Worthington Industries Reports Third Quarter Results
04/02/2009 - Worthington Industries reports net earnings of $1.6 million on net sales of $501.1 million for its fiscal third quarter, and a net loss of $94.5 million on net sales of $2,159.7 million for the nine months ended February 28, 2009.
Worthington Industries, Inc. reported net earnings of $1.6 million on net sales of $501.1 million for the third quarter, and a net loss of $94.5 million on net sales of $2,159.7 million for the nine months ended February 28, 2009.
Third Quarter Results—The $1.6 million net earnings ($0.02 per diluted share) compare to net earnings of $18.3 million ($0.23 per diluted share) for the same period last year. Results include $16.3 million in pre-tax restructuring charges partially offset by an $8.3 million pre-tax gain on the sale of the company’s Aegis Metal Framing joint venture (net negative impact of $0.04 on earnings per share). In addition, the current quarter pre-tax loss was more than offset by an income tax benefit due primarily to a change in the estimated annual effective tax rate. The prior-year period included $4.2 million in pre-tax restructuring charges that negatively impacted earnings per share by $0.03. Restructuring charges in both periods were associated with ongoing Transformation Plan efforts.
Net sales were $501.1 million, reflecting a 31% decrease from $725.7 million last year.
Nine-Month Results—The $94.5 million net loss ($1.20 per diluted share) compares to net earnings of $53.2 million ($0.65 per diluted share) for the same period last year. Year-to-date results were negatively impacted by an inventory write-down ($98.7 million pre-tax), a goodwill impairment charge ($96.9 million pre-tax) and restructuring charges ($37.0 million pre-tax), partially offset by the gain on sale of Aegis ($8.3 million pre-tax) for a net negative impact of $2.08 on earnings per share. The prior year-to-date period was negatively impacted by $13.2 million ($0.11 per share) in pre-tax restructuring charges.
Net sales of $2,159.7 million were 2% lower than $2,198.3 million for the same period last year.
Management Comments—"All of our businesses are responding to the challenges of the severe economic downturn," said John P. McConnell, Chairman and CEO. "We have kept our balance sheet strong and our early actions to mitigate the impact of the struggling global economy have helped us stabilize the operations during the drop in volume. Dietrich Metal Framing has done an excellent job of reducing costs and keeping pace with the significant pull back in commercial and residential construction.
"We continue to benefit from our transformation efforts which began a year ago. I am confident we will emerge from the downturn a much better company than when we entered it."
Quarterly Segment Results—The company’s Steel Processing segment reported net sales of $192.5 million, a 45% ($157.9 million) decrease from $350.4 million in the year-ago third quarter due to sharply lower volumes (down 57%). Volumes were weak in all customer categories, including automotive and construction, the two largest customer groups served by this segment. While average selling prices were higher than in the year-earlier quarter, selling prices continued to fall throughout the quarter. Reduced volumes and spreads, as well as an increase in bad debt reserves, led to an operating loss for this segment.
In the company’s Metal Framing segment, net sales of $137.2 million reflect a 25% ($45.6 million) decrease compared to $182.8 million in the year-ago third quarter due to significantly (38%) lower volumes associated with slowing construction activity. Excluding the impact of restructuring charges, operating income improved to nearly breakeven, despite the significant volume decline, as a result of permanent and temporary plant closures (nine), headcount reductions (477 or 27%) and other cost reductions implemented over the last 18 months.
The company’s Pressure Cylinders segment reported net sales of $117.5 million, a 15% ($20.8 million) decrease compared to net sales of $138.3 million in the year-ago third quarter. Weaker foreign currencies, relative to the U.S. dollar, negatively impacted reported U.S. dollar sales of the non-U.S. operations by $5.9 million compared to last year. Compared to the prior year period, volumes were down in all product lines, except for Balloon Time helium and the 16 oz. cylinder, as a result of the overall global slowdown. A successful sales effort in the 16 oz. product line has resulted in increased market share, helping to offset market weakness. Operating income declined 5% compared to the prior year.
Equity income from unconsolidated affiliates totaled $3.8 million, which compares to equity income of $15.7 million in the year-ago quarter. Equity income from the largest joint venture, Worthington Armstrong Venture (WAVE), remained solidly profitable despite declining 45% from the record set in the year ago period. Its results were partially offset by losses at the six other joint ventures, two of which have since been divested.
Debt Position—Worthington’s short term debt at February 28, 2009, was $7.8 million, down from $135.4 million at May 31, 2008, and $126.0 million at November 30, 2008. The company’s unsecured revolving credit facility, which expires in May 2013, currently allows for maximum borrowings of $435.0 million, leaving availability of $427.2 million at February 28, 2009. Debt covenants associated with the facility require maintenance of an interest coverage ratio (equal to adjusted EBITDA divided by interest expense, on a trailing 12-month basis) of at least 3.25 times and total indebtedness-to-total capital of not more than 55%. At quarter end, interest coverage was 11.6 times and debt-to-capital was 34.0%. Adjusted EBITDA, for covenant purposes, adds back non-cash charges such as goodwill write-offs and inventory write-downs.
For purposes of the bank covenant calculation, total indebtedness includes amounts utilized on a $100.0 million revolving trade accounts receivable securitization facility. At February 28, 2009, $75.0 million was drawn on this facility. The securitization facility is backed by a recently renewed committed liquidity facility that expires during January 2010.
Announcements—During the quarter, Worthington announced (December 19, 2008) the sale of its interest in the Aegis Metal Framing joint venture for approximately $25 million to its partner, MiTek Industries, Inc., a subsidiary of Berkshire Hathaway, Inc. The transaction closed on December 31, 2008. The joint venture has been in operation since February 2002.
Worthington Industries is a leading diversified metal processing company with annual sales of approximately $3 billion. The Columbus, Ohio, based company is a leading North American value-added steel processor and a leader in manufactured metal products such as metal framing, pressure cylinders, automotive past model service stampings, metal ceiling grid systems and laser welded blanks. Worthington employs approximately 7000 people and operates 61 facilities in 10 countries.
Founded in 1955, the company operates under a long-standing corporate philosophy rooted in the golden rule, with earning money for its shareholders as the first corporate goal. This philosophy, an unwavering commitment to the customer and one of the strongest employee/employer partnerships in American industry serve as the company’s foundation.
