Worthington Industries Reports Solid Quarterly Results

Net sales decreased 14 percent year-over-year driven by lower average selling prices due to a decline in steel market prices and lower volume in steel processing.

Steel processing net sales totaled $516.9 million, a 19 percent decrease from a year ago. Operating income was negatively affected by inventory holding losses and lower volume, partially offset by improved spreads and higher toll volume. The mix of direct versus toll tons processed was 49 percent to 51 percent in the current quarter, compared to 56 percent to 44 percent in the prior-year quarter, the company noted.

Pressure cylinder sales stayed fairly stable at $209.1 million, down just 1 percent from the previous quarter. Sales increases in consumer products and oil and gas equipment more than offset lower volumes for industrial products.

During Q2 2020:

• The WAVE joint venture completed the sale of its international operations to Knauf International GmbH resulting in a pre-tax gain of $23.1 million in equity income.
• Acquired assets of Heidtman’s pickling and slitting facility in Cleveland for $29.6 million.
• Net assets of the former Engineered Cabs segment were contributed to a newly formed company that simultaneously acquired another cabs manufacturer; Worthington maintains a 20 percent minority ownership interest in the new company.

“The company is operating well, and we are optimistic about our momentum going forward,” said McConnell. “We believe most of our markets should remain steady, but do anticipate continued weakness in Europe and will remain focused on driving future improvement through solid execution of our strategies.”

During the earnings call, the Worthington executives were asked to comment on the new capacity that will be coming online in the next few years and how that may benefit Worthington.

“I don’t think necessarily that just because we add more capacity means there are more customers buying steel,” said Worthington President Andy Rose. “I would think about it as ‘what is the market for those products going to be?’ And, if the market is growing, then maybe there will be more opportunities.”

Added Rose, “The more capacity that goes on should continue to apply pressure to prices, keeping steel prices lower, which is good for us. In our steel company, we are a processor and a spread business, so if prices are lower, we use less working capital. In all of our other businesses, we are essentially a manufacturer using steel as an input. So, lower prices are good for our raw material costs. Overall, I would say that capacity adds should be good for us in long run.”

A reduction in imported steel due to increased domestic capacity is not likely to matter much for Worthington, said Rose. “If there is less foreign steel in the U.S., there are fewer opportunities for some competitors who like to do very speculative buys, at low prices, to try and buy market share, which I think impairs margins in the marketplace. So, I think that net/net it would be a positive.”