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Worthington Reports Third Quarter Fiscal 2020 Results

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COLUMBUS, Ohio, March 26, 2020 – Worthington Industries, Inc. (NYSE: WOR) today reported net sales of $764.0 million and net earnings of $15.3 million, or $0.27 per diluted share, for its fiscal 2020 third quarter ended Feb. 29, 2020.  In the third quarter of fiscal 2019, the Company reported net sales of $874.4 million and net earnings of $26.8 million, or $0.46 per diluted share.  Results in both the current and prior year quarter include the following impairment, restructuring and other items:
(U.S. dollars in millions, except per share amounts)
  3Q 2020 3Q 2019  
  Pre-Tax EPS Pre-Tax EPS  
Impairment and restructuring (charges) gains $ (36.0) $ (0.48) $ 11.2 $ 0.14  
Composite tank replacement program 2.3 0.03 (13.0) (0.17)  
Gain on consolidation of Samuel Steel Pickling $ 6.1 $ 0.08 $ - $ -  
In addition, the current quarter included estimated inventory holding losses in Steel Processing of $6.0 million, or $0.08 per diluted share, compared to estimated losses in the prior year quarter of $10.8 million, or $0.14 per diluted share.  Financial highlights for the current and comparative periods are as follows:
(U.S. dollars in millions, except per share amounts)
  3Q 2020 3Q 2019 9M 2020 9M 2019  
Net sales $ 764.0 $ 874.4 $ 2,447.5 $ 2,820.7  
Operating income (loss) (1.4) 26.0 16.1 112.8  
Equity income 25.5 20.8 97.6 71.9  
Net earnings 15.3 26.8 62.6 115.7  
Earnings per diluted share $ 0.27 $ 0.46 $ 1.11 $ 1.95  
“While I’m pleased with our results in the third quarter, today, our top priority is keeping our people safe and managing our businesses through this difficult crisis,” said John McConnell, Chairman and CEO.  “I am extremely proud of how our employees have come together, collectively navigating the unprecedented challenges facing our Company and our country.” 
Consolidated Quarterly Results

Net sales for the third quarter of fiscal 2020 were $764.0 million, down 13% from the comparable quarter in the prior year, when net sales were $874.4 million. The decrease was driven primarily by lower average selling prices in Steel Processing and lower volume in Pressure Cylinders, partially offset by higher volumes in Steel Processing.
Gross margin increased $25.5 million over the prior year quarter to $115.5 million.  The increase was driven primarily by higher direct spreads and higher toll volume in Steel Processing combined with a higher contribution from Pressure Cylinders in the current quarter, compared to the prior year quarter that included the unfavorable impact of the tank replacement program.
Operating loss for the current quarter was $1.4 million compared to operating income of $26.0 million in the prior year quarter as the improvement in gross margin was more than offset by higher impairment and restructuring charges in Pressure Cylinders and higher SG&A expense. 
Interest expense was $7.4 million for the current quarter, compared to $9.3 million in the prior year quarter.  The decrease was due primarily to lower average debt levels and lower average interest rates resulting from the debt refinancing transactions completed earlier in the year.
Equity income from unconsolidated joint ventures increased $4.7 million over the prior year quarter to $25.5 million, primarily due to higher contributions from ClarkDietrich, ArtiFlex and WAVE.  The Company received cash distributions of $21.0 million from unconsolidated joint ventures during the quarter.
Income tax expense was $4.8 million in the current quarter compared to $8.4 million in the prior year quarter on lower pre-tax earnings as a result of the significant impairment and restructuring charges recognized in the current quarter.  Tax expense in the current quarter reflects an estimated annual effective rate of 24.6%, compared to an estimated rate of 23.3% for the prior year quarter.
Balance Sheet
At quarter-end, total debt was unchanged from Nov. 30, 2019 at $698.8 million and the Company had $103.4 million of cash on hand. 
Quarterly Segment Results
Steel Processing’s net sales totaled $491.1 million, down 12%, or $64.7 million, from the comparable prior year quarter driven primarily by lower average selling prices, partially offset by higher volume.  Operating income was $19.0 million, up $8.9 million from the prior year quarter on higher direct spreads and the impact of higher toll volume.  Direct spreads in the current quarter benefited from lower inventory holding losses.  The mix of direct versus toll tons processed was 44% to 56% in the current quarter, compared to 57% to 43% in the prior year quarter.  The change in mix was driven primarily by the consolidation of the toll processing joint venture, Samuel Steel Pickling, during the current quarter.
Pressure Cylinders’ net sales totaled $271.0 million, down 7%, or $19.7 million, from the comparable prior year quarter due to lower volumes in both the industrial products and consumer products businesses.  Operating loss of $19.9 million in the current quarter compared to operating income of $19.0 million in the prior year quarter.  The decline was due primarily to higher impairment and restructuring charges, which were up $45.3 million over the gain recognized in the prior year quarter, partially offset by the favorable impact of the change in reserves for the tank replacement program initiated in the prior year quarter.  Excluding the impact of these items, operating income was down $8.8 million on lower contributions from both the industrial products and consumer products businesses, partially offset by improvements in the oil and gas equipment business. 
Recent Developments
On Dec. 31, 2019, the Company contributed the recently acquired assets of Heidtman Steel to the Samuel Steel Pickling joint venture, increasing the Company’s total ownership interest in the joint venture to 63%, resulting in a pre-tax gain of $6.1 million during the quarter.
On Feb. 12, 2020, the Company announced a plan to consolidate its oil and gas equipment manufacturing operation in Wooster, Ohio, into its existing facility in Bremen, Ohio, resulting in pre-tax impairment and restructuring charges of $33.9 million during the quarter.  The closure of the Wooster facility is expected to be completed by May 29, 2020.
On March 18, 2020, the Company’s Worthington Specialty Processing joint venture announced a plan to consolidate its manufacturing operations in Canton, Mich., into its existing facilities in Jackson and Taylor, Mich., resulting in pre-tax impairment and restructuring charges to the joint venture of $1.6 million during the quarter.  The closure of the Canton facility is expected to be completed by May 29, 2020.
On March 25, 2020, the Board declared a quarterly dividend of $0.24 per share payable on June 29, 2020 to shareholders of record on June 15, 2020.
During the quarter, the Company repurchased a total of 550,000 common shares for $21.4 million at an average price of $38.86. 
“There are still many unknowns regarding the spread of COVID-19 and how the measures to control it will impact the economy and our Company,” McConnell said.  “Many of our facilities are considered ‘essential businesses’ under the various state and federal guidelines and will continue to operate based on customer demand.  I am especially grateful to our production workforce who are leading our effort to serve our customers and our country by continuing to make products.” 
Conference Call
Worthington will review fiscal 2020 third quarter results during its quarterly conference call on March 26, 2020, at 10:30 a.m., Eastern Time.  Details regarding the conference call can be found on the Company website at
About Worthington Industries 
Worthington Industries (NYSE:WOR) is a leading industrial manufacturing company delivering innovative solutions to customers that span many industries including transportation, construction, industrial, agriculture, retail and energy. Worthington is North America’s premier value-added steel processor and producer of laser welded products; and a leading global supplier of pressure cylinders and accessories for applications such as fuel storage, water systems, outdoor living, tools and celebrations. The Company’s brands, primarily sold in retail stores, include Coleman®, Bernzomatic®, Balloon Time®, Mag Torch® and Well-X-Trol®. Worthington’s WAVE joint venture with Armstrong is the North American leader in innovative ceiling solutions.

Headquartered in Columbus, Ohio, Worthington operates 57 facilities in 15 states and six countries, sells into over 90 countries and employs approximately 9,000 people. Founded in 1955, the Company follows a people-first philosophy with earning money for its shareholders as its first corporate goal. Relentlessly finding new ways to drive progress and practicing a shared commitment to transformation, Worthington makes better solutions possible for customers, employees, shareholders and communities. 

Safe Harbor Statement
The Company wishes to take advantage of the Safe Harbor provisions included in the Private Securities Litigation Reform Act of 1995 (the “Act”). Statements by the Company relating to the impacts from COVID-19 and the actions taken by governmental authorities and others related thereto, including the ability of the Company to continue operating facilities in connection therewith; outlook, strategy or business plans; future or expected growth, growth potential, forward momentum, performance, competitive position, sales, volumes, cash flows, earnings, margins, balance sheet strengths, debt, financial condition or other financial measures; pricing trends for raw materials and finished goods and the impact of pricing changes; the ability to improve or maintain margins; expected demand or demand trends for the Company or its markets; additions to product lines and opportunities to participate in new markets; expected benefits from Transformation and innovation efforts; the ability to improve performance and competitive position at the Company’s operations; anticipated working capital needs, capital expenditures and asset sales; anticipated improvements and efficiencies in costs, operations, sales, inventory management, sourcing and the supply chain and the results thereof; projected profitability potential; the ability to make acquisitions and the projected timing, results, benefits, costs, charges and expenditures related to acquisitions, joint ventures, headcount reductions and facility dispositions, shutdowns and consolidations; projected capacity and the alignment of operations with demand; the ability to operate profitably and generate cash in down markets; the ability to capture and maintain market share and to develop or take advantage of future opportunities, customer initiatives, new businesses, new products and new markets; expectations for Company and customer inventories, jobs and orders; expectations for the economy and markets or improvements therein; expectations for generating improving and sustainable earnings, earnings potential, margins or shareholder value; effects of judicial rulings; and other non-historical matters constitute “forward-looking statements” within the meaning of the Act. Because they are based on beliefs, estimates and assumptions, forward-looking statements are inherently subject to risks and uncertainties that could cause actual results to differ materially from those projected. Any number of factors could affect actual results, including, without limitation, the risks, uncertainties and impacts related to actual or potential public health emergencies such as COVID-19 and actions taken by governmental authorities or others in connection therewith; the effect of national, regional and global economic conditions generally and within major product markets, including significant economic disruptions from COVID-19 and the actions taken in connection therewith; the effect of conditions in national and worldwide financial markets; the impact of tariffs, the adoption of trade restrictions affecting the Company’s products or suppliers, a United States withdrawal from or significant renegotiation of trade agreements, the occurrence of trade wars, the closing of border crossings, and other changes in trade regulations or relationships; lower oil prices as a factor in demand for products; product demand and pricing; changes in product mix, product substitution and market acceptance of the Company’s products; fluctuations in the pricing, quality or availability of raw materials (particularly steel), supplies, transportation, utilities and other items required by operations; the outcome of adverse claims experience with respect to workers’ compensation, product recalls or product liability, casualty events or other matters; effects of facility closures and the consolidation of operations; the effect of financial difficulties, consolidation and other changes within the steel, automotive, construction, oil and gas, and other industries in which the Company participates; failure to maintain appropriate levels of inventories; financial difficulties (including bankruptcy filings) of original equipment manufacturers, end-users and customers, suppliers, joint venture partners and others with whom the Company does business; the ability to realize targeted expense reductions from headcount reductions, facility closures and other cost reduction efforts; the ability to realize cost savings and operational, sales and sourcing improvements and efficiencies, and other expected benefits from Transformation initiatives, on a timely basis; the overall success of, and the ability to integrate, newly-acquired businesses and joint ventures, maintain and develop their customers, and achieve synergies and other expected benefits and cost savings therefrom; capacity levels and efficiencies, within facilities, within major product markets and within the industries in which the Company participates as a whole; the effect of disruption in the business of suppliers, customers, facilities and shipping operations due to adverse weather, casualty events, equipment breakdowns, interruption in utility services, civil unrest, international conflicts, terrorist activities or other causes; changes in customer demand, inventories, spending patterns, product choices, and supplier choices; risks associated with doing business internationally, including economic, political and social instability, foreign currency exchange rate exposure and the acceptance of the Company’s products in global markets; the ability to improve and maintain processes and business practices to keep pace with the economic, competitive and technological environment; deviation of actual results from estimates and/or assumptions used by the Company in the application of its significant accounting policies; the level of imports and import prices in the Company’s markets; the impact of judicial rulings and governmental regulations, both in the United States and abroad, including those adopted by the United States Securities and Exchange Commission and other governmental agencies as contemplated by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010; the effect of healthcare laws in the United States and potential changes for such laws which may increase the Company’s healthcare and other costs and negatively impact the Company’s operations and financial results; cyber security risks; the effects of privacy and information security laws and standards; and other risks described from time to time in the Company’s filings with the United States Securities and Exchange Commission, including those described in “Part I – Item 1A. – Risk Factors” of the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2019.