Worthington Feels Margin Pressure from Tariffs

Written by Tim Triplett

Worthington Industries reported net sales of $958.2 million for its fiscal 2019 second quarter ended Nov. 30, a 10 percent increase over the same quarter in fiscal 2018. However, its quarterly earnings were not as strong. Operating income totaled $35.9 million, a decrease of $16.2 million from the prior-year quarter.

“I am pleased with the way our teams executed in a challenging environment,” said John McConnell, Chairman and CEO. “We faced headwinds in the quarter due to rising input costs and lower spreads in our Steel Processing business. But volumes for our key markets remained solid and our employees continue to work hard to make improvements.”

Added Worthington President Andy Rose: “The biggest challenge we have been tackling is the steel tariffs, which have created artificial pricing mechanics that should have minimal long-term impact on our business but have created short-term margin pressure. In Steel Processing, the scrap to hot-rolled spread has compressed margins. In Pressure Cylinders, higher steel costs have also reduced margins.”

Worthington has been able to recover some margin as it passes through price increases to downstream manufacturing businesses. “We are beginning to see the benefits of price increases and cost reduction measures, and this will continue building in 2019,” Rose added.

Net sales in Worthington’s Steel Processing segment totaled $635.0 million, up 18 percent over the comparable prior-year quarter driven primarily by higher average direct selling prices. Operating income declined by $5.8 million driven primarily by lower direct spreads, which continue to be negatively impacted by an expanding gap between the cost of steel and scrap prices, the company said.

In the Pressure Cylinders business, net sales totaled $294.4 million, down 2 percent as consumer products in the prior-year quarter benefited from hurricane-driven demand. Volume decreases in the industrial products and oil & gas equipment businesses were largely offset by favorable pricing and mix. Operating income of $14.8 million was $9.9 million less than the prior-year quarter as margins compressed due to higher material and conversion costs and lower volumes in both the industrial products and consumer products businesses. 

Engineered Cabs’ net sales totaled $28.7 million, down 6 percent from the prior-year quarter. The segment showed an operating loss of $3.4 million due to lower volume and startup costs associated with a new fabricated products operation.

The Worthington executives reported that end market demand remains good across most of the company’s businesses. The economy is strong and showing no signs of extended slowdown. “As we successfully navigate price volatility and cost pressure, we are confident that our strategy will continue to deliver solid returns for our shareholders,” Rose said.

Headquartered in Columbus, Ohio, the diversified metals manufacturing company reported sales of $3.6 billion in its last fiscal year.

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