Worthington Posts Best FY-3rd Quarter in Company History

During their conference call with analysts, the company reported steel prices as remaining relatively stable during the quarter (December 2013-February 2014).

During the quarter the company closed their Baltimore processing facility and transferred the business to other locations.

The company was optimistic on the agriculture markets while less so on the mining sector as they reported, “…while mining activities up, owners are delaying capital equipment purchases. Our volumes at this point generally match the industry trends with construction and forestry growing slightly, mining flat, and agricultural retreating slightly; but we expect the agricultural market to be supported going forward by solid grain prices and record beef and dairy prices.”

In response to a question from one of the analysts, Mark Russell reported that they anticipate their business to be about 50 percent toll processing and 50 percent direct service center business.

They also responded to a question by Sal Tharani of Goldman Sachs regarding the move away from steel to aluminum on the tolling side of their business.  John McConnell said, “Sal, so far that has not affected our volumes in any material way whatsoever of it and they have continued without much impact at all. We are prepared in a couple of the businesses to be able to easily transition to processing aluminum and that’s not sure all of them, but for several of them it would not be hard at all. All we have to do is change some handling equipment from magnetic to pneumatic and we’d be there. And so that’s an option for us. We have not done that because we’re full with what we’ve got. And longer-term, I’ll just take this opportunity to talk about the longer-term threat because the F-150 has been big news. And all I can say is that that effect on what we do is going to be long-dated and happen over a period of years.”

Worthington is an active participant in the HRC Futures markets using futures contracts to protect their own manufacturing operations as well as specific contracts with some of their customers. They were asked about their outlook on hot rolled coil with the following question and response:

Luke Folta: “I wanted to follow-up on the hot-rolled coil outlook. We’ve heard from some of our contacts that – we’re hearing conflicting things. So we’re hearing that there is some delay in terms of import volumes that could be showing up in the Midwest, that could have some impact on pricing in the region going forward there, just given the logistical constraints. On the other side of it, we are hearing that the price increases are being successfully implemented in some cases, and we’re seeing some push-out in lead times following the announcements. So I guess I’m just trying to get a sense of where we are heading directionally. Do you have any thoughts on that?”

 John P. McConnell: “Yeah, Luke. We don’t see much more than you do. And you probably see some things we don’t, but scrap is up and the spot price is up slightly. And the imports are coming. We track those by shipload if we can. And so we have some imports coming. And we see that balance is being reflected accurately in the forward curve of the market. So if you look at the forward curve in the futures market, it’s pretty flat. And that’s out for more than 24 months. So, that’s the best guess by people who are willing to bet real money on their guesses. So that’s the best indication we have.”

SMU Note: We publish the HRC and BUS (Busheling scrap) forward curve every day on the Home Page of our website. We also conduct Managing Price Risk workshops with our next one projected to be in late May/early June. The next workshop will be for those wanting to understand Strategies and how to properly Executive trades based on a strategy. More details to come soon.