Worthington Reports Second Quarter Fiscal 2023 Results
Worthington Industries, Inc. (“Worthington” or the “Company”) reported net sales of $1.2 billion and net earnings of $16.2 million, or $0.33 per diluted share, for its fiscal 2023 second quarter ended November 30, 2022. In the second quarter of fiscal 2022, the Company reported net sales of $1.2 billion and net earnings of $110.3 million, or $2.15 per diluted share. Results in both the current and prior year quarter were impacted by certain unique items.
“We faced significant headwinds in the quarter from the dramatic decline in steel prices, a slowing economy and customers reducing inventory levels. Our teams navigated those challenges admirably focusing on execution and continuing to enhance our value proposition for customers,” said Andy Rose, President and CEO.
Consolidated Quarterly Results
Net sales for the second quarter of fiscal 2023 were $1.2 billion, a decrease of $57.4 million, or 5%, from the comparable quarter in the prior year. The decrease was driven by lower average selling prices in Steel Processing, partially offset by the impact of acquisitions and higher average selling prices across the Consumer Products, Building Products, and Sustainable Energy Solutions businesses.
Gross margin decreased $78.8 million from the prior year quarter to $105.8 million due to lower contributions from Steel Processing, down $79.7 million, as declining steel prices resulted in an estimated $95.2 million unfavorable swing related to inventory holding losses in the current quarter compared to inventory holding gains in the prior year quarter.
The Company generated an operating loss of $7.0 million in the current quarter compared to operating income of $90.5 million in the prior year quarter. Results in the current quarter included $9.2 million of incremental pre-tax costs incurred in connection with the planned separation of the Company’s Steel Processing business. Excluding these incremental costs and the net restructuring gains in both the current and prior year quarter, operating income was down $90.0 million on the combined impact of lower gross margin and higher SG&A expense, which was up $11.7 million due to the impact of acquisitions, partially offset by lower profit sharing and bonus expense.
Interest expense was $7.6 million in the current quarter, up $0.3 million over the prior year quarter due to the impact of higher average debt levels associated with short-term borrowings.
Equity income from unconsolidated joint ventures decreased $23.4 million from the prior year quarter driven by lower contributions from ClarkDietrich, Serviacero and WAVE.
Income tax expense was $4.1 million in the current quarter compared to $31.2 million in the prior year quarter. The decrease was driven by lower pre-tax earnings. Tax expense in the current quarter reflects an estimated annual effective rate of 23.7% compared to 22.8% for the prior year.
At quarter-end, total debt of $698.6 million, was down $46.0 million from May 31, 2022, on lower short-term borrowings. The Company had $129.6 million of cash at quarter end, an increase of $95.1 million from May 31, 2022.
Quarterly Segment Results
Steel Processing’s net sales totaled $841.9 million, down $95.9 million, from the prior year quarter. The decrease was driven primarily by lower average selling prices and to a lesser extent lower volumes, partially offset by the impact of acquisitions. Adjusted EBIT was down $89.1 million from the prior year quarter to a loss of $17.2 million on lower contributions from both operating income and equity income. Excluding restructuring, operating income was down $84.4 million from the prior year quarter driven by an estimated $95.2 million unfavorable swing related to estimated inventory holding losses of $53.1 million in the current quarter compared to inventory holding gains of $42.1 million in the prior year quarter. Adjusted EBIT was also negatively impacted by lower equity income at Serviacero, down $6.9 million from the prior year quarter, as lower steel prices reduced spreads. The mix of direct versus toll tons processed was 54% to 46% in the current quarter, compared to 47% to 53% in the prior year quarter.
Consumer Products’ net sales totaled $153.8 million, up 9%, or $13.0 million, over the prior year quarter as higher average selling prices more than offset the impact of lower overall volume. Adjusted EBIT was down $4.1 million in the current quarter to $13.5 million, as the favorable impact of higher average selling prices was more than offset by lower volumes and higher input and production costs.
Building Products’ net sales totaled $141.7 million, up 17%, or $20.6 million, over the prior year quarter on higher average selling prices, partially offset by lower volumes. Adjusted EBIT decreased $13.5 million from the prior year quarter to $41.2 million, due to lower contributions of equity income from unconsolidated joint ventures which were down $14.8 million, partially offset by higher operating income from our wholly owned businesses which was up $1.4 million on the impact of higher average selling prices and a favorable product mix. Equity income from unconsolidated joint ventures for the current quarter totaled $35.1 million with lower contributions from both ClarkDietrich and WAVE which were down $11.4 million and $3.4 million, respectively.
Sustainable Energy Solutions’ net sales totaled $38.1 million, up 15%, or $5.0 million, from the prior year quarter due to higher average selling prices. Adjusted EBIT increased $0.3 million over the prior year quarter to $1.1 million on the favorable impact of higher average selling prices, partially offset by higher production costs.
On September 29, 2022, the Company announced that its Board of Directors approved a plan to pursue a separation of the Company’s Steel Processing business which it expects to complete by 2024. In the months ahead, this plan will be referred to as “Worthington 2024.” Worthington 2024 will result in two independent, publicly traded companies that are more specialized and fit-for-purpose, with enhanced prospects for growth and value creation. Worthington plans to effect the separation via a distribution of stock of the Steel Processing business, which is expected to be tax-free to shareholders for U.S. federal income tax purposes. A dedicated area of the Company’s website will have more information as it is available at www.WorthingtonIndustries.com/W24.
- On October 31, 2022, the Company’s consolidated joint venture, WSP, sold its remaining manufacturing facility, located in Jackson, Michigan, for total consideration of approximately $21.5 million, resulting in a pre-tax gain of $3.9 million recorded within restructuring and other income, net.
- On December 20, 2022, Worthington’s Board of Directors declared a quarterly dividend of $0.31 per share payable on March 29, 2023, to shareholders of record at the close of business on March 15, 2023.
“Despite a somewhat murky economic outlook, steel prices appear to have stabilized and we believe many of our customers have returned to seasonally normal inventory levels. End market demand remains solid across most markets, and we are optimistic about our start to 2023,” Rose said. “We continue to make progress on our previously announced business separation (Worthington 2024) and remain confident that the separation will enhance shareholder value by creating two distinct, market-leading companies with strong cash flows that are better positioned to pursue their respective growth strategies while delivering superior returns for shareholders.”
To view the full second quarter results, click here.
About Worthington Industries
Worthington Industries (NYSE:WOR) is a leading industrial manufacturing company pursuing its vision to be the transformative partner to its customers, a positive force for its communities and earn exceptional returns for its shareholders. For over six decades, the Company has been delivering innovative solutions to customers spanning industries such as automotive, energy, retail and construction. Worthington is North America’s premier value-added steel processor and producer of laser welded solutions and electrical steel laminations that provide lightweighting, safety critical and emission reducing components to the mobility market. Through on-board fueling systems and gas containment solutions, Worthington serves the growing global hydrogen ecosystem. The Company’s focus on innovation and manufacturing expertise extends to market-leading consumer products in tools, outdoor living and celebrations categories, sold under brand names, Coleman®, Bernzomatic®, Balloon Time®, Mag Torch®, Well-X-Trol®, General®, Garden-Weasel®, Pactool International®, Hawkeye™ and Level5® ; as well as market leading building products, including water systems, heating & cooling solutions, architectural and acoustical grid ceilings and metal framing and accessories. Headquartered in Columbus, Ohio, Worthington operates 52 facilities in 15 states and nine countries, sells into over 90 countries and employs approximately 9,500 people. Founded in 1955, the Company follows a people-first philosophy with earning money for its shareholders as its first corporate goal. Relentlessly finding new ways to drive progress and transform, Worthington is committed to providing better solutions for customers and bettering the communities where it operates by reducing waste, supporting community-based non-profits and developing the next generations of makers.
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Source: Worthington Industries, Inc.