Worthington Reports Second Quarter Results
12/24/2007 - Worthington Industries reports net earnings were $14.7 million on net sales of $713.7 million for the second quarter of fiscal 2008, and net income of $34.9 million on net sales of $1,472.6 million for the six-months ended November 30, 2007.
Worthington Industries, Inc. reported net earnings were $14.7 million on net sales of $713.7 million for the second quarter of fiscal 2008, and net income of $34.9 million on net sales of $1,472.6 million for the six-months ended November 30, 2007.
Second Quarter Results—Net earnings of $14.7 million ($0.18 per diluted share) compare to net earnings of $26.9 million ($0.31 per diluted share) for last year’s second quarter. Net sales of $713.7 million reflect a 2% decrease from net sales of $729.3 million in the same quarter last year.
The company noted that second-quarter results included $3.5 million in pre-tax restructuring charges, $2.7 million of which was non-cash, primarily related to plant closures in the Metal Framing segment. These charges had a negative impact of $0.03 on reported earnings per share.
Cash provided by operating activities was $21.9 million. Capital expenditures, excluding acquisitions and investments, were $10.1 million.
Six Month Results—Net earnings of $34.9 million ($0.42 per diluted share) compare to net earnings of $70.2 million ($0.79 per diluted share) for the same period last year. Net sales of $1,472.6 million were 2% lower than $1,508.0 million for the same period last year.
According to the company, year-to-date results were negatively impacted by $7.3 million ($0.06 per share) in pre-tax restructuring charges related to early retirement, severance, and plant-closure charges.
Cash provided by operating activities was $96.7 million. Capital expenditures, excluding acquisitions and investments, were $26.6 million.
Equity income from nine unconsolidated joint ventures totaled $14.9 million due to record second quarter earnings at Worthington Armstrong Venture (WAVE) and to the addition of the new Serviacero Worthington joint venture in Mexico. Cash dividends received from joint ventures totaled $14.7 million for the quarter.
Management Comments—“Second quarter and first half performance reflects market weakness, particularly in our two primary end markets, automotive and construction; the resulting cost/price squeeze across our businesses; and the significant challenge in Metal Framing. The second quarter likely reflects the low point in Metal Framing results,” said Chairman and CEO, John McConnell.
“Aggressive countermeasures—including a corporate-wide cost reduction program and a restructuring of Metal Framing—are underway and are expected to benefit the second half of fiscal 2008 and show material impact in fiscal 2009. Moreover, our underlying performance is bolstered by near record results from Pressure Cylinders and our joint ventures, especially WAVE.” McConnell continued, “We expect the major contribution from these businesses to continue, while Steel Processing is working to enhance margins and volume. Our mission over the next few quarters is to restore the earning power of our inherently good portfolio and create a strong platform for future growth.”
Quarterly Segment Results—In the Steel Processing segment, quarterly net sales of $344.2 million reflect a $30.6-million (8%) fall from $374.8 million in the comparable quarter of fiscal 2007.
Volumes rose 6% as a significant increase in tolling business more than offset a decline in direct business. Tolling volumes in the prior-year period were negatively impacted while capacity was increased in the operations of the Spartan Steel Coating consolidated joint venture. The resulting change in product mix contributed to the decrease in net sales and the lower average selling prices (down 14%) for the current quarter. Operating income decreased because of a narrower spread between average selling prices and material costs, especially at Precision Specialty Metals (PSM), a stainless steel processing facility.
In the Metal Framing segment, net sales decreased $7.1 million (4%) to $182.4 million from $189.5 million in the comparable quarter of fiscal 2007. Pricing remained extremely competitive despite realization of a portion of the mid-quarter price increase. Average selling prices fell 7% from the prior year period, more than offsetting an overall volume increase of 4%.
Product mix continued to negatively impact earnings, as volumes increased in lower margin product lines and decreased significantly in higher margin lines, many of which serve the residential housing sector. The much-narrower spread resulting from lower selling prices and higher material costs resulted in an operating loss for the quarter. Results were also hurt by $3.6 million in pre-tax restructuring charges related to plant closures. The plant closures are expected to be substantially complete by fiscal year end. Measurable cost savings related to these closures, estimated at $9 million annually, are not expected until fiscal 2009.
In the Pressure Cylinders segment, net sales increased $12.9 million (11%) to $133.2 million from $120.3 million in the comparable quarter of fiscal 2007. Stronger foreign currencies relative to the U.S. dollar positively impacted reported U.S. dollar sales of the non-U.S. operations by $6.8 million compared to last year. Improved North American volumes across most product lines combined with stable pricing resulted in a $5.8-million increase in sales.
Improved steel high pressure cylinder volumes resulting from a capacity expansion at the Austrian facility were substantially offset by an 8% decline in average selling prices. Capacity increases by European high pressure cylinder producers and increased imports into Europe from the U.S. and China drove the pricing decline. Operating income remained near record levels as a result of continued strength in both the European and North American operations.
Worthington’s joint ventures added to second quarter results as equity income from the nine unconsolidated affiliates totaled $14.9 million, compared to $14.8 million in the year-ago quarter. WAVE continued to contribute the vast majority of equity earnings. Its earnings were a second-quarter record, up slightly from the record set last year. Compared to the year-ago quarter, equity income increased due primarily to Worthington’s new Mexican joint venture, Serviacero Worthington, offset by a decline in earnings from TWB Company and start-up expenses at two newer joint ventures.
Cost Reduction Initiativ—The company reported that annual savings related to its cost-reduction program, which includes early retirement, plant closures and hundreds of company-wide initiatives impacting all expense categories, are expected to total $35 million. All initiatives have been identified, and implementation is underway. Realized cost savings are expected to increase for the balance of fiscal 2008 and into fiscal 2009, reaching the full $35 million annual savings run rate in fiscal 2010.
Worthington Industries is a leading diversified metal processing company with annual sales of approximately $3 billion. The Columbus, Ohio, based company is a 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 more than 8000 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.
