Worthington Industries(WOR) - 2022 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported earnings of $2.55 per share in Q1 2022 compared to $11.22 in the prior year quarter, with a record adjusted earnings of $2.46 per share versus $0.64 in the prior year quarter [7] - Consolidated net sales increased to $1.1 billion from $703 million in Q1 of last year, driven by higher steel prices and increased volumes [8] - Gross profit rose to $219 million from $113 million year-over-year, with gross margin increasing to 19.7% from 16.1% [8] Business Line Data and Key Metrics Changes - In Steel Processing, net sales nearly doubled to $823 million from $431 million, with total shipped tons up 14% year-over-year [9] - Consumer Products saw net sales of $148 million, up 10.6% from the prior year, but EBIT decreased to $21 million from $24 million due to higher labor and input costs [11] - Building Products generated net sales of $115 million, up 30% from $88 million, with EBIT increasing to $49 million from $23.4 million [12] - Sustainable Energy Solutions reported net sales of $25 million, down from $28 million, with a negative EBIT of $3 million due to low volumes [13] Market Data and Key Metrics Changes - Demand across major end markets, including automotive, construction, heavy truck, and agriculture, remained solid, although automotive shipments were impacted by semiconductor shortages [9] - The company experienced pre-tax inventory holding gains of $47 million compared to losses of $7 million in the prior year [10] Company Strategy and Development Direction - The company is focused on leveraging its transformation playbook, new product development, and M&A to drive above-market growth and higher returns on capital [17] - The M&A environment is challenging due to elevated purchase multiples and unpredictable earnings analysis, but the company remains open to compelling targets [17] Management's Comments on Operating Environment and Future Outlook - The operating environment is challenging due to rising steel prices, supply chain issues, and labor shortages, but demand levels are good across almost all end markets [16] - The company expects significant working capital increases to subside in the next quarters if steel prices stabilize [14] Other Important Information - The company ended Q1 with $399 million in cash and $706 million in funded debt, maintaining a balanced approach to capital allocation [15] - A dividend of $0.28 per share was declared for the quarter, payable in December 2021 [15] Q&A Session Summary Question: Inventory holding gains in Steel Processing - Management anticipates significant inventory holding gains again in the current quarter, but not as high as in Q1 [20][21] Question: Automotive supply chain conditions - Supply chains remain backed up, with dealer inventories still very light and demand exceeding available cars [24][25] Question: Impact of scrap gap - The scrap gap has widened significantly, impacting the company, but management is working to offset this through various strategies [22][35] Question: Acquisition contributions - The Shiloh acquisition is expected to be accretive and aligns well with the company's focus on lightweighting in automotive [37] Question: Future margin expectations - Margins in Consumer Products are expected to normalize, while Building Products may see a lag in pricing adjustments [39] Question: Liquidity position - The company has nearly $400 million in cash and $500 million available on its revolver, maintaining a strong liquidity position [41] Question: Substitution between steel and wood - While there is some substitution between wood and steel, the market dynamics remain established, and significant changes are not anticipated [44] Question: Flat-rolled steel prices outlook - Management does not foresee a structural change in flat-rolled steel prices, emphasizing the need for low stable prices for better business performance [71][72]