Worthington Industries, Inc. (WOR)

WOR 
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Worthington Industries, Inc. (WOR)

F1Q09 Earnings Call

September 24, 2008 8:30 am ET

Executives

Allison M. Sanders - Director, Investor Relations

John P. McConnell - Chairman of the Board, Chief Executive Officer

Richard G. Welch - Controller, Principal Financial Officer

George P. Stoe - Executive Vice President and Chief Operating Officer

Analysts

Chuck Bradford - Soleil (Bradford Research)

James Perry - Perimeter Capital Management

Tim Hayes - Davenport & Company

John Tomasas - Independent Research

Bob Richard - Longbow Research

Kevin Muni - Cleveland Research

Mark Parr - Keybanc Capital Markets

Sal Tharani - Goldman Sachs

Presentation

Operator

Good morning and welcome to the Worthington Industries first quarter earnings results conference call. (Operator Instructions) I would like to introduce your first speaker, Miss Allison Sanders, Director of Investor Relations. Ms. Sanders, you may begin.

Allison M. Sanders

Thank you, Joyce and good morning, everyone. Welcome to our quarterly earnings conference call. Before we begin our presentation, I want to remind everyone that certain statements made in this conference call are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties, which could cause actual results to differ from those suggested. Please refer to the press release for more detail on factors that could cause actual results to differ materially.

For those who are interested in listening to this conference call again, a replay will be available on the homepage of our website at www.worthingtonindustries.com.

With me in the room today are John McConnell, Chairman and Chief Executive Officer; George Stoe, Executive Vice President and Chief Operating Officer; and Richard Welch, Controller and Principal Financial Officer. John McConnell will begin. John.

John P. McConnell

Allison, thank you and good morning, everybody. We certainly thank everyone for joining us at an earlier hour than normal. This will be kind of the standard around the September earnings release and I particularly apologize to those in the Central Time Zone who had to get up a little earlier yet.

We are very pleased with our results this quarter and with those employees who were instrumental in producing them. This quarter was the best quarter in Worthington’s history and while our results in the past two quarters were aided by tailwinds stemming from FIFO inventory gains in a rising steel price environment, it is clear to me that our performance was also the result of improved execution and that we maximize the opportunities that were present.

I say this to acknowledge the improving performance of our teams and also to highlight the fact that the tailwinds as they diminish and retractions in both automotive and commercial construction markets continue to build, our execution will continue to improve, helping to mitigate those headwinds.

Our initial cost reduction efforts announced in the first quarter of fiscal 2008 have grown into a broader performance improvement initiative that we are calling the transformation plan. The transformation plan includes a focus on cost reduction, margin expansion, organizational capability improvements, and cultural change. The intent is to drive excellence in three core competencies -- sales, operations, and supply chain management. The goal of the transformation plan is to increase the company’s sustainable earnings power over the next three years.

Now I’ll talk more about the transformation plan in closing but now I’m going to turn the call over to Richard Welch, our Controller and Primary Financial Officer, and George Stoe, our Chief Operating Officer, to provide more details on an excellent first quarter for fiscal 2009. Richard.

Richard G. Welch

Thanks, John. Good morning. Our first quarter of fiscal 2009, which ended on August 31, 2008, we reported record earnings per share of $0.86 per share. Excluding restructuring charges in both periods, earnings per share were $0.94 compared to $0.27 last year. Restructuring charges amounted to $0.08 per share in the current quarter and $0.03 per share in the year-ago quarter.

Record first quarter sales of $913 million were up 20% from the prior year period. The sales increase was due to higher pricing, especially in our steel processing and metal framing segments.

The gross profit margin rose from 10.4% to 16.6%, primarily as a result of a much wider spread between selling prices and material costs in the steel processing and metal framing segment. SG&A expense fell as a percentage of sales from 7.2% to 6.9% despite increasing $9 million. The increased dollars were a result of higher compensation expense, which included profit sharing and bonuses that rose with record earnings.

Quarterly operating income increased from $24 million to $88 million excluding the restructuring charges in both periods. Operating income does not include an additional $25 million in equity income from eight unconsolidated joint ventures, the most significant of which, Wave, had record quarterly earnings.

Collectively, equity income rose 67% to $25 million from $15 million last year due to Wave’s record performance, as well as to the addition of our Mexican steel processing joint venture, which was newly formed in September 2007.

As a group, the eight joint ventures generated $231 million in sales during our first quarter and paid us $15 million in dividends. Miscellaneous expense was in line with the year-ago period and interest expense increased almost $1 million due to higher short-term borrowing.

Income tax expense for the quarter rose due to significantly higher earnings. We expect the effective tax rate to remain at 30% for the balance of the year.

And now to the balance sheet -- total debt was $445 million at quarter end, short-term borrowings increased $64 million from our May fiscal year-end, primarily to support higher working capital requirements and also our acquisition of Sharon Stairs in June.

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