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.
The Steel Processing segment’s net sales were $563.5 million, up 48 percent, or $183.9 million, from the prior year quarter primarily from the consolidation of a company known as TWB and increased sales in the automotive, agriculture and construction markets. Operating income increased by $13.3 million to $33.3 million due primarily to the increase in volume and the addition of TWB. The overall increase in operating income was partially offset by the $2.5 million impairment charge related to Precision Specialty Metals. The Pressure Cylinders segment’s net sales of $264.2 million were up 5 percent, or $11.9 million, from the comparable prior year quarter driven by recent acquisitions and higher average selling prices in retail products.
Operating income was $6.0 million, a decrease of $10.4 million from the prior year quarter, as the favorable impact of recent acquisitions was more than offset by the impairment charges. The Engineered Cabs segment’s net sales declined $2.4 million in the current quarter to $52.7 million as lower average selling prices, due to product mix, more than offset the impact of higher overall volumes. Operating loss in the current quarter increased $3.0 million to $4.2 million on lower net sales and higher manufacturing and administrative expenses. John McConnell, Chair and CEO, stated:
We had a great fiscal 2014 with the highest annual earnings per share in our company’s history. The fourth-quarter results showed improvement over the prior year period with Steel Processing leading the way. Our transformation efforts continue to help that business deliver strong results as it nears the peak volumes we saw prior to the downturn. Pressure Cylinders had good retail and industrial sales but experienced a negative short-term impact from the severe winter weather conditions in the energy business. Transformation is underway with some early success in our Engineered Cabs business while it operates in a flat market environment.
All in all, we are pleased with the year over-year-results and our ability to keep our commitment to shareholders through our stock buy-back and the increase in our dividend. I want to congratulate our employees for their hard work and dedication to improving all aspects of our businesses.
I think this stock is a buy going forward. It trades at 20 times earnings and pays a 1.4 percent dividend yield. Further, its buyouts and acquisitions should send earnings, and subsequently share prices much higher in the coming quarters. The company anticipates continued year-over-year growth in fiscal 2015 as it pursues a strategy of revenue generation and a commitment to delivering consistent earnings growth. The company believes automotive segment sales should remain strong it is seeing some signs of positive growth in the construction markets. The company also expects good results from key Pressure Cylinders markets in retail, industrial, alternative fuels, and energy products. With these positive expectations, a quarterly beat on the top and bottom lines and the payment of a decent dividend, I believe Worthington Industries has the potential to top $50 by 2015.
Disclosure: Christopher F. Davis holds no position in Worthington Industries but may initiate a position in the next 72 hours. He has a buy rating on the stock and a $52 price target.