Steel Mills

Headwinds in Some Sectors Reduce Worthington Q2 Earnings

December 17, 2014

Worthington Industries reported an increase in sales for the second quarter of its 2015 fiscal year ending November 30, 2014. Sales of $871 million, however, could not offset weakness in the company’s Engineered Cabs and Oil & Gas sectors. Net earnings fell to $29.5 million from $44.2 million in the previous quarter but surpassed Q2 net earnings of $23 million in FY 2014. Earnings per share dropped to $0.43 from $0.63.

Headwinds from increased manufacturing costs, primarily in two Worthington facilities in Engineered Cabs and Oil & Gas, are expected to decrease quarterly.

Steel processing net sales rose 12 percent to $552.8 million due to higher volume and selling prices. Higher manufacturing expenses and inventory holding losses more than offset volume gains resulting in a slight decrease in operating income to $33.9 million.

Pressure Cylinders and Engineered cab sales both increased in second quarter to $252.7 million and $51.3 million, respectively, but increased manufacturing costs and SG&A expenses negatively impacted operating income.

“Steel Processing had a great quarter with increased volume as they continued to perform well,” said John McConnell, Chairman and CEO. “However, while we had strong revenue growth across the Company, we were disappointed we did not meet our own Company-wide expectations for results this quarter. We have a couple areas needing attention, particularly one operation in our oil and gas equipment business and one in Engineered Cabs. Both had elevated manufacturing costs and the oil and gas equipment business facility had a product miss on the commercial side. These are isolated issues and we are taking corrective steps so that we continue our Company’s forward momentum.”

In the company earnings call, Worthington said there has been no retraction in demand in the company’s oil business due to lower oil prices. CEO John McConnell says some slowing in drilling of new wells can be expected and any revenue reductions in the oil & gas sector would likely be on the oil side of the business. In the Marcellus and Utica basins, where natural gas drilling is predominant, gas prices will continue to support drilling.

In the company outlook, McConnell said, “There are solid areas of growth, particularly in automotive, where we are working with our customers on a number of initiatives including light weighting solutions. We expect Steel Processing to continue to perform well. There are some markets, like agriculture, where we are seeing slower demand. However, the Company is on track to continue to reach our primary goal of year-over-year earnings growth and positive cash flow.”