Worthington Industries Inc has reported net sales of USD 602.4 million and net earnings of USD 25.7 million for its fiscal 2012 first quarter ended August 31st 2011. In last year's first quarter, the company reported net sales of USD 616.8 million and net earnings of USD 22.4 million.
Financial highlights for the current and comparative quarters are as follows:
| Q1 '12 | Q1 '11 | Q1 '11 | |
| Net sales | 602.4 | 675.7 | 616.8 |
| Operating income | 21.2 | 62.3 | 21.1 |
| Equity income | 24.7 | 24.9 | 18.3 |
| Net earnings | 25.7 | 51.9 | 22.4 |
| EPS | 0.35 | 0.7 | 0.2 |
In USD millions, except per share data
Mr John P McConnell chairman & CEO of Worthington Industries Inc said that "We had a good first quarter in Steel Processing and excellent results from our ceiling grid system joint venture WAVE. The YoY comparisons show strength in the areas where we have focused to improve our performance and lessen the volatility of earnings, particularly in Steel Processing. We expect to continue to perform well, barring further economic deterioration. The acquisition of the BernzOmatic product lines in Pressure Cylinders is positively contributing to that segment’s results as this business integrated quickly. We expect the Cylinders segment to stay focused on growing their market presence through new customers and additional acquisitions. We feel good about how Worthington Industries is positioned with our strong balance sheet and improved operations. However, the stalled economy, and the uncertainty surrounding it, has hindered a quicker and more robust recovery which has an impact on our customers."
Effective March 1st 2011, the Metal Framing business, including all of the related working capital and six of the 13 facilities, was contributed to a joint venture with ClarkWestern Building Systems. In exchange for the contributed assets, Worthington Industries received a 25% interest in the new joint venture, ClarkDietrich Building Systems, as well as the assets of certain MISA Metals Inc steel processing locations. Since that date, Worthington’s 25% portion of the results of ClarkDietrich are included in the equity in net income of unconsolidated affiliates line in the consolidated statement of earnings and the results of operations from the MMI assets have been included in Steel Processing.
Effective May 9th 2011, our automotive body panel subsidiary, previously included in other, was contributed to a new joint venture with International Tooling Solutions LLC. Worthington Industries received a 50% non controlling interest in this new joint venture, ArtiFlex Manufacturing LLC, with Worthington’s portion of the results of ArtiFlex included in the equity in net income of unconsolidated affiliates line in the consolidated statement of earnings.
On July 1st 2011, Pressure Cylinders purchased substantially all of the net assets of the BernzOmatic business from Irwin Industrial Tool Company. The impact of the Bernz acquisition is included in the results of the Pressure Cylinders segment. As part of this transaction, the dispute that existed with Bernz was settled, which resulted in a USD 4.4 million reduction in SG&A expense in the current quarter.
Net sales for the first quarter ended August 31st 2011, were USD 602.4 million, down 2% from the comparable quarter in the prior year, when net sales were USD 616.8 million. The Steel Processing and Pressure Cylinders segments reported a 15% and a 24% increase in sales, respectively, aided by the MMI and Bernz acquisitions. These increases, however, were more than offset by the impact of the deconsolidation of the company' former metal framing and automotive body panels operations. Excluding the deconsolidated operations, net sales rose 18% from the prior year quarter primarily due to the acquisitions and higher average selling prices as the average cost of steel increased 16% over the comparable prior year quarter.
Gross margin for the current quarter was USD 71.5 million, or 12% of net sales, compared to USD 78.9 million, or 13% of net sales, in the prior year quarter. The decrease was primarily due to the impact of the deconsolidated operations.
Excluding the deconsolidated operations, gross margin increased 3% from the prior year quarter, despite incurring inventory holding losses in the current quarter versus holding gains in the prior year quarter. The Company benefited from a favorable change in the customer and product mix.
SG&A expense was USD 11.4 million lower than the prior year quarter primarily due to the deconsolidation transactions and the USD 4.4 million reduction in SG&A expense resulting from the settlement of the Bernz dispute.
Operating income for the current quarter was USD 21.2 million, essentially flat versus the comparable quarter in the prior year. Operating income for the current quarter was adversely affected by restructuring and joint venture transaction expenses. During the current quarter, the transformation team began the diagnostic phase in the Pressure Cylinders segment, incurring USD 1.7 million of outside consulting expenses, which are included in the restructuring and other expenses line. The USD 3.2 million in the joint venture transactions line relates exclusively to the wind down of the retained metal framing facilities, which continued to operate in support of the new ClarkDietrich joint venture. As of the end of the first quarter, all of these retained facilities had been closed.
Interest expense was USD 4.7 million in the quarter, the same as in the prior year as the impact of higher average debt levels was offset by lower interest rates.
Equity in net income from unconsolidated JVs was USD 24.7 million, an increase of USD 6.4 million from the comparable quarter in the prior year, on sales of USD 427.8 million. Worthington Armstrong Venture contributed USD 17.8 million of earnings in the current quarter, a 20% increase from last year's first quarter. Serviacero and TWB contributed USD 2.5 million and USD 2.2 million, respectively. In addition, the new JVs ClarkDietrich and ArtiFlex contributed USD 1.1 million and USD 0.3 million of earnings, respectively.
For the current quarter, income tax expense of USD 13.3 million compared to USD 10.4 million in the comparable quarter in the prior year. Current quarter income tax expense reflects an estimated annual effective tax rate of 32.4% compared to 32.3% for the prior year quarter.
At quarter end, total debt was USD 459.5 million, up USD 76.3 million from May 31st 2011, as an increase in working capital, the acquisition of Bernz and the repurchase of common shares raised short term borrowing needs. The company had utilized USD 80 million of its USD 100 million trade accounts receivable securitization facility, and USD 126.7 million was drawn on its USD 400.0 million revolving credit facility as of August 31st 2011.
