Worthington Industries (WOR) is trading modestly higher today after reporting 2Q18 (Nov) 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 69% of revenue in FY17. 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.
There have been some recent business developments. In June 2017, WOR acquired Amtrol, a manufacturer of pressure cylinders and water system tanks for $291.9 mln. Then, in November 2017, the company announced that its WAVE joint venture had agreed to sell its operations in Europe, the Middle East, Africa and Asia, to Knauf Group, which is based in Germany. WOR expects to realize proceeds of approximately $45 mln for its 50% share of the WAVE operations being sold.
Turning to its NovQ results, there were a bunch of unusual items, but the clean non-GAAP EPS number appears to be $0.65 after you back out all the unusual items. That was slightly below market expectations. However, revenue rose 19.7% year/year to $871.3 mln, which was quite a bit better than 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.
The company said its NovQ results were the second best NovQ results in its history. WOR saw improvement in its Pressure Cylinders segment, with especially strong results in consumer product volumes driven by its 14 and 16 oz. camping cylinders and solid earnings from its Amtrol acquisition. Lower toll volumes in Steel Processing and lower equity income from its joint ventures led to a decline from the year ago quarter. All in all, most of the markets it serves were steady.
WOR says it is performing well with strong volumes from the heavy truck and agriculture markets, and improvements in Pressure Cylinders, where the company is seeing strong consumer product volumes and increasing demand in the oil & gas business. Also, the repositioning of Engineered Cabs to attract new customers is resulting in increasing sales.
In sum, it seems that investors are view the NovQ results as a modest positive. Overall, the stock has been pretty weak since late September when WOR reported AugQ results. It was trading around $50 at the time and now it's in the $44 range. On a final note, it's good to see WOR being fairly assertive in terms of buying back stock. The company repurchased 1.5 mln shares in NovQ at an average price of $44.97.