Worthington Reports 2nd Quarter Results
12/19/2008 - ABSTRACT: Worthington Industries reports a net loss of $159.5 million on net sales of $745.4 million for the second quarter, and a net loss of $90.8 million on net sales of $1658.6 million for the six-month period ended November 30, 2008.
Worthington Industries, Inc. reported a net loss of $159.5 million on net sales of $745.4 million for the second quarter, and a net loss of $90.8 million on net sales of $1658.6 million for the six-month period ended November 30, 2008.
Second Quarter Results—The $159.5-million net loss ($2.02 per diluted share) compares to net earnings of $14.7 million, or $0.18 per diluted share, for the same period last year. Net sales of $745.4 million reflect a 4% increase from $713.7 million last year.
“There is a stark contrast between our first and second quarter results that reflects the dramatic downturn in the economy and an unprecedented drop in steel prices,” said John P. McConnell, Chairman and CEO. “The second quarter was marginally profitable, excluding the negative impact of certain charges. Still, we were able to generate cash from operations and have taken a number of actions to respond to the current climate.”
Results included $209.8 million in pre-tax charges including, as described below, a $98.0-million inventory write-down, a $96.9-million goodwill impairment charge for the Metal Framing Segment, $11.9 million in restructuring charges, and a $2.9 million increase to bad debt reserves.
- Inventory write-down ($98.0 million)—This charge was necessitated by the speed and severity of the recent decline in demand and steel pricing, which left the Steel Processing and Metal Framing segments, and the Mexican steel processing joint venture, with inventory in excess of demand while market values for that inventory plummeted. The write-down negatively impacted earnings per diluted share by an estimated $0.86.
- Goodwill Impairment Charge—This charge negatively impacted earnings per diluted share by an estimated $1.07.
- Restructuring charges—Covered severance, asset impairments and professional fees related to previously announced Transformation plan initiatives. The restructuring charges negatively impacted earnings per diluted share by an estimated $0.10.
- Increase to Bad Debt Reserves—This charge was associated with deteriorating financial conditions for several customers, primarily automotive-related, in the Steel Processing and Automotive Body Panels segments. The charge negatively impacted earnings per share by an estimated $0.02.
Six Month Results—The net loss of $90.8 million ($1.15 per diluted share) compares to net earnings of $34.9 million ($0.42 per diluted share) for the same period last year. Net sales of $1,658.6 million were 13% higher than $1,472.6 million for the same period last year. Results were negatively impacted by $218.5 million in pre-tax charges, including the inventory write-down, goodwill impairment and bad debt reserves discussed above and $20.7 million of restructuring charges.
“We are taking aggressive actions to respond to the global economic downturn which has severely impacted our industry,” said McConnell. “We anticipated a softening in our markets and some headwinds as we entered the second quarter, but no one predicted the financial collapse that contributed to a massive and swift decline in steel prices and demand.
“Because of our year-long efforts to transform our company, we were able to quickly take actions which should reduce operating costs and better align our operations with the weakened demand in our Steel Processing and Metal Framing segments,” continued McConnell. “We believe the steps we have announced to close or idle facilities, sell non-core assets, reduce the workforce and work schedules and, in general, to cut costs throughout the company are required in this extraordinary period.”
McConnell added, “We are focused on our plans to drive improvements and efficiencies in operations, sales and sourcing, and we have been able to accelerate many of these initiatives. This effort should enable us to better deal with a continuation of the current economic environment, while at the same time position us to take advantage of any improvement in economic conditions.”
Announcements—Worthington announced the closure of two facilities on October 23, 2008, one Steel Processing (Louisville) and one Metal Framing (Renton), and headcount reductions of 282. The Louisville facility is scheduled to close by May 31, 2009, and the Renton facility by December 31, 2008. Annual savings from these actions are estimated at $13 million, with restructuring charges of $6 million due to severance costs and asset write-downs.
On October 31, 2008, Worthington announced the sale of its 49% interest in Canessa Worthington Slovakia, a Slovakian steel processing facility, to its partner in the joint venture. On December 3, 2008, Worthington announced an inventory write-down of approximately $100 million for its second quarter that ended on November 30, 2008.
Worthington announced further headcount reductions of 300 employees on December 5, 2008, as well as the closure or idling of three Metal Framing facilities: Lunenberg, Mass.; Miami, Fla.; and Phoenix, Ariz. The Lunenberg and Miami facilities are scheduled to close by February 28, 2009, and the Phoenix facility by January 31, 2009. Annual savings from these actions are estimated at $17 million, with restructuring charges of $5 million due to severance costs and asset write-downs.
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 7,500 people and operates 68 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.
