COLUMBUS, Ohio, December 19, 2016 – Worthington Industries, Inc. (NYSE: WOR) today reported net sales of $727.8 million and net earnings of $46.6 million, or $0.72 per diluted share, for its fiscal 2017 second quarter ended November 30, 2016. Net earnings in the quarter included pre-tax restructuring charges totaling $3.3 million. The after-tax impact of these charges reduced earnings per diluted share by $0.03. In the second quarter of fiscal 2016, the Company reported net sales of $699.8 million and net earnings of $23.4 million, or $0.36 per diluted share. Net earnings in the second quarter of fiscal 2016 included pre-tax impairment and restructuring charges totaling $24.5 million. The after-tax impact of these charges reduced earnings per diluted share by $0.24.
Financial highlights for the current and comparative periods are as follows:
(U.S. dollars in millions, except per share data)
|Earnings per diluted share
“We had a good second quarter with overall improving results and solid year-over-year growth,” said John McConnell, Chairman and CEO. “The Steel Processing business had a record second quarter and our joint ventures were steady. Results were mixed in Pressure Cylinders due to depressed oil and gas markets and declines in industrial products; consumer products had an excellent quarter. Demand was down in Engineered Cabs.”
Consolidated Quarterly Results
Net sales for the second quarter of fiscal 2017 were $727.8 million, up 4% from the comparable quarter in the prior year, when net sales were $699.8 million. The increase was the result of higher average direct selling prices in Steel Processing, partially offset by lower volume in Engineered Cabs and certain Pressure Cylinders businesses.
Gross margin increased $13.6 million from the prior year quarter to $122.8 million on a favorable pricing spread in Steel Processing and contributions from the WSP joint venture, which was consolidated effective March 1, 2016.
Operating income for the current quarter was $43.0 million, an increase of $31.1 million from the prior year quarter. The increase was due to lower impairment and restructuring charges in the current quarter combined with an improved gross margin, partially offset by higher SG&A expense primarily related to recent acquisitions.
Interest expense was $7.7 million for the current quarter, compared to $7.8 million in the prior year quarter. The decrease was due to lower short-term borrowings.
Equity income from unconsolidated joint ventures decreased $2.1 million from the prior year quarter to $27.1 million on lower contributions from ClarkDietrich. Equity income from ClarkDietrich in the prior year quarter was favorably impacted by $4.0 million due to a legal settlement. The Company received cash distributions of $24.3 million from unconsolidated joint ventures during the quarter, a 90% cash conversion on equity income.
Income tax expense was $13.5 million in the current quarter compared to $8.7 million in the prior year quarter. The increase was primarily due to higher earnings, partially offset by $6.3 million in favorable discrete items recorded in the quarter. Tax expense in the current quarter reflects an estimated annual effective rate of 28.5% compared to 30.9% for the prior year quarter.
At quarter-end, total debt was $577.4 million, down $2.4 million from August 31, 2016, due to lower short-term borrowings. The Company had $175.2 million of cash at quarter-end.
Quarterly Segment Results
Steel Processing’s net sales of $508.8 million were up 9%, or $41.0 million, from the comparable prior year quarter driven by higher average direct selling prices and higher tolling volume due to the consolidation of the WSP joint venture effective March 1, 2016. Operating income of $35.4 million was $8.8 million higher than the prior year quarter due to a favorable pricing spread and contributions from the WSP joint venture. The mix of direct versus toll tons processed was 49% to 51% in the current quarter, compared to 62% to 38% in the prior year quarter. The change in mix was primarily the result of the consolidation of the WSP joint venture effective March 1, 2016.
Pressure Cylinders’ net sales of $194.7 million were down 3%, or $6.5 million, from the comparable prior year quarter. The decline was driven by lower volume in the oil & gas equipment and industrial products businesses, partially offset by higher average selling prices in consumer products due to an improved product mix. Operating income of $11.3 million was $21.6 million higher than the prior year quarter due to lower impairment and restructuring charges in the current quarter. Declines in the industrial products and oil & gas equipment businesses were largely offset by improvements in consumer products.
Engineered Cabs’ net sales of $22.5 million were down $6.2 million, or 22%, from the prior year quarter due to declines in market demand. The operating loss of $3.4 million was $0.9 million less than the prior year quarter due to lower SG&A expense.
The “Other” category includes the energy innovations business, as well as non-allocated corporate expenses. Net sales in the “Other” category were $1.9 million, a decrease of $0.3 million. The operating loss of $0.3 million for the quarter was driven primarily by losses in the energy innovations business.
“I am pleased with the performance of our Company in the first half of fiscal 2017. We experienced some weak markets, but our employees continue to work hard to make improvements, aided by our recently launched Transformation 2.0 that we will continue to roll out in the new year.” McConnell added, “I am encouraged by the early views of the economic outlook for 2017 and look forward to pursuing growth opportunities.”
Worthington will review fiscal 2017 second quarter and full-year results during its quarterly conference call on December 20, 2016, at 2:30 p.m., Eastern Time. Details regarding the conference call can be found on the Company web site at www.WorthingtonIndustries.com.
About Worthington Industries
Worthington Industries is a leading global diversified metals manufacturing company with 2016 fiscal year sales of $2.8 billion. Headquartered in Columbus, Ohio, Worthington is North America’s premier value-added steel processor providing customers with wide ranging capabilities, products and services for a variety of markets including automotive, construction and agriculture; a global leader in manufacturing pressure cylinders for industrial gas and cryogenic applications, CNG and LNG storage, transportation and alternative fuel tanks, oil & gas equipment, and consumer products for camping, grilling, hand torch solutions and helium balloon kits; and a manufacturer of operator cabs for heavy mobile industrial equipment; laser welded blanks for light weighting applications; automotive racking solutions; and through joint ventures, complete ceiling grid solutions; automotive tooling and stampings; and steel framing for commercial construction. Worthington employs approximately 10,000 people and operates 79 facilities in 11 countries.
Founded in 1955, the Company operates under a long-standing corporate philosophy rooted in the golden rule. Earning money for its shareholders is the first corporate goal. This philosophy serves as the basis for an unwavering commitment to the customer, supplier, and shareholder, and as the Company’s foundation for one of the strongest employee-employer partnerships in American industry.
Safe Harbor Statement
The Company wishes to take advantage of the Safe Harbor provisions included in the Private Securities Litigation Reform Act of 1995 (the “Act”). Statements by the Company relating to outlook, strategy or business plans; the ability to correct performance issues at operations; future or expected growth, forward momentum, performance, sales, volumes, cash flows, earnings, balance sheet strengths, debt, financial condition or other financial measures; pricing trends for raw materials and finished goods and the impact of pricing changes; demand trends for us or our markets; additions to product lines and opportunities to participate in new markets; expected benefits from Transformation efforts; anticipated capital expenditures and asset sales; anticipated improvements and efficiencies in costs, operations, sales, inventory management, sourcing and the supply chain and the results thereof; projected profitability potential, capacity, and working capital needs; the ability to make acquisitions and the projected timing, results, benefits, costs, charges and expenditures related to acquisitions, newly-created joint ventures, headcount reductions and facility dispositions, shutdowns and consolidations; the alignment of operations with demand; the ability to operate profitably and generate cash in down markets; the ability to maintain margins and capture and maintain market share and to develop or take advantage of future opportunities, customer initiatives, new businesses, new products and new markets; expectations for Company and customer inventories, jobs and orders; expectations for the economy and markets or improvements therein; expectations for increasing volatility or improving and sustainable earnings, earnings potential, margins or shareholder value; effects of judicial rulings and other non-historical matters constitute “forward-looking statements” within the meaning of the Act. Because they are based on beliefs, estimates and assumptions, forward-looking statements are inherently subject to risks and uncertainties that could cause actual results to differ materially from those projected. Any number of factors could affect actual results, including, without limitation, the effect of national, regional and global economic conditions generally and within major product markets, including a recurrent slowing economy; the effect of conditions in national and worldwide financial markets; lower oil prices as a factor in demand for products; product demand and pricing; changes in product mix, product substitution and market acceptance of our products; fluctuations in the pricing, quality or availability of raw materials (particularly steel), supplies, transportation, utilities and other items required by operations; effects of facility closures and the consolidation of operations; the effect of financial difficulties, consolidation and other changes within the steel, automotive, construction, oil and gas, and other industries in which we participate; failure to maintain appropriate levels of inventories; financial difficulties (including bankruptcy filings) of original equipment manufacturers, end-users and customers, suppliers, joint venture partners and others with whom we do business; the ability to realize targeted expense reductions from headcount reductions, facility closures and other cost reduction efforts; the ability to realize other cost savings and operational, sales and sourcing improvements and efficiencies, and other expected benefits from Transformation initiatives, on a timely basis; the overall success of, and the ability to integrate, newly-acquired businesses and joint ventures, maintain and develop their customers, and achieve synergies and other expected benefits and cost savings therefrom; capacity levels and efficiencies, within facilities, within major product markets and within the industries as a whole; the effect of disruption in the business of suppliers, customers, facilities and shipping operations due to adverse weather, casualty events, equipment breakdowns, civil unrest, international conflicts, or terrorist activities or other causes; changes in customer demand, inventories, spending patterns, product choices, and supplier choices; risks associated with doing business internationally, including economic, political and social instability, foreign currency exposure and the acceptance of our products in markets; the ability to improve and maintain processes and business practices to keep pace with the economic, competitive and technological environment; the outcome of adverse claims experience with respect to workers’ compensation, product recalls or product liability, casualty events or other matters; deviation of actual results from estimates and/or assumptions used by us in the application of our significant accounting policies; level of imports and import prices in our markets; the impact of judicial rulings and governmental regulations, both in the United States and abroad, including those adopted by the United States Securities and Exchange Commission and other governmental agencies as contemplated by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010; the effect of changes to healthcare laws in the United States, which may increase our healthcare and other costs and negatively impact our operations and financial results; cyber security risks; and other risks described from time to time in the Company’s filings with the United States Securities and Exchange Commission, including those described in “Part I – Item 1A. – Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended May 31, 2016.