Worthington Industries Q4 2012 Earnings Conference Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Luke Folta - Jefferies & Company - Analyst : Good afternoon.

Question: Luke Folta - Jefferies & Company - Analyst : Firstly, just want to wish George farewell, on your I guess, semi-retired state going forward. It's been a pleasure working with you and I wish you well.

Question: Luke Folta - Jefferies & Company - Analyst : Secondly, at the risk of maybe sounding a little over-promotional, congrats on the results this quarter, and also good execution through the downturn. I don't think I covered an other Company that's done as much to improve their business over the last few years as you have, so nice work there. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Luke Folta - Jefferies & Company - Analyst : A number of questions here. Firstly, I wanted to just touch on the Pressure Cylinders business. I think we had seen some impact over the last quarter or two from higher manufacturing and some acquisition-related costs. The margins picked up there pretty nicely, sequentially albeit on a lot more volume. Do you think those manufacturing costs have kind of normalized now, or do you think there's some room to further come down there?

Question: Luke Folta - Jefferies & Company - Analyst : Okay. Secondly, as it relates to the Cylinders business, you have just started to really get into the restructuring process there. And also talking with Mark, it seems like there could be some potential for future pricing opportunities in a number of those business lines. Can you give us some sense of how far along you are in this kind of transformation process in Cylinders, and how much we can expect there going forward?

Question: Luke Folta - Jefferies & Company - Analyst : Okay. Have you started to put through -- I mean, can you just talk about what pricing trends are like in that business? And have you identified any opportunities to expand margins there?

Question: Luke Folta - Jefferies & Company - Analyst : Okay. And then just on Angus, I mean there was a pretty nice pick-up in margins there sequentially. I guess the question being, what do you think is a better representation of what your kind of go-forward base margins are like in that business? Is it more like the kind of I think almost 10% that we saw in the fourth quarter here, or kind of the mid 6%s, sort of 7% sort of range that we saw in the third quarter?

Question: Luke Folta - Jefferies & Company - Analyst : Okay. Okay. All right, just one last one. The global construction group, I remember some discussion about -- there was some potential big projects out there that you were looking at. And to the extent, that those projects weren't realized, or you didn't think that there was -- that they were likely to happen, that you could maybe exit some of those operations, have you made some kind of preliminary decision on that, or can you just give me your thoughts there?

Question: Luke Folta - Jefferies & Company - Analyst : All right. Thank you very much for the color. I'll turn it over.

Question: Arun Viswanathan - Longbow Research - Analyst : Hi, thanks for taking my questions. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Arun Viswanathan - Longbow Research - Analyst : Yes, so I guess first off, just on the Cylinders business, I mean, your volume definitely had a nice uptick. How much growth is there? Is this kind of a new run rate, or do you think that there was something specific in this quarter that we won't see again?

Question: Arun Viswanathan - Longbow Research - Analyst : Okay. And then I guess, similarly, since this is one earlier quarters that we're seeing the cabs business perform as well, is this kind of a more typical run rate of what you expect from this business on a quarterly basis? Or was there -- is there a lot more growth left on the margin side as well here?

Question: Arun Viswanathan - Longbow Research - Analyst : I'm trying to get a handle since this is a newer business for you, historically speaking.

Question: Arun Viswanathan - Longbow Research - Analyst : Okay. And then last question I had was on the metals business. Have you seen any difference, or changes in customer behavior with, change in some prices in the last couple months? I mean, scrap has really come off. Obviously, spot pricing in steel has also come off. So just wondering what you are seeing from your customers. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Arun Viswanathan - Longbow Research - Analyst : Thanks.

Question: Michelle Applebaum - Steel Market Intelligence - Analyst : Hi. Also congrats to George. You have been terrific to work with. It's been a real pleasure, and a long tradition of great guys from Worthington. So I will miss you.

Question: Michelle Applebaum - Steel Market Intelligence - Analyst : Well, okay. So getting back to the tough stuff. I was going to ask you, so I am just curious the impact, Warren, I know that little RG plant that makes about 1 million tons a year, was a good supplier of yours. Could you talk a little about what the impact of that closure has been? And in particular, I'm curious if you're buying any of the more specialty grades from there, because I know only they and Acme are the ones supplying some of that stuff. So could we get into that a little bit?

Question: Michelle Applebaum - Steel Market Intelligence - Analyst : Okay. But you're getting them now from Acme, aren't you -- this is a general question, I guess. Because Mittal's labor contract is up on August 31, so if there are -- so, one, the question one, they're a single supplier of some products. There's no place else in the US to get some of that stuff. This is so ironic, isn't it guys? And then number two, in general, I'm not asking you to handicap a strike, I don't want that LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies. from you. But I want to talk about what you think -- what do you think is in the market, do you think people are worried about a strike? What happens with those grades, if there is a strike?

Question: Michelle Applebaum - Steel Market Intelligence - Analyst : Okay. Thanks.

Question: Chris Olin - Cleveland Research Company - Analyst : Hello. Just want to start off as well, George, wish you well, all the best, good to see a young guy like yourself, riding out on such a high note. You know I'm a big fan.

Question: Chris Olin - Cleveland Research Company - Analyst : Could have fooled me. Can you talk a little bit about what the current backlog or book-to-bill looked like with all this uncertainty. I know the macro headlines are weak, but are there any indications in your order flow that something is turning down? Anything on auto that's changed over the past couple of weeks?

Question: Chris Olin - Cleveland Research Company - Analyst : Is there any market standing out as better than expected going into the next couple quarters?

Question: Chris Olin - Cleveland Research Company - Analyst : Do you have any numbers, in terms of what the auto comp looks like today?

Question: Chris Olin - Cleveland Research Company - Analyst : The growth rate.

Question: Chris Olin - Cleveland Research Company - Analyst : Holding at flat growth or holding at the same growth rate?

Question: Chris Olin - Cleveland Research Company - Analyst : Okay, okay. Last question I had, just on the alternative energy market, can you give us a rough idea of how big this is right now, and where you think this could be in a couple of years in terms of the growth driver?

Question: Chris Olin - Cleveland Research Company - Analyst : Would that include capital funding to hit new markets? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Chris Olin - Cleveland Research Company - Analyst : That's all I have. Thanks.

Question: Mark Parr - KeyBanc Capital Markets - Analyst : Thanks a lot. Afternoon, guys.

Question: Mark Parr - KeyBanc Capital Markets - Analyst : Nice quarter. And, yes, I guess I'll -- I could say George, boy, I'm really glad you're leaving, but I can't do that. (Laughter).

Question: Mark Parr - KeyBanc Capital Markets - Analyst : Yes, all right. I heard -- Andy, I think you had mentioned a pick-up in the capital spending budget for this year, talked about a couple of organic growth initiatives. Could you give some color on that?

Question: Mark Parr - KeyBanc Capital Markets - Analyst : Right.

Question: Mark Parr - KeyBanc Capital Markets - Analyst : Okay. So that's --

Question: Mark Parr - KeyBanc Capital Markets - Analyst : That's helpful. I appreciate that.

Question: Mark Parr - KeyBanc Capital Markets - Analyst : Okay. Well, I'll look forward to announcements on those. I'd also like to talk a little more about the automotive, or I guess would call it vehicle conversion market to CNG and LNG. Have you -- are you doing that with steel tanks? Or is that aluminum or is that like wound fiber? Where are your products positioned in the market?

Question: Mark Parr - KeyBanc Capital Markets - Analyst : Okay. And what, do steel tanks work for larger vehicles like trucks or?

Question: Mark Parr - KeyBanc Capital Markets - Analyst : Okay. All right. Just out of curiosity, what's the cost of a conversion for a car at this point? Are you just providing tanks, or are you providing complete systems?

Question: Mark Parr - KeyBanc Capital Markets - Analyst : Okay.

Question: Mark Parr - KeyBanc Capital Markets - Analyst : Right. Are you providing or selling a complete system or just the tanks?

Question: Mark Parr - KeyBanc Capital Markets - Analyst : Okay. Terrific. Well, yes, Michelle asked the questions I wanted to ask about RG, and about Warren and Acme. So I think I feel good you have clearly been aggressively addressing that. Congratulations on gaining market share in Steel Processing, great quarter. George, it has been great working with you and look forward to Mark's preview next quarter. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: John Tumazos - John Tumazos Very Independent Research, LLC - Analyst : Good afternoon, and good to see all the progress.

Question: John Tumazos - John Tumazos Very Independent Research, LLC - Analyst : Could you explain the $2 million drop in WAVE's income, whether it was operating or some sort of charge? I noticed that for the fifth straight quarter, all the other JVs in aggregate were near $8 million. And it's amazing how they're all different, and steel goes up and down in price, but they've been so consistent, and maybe you'd want to elaborate on that. And thirdly, there's a new long-term liability account, distributions in excess of investment in unconsolidated affiliates. I think that means that you have some JVs that paid dividends more than their net worth. And that it's not a liability but an equity like account. And an alternative treatment would have been to not show that $69 million, and to have reduced the investments in unconsolidated affiliate assets by the $69 million. Maybe Andy would like to elaborate on the accounting presentation, if I've understood it correctly. And I suspect there might be one person on the call as well as myself, that wasn't 100% sure on it.

Question: John Tumazos - John Tumazos Very Independent Research, LLC - Analyst : The liability account, and why it was a liability account rather than a deduction from the asset account?

Question: John Tumazos - John Tumazos Very Independent Research, LLC - Analyst : If I could make a little follow-on, once in the '80s I bought a tax deal that distributed a lot of dividends, and depreciated more than its -- an awful lot as well. So it has a large negative basis. You have a negative book value in WAVE because it's paid so much in dividends. And what the accounting treatment is doing, is illustrating that this wonderful asset that makes at least $5 million a month for you is carried on your books at a negative value.

Question: John Tumazos - John Tumazos Very Independent Research, LLC - Analyst : I just want to be educated. Thank you. That's a great asset that's hard to see on the accounting basis.

Question: John Tumazos - John Tumazos Very Independent Research, LLC - Analyst : Yes, thank you. Thank you very much.

Question: Tim Hayes - Davenport & Company - Analyst : Good afternoon.

Question: Tim Hayes - Davenport & Company - Analyst : I'd like to also offer my congratulations to George and Mark. It's -- I guess, now looking back, it's been a long time since we were at Alumax.

Question: Tim Hayes - Davenport & Company - Analyst : the questions I have are on the Steel Processing. Just to double check, there's that $2.1 million JV transaction hit. That's actually included in the $32.5 million operating income; is that correct?

Question: Tim Hayes - Davenport & Company - Analyst : And just to double check, because the margins in that business certainly were impressive, even considered -- compared to a year ago. Just want to see if there's anything unsustainable there. Of course, recognizing the inventory, small inventory gain from the metal price that's already been called out. But is there anything else, because the unit manufacturing costs seem to decline quite nicely from a year ago, even though volumes were only up maybe say, modestly. And it also looked like their unit material cost wasn't quite as high as I modeled. I didn't know, maybe you were sourcing something a little cheaper, that is not sustainable. If you could give a little more color to the extent those margins are sustainable, I'd appreciate that.

Question: Tim Hayes - Davenport & Company - Analyst : Very good, then. Thank you.

Question: Mark Parr - KeyBanc Capital Markets - Analyst : Yes, thanks for taking a follow-up. JP, I was wondering if you might be willing to give us a little color, given the fact that steel prices have come down, what you might suspect to be the inventory carrying impact on the August quarter as a result of that?

Question: Mark Parr - KeyBanc Capital Markets - Analyst : Okay.

Question: Mark Parr - KeyBanc Capital Markets - Analyst : Okay. Thanks very much.

Question: Charles Bradford - Bradford Research, Inc. - Analyst : Hi. Good afternoon. Now that the Supreme Court has ruled on the healthcare plan, do you have any information or data as to what it might cost you, as the additional features come into effect over the next year or so?

Question: Charles Bradford - Bradford Research, Inc. - Analyst : On a slightly different area, apparently the House and the Senate are working on an infrastructure bill. Do you have any details on what impact that might have? Because they claim to have had a meeting of the minds yesterday, whether that could help you or not?

Question: Charles Bradford - Bradford Research, Inc. - Analyst : Thank you.