“We finished our 2019 fiscal year with solid results in the fourth quarter despite a challenging steel pricing environment,” said John McConnell, Chairman and CEO. “Margins across all of our businesses improved from the third quarter, particularly in Pressure Cylinders. I’d like to thank our employees for their continued commitment during the year as we worked hard to navigate the impacts of tariffs on our businesses.”
Consolidated Quarterly Results
Net sales for the fourth quarter of fiscal 2019 were $938.8 million, down 8% from the comparable quarter in the prior year, when net sales were $1.0 billion. The decrease was primarily driven by lower direct shipments in Steel Processing and lower overall volume in Pressure Cylinders, partially offset by higher average selling prices.
Operating income for the current quarter was $32.0 million, an increase of $27.4 million over the prior year quarter on lower impairment and restructuring charges. Excluding impairment and restructuring, operating income was down $19.3 million, primarily due to the unfavorable impact of current quarter inventory holding losses versus prior year holding gains and lower direct volumes, which were partially offset by a $17.6 million decline in SG&A expense due to lower profit sharing and bonus accruals and a decrease in accrued legal costs. Impairment and restructuring charges in the current quarter consisted of $2.9 million related to the wind-down of the CNG fuel system facility in Salt Lake City, and $3.2 million related to certain long-lived assets at the consolidated toll processing joint venture, Worthington Specialty Processing.
Interest expense was $9.5 million for the current quarter, compared to $10.1 million in the prior year quarter. The decrease was due primarily to lower average debt levels.
Equity income from unconsolidated joint ventures decreased $14.5 million from the prior year quarter to $25.1 million on lower contributions from all joint ventures. The Company’s share of earnings at ClarkDietrich and WAVE were down $3.3 million and $2.0 million, respectively, as declining steel prices compressed spreads at ClarkDietrich and volume declined at WAVE. Equity income in the current quarter was also negatively impacted by an impairment charge of $4.0 million to write down the 10% investment in Zhejiang Nisshin Worthington Precision Specialty Steel to its estimated fair value. The Company received cash distributions of $29.2 million from unconsolidated joint ventures during the quarter for a total of $161.1 million for fiscal 2019, including $60.0 million of one-time special distributions from WAVE.
Income tax expense was $9.2 million in the current quarter compared to $1.1 million in the prior year quarter. The increase was due primarily to a tax benefit recognized in the prior year quarter in connection with the impairment and anticipated sale of the Company’s cryogenics business in Turkey, offset partially by lower earnings excluding the prior year impairment and a lower federal statutory income tax rate as a result of the Tax Cuts and Jobs Act. Tax expense in the current quarter reflects an annual effective rate of 22.0% compared to 4.0% for the prior year quarter.
At quarter-end, total debt was $749.3 million, down $0.2 million from February 28, 2019. The Company had $92.4 million of cash at quarter-end.
Quarterly Segment Results
Steel Processing’s net sales totaled $584.4 million, down 10%, or $68.4 million, from the comparable prior year quarter, driven by lower direct volume, partially offset by higher direct average selling prices. Operating income of $14.9 million was $32.7 million less than the prior year quarter on the combined impact of lower direct volumes and a compressed pricing spread driven by current quarter inventory holding losses versus prior year holding gains. The mix of direct versus toll tons processed was 55% to 45% in the current quarter, compared to 59% to 41% in the prior year quarter.
Pressure Cylinders’ net sales totaled $322.3 million, down 5%, or $17.7 million, from the comparable prior year quarter due to the impact of divestitures. Excluding divestitures, net sales were relatively flat as lower volumes in consumer and industrial products were partially offset by higher average selling prices, combined with improved volume and product mix in the remaining oil & gas equipment facilities. Operating income of $21.4 million was $50.7 million higher than the prior year quarter on lower impairment and restructuring charges. Excluding impairment and restructuring, operating income was flat but operating margin improved, as the impact of lower overall volumes was offset by improved pricing and mix.
Engineered Cabs’ net sales totaled $32.1 million, up $4.9 million, or 18%, over the prior year quarter on higher volume and average selling prices. The operating loss of $3.2 million was $2.1 million less than the prior year quarter on higher net sales and gross margin.
Recent Developments and Fiscal 2019 Highlights
- On July 31, 2018, the Company sold the Garden City, Kan. and Dickinson, N.D. oil & gas manufacturing facilities to Palmer Manufacturing and Tank Inc. for $20.3 million, net of selling costs.
- In September 2018, the Company received a cash distribution of $35.0 million from WAVE representing the primary portion of its share of the proceeds in connection with the pending sale of the international operations of WAVE.
- In October 2018, the Company received a $25.0 million one-time special cash distribution from WAVE in connection with a financing transaction.
- On December 31, 2018, the Company sold the operating assets and real property related to its solder business to an affiliate of Lincoln Electric Holdings, Inc. (“Lincoln”) for $26.5 million, and subsequently sold certain brazing assets to Lincoln for an additional $1.1 million, resulting in a pre-tax net restructuring gain of $11.3 million.
- On May 1, 2019, the Company acquired substantially all of the assets of Magna Industries, Inc., a Cleveland-based manufacturer of MagTorch™ hand torches and accessories and Superior Tool plumbing accessories. The total purchase price was $13.5 million which includes an earn-out provision tied to future performance.
- During the fourth quarter of fiscal 2019, the Company repurchased a total of 1,000,000 common shares for $39.1 million at an average price of $39.08, bringing the total number of shares repurchased during fiscal 2019 to 4,100,000 for $168.1 million at an average price of $40.99.
- On June 26, 2019, Worthington’s Board of Directors declared a quarterly dividend of $0.24 per share payable on September 27, 2019 to shareholders of record on September 13, 2019, an increase of $0.01 per share.
“As we enter our new fiscal year, we expect to see continued positive momentum from our three-tiered strategy of growth through transformation, innovation and acquisitions,” said McConnell. “While we expect steel pricing and a softening automotive market will continue to be headwinds, our growth levers combined with investments in technology have us positioned well to deliver on our goal of year over year earnings growth. I’m also proud to announce that today our board approved an increase to our dividend marking the ninth straight year of increases.”
Worthington will review fiscal 2019 fourth quarter and full fiscal year results during its quarterly conference call on June 27, 2019, at 10:30 a.m., Eastern Time. Details regarding the conference call can be found on the Company website at www.WorthingtonIndustries.com.
About Worthington Industries
Worthington Industries is a leading global diversified metals manufacturing company with 2019 fiscal year sales of $3.8 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 propane, refrigerant and industrial gasses and cryogenic applications, water well tanks for commercial and residential uses, 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 12,000 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; future or expected growth, growth potential, forward momentum, performance, competitive position, sales, volumes, cash flows, earnings, margins, balance sheet strengths, debt, financial condition or other financial measures; pricing trends for raw materials and finished goods and the impact of pricing changes; the ability to improve or maintain margins; expected demand or demand trends for the Company or its markets; additions to product lines and opportunities to participate in new markets; expected benefits from Transformation and innovation efforts; the ability to improve performance and competitive position at the Company’s operations; anticipated working capital needs, 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; the ability to make acquisitions and the projected timing, results, benefits, costs, charges and expenditures related to acquisitions, joint ventures, headcount reductions and facility dispositions, shutdowns and consolidations; the successful sale of the WAVE international business; projected capacity and the alignment of operations with demand; the ability to operate profitably and generate cash in down markets; the ability to 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 generating 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; the impact of tariffs, the adoption of trade restrictions affecting the Company’s products or suppliers, a United States withdrawal from or significant renegotiation of trade agreements, the occurrence of trade wars, the closing of border crossings, and other changes in trade regulations or relationships; lower oil prices as a factor in demand for products; product demand and pricing; changes in product mix, product substitution and market acceptance of the Company’s products; fluctuations in the pricing, quality or availability of raw materials (particularly steel), supplies, transportation, utilities and other items required by operations; the outcome of adverse claims experience with respect to workers’ compensation, product recalls or product liability, casualty events or other matters; 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 the Company participates; 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 the Company does business; the ability to realize targeted expense reductions from headcount reductions, facility closures and other cost reduction efforts; the ability to realize 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, interruption in utility services, civil unrest, international conflicts, 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 exchange rate exposure and the acceptance of the Company’s products in global markets; the ability to improve and maintain processes and business practices to keep pace with the economic, competitive and technological environment; deviation of actual results from estimates and/or assumptions used by the Company in the application of its significant accounting policies; level of imports and import prices in the Company’s 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 healthcare laws in the United States and potential changes for such laws which may increase the Company’s healthcare and other costs and negatively impact the Company’s operations and financial results; cyber security risks; the effects of privacy and information security laws and standards; 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 the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2018.