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Stock Strategist

Ambitious Goals for Worthington Industries Require Caution

The company is more than a play on traditional steel markets, but higher returns may be difficult to sustain.

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Diversified metal processor  Worthington Industries (WOR) has spent the past several years reducing its exposure to the anemic construction markets while expanding its product offerings, acquiring higher-margin businesses, and implementing a transformation plan to generate greater efficiency and sustainably improve returns. While we commend management's call to action, we see a few hurdles in achieving margin and growth targets, particularly as the landscape of the company looks quite different today following plant closures and divestitures alongside numerous acquisitions in the past few years.

Acquisitions, Transformation Efforts Fundamental to Earnings Growth Strategy
Worthington launched its transformation plan in 2008 to produce cost reduction, higher asset efficiency, and process improvement, with the ultimate goal of increasing margins over the long term. On a plant-by-plant basis, the transformation plan involved identifying areas with room for performance improvement and implementing solutions, as well as methods to track and measure performance from inventory management to operating processes to sales channels. Steel processing has completed the transformation, while the process is under way in pressure cylinders and just launched in engineered cabs (acquired in January).

Bridget Freas does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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