Please stand by. Good day, everyone, and welcome to the Nucor Corporation first quarter of 2019 earnings call. As a reminder, today's call is being recorded. Later, we'll conduct a question-and-answer session, and instructions will come 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 and 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 these forward-looking statements may be found in Nucor's latest 10-K and subsequently filed 10-Qs, which are available on the SEC's and Nucor's website.
The forward-looking statements made in this conference call speak only as of this date. 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 like to turn the call over to Mr. John Ferriola, Chairman, Chief Executive Officer, and President of Nucor Corporation. Please go ahead, sir.
Good afternoon. Thank you for joining us for our first quarter earnings call, and thank you for your interest in Nucor. Other members of Nucor's executive team are also on the call today, including Jim Frias, our Chief Financial Officer, Joe Stratman, our Chief Digital Officer, Craig Feldman, responsible for Raw Materials, Ladd Hall, responsible for Sheet and Tubular Products, Ray Napolitan, responsible for Engineered Bar Products, Dave Sumoski, responsible for Merchant Bar and Rebar Products, Leon Topalian, responsible for Beam and Plate Products, and Chad Utermark, responsible for Fabricated Construction Products. Last week, Joe Stratman announced his plans to retire from Nucor on June 8th after more than 29 years of dedicated service to Nucor. Joe has been an exceptional and resourceful leader who has made outstanding contributions throughout his career with Nucor, which has included key roles in our steel, Raw Materials, and Steel Products businesses.
Joe also served as our Executive Vice President of Business Development, and most recently, as our Chief Digital Officer. Joe, thank you for your leadership. You have played a key role in positioning Nucor for continued success in the years to come. Speaking personally and on behalf of our 26,000 teammates, we want you to know that you will be missed and that we wish you and Jill the very best as you begin this new chapter in your life. Effective May 19th, Mary Emily Slate will be promoted to Executive Vice President and will assume responsibilities for the Tubular Products group, logistics, and certain joint ventures. Mary Emily is a dynamic leader with 19 years of experience at Nucor in senior sales and operational management roles. We look forward to her building on the success that Ladd Hall and his team have achieved in Tubular Products.
Ladd Hall will continue to serve as Executive Vice President of Sheet Products. Ray Napolitan will assume responsibility for Nucor's digital initiatives while also continuing in his role as EVP of Engineered Bar Products. Before we discuss our strong first quarter results, I want to emphasize that safety is number 1 priority for everyone on the Nucor team. While we consistently lead the industry in safety outcomes, our goal remains zero incidents at every Nucor facility. We will keep working to achieve this goal by continuously identifying and mitigating safety risks. That is the mindset that will drive our success. By working together the Nucor way, I have no doubt that we can achieve our goal of zero incidents.
While I'm on the subject of safety, I would also like to congratulate and thank our teammates at Nucor Gallatin for being recognized as a VPP Star site by Kentucky's Division of Education and Training. Nucor Gallatin is only the 13th site to be awarded this designation by the Commonwealth of Kentucky. For those of you who are not familiar, Kentucky's VPP, or Voluntary Protection Partnership Program, is similar to the federal government's OSHA VPP program. These programs are the gold standard for implementing and maintaining safety and health management systems. To achieve VPP status, companies must meet rigorous qualifying criteria and undergo an extensive on-site evaluation. After a 2-year process, Gallatin is the 24th Nucor division to achieve this impressive recognition. Each of our VPP Star divisions must demonstrate continuous improvement in safety and health in order to maintain the designation going forward.
Congratulations again to my teammates at Gallatin on this outstanding achievement. My continued thanks to all Nucor teammates who put safety first every day. Let's continue to set the bar higher for all manufacturers and lead the way towards better safety outcomes for all. Moving on to our first quarter results. Nucor achieved significant year-over-year improvement in our first quarter earnings, again demonstrating the value of our position as North America's most diversified producer of steel and steel products. The steelmaking operations that contributed most significantly to the improvement over the prior year include our plate, rebar, merchant bar, engineered bar, and beam mills. Several of our downstream businesses also achieved earnings gains compared to the first quarter of 2018, including our metal buildings, joist and deck products, and piling products. Jim Frias will discuss these results and outlook in more detail shortly.
There's been a lot of commentary about capacity expansion plans announced by the U.S. steel industry. While we will not speak to the plans of other participants in our industry, Nucor's long-term strategy for profitable growth is both disciplined and sustainable. Sustainability is achieved by making strategic investments that position Nucor to deliver a superior value proposition in cost, quality, and service to our customers. Discipline is driven by Nucor's laser focus on being effective stewards of the capital that our shareholders entrust to us. We only deploy capital on growth projects when we identify high-return opportunities that will create value for our shareholders. Importantly, our senior management incentive compensation plans are directly tied to Nucor's return on equity and return on capital performance, aligning pay with performance and value creation. We have announced 10 significant growth projects.
We anticipate that six of these projects will begin operating this year, including the new specialty cold rolling mill at Nucor Steel Arkansas, which came online during the first quarter. We expect all 10 of these projects to be in operation by 2022. These projects will create approximately 1,500 direct jobs, and we believe at least 7,500 indirect jobs. With respect to the six projects set to begin operations this year, three projects expand the value-added capabilities of our flat rolled steel operations, and the other three projects improve the competitive position of our rebar and merchant bar long products businesses. Let me provide more detail about the new specialty cold rolling mill at Nucor Steel Arkansas and two others that will start up this summer. First, our new specialty cold rolling mill at Nucor Steel Arkansas had a successful startup in March.
We have already delivered to customers prime product, both pickled and oiled, as well as fully processed cold rolled product, and production continues to ramp up. This flexible cold reduction mill expands our capability to produce motor lamination, high-strength low-alloy, and advanced high-strength steel products. Congratulations to the entire Nucor Steel Arkansas team on a very successful startup. The second project, Nucor Steel Marion's new in-line rolling mill, is scheduled to start up in the third quarter. The newly installed reheat furnace is running well and delivering the anticipated reductions in energy use. These upgrades will significantly improve Marion's cost structure and position the mill as the leader in the regional rebar market that it serves. Third, we expect our sheet mill in Kentucky, Nucor Steel Gallatin, to begin producing pickled and oiled coils in July and galvanized coils in August.
The mill's new 72-inch galvanizing line will be the widest hot-rolled galvanizing facility in North America. It expands our capability to serve the automotive and other value-added markets. Three other projects, our joint venture galvanizing line with JFE Steel in Mexico, the merchant bar mill expansion in Illinois, and the new rebar micro mill in Missouri, are all on track for startups later in 2019. I also should mention that we have recently received our permits and commenced construction on our Frostproof Florida rebar micro mill. We are targeting startup there in mid-2020. In March, we announced our plans to build a new state-of-the-art plate mill in Brandenburg, Kentucky. This is a strategic move to solidify Nucor's position as the leader in the U.S. plate market, not just in terms of volume, but also quality, reliability, and cost.
The new mill will give us the ability to produce 97% of the plate products consumed in the United States, including specialty high-margin grades. Our site on the Ohio River is located in the center of the country's largest plate-consuming market, strengthening our ability to serve our customers with lower freight costs and superior on-time delivery. Further, we will be in a region with abundant, low-cost scrap that is well covered by our David J. Joseph scrap business. We are excited about this investment in our entire pipeline of value-enhancing growth projects. Nucor has achieved success over the past five decades by building market leadership positions, and we have done this by providing our customers with unmatched performance in quality, cost, product range, and on-time delivery. At Nucor, we build powerful partnerships that deliver powerful results.
The more successful we can make our customers, the greater success we will have as Nucor shareholders and teammates. Jim Frias will now provide more specific detail about our first quarter performance, as well as our outlook for the remainder of this year. Jim?
Thanks, John. Nucor reported first quarter of 2019 earnings of $1.63 per diluted share. Included in these results was a benefit of $0.08 per diluted share related to the gain on the sale of an investment in our Raw Materials segment. Excluding this non-recurring gain, first quarter performance exceeded our guidance range of $1.45-$1.50 per diluted share. As John discussed, Nucor continues to benefit from our diversified business model. Another key strength of Nucor's business model is strong through-the-cycle cash flow generation. First quarter 2019 cash provided from operations was $651 million, even after funding just over $300 million in profit sharing earned by Nucor teammates in 2018. Inventory was a source of about $108 million in the quarter, even as net sales were approximately 10% higher year-on-year.
Consistent with Nucor's disciplined approach to capital allocation, other major uses of cash during the quarter were capital expenditures of $289 million, dividends of $123 million, and stock repurchases of $73 million. We returned almost 40% of net income for the quarter to our shareholders, while also investing for long-term profitable growth. We ended the quarter with $1.6 billion in cash on hand. Nucor teammates are executing the current stages of our long-term growth strategy. We therefore expect to accelerate our capital spending as the year progresses. For the full year of 2019, we continue to estimate that our capital expenditures will total approximately $1.8 billion. Nucor's financial condition remains strong. With total debt outstanding of $4.3 billion, our gross debt-to-capital ratio was 29% at the end of the first quarter. Our $1.5 billion unsecured revolving credit facility remains undrawn and does not mature until April of 2023.
It is worth noting that our first quarter results included $19.6 million of pre-operating and start-up costs related to strategic investment projects. That is an increase from $17.4 million in the fourth quarter of 2018 and $2.3 million in the year-ago first quarter. Now turning to the outlook. We expect 2019 to be another robust earnings year for Nucor. We continue to be encouraged by the overall strength of our domestic end-use markets. In fact, we see stable or improving demand in 21 of the 24 end-use markets we monitor. One market, power transmission, is seeing a meaningful decline due to the completion of major grid extension projects in 2018. Automotive OEMs and automotive suppliers comprise the other two markets that we expect to decline for the year.
However, we anticipate that the decline in automotive unit volumes will be moderate, and that Nucor will actually grow its shipments to these customers in 2019. Of course, the largest source of demand for our products are applications in non-residential construction, which appears set for another solid year in 2019. Earnings in the second quarter of 2019 are expected to be similar to the first quarter, excluding the gain on the sale of the investment. We expect similar linked-quarter performance in the Steel Mills segment, as improving margins for structural and bar mill products offset weakening margins at our sheet and plate mills. The Steel Products segment is expected to achieve significant improvement in the second quarter over the first quarter, as typical seasonal patterns and improved weather conditions benefit construction activity.
The performance of the Raw Materials segment is expected to decline in the second quarter compared to the first quarter due to further margin pressure at our direct reduced iron, or DRI, plants. Thank you for your interest in our company. I will now turn the call back over to John.
Thanks, Jim. Before we take questions, I wanted to make a few remarks about trade. Nucor has long maintained, and more importantly, consistently demonstrated, that when operating on a level playing field, we can successfully compete with any steel producer in the world. Free and fair trade is a critical underpinning to the continued success of both Nucor and our customers. While much of the focus has been on Section 232 steel tariffs, prosecuting trade cases remains vital to ensuring a level playing field.
For that reason, Nucor applauds the recent determination by the U.S. International Trade Commission that there is reasonable indication of material injury from imports of fabricated structural steel from China, Canada, and Mexico that are subsidized and sold into the United States at less than fair value. More effective enforcement of rules-based trade has made a significant contribution to the improved performance of the U.S. economy in recent years, benefiting the steel industry and the entire domestic manufacturing sector. 2019 is going to be another exciting year for our company as we continue to bring new projects online. We will continue to pursue profitable growth opportunities, and we remain confident that Nucor's diversified business model will enable us to continue to outperform the industry over the course of the economic cycle. Thank you to our more than 26,000 teammates for the way you execute our strategy.
Thank you for the work that you do every day to build a safe and more profitable Nucor. I'd also like to say thank you to our customers. We appreciate the trust you place in Nucor, and we will continue to do our very best to earn it with every order. Finally, thank you to our investors for entrusting us with your valuable capital. We would now be happy to answer your questions. Operator?
Thank you. We'll take our first question today from Matthew Korn with Goldman Sachs.
Hello, good afternoon, John and everyone. Thanks for taking my question.
Yes, Matt.
I've got two for you, one near term, one a little bit longer term. First is, on expectations the next quarter, you mentioned thinning margins for sheet and plate and offset by better profitability in structural and bar. Is there any catch-up potential for the weather delays seen against the first quarter? My second question is what you just mentioned, John, on that fabricated structural steel trade case. How do you think about the opportunity that that could bring Nucor? How much do you sell right now in terms of tonnage and revenue today, what that represents, and is that a market where you had been seeing increasing pressure from imports? Thanks a lot.
I'll tackle the first question first, that's on volumes going into the second quarter. We've mentioned that we see demand pretty consistent. In fact, maybe a little bit growing on the sheet side, on the hot band side, when we look at our order entry over the last couple of weeks. Marginal growth, small growth, but a good sign. As we go into the second quarter, we expect the volumes to be about the same, particularly in those products that you mentioned. Our downstream businesses might see a little bit better volume based on the weather conditions that are improving. We had a long winter. We had a very wet spring. It seems to be correcting now, so we might see a bit of a pickup in our downstream businesses.
Overall, I think going into the second quarter, I would say our volumes are going to be pretty consistent. In terms of the second question, remember, first of all, that this is a preliminary position, so we don't have a final ruling on this yet. We are optimistic that we will get a positive outcome in the final determination. I will tell you that this could be very good news for us. We sell about 50% of our beam structural products into fabricating businesses. That's about 1 million tons a year that we sell into fabricated steel construction. It hurt. It hurt on demand, it hurt on pricing, and we think that that's a result of truly dumped and illegally and unfairly traded products coming in. Canada, Mexico, and China being the three biggest violators of our trade laws in this product.
We see it as a big plus if we get a positive outcome, we're confident we're going to get a positive outcome, and we'll just wait to see what happens.
Got it. Thanks. Good luck for the year.
Next, we'll hear from Martin Englert with Jefferies.
Hi, good afternoon, everyone.
Good afternoon.
Can you provide a little bit of commentary, given the recent flooding on the river system? Maybe discuss how this has impacted your material sourcing and if it's had any temporary implications for the input costs for the company.
Overall, we've done quite well through the flooding. I'd say our most seriously impacted plant was our Nebraska facility, where we had significant flooding in the division. We lost a bridge that we use for rail transportation in and out of the town of Norfolk. I got to tell you, the team there did a great job responding to the crisis. We had minimal impact, if anything, over the course of the month. In general, when you talk about the river, in terms of raw materials coming in and out, there really hasn't been much of an impact at all. The weather's been pretty good in terms of the flooding. We haven't had too much of an issue, a little bit on the Mississippi, but nothing that's impacted our plants, either in shipments going out or raw materials coming in.
Okay. Thanks for the detail there. If I could, one other. Within the release, you did highlight the internal growth initiatives, but also called out other growth opportunities. Any more detail you could provide around this? Would it be something focused on the core steel segment, domestically based or something else?
Anything that was outside of what we mentioned specifically in the opening comments, we would not be able to comment on.
Okay, excellent. Congratulations on the quarter.
Thank you.
Chris Terry with Deutsche Bank has our next question.
Hi, John and team. Yeah, just to follow up to that last one, maybe more conceptually, the comments at the front around the other potential growth opportunities. These are independent of the 10 projects that you've spoken about. I just wondered if you could comment on that. Secondly, just on the guidance for next quarter, I know you touched on the volumes you expect to be flat to potentially a touch up. I would've thought that spreads would still be widening, so that appears conservative on the guidance. Just wondered if you could comment on that as well. Thanks.
First of all, on the comment about potential growth opportunities outside of what we mentioned, it's a general statement. We are constantly looking for good opportunities to grow our company profitably. You've heard me mention many times our five drivers of profitable growth as we are constantly on the lookout for opportunities that fit those five drivers of profitable growth. We continue to grow the diversity of our company, and we take great pride in the fact that we're the most diversified steel and steel products company in North America for sure. We think that brings great value to our customers and to our shareholders. We would continue to look for opportunities that expanded that and that met with the criteria we've established in our five drivers of profitable growth. Beyond that, I really can't say anything more specific.
In terms of the earnings going into the second quarter, what we said was that it'll be similar, I think that's really all we can say at this time. We're in a very cyclical business, things change rapidly. As we see the second quarter right now, we see the earnings, the volumes to be about the same. We see the earnings to be similar. That's how we view it right now.
Okay, thanks.
Next, we'll hear from Curt Woodworth with Credit Suisse.
Thanks. Good afternoon, John and Jim.
Good afternoon, Curt.
First question is just on working capital management. If I look at the last two years between accounts receivable and inventory, it's been about a $2.8 billion cash outflow, which I understand you're gonna trend up just given what the pricing did, and what's going on in the market. It would seem that there's a significant opportunity to get working capital back out of the company. I just wondered if you could address that given sheet pricing's back down basically to where it was a year ago.
Yeah, this is Jim. Let me answer that question. Our volumes of inventory and receivables didn't go up in terms of days on hand. They went up commensurate with the volume of business that we were conducting. To the extent receivables went up, average prices were up. We're still collecting just over 30 days to collect our receivables. There's not an opportunity to shorten the collection of receivables. You're right, if prices were to fall further, we'd get a benefit. In fact, if you think back to 2015, we had a pretty weak earnings year as prices fell dramatically, but we generated very strong cash from operations because of working capital liquidation. The inventory side, of course, when steel prices fall down, scrap prices fall down. The overall cost of all of our inventories gets lower.
Of course, we do lower our volumes of inventories a little bit when business activity is at a lower level. Yes, in a severe downturn, there's an opportunity for some shrinking working capital. If we look at what just happened in the first quarter, working capital was fairly neutral, whereas last year it was a drag on earnings of several hundred million dollars, maybe $600 million. What we're seeing right now is more of a stable environment for working capital, whereas last year it was building with expansion of margins.
If I look at inventory days, you finished last year at 82. The year before that, you were at 73, 66, [37-53].
We talked a little about this at year-end quarter. There was a little bit of shipment delay with some of our customers at year-end, and there was also an issue with the supply chain with raw materials. We were a little heavier than we wanted to be on pig iron. We've been working that down. We'll probably work it down a little bit, but it's not a huge opportunity. I would view it as still working capital's gonna be relatively flat as we go through the middle part of the year.
Just one follow-up on automotive. John, with some of the investments you're making on the galvanized side, I know the company's already had pretty good success on gaining auto share. Can you just talk to your expectations for auto share growth with these new investments? I think you were targeting about 1 million tons of auto sheet, either this year or last year. If you could just update us on sort of the amount of OEMs you're engaged with now versus 1 year or 2 ago, that would be helpful. Thank you.
We mentioned in the earlier statements that one of the markets that is declining as we go into this year is automotive. We expect it to be down somewhere around the 16.8 or 16.9 level compared to 17.2 last year. The good news is we continue to grow our market share in the shrinking markets. We have a larger piece of a smaller pie. You're right, a lot of the investments that we're making will continue to allow us to grow our market share in those areas. Specifically, I would mention the cold mill project at Hickman. I would mention the Gallatin expansion project. That's another one that's going to get us into automotive product. Going forward, we see our market share continuing to grow in automotive. You asked specifically about where do we see us currently, and we'll do about 1.6 million tons this year.
By the end of the year, I think we'll be operating at a pace of about 2 million tons per year. At an annual rate of about 2 million tons a year by the end of this year. We're really excited about the penetration we've made into automotive. You asked about what companies we are participating with. I'm not going to give specific names, but I will say that basically, virtually all of the 14 OEMs we do business with today, and we're really excited about that.
Great. Thank you.
Our next question comes from Timna Tanners with Bank of America Merrill Lynch.
Hey, good afternoon, gentlemen.
Good afternoon, Timna.
I'm hoping you can help me connect the dots on the volume discussion we've been having. If I look at your Q1 volumes, just looking at the categories you give us, got 5 million tons. If I look at the first half of last year, it was 10.7, let's call it. If you're flat into the second quarter, then you're declining substantially year-over-year. You've told us that most of your end markets are going up nicely and auto will be flat. I'm just struggling with how to understand that. Is there something we're missing on the weather side? Are customers not buying according to their demand? Can you help me understand that?
Well, a couple of comments. The first one, your last point is exactly correct. There's a lot of things going on in the market today. Demand remains strong, but we see a lot of things happening. One example I would give you is that although the service center inventories are coming down quickly, and they are getting to pretty low levels, there's still a good amount of inter-sales between service centers as they continue to work off the numbers from the end of last year. You see some of that activity taking place. The weather, as I said, impacted the first half of the year. We see that clearing up now as we go forward. The other issue that I would give you is, as we see scrap coming down, our customers tend to hold off waiting to see what's going to happen with scrap.
Personally, I believe there's a lot of pent-up demand. People are waiting to see what's going to happen on scrap and in other areas. Remember the basics. Demand continues to be good. Imports continue to be lower than they were last year, and they continue to be down, okay, year-over-year for certain. At some point, we do believe that we're going to see the volume start to pick up as we go through the second half of the year. When we were talking about the overall volume being consistent year to year, that's over the course of the year. We think it'll pick up in the second half. At the end of the day, I can tell you that as we said in the opening statement, we look at 24 end markets. We talk to these customers all the time, and they are very optimistic.
Our customers are very optimistic about what's going on in the marketplace. The final point I would make is that some of our customers last year, they got a little bit heavy in their inventories because of hedge buying. They thought they'd get ahead of the 232. They got some heavy loads there that they're still working their way through. A lot of things going on, Timna, but at the end of the day, I look at markets, I look at what our customers are saying. Frankly, one of the things that I would point out that I think is often missed by the market and some analysts is we participate in so many of the downstream markets that we sell into that we get a really good feel for what's happening in those markets. Obviously, in rebar fabrication and metal buildings and in tubular.
We, being in those markets, have a good sense of what's happening in those markets. We still feel optimistic about the demand that we see in those markets as well as in our steel markets.
Okay, cool. Maybe
I don't know if that helped you connect the dots.
Yeah, I mean, it helps. I'm still a little confused, and I'm confused about the next area, maybe the same answer, but on price. We talked about volume, but on price, I'm not gonna hopefully put you on the spot, prices have been going down despite demand going up and more on the flat rolled side, I recognize, and some of it's scrap. Why are domestic mills, I'm gonna have to repeat myself here, why are the domestic mills charging at or below landed import prices if demand is so good and imports are down?
One of the reasons I would give you is that there's some startup mills. I'm not going to speak specifically to any competitor, but when you have new people coming back into the market, they've got to earn their way into the market. Sometimes you might even say they've got to buy their way into the market. We see some of that going on with new entries into the marketplace. Obviously, when you start up a mill or restart a mill, there's issues with some quality and deliveries and so forth that force you to be a little bit lower price to gain the market share you're looking to gain. That puts a drag onto the market.
Obviously, and as I mentioned in the first part of my answer, scrap pricing going down leads to an expectation by buyers that there'll be a better price tomorrow than there is today. They hold back. That forces us to be a little bit more responsive on pricing. It's not always a case of pricing following exactly what's happening on volumes and demand.
Yep.
I will tell you that when you look at that relative to the fact that demand is strong, scrap pricing is going down, and even if steel pricing is going down, the metal margins, we think, are going to be good, maybe slightly improving as we go forward. Again, we're still pretty optimistic about the market. One of the things that I'm asked often is how do I compare this year to last year, and I answer by saying, "This is a good year. We're going to have a really good year." Will it be as good as last year? Maybe not. I'll tell you what, it's going to be a lot better than most of the years we've had in the last 10 years. That's for sure. It's going to be a good year.
Okay, helpful. If I could just ask one last one. Can you talk a little bit more about the Raw Materials segment? Because I know on the last call you had said that in the second half there were going to be some outages. I'd already adjusted for that, but now you're talking about a margin squeeze in DRI, and I'm just wondering if you could elaborate a little bit more on what's going on there and what the bigger picture is. I think if iron ore prices are going up, is it just a question of not being able to pass that through, or can you detail that a little more? Thanks.
When you talk about our raw material side, you're talking about DRI specifically, I would assume, okay? The DRI plant in Louisiana, just to set everyone's mind at ease, that has been running very well. There's not been an issue with our operations there. The issue on performance is the fact that we sell our DRI to our home mills at what the pig iron pricing is. Pig iron pricing has been coming down, of course, our selling price for the DRI, adjusted for value-in-use , must be going down also. That's been the biggest impact in the first half. We did have a short outage, I think it was about 12 days, where we had a valve fail. It was not a major issue.
We did not have to take it offline and do all the things that we do to cause weeks out of service. We did have a small outage of about 12 days, but that was not a significant impact. It was basically the fact that pig iron pricing is going down, DRI pricing is going down. Now, that's bad news on our DRI side. Bear in mind that we produce about 3.5 million tons of DRI. We buy about 3.5 million-4 million tons of pig iron. What we lose on the bananas, we kind of make up on the tomatoes a little bit. It's a nice hedging situation where we do lose it on the DRI, but it's nice to get the better price on the pig iron.
Okay.
One more point. You did mention the second half, and I do want to give everyone an update on that. We did mention that there would be a 60-day outage. We're going to be down probably towards the end of August, middle to end of August, and we'll be down for 60 days. It's going to make major repairs to our furnace vessel, to the control systems, and to the refractory, to deal with the reliability issues that we've had in the past in those areas. There is one more major work that we have to do, which will be towards probably early next year, and that'll be on the material handling side. Right now, as you know, the big problem that we've always had is with the process gas heater, and that's the major repair that we're making.
The second issue we've had in the past, probably the number 2 issue with reliability, was our refractory, and we're also going to be doing that during the 60-day outage. At the beginning of next year, we will not have a major impact to the operation, but we will be doing another large project on our material handling side to improve efficiencies.
Thanks.
You're welcome.
Our next question comes from Philip Gibbs with KeyBanc Capital Markets.
Hey, thanks for taking my questions. Good afternoon.
Good afternoon, Phil.
Question just to go a little bit further on what Timna was asking. Am I correct in looking at the profitability for the Raw Materials segment as being $53 million, including the $34 million gain? The core number was about $20 million. I think off of that number, you're saying that the results are going to be even weaker in the second quarter for the DRI business, which would likely suggest DRI is going to be in a strongly negative or a loss position. Some of the quarters over the last several years, we've had some positives there, some we've had negatives, and I know you're working to rectify that.
Should we be thinking that over the course of the cycle, given there will be times when iron ore is expensive and pig iron isn't, like it is now, that this asset will be essentially just a cost center for you through the cycle?
No, I'm not sure it'll be a cost center. I think you said it more correctly at the beginning when you said as pig iron pricing changes, goes up and down, the profitability of the DRI facility will go up and down. Again, as I said earlier, one of the values and one of the reasons we did this was that it does provide a balance for us, a hedge for us against pig iron pricing when it starts to go up. Yes, there will be times when the DRI pricing is under pressure because pig iron pricing is under pressure, but also there'll be times when it's reversed. It's going to change as pig iron pricing goes up and down.
John, it also keeps pressure on prime scrap prices.
Yeah.
We get a benefit there as well by having the DRI there. Yes, DRI did not perform as well in the first quarter as it did for most of last year. It'll probably perform slightly worse in the second quarter. It's not about operations, as John earlier said. It's really about pig iron prices and iron ore prices. Those are getting tighter. There's not as much spread to make money as there used to be.
Is there availability issues in terms of the pellet supply stream? I would assume you likely get some from Brazil and some from Europe, because that's where the main pellet suppliers are at. Are you seeing any tightness in supply right now, or has that been okay?
It's definitely getting tighter. There's no doubt about that. You've heard about the problems that Vale has had. Remember that we're one of the largest buyers, okay? We're certainly a very reliable buyer and a reliable payer. We've had a long-term relationship with Vale and several other suppliers. Although there's a tightness, we have not had any issue in getting what we've needed to keep our operations running.
Thank you.
That will conclude today's question and answer session. I'll now turn the conference over to John Ferriola for any additional closing remarks.
Let me close by saying, again, I want to express our appreciation to our shareholders, say thank you to our customers. We firmly believe that together we can build powerful partnerships and get powerful results. Finally, to my Nucor teammates, as always, thank you for what you do for Nucor every day, and most importantly, thank you for doing it safely. Thank you all for your interest in Nucor. Have a great day.
That will con-