Worthington Industries Inc (WOR) Q3 2021 Earnings Call Transcript

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Worthington Industries Inc (NYSE:WOR)
Q3 2021 Earnings Call
Mar 24, 2021, 2: 00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Shimmering afternoon, and welcome to the Worthington Industries’ Third Quarter Fiscal 2021 Earnings Convention Call. [Operator Instructions] This convention is being recorded at the request of the Worthington Industries. If somebody objects, you would possibly per chance per chance likely merely disconnect at the present.

I’d now enjoy to introduce Marcus Rogier, Treasurer and Investor Relatives Officer. Mr. Rogier, you would possibly per chance per chance likely merely originate.

Marcus A. RogierTreasurer and Investor Relatives Officer

Thank you, Tanya. Shimmering afternoon, each person, and welcome to Worthington Industries’ third quarter fiscal 2021 earnings call. On our call this afternoon now we comprise Andy Rose, Worthington’s President and Chief Executive Officer; and Joe Hayek, Worthington’s Chief Financial Officer.

Earlier than we salvage began, I’d enjoy to remind each person that certain statements made nowadays are forward-wanting at some level of the meaning of the 1995 Non-public Securities Litigation Reform Act. These statements are topic to dangers and uncertainties that will per chance per chance cause accurate results to alter from these urged.

We issued our earnings delivery earlier this morning. Please consult with it for more ingredient on these factors that will per chance per chance cause accurate results to alter materially. This day’s call is being recorded and a replay will almost definitely be made available in a while our www.worthingtonindustries.com internet diagram.

At this level, I will flip the choice over to Joe who will focus on our financial results.

Joseph B. HayekVice President and Chief Financial Officer

Thank you, Marcus. Shimmering afternoon, each person. In Q3, we reported earnings of $1.27 per allotment versus $0.27 in the prior year quarter. There had been a pair of fresh items in essentially the most modern and prior year quarters to call out that entails the next. We incurred pre-tax restructuring and impairment costs of $28 million or $0.16 per allotment in Q3 essentially related to the exit of our unprofitable oil and gasoline alternate, which we divested at the tip of January. This compares to costs of $0.48 per allotment in the prior year quarter.

We acknowledged a fetch pre-tax benefit of $4 million or $0.07 per allotment on our funding in Nikola Corporation at some level of the quarter. This serve modified into once essentially because of a selling our remaining shares of Nikola for $147 million. In total, we realized cumulative pre-tax cash proceeds of $634 million from our funding in Nikola and contributed $20 million in shares to the Worthington Industries Foundation organising a charitable endowments supporting priceless neighborhood prices.

The prior year quarter integrated $0.11 per allotment serve related to a create on the consolidation of our Worthington Samuel Coil Processing JV mixed with the lowering of the reserve associated with a tank replacement program interior Stress Cylinders. Excluding these items, we generated a document $1.36 per allotment in earnings in Q3 compared to $0.64 in Q3 a year previously. Consolidated fetch gross sales in the quarter of $759 million had been somewhat flat compared to $764 million in the prior year quarter.

Our reported putrid income for the quarter elevated by $49 million from Q3 final year to $164 million and our putrid margin elevated to 21.6% from 15.1% as we had stock holding positive aspects this quarter and losses in the prior year quarter. Adjusted EBITDA modified into once $126 million up from $79 million in the prior year quarter and our trailing 12 month adjusted EBITDA is now $364 million. Our adjusted EBITDA thru the nine months ended February is $297 million. We had a extraordinarily strong quarter with strong request across most of our stop markets and our groups continue to realize very smartly and are centered on turning in fee to our customers.

Taking a view at the alternate models. In Steel Processing, fetch gross sales of $504 million had been up 3% from Q3 of 2020 because of elevated average selling prices, which comprise been partly offset by lower total volumes. Bid heaps had been flat year-over-year in opposition to the tricky comp. Our total ship heaps had been down 11% from final year’s third quarter driven by a decrease in total heaps triggered by furnace and mill outages. Bid heaps made up 48% combine compared to 44% in the prior year quarter. US steel market stays extraordinarily tight as request has recovered more swiftly than present.

We get that we had obtained allotment in key markets and in Q3 continue to gaze strong request across our primary stop markets. The auto, development, and agriculture markets all continue to original energy and we’re starting to gaze improvements in heavy truck. Steel generated document working income of $63 million in the quarter, which is up $44 million from $19 million in Q3 final year. Working margins elevated vastly from 3.9% to 12.5%. The colossal year-over-year amplify modified into once essentially driven by elevated teach spreads, which benefited from stock holding positive aspects estimated at $31 million or $0.44 per allotment in the quarter compared to losses of $6 million or $0.08 per allotment in Q3 of ultimate year.

Present quarter furthermore benefited from arbitrage positive aspects we had been in a reveal to generate given the upward thrust in steel prices. Based totally on most modern steel prices, we request that we are going to comprise important stock holding positive aspects in Q4 of this year as smartly. In our Stress Cylinders alternate, fetch gross sales had been $255 million down 6% from the prior year quarter, essentially because of lower gross sales in our unbiased no longer too lengthy previously divested oil and gasoline alternate, where gross sales declined year-over-year by $24 million. Gross sales had been up in each industrial merchandise and in person as we continue to gaze strong request for our person-facing merchandise and our European alternate while tranquil facing headwinds is starting to original signs of restoration.

Cylinders working income besides impairment and restructuring costs and the serve we had final year from the reserve adjustment I mentioned earlier modified into once $13 million up $1million from the prior year quarter, while working margins elevated to 5% from 4.4%. Essentially the most modern quarter results consist of losses on the oil and gasoline alternate thru January and losses in Structural Composites Industries or SCI for the total quarter as smartly as one-time costs related to our acquisition of Customary Tools and Instruments, GTI in January.

Collectively, these headwinds totaled roughly $4 million. As you would possibly per chance per chance likely merely comprise viewed moreover the divestiture of the oil and gasoline alternate, we sold our SCI alternate earlier this month. Along side the divestiture of our CryoScience operations in Alabama, which we done in Q2. We comprise now divested three unprofitable corporations in the final six months and made two strategic acquisitions GTI and PTEC Stress Technology. GTI vastly expands our presence in strong level instruments and supplies us fresh sourcing and present chain skills. The PTEC acquisition enhances our fresh investments and sustainable mobility enabled by hydrogen and CNG.

These investments consist of the expansion of our composite cylinder facility in Poland and the advance of a fresh Form 3 and Form 4 hydrogen cylinder manufacturing facility in Austria. We get these strategic transactions and investments reveal cylinders very smartly for future enlighten and would possibly per chance comprise to tranquil be additive to our profitability.

With admire to our JVs, equity income at some level of essentially the most modern quarter modified into once $32 million compared to $25 million final year. We observed year-over-year improvements from all of our JVs besides for WAVE. WAVE’s results had been down a shrimp bit thanks to elevated partner allocations, but improved on a sequential foundation because the commercial development market continues to recuperate. At some stage in the quarter, we obtained $18 million in dividends from our unconsolidated JVs.

Turning to the cash lumber with the movement assertion in the steadiness sheet. Cash lumber with the movement from operations modified into once $9 million in the quarter and $234 million for the primary nine months of our fiscal year with free cash lumber with the movement totaling $169 million in the same period. Free cash lumber with the movement for the quarter modified into once if truth be told detrimental by $7 million due essentially to amplify in steel prices that triggered our working capital ranges to amplify by $71 million.

At some stage in the quarter, we generated $147 million in pre-tax proceeds from the sale of Nikola stock. We done two acquisitions totaling $130 million, invested $16 million on capital projects, paid $13 million in dividends and spent $52 million to repurchase $1 million of our frequent stock on the shares of our frequent stock at a median trace of $52.37.

Taking a view at our steadiness sheet and liquidity reveal. On the debt at quarter stop of $709 million modified into once somewhat flat sequentially and ardour expense of $8 million modified into once based on the prior year quarter. And in Q3, with $650 million in cash and are smartly positioned to continue our balanced approach to capital allocation that centered on enlighten and rewarding shareholders.

Earlier nowadays, the Board elevated the authorization on our stock repurchase program to an combination of $10 million shares and declared a dividend of $0.28 per allotment for the quarter, a 12% amplify over final quarter, which is payable in June of 2021. This marks the 11th consecutive year now we comprise elevated our dividends and we’re very happy as a way to reward our shareholders with this amplify.

I will now flip it over to Andy.

Andy RosePresident and Chief Executive Officer

Thank you, Joe. Shimmering afternoon, each person. Our fiscal third quarter modified into once a document financial efficiency. We confronted some lingering operational challenges, including steel present shortages, staffing complications related to COVID quarantines and a few scary weather, all of which impacted manufacturing schedules, but our groups did a good job and we delivered smartly-known results.

The licensed news is that request is graceful across most of our stop markets and there doesn’t seem like any signs of let off. We continue to be grateful to our mill companions who are working no longer easy to verify that we receive steel in a timely formulation. The rapid upward push in steel prices over the previous two quarters created colossal stock holding positive aspects in our Steel Processing alternate. Now we comprise been elevating prices in our downstream manufacturing corporations to offset elevated uncooked topic topic trace.

I are desirous to present but one other weep out to the dedicated workers of Worthington Industries who comprise advance together in animated programs to retain our operations operating safely and effectively on this trying time. Without quiz our individuals deserve recognition for these unheard of financial results.

So with our core alternate is performing smartly and the cleanup of our underperforming operations largely total, our focal level has shifted to accelerating our strategic enlighten initiatives. We continued to comprise expansive cash steadiness in a increasing pipeline of gentle M&A alternatives that can velocity up our enlighten. Our lean transformation playbook and fresh product pattern and innovation will develop our M&A to pressure shareholder fee. Our opportunistic and balanced approach to capital allocation has served us smartly through the years. That approach led us to lift our quarterly dividend by 12% nowadays, a reflection of our strong financial reveal and efficiency, additional rewarding our shareholders.

With the vaccine rollout below formulation, we’re hopeful that an ordinary alternate ambiance is simplest months away. We need to preserve vigilant except such time as we can all advance together all every other time, but we’re smartly positioned to advance out of this pandemic stronger and more nimble than outdated to. Now we comprise discovered quite a bit this previous year including programs to adapt rapid to changing principles and security protocols, to take care of and work remotely and in all probability most importantly to be versatile in our every single day activities to realize what it takes to help salvage the job done. An limitless thanks to the total Worthington Industries’ workers for his or her dedication at some level of the previous year.

We can now beget any questions.

Questions and Answers:

Operator

[Operator Instructions]. And your first quiz comes from the motorway of Phil Gibbs with KeyBanc Capital Markets.

Phil GibbsKeyBanc Capital Markets — Analyst

Howdy, licensed afternoon,

Andy RosePresident and Chief Executive Officer

Howdy, Phil, licensed afternoon.

Phil GibbsKeyBanc Capital Markets — Analyst

I had a quiz on cylinders. You comprise gotten made a handful of strategic maneuvers right here, each buying for issues and selling issues. You in most cases comprise obvious seasonality to your fourth quarter, your Can even merely quarter. Nonetheless I merely wished to get certain we weren’t lacking the rest from a baseline standpoint because there are some puts and takes. So are you wanting forward to that there goes to be perform of frequent seasonality versus this third quarter mosey or are there other issues that weren’t brooding about that comprise advance out. So merely looking to possess the composition of the alternate now and what to request.

Andy RosePresident and Chief Executive Officer

Sure. Phil, the — we would possibly per chance likely request that aesthetic regular seasonality in Q4. The corporations that now we comprise divested of had been if truth be told on the margin potentially much less seasonal than the ones which would possibly per chance per chance very smartly be allotment of the core at this level. So we would possibly per chance likely no longer request that to trade materially.

Phil GibbsKeyBanc Capital Markets — Analyst

So this level $255 million-ish of gross sales is a licensed mosey to work off of?

Andy RosePresident and Chief Executive Officer

Scrutinize, this is inexpensive than the rest else. Sure.

Phil GibbsKeyBanc Capital Markets — Analyst

Sounds licensed. And also you had mentioned in the starting up, and I judge in one of the primary remarks that there comprise been some challenges in the case of Steel Procurement clearly present lagging request, been a persistent theme right here for a pair of months. Is that inhibiting your ability to gaze quantity enlighten this coming quarter versus this February quarter or attain you get regular seasonality will prevail and there is furthermore, I affirm, some questions about the auto complications which you would possibly per chance very smartly be clearly very smartly attentive to and occupied with. So reduction us judge about what we can comprise to tranquil request for to steel from a quantity standpoint given the total puts and takes correct now?

Andy RosePresident and Chief Executive Officer

Yeah, I’d philosophize, Phil, you would possibly per chance comprise to tranquil indubitably request the regular seasonality uptick for steel processing as you perform of mentioned. There are few diversified variables right here which would possibly per chance per chance be a shrimp bit no longer easy to predict. One is semiconductor shortage which intermittently affecting the manufacturing schedules of some of our customers. You comprise gotten the steel present project, which you already know, or no longer it is no longer easy to predict exactly when we can face these challenges. They had been potentially worse back in December, January timeframe, or no longer it is gotten higher a shrimp bit more as of tiring.

Despite the truth that with the seasonal uptick, our guys are perform of wanting forward to that lets gaze a shrimp bit more of that in the April-Can even merely timeframe. So or no longer it is no longer easy to claim, but I tranquil produce no longer judge even when we attain skills some delays related to these items. We’re tranquil going to comprise the moderately licensed seasonal uptick that we in most cases skills.

Joseph B. HayekVice President and Chief Financial Officer

Yeah. Though we furthermore did comprise an outage in one of our facilities that modified into once deliberate, it went few days longer than deliberate. That modified into once in Q3, and clearly we hope at this level, nothing enjoy that will per chance per chance recur in Q4.

Phil GibbsKeyBanc Capital Markets — Analyst

Thanks, guys. And then lastly on the strategic facet, you clearly flush with cash correct now and as Andy mentioned, desirous to — desirous to pounce on enlighten alternatives. So while you happen to realize lumber the M&A route, what are one of the primary issues that you would possibly per chance per chance likely very smartly be drawn to? Are you planning on branching out, any of your silos, are you staying at some level of the core?

And then secondly, what perform of annualized capex would possibly per chance comprise to tranquil we judge about given I’m certain you would possibly per chance per chance likely merely comprise got furthermore got some natural alternatives as smartly? Thanks.

Andy RosePresident and Chief Executive Officer

Yeah, I’d philosophize, on the M&A main, Phil, most of what we attain will almost definitely be in and spherical our core. There are indubitably alternatives. In steel processing, I judge now we comprise traditionally centered on perform of the elevated margin, elevated fee add segments there, which I judge we would possibly per chance likely at chance of continue that. Contained in the Stress Cylinders section, you observed us unbiased no longer too lengthy previously attain a expansive acquisition in the person product house. We judge there is a smartly-organized quantity of opportunity there. There would possibly per chance be kind of a bit of corporations available and we’re doing our simplest to preserve disciplined as smartly.

Those corporations tend to alternate at elevated multiples than now we comprise traditionally bought corporations. Nonetheless at the same time they’re in many conditions worth it. So I’d request — if we had been to realize something in the next 12 to 18 months, you would possibly per chance per chance likely judge about person merchandise is an place where lets attain something after which in our core legacy tranquil in the alternate, the Industrial Product house, they’re tranquil — or no longer it is tranquil a extremely fragmented market globally. So there are alternatives available for that as smartly.

So or no longer it is an appealing time to be wanting at M&A, because or no longer it is a shrimp bit of haves and comprise nots which comprise been created thanks to the COVID project. So when we stare upon corporations we’re looking to filter thru various the adjustments that comprise came about in the final year, some of which would possibly per chance per chance be sustainable, some of which usually are no longer.

Joseph B. HayekVice President and Chief Financial Officer

And Phil merely the spherical out right here, the resolution to your quiz relative to capex, we would possibly per chance likely request Q4 will almost definitely be in the neighborhood of Q3 after which beyond that, I judge our fiscal year of ’21, we are going to comprise some enlighten oriented projects where we’re done with these investments then we are going to get some more. So I’d no longer request them to be radically diversified at this level in the year to advance.

Phil GibbsKeyBanc Capital Markets — Analyst

Shimmering coloration. Thanks guys, licensed luck.

Andy RosePresident and Chief Executive Officer

Thanks Phil.

Operator

Your subsequent quiz comes from the motorway of Tristan Gresser with Exane BNP Paribas.

Tristan GresserExane BNP Paribas — Analyst

Yes. Hello, thanks for taking my quiz. If I would possibly per chance per chance merely on windfall positive aspects, you mentioned you request these positive aspects to continue into the next quarter. Can you give us a approach of the magnitude of this create, given the costs has continued to upward push to a degree, for instance prices of all reduced level, what perform of size you would possibly per chance per chance likely be wanting at?

Andy RosePresident and Chief Executive Officer

Okay. Shimmering quiz, Tristan. We would request that they would possibly per chance be in the neighborhood of where they had been in Q3 with doubtlessly a shrimp bit of upside.

Tristan GresserExane BNP Paribas — Analyst

All correct, that is primary. And in all probability there is been, you polishing off quite a bit of operation in fresh months which would possibly per chance per chance very smartly be disposing and buying. So clearly the alternate is changing quite a bit. Is it doable you can present a shrimp more coloration on the guidance for the next quarter. And I realize or no longer it is no longer easy with what you mentioned to your commentary with the merchandise and challenges, but shifting forward, in particular — what would possibly per chance comprise to tranquil we request there?

Andy RosePresident and Chief Executive Officer

Yeah, I mean you already know that we produce no longer give earnings guidance. The one ingredient I will level you to in Joe’s comment is that he perform of outlined $4 million of 1-time costs, two-thirds of that potentially modified into once related to two corporations we divested which we’re losing money. So these losses clearly lumber away, but that is per chance as principal coloration as we can give without crossing the motorway on guidance at this level.

Tristan GresserExane BNP Paribas — Analyst

All correct.

Joseph B. HayekVice President and Chief Financial Officer

Yeah, Tristan, we would possibly per chance per chance merely comprise — merely to account for we would possibly per chance per chance merely comprise an extra perform of 1-time acquisition accounting fee for GTI for the tune of a pair of million dollars in the quarter, but that will per chance per chance smartly be it.

Tristan GresserExane BNP Paribas — Analyst

All correct. That’s primary. And in all probability final quiz on the Chip shortage. What perform of affect comprise you viewed to this level and what attain you request shifting forward? Attain you would possibly per chance per chance likely merely comprise the sense that the project correct now is worsening?

Andy RosePresident and Chief Executive Officer

Yeah, I mean, I’m no longer certain where essentially the most intriguing reveal to answer to that quiz to be merely. Or no longer it is more our customers. I mean we clearly consult with our customers continuously. I judge earlier this week we observed I judge it modified into once four facilities that delayed some manufacturing related to Chip affords and that will per chance per chance affect us, but all every other time or no longer it is perform of hit and omit. I mean most of these manufacturing lines are hand to mouth correct now. So that they’re getting Chips, but they’re merely no longer certain how principal and the way instant they’ll perform. So or no longer it is a shrimp no longer easy for us to answer to that quiz with any level of accuracy.

Joseph B. HayekVice President and Chief Financial Officer

Yeah, and Tristan as you already know in certain instances they’re if truth be told building autos and leaving the semiconductors and the chips out with the concept on including these later, but it completely’s positively something that we’re keeping an peek on. We would philosophize at a aesthetic exiguous or muted affect on us to this level, but that will per chance consistently trade.

Yeah, and we’re fortunate in some respects because over the final quite a bit of years we migrated our alternate. And so in our Steel Processing alternate, the alternate that now we comprise going into automobile, about 75% that is an estimate, but spherical 75% of that alternate is non-Sedan, or no longer it is Truck, Crossover, SUV, Van and issues enjoy that. And so merely given the profitability profiles of these autos for the OEMs, these are in most cases the final that they’re going to shut down.

Tristan GresserExane BNP Paribas — Analyst

All correct. Thank you very principal.

Andy RosePresident and Chief Executive Officer

Thank you.

Operator

[Operator Instructions] And your subsequent quiz comes from the motorway of John Tumazos with John Tumazos Very Fair Overview.

John TumazosJohn Tumazos Very Fair Overview — Analyst

Thank you. Could likely per chance per chance you stroll us thru the 124,000 ton Steel Processing quantity decline versus final year. How principal of it modified into once since you would possibly per chance per chance likely no longer salvage as principal steel, how principal of it modified into once since the other customers couldn’t salvage Chips, how principal of it modified into once because final year modified into once a licensed period with every other bounce day?

Joseph B. HayekVice President and Chief Financial Officer

All licensed questions. I judge the resolution would possibly per chance per chance be certain and certain and certain. John to be a shrimp more insist teach heaps which we candidly income more from and I judge are more our core alternate. Those had been flat and so the decline modified into once completely related to our total heaps. And also you had a assortment of issues, you had mill outages and furnace outages and with the toll alternate oftentimes we’re partnering and doing a shrimp of that for the mills and so in the event that they are no longer producing steel, clearly, we’re no longer going to toll code or toll job these heaps.

We furthermore in certain instances when we would possibly per chance per chance shifted from falling to teach in actuality merely looking to carry as licensed care of our customers as we would possibly per chance per chance. And then in one of these facilities, as I mentioned earlier, we did comprise an outage in December for a pair weeks. And so as that coupled with as you urged since the cultured licensed comp from Q3 of ultimate year is de facto what drove that decline. It modified into once a 100% in the tolling alternate.

John TumazosJohn Tumazos Very Fair Overview — Analyst

I do know that or no longer it is no longer easy to comprise one other Nikola, but are there from now on $2 million investments laying spherical the firm?

Andy RosePresident and Chief Executive Officer

Yeah, I mean now we comprise a pair of issues that we gaze periodically, John, but and now we comprise talked I mean one of the most issues that is intriguing about our alternate now is we’re starting to incorporate more technology, now we comprise made some investments in hydrogen in diversified areas. So I produce no longer judge there is one other Nikola laying spherical correct now, but it completely’s glaring to anybody sit spherical the desk, but we can continue to be entrepreneurial and to gaze the solutions or corporations that we judge get quite a bit of sense.

And as you already know on this planet of investing, generally you by no formulation know what you would possibly per chance per chance likely very smartly be going to salvage and you salvage very much surprised in areas where you would possibly per chance per chance likely very smartly be least expected. So but at the least correct now I produce no longer gaze any investments on our steadiness sheet which would possibly per chance per chance very smartly be worth $650 million correct now.

John TumazosJohn Tumazos Very Fair Overview — Analyst

Whereas you happen to get investments enjoy this, attain you expense them, attain you capitalize them, while you happen to capitalize them where are they on the steadiness sheets, other assets? Where would we gaze?

Joseph B. HayekVice President and Chief Financial Officer

They’re in most cases no longer all that colossal, John, they’re in most cases expensed.

John TumazosJohn Tumazos Very Fair Overview — Analyst

Thank you.

Operator

At this level, we can flip the choice back over to the Company for closing remarks.

Joseph B. HayekVice President and Chief Financial Officer

I merely are desirous to thank each person for joining us and fancy but again the total efforts of our colleagues at Worthington Industries. Thanks for joining us nowadays and we can gaze forward to talking to you all every other time in June. Have a gargantuan afternoon.

Operator

[Operator Closing Remarks]

Length: 28 minutes

Call contributors:

Marcus A. RogierTreasurer and Investor Relatives Officer

Joseph B. HayekVice President and Chief Financial Officer

Andy RosePresident and Chief Executive Officer

Phil GibbsKeyBanc Capital Markets — Analyst

Tristan GresserExane BNP Paribas — Analyst

John TumazosJohn Tumazos Very Fair Overview — Analyst

Extra WOR diagnosis

All earnings call transcripts


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