COLUMBUS, Ohio, March 20, 2019
– Worthington Industries, Inc. (NYSE: WOR) today reported net sales of $874.4 million and net earnings of $26.8 million, or $0.46 per diluted share, for its fiscal 2019 third quarter ended February 28, 2019. The current quarter was negatively impacted due to a replacement program related to certain composite hydrogen fuel tanks, resulting in a pre-tax charge of $13.0 million, or $0.17 per share. In addition, the current quarter included estimated inventory holding losses of $10.8 million in Steel Processing and a pre-tax net restructuring gain of $11.2 million related to the sale of certain assets in the Pressure Cylinders business. In the third quarter of fiscal 2018, the Company reported net sales of $841.7 million and net earnings of $79.1 million, or $1.27 per diluted share, and included a significant one-time benefit from the Tax Cuts and Jobs Act, which increased earnings per diluted share by $0.62.
Financial highlights for the current and comparative periods are as follows:
(U.S. dollars in millions, except per share amounts)
|Earnings per diluted share
Safe Harbor Statement
“We continued to feel the impact of higher input costs and volatility in steel prices, but we also made good progress toward recovering margin as the quarter progressed,” said John McConnell, Chairman and CEO. “We believe that we are through the worst of the recent cost pressures and I’m proud of the way our teams have executed.”
Consolidated Quarterly Results
Net sales for the third quarter of fiscal 2019 were $874.4 million, up 4% over the comparable quarter in the prior year, when net sales were $841.7 million. The increase was primarily driven by higher average direct selling prices in Steel Processing, partially offset by lower direct volume in Steel Processing and the impact of current year divestitures in Pressure Cylinders.
Gross margin decreased $37.0 million from the prior year quarter to $90.0 million. The decrease was driven primarily by lower direct spreads in Steel Processing, which were negatively impacted by significant inventory holding losses in the quarter, and a $13.0 million charge in Pressure Cylinders associated with a tank replacement program for certain composite hydrogen fuel tanks produced primarily between 2012 and 2015.
Operating income for the current quarter was $26.0 million, a decrease of $16.8 million from the prior year quarter. The impact of lower gross margin was partially offset by lower SG&A expense which was down $9.1 million, due primarily to lower profit sharing and bonus accruals.
Interest expense was $9.3 million for the current quarter, compared to $9.8 million in the prior year quarter. The decrease was due primarily to lower average debt levels.
Equity income from unconsolidated joint ventures increased $1.0 million over the prior year quarter to $20.8 million primarily due to a higher contribution from WAVE, which was partially offset by declines at Serviacero and ArtiFlex. The Company received cash distributions of $21.4 million from unconsolidated joint ventures during the quarter.
Income tax expense was $8.4 million in the current quarter compared to a benefit of $24.0 million in the prior year quarter. The change was due primarily to the impact of the Tax Cuts and Jobs Act, which resulted in a one-time tax benefit of $38.8 million in the prior year quarter. Tax expense in the current quarter reflects an estimated annual effective rate of 23.3% compared to 10.3% for the prior year quarter.
At quarter-end, total debt was $749.5 million, down $0.3 million from November 30, 2018. The Company had $113.1 million of cash at quarter-end.
Quarterly Segment Results
Steel Processing’s net sales totaled $555.9 million, up 7%, or $37.8 million, over the comparable prior year quarter driven by higher average direct selling prices, partially offset by lower direct volume. Operating income of $10.2 million was $20.9 million less than the prior year quarter on lower direct spreads, which were impacted by significant inventory holding losses in the quarter and continue to be negatively impacted by an expanding gap between the cost of steel and scrap prices, combined with lower direct volume. The mix of direct versus toll tons processed was 57% to 43% in both the current and prior year quarters.
Pressure Cylinders’ net sales totaled $290.7 million, down 2%, or $4.8 million, from the comparable prior year quarter due to the impact of divestitures and lower volumes in the industrial products business, partially offset by higher volumes in the consumer products business. Operating income of $19.0 million increased $1.5 million over the prior year quarter. The improvement was the result of an $11.2 million net restructuring gain, primarily related to the sale of the Company’s solder business and certain brazing assets, combined with improvements in the oil and gas business, which were almost offset by the $13.0 million charge for the tank replacement program and the impact of lower volumes in the industrial products business and increased input costs in the consumer products business.
Engineered Cabs’ net sales totaled $27.8 million, up $0.7 million, or 3%, over the prior year quarter on higher average selling prices partially offset by lower volume. The operating loss of $3.8 million was $0.3 million less than the prior year quarter primarily due to lower profit sharing and bonus accruals.
Recent Business Developments
- During the quarter, the Company repurchased a total of 800,000 common shares for $28.6 million at an average price of $35.72.
- 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.
“Despite recent headwinds, the Company is performing well, and we remain focused on driving improvements throughout our businesses,” McConnell said. “Overall, our markets remain steady. We expect to see continued margin expansion in Pressure Cylinders, but also anticipate continued inventory holding losses in Steel Processing in the upcoming quarter.”
Worthington will review fiscal 2019 third quarter results during its quarterly conference call on March 21, 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 2018 fiscal year sales of $3.6 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 81 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.
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, newly-created 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; the expected impact of the provisions of the Tax Cuts and Jobs Act (the “TCJA”) on the Company; 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, and other changes in trade regulations; 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, 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; the actual impact on the Company’s business of the TCJA differing materially from the Company’s estimates; 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.