-Reported net sales of $1.5 billion for the first quarter during the fourth quarter.-Net earnings came in at $80.3 million, or $1.61 per diluted share.-Despite inventory holding losses, Worthington continues to produce strong results as the building and consumer products segments outperformed.-Worthington's products during the third quarter were affected by the semiconductor shortage, which led to a fall in volume, some of those issues have resolved themselves during the fourth quarter.Worthington Industries (NYSE: WOR)
is a global diversified metals and manufacturing company based out of Columbus, Ohio. It manufactures a range of steel processing products such as propane, oxygen, and helium tanks. It also produces refrigerant, camping, and industrial cylinders.
The company continues to witness a strong quarter as higher average selling price across its segments and an increase in volumes from recent acquisitions such as Tempel steel and Shiloh drove revenue higher.
Market outlook for steel
Steel prices continued to be higher for the quarter, which resulted in higher working capital needs for Worthington. The global steel market remains tight, and steel prices are expected to stay in a price range of $1100-$1700, depending on the type of steel. But, prices could fall below $1000 as demand from countries such as China continues to weaken. Additionally, the global economy is also expected to slow down as tighter monetary policy takes hold.
Outlook for Worthington
Key acquisitions added significant revenue to the business as the steel processing unit witnessed strong demand for the quarter. Worthington is the premier producer of laser welded and electrical steel solutions. The steel processing segment produced total revenue of $1.1 billion, despite losses from inventory. Worthington continued to see strong demand in the mobility market during the quarter, and expects demand to remain strong during the next couple of quarters as well.
The building products segments continue to face a challenging outlook as residential and commercial buildings face slowing demand. Mortgage rates recently hit 6%, and housing starts have also started to retreat from their recent levels. Meanwhile, commercial demand also remains weak as trends such as workers continue to work from home are leading to a glut in the retail property market. But, Worthington has continued to do well in this segment and expects its business not to be severely affected. Regardless, questions remain as we head into the new fiscal year. Investors should expect mid-single digits growth for in the next fiscal year as the housing market continues to slow.
Meanwhile, the consumer segment remains on solid footing despite inventory holding losses during the quarter. As a result, the segment witnessed an 18% increase y-o-y for the quarter and going into the next few quarters, and demand should also remain steady. In addition, consumer products such as camping gear and helium have continued to perform well and are likely to witness low single-digit growth during the next few quarters.
Sustainable energy sales were up 1% for the year and continued to be weak. Management expected higher selling prices would continue to weigh on the products during the next two quarters. In addition, volumes continue to be helpless as demand for LPG gas-related products has not turned a corner.
Financial and valuation outlook
Total revenue during the quarter came in at $1.5 billion, with revenue steel processing income coming in at $1.1 billion. Revenue increased by 55% y-o-y as demand for critical segments remained strong. Gross margins fell slightly as margins from the steel segment weighed on profitability. Operating profit was down significantly to $65 million, mainly due to adjustments. These adjustments were a result of losses from Nikola and should not be an issue in the coming quarters. Overall, profitability should come in at around $600-650 million for the next fiscal year as profitability recovers.
Worthington's stock currently trades at a relatively cheap valuation with a P/E of around 5x. However, forward P/E should be closer to 3-4x, making the stock very attractive to investors looking to invest in a value play.
Worthington faces numerous risks as its steel processing unit and housing unit face macroeconomic headwinds, but it should be able to overcome the issues. In addition, the consumer products sector will face fewer issues as the products are less likely to be affected by macro-issues.
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