WOR - Worthington Industries - In the third quarter, WOR repurchased just over 2 million shares

Worthington Industries is benefiting from the hot steel sector as the company sells to a diverse group of industries, including the expanding agricultural sector. The company has beaten Wall Street estimates in two out of the prior four quarters on average of 7.56%. Worthington has a P/E of 13.73.

Full Analysis

Worthington Industries, Inc. (WOR) is a large independent steel processor of flat-rolled steel. The company operates 68 facilities in 10 countries, including 12 in the United States. WOR manufactures a variety of steel products including acrylic coating, cleaning, cold-rolling, configured blanking, cutting-to-length, dry lubricating, edging, galvannealing, hot-dipped galvanizing, hydrogen annealing, pickling, slitting, stainless steel, temper rolling and tension leveling.

Worthington processes steel for use in the agriculture, automotive, construction, hardware, aerospace and many other industries. WOR has three primary business units and nine joint ventures. For example, Worthington Steel, one of the primary businesses, is a supplier of hot-roll and cold-roll cut-to-length steel sheets to the John Deere Harvester Works in East Moline, Ill., and the John Deere Ottumwa Works in Ottumwa, Iowa, for combine, baler and mower conditioner parts.

Worthington Industries manages its business in a hub and spoke model with Worthington Steel serving as the hub in the model. All the other segments and joint ventures are the spokes and consume flat rolled steel.

Sales Increased By 7% In the Third Quarter

The company reported fiscal 2008 third-quarter earnings on March 20 and met analysts' estimates. Net earnings were $18.3 million, or 23 cents a share, compared to $5.5 million, or six cents a share, in 2007. There was a pre-tax restructuring charge which negatively impacted earnings by two cents per share.

Sales increased 7% to $725.7 million from $677.3 million in the year ago period. New business helped the Steel Processing segment increase volumes by 9% compared to 2007. The Pressure Cylinders segment also had record sales in the third quarter.

The company saw synergies from the restructuring program.

"Our employees are doing a very good job of eliminating or changing the way we work, resulting in permanent reductions in cost and improved efficiencies. We have removed $12 million in costs so far this year. Once the plant closings in Metal Framing are completed and other identified cost reductions are fully implemented, we expect our total cost savings to reach a $39 million annual run rate in 2010," said Chairman and CEO, John McConnell.

Worthington also has an ongoing share repurchase program that was authorized in June 2005. In the third quarter, WOR repurchased just over 2 million shares.

Brokerage analysts are bullish on the company as the steel sector remains hot. For the fourth quarter, three out of three covering analysts raised estimates in the last 30 days to 40 cents from 36 cents per share. Similarly, for the year, three out of five raised in the last month by six cents to $1.22 from $1.16 per share.

Analysts expect earnings to grow year-over-year by 15%.

Worthington has a 2008 P/E of 13.73, under the industry average of 14.21. It's price-to-book is 1.60. The company has a solid five year average return on equity (ROE) of 15.88%. As an added bonus, WOR pays a great dividend with a current yield of 4.10%.

Content Courtesy: Zacks Investment Research

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