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Worthington Industries Inches Back Up

Posted: Oct 07, 2009 09:52 AM by Greg Sushinsky

Tickers in this Article: X, NUE, AKS, MT, WOR

Steelmaker Worthington Industries (NYSE:WOR) posted a small first-quarter profit after a rough prior quarter and fiscal year. The maker of pressure cylinders, metal framing and a host of other diversified steel products earned $6.7 million, or 8 cents per share, on revenue of $417.5 million, after a year ago strong quarter of $68.6 million, or 87 cents a share, on revenue of $913.2 million. The company had a loss of $108.2 million or -$1.37 a share for the its last fiscal year which ended in May, 2009.

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The Good, the Bad, and the Hopeful
The previous fiscal year ending May, 2008 saw the operating revenues reach the $3 billion mark, with net income over $100 million, with several flush years in the steel industry capped off by booming demand. Then in 2009, the bust followed as the industry was hit with the effects of the severe economic downturn, so Worthington's recent flush years were followed by a bad one. The positive first quarter, just ended on August 31 of their new 2010 fiscal year, is at least a sign that the terrible downturn, marked by higher costs and dried-up demand, is easing.

Worthington Not Alone
Other steelmakers were clubbed by the same commodity costs and lack of demand, but there is no unanimity about the prospects of when demand will increase or how much by steel industry analysts, though the companies tend to be cautiously optimistic. ArcelorMittal (NYSE:MT), the world's largest steelmaker, while delivering a mixed report back in July on its earnings, suggested that demand would be picking up reasonably soon and at a fairly good pace. Arcelor Mittal is expanding in India in a big way, an undertaking that backs up its conviction of better times ahead. Another steelmaker, AK Steel (NYSE:AKS), has announced new surcharges, which suggests an attempt to recoup the bulked-up costs the steelmakers have faced for their raw materials. Nucor (NYSE:NUE) plans to build a $2.1 billion pig iron works preferably in Louisiana with Brazil as a second choice, and although it expects to report a loss for the quarter which just ended, Nucor also reports its pig iron inventories should be exhausted during the current quarter. This should open up opportunities for increased production.

Stocks With Potential?
The stock of Worthington, which had been beaten down in the last 52 weeks to $6.99 per share, has rebounded to $14.30, so it's in the neighborhood of its high of $16.42. The other steel stocks, also deeply cyclical, are showing potential to continue their rebounds. In a July piece in Barron's Online, Bob O'Brien examined whether U.S. Steel (NYSE:X) had bottomed, while a small sampling of retail investors when asked chose U.S. Steel as the best positioned of the steel stocks.

Prospects for the Steel Business
While global steel output has been on the rebound, though still off from pre-recession levels, there are other indicators hinting at greater demand on the horizon, such as tight inventories of carbon steel products. While these bits and pieces of future demand assessments don't constitute clear visibility of what lies ahead, with the wildcard of China's new role as the world's number one steelmaker or whether anything can goose the steel demand as Cash For Clunkers temporarily did, it is clear that Worthington and the other major steelmakers have survived the worst and are looking for an upturn.

The Bottom Line: Stock Price Leads the Business
With deep cyclicals such as steel stocks, investment history shows they should be bought early in their business cycle, before the business demand gets roaring, so if the stock price of Worthington or others is too rich, wait until it corrects but know that it should rise well before the revenues and earnings completely follow suit. (To learn more, read The Ups And Downs Of Investing In Cyclical Stocks.)

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By Greg Sushinsky

Greg Sushinsky is a passionate independent investor, who has done his own research, analysis and investing for 20 years. One of his earliest investing memories was when he first saved and bought U.S. Savings Bonds with his own money as a small child. From there, he studied investing on his own and made small stock purchases as he grew as an investor.

Sushinsky still follows the markets, studies and reads widely in financial literature, and has written over 75 articles on investing. He is also a professional editor, whose work is published extensively in large-circulation magazines, digests and across the internet. In other pursuits, Sushinsky writes fiction and has a university degree in philosophy. To see more of Sushinsky's literary work, see http://writing.gregsushinsky.com/.

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