Worthington Reports Record 1st Quarter Results
09/24/2008 - Worthington Industries reports net earnings of $68.6 million on net sales of $913.2 million for the three months ended August 31, 2008, the highest quarterly net sales and net earnings in company history.
Worthington Industries, Inc. reported net earnings of $68.6 million on net sales of $913.2 million for the three months ended August 31, 2008.
First Quarter Highlights—Quarterly net sales and net earnings were the highest in company history, despite volume declines. The $68.6-million net earnings ($0.86 per diluted share) reflect a 240% increase compared to net earnings of $20.2 million ($0.24 per diluted share) for the year-ago first quarter. The $913.2-million net sales reflect a 20% increase compared to net sales of $759.0 million for the year-ago first quarter.
Operating activities provided cash of $22.3 million, and capital expenditures were $14.8 million for the period. Dividends paid to shareholders totaled $13.5 million, corresponding to a 3.9% annualized return based on the quarter-end stock price. The ratio of total debt to capitalization was 32.5% at quarter end, compared to 30.1% at the last fiscal year end.
In early June, the company’s Worthington Integrated Building Systems subsidiary acquired the assets of Sharon Stairs, a designer and manufacturer of steel egress stair systems for the commercial construction market. Sharon Stairs has experienced significant growth in recent years and ended 2007 with $32 million in sales. The acquisition of Sharon Stairs contributed $5.5 million in sales to the Construction Services segment in Other.
Consolidated First Quarter Results—Operating income included $8.8 million in pre-tax restructuring charges, primarily related to plant closures in the Metal Framing segment and professional fees in Other. These charges had a negative impact of $0.08 on reported earnings per share. Results for the prior year period included $4.4 million in restructuring charges which had a negative impact of $0.03 on earnings per share.
“We are pleased with our excellent first quarter which resulted in the best quarterly sales and earnings in the company’s history,” said John McConnell, Chairman and CEO. “While we benefited from a rising price environment, we have also been very focused on reducing costs, maximizing asset utilization and driving improvements in our operations. Unfortunately, the record quarterly sales and net earnings are not sustainable given current market conditions, particularly in the Steel Processing and Metal Framing business segments.” McConnell added, “That’s why we remain aggressive in our efforts with the Transformation Plan to create more opportunities for margin enhancement, restructuring, if necessary, developing new customers, and improving the supply chain. We also applaud the continued strong results in our Pressure Cylinders segment, and congratulate them on their efforts, along with the significant contributions this quarter from our joint ventures, WAVE and Serviacero Worthington.”
First Quarter Segment Results—In the Steel Processing segment, quarterly net sales of $459.9 million reflect a $104.1 million (29%) increase compared to $355.9 million in the year-ago first quarter. According to the company, the increase in net sales was the result of higher average pricing (up 40%) partially offset by lower volumes (down 7%) relative to the prior year.
Operating income increased because of a much wider spread between average selling prices and material costs compared to the first quarter of fiscal 2008. In the Metal Framing segment, net sales of $232.9 million reflect a $34.9-million (18%) increase compared to $198.1 million in the year-ago quarter. Average selling prices rose 35%, more than offsetting an overall volume decrease of 13%. The wider spread between selling prices and material costs resulted in much improved profitability for the quarter.
In the Pressure Cylinders segment, net sales of $148.4 million reflect an $11.8-million (9%) increase compared to $136.6 million in the year-ago first quarter. The company said the increase in net sales was primarily the result of higher volumes (up 5%), especially in the 16-ounce camping gas product line sold in North America. With selling prices keeping pace with rising material costs, the higher volumes translated to an increase in operating income from the prior year.
Worthington’s joint ventures added significantly to first-quarter results, as equity income from the eight unconsolidated affiliates rose 67%, totaling a record $25.0 million for the quarter, compared to $15.0 million in the year-ago quarter. Equity income increased due primarily to WAVE and to Worthington’s new Mexican joint venture Serviacero Worthington. WAVE continued to contribute the vast majority of equity earnings, which reached a new record in the quarter.
Transformation Plan—Worthington’s initial cost reduction efforts, which were announced in the year-ago first quarter, have since grown into a broader program called the Transformation Plan. The Transformation Plan includes a focus on cost reduction, margin expansion and organizational capability improvements as well as an effort to drive excellence in three core competencies: sales, operations and supply chain management. Comprehensive in scope, the program features aggressive diagnostic and planning initiatives in the Steel Processing and Metal Framing business segments. The goal of the Transformation Plan is to increase the company’s sustainable earnings potential over the next three years.
The initial cost-reduction effort identified opportunities for $39 million in annual savings in overhead expense reduction, early retirement and plant closures, exclusive of the expenses related to achieving these savings. To date, $21.8 million of the $39.0 million in annual savings have been realized, of which $3.3 million was realized in the most recent quarter.
Restructuring charges associated with the Transformation Plan totaled $8.8 million in the most recent quarter. Additional charges are expected during the life of the plan including charges for professional fees, facility closures and relocation.
Other News—U.S. Steel and Worthington Industries announced a plan to expand their existing Worthington Specialty Processing joint venture. Under the terms of the agreement, U.S. Steel will contribute its ProCoil Co. LLC steel processing subsidiary in Canton, Mich., and Worthington will contribute its steel processing subsidiary in Taylor, Mich. The expanded joint venture is expected to achieve synergies that will allow the three merged entities to better serve the automotive and flat-rolled market. Worthington Industries will own 51% and U.S. Steel will own 49% of the new joint venture, with Worthington continuing as managing partner.
Worthington Industries is a leading diversified metal processing company with annual sales of approximately $3 billion. The Columbus, Ohio, based company is a premier 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 8000 people and operates 68 manufacturing facilities in 11 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.
