Worthington Industries Earnings Call INSIGHTS: Pressure Cylinders Business, Metals

On Thursday, Worthington Industries (NYSE:WOR) reported its fourth quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Pressure Cylinders

Luke Folta – Jefferies: Firstly just want to wish George farewell on your, I guess semiretired state, going forward. It’s been a pleasure working with you and I wish you well. Secondly at the risk of maybe sounding a little over promotional, congrats on the results this quarter and also good executions of the downturn. I don’t think I covered another company that has done as much to improve their business, over the last few years as you guys have, so nice work there. I have a number of questions here; firstly I wanted to just touch on the Pressure Cylinders business. I think we had seen some impact over the last quarter or two from higher manufacturing and some acquisition related costs. The margins picked up there pretty nicely, sequentially, albeit on a lot more volume. Do you think those manufacturing costs would kind of normalize or do you think there’s may be some further room to come down there?

John P. McConnell – Chairman and CEO: I think they have normalized.

Luke Folta – Jefferies: Secondly, as it relates to the Cylinders business, you have just started to look into the restructuring process there and also talking with market, it seems like there could be some potential for future pricing opportunities on a number of those business lines. Can you give us some sense of how far long you are in this kind of transformation process in Cylinders and how much we can expect there going forward?

John P. McConnell – Chairman and CEO: I think we are still in the early stages of transformation of cylinders.

George P. Stoe – COO: We just went into the fourth facility, Luke and had the rest of them to drive the process through.

John P. McConnell – Chairman and CEO: So it’s still pretty up. And I’d say recently packing the commercial side a little deeper than they had before. So that’s also really just beginning.

Luke Folta – Jefferies: I guess starting to put through – can you just talk about where – what pricing trends are like in that business and have you identified any opportunities to expand margins there?

John P. McConnell – Chairman and CEO: Price is always very competitive. It’s across over a wide array of different products and different end of ending points. So we really focus on cost take out every year. That is one of the driving things as we have and now of course with the problem of these transformation on top of that really for the same purpose.

Luke Folta – Jefferies: Okay and then just on Angus, there was a pretty nice pickup in margins there sequentially, I guess the question being, what you think is a better representation of what your, going forward base margins are like in that business? Is it more like the – I think almost 10% that we saw in the fourth quarter here or kind of the mid-6s, sort of 7% sort of range that we saw in the third quarter?

John P. McConnell – Chairman and CEO: I’m going to let George largely address that, though I would say, transformation is about to kick off there so I would hope to see definitely cost improvements and other things throughout the Angus operation, George?

George P. Stoe – COO: Luke, we also, if you recall, we had some purchase accounting in the first few months of our operation of the Angus business. We had to write their inventory up to market level, so I think you should expect that our margin levels would mirror what you saw in the most recent quarter.

Luke Folta – Jefferies: All right, just one last one, the global construction group, I remember some discussion about there was some potential big projects out there that you were looking at and to the extent that those projects weren’t realized or you didn’t think that there was – that they were likely to happen that you could maybe exit some of those operations. Have you made some preliminary decision on that or can you just give me your thoughts there?

John P. McConnell – Chairman and CEO: Well, as far as the large projects go, it certainly have been delayed, they are not off the table completely in this investment, but certainly our China joint venture and that building operation has been delayed though there is no question it will go forward at some point. And opportunities throughout the Middle East and Africa are still in existence. We are taking a very hard look at everything involved with the local group and we further analyze it really throughout the rest of this fiscal year. We have some very specific targets that must be met, where we will slowly – just up this business slowly.

Metals 

Arun Viswanathan – Longbow Research: So, I guess first just on the cylinders business, I mean, your volume definitely have a nice uptick. How much growth is there? Is it kind of a new run rate or do you think that there was something specific in this quarter that we won’t see again?

John P. McConnell – Chairman and CEO: Cylinders is always going to have some weather influences throughout it, both good and bad. We know in one segment it’s probably about as slow as we have seen in the heating tank market as we have a very warm winter. In another segment it picks up. Sometimes natural events like the typhoon that just came into the East Coast, has caused the people to buy alternative power sources and propane is one of those. So volumes will always keep going back and forth. We think we are well positioned for new markets. That’s one of our focuses right now. Certainly, if natural oil and gas begins to get more headwind – more tailwinds as an alternative fuel for automobiles, that growth can be exponential. Andy, do you want to add anything to that? George, no?

Arun Viswanathan – Longbow Research: I guess similarly since this is one of the earlier quarters that we are seeing the Cabs business performs well. Is this kind of a more typical run rate and what you expect from this business on a quarterly basis or is there a lot more growth left in on the margin side as well here? I was just trying to get a handle since this is a new business for you guys historically speaking.

George P. Stoe – COO: I certainly think that we see some growth opportunities in that business. You may have read recently that one of our large customers announced a new plant down in the Southeast and we have been awarded a portion of that business and we think that there are nice opportunities going forward, both domestically and internationally.

Arun Viswanathan – Longbow Research: Then last question I had was on the metals business. Have you seen any difference or changes in customer behavior with changes in prices in the last couple of months and scrap has really come off and obviously spot pricing in steel has also come off. So just wondering, what you are seeing from your customers?

John P. McConnell – Chairman and CEO: I have not but I will refer to Mr. Russell, if he has any additional light on that.

Mark A. Russell – President, Worthington Steel: I think you see the typical waiting for prices to come down. People are not placing their orders until the last possible moment. That’s typically what we see when the price bias is down, or as the clarity is at the moment.