Worthington (NYSE:WOR) Delivers Solid Q4 Results, Positions for Long-Term Growth Through Strategic Acquisitions and Joint Ventures

Published on September 24, 2024 | Ticker: WOR

Worthington Enterprises, Inc. (NYSE:WOR), the industrial manufacturing conglomerate, reported its fiscal fourth quarter 2024 results, showcasing a respectable performance amidst a challenging macroeconomic environment. The company generated annual net income of $110,624,000, annual revenue of $1,245,703,000, annual operating cash flow of $289,976,000, and annual free cash flow of $206,449,000.

Financials

In the fourth quarter, Worthington reported a GAAP loss from continuing operations of $0.64 per share, which was impacted by $74 million in pretax restructuring, impairment, and one-time charges. Excluding these items, the company generated adjusted earnings from continuing operations of $0.74 per share, compared to $1.19 per share in the prior year quarter. Consolidated net sales in the quarter decreased 13.6% to $319 million, due to lower volumes across all segments compared to a strong Q4 last year. Gross profit decreased to $79 million from $94 million, with gross margin declining slightly to 24.8% from 25.5% in the prior year period.

Adjusted EBITDA in Q4 was $63 million, down from $94 million a year ago, with the company's trailing 12-month adjusted EBITDA now at $251 million and a trailing 12-month adjusted EBITDA margin of 20.1%. Cash flows from operations in the quarter were $45 million, with free cash flow of $34 million. During the quarter, Worthington invested $11 million in capital projects, including $5 million related to facility modernization initiatives, and spent $12 million on acquisitions, primarily a deposit for the Hexagon Ragasco acquisition which closed on June 3.

The company ended the quarter with a strong balance sheet, including $298 million of long-term funded debt at an average interest rate of 3.6% and $244 million of cash. Worthington used approximately $84 million of this cash in early June to complete the Hexagon Ragasco acquisition, net of proceeds received from the formation of a joint venture with Hexagon Composites. The company continues to operate with extremely low leverage, ending the quarter with a net debt to trailing EBITDA ratio of less than 0.25x, and has ample liquidity with a $500 million undrawn bank credit facility.

Segmental Performance

In the Consumer Products segment, net sales in Q4 were $125 million, down from $149 million a year ago, as volumes declined 17.9% compared to the prior year period. Adjusted EBITDA for the Consumer business was $17 million, with an adjusted EBITDA margin of 13.6%, compared to $30 million and 19.8% in the prior year quarter. The decline was primarily due to lower volumes in outdoor living products and slightly higher SG&A related to the tools business as the company invests for future growth.

The Building Products segment generated net sales of $154 million in Q4, down 12% from $175 million a year ago, driven by a less favorable product mix and lower volumes, especially in the large format heating end market which continued to see some destocking. Adjusted EBITDA for Building Products was $52 million, with an adjusted EBITDA margin of 33.6%, compared to $65 million and 37.1% in the prior year quarter. The decrease was largely driven by lower equity earnings at ClarkDietrich, which contributed $12 million in the quarter compared to $25 million a year ago. WAVE, however, continued to deliver strong results, contributing equity earnings of $28 million, up from $24 million a year ago.

In the Sustainable Energy Solutions (SES) segment, net sales and adjusted EBITDA were $40 million and $1 million, respectively, compared to $45 million and $4 million a year ago. During the quarter, Worthington sold a 51% interest in the SES business to Hexagon Composites, forming a joint venture in which Worthington now owns a 49% stake. Going forward, the company's share of SES's profits or losses will be reported through equity income within the corporate and other segment.

Strategic Initiatives and Outlook

Worthington has been actively executing on its strategic initiatives, including the recently announced acquisitions of Hexagon Ragasco, a global leader in lightweight composite LPG cylinders, and the formation of a joint venture with Hexagon Composites for the company's Sustainable Energy Solutions business. These transactions are expected to enhance Worthington's product portfolio, global reach, and long-term value creation.

The Hexagon Ragasco acquisition complements the company's existing operations in Europe and expands its product offerings in the growing composite cylinder market. Meanwhile, the SES joint venture with Hexagon Composites, a global leader in hydrogen and CNG storage and transport, provides a stronger platform to capitalize on the emerging hydrogen economy as it develops.

Looking ahead, Worthington remains focused on driving growth and margin expansion through its core strategies of transformation, innovation, and strategic M&A. The company is particularly focused on enhancing its innovation capabilities to bring more and better products to market faster, while also incorporating sustainable technologies to deliver significant value to its customers.

Worthington's management team is confident in the company's ability to achieve its long-term goals, which include growing the top line by 6-8% annually and expanding EBITDA margins to 24%. The company believes it can accomplish these objectives through a combination of organic initiatives, such as business transformation and new product launches, as well as accretive acquisitions that complement its existing portfolio and capabilities.

Despite the near-term macroeconomic headwinds, Worthington's diversified business model, strong balance sheet, and strategic focus position the company well to navigate the current environment and capitalize on long-term growth opportunities. The company's recent transactions with Hexagon demonstrate its disciplined approach to capital allocation and its commitment to creating value for shareholders.

Conclusion

Worthington Enterprises delivered a respectable fourth quarter performance, navigating a challenging macroeconomic landscape. The company's strategic initiatives, including the Hexagon Ragasco acquisition and the Sustainable Energy Solutions joint venture, are expected to enhance its product portfolio, global reach, and long-term growth prospects. With a strong balance sheet, ample liquidity, and a focus on transformation, innovation, and strategic M&A, Worthington is well-positioned to drive shareholder value in the years ahead.

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