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Nucor Case Analysis

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Individual Case Analysis

BUS490 Comprehensive Examination

Nucor Steel Corporation

Written by: Lukas Kubilius

Professors: Bonnie J. Straight

Julian J. Prewitt

Lithuania Christian College

2 March 2005

Overview of situation

Nucor Corporation with 24 plants/divisions and 8,000 employees, operated in nine states recycling more than 10 million tons of scrap steel annually. Producing carboy and alloy steel in bars, beams, sheet, and plate; steel joists and joist girders; steel deck; cold finished steel; steel fasteners; and metal building systems, the corporation was known as the most modern and efficient, having streamlined organizational structure, incentive-based compensation and rigorous quality systems in the United States.

Nucor Corporation entered the 21st century as one of the leading U.S steel producers. At the same time, steel industry was experiencing crisis and steel production capacity was exceeding the market demand. Drop-offs in revenues and price cuttings forced many steel producers declare a bankruptcy.

Economic recession of late 1990s in Europe and Asia, September 11, 2001 terrorist attacks had big impact on U.S steel industry. The main steel-consuming industries as construction, automobiles, and farm equipment were experiencing slow down. Foreign steel producers found reliable and effective way to fight with global steel excess. Subsidized by the governments they were dumping U.S market at the throat-cutting rates.

Table 1

Import Value per Net Ton

Product May 1999 1st Quarter 19998 % Change

Wire rods $ 275 $ 350 -21,50%

Structural shapes 267 379 -29,6

Places cut lengths 456 490 -6,9

Plates in colis 257 377 -31,7

Reinforcing bars 198 300 -33,9

Line pipe 429 524 -18,2

Black plate 551 627 -12,2

Sheet hot rolled 242 304 -20,4

Sheets cold rolled 400 549 -27,1

Sheet and strip galvanized el. 483 609 -20,7

Total - All steel mill products 332 455 -27,00%

Source: American Iron and Steel, press release, June 24, 1999.

Steel industry in U.S experienced a loss of 47 000 jobs. One of the major Nucor’s competitors, Bethelem Steel Corporation and LTV Corporation, had to file for bankruptcy protection in 2000. Bankrupt steel mills accounted for 25% of U.S steelmaking market.

The words of Nucor’s president and CEO Daniel R. DiMicco best describe the recent situation in steel industry worldwide: “all the U.S mills could close and there would still be excess capacity [worldwide].”

However, Nucor Corporation was doing quite well during such recession. In 2000, sales and revenues were at the record levels and Corporation managed to remain profitable. The Wall Street Journal predicted that only Nucor and AK Steel Holding Corporations will expect to have profits in the last quarter of 2000. Another publisher, The Economist, stated that of the 14 steel companies tracked by Standards&Poor, only Nucor was considered as healthy.

Although, steel industry was in the middle of most unprofitable and complex period ever, global steel production increased by 7% in 2000. The Organization for Economic Cooperation and development estimated overcapacity to be about 200million tons worldwide.

Current Strategy

Nucor used decentralization structure вЂ" all division operated autonomously. Nucor focuses on division’s earnings and expect division to earn 25% return on total assets before corporate expenses, taxes, interest, or profit sharing. If division managers do not provide such results Nucor strategy is either to get rid of the division or of the general manager. To be productive and to remain competitive in the market Nucor carefully watches the development of cutting-edge technologies for steel production. It aggressively invests in plants modernization and efficiency improvement. It sustains growth of its profit by building new divisions of steel production. Nucor outsource advertising, public and legal relations. More attention to own business than to competitors is their strategy. South magazine observed that Nucor is “stripped down, no nonsense” organization. It keeps maintaining low cost and efficiency, which is the key to making profit in steel industry, by keeping the employee force at the level it should be, empowering them, being totally honest, involving them in decision making process, and using effective incentive compensation system.

Nucor’s ten year goals are:

• Achieving average annual earnings growth of 10%-15%.

• Exceeding return on capital

• Maintaining minimum 14% return on equity.

• Delivering 8%-10% return on sales.

• Becoming market leaders of every product group and business where they compete.

Key Issues and Problems

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