Nucor (NUE ) has been one of the great American industrial success stories of the past two decades -- one of the few U.S. steel companies that proved it could compete on the global stage with low-cost foreign competitors. And when steel prices surged last year, Nucor was suddenly minting gold: In 2004, the Charlotte (N.C.) company saw profits rise seventeen-fold, to $1.1 billion -- a performance that earned it the No. 1 spot in the latest BusinessWeek 50 rankings.
BusinessWeek Atlanta Bureau Chief Dean Foust recently sat down with CEO Daniel DiMicco to discuss Nucor's amazing odyssey. Edited excerpts of their conversation follow:
Q: You've had an amazing run over the years for a company that if I'm correct, didn't actually start out in the steel business.
A:This was a company that was not in the steel business, but made nuclear testing equipment. It was called the Nuclear Corp. of America.
Let's jump forward to when we got into the steel business. Our first foray into steel was in fabricated products, a steel joist business and that decision was made by [then-CEO] Ken Iverson, who was put in charge of a company going down the toilet. Our first move into steel was an acquisition. We bought two steel joist plants -- one in Alabama and the first one in Florence, S.C. But we didn't have a steel mill.
Q: And you decided you to would produce your own steel for the joists you made, right?
A:We had problems with supply, both from overseas or from U.S. steel mills. Ken got pretty upset and said, "To hell with it, I'm gonna build my own steel mill." So he built a small steel mill down in South Carolina. Our growth in the steel business was really formulated upon using newer technologies that other people weren't using.
And it wasn't the norm for it to be nonunion and highly performance oriented -- with two-third of the workers' pay coming from their bonus, whether you were a guy on the shop floor or the CEO. So a very unique culture grew out of this. We had a chance to do it right -- or at least a different way, which turned out to be a very good way.
Q: Why did you start making acquisitions in 2001?
A:About that time the industry goes into a funk because of a flood of imports that destroyed the market price. We had to fight some battles but it created an opportunity for companies like Nucor who had [used] sound financial practices over the years -- kept a low debt ratio throughout good times and bad.
We looked around, and we said, "You know, the best way to invest the shareholder dollar today is not to build [our own steel mills]. It's not to add capacity just to get bigger. But there are some really good opportunities out there with companies that for one reason or another have fallen on bad times -- usually due to mismanagement -- but also due to the outside forces that magnified the mismanagement.
Q: In every case were the companies you were acquiring minimills?
A:Yes. We bought Auburn Steel first, bought Birmingham [Steel], we bought the former Trico sheet mill -- which is now Nucor Decatur -- and we bought a few other assets as part of it. Some of the stuff we didn't restart, some of it we left shut down, roughly about 2 million tons of capacity that we acquired we don't run today.
So yes, we bought companies that were basically minimills, cultures that already had some knowledge of "pay for performance," not to the extent we did. They might have a 10% to 15% [bonus] kicker, while ours was a two-thirds [bonus] kicker. We followed that strategy throughout these years, and we continue to look for opportunities out there. But we're going to stick to our basic acquisition tactics: Don't overpay, make sure it's culturally compatible, and it's in a business that you understand now.
Q: Were there times you were able to walk away from the legacy pension costs of the companies you acquired out of bankruptcy?
A:No legacy issues were involved in any of them.
Q: So it wasn't a case where you were handing the government responsibility for pensions?
Q: So how do you run these companies more efficiently than the prior management? Or does it just come down to the acquisition price, the fact that you're buying these companies out of bankruptcy for pennies on the dollar?
A:You hire great people, you bring companies into the Nucor culture, you change the way they operate. You focus on being a low-cost producer, you focus on being efficient, you focus on instituting your "pay for performance" system. Time and time again has shown with every asset that we ever bought, once the Nucor culture is put in place, it far outperformed anything that has been done in the industry. Not by a little bit, but by 30%, by 40%, 100%.
And it's a testimony to the quality of people that existed in the companies that we acquired, testimony to the quality of people that were with Nucor who went to these operations to bring the culture there. It's a testimony to the system that we have, it's a testimony to paying for performance.
It's also a testimony to the fact that we follow our acquisition strategy and didn't deviate from our three basic tenets and were able to spend the shareholder dollars efficiently to make all this happen.
Plus, some of these companies didn't have any money for a long time. They were just barely holding things together with bailing wire, and we were able to go in and give them the opportunities not only to do the maintenance work that was necessary but to upgrade their facility. There was a lot of opportunity to bring efficiency to these operations and to bring our technology to improve the operation.
Edited by Patricia O'Connell