Stock of the Day

July 14, 2022

Worthington Enterprises (WOR)

$42.32
-$1.19 (-2.7%)
Market Cap: $2.12B

About Worthington Enterprises

Worthington Enterprises, Inc. operates as an industrial manufacturing company. It operates through three segments: Building Products, Consumer Products, and Sustainable Energy Solutions. The Building Products segment sells refrigerant and LPG cylinders, well water and expansion tanks, fire suppression tanks, chemical tanks, and foam and adhesive tanks for gas producers, and distributors. The Consumer Products segment provides products in the tools, outdoor living, and celebrations end markets. Its products include propane-filled cylinders for torches, camping stoves and other applications, LPG cylinders, handheld torches, helium-filled balloon kits, specialized hand tools and instruments, and drywall tools and accessories This segment sells its products primarily to mass merchandisers, retailers, and distributors under the Coleman, Bernzomatic, Balloon Time, Mag-Torch, General, Garden-Weasel, Pactool International, Hawkeye, Worthington Pro Grade, and Level5 brands. The Sustainable Energy Solutions segment sells onboard fueling systems and services, as well as gas containment solutions and services for storage, transport, and distribution of industrial gases. It includes high pressure and acetylene cylinders for life support systems and alternative fuel cylinders used to hold CNG and hydrogen for automobiles, buses, and light-duty trucks. The company was formerly known as Worthington Industries, Inc. Worthington Enterprises, Inc. was founded in 1955 and is headquartered in Columbus, Ohio.

Worthington Posts Strong Results, But Earnings Fall On One-Off Adjustments

Written By Parth Pala on 6/23/2022

Worthingtons Posts Strong Results, But Earnings Fall On One-Off Adjustments-Reported net sales of $1.5 billion for the first quarter during the fourth quarter.

-Net earnings came in at $80.3 million, or $1.61 per diluted share.

-Despite inventory holding losses, Worthington continues to produce strong results as the building and consumer products segments outperformed.

-Worthington's products during the third quarter were affected by the semiconductor shortage, which led to a fall in volume, some of those issues have resolved themselves during the fourth quarter.

Worthington Industries (NYSE: WOR) is a global diversified metals and manufacturing company based out of Columbus, Ohio. It manufactures a range of steel processing products such as propane, oxygen, and helium tanks. It also produces refrigerant, camping, and industrial cylinders.

The company continues to witness a strong quarter as higher average selling price across its segments and an increase in volumes from recent acquisitions such as Tempel steel and Shiloh drove revenue higher.

Market outlook for steel

Steel prices continued to be higher for the quarter, which resulted in higher working capital needs for Worthington.  The global steel market remains tight, and steel prices are expected to stay in a price range of $1100-$1700, depending on the type of steel.  But, prices could fall below $1000  as demand from countries such as China continues to weaken. Additionally, the global economy is also expected to slow down as tighter monetary policy takes hold.

Outlook for Worthington

Key acquisitions added significant revenue to the business as the steel processing unit witnessed strong demand for the quarter. Worthington is the premier producer of laser welded and electrical steel solutions. The steel processing segment produced total revenue of $1.1 billion, despite losses from inventory. Worthington continued to see strong demand in the mobility market during the quarter, and expects demand to remain strong during the next couple of quarters as well. 

 The building products segments continue to face a challenging outlook as residential and commercial buildings face slowing demand. Mortgage rates recently hit 6%, and housing starts have also started to retreat from their recent levels. Meanwhile, commercial demand also remains weak as trends such as workers continue to work from home are leading to a glut in the retail property market. But, Worthington has continued to do well in this segment and expects its business not to be severely affected. Regardless, questions remain as we head into the new fiscal year. Investors should expect mid-single digits growth for in the next fiscal year as the housing market continues to slow.

 Meanwhile, the consumer segment remains on solid footing despite inventory holding losses during the quarter. As a result, the segment witnessed an 18% increase y-o-y for the quarter and going into the next few quarters, and demand should also remain steady.  In addition, consumer products such as camping gear and helium have continued to perform well and are likely to witness low single-digit growth during the next few quarters.

 Sustainable energy sales were up 1% for the year and continued to be weak. Management expected higher selling prices would continue to weigh on the products during the next two quarters. In addition, volumes continue to be helpless as demand for LPG gas-related products has not turned a corner.

Financial and valuation outlook

Total revenue during the quarter came in at $1.5 billion, with revenue steel processing income coming in at $1.1 billion. Revenue increased by 55% y-o-y as demand for critical segments remained strong.  Gross margins fell slightly as margins from the steel segment weighed on profitability. Operating profit was down significantly to $65 million, mainly due to adjustments. These adjustments were a result of losses from Nikola and should not be an issue in the coming quarters.  Overall, profitability should come in at around $600-650 million for the next fiscal year as profitability recovers.

Worthington's stock currently trades at a relatively cheap valuation with a P/E of around 5x. However, forward P/E should be closer to 3-4x, making the stock very attractive to investors looking to invest in a value play.

Final word

Worthington faces numerous risks as its steel processing unit and housing unit face macroeconomic headwinds, but it should be able to overcome the issues. In addition, the consumer products sector will face fewer issues as the products are less likely to be affected by macro-issues.