Worthington Reports Second Quarter Fiscal 2014 Results

Marketwired

COLUMBUS, OH--(Marketwired - Dec 19, 2013) - Worthington Industries, Inc. ( NYSE : WOR ) today reported net sales of $769.9 million and net earnings of $23.0 million, or $0.32 per diluted share, for its fiscal 2014 second quarter ended November 30, 2013. In the second quarter of the prior year, the Company reported net sales of $622.6 million and net earnings of $31.8 million, or $0.45 per diluted share. Net earnings in the current quarter include non-cash, pre-tax impairment charges of $30.7 million related to the write-off of certain trade name assets in connection with a branding initiative launched during the quarter to re-brand substantially all of the Company's businesses under the Worthington Industries name. Net earnings also include the impact of a pre-tax gain of $2.5 million within miscellaneous income related to insurance proceeds received during the quarter for property damaged in a fire at the Company's Pressure Cylinders facility in Austria on August 19, 2013. Adding back the net after tax impact of these two items would increase earnings by $0.25 per share.

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

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

                     
    2Q 2014   1Q 2014   2Q 2013   6M2014   6M2013
Net sales   $ 769.9   $ 692.3   $ 622.6   $ 1,462.2   $ 1,288.7
Operating income     19.5     38.6     28.8     58.1     62.2
Equity income     21.1     27.0     25.2     48.0     47.9
Net earnings     23.0     54.6     31.8     77.5     65.8
Earnings per share   $ 0.32   $ 0.76   $ 0.45   $ 1.08   $ 0.94
                               
                               

"We had a very good second quarter with strong results from Steel Processing and solid results from Pressure Cylinders and our joint ventures," said John McConnell, Chairman and CEO. "We are now positioning our businesses under one single brand, Worthington Industries. The Company is growing organically and through acquisitions, providing us with new platforms and new markets. As a result, we want to make sure our brand is front and center for our customers and shareholders."

Consolidated Quarterly Results

Net sales for the second quarter ended November 30, 2013, were $769.9 million, up 24% from the comparable quarter in the prior year, when net sales were $622.6 million. The increase resulted from higher overall volumes, which were aided by the impact of acquisitions.

Gross margin for the current quarter was $128.2 million, compared to $94.9 million in the prior year quarter. The $33.3 million increase was primarily the result of an increase in volumes and the impact of inventory holding gains in Steel Processing in the current quarter, compared to inventory holding losses in the prior year quarter. SG&A expense increased $13.3 million over the prior year quarter to $78.4 million driven primarily by the impact of acquisitions and higher profit sharing and bonus expense.

Operating income for the current quarter was $19.5 million, compared to $28.8 million in the prior year quarter, as the improvement in gross margin was more than offset by the trade name impairment and an increase in SG&A expense. Operating income in the current quarter also includes net restructuring gains of $1.2 million, driven primarily by a $2.0 million gain on the sale of the Company's North American industrial gas and acetylene cylinders business, and $0.8 million of net charges related to joint venture transactions. 

Interest expense of $6.3 million in the quarter was essentially flat versus the prior year quarter.

Equity in net income from unconsolidated joint ventures decreased $4.1 million from the prior year quarter to $21.1 million on sales of $357.2 million. The decrease was driven primarily by the consolidation of TWB on July 31, 2013. Since that date, TWB's results have been fully consolidated versus reported in equity income. All joint ventures posted positive results, led by WAVE, ClarkDietrich, and WSP, which contributed $15.6 million, $2.3 million, and $1.5 million of equity income, respectively. The equity portion of income from WSP and WAVE exceeded the prior year quarter by $1.0 million and $0.8 million, respectively.

For the current quarter, income tax expense of $8.5 million decreased $6.9 million from the prior year quarter due primarily to lower earnings and a lower effective tax rate, driven by a favorable tax adjustment related to the acquisition of an additional 10% interest in TWB. The current quarter income tax expense reflects an estimated annual effective tax rate of 27.8% compared to 32.7% for the prior year quarter.

Balance Sheet

At quarter end, total debt was $450.2 million, down $19.0 million from August 31, 2013 due to lower short-term borrowings. As of November 30, 2013, the Company had utilized $30.0 million of its $100.0 million trade accounts receivable securitization facility, and $8.4 million was drawn on the Company's $425.0 million revolving credit facility.

Quarterly Segment Results

Steel Processing's net sales of $492.1 million were up 43%, or $148.0 million, from the prior year quarter, on higher volumes resulting from the consolidation of TWB and increased sales in the automotive, construction and agriculture markets. Excluding the impact of TWB, the mix of direct versus toll tons processed was 57% to 43% this quarter, compared with a 55% to 45% mix in the comparable quarter of the prior year. Operating income increased by $21.0 million to $34.8 million due primarily to higher overall volumes and the positive impact of inventory holding gains in the current quarter compared to inventory holding losses in the prior year quarter.

Pressure Cylinders' net sales of $214.0 million were up 3%, or $6.5 million, from the comparable prior year quarter driven by recent acquisitions. Operating income was $8.3 million, down $8.8 million from the prior year quarter, as the impact of the recent acquisitions was more than offset by the trade name impairment, of which $11.6 million relates to Pressure Cylinders, and an increase in SG&A expense. The impact of these items was partially offset by a $2.0 million gain on the sale of the Company's North American industrial gas and acetylene cylinders business.

Engineered Cabs' net sales of $47.9 million were down 17%, or $9.9 million, from the comparable prior year quarter driven by lower volumes and the impact of lower average selling prices. Operating income decreased $21.5 million driven almost entirely by the trade name impairment, of which $19.1 million relates to Engineered Cabs, and to a lesser extent lower volumes from key customers.

The "Other" category includes the Construction Services and Energy Innovations operating segments, as well as non-allocated expenses. Operations in the "Other" category reported net sales of $15.9 million, an increase of $2.7 million from the prior year quarter, mostly due to the Energy Innovations business. The "Other" category reported a combined loss of $2.7 million for the quarter compared to $2.6 million in the prior year quarter, as the improvement in the Energy Innovations business was offset by higher restructuring charges resulting from the wind down of the commercial stairs and metal framing businesses.

Recent Business Developments

  • The Company committed to a re-branding initiative to brand substantially all of its businesses under the Worthington Industries name. In connection with the branding strategy, the Company plans to discontinue the use of non-Worthington trade names except for retail brand names including BernzOmatic® and Balloon Time®. As a result, the Company recognized an impairment charge of $30.7 million during the quarter ended November 30, 2013.
  • On October 18, 2013, the Company finalized an agreement with Nisshin Steel Co., Ltd. and Marubeni-Itochu Steel Inc. to form Zhejiang Nisshin Worthington Precision Specialty Steel Co., Ltd., which is awaiting regulatory approval. The joint venture will construct a plant in Zhejiang Province in the People's Republic of China that will produce cold rolled strip steel primarily for the automotive industry. Initially, the Company will own a 10% interest in the joint venture with the option to increase its ownership interest to 34%.
  • On November 12, 2013, the Company entered into an agreement to sell the operating assets related to its small and medium high pressure industrial gas and acetylene cylinders business in North America. The Company recognized a net gain of $2.0 million in connection with this transaction.
  • On December 18, 2013, the board of directors declared a quarterly dividend of $0.15 per share payable on March 28, 2014 to shareholders of record at March 14, 2014.

Outlook

"We are positioned to continue to provide positive results in all of our businesses as our focus remains on growth, improved efficiency and performance," McConnell said. "We continue to look for opportunities to invest in new and growing markets and to develop new products for our customers. We have driven results in an environment where the U.S. economy has been sluggish, though gaining momentum, and Europe remains flat. We believe we can continue to do so."

Conference Call

Worthington will review second quarter results during its quarterly conference call on December 19, 2013, at 1:30 p.m., Eastern 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     Six Months Ended  
    November 30,     November 30,  
    2013     2012     2013     2012  
Net sales   $ 769,900     $ 622,622     $ 1,462,191     $ 1,288,657  
Cost of goods sold     641,668       527,766       1,222,995       1,100,150  
  Gross margin     128,232       94,856       239,196       188,507  
Selling, general and administrative expense     78,395       65,101       149,935       124,523  
Impairment of long-lived assets     30,734       (50 )     35,375       1,520  
Restructuring and other expense (income)     (1,182 )     1,262       (5,179 )     1,665  
Joint venture transactions     786       (279 )     928       (1,441 )
  Operating income     19,499       28,822       58,137       62,240  
Other income (expense):                                
  Miscellaneous income     2,472       303       13,409       468  
  Interest expense     (6,258 )     (6,334 )     (12,498 )     (11,593 )
  Equity in net income of unconsolidated affiliates     21,086       25,221       48,037       47,864  
  Earnings before income taxes     36,799       48,012       107,085       98,979  
Income tax expense     8,459       15,390       22,392       31,492  
Net earnings     28,340       32,622       84,693       67,487  
Net earnings attributable to noncontrolling interest     5,363       796       7,159       1,699  
Net earnings attributable to controlling interest   $ 22,977     $ 31,826     $ 77,534     $ 65,788  
                                 
Basic                                
Average common shares outstanding     69,304       68,934       69,454       68,604  
Earnings per share attributable to controlling interest   $ 0.33     $ 0.46     $ 1.12...     $ 0.96  
                                 
Diluted                                
Average common shares outstanding     71,826       70,411       72,089       69,834  
Earnings per share attributable to controlling interest   $ 0.32     $ 0.45     $ 1.08     $ 0.94  
                                 
                                 
Common shares outstanding at end of period     69,138       69,060       69,138       69,060  
                                 
Cash dividends declared per share   $ 0.15     $ 0.13     $ 0.30     $ 0.26  
                                 
                                 
 
 
WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
 
         
    November 30,   May 31,
    2013   2013
Assets            
Current assets:            
  Cash and cash equivalents   $ 109,055   $ 51,385
  Receivables, less allowances of $3,338 and $3,408 at November 30, 2013 and May 31, 2013, respectively     433,995     394,327
  Inventories:            
    Raw materials     188,351     175,093
    Work in process     104,474     103,861
    Finished products     99,582     77,814
      Total inventories     392,407     356,768
  Income taxes receivable     2,619     724
  Assets held for sale     2,435     3,040
  Deferred income taxes     22,655     21,928
  Prepaid expenses and other current assets     41,449     38,711
    Total current assets     1,004,615     866,883
             
Investments in unconsolidated affiliates     174,546     246,125
Goodwill     212,622     213,858
Other intangible assets, net of accumulated amortization of $28,652 and $26,669 at November 30, 2013 and May 31, 2013, respectively     128,026     147,144
Other assets     16,584     17,417
Property, plant & equipment:            
  Property, plant & equipment at cost     1,111,765     1,052,636
  Less: accumulated depreciation     606,757     593,206
Property, plant and equipment, net     505,008     459,430
Total assets   $ 2,041,401   $ 1,950,857
             
Liabilities and equity            
Current liabilities:            
  Accounts payable   $ 283,019   $ 222,696
  Short-term borrowings     43,451     113,728
  Accrued compensation, contributions to employee benefit plans and related taxes     64,769     68,043
  Dividends payable     11,148     551
  Other accrued items     42,472     36,536
  Income taxes payable     5,486     6,268
  Current maturities of long-term debt     1,107     1,092
    Total current liabilities     451,452     448,914
             
Other liabilities     69,627     70,882
Distributions in excess of investment in unconsolidated affiliate     61,107     63,187
Long-term debt     405,660     406,236
Deferred income taxes     72,162     89,401
    Total liabilities     1,060,008     1,078,620
             
Shareholders' equity - controlling interest     863,789     830,822
Noncontrolling interest     117,604     41,415
    Total equity     981,393     872,237
Total liabilities and equity   $ 2,041,401   $ 1,950,857
             
             
                         
                         
WORTHINGTON INDUSTRIES, INC.  
CONSOLIDATED STATEMENTS OF CASH FLOWS  
(In thousands)  
   
               
    Three Months Ended     Six Months Ended  
    November 30,     November 30,  
    2013     2012     2013     2012  
Operating activities                                
Net earnings   $ 28,340     $ 32,622     $ 84,693     $ 67,487  
Adjustments to reconcile net earnings to net cash provided by operating activities:                                
  Depreciation and amortization     20,095       16,101       39,555       31,088  
  Impairment of long-lived assets     30,734       (50 )     35,375       1,520  
  Provision for deferred income taxes     (13,110 )     (1,320 )     (21,534 )     3,359  
  Bad debt expense (income)     185       492       (296 )     499  
  Equity in net income of unconsolidated affiliates, net of distributions     (3,506 )     (7,057 )     (9,421 )     (14,415 )
  Net gain on sale of assets     (7,188 )     (2,379 )     (11,850 )     (69 )
  Stock-based compensation     4,722       3,740       8,502       6,933  
  Excess tax benefits - stock-based compensation     (1,534 )     -       (5,832 )     -  
  Gain on previously held equity interest in TWB     -       -       (11,000 )     -  
Changes in assets and liabilities, net of impact of acquisitions:                                
  Receivables     7,574       30,634       15,229       68,750  
  Inventories     (21,838 )     40,882       (21,323 )     57,901  
  Prepaid expenses and other current assets     4,072       1,747       1,707       1,602  
  Other assets     139       90       575       2,937  
  Accounts payable and accrued expenses     (23,922 )     (30,618 )     16,700       (70,191 )
  Other liabilities     4,556       3,497       2,703       1,978  
Net cash provided by operating activities     29,319       88,381       123,783       159,379  
                                 
Investing activities                                
  Investment in property, plant and equipment, net     (17,060 )     (7,911 )     (30,414 )     (24,616 )
  Acquisitions, net of cash acquired     276       (62,110 )     53,233       (62,110 )
  Distributions from unconsolidated affiliates     3,668       -       9,223       -  
  Proceeds from sale of assets     16,086       9,090       23,733       15,675  
Net cash provided (used) by investing activities     2,970       (60,931 )     55,775       (71,051 )
                                 
Financing activities                                
  Net payments of short-term borrowings     (18,736 )     (14,508 )     (70,277 )     (238,196 )
  Proceeds from long-term debt     -       -       -       150,000  
  Principal payments on long-term debt     (285 )     (363 )     (569 )     (805 )
  Proceeds from issuance of common shares     4,286       4,773       6,487       15,628  
  Excess tax benefits - stock-based compensation     1,534       -       5,832       -  
  Payments to noncontrolling interest     (875 )     (5,990 )     (2,638 )     (5,990 )
  Repurchase of common shares     (19,800 )     -       (50,316 )     -  
  Dividends paid     (10,407 )     (8,954 )     (10,407 )     (17,104 )
Net cash used by financing activities     (44,283 )     (25,042 )     (121,888 )     (96,467 )
                                 
Increase (decrease) in cash and cash equivalents     (11,994 )     2,408       57,670       (8,139 )
Cash and cash equivalents at beginning of period     121,049       30,481       51,385       41,028  
Cash and cash equivalents at end of period   $ 109,055     $ 32,889     $ 109,055     $ 32,889  
                                 
                                 
   
   
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     Six Months Ended  
    November 30,     November 30,  
    2013     2012     2013     2012  
Volume:                                
  Steel Processing (tons)     817       626       1,536       1,321  
  Pressure Cylinders (units)     17,694       19,496       38,541       40,965  
                                 
                                 
Net sales:                                
  Steel Processing   $ 492,134     $ 344,107     $ 894,575     $ 729,119  
  Pressure Cylinders     214,022       207,494       430,922       401,730  
  Engineered Cabs     47,868       57,804       96,329       122,299  
  Other     15,876       13,217       40,365       35,509  
    Total net sales   $ 769,900     $ 622,622     $ 1,462,191     $ 1,288,657  
                                 
Material cost:                                
  Steel Processing   $ 349,860     $ 243,132     $ 637,572     $ 525,203  
  Pressure Cylinders     95,234       97,559       196,814       189,643  
  Engineered Cabs     21,522       29,940       43,629       62,051  
                                 
Selling, general and administrative expense:                                
  Steel Processing   $ 34,638     $ 27,530     $ 63,457     $ 54,004  
  Pressure Cylinders     32,630       26,040       63,267       48,198  
  Engineered Cabs     8,105       7,558       14,997       14,534  
  Other     3,022       3,973       8,214       7,787  
    Total selling, general and administrative expense   $ 78,395     $ 65,101     $ 149,935     $ 124,523  
                                 
Operating income (loss):                                
  Steel Processing   $ 34,786     $ 13,807     $ 57,449     $ 30,466  
  Pressure Cylinders     8,275       17,079       27,729       32,105  
  Engineered Cabs     (20,892 )     565       (21,196 )     5,259  
  Other     (2,670 )     (2,629 )     (5,845 )     (5,590 )
    Total operating income   $ 19,499     $ 28,822     $ 58,137     $ 62,240  
                                 
                                 
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     Six Months Ended  
    November 30,     November 30,  
    2013     2012     2013     2012  
Impairment of long-lived assets and restructuring and other expense (income):                                
                             
  Steel Processing   $ -     $ -     $ (121 )   $ -  
  Pressure Cylinders     9,785       (50 )     10,187       1,526  
  Engineered Cabs     19,100       -       19,100       -  
  Other     667       1,262       1,030       1,659  
    Total impairment of long-lived assets and restructuring and other expense (income)   $ 29,552     $ 1,212     $ 30,196     $ 3,185  
                                 
    Three Months Ended     Six Months Ended  
    November 30,     November 30,  
    2013     2012     2013     2012  
Joint venture transactions:                                
  Steel Processing   $ -     $ -     $ -     $ -  
  Pressure Cylinders     -       -       -       -  
  Engineered Cabs     -       -       -       -  
  Other     786       (279 )     928       (1,441 )
    Total joint venture transactions   $ 786     $ (279 )   $ 928     $ (1,441 )
                                 
                                 
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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