Worthington Industries, Inc. reported net earnings of $14.5 million on net sales of $580.7 million for its fiscal 2011 second quarter, and net earnings of $36.8 million on net sales of $1198 million for the six months ended November 30, 2010.
Second Quarter Results — The $14.5 million net earnings ($0.20 per share) compare to net earnings of $23.2 million ($0.29 per share) in last year’s second quarter. The net sales of $580.7 million represent a 30% increase vs. net sales of $448.0 million in the year-ago second quarter. An overall increase in volumes had an $86.3 million positive impact on net sales as both Steel Processing and Pressure Cylinders showed improvements, while Metal Framing’s volumes declined.
Gross margin was $69.8 million (12% of net sales) compared to $67.2 million (15% of net sales) for the prior year second quarter. The $2.6 million increase was primarily due to increased volumes in both Steel Processing and Pressure Cylinders, while the decline in gross margin percentage was due to lower spreads between average selling prices and the cost of steel. Inventory holding losses reduced margins in the current quarter; whereas, the prior year quarter benefited from inventory holding gains.
Operating income was $12.9 million, down $6.2 million (32%) versus last year. Increases in volume were offset by reduced spreads and increases in manufacturing and SG&A expenses.
Management Comments — “I am pleased with the performance of our Company as we continue to produce solid results in our Steel Processing and Pressure Cylinders business segments, despite an uneven economic recovery,” said Chairman and CEO John P. McConnell.
“Automotive demand continued to provide strong volumes in Steel Processing and we have been encouraged to see the continued improvement in our Pressure Cylinders European operations and volume increases in most of our cylinder product lines in North America,” McConnell added.
Quarterly Segment Results — Steel Processing’s net sales of $317.1 million were up $91.5 million (41%) over the prior year quarter. A 22% increase in volumes increased sales by $61.5 million, with the largest boost coming from higher-value-added products in the automotive segment, due to the contribution from the Gibraltar strip steel acquisition. This change in the product mix combined with a higher average cost of steel resulted in an increase in the average selling price and a $30.0-million increase in net sales.
Steel Processing’s mix of direct versus toll tons processed was 54% to 46% this quarter, consistent with the mix a year ago. Operating income of $8.4 million was $6.3 million lower, with higher volumes contributing $14.7 million to operating income. However, this was more than offset by the impact of lower margins and higher manufacturing and SG&A expenses. Margins in the current quarter were compressed as higher-priced inventory flowed through cost of goods sold while falling market steel prices lowered selling prices, compressing spreads. The inverse was true in the prior year.
Pressure Cylinders’ net sales of $136.2 million were up 30% from the year-ago quarter. The North American operations experienced volume increases in the majority of its product lines, in addition to being aided by the acquisitions of SCI and Hy-Mark. Overall volumes for the European operations improved as the industrial gas and automotive markets began to recover from the global economic downturn. Operating income increased 133% to $9.5 million, driven by a solid performance in the North American operations and improving European operations.
Metal Framing’s net sales of $77.1 million were down $3.5 million (4%) from the prior-year quarter as volumes were down 13%, reducing net sales by $12.4 million. The primary reason for the decline in volume and net sales related to the sale of the Canadian operations in November 2009. Excluding the impact of the Canadian operations in the prior-year quarter, net sales were up 4% on volumes that were 6% lower. The impact of higher average selling prices was not enough to offset higher material prices. This segment has been negatively impacted by a dramatically weakened commercial construction market, pricing pressures, and inventory holding losses. The current operating loss of $6.7 million compares to operating income of $2.8 million in the prior-year quarter.
Company Outlook — “The third quarter is our historically slowest quarter of the year and while we do expect to see some seasonality impact, we anticipate sustaining much of our volume improvements in Steel Processing and Pressure Cylinders,” McConnell said. “We are still seeing low demand in a slow-to-recover construction market for Metal Framing and we will continue to assess the business and its markets.
“Meanwhile, we have been giving more of our attention to emerging markets where there is a commitment to increase and improve housing opportunities in developing countries,” continued McConnell. “Our recently announced international building projects, centered on our steel framing system for mid-rise buildings, are providing potential growth opportunities. We are also expanding our alternative fuel strategy for Pressure Cylinders with our entry into India with Nitin Cylinders.”
McConnell added, “Our operational improvements and efficiencies continue as priorities while we focus on positioning the Company for growth.”
Worthington Industries is a leading diversified metals manufacturing company with 2010 fiscal year sales of approximately $1.9 billion. The Columbus, Ohio, based company is a value-added steel processor and a leader in manufactured pressure cylinders; light gauge steel framing for commercial and residential construction; framing systems and stairs for mid-rise buildings; current and past model automotive service stampings; metal ceiling grid systems; steel pallets and racks; and through joint ventures, suspension grid systems for concealed and lay-in panel ceilings, and laser welded blanks. Worthington employs approximately 6500 people and operates 65 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 an unwavering commitment to the customer, supplier, and shareholder, and it serves as the company’s foundation for one of the strongest employee-employer partnerships in American industry.
