From The Columbus Dispatch
COLUMBUS, OHIO — At one time, financial troubles at General Motors Corp. and Ford Motor Co. would have sounded the death knell for Worthington Industries Inc.
Not these days.
The Columbus, Ohio, company that was built on providing steel to the auto industry has steered clear of problems plaguing other automotive suppliers.
Worthington Industries is headed for record earnings in part because auto no longer is king there.
It still is part of the business, but the company has a much larger stake in providing processed steel for framing, pressure cylinders and packaging, and to appliance makers and other manufacturers.
“In retrospect, that has been a good strategy — to diversify away from the high exposure they had to the automotive industry,” said analyst Christopher Plummer, managing director of Metal Strategies in West Chester, Pa.
To put it in perspective, Worthington entered the steel-framing business in 1996 and has built it to 22 percent of sales. The automotive segment represents 20 percent.
The company’s evolution began in the 1990s, but “really gained traction in the last five years,” Chief Executive John P. McConnell said.
Just last year, it formed a joint venture with Pacific Steel Construction to expand its steel-framing business and bought Western Industries Inc.’s cylinder business.
As Worthington celebrates its 50th anniversary, McConnell expects to continue with that strategy.
Worthington was started in 1955 when McConnell’s father, John H. McConnell, took out a $600 loan against his 1952 Oldsmobile.
The younger McConnell runs a company that truly is not his father’s Oldsmobile.
“Certainly, we will end up with a broader international presence in the next 10 years, but there is a lot of growth opportunity here in the United States,” the CEO said.
Many steel processors have done well since mid-2003 because the market for their products rebounded. But Plummer said Worthington has remained profitable through many downturns and fluctuations.
“They are regarded as the premier steel processor,” Plummer said.
To grow internationally, McConnell said the company will look to more ventures with foreign companies. He also envisions moving into the western U.S., where it does not have a strong presence.
Despite the good financial times, challenges lie ahead.
Analyst John Tumazos of Prudential expressed concern in a recent report that earnings could be affected by high oil prices, lower auto production and potential steel-price increases. But he noted Worthington has a history of high returns and an ability to avoid losses.
McConnell acknowledges the risks but said the company has minimized them.
Worthington expanded its automotive customer base beyond auto manufacturers to include aftermarket customers. “There is no single customer that we have that is more than 2 percent of our (automotive) business,” McConnell said.
Looming as a threat is steel pricing, which skyrocketed last year. Worthington buys steel from producers.
McConnell said the company so far has passed the raw-material price increases to customers.
Plummer thinks Worthington has “a little bit more stability than other companies” with steel pricing because it has a strong toll-processing business, which processes steel for a fee rather than buying it.
McConnell attributed Worthington’s recent success to a change in the way it markets. Ten years ago, customers primarily were manufacturers. Today, retailers are part of the mix, buying pressure cylinders for propane or helium.
With framing, Worthington is reaching out to builders and consumers on the benefits of steel framing.
Copyright 2005 The Columbus Dispatch. All Rights Reserved.
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