Worthington’s 2Q Sales Up, Earnings Down
Worthington Industries reported net earnings of $14.5 million during the company’s fiscal second quarter, which ended Nov. 30. Earnings were off 37.5 percent from the $23.2 million reported during the same three months of 2009.
Net sales for the quarter for the Columbus-based company totaled $580.7 million, up 29.6 percent from the same period the previous year. For the first six months of Worthington’s fiscal year, net sales were up 38.3 percent to $1.2 billion and net earnings were up 23.0 percent to $36.8 million.
“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. 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.
The Steel Processing division’s net sales of $317.1 million were up 41 percent over the prior-year quarter. A 22 percent jump in volumes increased sales by $61.5 million over the prior-year quarter. The largest increase came in the 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 in the current quarter, resulted in an increase in the average selling price and a $30.0 million increase in net sales.
“We felt good about maintaining strip volume following the acquisition of Gibraltar,” McConnell said. “With next year’s auto contracts, we have generally increased our presence in the auto sector.”
Worthington’s mix of direct vs. toll tons processed was 54 percent to 46 percent during the quarter, consistent with the mix a year ago. The operating income of $8.4 million was $6.3 million lower than the prior-year quarter. Margins in the quarter were compressed as higher priced inventory flowed through cost of goods sold while falling market steel prices lowered selling prices, compressing spreads, officials said.
The Pressure Cylinders division’s net sales of $136.2 million were up 30 percent 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.
Worthington’s Metal Framing sales of $77.1 million were down 4 percent, or $3.5 million, from the prior-year quarter as volumes declined 13 percent, 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.
“The third quarter is our historically slowest quarter of the year and, although 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.”
The company announced such an opportunity, in December, a joint venture in China to manufacture light-gauge steel framing products and to design, engineer and supply light-gauge steel-framed mid-rise residential buildings. This follows a similar effort in Mozambique to construct 26 residential buildings using Worthington’s steel framing system on the campus of the All-Africa Games, scheduled for September.
The Chinese investment is for less than $3 million, plus idled equipment from the company’s Dietrich Metal Framing business. “Both of these opportunities provide the scale of development we’re seeking,” McConnell said. “These opportunities risk little upfront capital while offering potentially very high returns.”