Worthington Industries (WOR) is trading lower today (-6%) after reporting 1Q18 (Aug) earnings results this morning. In case you're not familiar, WOR is primarily what's known as a steel processor. They do not make steel, rather they purchase large 20-ton coils from steel producers like AKS, NUE, MT, STLD and X. They then process the steel coils further to the precise type, thickness, length, width, shape and surface quality required by customer specifications.
These products cannot typically be supplied as efficiently by steel mills to the end-users of these products. So steel processors like WOR fill this niche. The majority of revenue comes from its Steel Processing unit which accounted for 65% of revenue in FY16. About half of segment revenue comes from the automotive market. Other key end markets include agricultural, appliance, construction, hardware, HVAC, lawn and garden, office equipment etc.
Worthington also does what's known as toll processing for steel mills, large end-users, service centers and other processors. Toll processing is different from typical steel processing in that the mill retains title to the steel and has the responsibility for selling the end product.
In addition to steel processing, WOR also has a Pressure Cylinders operating segment which makes pressure cylinders, tanks and various accessories. Examples include propane cylinders for barbequing, hand held torches etc. Worthington also has an Engineered Cabs segment which makes enclosed cabs where crane operators or farmers sit to operate that equipment.
Turning to its AugQ results, non-GAAP EPS came in at $0.73, which was a good bit below market expectations. Revenue rose 15.0% year/year to $848.2 mln, which also was below market expectations. The company does not provide guidance so analyst models are always a bit in the dark which can lead to volatility around earnings.
WOR says it started off its new fiscal year with good results, though not as strong as last year's record quarter. It saw increases in its heavy truck and agriculture volumes, but there was some softening in automotive. In the Cylinders business, WOR saw increasing demand for oil & gas equipment and the integration of its newest acquisition, Amtrol, is going well. While its joint venture ClarkDietrich was negatively impacted by higher steel costs, WAVE and Serviacero both had improved results.
In sum, the stock is weaker today as AugQ results came in below market expectations. The stock has been on a kind of roller coaster over the past year or so. Looking ahead, WOR believes that most of the markets it serves are healthy with some showing more strength than others. Automotive does appear to be softening though.