Worthington Reports Third Quarter Fiscal 2023 Results

Worthington Industries, Inc. (NYSE: WOR) today reported net sales of $1.1 billion and net earnings of $46.3 million, or $0.94 per diluted share, for its fiscal 2023 third quarter ended February 28, 2023. In the third quarter of fiscal 2022, the Company reported net sales of $1.4 billion and net earnings of $56.3 million, or $1.11 per diluted share. Results in both the current and prior year quarter were impacted by certain unique items, as summarized in the complete press release.

“Our teams delivered solid earnings with a nice improvement sequentially compared to our second quarter,” said Andy Rose, President and CEO. “Steel Processing saw modest growth in automotive demand, but continued to be negatively impacted by inventory holding losses. Destocking trends we saw earlier this year in Consumer Products and Building Products appear to have abated, with volumes for many of these products starting to return to more seasonally normal levels.”

Consolidated Quarterly Results

Net sales for the third quarter of fiscal 2023 were $1.1 billion, a decrease of $274.9 million, or 20%, from the comparable prior year quarter. The decrease was driven primarily by lower average selling prices in the Steel Processing business as steel prices declined significantly from the prior year quarter.

Gross margin increased $0.7 million from the prior year quarter to $143.8 million, as higher direct spreads in Steel Processing and a favorable mix in Building Products were largely offset by higher manufacturing expenses, up $23.2 million primarily due to inflationary pressures, and lower volume in the Consumer Products business.

Operating income for the current quarter was $30.1 million, a decrease of $7.5 million from the prior year quarter, as costs incurred in connection with the planned separation of the Company’s Steel Processing business (Worthington 2024) outpaced the year over year decline in impairment and restructuring charges to create a $5.0 pre-tax million headwind in the current quarter. Excluding these items, and a pre-tax benefit of $1.0 million related to true up of the Level5 earnout accrual, operating income was down $3.5 million due to a $3.1 million increase in SG&A expense driven primarily by the net impact of acquisitions and divestitures, partially offset by lower profit sharing and bonus expense.

Net interest expense was $6.0 million in the current quarter, down $2.1 million from the prior year quarter due to higher interest income, and to a lesser extent, the impact of lower average debt levels associated with short-term borrowings.

Equity income from unconsolidated joint ventures decreased $10.5 million from the prior year quarter driven by lower contributions from Serviacero and ClarkDietrich, down $4.9 million and $2.5 million, respectively, combined with the divestiture of ArtiFlex which had contributed $1.8 million in the prior year quarter.

Income tax expense was $12.1 million in the current quarter compared to $18.7 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 22.8% compared to 23.2% in the prior year quarter.

Balance Sheet

At quarter-end, total debt of $693.2 million, was down $51.4 million from May 31, 2022, on lower short-term borrowings. The Company had $267.2 million of cash at quarter end, an increase of $232.8 million from May 31, 2022, as lower steel prices resulted in significantly lower working capital in the current period.

Quarterly Segment Results

Steel Processing’s net sales totaled $757.0 million, down 28% or $295.6 million, from the prior year quarter, driven almost entirely by lower average selling prices. Adjusted EBIT was up slightly over the prior year quarter to $7.8 million, as operating income improved although this was largely offset by a lower contribution of equity income from Serviacero which was down $4.9 million. Operating income was up $8.1 million over the prior year quarter to $10.8 million. Excluding the $3.2 million of combined impairment and restructuring charges in the prior year quarter, operating income was up $4.9 million over the prior year quarter, as the favorable impact of higher spreads was partially offset by higher manufacturing costs. Inventory holding losses, estimated to be $26.6 million in the current quarter, were comparable to the $24.9 million in the prior year quarter. The mix of direct versus toll tons processed was 56% to 44% in the current quarter, compared to 51% to 49% in the prior year quarter.

Consumer Products’ net sales totaled $162.6 million, up 1%, or $0.9 million, over the prior year quarter due to higher average selling prices, which were partially offset by lower volumes and a change in product mix. Adjusted EBIT was down $8.8 million in the current quarter to $17.9 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 $151.9 million, up 14%, or $19.0 million, over the prior year quarter on the combined impact of a favorable product mix and higher average selling prices, which were partially offset by lower overall volumes. Adjusted EBIT increased $1.9 million from the prior year quarter to $51.5 million primarily due to a favorable product mix and higher average selling prices, which were partially offset by higher input and production costs and lower contributions of equity income. Equity income for the current quarter totaled $37.8 million, down $2.2 million from the prior year quarter, as ClarkDietrich’s results declined $2.5 million from the record levels in the prior year quarter while WAVE’s results improved slightly.

Sustainable Energy Solutions’ net sales totaled $31.8 million, up 3%, or $0.8 million, from the prior year quarter primarily due to higher average selling prices. Adjusted EBIT was a loss of $1.4 million, favorable by $1.4 million to the prior year quarter’s loss, as higher average selling prices improved margins, but were partially offset by higher production costs.

Worthington 2024

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 early 2024. This plan is 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 has been established with more information and will be regularly updated as new details become available at www.WorthingtonIndustries.com/W24.

Recent Developments

• On February 2, 2023, the Company announced the senior leadership teams for New Worthington and Worthington Steel which will be effective upon the completion of the planned separation of the Steel Processing business.
• On March 22, 2023, Worthington’s Board of Directors declared a quarterly dividend of $0.31 per share payable on June 29, 2023, to shareholders of record on June 15, 2023.

Outlook

“We have good momentum heading into our fourth quarter and are optimistic that underlying demand for our key end markets will remain healthy,” Rose said. “Work continues on our Worthington 2024 plan, and we recently announced the future senior leadership teams for both companies. We remain confident that our planned separation will create two, distinct market leading companies that will generate long-term value for our shareholders.”

For the complete press release, 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.

Contact:

Sonya L. Higginbotham – Vice President, Corporate Communications & Brand Management – sonya.higginbotham@worthingtonindustries.com – (614) 438-7391

Source: Worthington Industries, Inc.