energy costs, had experienced a rash of bankruptcies since 1997.
In 2001, Nucor broke ground for a new plant boasting technology that might afford a boon for the $45 billion U.S. steel industry. The strip-casting operation in Indiana would be among the first to use the technology that cast molten steel directly into very thin sheets. "If it works, strip casting could reshape the industry, making steel faster, thinner, more cheaply and with fewer defects than conventional slab casting. Makers would be able to switch among multiple steel grades on the fly," Brett Nelson reported for Forbes. Nucor pioneered a successful thin-slab caster in the late 1990s, requiring less plant space and energy consumption; strip casting upped the ante.
Improvements in electronic controls and in materials had pulled steel makers around the world into a race to perfect the strip-casting technology. Australian mining concern BHP (Broken Hill Proprietary Co. Ltd.) had invested $200 million in development, producing a breakthrough in the early 1990s. Nucor joined with BHP in 2000 to form Castrip, a venture to license the technology. The pair each owned 47.5 percent and the Japanese equipment supplier held the remaining 5 percent.
Strip casting was just one part of Daniel R. DiMicco's master plan for the company, according to a September 2001 Business North Carolina article. As Nucor's president, CEO and vice-chair, DiMicco also looked to increased plant efficiency and acquisitions to drive up Nucor profits.
Aycock tapped the Nucor veteran as his successor and as the man to take his strip casting venture forward. DiMicco and Nucor were attempting what had yet to be accomplished, and naysayers questioned the likelihood of a commercial success. For his part DiMicco expressed confidence in the process but also acknowledged the potential for failure. "If it doesn't work, it will be another situation where Nucor took a risk on something," he told Business North Carolina. "It is not going to make or break the company. It won't make or break my career." Falling steel prices compressed sales and earnings during the year.
In February 2002, Nucor offered to buy Birmingham Steel Corporation for $500 million in cash. Former Nucor CEO Correnti had been at the helm of the struggling steel maker since December 1999. Nucor wanted to acquire four operating mills but did not want to be saddled with Birmingham's debt and idle facilities, nor did DiMicco wish to see his former rival within Nucor return to the fold.
Ultimately, Birmingham agreed to be purchased for $615 million in cash, a better deal than the initial offering but still shy of Birmingham's $626 million in debt. "Nucor got the deal done even though several other steel producers expressed interest in Birmingham Steel. The irony of his former company taking over, however, mattered little to Correnti in the final analysis. 'Nucor had the biggest checkbook,'" Correnti told American Metal Market in June 2002. "At the end of the day, you have to look out for everyone. You have to make the best deal for your shareholders, your lenders, your employees and your customers. Nucor had the biggest checkbook, and this was the best deal." As for Nucor, the additional capacity elevated the company to a position of national leadership in steel reinforcing bar production.
Demand for steel worldwide and in the United States markedly improved in late 2003 and into 2004. According to an October 2004 Business Week article, prices in some sectors of the industry had risen threefold during the past 12 months. The upswing was aided by an improved global economy. China, in particular, ramped up consumption in preparation for the 2008 Beijing Olympics.
In the United States, steel mills ran at near capacity. But remembering the worldwide steel surplus prior to 2000, the industry concentrated on improving existing facilities, forgoing new mill construction. While steel manufacturers' stock prices rose with the strengthening market, consumers of steel, such as automobile and heavy equipment manufacturers, felt the price pinch.
Minimills, while benefiting from the improved demand for steel, were up against scrap metal shortages and rising scrap prices. Some companies were able to alleviate the problem with surcharges; others had their hands tied by contract agreements.
"But even those minimills that have not seen profits dampened from increased scrap prices are uncertain that will continue to be the case. 'Up to this point input costs haven't dampened our profits but it is a concern,'" DiMicco said in a November 2004 Steel Times International article. As the price of scrap rose, minimills' advantages over integrated mills began to erode.
U.S. scrap shortages coincided with worldwide demand. Domestic scrap was being shipped abroad, while other nations created barriers to metal scrap leaving their shores. Moreover, integrated steel mills, experiencing shortages of materials necessary to their production processes, had upped their use of scrap. Nucor, already seeking scrap alternatives, moved forward with development of iron substitute projects in Australia, Brazil, and Trinidad during 2005.
Nucor's earnings exceeded Wall Street's expectations in the fourth quarter of 2005. The quarterly results combined with news that the world's largest steelmaker, Mittal Steel Co., had set out to buy its closest competitor, Arcelor SA., drove Nucor stock to record levels. Combining the Rotterdam-based Mittal and Luxembourg-based Arcelor would result in an entity that controlled 10 percent of the world's steel, according to the Tribune Review of Greenburg, Pennsylvania. Mittal's move for Arcelor sparked speculation regarding takeovers involving other industry players, Nucor among them.
Driven by increased commercial construction, Nucor reported a second straight year of record earnings. At $1.31 billion, the 2005 figure was 17 percent higher than in 2004 and more than four times the earlier peak of $310.9 million in 2000. The gains were made despite a dramatic increase in natural gas prices. Anticipating continuing high energy costs, Nucor moved to mitigate the dilemma through bringing in new energy efficient equipment and hedging future natural gas purchases. But even as Nucor posted those record earnings for 2005, speculation regarding another global steel glut arose. Some industry watchers foresaw a time when China would begin dumping excess production into the world market.
Nucor-Yamato Steel Company (joint venture); Castrip LLC (joint venture).
Commercial Metals Company; Mittal Steel USA; United States Steel Corporation.
- Key Dates
- 1955 Near demise of Reo Motor Car Company leads to first publicly traded nuclear company.
- 1966 F. Kenneth Iverson pins hope for the company's survival on metal fabrication operation.
- 1968 Minimill steel production plans set in motion.
- 1972 Company is renamed Nucor Corporation.
- 1974 Fatal accident leads to policies benefiting employee families.
- 1979 Company begins cold-finished bars manufacturing.
- 1986 Nucor embarks on effort to bring minimill into costly sheet steel market.
- 1990 Loss of life drives renewed safety effort by company.
- 1995 Despite looming uptick in industry capacity, Nucor continues aggressive growth drive.
- 1999 Company weathers management shakeup.
- 2002 Nucor acquires Birmingham Steel Corporation.
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