Worthington Reports Second Quarter Fiscal 2016 Results

COLUMBUS, Ohio, December 16, 2015 – Worthington Industries, Inc. (NYSE: WOR) today reported net sales of $699.8 million and net earnings of $23.2 million, or $0.36 per diluted share, for its fiscal 2016 second quarter ended November 30, 2015, which included pre-tax impairment and restructuring charges totaling $24.5 million, which reduced earnings per diluted share by $0.24.  Impairment and restructuring charges in the current quarter related primarily to the write-down of certain long-lived assets within the Oil & Gas Equipment business. In the second quarter of fiscal 2015, the Company reported net sales of $871.0 million and net earnings of $29.5 million, or $0.43 per diluted share.  Net earnings in the second quarter of the prior year included pre-tax impairment and restructuring charges, which reduced earnings per diluted share by $0.12.

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

(U.S. dollars in millions, except per share data)

"We had a solid performance for the quarter in the face of some market weakness," said John McConnell, Chairman and CEO. "We have responded to the softer markets by lowering manufacturing costs to help improve results in those businesses."  McConnell added, "The majority of our joint ventures delivered good results in the quarter."

Consolidated Quarterly Results

Net sales for the second quarter of fiscal 2016 were $699.8 million, down 19.7% from the comparable quarter in the prior year, when net sales were $871.0 million. The decrease was the result of lower volume in nearly all business segments, combined with lower average selling prices in Steel Processing driven by the market decline in steel prices and in Engineered Cabs due to product mix.

Gross margin declined $16.0 million from the prior year quarter to $109.2 million due to lower volume, partially offset by lower manufacturing expenses and a favorable pricing spread.

Operating income for the current quarter was $12.0 million, a decrease of $21.2 million from the prior year quarter.  In addition to the lower gross margin, operating income in the current quarter was negatively impacted by higher impairment and restructuring charges, totaling $24.5 million, but partially offset by lower SG&A expenses.   The impairment and restructuring charges resulted primarily from the write-down of certain long-lived assets within Pressure Cylinders' Oil & Gas Equipment business and the closure of Steel Processing's stainless steel business.

Interest expense was $7.8 million for the current quarter, compared to $9.7 million in the comparable period of the prior year.  The decrease resulted from lower average debt levels, partially due to the lower market price of steel, which favorably impacts working capital.

The Company's portion of equity income from unconsolidated joint ventures increased $6.9 million from the prior year quarter to $29.2 million.  Joint venture sales totaled $389.2 million for the current quarter.  Higher contributions from the WAVE, ClarkDietrich and ArtiFlex joint ventures were partially offset by lower earnings at Serviacero and WSP.  Equity income from ClarkDietrich was favorably impacted by $4.0 million due to a legal settlement.  The Company received cash distributions of $18.9 million from unconsolidated joint ventures during the quarter.

Income tax expense was $8.8 million in the current quarter compared to $15.6 million in the comparable quarter in the prior year.  The decrease was primarily due to lower net earnings.  The current quarter tax expense reflected an estimated annual effective rate of 31.2% compared to 33.5% for the prior year quarter.

 

Balance Sheet

At quarter-end, total debt was $629.4 million, down $41.3 million from May 31, 2015, due to lower short-term borrowings.  As of November 30, 2015, $25.2 million was drawn on the Company's $500 million revolving credit facility and $20.0 million was outstanding under the Company's trade accounts receivable securitization facility.  The Company had $27.4 million of cash at quarter-end.

Quarterly Segment Results

Steel Processing's net sales of $467.8 million were down 15%, or $84.9 million, from the comparable prior year quarter as the additional sales from the January 2015 Rome Strip Steel acquisition were more than offset by lower volume and lower average selling prices.  Operating income of $26.6 million was $7.2 million lower than the prior year quarter due primarily to lower volume that was partially offset by lower manufacturing expenses.

Pressure Cylinders' net sales of $201.2 million were down 20%, or $51.6 million, from the comparable prior year quarter driven primarily by a 65% volume decrease in Oil & Gas Equipment business and the May 2015 disposition of our Mississippi facility.  The operating loss of $10.3 million was $19.9 million lower than the prior year operating income of $9.6 million primarily due to higher impairment charges coupled with a decline in the Oil & Gas Equipment business, which were partially offset by improvements in Industrial and Consumer Products.

Engineered Cabs' net sales of $28.7 million were $22.8 million, or 44%, below the prior year quarter due to declines in market demand, the January 2015 sale of the assets of Advanced Component Technologies, Inc., and the September 2015 closure of the Florence, South Carolina facility.  The operating loss in the current quarter decreased $1.3 million to $4.3 million as manufacturing and SG&A expenses were reduced to match the lower demand.

The "Other" category includes the Construction Services and Energy Innovations businesses, as well as non-allocated corporate expenses.  Net sales in the "Other" category were $2.1 million, a decrease of $11.8 million from the prior year quarter as the Construction Services business has been substantially wound down.  The Construction Services business reported a $0.2 million loss for the quarter.

 

Recent Business Developments

·	On December 7, 2015, the Company completed the acquisition of the global CryoScience business of Taylor Wharton, including a manufacturing facility in Theodore, Ala. for $31.4 million. The asset purchase was made pursuant to the Chapter 11 bankruptcy proceedings of Taylor Wharton.

·	During the quarter, the Company repurchased a total of 1,500,000 common shares for $43.9 million at an average price of $29.26.

·	On December 16, 2015, the Board of Directors declared a quarterly dividend of $0.19 per share payable on March 29, 2016 to shareholders of record on March 15, 2016.

Outlook

"Our legacy businesses are performing well despite some market softness and challenging conditions in steel pricing," McConnell said.  "We remain committed to growing our Company and adding value to our shareholders investment in us."

Conference Call

Worthington will review fiscal 2016 second quarter results during its quarterly conference call on December 17, 2015, at 10:30 a.m., Eastern 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 83 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; 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; 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.

 

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WORTHINGTON INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share amounts)
		Three Months Ended								Six Months Ended
		November 30,								November 30,
		2015				2014				2015				2014
Net sales		$	699,816			$	871,012			$	1,457,963			$	1,733,426
Cost of goods sold			590,637				745,789				1,235,768				1,478,696
Gross margin			109,179				125,223				222,195				254,730
Selling, general and administrative expense			72,722				77,308				148,673				152,563
Impairment of long-lived assets			22,962				14,235				25,962				16,185
Restructuring and other expense			1,523				488				4,592				588
Operating income			11,972				33,192				42,968				85,394
Other income (expense):
Miscellaneous income			996				1,220				418				1,543
Interest expense			(7,799	)			(9,676	)			(15,653	)			(19,192	)
Equity in net income of unconsolidated affiliates			29,247				22,319				55,828				50,243
Earnings before income taxes			34,416				47,055				83,561				117,988
Income tax expense			8,800				15,600				23,508				37,713
Net earnings			25,616				31,455				60,053				80,275
Net earnings attributable to noncontrolling interests			2,375				1,993				5,402				6,645
Net earnings attributable to controlling interest		$	23,241			$	29,462			$	54,651			$	73,630
Basic
Average common shares outstanding			62,676				67,105				63,338				67,337
Earnings per share attributable to controlling interest		$	0.37			$	0.44				0.86			$	1.09
Diluted
Average common shares outstanding			64,527				69,181				65,015				69,780
Earnings per share attributable to controlling interest		$	0.36			$	0.43			$	0.84			$	1.06
Common shares outstanding at end of period			62,101				66,912				62,101				66,912
Cash dividends declared per share		$	0.19			$	0.18			$	0.38			$	0.36