Worthington Industries: Record Sales, Repurchasing Shares

| About: Worthington Industries, (WOR)

Worthington Industries reported record sales for the fourth quarter and the year as the company flexed its pricing power on its flat-rolled steel. The company has surprised on estimates two out of the last four quarters on average of 20.59%. Worthington has a forward P/E of 12.70.

Company Description

Worthington Industries, Inc. (NYSE:WOR) is a large independent steel processor of flat-rolled steel and a manufacturer of metal products such as metal framing, pressure cylinders, automotive past model service stampings, metal ceiling grid systems and laser welded blanks. The company operates 67 facilities in 11 countries, including 12 in the United States.

Worthington, a Zacks #1 Rank (Strong Buy), has three primary business units and nine joint ventures. For example, Worthington Steel, one of the primary businesses, is a supplier of hot-roll and cold-roll cut-to-length steel sheets to the John Deere Harvester Works in East Moline, Ill., and the John Deere Ottumwa Works in Ottumwa, Iowa, for combine, baler and mower conditioner parts.

Worthington Industries manages its business in a hub and spoke model with Worthington Steel serving as the hub in the model. All the other segments and joint ventures are the spokes and all consume flat rolled steel.

Worthington Reports Record Sales in the Fourth Quarter

On June 26, Worthington Industries reported fourth quarter and fiscal 2008 earnings and beat Wall Street estimates by 71.43% for the fourth quarter. Fourth quarter net income was $53.9 million, or 68 cents per share, compared to $38.2 million, or 45 cents pre share in the fourth-quarter of 2007.

Income included a $4.9 million pre-tax restructuring charge which negatively impacted the quarter by 4 cents per share. Excluding the charge, earnings were 72 cents per share compared to analysts' estimates of 30 cents per share.

Sales rose 10% to a record $868.9 million, from $786.6 million in the year ago period. Fiscal year 2008 also saw a sales record as sales grew 3% to $3,067.2 million from $2,971.8 million.

The Pressure Cylinders segment led the company for the quarter and the year, as it set a new quarterly record for net sales and units shipped and an annual record for net sales. It saw strength as volumes increased in both Europe and North America. The Metal Framing segment, which had been struggling, returned to profitability for the quarter.

The Steel Processing segment also saw healthy quarterly gains, as net sales jumped 14% to $412.7 million from $360.5 million in the fourth quarter 2007. The company is seeing pricing power as prices were up 18% over the prior year. Volumes actually declined 3% as there was weakness in toll processing, which is tied to the struggling automotive markets.

Consensus Estimates for the First Quarter and Full Year 2009 Rise

Brokerage analysts responded to the big fourth quarter surprise by raising estimates for the first quarter 2009 and the full year 2009. Consensus estimates for the first quarter jumped 22% to 55 cents from 45 cents per share. For 2009, consensus estimates are up 11% to $1.56 from $1.40 per share.

Share Repurchase Program Continues

The company announced a 10 million share repurchase program on June 13, 2005. During 2008, WOR repurchased 6,451,500 shares, of which 5,551,000 went to close out the 2005 program. The remaining 900,500 shares were allocated to a 10 million share repurchase program authorized on September 26, 2007.

Total outstanding shares at the end of 2008 equaled 79.3 million shares. Purchases under the program may continue from time to time as market conditions warrant.

Value Fundamentals

Worthington Industries' forward P/E is 12.70, under the industry average of 16.05. Its price-to-book is 1.77. The company has a solid average five year return on equity [ROE] of 15.96%. As an added bonus, the company pays a dividend yield of 3.40%.