Worthington Reports Second Quarter Results
COLUMBUS, Ohio--Worthington Industries, Inc. today reported results for the three- and six-month periods ended November 30, 2006.
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(U.S. dollars in millions, except per share data) |
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2Q2007 |
1Q2007 |
2Q2006 |
6M2007 |
6M2006 |
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| Net sales | $ 729.3 | $ 778.7 | $ 699.5 | $ 1,508.0 | $ 1,393.7 | |||||
| Operating income | 30.6 | 54.7 | 49.7 | 85.3 | 77.2 | |||||
| Equity income | 14.8 | 18.3 | 14.2 | 33.1 | 27.4 | |||||
| Net earnings | 26.9 | 43.2 | 39.0 | 70.2 | 67.4 | |||||
| Earnings per share |
$ 0.31 |
$ 0.48 | $ 0.44 | $ 0.79 | $ 0.76 | |||||
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EBITDA(a) |
$ 60.4 | $ 87.6 | $ 79.4 | $ 147.9 | $ 134.9 | |||||
(a)Earnings before interest, taxes, depreciation and amortization. See reconciliation on consolidated statement of earnings.
For the second quarter of fiscal 2007, net sales were $729.3 million, an increase of 4% from $699.5 million last year. Second quarter net earnings were $26.9 million and earnings per diluted share were $0.31, compared to $39.0 million, or $0.44 per diluted share, for the same period last year. Net earnings in the prior year period (2Q2006) included a $0.04 per share after-tax benefit due to a $5.3 million reduction in insurance reserves.
For the six-month period, net sales of $1,508.0 million were 8% higher than $1,393.7 million for the same period last year. Net earnings were $70.2 million, or $0.79 per diluted share, up 4% from $67.4 million, or $0.76 per diluted share, for the same period last year.
“While we again had strong performances from our Pressure Cylinders segment and WAVE joint venture, our Steel Processing and Metal Framing segments had lower volumes as a result of weaker demand,” Chairman and CEO John McConnell stated.
“Volumes in these two segments are expected to reach their lowest levels in December and result in our third quarter being the weakest of the year. The degree of weakness will depend on steel pricing and how quickly our end markets improve.” McConnell added, “With excellent people and improving opportunities, we will make the most of a difficult third quarter and end the year with a much stronger fourth quarter.”
Second Quarter Highlights
- Quarterly net sales and operating income in the Pressure Cylinders segment were a second quarter record $120.3 million and $20.2 million, respectively.
- Equity income from six unconsolidated joint ventures, totaled $14.8 million due to record second quarter performance at Worthington Armstrong Venture (WAVE).
- During the second quarter, 3.6 million common shares were repurchased, reducing total outstanding shares to 85.2 million at quarter end.
- During the second quarter, $15.1 million was paid to shareholders in a regular quarterly dividend. At quarter end, the dividend yielded a 3.7% annualized return.
Quarterly Segment Results
In the Steel Processing segment, quarterly net sales rose 3%, or $10.4 million, to $374.9 million from $364.5 million in the comparable quarter of fiscal 2006. The acquisition of Precision Specialty Metals (PSM) in August 2006 contributed $13.6 million to the net sales increase. Pricing improved relative to the prior year (up 19%) as a result of the acquisition and generally higher steel prices but was offset by a 14% decline in volume. Operating income fell primarily due to the lower volumes.
In the Metal Framing segment, net sales decreased 1% or $2.7 million, to $189.5 million from $192.2 million in the comparable quarter of fiscal 2006. Pricing improved 7% but was offset by lower volumes (down 8%) compared to the year ago quarter. The increase in selling prices was not enough to offset sharply higher raw material costs. The combined impact of a narrower spread between selling prices and material costs and reduced volumes led to an operating loss.
In the Pressure Cylinders segment, net sales increased 13%, or $13.8 million, to $120.3 million from $106.5 million in the comparable quarter of fiscal 2006. Average selling prices improved significantly due to product mix and price increases in certain product lines. The product mix improvement, strong results in Europe and plant consolidation savings led to an 80% improvement in operating income from the prior year.
Worthington’s joint ventures added significantly to second quarter results. Equity in the net income of six unconsolidated affiliates totaled $14.8 million for the quarter, compared to $14.2 million in the year ago quarter. Compared to the year ago quarter, WAVE equity income was up 16%. WAVE’s improvement was offset by weaker results in the other joint ventures and by changes in the mix of joint ventures. (Dietrich Residential Construction became a consolidated entity in October 2005, Acerex was sold in April 2006 and the Dietrich/NOVA joint venture was formed in July 2006.)
Outlook
While the outlook for the Pressure Cylinders segment and the WAVE joint venture continues to be positive, the Steel Processing and Metal Framing segments will likely generate losses early in the third quarter due to a combination of higher priced inventory and lower volumes. Both margins and volume should begin to improve somewhat in January, with the volume recovery in Steel Processing being more predictable, but consolidated results for the third quarter may be very weak. The depth of the weakness in the third quarter will largely depend on pricing and the pace at which demand recovers in Metal Framing. It is expected that both Metal Framing and Steel Processing will deplete their higher priced inventories during the third quarter and will be well positioned for a recovery as the seasonally strong fourth quarter begins in March.
Other
Share Repurchases
During the second quarter, 3.6 million shares were repurchased under a 10 million share authorization originally announced June 13, 2005, leaving approximately 6.4 million shares. Purchases may occur from time to time, on the open market or in private transactions, with consideration given to the market price of the stock, the nature of other investment opportunities, cash flows from operations and general economic conditions.
Dividend Declared
On November 15, 2006, the board of directors declared a quarterly cash dividend of $0.17 per share payable December 29, 2006, to shareholders of record on December 15, 2006.
Conference Call
Worthington will review second quarter results during its quarterly conference call today, December 21, 2006, at 1:30 p.m. Eastern Time. Details on the conference call can be found on the company web site at www.WorthingtonIndustries.com
Corporate Profile
Worthington Industries is a leading diversified metal processing company with annual sales of approximately $3 billion. The Columbus, Ohio, based company is North America’s 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 more than 8,000 people and operates 63 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. Worthington Industries is listed as one of America’s Most Admired Companies and one of the 100 Best Companies to Work For in America by Fortune magazine.
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 future or expected performance, sales, operating results and earnings per share; projected capacity and working capital needs; pricing trends for raw materials and finished goods; anticipated capital expenditures and asset sales; projected timing, results, costs, charges and expenditures related to acquisitions or to facility dispositions, shutdowns and consolidations; new products and markets; expectations for company and customer inventories, jobs and orders; expectations for the economy and markets; expected benefits from new initiatives; 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, product demand and pricing; changes in product mix, product substitution and market acceptance of the company’s products; fluctuations in pricing, quality or availability of raw materials (particularly steel), supplies, utilities and other items required by operations; effects of facility closures and the consolidation of operations; the effect of consolidation and other changes within the steel, automotive, construction and related industries; failure to maintain appropriate levels of inventories; the ability to realize cost savings and operational efficiencies on a timely basis; the overall success of, and the ability to integrate, newly-acquired businesses and achieve synergies therefrom; capacity levels and efficiencies within facilities and within the industry as a whole; financial difficulties (including bankruptcy filings) of customers, suppliers, joint venture partners and others with whom the company does business; the effect of national, regional and worldwide economic conditions generally and within major product markets, including a prolonged or substantial economic downturn; the effect of disruption in business of suppliers, customers, facilities and shipping operations due to adverse weather, casualty events, equipment breakdowns, acts of war or terrorist activities or other causes; changes in customer inventories, spending patterns, product choices, and supplier choices; risks associated with doing business internationally, including economic, political and social instability, and foreign currency exposure; the ability to improve and maintain processes and business practices to keep pace with the economic, competitive and technological environment; adverse claims experience with respect to workers compensation, product recalls or liability, casualty events or other matters; 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; and other risks described from time to time in the company’s filings with the United States Securities and Exchange Commission.
| WORTHINGTON INDUSTRIES, INC. | |||||||
| CONSOLIDATED STATEMENTS OF EARNINGS | |||||||
| (Unaudited) | |||||||
| (in thousands, except per share) | |||||||
| Three Months Ended | Six Months Ended | ||||||
| November 30, | November 30, | ||||||
| 2006 | 2005 | 2006 | 2005 | ||||
| Net sales | $ 729,262 | $ 699,516 | $ 1,507,982 | $ 1,393,663 | |||
| Cost of goods sold | 645,164 | 596,108 | 1,302,533 | 1,214,903 | |||
| Gross margin | 84,098 | 103,408 | 205,449 | 178,760 | |||
| Selling, general and administrative expense | 53,531 | 53,747 | 120,157 | 101,554 | |||
| Operating income | 30,567 | 49,661 | 85,292 | 77,206 | |||
| Other income (expense): | |||||||
| Miscellaneous income (expense) | (704) | (163) | (1,069) | 195 | |||
| Interest expense | (6,022) | (6,555) | (10,367) | (13,282) | |||
| Equity in net income of unconsolidated affiliates | 14,802 | 14,175 | 33,081 | 27,387 | |||
| Earnings before income taxes | 38,643 | 57,118 | 106,937 | 91,506 | |||
| Income tax expense | 11,698 | 18,090 | 36,765 | 24,071 | |||
| Net earnings | $ 26,945 | $ 39,028 | $ 70,172 | $ 67,435 | |||
| Average common shares outstanding - basic | 87,234 | 88,194 | 88,004 | 88,082 | |||
| Earnings per share - basic | $ 0.31 | $ 0.44 | $ 0.80 | $ 0.77 | |||
| Average common shares outstanding - diluted | 87,611 | 88,986 | 88,555 | 88,729 | |||
| Earnings per share - diluted | $ 0.31 | $ 0.44 | $ 0.79 | $ 0.76 | |||
| Common shares outstanding at end of period | 85,203 | 88,285 | 85,203 | 88,285 | |||
| Cash dividends declared per share | $ 0.17 | $ 0.17 | $ 0.34 | $ 0.34 | |||
| Reconciliation of net earnings to EBITDA | |||||||
| Net earnings | $ 26,945 | $ 39,028 |
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$ 70,172 | $ 67,435 | ||
| Interest expense | 6,022 | 6,555 |
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10,367 | 13,282 | ||
| Income taxes | 11,698 | 18,090 |
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36,765 | 24,071 | ||
| Depreciation & amortization | 15,690 | 15,749 | 30,621 | 30,109 | |||
| EBITDA | $ 60,355 | $ 79,422 |
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$ 147,925 | $ 134,897 | ||
| WORTHINGTON INDUSTRIES, INC. | |||
| CONSOLIDATED BALANCE SHEETS | |||
| (Unaudited, in thousands) | |||
| November 30, | May 31, | ||
| 2006 | 2006 | ||
| Assets | |||
| Current assets: | |||
| Cash and cash equivalents | $ 22,527 | $ 56,216 | |
| Short-term investments | - | 2,173 | |
| Receivables, less allowances of $5,112 and $4,964 at November 30, 2006 and May 31, 2006 | |||
| 379,219 | 404,553 | ||
| Inventories: | |||
| Raw materials | 309,270 | 266,818 | |
| Work in process | 109,111 | 104,244 | |
| Finished products | 113,010 | 88,295 | |
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Total inventories |
531,391 | 459,357 | |
| Assets held for sale | 6,875 | 23,535 | |
| Deferred income taxes | 15,451 | 15,854 | |
| Prepaid expenses and other current assets | 38,547 | 34,553 | |
| Total current assets | 994,010 | 996,241 | |
| Investments in unconsolidated affiliates | 126,135 | 123,748 | |
| Goodwill | 178,703 | 177,771 | |
| Other assets | 48,970 | 55,733 | |
| Property, plant & equipment, net | 570,302 | 546,904 | |
| Total assets | $ 1,918,120 | $ 1,900,397 | |
| Liabilities and shareholders' equity | |||
| Current liabilities: | |||
| Accounts payable | $ 218,467 | $ 362,883 | |
| Notes payable | 203,500 | 7,684 | |
| Accrued compensation, contributions to employee benefit plans and related taxes | 41,135 | 49,784 | |
| Dividends payable | 14,486 | 15,078 | |
| Other accrued items | 41,731 | 36,483 | |
| Income taxes payable | 7,614 | 18,874 | |
| Total current liabilities | 526,933 | 490,786 | |
| Other liabilities | 57,811 | 55,249 | |
| Long-term debt | 245,000 | 245,000 | |
| Deferred income taxes | 112,329 | 114,610 | |
| Total liabilities | 942,073 | 905,645 | |
| Minority interest | 52,281 | 49,446 | |
| Shareholders' equity | 923,766 | 945,306 | |
| Total liabilities and shareholders' equity | $ 1,918,120 | $ 1,900,397 | |
| WORTHINGTON INDUSTRIES, INC. | ||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
| (Unaudited, in thousands) | ||||||||
| Three Months Ended | Six Months Ended | |||||||
| November 30, | November 30, | |||||||
| 2006 | 2005 | 2006 | 2005 | |||||
| Operating activities | ||||||||
| Net earnings | $ 26,945 | $ 39,028 | $ 70,172 | $ 67,435 | ||||
| Adjustments to reconcile net earnings to net cash provided (used) by operating activities: | ||||||||
| Depreciation and amortization | 15,690 | 15,749 | 30,621 | 30,109 | ||||
| Provision for deferred income taxes | (670) | (737) | 174 | (5,202) | ||||
| Equity in net income of unconsolidated affiliates, net of distributions | 10,123 | (8,171) | (537) | (8,820) | ||||
| Minority interest in net income of consolidated subsidiaries | 965 | 1,753 | 2,581 | 2,534 | ||||
| Other adjustments | (1,993) | 1,496 | (577) | 2,337 | ||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | 24,223 | 2,214 | 32,793 | 59,914 | ||||
| Inventories | 23,597 | (19,120) | (63,938) | 36,219 | ||||
| Prepaid expenses and other current assets | (865) | (6,093) | (3,246) | (7,194) | ||||
| Other assets | 3,494 | 729 | 3,988 | (630) | ||||
| Accounts payable and accrued expenses | (93,964) | 64,776 | (166,575) | 32,695 | ||||
| Other liabilities | 3,393 | (7,277) | 1,765 | (3,522) | ||||
| Net cash provided (used) by operating activities | 10,938 | 84,347 | (92,779) | 205,875 | ||||
| Investing activities | ||||||||
| Investment in property, plant and equipment, net | (16,684) | (12,137) | (33,507) | (25,013) | ||||
| Acquisitions, net of cash acquired | (577) | (6,770) | (31,727) | (6,770) | ||||
| Investment in unconsolidated affiliate | (364) | - | (1,000) | - | ||||
| Proceeds from sale of assets | 17,072 | 1,848 | 17,956 | 2,782 | ||||
| Purchases of short-term investments | - | (175,254) | - | (243,253) | ||||
| Sales of short-term investments | - | 117,999 | 2,173 | 147,999 | ||||
| Net cash used by investing activities | (553) | (74,314) | (46,105) | (124,255) | ||||
| Financing activities | ||||||||
| Proceeds from short-term borrowings | 72,726 | - | 195,816 | - | ||||
| Principal payments on long-term debt | (2) | 23 | (2) | (490) | ||||
| Proceeds from issuance of common shares | 15 | 2,808 | 1,865 | 4,103 | ||||
| Excess tax benefits - stock-based compensation | - | - | 200 | - | ||||
| Payments to minority interest | - | (1,920) | - | (3,840) | ||||
| Repurchase of common shares | (62,508) | - | (62,508) | - | ||||
| Dividends paid | (15,098) | (14,970) | (30,176) | (29,920) | ||||
| Net cash provided (used) by financing activities | (4,867) | (14,059) | 105,195 | (30,147) | ||||
| Increase (decrease) in cash and cash equivalents | 5,518 | (4,026) | (33,689) | 51,473 | ||||
| Cash and cash equivalents at beginning of period | 17,009 | 112,748 | 56,216 | 57,249 | ||||
| Cash and cash equivalents at end of period | $ 22,527 | $ 108,722 | $ 22,527 | $ 108,722 | ||||
| WORTHINGTON INDUSTRIES, INC. | ||||||||||
| SUPPLEMENTAL DATA | ||||||||||
| (Unaudited, in thousands) | ||||||||||
| This supplemental information is provided to assist in the analysis of the results of operations. | ||||||||||
| Three Months Ended | Six Months Ended | |||||||||
| November 30, | November 30, | |||||||||
| 2006 | 2005 | 2006 | 2005 | |||||||
| Volume: | ||||||||||
| Steel Processing (tons) | 791 | 919 | 1,688 | 1,756 | ||||||
| Metal Framing (tons) | 157 | 171 | 323 | 355 | ||||||
| Pressure Cylinders (units) | 9,379 | 12,005 | 21,321 | 25,550 | ||||||
| Net sales: | ||||||||||
| Steel Processing | $ 374,879 | $ 364,458 | $ 775,867 | $ 716,085 | ||||||
| Metal Framing | 189,515 | 192,197 | 401,855 | 397,519 | ||||||
| Pressure Cylinders | 120,300 | 106,463 | 241,811 | 213,516 | ||||||
| Other | 44,568 | 36,398 | 88,449 | 66,543 | ||||||
| Total net sales | $ 729,262 | $ 699,516 | $ 1,507,982 | $ 1,393,663 | ||||||
| Material cost: | ||||||||||
| Steel Processing | $ 287,934 | $ 266,428 | $ 585,763 | $ 545,001 | ||||||
| Metal Framing | 138,522 | 119,988 | 268,708 | 256,797 | ||||||
| Pressure Cylinders | 53,329 | 50,270 | 110,495 | 105,319 | ||||||
| Operating income (loss): | ||||||||||
| Steel Processing | $ 17,774 | $ 24,661 | $ 38,571 | $ 33,027 | ||||||
| Metal Framing | (4,862) | 13,857 | 12,919 | 24,252 | ||||||
| Pressure Cylinders | 20,166 | 11,214 | 36,836 | 19,168 | ||||||
| Other | (2,511) | (71) | (3,034) | 759 | ||||||
| Total operating income | $ 30,567 | $ 49,661 | $ 85,292 | $ 77,206 | ||||||