Cathy Lyttle - Vice President, Corporate Communications and IR John McConnell - Chairman and CEO Mark Russell - President and COO Andy Rose - Executive Vice President and CFO.

Martin Englert - Jefferies Phil Gibbs - Keybanc Capital Markets Nathan Littlewood - Credit Suisse John Tumazos - Very Independent Research Dan Whalen - Topeka Capital Markets Aldo Mazzaferro - Macquarie.

Good morning. And welcome to the Worthington Industries' First Quarter 2015 Earnings Conference Call. All participants will be able to listen-only until the question-and-answer session of the call. This conference is being recorded at the request of Worthington Industries. If anyone objects, you may disconnect at this time. I'd like to introduce Ms.

Cathy Lyttle, Vice President of Corporate Communications and Investor Relations. Ms. Lyttle, you may begin..

Good morning. Thanks for joining us on our first quarter earnings conference call. As a reminder, certain statements made on this call are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties, and could cause actual results to differ from those suggested.

Please review our earnings release issued yesterday evening for more detail on those factors. It could cause actual results to differ materially. If you'd like to listen to today's call again, a replay will be made available later on our website.

On the call today, we have John McConnell, Chairman and Chief Executive Officer; Mark Russell, President and Chief Operating Officer; and Andy Rose, Executive Vice President and Chief Financial Officer. John will get it started..

Thank you, Cathy. And also add my welcome and thank you all for joining us today. We are very pleased with the first quarter results. It’s one in which we accomplished our goal of increasing earnings quarter-over-quarter, year-over-year, which is what we want to do.

Certainly, when you eliminate one-time charges from both ’14 and ’15 first quarters, we accomplished that goal. It’s also a pretty straight-forward quarter. So, let’s get started with the details and give it over to Andy Rose..

Thank you, John. Good morning, everyone. The company performed well in the first quarter of fiscal 2015, led by strong revenue and earnings growth in our Steel Processing division. Pressure Cylinders revenue was also up nicely, but earnings were hampered by several one-time items and some lingering operational issues in the Energy business.

WAVE continues to increase earnings despite limited volume growth in commercial construction. Revenue was stabilized in Engineered Cabs, although higher costs are hampering a return to profitability. Quarterly earnings per share adjusted for restructuring was $0.65 per share, up $0.08 per share or 14% from the prior year quarter.

Inventory holding gains were $0.02 per share as steel prices rose modestly during the quarter.

The unique items during the quarter were as follows, Pressure Cylinders was negatively impacted by $1 million of purchase accounting and M&A fees, and $900,000 of stocking penalties, resulting from production inefficiencies as we consolidated two of our retail manufacturing facilities.

Our tax rate was up materially to 32.8% for the quarter from the prior year, which benefited from several one-time discrete items. Restructuring charges of $2 million for the quarter were attributable to impairment of our Stainless division and Steel Processing.

SG&A did increased $3.7 million this quarter, primarily from acquisitions, but as a percentage of sales, SG&A fell to 8.7% from 10.3%. Cylinders operating income was essentially flat year-over-year at $19.6 million, but it was impacted by the unique items mentioned above.

Overall, we remain quite positive on a number of the growth opportunities in Cylinders, which Mark will cover in more detail. Steel Processing operating income, excluding restructuring charges, was up $15 million or 68% to $38 million from the prior year quarter.

The prior year quarter only included one month of TWB's consolidated results versus three months this quarter. This difference accounting for $5.6 million of the increase to steel’s operating income quarter-over-quarter. Volumes were up 16% excluding TWB, and 26% in total.

The teams in Steel Processing are effectively using the fact-based decision-making and performance improvement tools learned in transformation to drive market share and margin enhancement.

Revenue in Engineered Cabs are stabilized, but operating losses of $2.1 million resulted from heavy investment in people, technology, and process improvement, and start-up costs related to new product launches at our Florence facility.

Most of the decline from last year’s operating loss of $300,000 is attributable to higher manufacturing costs in our Florence facility. Equity income from our joint ventures during the quarter was $1 million or -- was up $1 million or 4%, led by increases at Serviacero and WAVE, offset by modest declines at ClarkDietrich.

Equity income was also constrained by the consolidation of TWB, which contributed $1.8 million in the prior year quarter. We received dividends of $21 million during the quarter. Free cash flow for the quarter was $24 million after capital expenditures of $24 million.

In June, the Board of Directors approved a $0.03 per share dividend increase to $0.18 per share payable this month. Yesterday, the Board declared an $0.18 per share dividend for the second quarter payable in December of 2014. We also repurchased 490,800 shares for $20.1 million during the quarter at an average price of $40.90.

During the quarter, we spent $35 million on the acquisition of Midstream Equipment Fabrication, a heated and high pressure separator manufacturer that has proven technology that improves the purity of crude during the separation process and lowers production cost for our customers.

In addition to ongoing acquisition efforts, we will continue to pursue a balanced approach to deploying capital into plant and capacity expansion, dividends, and share repurchases as opportunities arise. Debt was essentially flat from the prior quarter.

Interest expense was up $3.3 million over the prior year due to the issuance of an additional $250 million of long-term debt, $100 million of our existing long-term debt will be retired upon maturity in December of this year resulting in a decline of our annual interest expense from the current run rate.

Our balance sheet continues to have modest leverage and significant available capital. At quarter end, we had total funded debt of $667 million, cash of $147 million, and $513 million available under our revolving credit facilities. The maturation of our Energy platform is making progress.

We have been working through issues related to weather, production changes, and product modifications at our Garden City location and saw a solid increase in the profitability of this location during the quarter. Unfortunately, we’re experiencing a similar set of issues at one of our Ohio locations in this segment.

We’ve invested new production capacity at both facilities to meet demand from our customers and continue to feel good about their prospects as we work through these issues and fill our capacity.

The addition of Steffes and MEF, both of which are performing well, complete a footprint that allows us to serve our customers in all of the major shale regions with an expanded product offering. We are pleased with our performance in the first quarter.

The success of our transformation and metric driven culture is being showcased in Steel Processing, where the team is delivering above market growth while expanding margins.

If we can successfully embed the same level of discipline throughout Pressure Cylinders and Engineered Cabs, which is underway, both of those businesses have similar opportunities to improve.

When combined with the discipline acquisition strategy and broader innovation capabilities, we’ve a strategy that should deliver excellent returns to our shareholders. I'll now pass the call to Mark Russell to discuss operations..

Thanks, Andy. Our Pressure Cylinders growth trend continued during the quarter with several areas of notable strength and some areas of what we believe will be temporary weakness. Cylinders is organizing into five market focused strategic business units.

Industrial products, consumer products which we formerly called retail, alternative fuel products, oil and gas equipment, which we formerly called energy, and cryogenic products.

In our Industrial Products business, sales were up 12% compared to last year as we continued our exit of the North American high pressure market and also as a result of continued general economic weakness in Europe. We continued to believe that exiting the North America high pressure market was the right strategic direction for this business.

Consumer product sales increased 9% compared to last year though our financial results were negatively affected by the temporary costs and disruption of consolidating our Medina facility into the Chilton operation.

Going forward, we still expect this business to realize significant costs and productivity benefits from the consolidation, which supports the home improvement industry and for market which remains on a positive trajectory based on continued home improvement spending growth. Alternative fuels growth continued in North America.

The sales globally were down 10% from the quarter due to reduced demand in Europe where shipments of auto gas or propane cylinders has been negatively affected by weak overall economic conditions there. North America, however, continued to show aggressive adoption of compressed natural gas or CNG for Class 8 and refuse trucks and mass transit buses.

This growth supports our continued capital investment to expand our existing CNG cylinder capacity in North America. Longer term, we believe CNG also has strong growth potential in Europe, which is why we recently expanded CNG cylinder capacity there in our Polish facility.

In oil and gas equipment, we completed the acquisition of Oklahoma-based MEF during the quarters Andy mentioned. MEF is our fourth acquisition in this space and is unique. In that, it manufactures patented horizontal heated and high pressure separators used to separate fluids and gases at the wellheads for customers in the Eagle Ford shale at Texas.

Current customers love this technology and we believe it may be applicable in other Shale plays. MEF also has immediately proved to be an excellent complement to our existing upstream equipment capability and further position us to serve clients in every major shale play in North America.

Our overall oil and gas equipment sales continue to build, increasing 65% compared to last year as our Kansas facility improved significantly and our recently acquired operation in North Dakota continued to outperform. We added to our cryogenics business in the quarter with the acquisition of James Russell Engineering in Boston.

James Russell has been a pioneer in design and manufacturer of aluminum and stainless steel cryogenic transport trailers used for hauling liquid nitrogen, oxygen, argon, hydrogen and liquefied natural gas or LNG for top producers and distributors in North America.

The addition of cryogenic trailer production augments our existing green field investments in industrial cryogenic capacity here in North America as well as our strategic investments earlier in the year in ARITAS, leading manufacturing -- cryogenic manufacturer in Europe and Middle East.

Construction of our new world class cryogenic facility in Turkey continues on schedule for completion next year. Overall, we continue to invest heavily in the cylinders business as we looked to build our capacity to serve the expanding oil and gas equipment market here in U.S.

as well as introduce new products to support the liquid natural gas supplied chain and help the world convert to the use of abundant low cost and clean natural gas as the fuel of choice for virtually anything that moves. In our engineered cabs business, the consistent message from our customers is the flat forecast.

Areas showing some strength are generally offset by other areas of weakness. Looking at our cab demand by market shows that compared to last year mining, agriculture and military are all still down significantly. Construction is up as is forestry.

Long-term market observers continue to remind us that forestry has often been a leading indicator of broader market recovery. There are customers who are not forecasting that in the near term. Continued market weakness has not slowed our transformation work within Cat.

With new leadership in place, we’ve returned to our original locations in Florence, South Carolina, for a second round.

In our Tennessee and South Dakota facilities, we continue to see significant improvement in several of the key performance metrics, results that match the early indicators of traction in our previous successful transformation efforts. Our steel business turned in another outstanding quarter, continuing their string of record performance.

Our shipment volume was up significantly compared to last year with tolling shipments up 21% and direct shipments up 13%, both numbers excluding TWB. Our numbers again outpaced the market according to the MSCI, which showed lateral shipments up 7% in the comparable period, evidence that we continue to gain market share.

Looking at the quarter by market, automotive continues to be our strongest segment. Other market showed smaller but still significant increases for us, including construction and heavy truck. The only negative trend we saw was in agriculture where the market continued its correction and we were down slightly.

Of all our businesses, steel is the most impacted by the recent run up in freight cross. We see this is mostly the unintended consequence of recent and cumulative regulatory changes which have created transportation headwind for the entire economy.

We’re working aggressively to address these costs across all of our businesses in a way that will minimize the impact to our customers and maximize our competitive differentiation.

The steel company, Tailor Welded Blanks’ joint venture with Wuhan Iron & Steel continued their growth taking advantage of the automotive light weighting trend as OEMs increase the number of parts they design with our Tailor Welded Blanks to safe weight and increase performance.

We’re also seeing increased demand for TWB’s new Tailor Welded coil technology, which can be even more efficient for many applications. Also on the technical cutting-edge, TWB now has North America’s first aluminum Tailor Welded Blank’s line using new friction stir welding technology to join different aluminum blanks.

We are also investing to expand our capability to process high-strength steel for hot warm blank application.

Our Serviacero joint venture in Mexico also turned in a strong performance with volumes up and profitability up significantly compared to last year, on the back of significant growth in the Mexican automotive manufacturing base and with our newly expanded Monterrey facility continuing to gain share in the pickling and processing market.

With several additional major green field automotive facilities coming to Mexico over the next several years, our excellent growth trend in Mexico looks set to continue. WSP, our joint venture with U.S. steel is also investing for growth that will take advantage of the drive to reduce weight in automobiles. We’re currently underway there.

We’ll give WSP the capability to blank advanced high strength steels by the end of the calendar year. Finally, our cold mill joint venture in China with our strong partners, Nisshin and Marubeni-Itochu Steel continues to move forward.

Our approvals are now in place and we’ll break ground in November and everything remains on track for start-up in the first half of 2016. With the exception of ClarkDietrich, as Andy mentioned, all of our other joint ventures had a solid quarter performing equal to or better than last year.

WAVE as usual led the way with a strong overall performance in spite of their sales globally being off just slightly compared to last year. WAVE drove yet another record financial performance.

By region, WAVE Asia was up slightly, North America was down slightly, and Europe was down significantly in the phase of the overall weak economy conditions there. Overall, it was a strong quarter for Worthington with performance in line with our longer term growth trends.

Our leaders and teams are generally performing at a high level and are using our data-driven approach to create transformational improvement in everything we do. John, back to you..

Mark and Andy, thank you. At this time, we are happy to take any questions you have..

(Operator Instructions) Your first question comes from the line of Martin Englert from Jefferies. Please go ahead..

Hi. Good morning everyone..

Good morning..

Just wanted to touch on the charges for the quarter quickly here. There was $2.1 million that was called up in the release related to impairment and restructuring.

And then in the prepared remarks, you said there was another $1 million in purchase accounting fees that was within cylinders there?.

It was $1 million total. Most of it was purchase accounting related to our most recent cylinder acquisition where we have to write up inventory and so essentially we make no profit on it. And then there was a small bucket of M&A fees that totaled $1 million..

Okay. And there was another charge that you had mentioned, I must have missed that was $600,000…..

$900,000 of essentially penalties charged by customers related to out of stock product..

Okay..

And that was really -- the cause of that was we consolidated two manufacturing facilities into one in our retail division and that consolidation had some hiccups. .

Demand was stronger..

And demand outpaced our ability to service..

Okay.

And the $1 million purchase accounting fees that would have been about a penny a share?.

Correct..

Okay. And then, I just want to touch on Steel Processing and the cold-rolled coil spreads over hard rolled have been pretty strong recently.

Are you seeing any benefit from that?.

No. We generally don’t make money on price movements..

Okay..

We got that through pretty straight..

Okay.

How about the mix of activity within WAVE there? What does that look like recently versus where it was a quarter and a year ago?.

You mean the volume in WAVE, it has been relatively flat..

Okay. Stable for the most part..

Yeah.

Are you talking about remodel versus new construction?.

Yeah.

Are you seeing a shift there to greater work in new construction versus the remodeling?.

No. No, we’ve been thinking that might happen, but it didn’t happen this quarter..

Okay.

And lastly there, if you have the share count -- diluted share count for quarter end?.

Yeah. It was 69.7 million, roughly..

Okay. Excellent. Thank you..

Thank you..

Your next question comes from the line of Phil Gibbs from Keybanc Capital Markets. Please go ahead..

Hey. Good Morning..

Morning..

Mark, did you say what your mix of tolling versus versus direct was in the quarter on the steel side?.

No, we just said that there was a difference and which was up more. We can check that for you. Hang on. We will check that. Go ahead with your next part..

Okay. And then, Andy, you had -- you had mentioned some operational issues in the Eastern oil and gas business.

Any sense of magnitude that you could provide us there as far as that is concerned, and then it also sounds like a consolidation of the retail facilities involve some maybe higher costs than you would have otherwise experienced?.

Yeah.

I mean, are you looking for a dollar amount?.

Just looking for a feel of the magnitude, because I know the eastern oil and gas businesses have been running pretty well, so..

Correct. It is a few million..

Okay..

Financial impact is significant..

Okay. So you got that there and then also on the retail side, what you may have seen there from your consolidation in the Medina facility..

Yeah. That’s one a little tougher to gauge, but that business certainly was impacted because of the production issues which caused higher costs, which also prevented them from shipping more product.

So, I mean I don’t have a specific number for that one but if I had to take a swag at it, I’d say it’s probably somewhere between a $1 million and $2 million..

Okay. And then that’s in and above the stocking penalty. That’s in excess of the stocking penalty you mentioned, the $900,000..

Correct..

Okay..

And as Mark pointed out, you’ve got to combine that with the severe and unusual harshness of winter, which really drove demand for this product and that’s produced there..

Phil, back to your question on the split, it was 60-40 direct to toll, 60 direct, 40 toll..

Okay. And I’m sorry, I may have missed it.

Did you talk about what the holding gains were in the quarter, Andy?.

$2 million..

Okay. I appreciate it. Thanks, guys..

Thank you..

Your next question comes from the line of Nathan Littlewood from Credit Suisse. Please go ahead..

Yeah. Good morning, guys. Just wondering if you might be able to provide a little more color on what you are seeing in the freight market at the moment.

I understand that the bulk of your material would be moved on trucks, but are you exposed at all to the rail industry and what are you seeing in sort of terms of units, unit rates and trucking availability? Is that sort of constraining shipments at all or, are you able to access trucks but maybe just having to pay a bit more for them?.

Nathan, that’s a great question because that is something that is different, and that’s just happening in the last couple of quarters where freight price has started to drive upward. We do use rail. We use rail primarily for shipments of primary coil. So things coming from a melting mill, we use rail there.

Most of everything else downstream from there is truck, is little bit rail but mostly truck. We’ve not had a problem actually getting trucks with some rare exceptions. They are tight. We have a pretty good group that handles this for us and we don’t miss deliveries because we can’t find trucks but the prices are going up.

And again, remember, the shortage is not really trucks, it is drivers. We had several of our carriers that we use a lot who have trucks that are idle at the moment because they don’t have driver. And again, the regulatory changes were driving this and it’s created a temporary shortage of drivers.

As our Chairman always points out, the market fixes that. But until it does, it’s a tight market for freight..

Sure. Thank you very much.

Is there sort of an order of magnitude impact that could give us like year-on-year change in dollar per ton or dollar million freight cost or anything like that?.

I think year-over-year we are probably couple of million dollars of increased cost, couple $3 million just specifically around freight..

Okay. Great. Thanks very much guys. I appreciate the color..

Thank you..

Your next question comes from the line of John Tumazos from Very Independent Research. Please go ahead..

Congratulations on the good results. 6.5% of good margin for steel processing. It’s a good step on the way to double digits again..

Thank you, sir..

How many days a quarter generally from a compliance standpoint are you able to buy back stock typically first question? Second question, the aluminum industry statistics suggest 2% or 3% increase in apparent consumption, where the steel statistics calendar year-to-date suggest 10.2% gain in apparent consumption, and the visibility of new aluminum applications could be a touch better than steel.

Do you think -- are you concerned about inventory building by other people in the steel business and taking particular measures to project from the downside?.

I will take the first question on stock repurchases because that one is a little easier. Typically, it’s a couple of months during the quarter that we don’t have an exact date every quarter that our window is open, but think about it is sort of six to eight weeks..

John just let me make sure I understand your question.

Do you think that because of momentum trends between supply and demand with more demand coming on the aluminum side that steel is in danger of getting some inventory overhang?.

No. The aluminum data from the Aluminum Association, you just take out the aluminum situation forward, calculates a 2% or 3% gain in North America in apparent consumption. The steel data calculates a 10.2% gain. It’s unusual for those to diverge to that degree….

Are you looking at flat and long, John?.

The whole thing, just the total volume, continue board demand is zero change and other metals would suggest a gain like the aluminum. So it looks like four suppliers have gotten taken out by mergers. There is dumping suits, like superior frozen April, people blew up their steel mills, the usual stuff.

So the customers are overbuying by a 1%?.

We would not have any visibility to that truly and have any -- when we able to have -- give you any data..

Are you doing anything to try to control your own inventory? Or are you just saying a good business and responding to it as best you can?.

We absolutely are taking every step to control our own inventory, and remember we don’t hold any speculative inventories. Our inventories are very tightly controlled between buys and purchases. We generally buy exactly when we sell and what we sell. We have in-process inventory only and we control that pretty tight..

Thank you. We appreciate your vigilance..

Thank you, John..

Your next question comes from the line of Dan Whalen from Topeka Capital Markets. Please go ahead..

Great. Thank you. Just wondering if you could just touch on your work regarding your automotive industry a little further. You mentioned steady volumes, but then it goes on to say about improving consumer confidence and strengthening economy and certain segments.

So wasn’t sure when you are referring to steady if that steady is in terms of modest trends or steady in terms of recent trends so further improvements?.

We think the automotive market is strong. Some people do point that the fact is we got continued room to move. We think it’s a good place right now. We are not baking that into forecast that it will improve much further from here. We would love it if it did..

Okay.

So further improvement would be upside, but you’re kind of assuming kind of low-single digit to flattish type trends?.

Yes, sir..

Okay, great. Thank you. And I appreciate your commentary on the ag industrials. Wondering if could just add any more color to that? And then just one last question if I may.

If you could just comment in terms of what kind of acquisition multiples you are seeing out there in the marketplace if that’s been a barrier to acquisition growth or was just finding the right company and the right niche?.

This is Andy. With respect to acquisition multiples, this is going to sound maybe a little like I am dodging the question, but the reality is it depends on the type of business you are looking at and what you are buying, and so the spread can be pretty far.

The one thing I will say is on the high end, right now if you’re buying a high quality business with double-digit EBITDA margins and it’s a competitive process, the multiples are -- can be as high as 8 to 10 times EBITDA, which is pretty steep.

Most of you know we try to be pretty price disciplined and so that makes it difficult for attractive businesses. We have been successful. The last couple of transactions that we found we’ve been able to structure the deal such that we’re not paying those types of multiples, but it’s getting harder for sure..

John, your question about agricultural demand, we’re selling to ag and two businesses, in steel and in cabs. And I can tell you that within steel, it’s our weakest segment right now and that’s just based on current demand and forecast we’re getting from our current customers.

And cabs, it’s the second weakest, the only thing that will be more weak in cabs would be mining..

Correct.

If I may just ask one more, do you -- I mean, where certainly it seems like flattish trends there on the cab side of the business taking cost out of the systems? Do you have targets that you would be comfortable saying when you get that business back to profitability?.

No. The hope is obviously that our efforts combined with a market that starts to improve over the next 12 to 18 months, but we don’t have a specific target..

Okay. Thank you very much..

Thank you..

Your next question comes from the line of Phil Gibbs from KeyBanc Capital Markets. Please go ahead..

Yeah. Just had a question on some of the organic investments that you’re making this year.

As far as internal growth CapEx, what should we be thinking about there? And as far as what you’re targeting and what you’re working on right now?.

Well, those tend to be focused in the cylinders business in those high growth markets. So we’re putting capital into cylinder capacity both in the U.S. and Europe for alternative fuels. Within the steel business, it’s focused on the joint ventures that are focused on high-strength lightweight steel.

So TWB and WSP are some of the major recipients of capital there. Again, we’re looking -- we’re expanding capacity and those markets are growing fast..

And the only one I’ll add that Mark did mention as we’re building a facility in Turkey specifically to build cryogenic products for that space..

That actually will be our single largest capital spend for the fiscal year, the Turkey facility..

Okay. Thank you..

Thank you..

Your next question comes from the line of Aldo Mazzaferro from Macquarie. Please go ahead..

Hey. Good morning, gentlemen..

Good morning..

I got two questions on it. First one on the steel side, I know you’re not big buyers of imports on a regular basis, but have you noticed any changes in the aggressiveness of imports, since we’ve had the dollar strengthening a little and since we’ve had prices fall in China and Russia is being threatened with sanctions and things.

Are there changes in the import part that you’re willing to share with us at this point?.

Yes, I think there is a lot of changes in the import market. And you are right that we don’t buy a lot of imported material. And, however, we always check it. We always keep our pulse on it. And it is followed right now as it’s been in years, I think.

There are so many things; different things going on right now that there is a lot of volatility in the import markets, depending on which one you’re talking about. You mentioned some of the worst ones..

Yeah.

Are there still those persistence stories around? Are trade cases being filed in any minute or any week or so?.

And it’s got to the point now where just the thread of the width of it, seems to affect pricing. And so that’s kind of a patchy situation..

Great. All right. My next question, Mark, on the breakdown you gave us on the cylinders, very appreciative.

I like the diversity but can you give us a little bit of a sense of what the breakdown in revenues might be in terms of percentage of revenues by those five divisions that you broke out?.

I think, we actually published that in our quarterly investor review. So it will come out probably in the next week or so and you’ll see that breakdown..

Okay. I thought there was -- okay. No matter, I’ll find it. Thank you..

(Operator Instructions) And at this time, there are no further questions..

Thank you. And again, thank you all for coming today. We are very bullish as we look forward throughout the rest of fiscal ’15. Steel is going to continue its strong performance that it’s currently showing.

Cylinders, as it settles with a pretty massive organizational change, as it continues to integrate the recent acquisitions, is going to continue to improve throughout the year. So, again, we look forward to a good rest of ’15, where we will continue to earn better than we did in ’14. Thank you again for joining us. We will talk to you in the quarter..

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect..