Worthington Reports Third Quarter Results
COLUMBUS, Ohio--Worthington Industries, Inc. today reported results for the three and nine-month periods ended February 28, 2007.
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(U.S. dollars in millions, except per share data) |
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3Q2007 |
2Q2007 |
3Q2006 |
9M2007 |
9M2006 |
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| Net sales | $ 677.3 | $ 729.3 | $ 681.5 | $ 2,185.2 | $ 2,075.2 | |||||
| Operating income | 2.2 | 30.6 | 25.6 | 87.5 | 102.8 | |||||
| Equity income | 13.5 | 14.8 | 8.2 | 46.5 | 35.6 | |||||
| Net earnings | 5.5 | 26.9 | 19.2 | 75.7 | 86.6 | |||||
| Earnings per share | $ 0.06 | $ 0.31 | $ 0.21 | $ 0.87 | $ 0.97 | |||||
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EBITDA(a) |
$ 30.0 | $ 60.4 | $ 47.5 | $ 178.0 | $ 182.4 | |||||
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(a)Earnings before interest, taxes, depreciation and amortization. See reconciliation on consolidated statement of earnings. |
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Net sales for the third quarter of fiscal 2007 were $677.3 million, in line with net sales of $681.5 million for the third quarter of fiscal 2006. Third quarter net earnings were $5.5 million and earnings per diluted share were $0.06, compared to $19.2 million, or $0.21 per diluted share, for the same period last year.
For the nine-month period, net sales increased 5% to $2,185.2 million compared to $2,075.2 million last year. Net earnings were $75.7 million and earnings per diluted share were $0.87, compared to $86.6 million and $0.97, respectively, for the same period last year.
“As we anticipated, this was a difficult quarter. Although we are not satisfied with the overall results, we are confident that growth opportunities exist in each of our business segments and joint ventures in the near and long term,” said John P. McConnell, Chairman and CEO. “Despite the challenges in Steel Processing and Metal Framing, we did have record earnings in Pressure Cylinders and our WAVE joint venture. Both Steel Processing and Metal Framing are positioned to improve greatly during our seasonally strong fourth quarter. The improved performance in Steel Processing and Metal Framing, combined with continued strong performance in Pressure Cylinders and WAVE, should provide much better results in the fourth quarter,” said McConnell.
Third Quarter Highlights
- Quarterly net sales and operating income in the Pressure Cylinders segment set records. Net sales of $133.7 million were a third quarter record and quarterly operating income of $21.8 million was the best ever.
- Equity income from six unconsolidated joint ventures totaled $13.5 million due to record third quarter performance at Worthington Armstrong Venture (WAVE).
- Cash dividends received from joint ventures totaled $54.4 million for the quarter and $87.0 million for the year-to-date period. WAVE contributed $50.0 million and $81.0 million, respectively, of the dividends.
- During the third quarter, 831,600 common shares were repurchased, reducing total outstanding shares to 84.4 million at quarter end.
- During the third quarter, $14.5 million was paid to shareholders in a regular quarterly dividend. At quarter end, the dividend yielded a 3.4% annualized return.
Quarterly Segment Results
In the Steel Processing segment, quarterly net sales of $324.3 million were 8%, or $27.6 million, lower than $351.9 million in the comparable quarter of fiscal 2006. The decrease in net sales was the result of much lower volumes (down 14%) partially offset by higher average selling prices (up 7%). The average spread between selling prices and material costs was up 5% from the year ago period, but significantly lower volume at automotive and construction related customers resulted in a decline in operating income in this seasonally slow quarter.
In the Metal Framing segment, net sales of $173.9 million were 3%, or $5.8 million, lower than $179.7 million in the comparable quarter of fiscal 2006. Higher selling prices (up 5%) partially offset the effect of lower volumes (down 8%). Selling prices rose from the year ago period but not enough to offset significantly higher material costs. Material costs climbed 32% due to high galvanized steel material expense driven by record zinc prices and an unfavorable mix of prime and secondary steel inventory. Selling prices were constrained by weak demand which was the result of: reduced residential and commercial construction activity, especially in the significant Florida market; product substitution, as steel remained higher priced than alternative building materials, such as wood; increased competition; and delays in commercial construction projects as developers anticipated lower material prices. The much narrower spread between selling prices and material costs resulted in an operating loss in the quarter. The quarterly loss included a $1.7 million asset write-down for a closed facility in Laporte, Indiana.
In the Pressure Cylinders segment, net sales increased 21%, or $23.1 million, to $133.7 million from $110.6 million in the comparable quarter of fiscal 2006. Average selling prices improved significantly due to product mix and price increases in certain product lines. Strong performance in North America and Europe is the result of a series of well-executed plans over several years to cut costs, exit unprofitable product lines, introduce new product lines, consolidate facilities and grow profitable lines through capacity and geographic expansion. These actions, along with a strong overall sales effort, led to a doubling in operating income from the prior year.
Worthington’s unconsolidated joint ventures contributed $13.5 million in equity income, compared to $8.2 million in the year ago quarter. Continued strong performance at the largest of six joint ventures, Worthington Armstrong Venture (WAVE), which manufactures ceiling grid for the commercial and residential construction markets, was offset somewhat by weaker results at TWB, WSP and VWS, which are closely tied to automotive end markets. The prior year period was negatively impacted by a $6.1 million income tax adjustment at Acerex, a Mexican steel processing venture which has since been sold.
Outlook
The outlook for fourth quarter earnings is expected to be much improved from the third quarter for several reasons:
- Metal Framing is expected to return to profitability as higher priced inventory has been depleted and demand and selling prices are improving.
- Positive trends at Pressure Cylinders and WAVE are expected to continue.
- Seasonal strength typically benefits all of the business segments and joint ventures in the fourth quarter compared to seasonal weakness in the third quarter (which includes the month of December).
Other
Share Repurchases
During the third quarter, 831,600 shares were repurchased under a 10 million share authorization originally announced June 13, 2005, leaving a net authorized amount of approximately 5.6 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 February 20, 2007, the board of directors declared a quarterly cash dividend of $0.17 per share payable March 29, 2007, to shareholders of record on March 15, 2007.
Announcements
On March 6, 2007, the company announced that its TWB Company laser welded blanking joint venture with ThyssenKrupp Steel AG will begin operating a new manufacturing facility in Prattville, Alabama, to serve the automotive market in the south. The 50,000 square foot facility will be ready for production in May 2007.
On February 28, 2007, the company announced that Dietrich Metal Framing obtained three key code endorsements for its UltraSTEEL® Framing product from the International Code Conference Evaluation Services, American Society for Testing and Materials International, and Architectural Testing, Inc. All three bodies determined that UltraSTEEL® is a compliant building product and is approved for construction use even when not specifically named.
Conference Call
Worthington will review third quarter results during its quarterly conference call today, March 29, 2007, at 1:30 p.m. Eastern Daylight 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 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, transportation, 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.
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WORTHINGTON INDUSTRIES, INC. |
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| CONSOLIDATED STATEMENTS OF EARNINGS | ||||||||
| (Unaudited) | ||||||||
| (in thousands, except per share) | ||||||||
| Three Months Ended | Nine Months Ended | |||||||
| February 28, | February 28, | |||||||
| 2007 | 2006 | 2007 | 2006 | |||||
| Net sales | $ 677,250 | $ 681,548 | $ 2,185,232 | $ 2,075,211 | ||||
| Cost of goods sold | 620,931 | 602,646 | 1,923,464 | 1,817,549 | ||||
| Gross margin | 56,319 | 78,902 | 261,768 | 257,662 | ||||
| Selling, general and administrative expense | 54,159 | 53,345 | 174,316 | 154,899 | ||||
| Operating income | 2,160 | 25,557 | 87,452 | 102,763 | ||||
| Other income (expense): | ||||||||
| Miscellaneous expense | (847) | (255) | (1,916) | (60) | ||||
| Interest expense | (6,636) | (6,875) | (17,003) | (20,157) | ||||
| Equity in net income of unconsolidated affiliates | 13,463 | 8,178 | 46,544 | 35,565 | ||||
| Earnings before income taxes | 8,140 | 26,605 | 115,077 | 118,111 | ||||
| Income tax expense | 2,630 | 7,448 | 39,395 | 31,519 | ||||
| Net earnings | $ 5,510 | $ 19,157 | $ 75,682 | $ 86,592 | ||||
| Average common shares outstanding - basic | 84,733 | 88,361 | 86,918 | 88,174 | ||||
| Earnings per share - basic | $ 0.07 | $ 0.22 | $ 0.87 | $ 0.98 | ||||
| Average common shares outstanding - diluted | 85,309 | 89,152 | 87,473 | 88,870 | ||||
| Earnings per share - diluted | $ 0.06 | $ 0.21 | $ 0.87 | $ 0.97 | ||||
| Common shares outstanding at end of period | 84,430 | 88,523 | 84,430 | 88,523 | ||||
| Cash dividends declared per share | $ 0.17 | $ 0.17 | $ 0.51 | $ 0.51 | ||||
| Reconciliation of net earnings to EBITDA | ||||||||
| Net earnings | $ 5,510 | $ 19,157 | $ 75,682 | $ 86,592 | ||||
| Interest expense | 6,636 | 6,875 | 17,003 | 20,157 | ||||
| Income taxes | 2,630 | 7,448 | 39,395 | 31,519 | ||||
| Depreciation & amortization | 15,251 | 14,024 | 45,872 | 44,133 | ||||
| EBITDA | $ 30,027 | $ 47,504 | $ 177,952 | $ 182,401 | ||||
| WORTHINGTON INDUSTRIES, INC. | ||||
| CONSOLIDATED BALANCE SHEETS | ||||
| (Unaudited, in thousands) | ||||
| February 28, | May 31, | |||
| 2007 | 2006 | |||
| Assets | ||||
| Current assets: | ||||
| Cash and cash equivalents | $ 38,968 | $ 56,216 | ||
| Short-term investments | - | 2,173 | ||
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Receivables, less allowances of $4,809 and $4,964 at February 28, 2007 and May 31, 2006 |
371,360 | 404,553 | ||
| Inventories: | ||||
| Raw materials | 285,299 | 266,818 | ||
| Work in process | 95,012 | 104,244 | ||
| Finished products | 102,916 | 88,295 | ||
| Total inventories | 483,227 | 459,357 | ||
| Assets held for sale | 5,193 | 23,535 | ||
| Deferred income taxes | 16,550 | 15,854 | ||
| Prepaid expenses and other current assets | 39,680 | 34,553 | ||
| Total current assets | 954,978 | 996,241 | ||
| Investments in unconsolidated affiliates | 85,356 | 123,748 | ||
| Goodwill | 178,556 | 177,771 | ||
| Other assets | 44,307 | 55,733 | ||
| Property, plant & equipment, net | 565,265 | 546,904 | ||
| Total assets | $ 1,828,462 | $ 1,900,397 | ||
| Liabilities and shareholders' equity | ||||
| Current liabilities: | ||||
| Accounts payable | $ 256,880 | $ 362,883 | ||
| Notes payable | 119,564 | 7,684 | ||
| Accrued compensation, contributions to employee benefit plans and related taxes | 38,635 | 49,784 | ||
| Dividends payable | 14,357 | 15,078 | ||
| Other accrued items | 29,853 | 36,483 | ||
| Income taxes payable | 8,553 | 18,874 | ||
| Total current liabilities | 467,842 | 490,786 | ||
| Other liabilities | 57,214 | 55,249 | ||
| Long-term debt | 245,000 | 245,000 | ||
| Deferred income taxes | 111,100 | 114,610 | ||
| Total liabilities | 881,156 | 905,645 | ||
| Minority interest | 48,707 | 49,446 | ||
| Shareholders' equity | 898,599 | 945,306 | ||
| Total liabilities and shareholders' equity | $ 1,828,462 | $ 1,900,397 | ||
| WORTHINGTON INDUSTRIES, INC. | ||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
| (Unaudited, in thousands) | ||||||||
| Three Months Ended | Nine Months Ended | |||||||
| February 28, | February 28, | |||||||
| 2007 | 2006 | 2007 | 2006 | |||||
| Operating activities | ||||||||
| Net earnings | $ 5,510 | $ 19,157 | $ 75,682 | $ 86,592 | ||||
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Adjustments to reconcile net earnings to net cash provided (used) by operating activities: |
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| Depreciation and amortization | 15,251 | 14,024 | 45,872 | 44,133 | ||||
| Provision for deferred income taxes | (1,000) | (2,984) | (826) | (8,186) | ||||
| Equity in net income of unconsolidated affiliates, net of distributions | 40,958 | 2,423 | 40,421 | (6,397) | ||||
| Minority interest in net income of consolidated subsidiaries | 980 | 1,645 | 3,561 | 4,179 | ||||
| Other adjustments | 2,473 | 256 | 1,896 | 2,593 | ||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | 3,923 | (13,427) | 36,716 | 46,487 | ||||
| Inventories | 48,164 | (56,289) | (15,774) | (20,070) | ||||
| Prepaid expenses and other current assets | (724) | (2,033) | (3,970) | (9,227) | ||||
| Other assets | (668) | 238 | 3,320 | (392) | ||||
| Accounts payable and accrued expenses | 26,953 | (10,684) | (139,622) | 22,011 | ||||
| Other liabilities | (642) | 3,715 | 1,123 | 193 | ||||
| Net cash provided (used) by operating activities | 141,178 | (43,959) | 48,399 | 161,916 | ||||
| Investing activities | ||||||||
| Investment in property, plant and equipment, net | (10,627) | (18,088) | (44,134) | (43,101) | ||||
| Investment in aircraft | - | (16,250) | - | (16,250) | ||||
| Acquisitions, net of cash acquired | - | (6) | (31,727) | (6,776) | ||||
| Investment in unconsolidated affiliate | - | - | (1,000) | - | ||||
| Proceeds from sale of assets | 135 | 272 | 18,091 | 3,054 | ||||
| Purchases of short-term investments | - | (200,492) | - | (443,745) | ||||
| Sales of short-term investments | - | 253,675 | 2,173 | 401,674 | ||||
| Net cash provided (used) by investing activities | (10,492) | 19,111 | (56,597) | (105,144) | ||||
| Financing activities | ||||||||
| Proceeds from (payments on) short-term borrowings | (83,936) | - | 111,880 | - | ||||
| Principal payments on long-term debt | (5) | (521) | (7) | (1,011) | ||||
| Proceeds from issuance of common shares | 693 | 3,029 | 2,558 | 7,132 | ||||
| Excess tax benefits - stock-based compensation | - | - | 200 | - | ||||
| Payments to minority interest | (2,400) | - | (2,400) | (3,840) | ||||
| Repurchase of common shares | (14,109) | - | (76,617) | - | ||||
| Dividends paid | (14,488) | (15,012) | (44,664) | (44,932) | ||||
| Net cash used by financing activities | (114,245) | (12,504) | (9,050) | (42,651) | ||||
| Increase (decrease) in cash and cash equivalents | 16,441 | (37,352) | (17,248) | 14,121 | ||||
| Cash and cash equivalents at beginning of period | 22,527 | 108,722 | 56,216 | 57,249 | ||||
| Cash and cash equivalents at end of period | $ 38,968 | $ 71,370 | $ 38,968 | $ 71,370 | ||||
| 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 | Nine Months Ended | |||||||||
| February 28, | February 28, | |||||||||
| 2007 | 2006 | 2007 | 2006 | |||||||
| Volume: | ||||||||||
| Steel Processing (tons) | 744 | 863 | 2,431 | 2,618 | ||||||
| Metal Framing (tons) | 150 | 163 | 473 | 518 | ||||||
| Pressure Cylinders (units) | 9,970 | 10,679 | 31,291 | 36,229 | ||||||
| Net sales: | ||||||||||
| Steel Processing | $ 324,312 | $ 351,933 | $ 1,100,179 | $ 1,068,018 | ||||||
| Metal Framing | 173,918 | 179,659 | 575,773 | 577,178 | ||||||
| Pressure Cylinders | 133,714 | 110,629 | 375,525 | 324,145 | ||||||
| Other | 45,306 | 39,327 | 133,755 | 105,870 | ||||||
| Total net sales | $ 677,250 | $ 681,548 | $ 2,185,232 | $ 2,075,211 | ||||||
| Material cost: | ||||||||||
| Steel Processing | $ 251,946 | $ 272,245 | $ 837,708 | $ 817,246 | ||||||
| Metal Framing | 138,459 | 113,762 | 407,167 | 370,558 | ||||||
| Pressure Cylinders | 60,536 | 51,853 | 171,030 | 157,172 | ||||||
| Operating income (loss): | ||||||||||
| Steel Processing | $ 2,079 | $ 10,621 | $ 40,650 | $ 43,647 | ||||||
| Metal Framing | (21,538) | 5,768 | (8,619) | 30,020 | ||||||
| Pressure Cylinders | 21,760 | 9,881 | 58,596 | 29,049 | ||||||
| Other | (141) | (713) | (3,175) | 47 | ||||||
| Total operating income | $ 2,160 | $ 25,557 | $ 87,452 | $ 102,763 | ||||||