Worthington Industries, Inc. (WOR)

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Worthington Industries, Inc. (WOR)

F2Q13 Earnings Call

January 3, 2013 1:30 p.m. ET


John McConnell - Chairman and Chief Executive Officer

Mark Russell - President and Chief Operating Officer

Andy Rose - Vice President and Chief Financial Officer

Cathy Lyttle - Vice President of Corporate Communications and Investor Relations


Luke Folta - Jefferies

Chris Olin - Cleveland Research

Michelle Applebaum - Michelle Applebaum Research

Glenn Primack - PEAK6

John Tumazos - John Tumazos Very Independent Research

Richard Garchitorena - Credit Suisse

Charles Bradford - Bradford Research

Tim Hayes - Davenport & Company

Sal Tharani - Goldman Sachs

Mark Parr - KeyBanc Capital Markets



Ladies and gentlemen, good afternoon and welcome to the Worthington Industries second quarter 2013 earnings call. All participants will be able to listen only until the question-and-answer session of the call. This conference is being recorded at the request of Worthington Industries. If anyone objects, you may disconnect at this time.

I'd like to introduce now Ms. Cathy Lyttle, Vice President of Corporate Communications and Investor Relations. Ms. Lyttle, you may begin.

Cathy Lyttle

Thanks, John. Good afternoon and Happy New year everyone. Welcome to our second quarter earnings conference call. Certain statements made on this call are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risk and uncertainties and could cause actual results to differ from those suggested. Please refer to our second quarter earnings release issued this morning for more detail on those factors that could cause actual results to differ materially.

For anyone interested in listening to this call again, a replay will be made available on our company website, worthingtonindustries.com. On the call with you today are John McConnell, Chairman and Chief Executive Officer; Mark Russell, President and Chief Operating Officer; and Andy Rose, Vice President and Chief Financial Officer. John will start us off.

John McConnell

Thank you, Cathy. Good afternoon everyone and thank you for joining us. Reading our release this morning, you saw that we had a good second quarter given that we operated in an atmosphere of uncertainty that Washington fueled throughout the quarter, and knowing that our steel company's top line performance was better than it appeared, I would say we had a very good quarter. Both Andy and Mark are going to provide more detail on how a well executed strategic decision affected steel’s top line year-over-year comparisons.

So let's get into some detail and I will turn the call over to Andy rose.

Andy Rose

Thank you, John, and happy new year to all of you. The company’s performance in the second quarter of fiscal 2013 was again solid, led by strong growth in cylinders, improved margins in our steel company and improved earnings from our joint ventures. The Engineered Cabs business was less profitable this quarter as customers pushed out orders to reduce dealer inventories and deal with slowing sales growth.

Quarterly earnings per share were up $0.29 from the prior year. If you exclude the negative impact of inventory holding losses in the current and prior year quarter of $0.03 a share and $0.09 per share respectively, and the impact of the cylinder recall of $0.01 per share and $0.10 per share, respectively, quarterly earnings per share would have been up $0.13 per share or 36%.

Volume growth was positive in the first quarter. Cylinder volumes were very strong, up 28% for the quarter, driven by acquisitions and organic growth in our retail and alternative fuels businesses. Steel processing volumes were down 8% overall but direct volumes were actually up 2% after excluding the decline in volumes from the MISA Metals acquisition, most of which was wound down during the past year as we anticipated.

Total volumes were also impacted by the MISA business but also declined due to lower volumes at our Spartan toll processing joint venture, which is being impacted by our partner moving some volume in-house. Mark Russell will provide more color on the encouraging signs of organic growth and market share gains in cylinders and our direct steel processing business.

The newly acquired Engineered Cabs business experienced softness as sales slowed at its largest customers and economic concerns led to inventory destocking at distributors. The business also had $700,000 in one-time charges in the quarter related to severance and accelerated vesting of stock related to the acquisition. Management of the business has taken steps to reduce cost to match this lower demand level, but is being cautious not to be overly aggressive yet as activity with some smaller customers has picked up and the longer-term outlook for heavy equipment, particularly in the construction space, Engineered Cabs’ largest end-market, while lower, is still positive.

We continue to feel good about the long-term prospects of this business and are optimistic that this slowdown does not represent a systemic downturn in the heavy equipment market.

Equity income from our joint ventures during the quarter was up 15% over the last year to $25 million, driven by strong contributions from TWB, Serviacero and WAVE as compared to last year. All of our major joint ventures operated at a profit during the quarter and we received dividends of $18 million. Free cash flow for the quarter was $72 million, which benefited from working capital reductions and increased earnings.

The company invested $8 million in capital projects and distributed $9 million in dividends to shareholders. There were no repurchases of stock during the quarter but we did invest $70 million on September 17 to acquire Westerman shortly after the quarter began. The business which manufactures tanks and separators for oil and natural gas drilling market is performing well, contributing in excess of $3.5 million in operating income during the quarter after adjusting for the impact of purchase accounting.

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