Worthington Industries CFO stays cautious despite recovery in steel demand

The past few months have been quite challenging for manufacturing companies, and the story of Worthington Industries (NYSE: WOR) was no different. Two of its key end markets – automobile and construction – witnessed a slowdown, leading to an 18% fall in Q1 2021 net sales.

However, things have been getting better since. The company’s CFO Joseph Hayek sees a reasonable hike in the demand environment for steel, but treads carefully due to a fair amount of uncertainty in the immediate future. In an interview with AlphaStreet the executive said:

“It was a difficult time and things have changed quite a bit since then. There were lots of unknowns with the coronavirus, especially in March, April and May. But we were fortunate because we had redundant supply chains, and didn’t face any interruptions.“

The diversified metals manufacturer had last week reported first-quarter financial results, where it swung to a profit of $616.7 million, from a loss a year ago, driven by the gains from its investment in Nikola Corporation (NASDAQ: NKLA). Worthington had partially liquidated its stake in the hydrogen fuel cell truck company before Nikola founder was embroiled in a slew of allegations.

Joseph stated that the liquidation was aimed at share buybacks, as well as to fund strategic investments. Meanwhile, the executive declined to elaborate on what it intends to do with the remaining Nikola stake of about 7 million shares, which is currently in a lock-in period with expiry in early December.

Being a value-added steel processing firm, Worthington’s topline is heavily dependent on steel prices. Looking historically, the company has witnessed strong support in net sales levels whenever steel prices have increased.  

“As time goes on, the real watchword is uncertainty surrounding demand. If demand continues the way that it is today, things look pretty reasonable from a supply and demand perspective. So we feel pretty good about it right now, but there’s a fair amount of uncertainty as we head forward.”

The CFO pointed out that the management has been streamlining operations over the last few years by downsizing or divesting underperforming units. The management believes these activities will mold Worthington into a more efficient manufacturing firm.

Worthington has a decent balance sheet with $650.1 million in cash and total debt of $707.5 million. Joseph asserted that the management is happy with the current cash position and is not in a huge hurry to spend or deploy that capital.

“I don’t think that we would aspire to have zero net debt, because we think that’s not an efficient deployment and use of capital. At the same time we are an investment-grade credit. And we’re pretty proud of that.”

Worthington shares have gained 71% in the past six months.

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For more insights into Worthington Industries, read the latest earnings call transcript here.