This summary is based on the first quarter fiscal 2008 earnings call conducted by Worthington Industries, Inc. (WOR) on September 25, 2007.
Management:
Director, Investor Relations: Allison Sanders
Chairman and Chief Executive Office: John McConnell
President and Chief Financial Officer: John Christie
Executive Vice President and Chief Operating Officer: George Stoe
Controller: Richard Welch
Key Investor Issues:
- First quarter net earnings fell 53% to $20.2 million, or 24 cents per diluted share, down from $43.2 million, or 48 cents a year ago, including 3 cents per share in severance related charges.
- Net sales slid 3% to $759 million, compared to $778.7 million a year ago.
- Quarterly operating income fell from $55 million to $24 million excluding charges.
- Gross profit margin fell from 15.6% to 10.4%.
- The company repurchased 4.2 million common shares.
Quarterly Segment Results:
In the Steel Processing segment, quarterly net sales fell 11% to $355.9 million from $401 million a year ago.
The segment, which represents 47% of revenues in the quarter, experienced continued weakness largely from soft automotive demand. The decline in net sales was due to a greater mix of tolling business, lower average pricing (down 2%), and lower volumes (down 9%) relative to the prior year.
Operating income fell to $11 million excluding severance charges from $21 million last year.
- The operating margins declined from 5.2% to 3.1%.
- Operating income decreased because of the combination of lower volumes and a narrower spread between selling prices and material costs compared to the first quarter of fiscal 2007.
In the Metal Framing segment, net sales fell 7% to $198.1 million from $212.3 million last year.
- The segment represents about 26% of this quarter’s revenue.
- Average selling prices fell 12%, hurt by increased competition and reduced demand.
Overall volumes increased by 5% from a year ago but the mix of products sold was less favorable as volumes increased in lower margin product lines and decreased significantly in higher margin lines, many of which serve the residential housing sector. The spread between average selling prices and material costs fell 39% compared to the year ago quarter, resulting in an operating loss of $7 million excluding severance charges.
In the Pressure Cylinders segment, net sales rose 12% to $136.6 million from $121.5 million a year ago.
- The Pressure Cylinder segment represented 18% of total company revenues.
- Operating income increased $1 million from last year’s record first quarter results to $18 million, due to increased volumes across most product lines in North America and Europe.
- The operating margin was relatively unchanged.
- Pressure Cylinders continues to perform at well above historic levels due to strong markets, consolidation, geographic expansion, capacity additions and product line changes.
Worthington’s joint ventures generated $162 million in sales and paid up $15 million in dividends.
Equity in the net income of six unconsolidated affiliates totaled $15 million for the quarter, compared to a record $18.3 million in the year ago quarter. While profitability at the WAVE joint venture continued to be very good, it was down from last year''s record quarter, and several automotive-related joint ventures were impacted by weakness in the market.
SG&A expense declined 7.2% to $12 million compared to 8.6% last year.
Interest and miscellaneous expense were relatively unchanged from the prior period, while income tax expense fell $16 million and represented an effective tax rate of 31.5%, much lower than the 36.7% last year. The estimated effective tax rate for fiscal 2008 is 31% excluding audit resolutions.
Net total debt was $253 million and the debt to capitalization ratio was 27.9% at quarter end.
- Net debt fell $100 million from a year-ago period but rose $40 million from year end.
- Operating cash flow and debt financed $87 million repurchase of 4.2 million shares.
- Both units in dollars and inventory fell 20% from the year ago period.
- Capital spending was $17 million in line with depreciation of $15 million.
