COLUMBUS, OH, Sep 23, 2015 (Marketwired via COMTEX) — Worthington Industries, Inc. WOR, -2.58% today reported net sales of $758.1 million and net earnings of $31.4 million, or $0.48 per diluted share, for its fiscal 2016 first quarter ended August 31, 2015, which included pre-tax impairment and restructuring charges totaling $6.1 million, reducing earnings per diluted share by $0.06. In last year’s first quarter, the Company reported net sales of $862.4 million and net earnings of $44.2 million, or $0.63 per diluted share. Net earnings in the first quarter of the prior year included pre-tax impairment and restructuring charges totaling $2.1 million, which reduced earnings per diluted share by $0.02.
Financial highlights for the current and comparative periods are as follows:
“The Company generated solid earnings and free cash flow in our first quarter despite some challenging end markets,” said John McConnell, Chairman and CEO. “Declining steel prices continued to hamper our earnings in Steel Processing but our team performed well generating steady volume led by the heavy-duty truck market. Cylinders saw good results in Industrial and Consumer Products, while Oil and Gas Equipment sales were weak resulting in aggressive cost reductions to maintain profitability. Our joint ventures continued to perform well.” McConnell added, “The consolidation plan in Engineered Cabs will be completed by the end of this month positioning it for better results.”
Consolidated Quarterly Results
Net sales for the first quarter were $758.1 million, down 12% from the comparable quarter in the prior year, when net sales were $862.4 million. The decrease was driven by lower volume in all business segments, combined with lower average selling prices in Steel Processing driven by the decline in steel prices.
Gross margin declined $16.5 million from the prior year quarter to $113.0 million on lower volume and the unfavorable impact of inventory holding losses in Steel Processing in the current quarter due to the decline in steel prices.
Operating income for the current quarter was $31.0 million, a decrease of $21.2 million from the prior year quarter. In addition to lower gross margin, operating income in the current quarter was negatively impacted by higher impairment and restructuring charges. Impairment and restructuring charges in the current quarter totaled $6.1 million and were driven primarily by the pending closure of the Engineered Cabs facility in Florence, SC.
Interest expense was $7.9 million for the current quarter, compared to $9.5 million in the comparable period of the prior year. The decrease was driven by lower average debt levels.
The Company’s portion of equity income from unconsolidated joint ventures decreased $1.3 million from the prior year quarter to $26.6 million on total joint venture sales of $404.5 million. Higher contributions from WAVE and ClarkDietrich were more than offset by lower earnings at Serviacero, which was negatively impacted by lower steel prices, and $1.7 million of product development expenses related to the Alternative Fuels business. The Company received cash distributions of $21.1 million from our unconsolidated joint ventures during the quarter.
Income tax expense was $14.7 million in the current quarter compared to $22.1 million in the comparable quarter in the prior year. The decrease was primarily due to lower earnings. The current quarter tax expense reflected an estimated annual effective rate of 31.8% compared to 32.8% for the prior year quarter.
At quarter end, total debt was $603.8 million, down $66.9 million from May 31, 2015, due to lower short-term borrowings. As of August 31, 2015, $18.7 million was drawn on the Company’s $500 million revolving credit facility. The Company had $18.8 million of cash at quarter end.
Quarterly Segment Results
Steel Processing’s net sales of $490.8 million were down 11%, or $61.5 million, from the comparable prior year quarter on lower toll volume and lower average selling prices. Operating income of $23.6 million was $12.3 million lower than the prior year quarter due primarily to the unfavorable impact of inventory holding losses in current quarter compared to gains in the prior year quarter and lower toll volume. The Rome Strip Steel facility acquired in January 2015 continues to perform well providing additional volume and operating income.
Pressure Cylinders’ net sales of $224.4 million were down 10%, or $24.6 million, from the comparable prior year quarter driven primarily by lower volume in Oil and Gas Equipment. Operating income of $16.8 million was $2.8 million lower than the prior year quarter as declines in Oil and Gas Equipment more than offset improvements in Industrial and Consumer Products.
Engineered Cabs’ net sales of $38.6 million were $11.0 million, or 22% below the prior year quarter due to the January 2015 sale of the assets of Advanced Component Technologies, Inc. and lower volume in the construction and agriculture markets. Operating loss in the current quarter increased $7.2 million to $9.3 million due to higher impairment and restructuring charges and the unfavorable impact of lower volume. Impairment and restructuring charges of $4.9 million in the current quarter related to the pending closure of the Engineered Cabs facility in Florence, SC.
The “Other” category includes the Construction Services and Energy Innovations businesses, as well as non-allocated corporate expenses. Operations in the “Other” category reported net sales of $4.3 million, a decrease of $7.3 million from the prior year quarter on lower volume in Construction Services, which the Company is exiting. The operating loss of $0.2 million was driven primarily by the loss within the Construction Services business.
Recent Business Developments
— During the quarter, the Company repurchased a total of 1,000,000
common shares for $27.6 million at an average price of $27.58.
— On September 23, 2015, the Board of Directors declared a quarterly
dividend of $0.19 per share payable on December 29, 2015 to
shareholders of record on December 15, 2015.
“In the face of challenging markets, we are pleased with the Company’s performance and we are optimistic about our momentum going into the next quarter,” McConnell said. “However, we are mindful of the uncertainty of the macro economic issues and we remain focused on the things we can control. We re-launched our lean Transformation process across the Company and we have already seen a positive impact from several Kaizen events. Our innovation teams are helping us launch new consumer products in Cylinders with more in development.”
Worthington will review first quarter results during its quarterly conference call on September 24, 2015, at 10:30 a.m., Eastern Daylight Saving 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 2015 fiscal year sales of $3.4 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 and gas equipment, and brand 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 84 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; projected profitability potential, capacity, and working capital needs; demand trends for the Company or its markets; additions to product lines and opportunities to participate in new markets; pricing trends for raw materials and finished goods and the impact of pricing changes; 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; 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; expected benefits from transformation plans, cost reduction efforts and other new initiatives; 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 worldwide economic conditions generally and within major product markets, including a recurrent slowing economy; the effect of conditions in national and worldwide financial markets; 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; 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 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 industry 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, acts of war 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 these 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 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 changes to healthcare laws in the United States which may increase our healthcare and other costs and negatively impact our operations and financial results; 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, 2015