Worthington Industries, Inc. (WOR)

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Worthington Industries (WOR)

F4Q 2013 Earnings Conference Call

June 27, 2013 1:30 pm ET

Executives

Catherine M. Lyttle - Vice President of Corporate Communications & Investor Relations

John P. McConnell - Chairman, Chief Executive Officer and Chairman of Executive Committee

B. Andrew Rose - Chief Financial Officer and Vice President

Mark A. Russell - President and Chief Operating Officer

Analysts

Luke Folta - Jefferies & Company, Inc., Research Division

Sohail Tharani - Goldman Sachs Group Inc., Research Division

Aldo J. Mazzaferro - Macquarie Research

Michelle Applebaum - Steel Market Intelligence Inc

J. Christopher Haberlin - Davenport & Company, LLC, Research Division

Mark L. Parr - KeyBanc Capital Markets Inc., Research Division

John Charles Tumazos - John Tumazos Very Independent Research, LLC

Presentation

Operator

Good afternoon, and welcome to the Worthington Industries Fourth Quarter 2013 Earnings Call. [Operator Instructions] As a reminder, 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 the host, Ms. Cathy Lyttle, Vice President of Corporate Communications and Investor Relations. Ms. Lyttle, you may begin.

Catherine M. Lyttle

Thank you, Shannon. Good afternoon, and welcome to our fourth quarter and year-end earnings 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 fourth quarter earnings release issued this morning for more details 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 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. Let's begin with John.

John P. McConnell

Well, Cathy, thank you, and good afternoon, everyone. We appreciate your joining us. This morning, we announced a good, not our best, but a good fourth quarter which topped off a great year for our shareholders. A year in which we delivered in excess of 100% increase in share value, a year in which we delivered an increased dividend to our shareholders in a tax effective manner, and a year in which we continued to make progress on our primary objective of increasing operating margins, while decreasing the volatility of our earnings. I'm very proud of everyone here at Worthington for their hard work, their focus and for clearly moving our company forward to the benefit of our shareholders.

I'll turn the call over now to Andy and Mark for more detail on the quarter and the year.

B. Andrew Rose

Thank you, John, and good afternoon. The company's performance in the fourth quarter of fiscal 2013 was solid, but declined from the prior year due to volume declines in Steel and Engineered Cabs, offset by healthy earnings growth in Cylinders and at the joint ventures. The prior year also included a $2.1 million gain on the sale of a Steel Processing facility in Vonore, Tennessee.

Quarterly earnings per share of $0.46 were down $0.29 from the prior year, but were negatively impacted by several restructuring and impairment charges totaling $0.14 a share. Inventory holding losses also hurt earnings by $0.02 a share during the quarter as steel prices fell compared to the prior year when rising prices led to FIFO gains of $0.03 per share.

Restructuring charges totaling $0.14 can be found in 3 places on our income statement. First, in the restructuring line, we recorded a $5 million impairment charge on our Indian Cylinder operation and the remaining $2 million was primarily severance related to the recently announced consolidation of our Medina hand torch facility. Second, 40% of the Indian impairment charge or $2 million is attributable to our minority partner and is eliminated in the noncontrolling interest line, so the net impairment on India to Worthington was approximately $3 million. Finally, additional restructuring charges of $5.8 million are contained in the equity and net income line. The majority of which are related to the write-off of our China construction JV.

Volume growth was mixed in the fourth quarter. Cylinders volumes, overall, were down 2.7% year-over-year, but this metric does not tell you much about the underlying strength of some of the higher-growth segments, such as alternative fuels and energy, which tanks tend to be lower in volume but higher-priced. Steel Processing direct volumes were down 6%, while toll volumes declined 18%. Steel volume declines were concentrated in our coatings business, primarily Spartan, where our partner has moved business to their in-house galvanizing facility. This decline has reversed recently and Spartan remains solidly profitable. The Engineered Cabs business continues to be soft, primarily at its largest customer. The business generated $3.8 million of EBITDA during the quarter before corporate allocations and $25 million for the fiscal year, a 22% decline from when we purchased the business in December 2011.

Equity income from our joint ventures during the quarter was down $1.2 million, but up $4.6 million, or 21% after excluding the previously mentioned $5.8 million in restructuring charges. The improved performance at WAVE, ClarkDietrich, TWB and ArtiFlex were offset by modest declines at WSP and Serviacero. We received dividends of $30 million during the quarter, including our first $10 million earnings distribution from ClarkDietrich.

Free cash flow for the quarter was $67 million after a modest decrease in working capital and $10.2 million in capital projects. We distributed no dividends during the quarter as the March dividend payment was made back in December of 2012 to shareholders, but we did repurchase 925,000 shares during the quarter at an average price of $32.88. The Board of Directors yesterday declared a dividend of $0.15 per share, a $0.02 per share increase over the previous amount, payable in September 2013. Our business has been performing well and generating an increasing amount of free cash flow and we are pleased to raise our payout by 15% to our shareholders. We continue to believe that maintaining a competitive dividend is an important component of shareholder return and we'll continue to evaluate further moves as our business grows.

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