Worthington Industries, Inc. (WOR) recently reported strong fourth quarter results for its fiscal fourth quarter. Operating income was driven significantly higher by solid revenue growth and expanding margins as the company was able to pass along rising input costs.
Earnings estimates soared off the quarter, sending the stock to a Zacks #1 Rank (Strong Buy).
The valuation picture looks attractive with shares trading at less than 12x forward earnings, well below the industry average of 16x. The company also pays a dividend that yields 2.1%.
Company Description
Worthington Industries, Inc. is a diversified metals processing company focused on steel processing and manufactured metal products.
The company is headquartered in Columbus, Ohio and has a market cap of $1.7 billion.
Fourth Quarter Results
Worthington reported its results for the fourth quarter of 2011 on June 30. Revenue rose 8% year-over-year to $675.7 million, beating the Zacks Consensus Estimate of $657.0 million. Excluding the impact of a joint venture, net sales were up 17%.
Earnings per share came in at 66 cents, well ahead of the Zacks Consensus Estimate of 56 cents.
Both of Worthington’s main divisions – Steel Processing and Pressure Cylinders – had stellar fourth quarter results. The Steel Processing segment saw revenue growth of 23% due in large part to higher selling prices. The fact that Worthington is able to pass through higher input costs is a sign of strong demand for its products.
The Pressure Cylinders segment grew 27% over the same period as volumes in Europe improved dramatically.
Gross profit as a percentage of revenue increased from 16.9% to 17.6% as Worthington was able to offset rising steel costs with higher prices. This helped drive a 46% increase in operating income.
Outlook
Analysts revised their estimates significantly higher off of the strong quarter, sending the stock to a Zacks #1 Rank (Strong Buy). The 2012 Zacks Consensus Estimate increased from $1.70 before the beat to $1.88. This corresponds with 25% EPS growth.
The 2013 Zacks Consensus Estimate also rose and currently stands at $2.07, representing 10% EPS growth.
Returning Value to Shareholders
Worthington spent $57.7 million in the quarter buying back stock. The company also pays a dividend that yields 2.1%. Worthington slashed it by 41% back in 2009, however, and has yet to raise it.
The company’s payout ratio is very reasonable at 26%, so if Worthington continues to generate strong results, expect a dividend hike in the near future.
Valuation
Considering the growth potential and nice dividend yield, shares look attractive at just 11.8x 12-month forward earnings, a discount to the industry average of 16.0x, and below its 10-year median of 13.8x.
Its price to book ratio of 2.2 is in-line with its peers.
The Bottom Line
With strong sales growth, expanding margins and rising earnings estimates, Worthington seems well positioned to continue delivering solid results. The stock seems very reasonably valued at less than 12x forward earnings, and a 2.1% dividend yield is a nice bonus too.
Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research.
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