Nucor Corp (NUE) — Q1 2017 Earnings Call Transcript

Good afternoon. Thank you for joining us for our conference call. We appreciate your interest in Nucor. With me for today's call are the other members of Nucor's senior management team, Chief Financial Officer, Jim Frias; Chief Digital Officer, Joe Stratman; and our other Executive Vice Presidents, Jim Darsey, Ladd Hall, Ray Napolitan, Dave Sumoski and Chad Utermark. Our leadership team is joining you today from our Washington, D.C. office. I have just returned from a meeting with President Trump and Secretary Ross, where we took another important step in advancing our commitment to work together to level the playing field for American manufacturers. We would like to thank all of our teammates throughout Nucor for their excellent work in the first quarter to build a safer, stronger and more profitable Nucor. You are the reason our company's best years are still ahead of us. Thank you. We also want to extend a very warm welcome to the newest members of our Nucor family, the approximately 120 teammates who joined us with the first quarter acquisitions of our bar grating facility in Bourbonnais, Illinois and our Vulcraft-Omega Joist plant in Alberta, Canada. Nucor is very proud and excited to have you on our team. Our Chief Financial Officer, Jim Frias, will now review Nucor's first quarter performance and financial position. Following those comments, I will update you on the execution of our strategy for long term profitable growth. Jim?

Thanks, John. Nucor reported first quarter of 2017 earnings of $1.11 per diluted share. These results were in line with our guidance range given in mid-March of $1.10 to $1.15 per diluted share. They represent significant improvement compared to the fourth quarter 2016 earnings of $0.50 per diluted share and first quarter of 2016 earnings of $0.27 per diluted share. It is also Nucor's highest quarterly earnings since the third quarter of 2008. Earnings for the most recent quarter were highlighted by significantly improved performance for our steel mills segment, led by our sheet, bar and plate mills. This segment also benefited from attractive profit contributions from our recent tubular products acquisitions. Our raw materials segment also delivered very strong improvement on both a year-over-year and linked quarter basis. That was despite the burden of a 5-week unplanned outage during the quarter at the Louisiana direct reduced iron facility. More than offsetting that drag were performance improvements from our David J. Joseph Company scrap business and our direct reduced iron facility in Trinidad. The David Joseph team has done excellent work reducing the cost structure of their operations and working more closely with Nucor steel mills that benefit profitability across the enterprise. In addition to their solid profit contribution, the new iron team at the DRI facility in Trinidad set a production record in the just-completed quarter. A quick comment about our tax rate as it can be confusing due to the impact of profits from noncontrolling interests. Excluding profits belonging to our business partners, the effective tax rate was 32.4% for the first quarter. Nucor's financial position remains strong. With total debt outstanding of $4.4 billion, our gross debt-to-capital ratio was 34% at the end of the first quarter. Cash and short term investments total approximately $1.7 billion. Nucor's strong liquidity position also includes our $1.5 billion unsecured revolving credit facility which remains undrawn. The facility does not mature until April of 2021. For 2017, we estimate capital spending of approximately $550 million and depreciation and amortization of about $730 million. While recent trade case decisions have begun to reduce the flood of dumped and subsidized products from foreign producers, imports continue to negatively impact the U.S. steel industry overall. Through the first quarter this year, imports remain at a stubbornly high 25% share of U.S. market. Certain countries continue to brazenly break and circumvent our nation's trade laws. While significant progress is being made, there is a tremendous amount of work still to be done. Nucor will continue to be proactive and aggressive in pursuing effective and timely enforcement of U.S. trade laws. At the same time, we will also work to call attention to the issue of global steel production overcapacity. That overcapacity is the result of the trade-distorting practices of some governments. Earnings in the second quarter 2017 are expected to increase compared to the first quarter. This further supports our previously expressed view that full year 2017 profitability could significantly exceed the level achieved for 2016. In the second quarter, our sheet mills should experience further gains in price realizations as a portion of their contract sales are priced on a lagging quarterly basis. We expect our plate mills to benefit from recent trade actions that provide a more level playing field. Our fabricated construction products order books indicate that the nonresidential construction markets have regained momentum in 2017. That, along with seasonal trends, will benefit the second quarter performance of our steel products segment. We're also encouraged by the emergence of improving demand in other end-use markets, including energy and heavy equipment. With stronger demand for iron units, our raw materials business should be solidly profitable over the balance of this year. We also expect intercompany profit eliminations to have a smaller impact on earnings in the second quarter. We're confident that Nucor's significant competitive advantages, highly adaptable business model and proven strategies will allow our team to continue to deliver profitable long term growth and attractive returns to Nucor's shareholders. Thank you for your interest in our company. John?

Thanks, Jim. On our January earnings call, I observed that the Nucor team was ready and eager to realize the significant pent-up earnings power we have built during the steel industry's lengthy downturn. Today, my message is unchanged. Our focus remains on the execution of our disciplined strategy of long-term profitable growth. We're certainly encouraged by our strong first quarter performance. It provides additional evidence that our strategy is working. But we view the first quarter results as just an early indication of the long-term payoff we expect from the more than $7 billion we have invested since the last cyclical peak. Our objective and our record over many decades is to deliver stronger profitability throughout the economic cycle. We describe this work as building higher highs in Nucor's cyclical peak earnings power. The strategy is simple and flexible. We're leveraging Nucor's five drivers to profitable growth. The five drivers are, one, strengthen our position as a low-cost producer; two, achieve market leadership positions in every product line in our portfolio; three, move up the value chain by expanding our capabilities to produce higher-quality, higher-margin products; four, expand and leverage our downstream channels to market to increase our steel mills' baseload volume for sustained results; and five, achieve commercial excellence to complement our traditional operational strength. I will now update you on the highlights of our team's recent progress implementing our strategy for profitable growth. During the first quarter, we completed the acquisitions of Southland Tube and Republic Conduit. Together with the late 2016 acquisition of Independence Tube, we have established a new platform for profitable growth, Nucor Tubular Products. This value-added business has annual shipments of approximately 1 million tons. I am very pleased to report that our Nucor Tubular Products team had an excellent first quarter, with both strong financial performance and achieving synergies with their teammates at Nucor's sheet mills. We're also very encouraged by the reception of our customers to our broader capability to serve construction markets. Our expansion into the hollow structural sections, or HSS, and electrical conduit, niches of the pipe and tube market, squarely hits the target on all five of Nucor's strategic drivers to profitable growth. We immediately gained market leadership positions in HSS and electrical conduit as the second-largest producer of both products. And like Nucor's other operations, these tubular businesses are built around extremely efficient manufacturing, a highly variable cost structure and continual improvement. Equally important, their cultures share Nucor's strong emphasis on the value of our team members. Both the HSS and the electrical conduit products offer significant value-added opportunities regarding quality, reliability and servicing the short lead times inherent in construction projects. These factors are why import penetration in these products is limited compared to the overall pipe and tube market. Our value-added tubular products provide an attractive channel to market for Nucor's hot-rolled sheet products. Prior to establishing our tubular products growth platform, our channel to market opportunities for our approximately 6 million tons of annual hot band sales volume were very limited compared to our overall steel mill product mix. The addition of HSS and electrical conduit tubing to our portfolio is an important step forward in Nucor's pursuit of commercial excellence as North America's most comprehensive supplier of steel solutions to the construction and infrastructure markets. Without a doubt, Nucor is the strongest name in construction steel and steel products. Congratulations and thank you to our tubular products teammates for a great start in building this exciting new platform for Nucor's profitable growth. Please keep it going. Nucor's fabricated construction products group also completed two acquisitions during the first quarter. In February, our Fisher & Ludlow bar-grating business acquired a facility in Bourbonnais, Illinois. With expected annual production of 50,000 tons from this facility, this acquisition is an important step in growing our North American market leadership for bar-grating products. It almost doubles our market share. In March, our Vulcraft joist and deck business acquired a facility in Alberta, Canada. This acquisition complements our current start-up of Vulcraft's new joist and deck plant in Ontario, Canada. Nucor's plate mill group has rapidly and very effectively leveraged its broader product offering provided by the August 2016 acquisition of our Longview, Texas specialty plate mill. Nucor Steel Longview produces specialty plate products ranging from 1 to 12 inches thick and up to 138 inches wide. This is a significant expansion of Nucor's plate portfolio as the capabilities of our North Carolina and Alabama plate mills reach up to 3 inches thick and 120 inches wide. The addition of Longview's capabilities positions Nucor's plate mill group to expand our overall share in a number of attractive segments that include bridges, military armor and tool steels. Giving Nucor full access to the bridge market, Longview recently developed a difficult-to-make grade of bridge steel and a 4-inch thickness. Longview also began first-time production of military armor for tank and submarine applications. Tool steels are another new growth opportunity for our Longview team, and they are already pursuing it. These examples are just the beginning of how our new one-stop shopping capability will allow Nucor to profitably grow our plate business. The long-term strategic and commercial value of our Longview acquisition is clearly very significant. At the same time, I want to recognize and thank our Longview teammates for all that they have accomplished in the short time that they have been part of the Nucor family. It is worth noting that they continue to set production and shipping records. Thank you and please keep it going. Nucor's profitable growth strategy is always anchored by our team's continual drive to enhance our position as a low-cost producer and market leader in all of our businesses. That focus is the bedrock foundation for delivering sustainable long-term growth in our profitability that rewards our shareholders with attractive returns on their valuable capital. Nucor Steel Marion recently announced a rolling mill modernization that is a perfect example of this work. Our Marion, Ohio bar mill announced in March an $85 million investment to upgrade its rolling mill and other related equipment. Nucor Steel Marion is Ohio's largest producer of rebar and sign post with annual capacity of more than 400,000 tons. The mill is strategically located in a prime market for rebar consumption and one with aging infrastructure. Our Marion team recently celebrated the mill's 100th year of steelmaking. With this project, we're investing in the next 100 years of profitable growth for Nucor Steel Marion. These are just some of the exciting initiatives we're implementing to drive profitable growth. We continue to make excellent progress on a number of other projects. Equipment contract negotiations were completed for our Arkansas sheet mill's specialty cold mill, with start-up expected in late 2018. Groundbreaking is set for later this quarter at our 50-50 joint venture with JFE Steel of Japan to build and operate a facility to produce galvanized sheet steel serving the growing Mexican automotive market in Central Mexico. Nucor achieved strong first quarter growth in the automotive market as our sheet and engineered bar teams expanded both customer base and penetration of product platforms and momentum continues to build with the rollout of Nucor-Yamato's major new structural steel product introductions. After reviewing our first quarter financial results and progress implementing our profitable growth strategy, one key point stands out to me. Nucor's success is the result of our focus on continual improvement and increasing the value we deliver to our customers. That's why Nucor always thrives in a marketplace of free and fair competition, where winners are determined by real economic advantage. For a company such as Nucor, with its unique position of strength and proven ability to execute its strategy for profitable growth, this is a time of great opportunity. Our team is both ready and eager to demonstrate the pent-up earnings power that we have built into our company during the industry downturn. I am absolutely confident that Nucor's best years are still ahead of us. We appreciate your interest in Nucor and would now be happy to answer your questions.

I was wondering if you could elaborate, John, on your interactions with the Trump administration, particularly regarding the Section 232 investigation that was launched today. This announcement seems to have caught the industry off guard. Can you share your thoughts on the specifics of that investigation, especially in relation to how imports might impact U.S. national security, and provide any insights on how you anticipate the process will progress?

Well, I have to tell you, we were a little bit surprised by it also. It came up very quickly, although President Trump mentioned during his press comments today that he and Secretary Ross have been working on this for several months. So it was unexpected to us, but they've been planning this for a while. I have to tell you, we welcome an investigation into the impact of imported steel upon our national security, particularly given that many of these steels are imported illegally, violating our trade laws. And so we're happy to see this. I think it was a bold move by the President. He clearly set a time frame that's aggressive and it's a good thing for the industry. You asked about, in particular, how does this really impact national security. And when you talk about steel, clearly, steel plays a major role in national security. Case in point, look at the armored plate grades that we've been developing at Nucor. I mean, submarine applications, tank applications. There's numerous applications for steel in military use and it is critical to our national security. As the President said earlier today, we really don't want to be dependent upon a foreign country to provide the steel we need to defend the citizens of the United States. So I'm very excited about it. I can tell you that Secretary Ross is engaged during the meeting this morning, the signing ceremony this morning. President Trump was engaged with the industry, spoke to several of us and asked very good, pointed questions about trade and what we were specifically looking for. And we were quick to point out that all we were really looking for was a level playing field. Given that, we expressed our confidence that we could compete successfully against any country or company if we had that level playing field. So good news for the industry. We're excited about it. We've all committed to work with the President to help him understand the nuances of steel and its application in national security.

Okay. And then just a quick follow-up regarding the HSS and electrical conduit market, the 1 million tons of, I guess, capacity or volume. What percent of that is being supplied internally by you right now? And where do you think that figure could get to, say, over the next 6 to 12 months?

Currently, we are supplying approximately 75% to 80% of that product. Over the past few months, we have been collaborating with our partners to increase this to levels between 80% and 90%. I believe we will likely reach a peak around 90%. There are several factors to consider here. First, when analyzing Nucor and our sheet business, it is evident that we are focused heavily on hot band products. However, the proportion of our hot band products that are directed downstream is relatively low compared to our other steel products. This situation has presented a good opportunity for us, especially with the integration of Gallatin into the Nucor family, which also gives us a strong downstream channel for one of our larger sheet segments. This is a value-added strategy and is crucial for our profitable growth. Additionally, regarding imports related to the construction industry, due to the short lead times commonly associated with construction, this product tends to resist imports, which we see as a positive factor.

My question is about service center inventories which remain quite low. And I'm just wondering what you have heard is the explanation for that. And do you think that the industry itself could get caught unawares in terms of having to do a rapid restock in the second half?

The inventory levels are extremely low, as you indicated. Our sheet products are currently at about 1.8 months on hand, which is a record low. Plate inventories are around 2.3 months on hand, also significantly below the normal PIV rate. The factors contributing to this situation appear to stem from the service center industries being cautious, wanting to confirm that the current balance between supply and demand and its effects on pricing is sustainable in the long run, rather than just a temporary situation. They seem to be recognizing that market strength is likely to persist, which should lead to an inventory rebuild. Additionally, it's important to note that at the end of the year, service centers focus on managing their working capital, often leading to reduced demand as the new year begins. This year, they faced an unexpected surge in demand at the start of the first quarter, making it more challenging for them to replenish their inventories quickly. If you analyze their shipment data from the service centers, you'll notice they were also quite high in the first quarter. Therefore, we anticipate that they will gradually increase their order rates to restore inventories to more typical levels, and we are waiting for their orders.

Okay. And then on the scrap price outlook, it's again been really volatile. But coming off recently and people are pointing toward lower iron ore prices, particularly the seaboard market, what's your view on scrap in the second half? Is it going to track a little bit of the raw materials like iron ore? Or is it more related to pig iron? And do you see the U.S. market kind of being stable, I guess, for scrap pricing going forward?

As we see going forward, we see it more or less stable now. Of course, there's always going to be small moves up and down. But given the situation with iron ore, we don't see any major moves up. In fact, we see some downward pressure. How far is up is anybody's guess, but we think we'll see it go down. Frankly, you mentioned pig iron. I can tell you that our last pig iron buy was down from the previous buy and the negotiations for future pig iron is even lower. So we see pig iron peaking. We see iron ore going down. All of that bodes for scrap to be steady or go down slightly.

I have a question on the plate market in the U.S. right now. You flagged that in the release as being one area that drove the strength in your steel mills segment. Can you just talk a little bit about where you see the current supply-demand balance? Clearly, you had a bit of a benefit as one of your major peers had an extended outage over the past 1.5 months or so. As they come back into the market, are you at all concerned that some of the recent price momentum could begin to fade? Or do you think that underlying demand has recovered such that, ultimately, this recent price strength can be more sustainable into the back half of the year?

I would say it's a combination of several factors. Demand is improving. Additionally, the temporary absence of a competitor affected our supply side. When we consider our recent acquisition of Longview, it has significantly enhanced our supply and capacity to meet market needs, particularly in bridge and other applications. We believe that the plate market will remain strong into the second quarter. It's important to note that our trade case was quite successful, though not everything we wanted was achieved. Generally, it was favorable, and we will monitor countries where we did not get as favorable outcomes. If we notice any illegal or unfair steel imports from them, we will act swiftly. The improved demand, our successful trade cases from last year, and the increased supply capabilities resulting from the Longview acquisition all contribute to our optimism about our plate business heading into the second quarter.

You're now reporting tubular products and more information is always appreciated. But we've had two quarters now and I just wanted to probe and understand that segment a little bit better. So first question on that is, first quarter run rate for volumes, is that a good run rate going forward? Is there any seasonality there? And then second one is, pricing quarter-over-quarter went up a lot. How do we think about what drives prices for that segment? And costs, do they line up with the prices? Or how do we think about those inputs?

Well, let me start with your first question about demand and how we see that going forward. We think demand has been pretty solid, but there's a lot of tie-ins in the construction industry, obviously, with this product. And as we've mentioned several times, we see the construction industry slowly improving. We think this year, we'll see an improvement in construction somewhere in the neighborhood of 5% to 6%. And frankly, that's the Dodge report number and it is also supported by the backlogs that we see in our downstream businesses which are, for us, frankly, a better leading indicator than the Dodge numbers. So we see continued improvement in construction. That'll bode well for our HSS businesses. I would also comment that working together with the conduit business, this really gives Nucor and, obviously, our structural products, our Vulcraft products, it really enhances our business ability to supply a wide range of commercial solutions in the construction industry for steel and steel products. So we think that's going to give those businesses a boost also. Frankly, in terms of how we see them contributing to Nucor, they're two great companies that have come together. There are all kinds of synergies that we're just learning about relative to how they interact with our steel mills, how they interact with each other. A simple example would be how you can increase the length of harness on various sizes now that you have more than one facility producing that. And of course, you've got all the logistical considerations as to how you best reach customers now that we have five different facilities producing that product. So based on all of that, we think that this was a great move. Our business development team did a great job in making it happen very quickly and the teams are working extremely well with our sheet mills. We're very excited about this new growth platform for our company.

I can follow up with you later. I was trying to understand the pricing changes, especially since we have two quarters to compare for the first time in this new segment. We are seeing the tubular price increase quarter-over-quarter by almost $220 a ton, while the sheet price, due to the lag effect you mentioned, has only risen by $60 a ton. Does the tubular price typically align with hot-rolled prices? Does the cost fluctuate with hot-rolled, or is it mainly influenced by supply and demand negotiations? How should we approach this?

It's influenced by both factors. While it does have some correlation with hot band prices, I firmly believe that pricing ultimately depends on supply and demand. When demand increases and supply tightens, prices rise. Currently, the construction sector looks strong for the first quarter, and demand for our HSS product has been robust. Consequently, prices have increased. While there is some connection to hot band prices, it's important not to focus solely on that. Pricing is fundamentally about supply and demand.

Can I slip one in for Jim then on dividend, please?

Jim is waiting with bated breath.

In the past, you've said that when Nucor achieves over $1 of earnings per share, that would be when you'd start to think about factoring in a special dividend. Nucor's dividend has been rising every year, but by pretty small increments. So I'm just wondering if you had any thoughts about how you'd recommend to the board to proceed on the dividend or any thoughts that they've had on that.

That's a good question, Timna. And we think about the dividend not on a quarterly basis, but on an annual basis. So let's see how the rest of 2017 plays out and we'll think more about whether it's appropriate to increase the dividend or do something with other dividends or do other things to return cash to shareholders by the end of the year.

I had a question on the DRI business. And more so, been reading in the press that the Louisiana operations have been up and then down and then up and then down and then kind of up again. So just wanted kind of a status update there. And then also, how should we be thinking about the profitability momentum overall given the fact that there's a very favorable spread between pig iron and iron ore right now?

I'm going to start with your first question. There have been challenges in Louisiana, which is typical for a start-up, especially one involving complex technology. We encountered similar issues when we launched our plants in Trinidad. However, I want to emphasize our confidence in the technology. The challenges we faced have not stemmed from the technology or the furnace itself, but rather from auxiliary equipment. We struggled with the process gas heater, and we redesigned the top half after a major failure a couple of years ago. We are currently working on redesigning the bottom half, which just had some problems recently, but fortunately, they were not as severe. After getting that back online, we faced an issue with one of our conveyor belt lines. So yes, we've had our challenges, and we're addressing them. Again, I want to stress that the issues are not related to the technology or the furnace. In terms of technology, our Trinidad plant recently set a record for production in the quarter, and both plants are achieving world-class levels in production efficiencies, yields, and quality. Ultimately, our long-term strategy is focused on raw materials. We're confident that controlling the largest single cost of our steelmaking operations is beneficial, particularly since iron units, in various forms, account for about 60% of steel costs. As we continue up the value chain, which is one of our stated goals, we anticipate a greater demand for virgin, low-residual iron units. We see this becoming more challenging in the future due to reduced manufacturing and the degradation of existing prime scrap in the United States.

No, I agree with you, John. I was just more curious about whether you've reached a level where you think there could be some reliability, and considering the economic opportunity because the spreads currently favor the product.

With every failure, we go back in and engineer. We don't just patch it; we do it right. So I'm confident. If you look at the time lines between the failures, they are extending, which gives us confidence that we'll work our way through these issues. Regarding profitability, you're correct. We expect it to be very good for the rest of the year as the spreads continue to grow. Personally, from a strategic perspective, I believe that's a long-term benefit to our company, and we will see improvements as the years go by.

It's not a tremendous amount, but we're pricing – we're in March. But if you think about it, we started the quarter, meaning the first quarter, in January, with much lower pricing than we finished the quarter. So on average, we think the pricing will be higher. We don't think it's raising dynamically from where it was at the end of March. We think it's more of the average across the quarter will be better in the second quarter.

Just you highlighted the renewed growth in demand on the energy side and I was wondering if you could provide details with respect to which products are seeing the greatest demand and maybe which specific subsectors within energy that are driving this demand.

The U.S. rig count has increased significantly, currently at around 850 rigs, up from about 400 in the middle of last year. This represents a doubling of the number of rigs. Additionally, the steel consumption per rig has also doubled since around 2013. With both the rig count and steel consumption increasing, this is a positive situation for us. We are particularly focused on hot band at our Gallatin facility, which has always been a major supplier for OCTG. We are prepared to meet the rising demand. However, we need to monitor imports closely, especially regarding OCTG, as there is considerable pressure from Korean products. While there have been some increases in duties, we are actively assessing this issue. To summarize, rig counts have approximately doubled, and steel consumption per rig has also doubled, which indicates favorable conditions for steel consumption in that sector.

And John, you mentioned hot band, but of course, also, it benefits our bar business as well with the seamless business.

Absolutely. Good point. Thanks, John.

And one quick follow-up, the trajectory that we've seen for rigs has been pretty aggressive. Based on, I guess, your order book and quotes and what you're seeing, is there any indication that that could be slowing? Or is the momentum still fairly strong on that front? That's it for me.

Currently, we see the momentum still strong. I know OPEC is meeting, I think it's today or met yesterday. From what I understand, a decision was made to continue curtailing production and that bodes well for that business. So based on everything we're seeing and everything that we're hearing, we expect the momentum to continue.

It's Alessandro Abate from Berenberg. I have two questions, John. You've been clear about the development of the steel industry in the U.S., and it seems like there's a very positive earnings momentum extending beyond Q2. You mentioned that the inventory of sheet is at 1.8 months, and the rig count is increasing significantly. We're seeing a recovery in segments that previously lagged behind the demand for sheets in 2016, particularly in energy and early demand for mining equipment. With China and South Korea not being factors for imports, even though Chinese steel prices are undergoing a significant correction currently, the average price of imported steel should be higher due to the absence of competition from South Korea and China. It appears that the earnings momentum will extend past Q2. Regarding the issue of scrap and the potential for a decline in scrap prices, while there is certainly a possibility for that, based on the data you've provided, it looks like scrap may decrease with a strong supply and demand dynamic this time, suggesting that as price corrections happen in the U.S., the potential decrease in scrap prices could be less significant than any possible increase in raw material costs. Is my understanding correct without getting into smaller details?

There are a lot of assumptions involved. I want to clarify one point. You mentioned the steel supply challenges from China, Korea, Turkey, and other areas. I need to emphasize that this is an ongoing struggle for us. Currently, about 20% to 25% of the market share is still supplied by imported products, many of which are dumped. We are continuing to fight this issue. In general, we evaluate where steel demand originates. In the U.S., construction is the primary consumer of steel, followed by automotive and then energy. Construction demand is on the rise, while automotive, despite its current strength, may see a slight decline. However, Nucor is increasing its market share in the automotive sector, reaching 1.4 million tons last year and 1.5 million tons this year. I expect that we will hit 2 million tons by the end of 2018, indicating that automotive remains strong for us. Energy demand is also robust. Overall, the outlook for the major steel consumers looks positive. We anticipate this trend will last at least through the second quarter, which is why we've provided our guidance as we have. There are potential developments on the horizon, including an investigation that was initiated today, which could positively influence the remainder of the year. President Trump has also mentioned infrastructure, which we wholeheartedly support. The state of our infrastructure is deteriorating and reflects poorly on us. After World War II, we recognized the importance of a strong infrastructure system for national security, and now we see it is falling apart. All the factors we've discussed seem favorable for the rest of the year. Additionally, I want to highlight our investments. We've put $7 billion into our operations during this downturn and are prepared for the demand to return, releasing the earnings power we've built up over the years. We feel optimistic about the future. We usually focus on one quarter at a time, which is why we have only provided guidance for the second quarter.

If I may, just my second question related to Mexico, I mean, the venture that you are with JFE for the construction of the 400,000 tons of galvanizing steel. Is there any development there? I mean, if we take a look at the currency, I mean which is the lead indicator of a potential deterioration of trade relationship between the U.S. and Mexico, the appreciation of the Mexican peso which reflects a little bit softening stance of President Trump, seems to be a little bit more favorable to your decision to go ahead with the investment. Correct?

No, we fully plan to go ahead with the investment. We're planning a groundbreaking somewhat later this month or early next month, okay. So we're comfortable with what we're doing there, being able to supply the automotive market which is certainly growing in Mexico, and our new plant is going right in the middle of the growth. So we feel very good about the project. We're very pleased with our partners. We've been working with a great company, JFE of Japan, over the last year that we've been working with them and we find them to be very similar to Nucor in their aggressiveness in their timelines. And we continue to grow our ability to produce the automotive-grade steels. So we're excited about it. We certainly are encouraged by what's happening in Mexico and we plan to go ahead.

So you see the demand in Mexico at the moment and also for the next, let's say, 6 to 9 months extremely strong?

We do, but it's difficult to predict from one quarter to the next. It's important to remember that our investments are not made with a short-term perspective. Whether it's our DRI project, the JFE partnership, or our plate mill investments, we focus on the long-term. We don’t concern ourselves with the immediate quarters; instead, we ensure our investments are set to deliver value to our shareholders for their capital. We are confident in our approach.

I just had a quick one on the energy markets. And John, can you remind us where and kind of how you participate in that market? I would think on the hot-rolled side, it's in substrate. But maybe give us some view on how you may participate on the bar side as well or any other markets. I appreciate it.

Well, we do supply high-quality billets out of our Memphis mill that go into the seamless OCTG. And that's a good business for us and that's been a growing business for us. So you've nailed it. The substrate into OCTG, our Memphis facility with SBQ going into OCTG also. Do you want to make a comment about cold finish?

Yes. We also supply cold finish to a lot of energy applications as well.

And frankly, if you want to expand this into energy in very general terms, we can peel back and talk about, okay, we've talked about substrate and we've talked about billets. We've talked about cold finish into it. And let's not forget plate while we're at it, okay. So plate also goes into the energy market. So we're very involved in the energy markets. And that speaks to the diversity of our company and one of the great strengths of our company.

Well, let me just close by saying thank you to all of my Nucor family, our customers, our shareholders and of course, our teammates. Our success is due to your support, commitment, and hard work. Let's continue to work together and most importantly, let's work together safely. Thanks for your interest in Nucor. Have a great day.