Worthington Industries Hit Hard by Steel Prices Fiscal Third-Quarter 2015, Prepares Layoffs, South Carolina Closure

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Researched by Industrial Info Resources (Sugar Land, Texas)--Diversified metals manufacturer Worthington Industries Incorporated (NYSE:WOR) (Columbus, Ohio) reported steep losses in the third quarter of its 2015 fiscal year, which ended February 28, as a sharp decline in steel prices, as well as weakness in the agriculture and oil & gas markets, more than offset the effects of acquisitions and solid volume gains in the Steel Processing segment. Worthington reported a net loss of $25.71 million for the quarter, compared with net earnings of $40.6 million in fiscal third-quarter 2014.

As part of its North American Metals & Minerals Project Database, Industrial Info is tracking progress at 23 operational plants owned by Worthington, including 11 in Ohio and two in Nuevo Leon, Mexico. Among the projects expected to be completed in the near future is the $1.3 million expansion of a steel-processing plant in Jackson, Michigan. The project, which will add a second blanking press to improve laser-welding services and warehouse material for automotive customers, is expected to be completed in July.

Total net sales stood at $804.79 million, a 4.08% increase from fiscal third-quarter 2014. The gain was attributed primarily to acquisitions in the Steel Processing and Pressure Cylinders segments, but profits were depleted by collapsing steel prices in the former, and lower consumer and industrial volumes in the latter. Falling steel prices also negatively affected the company's Serviacero facility in Mexico, which saw a $3.3 million earnings decrease. Worthington incurred $2.3 million in severance expenses related to recently announced layoffs in the Pressure Cylinders segment's oil & gas equipment businesses, which resulted from ongoing market weaknesses.

Amid the resulting increase in inventory losses, the company also incurred higher manufacturing expenses; in particular, $3.4 million in losses at the company's facility in Florence, South Carolina, led to its closure and an $81.6 million impairment of goodwill and long-lived assets. Industrial Info is tracking the closure, itself valued at $1.5 million, which is expected to run through September.

Among the major acquisitions during the quarter were Rome Strip Steel Company (Rome, New York), which manufactures cold-rolled steel, and Fry Reglet Corporation's (Alpharetta, Georgia) Axiom and Serpentina ceiling system-manufacturing products. The latter were acquired by WAVE, a joint venture between Worthington and Armstrong World Industries Incorporated (Lancaster Township, Pennsylvania).

Capital expenditures totaled $26 million for the quarter.

"We have completed 18 acquisitions over the past five years, investing close to $760 million," said Andy Rose, the executive vice president and chief financial officer of Worthington, in a conference call. "That investment delivered $120 million of [earnings before interest expenses, income taxes, depreciation and amortization] in 2014, and does not include any earnings from the deals completed in 2015."

Executives said that they do not expect to see any major changes in capital expenditures this quarter, which most of it going toward capacity expansion and businesses that are at or near capacity. Among them is Tailor Welded Blanks, a joint venture with Wuhan Iron and Steel, which launched production at a new Canadian facility during the fiscal third quarter.

Weak steel prices are expected to continue, although automotive and heavy-truck volumes are expected to be beneficial. The company will continue to consolidate its Engineered Cabs segment as it closes the Florence facility, as volumes are flat or declining, and most major markets have proven weak over the last three years.

"As the number of operating rigs [in the oil and gas equipment business] continues to decline precipitously, demand for all of our products is softening," said Mark Russell, the president and chief operating officer of Worthington, in a conference call. "In response to this lower price environment, we recently announced significant labor force reductions at our facilities in Garden City, Kansas; Wooster and Bremen, Ohio; and Skiatook, Oklahoma, affecting almost 250 people, or about one-third of our total oil and gas equipment workforce."

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.