Why Worthington Industries Is an Ironclad Stock for Your Portfolio

Source: Thinkstock

Source: Thinkstock

Worthington Industries Inc (NYSE:WOR) is a very well-respected metals manufacturing company on Wall Street. This unique company focuses on value-added steel processing and manufactured metal products in the United States, Canada, Europe, and internationally. It operates through three segments: Steel Processing, Pressure Cylinders, and Engineered Cabs. The Steel Processing segment provides flat-rolled and stainless steel processing services to customers in the automotive, construction, lawn and garden, hardware, furniture, office equipment, leisure and recreation, appliance, agricultural, HVAC, container, and aerospace markets. It also toll processes steel for steel mills, large end-users, service centers, and other processors. The Pressure Cylinders segment manufactures and sells high-pressure steel cylinders for compressed natural gas storage in motor vehicles, cylinders for compressed industrial gases, filled and unfilled pressure cylinders, tanks, and various accessories and related products for various end-use market applications, which include retail, alternative fuels, energy, industrial, and other.

The Engineered Cabs segment designs and manufactures custom engineered open and closed cabs and operator stations for heavy mobile equipment in a range of industries. It also provides other specialty weldments, kits, accessories, and cab components principally to original equipment manufacturers. The company also designs and manufactures steel reusable custom platforms, racks, and pallets for supporting, protecting, and handling products in the shipping process for customers in industries, such as automotive, lawn and garden, and recreational vehicles. It further engages in the design, supply, and building/construction of mid-rise light gauge steel framed commercial structures, and single family and multi-family housing units. In addition, it develops energy solutions to minimize energy consumption, manages energy solution installation, and monitors and verifies energy usage. The stock caught my eye today after blowing earnings numbers out of the water. Truly it was impressive, beating numbers on the top and bottom line. I was so impressed that I am considering a long position and would like to share with you the recent performance and why I think it will be an asset in the metals/industrial allocation in anyone’s portfolio.

Just how good was the quarter? Well, Worthington reported net sales of $891.0 million and net earnings of $33.2 million, or $0.47 per diluted share, for its fiscal 2014 fourth quarter that just ended May 31, 2014. But there are some important items in these earnings. It’s important to note that net earnings in the quarter include impairment and restructuring charges that reduced earnings by $23.7 million, or $0.21 per share after tax. The most significant charge was a $19.0 million impairment of Worthington Nitin Cylinders, a 60 percent owned joint venture in India. Worthington’s portion of this charge was $11.4 million after eliminating its partner’s $7.6 million share in the non-controlling interest line. In addition, earnings benefitted from a $4.9 million pre-tax gain in administrative expenses as it settled a legal dispute with a supplier involved in the 2012 recall of cylinders, and it recorded $2.7 million of miscellaneous income for insurance proceeds related to property damaged in a fire at itsAustria cylinder plant. The after tax benefit of these two items was $0.07 per share.

Recall that in the fourth-quarter of the prior year, the company reported net sales of $704.1 million and net earnings of $33.5 million, or $0.46 per diluted share. Included in the prior quarter were several impairment and other charges totaling $10.8 million pretax, which reduced earnings per diluted share by $0.14. So the company after items, really did a phenomenal job. Gross margin for the current quarter was $130.8 million, compared to $111.1 million in the prior year quarter. The $19.7 million increase was the result of higher overall volumes.

Operating income for the current quarter was $32.3 million, a decrease of $1.2 million from the prior year quarter. However, the segment results were quite strong.