Steel Industries Present Competition and Opportunities

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Worthington Industries (NYSE: WOR) reported its fiscal 2013 first quarter ended August 31, 2012 results with sales up by 11%. The company operates mainly in United States, Canada, Europe, and other places internationally. The company is into metal processing focusing mainly on steel and manufactured metal products.

The company has broadened its horizon with a series of acquisitions over the past few years. The annual sales have improved over the years and reached about $2.5 billion today. The improvement in sales was offset by lower pricing in the current quarter.


Net Sales and net earnings were reported at $666.0 million and $34.0 million, or $0.49 per share, respectively for its fiscal 2013 first quarter ended August 31, 2012. The company reported net sales of $602.4 million and net earnings of $25.7 million, or $0.35 per share for the similar period last year.

In steel processing operations sales fell from $408.17 million to $379.97 million. Sales in pressure cylinders improved from $865.53 million to $920.84 million while revenue from other sales improved marginally by about $2 million. Engineered cabs consisting totally new operations (because of acquisition of Angus Industries) contributed in the rise of the sales by $64.49 million.

Cash dividends improved by 1 cent compared to the similar quarter, last year. Cash and cash equivalents have reduced from $36.87 million to $30.48 million mainly due to repayment of $223.69 million of short term borrowings offset by a long term loan of $150 million and better generation of cash from operations.

What Lies Ahead?

Through series of acquisitions and synergies generated from them Worthington is looking forward at increased volume and better growth strategy. Moving towards diversification and extensive market reach the company is setting its foot in the global energy and alternative fuels market. Westerman Companies, the leading atmospheric tanks and pressure vessels maker was recently acquired for $70 million by Worthington Industries. The acquisition was successfully integrated into the company’s metal processor’s Pressure Cylinders division thereby boosting up sales by nearly 15%.

Westerman’s energy products have an extensive use in exploration, recovery, and production purposes across oil and gas and nuclear markets which should work well in favor of the acquirer. The growth in the demand for alternative fuels gives the company opportunities to expand the oil and gas business around the Utica and Marcellus shale drilling.

The latest acquisition of Angus, the market leader in the custom-engineered cab space will help Worthington increase its presence in the construction, agriculture and mining industries. Angus with a dedicated workforce, great management, and strategic objective similar to Worthington should add value and help in increasing domestic capacity and international expansion.

Stiff competition from AK Steel Holding Corporation (NYSE: AKS) is anticipated in construction and electrical power generation and distribution markets as the company expects to ship about $1.4 million tons, more than its previous quarter. Reduced raw material surcharges and decline in global economic and business conditions have made things tighter for AK Steel. The per-ton selling price is also anticipated to slip down over the present quarter. The company also expects outage for the blast furnace at the company’s Ashland Works facility and tax charge of roughly around $29 million associated with a valuation allowance for its deferred tax assets.

Gibraltar Industries, Inc. (NASDAQ: ROCK), strategy is to grow organically by expanding its product base and by penetrating existing customer accounts. The company is looking forward to a more extensive market and geographic coverage through the acquisition of companies with leadership positions in their respective products. D.S. Brown Company’s acquisition last year has given diverse exposure, stronger revenue and profitability and enhanced growth prospects. Edvan Industries privately held metal grating fabrication and distribution business was also acquired lately. This acquisition should solidify Gibraltar's position in North America's fastest growing areas for oil and gas production.

My View

Revenues have grown considerably and sustainably over a period for Worthington. The company with its series of acquisitions and new additions of products to its portfolio looks promising in years to come. Improvement in the economy should benefit the company in its core business process. Construction market may remain tight due to low government spending which could reduce company’s business. Keeping present conditions in mind I would not recommend a hold or buy for this stock.


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