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Worthington Reports Third Quarter Fiscal 2017 Results

COLUMBUS, Ohio, March 29, 2017 (GLOBE NEWSWIRE) -- Worthington Industries, Inc. (NYSE:WOR) today reported net sales of $703.4 million and net earnings of $35.9 million, or $0.55 per diluted share, for its fiscal 2017 third quarter ended February 28, 2017. For the third quarter of fiscal 2016, the Company reported net sales of $647.1 million and net earnings of $29.8 million, or $0.47 per diluted share. 

Financial highlights for the current and comparative periods are as follows:

(U.S. dollars in millions, except per share data)
 
  3Q 2017   2Q 2017   3Q 2016   9M 2017   9M 2016
Net sales $   703.4   $   727.8   $   647.1   $   2,168.8   $   2,105.0
Operating income     34.3       43.0       25.1       142.3       68.0
Equity income     22.7       27.1       25.0       84.4       80.8
Net earnings     35.9       46.6       29.8       148.0       85.2
Earnings per diluted share $   0.55   $   0.72   $   0.47   $   2.29   $   1.31

“We had a very good third quarter performance with Steel Processing contributing near record earnings and overall, we produced year-over-year growth, which remains our focus,” Chairman and CEO John McConnell said.  “Sales growth, higher steel pricing and higher tolling volume helped drive Steel Processing results. In Pressure Cylinders, demand improved for our helium and camping cylinders, while oil & gas markets remained soft, however, volumes have stabilized and certain markets are showing some increased demand.”  McConnell added, “The Company’s joint ventures also contributed steady earnings.” 

Consolidated Quarterly Results

Net sales for the third quarter of fiscal 2017 were $703.4 million, up 9% from the comparable quarter in the prior year, when net sales were $647.1 million. The increase was the result of higher average direct selling prices in Steel Processing and higher tolling volume due to the consolidation of the Worthington Specialty Processing (WSP) joint venture effective March 1, 2016.

Gross margin increased $15.1 million from the prior year quarter to $111.0 million on a favorable pricing spread in Steel Processing, which benefited from lower inventory holding losses and improvements in the consumer products business within Pressure Cylinders.

Operating income for the current quarter was $34.3 million, an increase of $9.2 million from the prior year quarter, as the improvement in gross margin was partially offset by higher SG&A expense, up $5.1 million from the prior year quarter on higher profit sharing and bonus expense and the consolidation of WSP.

Interest expense was $7.7 million for the current quarter, compared to $7.9 million in the prior year quarter.  The decrease was due to lower short-term borrowings.

Equity income from unconsolidated joint ventures decreased $2.3 million from the prior year quarter to $22.7 million, as lower contributions from ArtiFlex and Serviacero more than offset improvements at ClarkDietrich.  The Company received cash distributions of $21.4 million from unconsolidated joint ventures during the quarter, a cash conversion rate of 94% on equity income.

Income tax expense was $11.1 million in the current quarter compared to $11.3 million in the prior year quarter.  The decrease was due to favorable discrete items recorded in the current quarter, which more than offset the impact of higher earnings.  Tax expense in the current quarter reflects an estimated annual effective rate of 27.2% compared to the estimated annual rate of 29.6% for the prior year quarter.

Balance Sheet

At quarter-end, total debt was $577.0 million, down $0.4 million from November 30, 2016, due to lower short-term borrowings.  The Company had $227.3 million of cash at quarter-end.

Quarterly Segment Results

Steel Processing’s net sales of $478.2 million were up 14%, or $59.1 million, from the comparable prior year quarter on higher average direct selling prices and higher tolling volume due to the consolidation of WSP.  Operating income of $26.0 million was $4.7 million higher than the prior year quarter due to a favorable pricing spread, including a benefit from lower inventory holding losses, and contributions from WSP, partially offset by an increase in allocated corporate costs and higher manufacturing expenses.  The mix of direct versus toll tons processed was 52% to 48% in the current quarter, compared to 60% to 40% in the prior year quarter.  The change in mix was primarily the result of the consolidation of WSP effective March 1, 2016.

Pressure Cylinders’ net sales of $198.4 million were down 1%, or $2.3 million, from the comparable prior year quarter on declines in the industrial products and oil & gas equipment businesses, partially offset by improvements in consumer products.  Operating income of $10.1 million was $1.1 million higher than the prior year quarter driven by higher profitability in the consumer products business, partially offset by higher restructuring charges.   

Engineered Cabs’ net sales of $23.5 million were down $2.0 million, or 8%, from the prior year quarter due to declines in market demand.  The operating loss of $2.0 million was $2.1 million less than the prior year quarter driven by higher gross margin and lower SG&A expense.  A favorable pricing spread combined with lower manufacturing costs drove the margin improvements.

The “Other” category includes the energy innovations business, as well as non-allocated corporate expenses.  Net sales in the “Other” category were $3.3 million, an increase of $1.5 million over the prior year quarter on higher volume in the energy innovations business.  The operating income of $0.2 million for the quarter was driven by improvements in the energy innovations business, partially offset by an increase in non-allocated corporate expenses.

Recent Business Developments

  • On March 29, 2017, the Board of Directors declared a quarterly dividend of $0.20 per share payable on June 29, 2017 to shareholders of record on June 15, 2017.

Outlook

“There is great energy around our Lean Transformation efforts as we accelerate the deployment of more teams, expanding our abilities, moving more quickly and reaching deeper in our Company,” McConnell said.  “We believe the economy continues to strengthen though unevenly, with certain markets not as robust as others.  After a record first and second quarter and a strong third, we anticipate finishing our fiscal year well.”

Conference Call

Worthington will review fiscal 2017 third quarter results during its quarterly conference call on March 30, 2017, at 10:30 a.m., Eastern Daylight 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 2016 fiscal year sales of $2.8 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 industrial gas and cryogenic applications, 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 10,000 people and operates 80 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; pricing trends for raw materials and finished goods and the impact of pricing changes; demand trends for us or our markets; additions to product lines and opportunities to participate in new markets; expected benefits from Transformation efforts; 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; projected profitability potential, capacity, and working capital needs; 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; 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 global economic conditions generally and within major product markets, including an economic downturn; the effect of conditions in national and worldwide financial markets; lower oil prices as a factor in demand for products; product demand and pricing; changes in product mix, product substitution and market acceptance of our 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 we participate; 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 we do 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 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, 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 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 us in the application of our significant accounting policies; level of imports and import prices in our 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; cyber security risks; 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, 2016.

 
WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share amounts)
 
  Three Months Ended   Nine Months Ended
  February 28,
2017
  February 29,
2016
  February 28,
2017
  February 29,
2016
Net sales $ 703,436     $ 647,080     $ 2,168,765     $ 2,105,043  
Cost of goods sold   592,446       551,157       1,787,690       1,786,925  
Gross margin   110,990       95,923       381,075       318,118  
Selling, general and administrative expense   75,276       70,149       232,819       218,822  
Impairment of long-lived assets   -       -       -       25,962  
Restructuring and other expense   1,394       702       5,994       5,294  
Operating income   34,320       25,072       142,262       68,040  
Other income (expense):              
Miscellaneous income, net   749       3,305       2,484       3,723  
Interest expense   (7,674 )     (7,886 )     (23,202 )     (23,539 )
Equity in net income of unconsolidated affiliates   22,697       24,994       84,365       80,822  
Earnings before income taxes   50,092       45,485       205,909       129,046  
Income tax expense   11,141       11,342       48,555       34,157  
Net earnings   38,951       34,143       157,354       94,889  
Net earnings attributable to noncontrolling interests   3,062       4,296       9,333       9,698  
Net earnings attributable to controlling interest $ 35,889     $ 29,847     $ 148,021     $ 85,191  
               
Basic              
Average common shares outstanding   62,750       61,747       62,325       62,810  
Earnings per share attributable to controlling interest $ 0.57     $ 0.48     $ 2.37     $ 1.36  
               
Diluted              
Average common shares outstanding   64,977       63,871       64,758       64,923  
Earnings per share attributable to controlling interest $ 0.55     $ 0.47     $ 2.29     $ 1.31  
               
               
Common shares outstanding at end of period   62,776       61,285       62,776       61,285  
               
Cash dividends declared per share $ 0.20     $ 0.19     $ 0.60     $ 0.57  


WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
 
  February 28,   May 31,
   2017    2016
Assets      
Current assets:      
Cash and cash equivalents $ 227,281   $ 84,188
Receivables, less allowances of $3,134 and $4,579 at February 28, 2017      
and May 31, 2016, respectively   466,689     439,688
Inventories:      
Raw materials   164,295     162,427
Work in process   98,683     86,892
Finished products   77,226     70,016
Total inventories   340,204     319,335
Income taxes receivable   15,554     10,535
Assets held for sale   13,617     10,079
Prepaid expenses and other current assets   53,596     51,290
Total current assets   1,116,941     915,115
Investments in unconsolidated affiliates   205,008     191,826
Goodwill   244,941     246,067
Other intangible assets, net of accumulated amortization of $59,577 and      
$49,532 at February 28, 2017 and May 31, 2016, respectively   85,289     96,164
Other assets   24,976     29,254
Property, plant and equipment:      
Land   16,543     18,537
Buildings and improvements   257,190     256,973
Machinery and equipment   1,001,232     945,951
Construction in progress   26,403     48,156
Total property, plant and equipment   1,301,368     1,269,617
Less: accumulated depreciation   731,348     686,779
Total property, plant and equipment, net   570,020     582,838
Total assets $ 2,247,175   $ 2,061,264
       
Liabilities and equity      
Current liabilities:      
Accounts payable $ 351,998   $ 290,432
Short-term borrowings   167     2,651
Accrued compensation, contributions to employee benefit plans and      
related taxes   75,618     75,105
Dividends payable   13,557     13,471
Other accrued items   45,054     45,056
Income taxes payable   2,508     2,501
Current maturities of long-term debt   878     862
Total current liabilities   489,780     430,078
Other liabilities   64,441     63,487
Distributions in excess of investment in unconsolidated affiliate   67,722     52,983
Long-term debt   576,002     577,491
Deferred income taxes, net   27,183     17,379
Total liabilities   1,225,128     1,141,418
Shareholders' equity - controlling interest   898,468     793,371
Noncontrolling interests   123,579     126,475
Total equity   1,022,047     919,846
Total liabilities and equity $ 2,247,175   $ 2,061,264
       


WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 
  Three Months Ended   Nine Months Ended
  February 28,
2017
  February 29,
2016
  February 28,
2017
  February 29,
2016
Operating activities:              
Net earnings $ 38,951     $ 34,143     $ 157,354     $ 94,889  
Adjustments to reconcile net earnings to net cash provided by operating activities:              
Depreciation and amortization   21,677       20,761       65,154       62,748  
Impairment of long-lived assets   -       -       -       25,962  
Provision for (benefit from) deferred income taxes   7,609       9,322       9,946       (6,069 )
Bad debt (income) expense   (41 )     187       110       195  
Equity in net income of unconsolidated affiliates, net of distributions   (1,256 )     (622 )     (182 )     (16,524 )
Net (gain) loss on sale of assets   1,875       (3,385 )     3,358       (7,633 )
Stock-based compensation   4,304       3,627       11,264       11,284  
Changes in assets and liabilities, net of impact of acquisitions:              
Receivables   (44,719 )     10,688       (34,920 )     76,791  
Inventories   (2,346 )     37,211       (20,869 )     61,032  
Prepaid expenses and other current assets   (13,379 )     (19,309 )     (7,954 )     9,324  
Other assets   (423 )     (1,216 )     1,987       (4,019 )
Accounts payable and accrued expenses   89,736       13,756       66,849       (17,464 )
Other liabilities   718       1,052       2,813       5,352  
Net cash provided by operating activities   102,706       106,215       254,910       295,868  
               
Investing activities:              
Investment in property, plant and equipment   (21,128 )     (14,973 )     (52,174 )     (75,465 )
Acquisitions, net of cash acquired   -       (31,256 )     -       (34,206 )
Investments in unconsolidated affiliates   -       (3,683 )     -       (5,596 )
Proceeds from sale of assets   2       431       958       9,887  
Net cash used by investing activities   (21,126 )     (49,481 )     (51,216 )     (105,380 )
               
Financing activities:              
Net repayments of short-term borrowings   (330 )     (16,716 )     (2,484 )     (57,728 )
Proceeds from long-term debt   -       -       -       921  
Principal payments on long-term debt   (218 )     (216 )     (655 )     (644 )
Proceeds from issuance of common shares, net of tax withholdings   (12,197 )     2,747       (9,225 )     5,811  
Payments to noncontrolling interests   (3,360 )     (4,206 )     (10,141 )     (9,106 )
Repurchase of common shares   -       (28,352 )     -       (99,848 )
Dividends paid   (13,374 )     (11,913 )     (38,096 )     (35,529 )
Net cash used by financing activities   (29,479 )     (58,656 )     (60,601 )     (196,123 )
               
Increase (decrease) in cash and cash equivalents   52,101       (1,922 )     143,093       (5,635 )
Cash and cash equivalents at beginning of period   175,180       27,354       84,188       31,067  
Cash and cash equivalents at end of period $ 227,281     $ 25,432     $ 227,281     $ 25,432  
               


WORTHINGTON INDUSTRIES, INC.
SUPPLEMENTAL DATA
(In thousands, except volume)
 
This supplemental information is provided to assist in the analysis of the results of operations.
 
  Three Months Ended   Nine Months Ended
  February 28,
2017
  February 29,
2016
  February 28,
2017
  February 29,
2016
Volume:              
Steel Processing (tons)   943,821       800,567       2,995,466       2,495,151  
Pressure Cylinders (units)   17,842,457       17,056,706       53,067,142       52,987,098  
               
Net sales:              
Steel Processing $ 478,174     $ 419,026     $ 1,492,654     $ 1,377,638  
Pressure Cylinders   198,433       200,721       598,303       626,288  
Engineered Cabs   23,547       25,553       71,591       92,869  
Other   3,282       1,780       6,217       8,248  
Total net sales $ 703,436     $ 647,080     $ 2,168,765     $ 2,105,043  
               
Material cost:              
Steel Processing $ 324,282     $ 284,402     $ 975,985     $ 955,154  
Pressure Cylinders   83,826       84,868       243,056       269,430  
Engineered Cabs   10,769       12,329       32,189       43,747  
               
Selling, general and administrative expense:              
Steel Processing $ 34,422     $ 30,018     $ 107,110     $ 95,858  
Pressure Cylinders   35,185       35,389       107,705       106,178  
Engineered Cabs   3,582       4,049       11,202       14,257  
Other   2,087       693       6,802       2,529  
Total selling, general and administrative expense $ 75,276     $ 70,149     $ 232,819     $ 218,822  
               
Operating income (loss):              
Steel Processing $ 26,026     $ 21,294     $ 116,256     $ 71,574  
Pressure Cylinders   10,071       8,969       35,480       15,479  
Engineered Cabs   (2,001 )     (4,053 )     (7,225 )     (17,634 )
Other   224       (1,138 )     (2,249 )     (1,379 )
Total operating income $ 34,320     $ 25,072     $ 142,262     $ 68,040  
               
Equity income (loss) by unconsolidated affiliate:              
WAVE $ 18,412     $ 18,678     $ 57,878     $ 59,838  
ClarkDietrich   2,753       1,265       15,682       10,289  
Serviacero   481       1,673       4,472       2,854  
ArtiFlex   1,068       2,995       6,095       7,153  
WSP   -       191       -       1,665  
Other   (17 )     192       238       (977 )
Total equity income $ 22,697     $ 24,994     $ 84,365     $ 80,822  
               


WORTHINGTON INDUSTRIES, INC.
SUPPLEMENTAL DATA
(In thousands, except volume)
 
The following provides detail of Pressure Cylinders volume and net sales by principal class of products.
 
  Three Months Ended   Nine Months Ended
  February 28,
2017
  February 29,
2016
  February 28,
2017
  February 29,
2016
Volume (units):              
Consumer products   10,818,423       10,478,006       33,291,082       32,979,643  
Industrial products   6,923,044       6,481,937       19,403,628       19,709,251  
Alternative fuels   100,509       96,123       370,761       295,200  
Oil & gas equipment   481       640       1,671       3,004  
Total Pressure Cylinders   17,842,457       17,056,706       53,067,142       52,987,098  
               
Net sales:              
Consumer products $ 54,302     $ 51,103     $ 170,363     $ 155,545  
Industrial products   105,809       110,144       305,037       324,572  
Alternative fuels   22,971       22,298       81,903       71,070  
Oil & gas equipment   15,351       17,176       41,000       75,101  
Total Pressure Cylinders $ 198,433     $ 200,721     $ 598,303     $ 626,288  
 
 
The following provides detail of impairment of long-lived assets and restructuring and other expense included in operating income (loss) by segment.
 
  Three Months Ended   Nine Months Ended
  February 28,
2017
  February 29,
2016
  February 28,
2017
  February 29,
2016
Impairment of long-lived assets:              
Steel Processing $ -     $ -     $ -     $ -  
Pressure Cylinders   -       -       -       22,962  
Engineered Cabs   -       -       -       3,000  
Other   -       -       -       -  
Total impairment of long-lived assets $ -     $ -     $ -     $ 25,962  
               
Restructuring and other expense (income):              
Steel Processing $ 212     $ 1,068     $ 1,496     $ 3,788  
Pressure Cylinders   1,056       (1,031 )     3,165       (316 )
Engineered Cabs   169       416       1,379       3,059  
Other   (43 )     249       (46 )     (1,237 )
Total restructuring and other expense $ 1,394     $ 702     $ 5,994     $ 5,294  
               


 

Contacts:
CATHY M. LYTTLE
VP, CORPORATE COMMUNICATIONS
AND INVESTOR RELATIONS
614.438.3077 | cathy.lyttle@WorthingtonIndustries.com

SONYA L. HIGGINBOTHAM
DIRECTOR, CORPORATE COMMUNICATIONS
614.438.7391 | sonya.higginbotham@worthingtonindustries.com

200 Old Wilson Bridge Rd. | Columbus, Ohio 43085
WorthingtonIndustries.com

Worthington Industries, Inc.