Fans of the oil, housing, or any other boom, take note of the steel companies -- the good times don't roll on forever. While management at Worthington Industries
For this fiscal first quarter, sales fell 10%. Processed steel sales dropped 18% on a one-two punch of lower volume and pricing, while metal framing revenue slid 12% despite a small increase in volume. On a happier note, the pressure cylinder business posted 46% revenue growth (though organic growth was a more modest 20%).
Like almost any other metal company, higher volume throughput generally means better margins, and vice versa. Consequently, it's not all that surprising to me to see that both gross and operating margins fell vs. the prior year's first quarter. Not that it will necessarily make investors much happier, but the company's earnings are still well ahead of where they were two years ago, and the dividend looks pretty secure at this point.
So what does the future hold for metal-processing companies like Worthington? Obviously, they're sandwiched between uncontrollable steel prices on one side and economically sensitive demand on the other. Beyond that, well . if I were able to forecast either the steel market or overall economy with perfect precision, I'd be able to sit on my own private island somewhere and swim through piles of gold.
But here's my opinion: I'm still optimistic that we're going to see an uptick in commercial building, which should be good news. Likewise, rebuilding related to Katrina should help, though management suggested it could take up to a year to see any such benefits. Elsewhere, I'm not sure what to make of Worthington's exposure to the auto industry. I'm tempted to say that things have bottomed out for U.S. automakers, but who knows for sure?
I don't dislike this company, but the stock isn't on my radar. I'd be much more inclined to look at the likes of Steel Dynamics
More metal mischief:
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).