Steelmaker Worthington Industries (NYSE:WOR) posted increased income for its fiscal first quarter, although its revenue fell slightly. Worthington has been spending on restructuring as it's been altering its business, though it benefited from lower general expenses.

Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

Improving Operations
Worthington earned $25.7 million, or 35 cents a share, compared to $22.4 million, or 29 cents a share, in the year-ago quarter. Revenue, however, was slightly less at $602.4 million compared to $616.8 million in the first quarter last year. According to FactSet, analysts expected 34 cents a share on $630 million revenue.

Revenue was affected by Worthington's deconsolidation of its metal framing and automotive body panels operation. On the positive side, the pressure cylinder division saw a 24% sales gain, aided by the purchase of BernzOmatic, which makes torches, from Irwin Industrial Tool Co., a subsidiary of Newell Rubbermaid (NYSE:NWL). It also bought assets of Misa Metals, Inc. (MMI), a steel processor. The BernzOmatic purchase had been contentious, so resolution of a dispute lowered SG&A charges by $4.4 million. Without the deconsolidation of its metal framing operation, net sales increased 18% due to higher average selling prices, with the average cost of steel rising 16% in the year-over-year quarter. Gross margin was 12% of net sales, compared to 13% in last year's quarter. Without the deconsolidation, however, gross margin would have been 3% higher, while SG&A was actually lower by $11.4 million overall, in part due to the deconsolidation. (For related reading, see Analyzing Operating Margins.)

Steel Still Faces Hard Times
The steel industry has had a difficult time in the weak post-recession recovery, so some context for Worthington's performance is in order. Gross margins have been pressured at other steelmakers. While each of these has a different business mix, it's notable that Worthington's margins, even down a bit from last year, were 12%. Steel Dynamics (NYSE:STD), a scrap and recycled steelmaker, has trailing 12-month gross margins of 11.7%, while Nucor's (NYSE:NUE) was 8%, United States Steel's (NYSE:X) 6.5% and AK Steel Holding's (NYSE:AKS) 4.9%. (For related reading, see Investing In The Metals Markets.)

Even though all have lower gross margins than Worthington, margins aren't close to the total picture of these companies' performance. US Steel with its approximate $3 billion market cap, and Nucor as well, have larger operations than Worthington, but US Steel has struggled more, through the post-recession economic weakness, with losses than the slightly smaller, more specialized Worthington. Another smaller steelmaker like Worthington, Reliance Steel (NYSE:RS) had a terrific second quarter, reported in early August, with revenue up 26% and earnings up roughly 60%. Higher sales volumes and selling prices were the keys. The opportunities in the industry right now seem a bit better for the medium and smaller companies.

The Bottom Line
Worthington has its pressure cylinder segment, so it has a thriving division that's not really dependent on the automotive industry. While the larger steelmakers are tied more heavily into the fortunes of the auto industry, Worthington Industries can still deliver performance in what is obviously a stalled or lackluster economy. With economic growth forecast to be slow going into the coming months, Worthington's business mix should give it a chance to still deliver reasonably good results while awaiting a more general economic rebound. Its stock is selling not that far off its 52-week low, like many of the steelmakers, and is selling at a P/E of 8.96 with a forward multiple of 7.35, which seems cheap. Worthington reflects that the steel industry has been stuck at or near the bottom of the low-demand cycle, but that won't go on forever. (For related reading on the P/E ratio, see How To Use The P/E Ratio And PEG To Tell A Stock's Future.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  2. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  3. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  4. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  5. Stock Analysis

    When Will Dick's Sporting Goods Bounce Back? (DKS)

    Is DKS a bargain here?
  6. Investing News

    How AT&T Evolved into a Mobile Phone Giant

    A third of Americans use an AT&T mobile phone. How did it evolve from a state-sponsored monopoly, though antitrust and a technological revolution?
  7. Stock Analysis

    Home Depot: Can its Shares Continue Climbing?

    Home Depot has outperformed the market by a wide margin in the last 12 months. Is this sustainable?
  8. Stock Analysis

    Yelp: Can it Regain its Losses in 2016? (YELP)

    Yelp investors have had reason to be happy recently. Will the good spirits last?
  9. Stock Analysis

    Is Walmart's Rally Sustainable? (WMT)

    Walmart is enjoying a short-term rally. Is it sustainable? Is Amazon still a better bet?
  10. Stock Analysis

    GoPro's Stock: Can it Fall Much Further? (GPRO)

    As a company that primarily sells discretionary products, GoPro and its potential falls right in line with consumer trends. Is that good or bad?
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center