Worthington Reports First Quarter Fiscal 2014 Results

Marketwired

COLUMBUS, OH--(Marketwired - Sep 25, 2013) - Worthington Industries, Inc. (NYSE: WOR) today reported net sales of $692.3 million and net earnings of $54.6 million, or $0.76 per share, for its fiscal 2014 first quarter ended August 31, 2013. In last year's first quarter, the Company reported net sales of $666.0 million and net earnings of $34.0 million, or $0.49 per share. Net earnings in the current quarter include an $11.0 million pre-tax gain and a $4.5 million favorable tax adjustment related to the acquisition of an additional 10% interest in the Company's laser welded blanks joint venture, TWB, as described under Recent Business Developments below. The impact of these two items netted with the restructuring and impairment charges, increased earnings by $0.18 per share.   

Financial highlights for the current and comparative periods are as follows:

(U.S. dollars in millions, except per share data)

       1Q 2014        4Q 2013         1Q 2013
Net sales   $ 692.3     $ 704.1     $ 666.0
Operating income     38.6       33.5       33.4
Equity income     27.0       21.0       22.6
Net earnings     54.6       33.5       34.0
Earnings per share   $ 0.76     $ 0.46     $ 0.49
                       

"We had a very good quarter with solid results from our Steel Processing and Pressure Cylinders businesses and several of our joint ventures," said John McConnell, Chairman and CEO. "We saw strength in volumes from the automotive, agriculture, heavy truck and commercial construction markets in Steel Processing. The oil and gas business in Cylinders had a very good quarter and the transformation's operational improvements are also providing a lift to this business. Engineered Cabs has stabilized while still experiencing softer volumes from key customers." McConnell added, "We also had excellent contributions from our joint ventures with WAVE, ClarkDietrich and TWB leading the way this quarter." 

Consolidated Quarterly Results

Net sales for the first quarter were $692.3 million, up 4% from the comparable quarter in the prior year, when net sales were $666.0 million. An increase in volume driven by recent acquisitions was partially offset by lower average selling prices, primarily in Steel Processing, which were affected by a shift in product mix.

Gross margin for the current quarter was $111.0 million, compared to $93.7 million in the prior year quarter. The $17.3 million increase was primarily the result of the recent acquisitions, a more favorable product mix in Pressure Cylinders and lower inventory holding losses in Steel Processing.

SG&A expense increased $12.1 million over the prior year quarter driven by the impact of acquisitions and a $2.0 million legal accrual in the current quarter.

Operating income for the current quarter was $38.6 million, compared to $33.4 million in the prior year quarter as the improvement in gross margin more than offset the increase in SG&A expense. Operating income in the current quarter also included an impairment charge of $4.6 million related to certain non-core steel processing assets and net restructuring gains of $4.0 million driven primarily by a gain on the sale of a warehouse facility in Detroit, Mich.

Interest expense was $6.2 million for the current quarter, compared to $5.3 million in the comparable period in the prior year, primarily due to the impact of higher average interest rates due to an increase in the percentage of debt that is long-term.

With unconsolidated sales of $423.5 million, joint ventures contributed $27.0 million in equity income in the current quarter, a $4.3 million increase from the comparable quarter in the prior year. All joint ventures posted positive results, led by WAVE, ClarkDietrich, and TWB, which contributed $19.7 million, $2.8 million, and $1.8 million of equity income, respectively. The equity portion of income from ClarkDietrich and WAVE exceeded the prior year quarter by $2.4 million and $1.3 million, respectively. TWB's contribution to equity income decreased $0.8 million, reflecting only two months of activity in the current quarter as this joint venture became consolidated on August 1, 2013 upon our acquisition of an additional 10% interest.  

Miscellaneous income includes an $11.0 million non-cash gain on the write-up of the investment in TWB to fair value. This was the result of acquiring an additional 10% interest in the joint venture.

Income tax expense of $13.9 million in the current quarter decreased from $16.1 million in the prior year quarter as the impact of higher pre-tax earnings was more than offset by a $4.5 million favorable tax adjustment. This adjustment resulted from the impact of acquiring control of TWB on the deferred tax liability related to the unremitted earnings of its Mexican operations. The current quarter reflects an estimated annual effective tax rate of 28.9% compared to 32.6% for the prior year quarter.

Balance Sheet

At quarter end, total debt was $469.2 million, down $51.8 million from May 31, 2013, due to lower short-term borrowings. As of August 31, 2013, the Company had utilized $40.0 million under its trade accounts receivable securitization facility and $18.0 million was drawn on the Company's $425.0 million revolving credit facility.

Quarterly Segment Results

Steel Processing's net sales of $402.4 million were up 5%, or $17.4 million, from the prior year quarter as higher volumes resulting from the consolidation of TWB and increased sales in the agriculture and heavy truck markets were partially offset by the impact of lower average selling prices due to a shift in product mix. The mix of direct versus toll tons processed was 58% to 42% this quarter, compared with a 54% to 46% mix in the comparable quarter of the prior year. Operating income increased $6.0 million, driven almost entirely by lower inventory holding losses.

Pressure Cylinders' net sales of $216.9 million were up 12%, or $22.7 million, from the comparable prior year quarter. Operating income was $19.5 million, up $4.4 million. The increase was the result of the recent acquisitions.

Engineered Cabs' net sales of $48.5 million were down 25%, or $16.0 million, from the comparable prior year quarter driven by lower volumes and the impact of lower average selling prices due to mix. Operating income decreased $5.0 million driven almost entirely by lower volumes from key customers, who had lower demand during the quarter.

The entities included in "Other" are the Construction Services and Energy Innovations operating segments, as well as non-allocated expenses. Operations in the "Other" category reported net sales of $24.5 million, an increase of $2.2 million from the prior year quarter mostly due to the Energy Innovations business. The "Other" category reported a combined loss of $3.2 million, which included a $2.0 million legal accrual.

Recent Business Developments

  • On July 31, 2013, the Company acquired an additional 10% interest in its laser welded blanks joint venture, TWB, increasing its ownership to 55% and becoming the controlling partner. As a result, 100% of TWB's results are now consolidated with the Steel Processing business segment, with the minority member's portion of earnings shown as earnings attributable to non-controlling interest.
  • During the quarter, the Company repurchased a total of 880,500 common shares for $30.5 million at an average price of $34.66.
  • On September 25, 2013, the board of directors declared a quarterly dividend of $0.15 per share payable on December 27, 2013 to shareholders of record at December 13, 2013.

Outlook

"Our outlook continues to be positive. We are encouraged by the improvements we are seeing in the commercial construction and the agriculture markets and the continued strength in automotive," McConnell said. "We are excited about the new markets we have entered through acquisitions and in our organic growth, particularly in the Cylinders business. The strategy for acquisitions and our focus on innovation has us well-positioned for long-term growth. We will continue to explore new opportunities and drive improvement and optimization in all of our businesses."

Conference Call

Worthington will review first quarter results during its quarterly conference call on September 26, 2013, at 10:30 a.m., Eastern Daylight Saving Time. Details regarding the conference call can be found on the Company web site at www.WorthingtonIndustries.com.

Corporate Profile

Worthington Industries is a leading diversified metals manufacturing company with 2013 fiscal year sales of $2.6 billion. The Columbus, Ohio based company is North America's premier value-added steel processor and a leader in manufactured metal products, such as propane, oxygen, refrigerant and industrial cylinders, hand torches, camping cylinders, scuba tanks, compressed natural gas storage cylinders, helium balloon kits and exploration, recovery and production tanks for global energy markets; custom-engineered open and enclosed cabs and operator stations for heavy mobile equipment; laser welded blanks; steel pallets and racks; and through joint ventures, suspension grid systems for concealed and lay-in panel ceilings, current and past model automotive service stampings and light gauge steel framing for commercial and residential construction. Worthington employs approximately 10,000 people and operates 82 facilities in 11 countries.

Founded in 1955, the Company operates under a long-standing corporate philosophy rooted in the golden rule. Earning money for its shareholders is the first corporate goal. This philosophy serves as an unwavering commitment to the customer, supplier, and shareholder, and it serves as the Company's foundation for one of the strongest employee-employer partnerships in American industry.

Safe Harbor Statement

The Company wishes to take advantage of the Safe Harbor provisions included in the Private Securities Litigation Reform Act of 1995 (the "Act"). Statements by the Company relating to business plans or future or expected growth, performance, sales, volumes, cash flows, earnings, balance sheet strengths, debt, financial condition or other financial measures; projected profitability potential, capacity, and working capital needs; demand trends for the Company or its markets; additions to product lines and opportunities to participate in new markets; pricing trends for raw materials and finished goods and the impact of pricing changes; anticipated capital expenditures and asset sales; anticipated improvements and efficiencies in costs, operations, sales, inventory management, sourcing and the supply chain and the results thereof; the ability to make acquisitions and the projected timing, results, benefits, costs, charges and expenditures related to acquisitions, newly-created joint ventures, headcount reductions and facility dispositions, shutdowns and consolidations; the alignment of operations with demand; the ability to operate profitably and generate cash in down markets; the ability to maintain margins and capture and maintain market share and to develop or take advantage of future opportunities, new products and new markets; expectations for Company and customer inventories, jobs and orders; expectations for the economy and markets or improvements therein; expected benefits from transformation plans, cost reduction efforts and other new initiatives; expectations for increasing volatility or improving and sustaining earnings, earnings potential, margins or shareholder value; effects of judicial rulings and other non-historical matters constitute "forward-looking statements" within the meaning of the Act. Because they are based on beliefs, estimates and assumptions, forward-looking statements are inherently subject to risks and uncertainties that could cause actual results to differ materially from those projected. Any number of factors could affect actual results, including, without limitation, the effect of national, regional and worldwide economic conditions generally and within major product markets, including a prolonged or substantial economic downturn; the outcome of negotiations surrounding the United States debt and budget, which may be adverse due to its impact on tax increases, governmental spending, and customer confidence and spending; the effect of conditions in national and worldwide financial markets; product demand and pricing; changes in product mix, product substitution and market acceptance of the Company's products; fluctuations in the pricing, quality or availability of raw materials (particularly steel), supplies, transportation, utilities and other items required by operations; effects of facility closures and the consolidation of operations; the effect of financial difficulties, consolidation and other changes within the steel, automotive, construction and other industries in which the Company participates; failure to maintain appropriate levels of inventories; financial difficulties (including bankruptcy filings) of original equipment manufacturers, end-users and customers, suppliers, joint venture partners and others with whom the Company does business; the ability to realize targeted expense reductions from headcount reductions, facility closures and other cost reduction efforts; the ability to realize other cost savings and operational, sales and sourcing improvements and efficiencies, and other expected benefits from transformation initiatives, on a timely basis; the overall success of, and the ability to integrate newly-acquired businesses and joint ventures, maintain and develop their customers, and achieve synergies and other expected benefits and cost savings therefrom; capacity levels and efficiencies, within facilities, within major product markets and within the industry as a whole; the effect of disruption in the business of suppliers, customers, facilities and shipping operations due to adverse weather, casualty events, equipment breakdowns, acts of war or terrorist activities or other causes; changes in customer demand, inventories, spending patterns, product choices, and supplier choices; risks associated with doing business internationally, including economic, political and social instability, foreign currency exposure and the acceptance of our products in new markets; the ability to improve and maintain processes and business practices to keep pace with the economic, competitive and technological environment; the outcome of adverse claims experience with respect to workers' compensation, product recalls or product liability, casualty events or other matters; deviation of actual results from estimates and/or assumptions used by the Company in the application of its significant accounting policies; level of imports and import prices in the Company's markets; the impact of judicial rulings and governmental regulations, both in the United States and abroad, including those adopted by the United States Securities and Exchange Commission and other governmental agencies as contemplated by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the effect of changes to healthcare laws in the United States which may increase our healthcare and other costs and negatively impact our operations and financial results; and other risks described from time to time in the Company's filings with the United States Securities and Exchange Commission, including those described in "Part I - Item 1A. - Risk Factors" of our Annual Report on Form 10-K for the fiscal year ended May 31, 2013.

     
WORTHINGTON INDUSTRIES, INC.    
CONSOLIDATED STATEMENTS OF EARNINGS    
(In thousands, except per share amounts)    
     
               
    Three Months Ended    
    August 31,    
    2013     2012    
Net sales   $ 692,291     $ 666,035    
Cost of goods sold     581,327       572,384    
  Gross margin     110,964       93,651    
Selling, general and administrative expense     71,540       59,422    
Impairment of long-lived assets     4,641       1,570    
Restructuring and other expense (income)     (3,997 )     403    
Joint venture transactions     142       (1,162 )  
  Operating income     38,638       33,418    
Other income (expense):                  
  Miscellaneous income     10,937       165    
  Interest expense     (6,240 )     (5,259 )  
  Equity in net income of unconsolidated affiliates     26,951       22,643    
  Earnings before income taxes     70,286       50,967    
Income tax expense     13,933       16,102    
Net earnings     56,353       34,865    
Net earnings attributable to noncontrolling interest     1,796       903    
Net earnings attributable to controlling interest   $ 54,557     $ 33,962    
                   
Basic                  
Average common shares outstanding     69,601       68,278    
Earnings per share attributable to controlling interest   $ 0.78     $ 0.50    
                   
Diluted                  
Average common shares outstanding     72,083       69,571    
Earnings per share attributable to controlling interest   $ 0.76     $ 0.49    
                   
                   
Common shares outstanding at end of period     69,373       68,679    
                   
Cash dividends declared per share   $ 0.15     $ 0.13    
                   
                   
 
WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
 
    August 31,   May 31,
    2013   2013
Assets            
Current assets:            
  Cash and cash equivalents   $ 121,049   $ 51,385
  Receivables, less allowances of $4,379 and $3,408 at August 31, 2013 and May 31, 2013, respectively     439,365     394,327
  Inventories:            
    Raw materials     181,850     175,093
    Work in process     103,471     103,861
    Finished products     91,336     77,814
      Total inventories     376,657     356,768
  Income taxes receivable     2,378     724
  Assets held for sale     3,309     3,040
  Deferred income taxes     23,055     21,928
  Prepaid expenses and other current assets     44,429     38,711
    Total current assets     1,010,242     866,883
             
Investments in unconsolidated affiliates     184,449     246,125
Goodwill     213,649     213,858
Other intangible assets, net of accumulated amortization of $26,572 and $26,669 at August 31, 2013 and May 31, 2013, respectively     163,363     147,144
Other assets     17,488     17,417
Property, plant and equipment, net     503,869     459,430
Total assets   $ 2,093,060   $ 1,950,857
             
Liabilities and equity            
Current liabilities:            
  Accounts payable   $ 311,204   $ 222,696
  Short-term borrowings     62,187     113,728
  Accrued compensation, contributions to employee benefit plans and related taxes     59,552     68,043
  Dividends payable     11,012     551
  Other accrued items     38,723     36,536
  Income taxes payable     20,531     6,268
  Current maturities of long-term debt     1,099     1,092
    Total current liabilities     504,308     448,914
             
Other liabilities     65,079     70,882
Distributions in excess of investment in unconsolidated affiliate     61,745     63,187
Long-term debt     405,948     406,236
Deferred income taxes     85,592     89,401
    Total liabilities     1,122,672     1,078,620
             
Shareholders' equity - controlling interest     857,588     830,822
Noncontrolling interest     112,800     41,415
    Total equity     970,388     872,237
Total liabilities and equity   $ 2,093,060   $ 1,950,857
             
             
             
WORTHINGTON INDUSTRIES, INC.  
CONSOLIDATED STATEMENTS OF CASH FLOWS  
(In thousands)  
   
    Three Months Ended  
    August 31,  
    2013     2012  
Operating activities                
Net earnings   $ 56,353     $ 34,865  
Adjustments to reconcile net earnings to net cash provided by operating activities:                
  Depreciation and amortization     19,460       14,987  
  Impairment of long-lived assets     4,641       1,570  
  Provision for deferred income taxes     (8,424 )     4,679  
  Bad debt expense (income)     (481 )     7  
  Equity in net income of unconsolidated affiliates, net of distributions     (5,915 )     (7,358 )
  Net loss (gain) on sale of assets     (4,662 )     2,310  
  Stock-based compensation     3,780       3,193  
  Excess tax benefits - stock-based compensation     (4,298 )     -  
  Gain on previously held equity interest in TWB     (11,000 )     -  
Changes in assets and liabilities, net of impact of acquisitions:                
  Receivables     7,655       38,116  
  Inventories     515       17,019  
  Prepaid expenses and other current assets     (2,365 )     (145 )
  Other assets     436       2,847  
  Accounts payable and accrued expenses     40,622       (39,573 )
  Other liabilities     (1,853 )     (1,519 )
Net cash provided by operating activities     94,464       70,998  
                 
Investing activities                
  Investment in property, plant and equipment, net     (13,354 )     (16,705 )
  Acquisitions, net of cash acquired     52,957       -  
  Distributions from unconsolidated affiliates     5,555       -  
  Proceeds from sale of assets     7,647       6,585  
Net cash provided (used) by investing activities     52,805       (10,120 )
                 
Financing activities                
  Net payments of short-term borrowings     (51,541 )     (223,688 )
  Proceeds from long-term debt     -       150,000  
  Principal payments on long-term debt     (284 )     (442 )
  Proceeds from issuance of common shares     2,201       10,855  
  Excess tax benefits - stock-based compensation     4,298       -  
  Payments to noncontrolling interest     (1,763 )     -  
  Repurchase of common shares     (30,516 )     -  
  Dividends paid     -       (8,150 )
Net cash used by financing activities     (77,605 )     (71,425 )
                 
Increase (decrease) in cash and cash equivalents     69,664       (10,547 )
Cash and cash equivalents at beginning of period     51,385       41,028  
Cash and cash equivalents at end of period   $ 121,049     $ 30,481  
                 
                 
   
WORTHINGTON INDUSTRIES, INC.  
SUPPLEMENTAL DATA  
(In thousands)  
             
This supplemental information is provided to assist in the analysis of the results of operations.  
    Three Months Ended  
    August 31,  
    2013     2012  
Volume:                
  Steel Processing (tons)     720       695  
  Pressure Cylinders (units)     20,847       21,469  
                 
                 
Net sales:                
  Steel Processing   $ 402,441     $ 385,013  
  Pressure Cylinders     216,900       194,236  
  Engineered Cabs     48,461       64,495  
  Other     24,489       22,291  
    Total net sales   $ 692,291     $ 666,035  
                 
Material cost:                
  Steel Processing   $ 287,712     $ 282,072  
  Pressure Cylinders     101,580       92,084  
  Engineered Cabs     22,107       32,111  
                 
Selling, general and administrative expense:                
  Steel Processing   $ 28,819     $ 26,474  
  Pressure Cylinders     30,637       22,158  
  Engineered Cabs     6,892       6,975  
  Other     5,192       3,815  
    Total selling, general and administrative expense   $ 71,540     $ 59,422  
                 
Operating income (loss):                
  Steel Processing   $ 22,663     $ 16,659  
  Pressure Cylinders     19,454       15,026  
  Engineered Cabs     (304 )     4,694  
  Other     (3,175 )     (2,961 )
    Total operating income   $ 38,638     $ 33,418  
                 
                 
The following provides detail of impairment of long-lived assets, restructuring and other expense (income), and joint venture transactions included in operating income by segment presented above.  
                 
    Three Months Ended  
    August 31,  
    2013     2012  
Impairment of long-lived assets and restructuring and other expense (income):                
  Steel Processing   $ (121 )   $ -  
  Pressure Cylinders     402       1,576  
  Engineered Cabs     -       -  
  Other     363       397  
    Total impairment of long-lived assets and restructuring and other expense (income)   $ 644     $ 1,973  
                 
    Three Months Ended  
    August 31,  
    2013     2012  
Joint venture transactions:                
  Steel Processing   $ -     $ -  
  Pressure Cylinders     -       -  
  Engineered Cabs     -       -  
  Other     142       (1,162 )
    Total joint venture transactions   $ 142     $ (1,162 )
                     
Contact:
CONTACTS:
Cathy M. Lyttle
VP, Corporate Communications and Investor Relations
Phone: (614) 438-3077
E-mail: Email Contact

Sonya L. Higginbotham
Director, Corporate Communications
Phone: (614) 438-7391
E-mail: Email Contact
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