Worthington Reports 1st Quarter Results
09/26/2007 - Worthington Industries reported net earnings of $20.2 million on net sales of $759.0 million for the three months ended August 31, 2007.
Worthington Industries, Inc. reported net earnings of $20.2 million on net sales of $759.0 million for the three months ended August 31, 2007.
First Quarter Results—The $20.2 million net earnings ($0.24 per diluted share) reflect a decrease of 53% from first quarter 2007 net earnings of $43.2 million ($0.48 per diluted share).
Results included $3.8 million in severance-related costs which had a negative impact of $0.03 on reported earnings per share. The severance charges were associated with a reduction of 63 employees, 44 of whom have taken advantage of a voluntary retirement offer and will be retiring by October 31, 2007.
Net sales of $759.0 million compare to net sales of $778.7 million for the first quarter of fiscal 2007, representing a decline of 3%.
Cash dividends received from joint ventures totaled $14.7 million for the quarter. Cash provided by operating activities was $74.8 million, and capital expenditures were $16.5 million for the same period. During the first quarter, the company repurchased 4.2 million common shares, reducing total outstanding shares to 81.0 million at quarter end. The ratio of total debt to capitalization was 27.9% at quarter end, unchanged from the year ago time period.
Management Remarks—“We are focused on implementing actions throughout the company that position us to increase our operating margins and drive shareholder value,” said John McConnell, Chairman and CEO of Worthington Industries. “Our company has always believed in lean and efficient operations. The early retirement packages and the consolidation of metal framing locations are initial steps that we have taken to enhance our performance.
“Efforts to reduce costs are continuing across the company and we remain comfortable with our announced target of $35 million to $40 million of annual savings once the initiatives are fully implemented and one-time charges are taken,” McConnell added.
Quarterly Segment Results—In the Steel Processing segment, quarterly net sales fell $45.1 million (11%) to $355.9 million from $401.0 million in the comparable quarter of fiscal 2007. The decline in net sales was the result of lower average pricing (down 2%), due to a greater mix of tolling business, and lower volumes (down 9%) relative to the prior year. The company said that operating income decreased because of the combination of lower volumes and a narrower spread between selling prices and material costs as compared to the first quarter of fiscal 2007.
In the Metal Framing segment, net sales decreased $14.3 million (7%) to $198.1 million from $212.3 million in the comparable quarter of fiscal 2007. Average selling prices fell 12%, more than offsetting an overall volume increase of 5%. Product mix worsened in the quarter as volumes increased in lower-margin product lines and decreased significantly in higher margin-lines, many of which serve the residential housing sector. The company said the much narrower spread between lower selling prices and higher material costs resulted in an operating loss for the quarter.
In the Pressure Cylinders segment, net sales increased $15.1 million (12%) to $136.6 million from $121.5 million in the comparable quarter of fiscal 2007. Increased volumes across most product lines in North America and Europe led to an increase in operating income from the prior year.
Worthington’s joint ventures added significantly to first-quarter results. Equity in the net income of six unconsolidated affiliates totaled $15.0 million for the quarter, compared to a record $18.3 million in the year-ago quarter. While profitability at the WAVE joint venture continued to be very good, it was down from last year’s record quarter. Additional, several automotive-related joint ventures were impacted by weakness in that end market.
Cost Reduction Initiative—The company announced the following steps that are being taken in support of its ongoing program to reduce its cost structure. The announced programs are expected to result in $20 million in annual savings once fully implemented:
- An early retirement program resulted in 44 retirements and $2 million in annual run rate savings beginning November 1, 2007.
- Phase 1 of the SG&A reduction program has resulted in $2 million in savings in the first quarter of fiscal 2008. For fiscal 2008, annual savings are estimated at $9 million.
- Plant closures or downsizings at five metal framing facilities are expected to result in $9 million in annual savings once fully implemented. Possible charges— estimated at approximately $15 million for the five facilities—will be recognized in the next few quarters as the facilities are closed or downsized.
Share Repurchases—During the first quarter, 4,180,200 shares were repurchased under a 10 million share authorization originally announced June 13, 2005, leaving a net authorized amount of approximately 1.4 million shares.
Announcements—The company announced on August 20, 2007, that Worthington Steel Co. had signed an agreement to acquire a 50% interest in Serviacero Planos. The joint venture became effective September 17, 2007, and will be known as Serviacero Worthington. It owns and operates the two existing Serviacero Planos steel service centers in Leon and Queretaro in central Mexico. Annual sales for the joint venture are expected to be $125 million initially.
On August 20, 2007, the company also announced that Worthington Steel Co. had signed an agreement to form a joint venture with The Magnetto Group of Turin, Italy, to construct and operate a Class 1 steel processing facility in Kosice, Slovakia. The joint venture will be known as Canessa Worthington and operations are scheduled to begin early in calendar 2008.
On September 25, 2007, the company announced a plan to close or downsize five metal framing facilities. The action is expected to result in annualized savings of $9 million. Restructuring charges related to the closures, including severance for affected employees, are projected at $15 million and will be recognized in the next few quarters.
Worthington Industries is a leading diversified metal processing company with annual sales of approximately $3 billion. The Columbus, Ohio, based company is a premier North America’s 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 more than 8000 people and operates 67 manufacturing 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.
