Worthington’s (WOR) Q4 Earnings Miss Estimates, Rise Y/Y

Worthington Industries, Inc. WOR reported weaker-than-expected bottom-line results for the fourth quarter of fiscal 2018 (ended May 31, 2018). This poor performance came in despite sales outperformance in the reported quarter.

Earnings of 95 cents per share lagged the Zacks Consensus Estimate of $1.04 by 8.7%. This was the company’s fourth consecutive quarter of disappointing results. As noted, the bottom line result of 95 cents excluded impairment charges (pre-tax) of 45 cents.

However, the bottom line increased 9.2% from the year-ago figure of 87 cents on the back of sales growth and lower income-tax expenses. The annual effective tax rate in the reported quarter was 4% versus 27.9% in the year-ago quarter.

For fiscal 2018, Worthington Industries’ earnings were $2.88 per share, roughly 5.3% below the Zacks Consensus Estimate of $3.04. The bottom line excluded 66 cents of tax benefit, and 45 cents of restructuring and impairment charges (pre-tax). Also, the result declined 10.6% from the year-ago tally of $3.22.

Steel Processing & Pressure Cylinders Drive Revenues

In the quarter under review, Worthington’s net sales were $1,020.5 million, reflecting growth of 20.7% from the year-ago quarter. The improvement was driven by higher volume in Pressure Cylinder, favorable pricing in Steel Processing and synergistic gain from Amtrol (acquired in June 2017).

Moreover, the top line outperformed the Zacks Consensus Estimate of $935.3 million by 9.1%.

The company reports its net sales in three segments — Steel Processing, Pressure Cylinders and Engineered Cabs. The segmental information is briefly discussed below:

Revenues from Steel Processing were $652.8 million, increasing 12% year over year. Gains from higher selling prices were partially offset by lower tolling volume. Steel processed declined 3.3% year over year to roughly 1 million tons.

Revenues from Pressure Cylinders totaled $340 million, increasing 47% year over year. The improvement came on the back of higher volume in consumer products and industrial markets. The Amtrol buyout also proved advantageous.

The volume of pressure cylinders grew 33.9% year over year to 24.5 million in the reported quarter.

Revenues from Engineered Cabs were $27.2 million, decreasing 9% year over year. Lower volumes contributed to the segment’s poor results.

For fiscal 2018, the company’s net sales were $3,581.6 million, roughly 18.8% above the year-ago tally. The top line also surpassed the Zacks Consensus Estimate of $3.50 billion by 2.3%.

Gross Margin Weak on Higher Cost of Sales

In the quarter under review, Worthington’s cost of sales increased 24.2% year over year to $857.5 million. It represented 84% of net sales compared with 81.7% in the year-ago quarter. Gross margin declined 230 basis points (bps) year over year to 16%.

Selling, general and administrative expenses increased 26.3% year over year to $105.5 million. It represented 10.3% of net sales.

Balance Sheet and Cash Flow

Exiting the fiscal fourth quarter, Worthington’s cash and cash equivalents were $122 million, roughly 17.2% below $147.4 million at the end of the previous quarter. Long-term debt balance slipped 2.5% sequentially to $748.9 million.

For the fiscal, the company generated net cash of $281.3 million from its operating activities, recording a year-over-year decline of 16.2%. Capital invested on property, plant and equipment totaled $76.1 million compared with $68.4 million in the previous fiscal. Also, it is worth noting here that $285 million was used for acquisitions in fiscal 2018.

In line with its shareholder-friendly policy, the company distributed dividends totaling $51.4 million and repurchased shares worth $204.3 million in fiscal 2018.

Also, concurrent with its earnings release, the company announced that its board of directors has approved a quarterly cash dividend of 23 cents per share. This rate represents a hike of 9.5% or 2 cents over the previous quarterly dividend rate of 21 cents. The revised dividend will be paid, on Sep 28, to shareholders of record as of Sep 14, 2018.

Outlook

Worthington anticipates gaining from its efforts to add meaningful businesses to its existing portfolio as well as making investments in innovation and development. Returning higher values to shareholders also remained a priority for the company.

Worthington Industries, Inc. Price and Consensus

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