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Worthington Industries Inc. (WOR) reports preliminary financial results for the quarter ended 2012-08-31.

Worthington Industries Inc. recently reported its preliminary financial results based on which CapitalCube provides a unique peer-based analysis of the company. Our analysis is based on the company's performance over the last twelve months (unless stated otherwise).

Worthington Industries Inc.'s analysis versus peers uses the following peer-set: Nucor Corp. (NUE), Reliance Steel & Aluminum Co. (RS), United States Steel Corp. (X), Carpenter Technology Corp. (CRS), Steel Dynamics Inc. (STLD), Commercial Metals Co. (CMC), Schnitzer Steel Industries Inc. (SCHN) and AK Steel Holding Corp. (AKS). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.

Quarterly (USD million)2012-08-312012-05-312012-02-292011-11-302011-08-31
Revenues666.0755.4611.3565.7602.4
Revenue Growth %(11.8)23.68.1(6.1)(10.8)
Net Income34.052.125.912.025.7
Net Income Growth %(34.8)101.2115.9(53.3)(50.6)
Net Margin %5.16.94.22.14.3
ROE % (Annualized)18.930.015.37.115.0
ROA % (Annualized)7.411.16.02.96.2

Valuation Drivers

Worthington Industries Inc.'s current Price/Book of 2.1 is about median in its peer group. Worthington Industries Inc.'s operating performance is higher than the median of its chosen peers (ROE of 17.4% compared to the peer median ROE of 7.1%) but the market does not seem to expect higher growth relative to peers (PE of 12.6 compared to peer median of 15.6) but simply to maintain its relatively high rates of return.

The company attempts to achieve high profit margins (currently 4.8% vs. peer median of 2.1%) through differentiated products. It currently operates with peer median asset turns of 1.5x. Worthington Industries Inc.'s net margin is its highest relative to the last four years and compares to a low of -4.1% in 2009.

Economic Moat

Changes in the company's annual top line and earnings (3.8% and 0.5% respectively) generally lag its peers. This implies a lack of strategic focus and/or inability to execute. We view such companies as laggards relative to peers.

Worthington Industries Inc.'s current return on assets is better than its peer median (7.2% vs. peer median 3.5%) but this contrasts with its less than peer median return on assets over the past five years (3.2% vs. peer median 4.4%). This performance suggests that the company has improved its operations relative to peers.

The company's comparatively healthy gross margin of 16.2% versus peer median of 11.2% suggests that it has a differentiated strategy with pricing advantages. Further, Worthington Industries Inc.'s bottom-line operating performance is better than peer median (pre-tax margins of 4.6% compared to peer median 3.1%) suggesting relatively tight control on operating costs.

Growth & Investment Strategy

While Worthington Industries Inc.'s revenues have grown faster than the peer median (-1.2% vs. -2.3% respectively for the past three years), the market gives the stock an about peer median PE ratio of 12.6. This suggests that the market has some questions about the company's long-term strategy.

Worthington Industries Inc.'s annualized rate of change in capital of 9.2% over the past three years is higher than its peer median of 2.1%. This investment has generated an above peer median return on capital of 8.7% averaged over the same three years. Evidently, the relatively high capital investment was successful given the relatively strong growth in its returns.

Earnings Quality

Worthington Industries Inc. has reported relatively strong net income margin for the last twelve months (4.8% vs. peer median of 2.1%). This margin performance combined with relatively high accruals (5.2% vs. peer median of 3.6%) suggests possible conservative accounting and an understatement of its reported net income.

Worthington Industries Inc.'s accruals over the last twelve months are positive suggesting a buildup of reserves. In addition, the level of accrual is greater than the peer median -- which suggests a relatively strong buildup in reserves compared to its peers.

Trend Charts

Company Profile

Worthington Industries, Inc. is a diversified metals processing company, focused on value-added steel processing and manufactured metal products. Its manufactured metal products include: pressure cylinder products such as propane, oxygen and helium tanks, hand torches, refrigerant and industrial cylinders, camping cylinders, scuba tanks, compressed natural gas cylinders and helium balloon kits; engineered cabs and operator stations and cab components; framing systems for mid-rise buildings; steel pallets and racks; and, through joint ventures, suspension grid systems for concealed and lay-in panel ceilings; laser welded blanks; light gauge steel framing for commercial and residential construction; and current and past model automotive service stampings. The company operates into four reportable business segments: Steel Processing, Pressure Cylinders, Engineered Cabs and, on an historical basis, Metal Framing. The company was founded by John H. McConnell in 1955 and is headquartered in Columbus, OH.

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Source: Earnings Analysis For Worthington Industries Inc.