March 30, 2007 — Worthington Industries, Inc. reported net earnings of $5.5 million on net sales of $677.3 million for the fiscal third quarter, and net earnings of $75.7 million on net sales of $2,185.2 million for the nine-month period ended February 28, 2007.
Third Quarter Results—Net earnings of $5.5 million ($0.06 earnings per diluted share) compare to net earnings of $19.2 million ($0.21 per diluted share) for the same period last year. Net sales of $677.3 million were in line with net sales of $681.5 million for the third quarter of fiscal 2006.
Quarterly net sales and operating income in the Pressure Cylinders segment set records. Net sales of $133.7 million were a third quarter record and quarterly operating income of $21.8 million was the best ever.
Equity income from six unconsolidated joint ventures totaled $13.5 million due to record third quarter performance at Worthington Armstrong Venture (WAVE). Cash dividends received from joint ventures totaled $54.4 million, with WAVE contributing $50.0 million of the dividends.
During the third quarter, 831,600 common shares were repurchased, reducing total outstanding shares to 84.4 million at quarter end. In addition, $14.5 million was paid to shareholders in a regular quarterly dividend. At quarter end, the dividend yielded a 3.4% annualized return.
Nine Month Results—Net earnings of $75.7 million ($0.87 earnings per diluted share) compare to net earnings of $86.6 million ($0.97 earnings per diluted share) for the same period last year. Net sales of $2,185.2 million reflect a 5% increase compared to net sales of $2,075.2 million for the same period last year.
Cash dividends received from joint ventures totaled $87.0 million for the year-to-date period, with WAVE contributing $81.0 million of the dividends.
Management Comments—“As we anticipated, this was a difficult quarter. Although we are not satisfied with the overall results, we are confident that growth opportunities exist in each of our business segments and joint ventures in the near and long term,” said John P. McConnell, Chairman and CEO. “Despite the challenges in Steel Processing and Metal Framing, we did have record earnings in Pressure Cylinders and our WAVE joint venture. Both Steel Processing and Metal Framing are positioned to improve greatly during our seasonally strong fourth quarter. The improved performance in Steel Processing and Metal Framing, combined with continued strong performance in Pressure Cylinders and WAVE, should provide much better results in the fourth quarter,” said McConnell.
Quarterly Segment Results—In the Steel Processing segment, quarterly net sales of $324.3 million were $27.6 million (8%) lower than $351.9 million in the comparable quarter of fiscal 2006. The decrease was the result of significantly lower volumes (down 14%) partially offset by higher average selling prices (up 7%). The average spread between selling prices and material costs was up 5% from the year-ago period, but significantly lower volume at automotive and construction-related customers resulted in a decline in operating income in this seasonally slow quarter.
In the Metal Framing segment, net sales of $173.9 million were $5.8 million (3%) lower than $179.7 million in the comparable quarter of fiscal 2006. Higher selling prices (up 5%) partially offset the effect of lower volumes (down 8%). Selling prices rose from the year-ago period but not enough to offset significantly higher material costs. Material costs climbed 32% due to high galvanized steel material expense (driven by record zinc prices) and an unfavorable mix of prime and secondary steel inventory. Selling prices were constrained by weak demand, which was the result of: reduced residential and commercial construction activity (especially in the significant Florida market); product substitution (as steel remained higher priced than alternative building materials, such as wood); increased competition; and delays in commercial construction projects as developers anticipated lower material prices. The much narrower spread between selling prices and material costs resulted in an operating loss in the quarter. The quarterly loss included a $1.7 million asset write-down for a closed facility in Laporte, Ind.
In the Pressure Cylinders segment, net sales increased $23.1 million (21%) to $133.7 million from $110.6 million in the comparable quarter of fiscal 2006. Average selling prices improved significantly due to product mix and price increases in certain product lines. Strong performance in North America and Europe is the result of a series of plans over several years to cut costs, exit unprofitable product lines, introduce new product lines, consolidate facilities, and grow profitable lines through capacity and geographic expansion. These actions, along with a strong overall sales effort, led to a doubling in operating income from the prior year.
Worthington’s unconsolidated joint ventures contributed $13.5 million in equity income, compared to $8.2 million in the year-ago quarter. Continued strong performance at the largest of six joint ventures, Worthington Armstrong Venture (WAVE), which manufactures ceiling grid for the commercial and residential construction markets, was offset somewhat by weaker results at TWB, WSP and VWS, which are closely tied to automotive end markets. The prior-year period was negatively impacted by a $6.1 million income tax adjustment at Acerex, a Mexican steel processing venture that has since been sold.
Outlook—Worthington expects fourth-quarter earnings to be much improved from the third quarter for several reasons. Metal Framing is expected to return to profitability as higher-priced inventory has been depleted, and demand and selling prices are improving. Positive trends at Pressure Cylinders and WAVE are expected to continue. Finally, seasonal strength typically benefits all of the business segments and joint ventures in the fourth quarter compared to seasonal weakness in the third quarter (which includes the month of December).
Announcements—The company recently announced that its TWB Co. laser welded blanking joint venture with ThyssenKrupp Steel AG will begin operating a new manufacturing facility in Prattville, Ala., to serve the automotive market in the south. The 50,000-square-foot facility will be ready for production in May 2007.
The company also recently announced that Dietrich Metal Framing obtained three key code endorsements for its UltraSTEEL® Framing product from the International Code Conference Evaluation Services, American Society for Testing and Materials International, and Architectural Testing, Inc. All three bodies determined that UltraSTEEL is a compliant building product and is approved for construction use even when not specifically named.
Worthington Industries is a leading diversified metal processing company with annual sales of approximately $3 billion. The Columbus, Ohio, based company is North America’s premier value-added steel processor and a leader in manufactured metal products such as metal framing, pressure cylinders, automotive past model service stampings, metal ceiling grid systems and laser welded blanks. Worthington employs more than 8,000 people and operates 63 facilities in 10 countries.
Founded in 1955, the company operates under a long-standing corporate philosophy rooted in the golden rule, with earning money for its shareholders as the first corporate goal. This philosophy, an unwavering commitment to the customer, and one of the strongest employee/employer partnerships in American industry serve as the company’s foundation. Worthington Industries is listed as one of America’s Most Admired Companies by Fortune magazine.