Worthington Industries, Inc. — Fiscal 2022 Form 10-K Summary
Reporting period: Fiscal year ended May 31, 2022, with comparisons to fiscal 2021 and fiscal 2020. The request metadata references “2021 Q4,” but the provided filing is an annual Form 10-K for fiscal 2022.
Business Context and Reporting Period
Worthington Industries is an industrial manufacturer focused on value-added steel processing and manufactured consumer, building and sustainable mobility products. Reportable segments are Steel Processing, Consumer Products, Building Products and Sustainable Energy Solutions. The company operates 28 consolidated manufacturing facilities and has interests in nine joint ventures operating an additional 48 facilities.
- Steel Processing represented 75.0% of fiscal 2022 net sales and includes consolidated joint ventures and electrical-steel laminations, laser-welded products and steel processing.
- Automotive represented approximately 37% of consolidated net sales; one automotive customer represented 13% of consolidated net sales.
- International operations represented approximately 6% of consolidated net sales.
- Effective June 1, 2021, the legacy Pressure Cylinders segment was reorganized into Consumer Products, Building Products and Sustainable Energy Solutions.
Key Financial Metrics
| Metric | Fiscal 2022 | Fiscal 2021 | Change |
|---|---|---|---|
| Net sales | $5,242.2 million | $3,171.4 million | +$2,070.8 million |
| Gross margin | $714.8 million; 13.6% | $639.1 million; 20.1% | +$75.8 million; margin down 6.5 points |
| Operating income | $329.3 million | $167.5 million | +$161.8 million |
| Equity income | $213.6 million | $123.3 million | +$90.3 million |
| Net earnings attributable to controlling interest | $379.4 million | $723.8 million | -$344.4 million |
| Diluted EPS | $7.44 | $13.42 | -$5.98 |
| Adjusted EBIT | $516.5 million | $395.5 million | +$121.0 million |
| Cash flow from operations | $70.1 million | $274.4 million | -$204.3 million |
Fiscal 2022 net earnings and EPS were lower than fiscal 2021 primarily because fiscal 2021 included a $655.1 million pre-tax gain from the company’s investment in Nikola. Core operating performance improved, as reflected in higher operating income and adjusted EBIT.
Segment Performance
| Segment | Fiscal 2022 Sales | Year-over-Year Sales Change | Fiscal 2022 Adjusted EBIT |
|---|---|---|---|
| Steel Processing | $3,933.0 million | +$1,873.6 million | $203.3 million |
| Consumer Products | $636.5 million | +$112.8 million | $94.3 million |
| Building Products | $541.8 million | +$139.8 million | $216.6 million |
| Sustainable Energy Solutions | $130.9 million | -$4.0 million | $(6.3) million |
- Steel Processing sales benefited primarily from higher selling prices and acquisitions, but adjusted EBIT declined $4.9 million because inventory holding gains were approximately $53.1 million lower than in fiscal 2021.
- Consumer Products benefited from higher prices, volume and the General Tools & Instruments acquisition.
- Building Products benefited from higher prices, volume and stronger equity earnings from ClarkDietrich and WAVE.
- Sustainable Energy Solutions declined because of lower volume, unfavorable mix and the prior-year divestiture of the Poland LPG business.
Liquidity, Cash Flow and Capital Structure
- Cash and cash equivalents declined to $34.5 million at May 31, 2022 from $640.3 million a year earlier.
- Operating cash flow was $70.1 million, pressured by a $257.6 million increase in operating working capital as steel prices rose.
- Capital expenditures were $94.6 million; acquisition spending was $376.7 million; proceeds from asset sales were $39.9 million.
- Cash used for financing included $180.2 million of share repurchases and $57.2 million of dividends.
- Total debt was $747.2 million, or $744.6 million net of discounts and issuance costs; long-term debt was $696.3 million.
- Debt consisted primarily of senior notes due in 2024, 2026 and 2032, plus European senior notes due in 2031 and 2034.
- The amended $500.0 million revolving credit facility matures in August 2026 and had no borrowings outstanding at May 31, 2022.
- The new receivables securitization facility permits borrowings up to $175.0 million; $43.5 million was outstanding at year-end, leaving $131.5 million available.
- Management stated that available cash and committed credit facilities were adequate for normal operating needs, debt repayments, dividends, capital expenditures and working capital for at least 12 months and the foreseeable future.
Material Changes Versus the Prior Comparable Period
- Net sales increased 65.3%, driven largely by higher steel prices, acquisitions and higher selling prices across most businesses.
- Gross margin dollars increased, but gross margin percentage declined materially because of higher steel costs, lower inventory holding gains and higher distribution and conversion costs.
- Operating income nearly doubled, while adjusted EBIT increased 30.6%.
- Net income and EPS fell because fiscal 2021 benefited from the nonrecurring Nikola investment gain.
- Equity income rose to $213.6 million, including significant improvement from ClarkDietrich and Serviacero Worthington. Cash distributions from unconsolidated joint ventures were $100.1 million.
- Fiscal 2022 included the acquisitions of Shiloh’s U.S. BlankLight business for approximately $104.5 million and Tempel Steel for approximately $272.2 million, net of cash acquired.
- Restructuring and other income was $17.1 million, primarily from gains on asset disposals, compared with $56.1 million of expense in fiscal 2021.
- Share repurchases totaled 3.235 million shares in fiscal 2022, reducing year-end issued and outstanding shares to 48.4 million from 51.3 million.
Guidance, Outlook, Risks and Unusual Items
The filing does not provide quantitative fiscal 2023 earnings or revenue guidance. Management expected inflation to continue affecting selling prices and input costs in fiscal 2023 and emphasized ongoing monitoring of discretionary spending, working capital and liquidity.
- Key risks include steel, zinc, aluminum, energy and freight price volatility; supply interruptions; inflation; interest-rate increases; and difficulty passing cost increases to customers.
- Automotive and construction exposure creates sensitivity to economic cycles, semiconductor shortages, vehicle production and construction demand.
- COVID-19 effects, the Russia-Ukraine conflict, labor shortages, logistics disruptions and changing trade policies could affect operations and financial markets.
- Customer concentration is material: the largest customer represented 13% and the ten largest customers approximately 34% of fiscal 2022 net sales.
- The company self-insures significant portions of product, cyber, pollution, workers’ compensation, liability and medical risks.
- Legal proceedings are described as ordinary-course matters that management does not believe will materially affect the company. An aircraft lease residual-value guarantee had a maximum obligation of approximately $18.2 million, but payment was not considered probable.
- Fiscal 2022 included a $3.1 million impairment charge related to production equipment at the Twinsburg, Ohio facility. No goodwill impairment indicators were identified in the annual review.
- Subsequent to year-end, the company acquired Level5 Tools for approximately $55.0 million, with a potential earnout of up to $25.0 million, and announced a quarterly dividend increase to $0.31 per share.
- KPMG issued unqualified opinions on the consolidated financial statements and internal control over financial reporting. Controls for the acquired Shiloh and Tempel businesses were excluded from management’s year-end assessment.
Most Important Facts for Investors to Verify
- Whether operating performance remains strong after normalizing fiscal 2021 for the $655.1 million Nikola gain.
- The sustainability of Steel Processing and Building Products margins as steel prices, inventory spreads and customer pricing change.
- Integration, earnings contribution and impairment risk associated with the Shiloh, Tempel and subsequent Level5 Tools acquisitions.
- Working-capital requirements and liquidity following the substantial decline in cash and increased short-term borrowings.
- Debt maturities, including approximately $150.3 million due in fiscal 2025 and $250.0 million due in fiscal 2026.
- Exposure to automotive customers, cyclical construction demand and the company’s largest customers.
- Cash generation available to support dividends, share repurchases, acquisitions and capital expenditures.
- Potential effects of inflation, commodity prices, supply-chain disruptions, labor availability, geopolitical conflict and foreign exchange movements.