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Text: Today's call is being recorded and a replay will be made available later on our www.
In Q3, we reported earnings of $1.27 per share versus $0.27 in the prior year quarter.
There were a few unique items in the current and prior year quarters to call out that includes the following.
We incurred pre-tax restructuring and impairment charges of $28 million or $0.16 per share in Q3 primarily related to the exit of our unprofitable oil and gas business, which we divested at the end of January.
This compares to charges of $0.48 per share in the prior year quarter.
We recognized a net pre-tax benefit of $4 million or $0.07 per share on our investment in Nikola Corporation during the quarter.
This benefit was primarily due to a selling our remaining shares of Nikola for $147 million.
In total, we realized cumulative pre-tax cash proceeds of $634 million from our investment in Nikola and contributed $20 million in shares to the Worthington Industries Foundation establishing a charitable endowments supporting worthwhile community costs.
The prior year quarter included $0.11 per share benefit related to a gain on the consolidation of our Worthington Samuel Coil Processing JV combined with the lowering of the reserve associated with a tank replacement program within Pressure Cylinders.
Excluding these items, we generated a record $1.36 per share in earnings in Q3 compared to $0.64 in Q3 a year ago.
Consolidated net sales in the quarter of $759 million were relatively flat compared to $764 million in the prior year quarter.
Our reported gross profit for the quarter increased by $49 million from Q3 last year to $164 million and our gross margin increased to 21.6% from 15.1% as we had inventory holding gains this quarter and losses in the prior year quarter.
Adjusted EBITDA was $126 million up from $79 million in the prior year quarter and our trailing 12 month adjusted EBITDA is now $364 million.
Our adjusted EBITDA through the nine months ended February is $297 million.
We had a very strong quarter with solid demand across most of our end markets and our teams continue to execute very well and are focused on delivering value to our customers.
Taking a look at the business units.
In Steel Processing, net sales of $504 million were up 3% from Q3 of 2020 due to higher average selling prices, which were partially offset by lower total volumes.
Direct tons were flat year-over-year against the tough comp.
Our total ship tons were down 11% from last year's third quarter driven by a decrease in total tons caused by furnace and mill outages.
Direct tons made up 48% mix compared to 44% in the prior year quarter.
US steel market remains extremely tight as demand has recovered more rapidly than supply.
We believe that we had gained share in key markets and in Q3 continue to see solid demand across our major end markets.
The automotive, construction, and agriculture markets all continue to show strength and we are starting to see improvements in heavy truck.
Steel generated record operating income of $63 million in the quarter, which is up $44 million from $19 million in Q3 last year.
Operating margins increased significantly from 3.9% to 12.5%.
The large year-over-year increase was primarily driven by increased direct spreads, which benefited from inventory holding gains estimated at $31 million or $0.44 per share in the quarter compared to losses of $6 million or $0.08 per share in Q3 of last year.
Current quarter also benefited from arbitrage gains we were able to generate given the rise in steel prices.
Based on current steel prices, we expect that we will have significant inventory holding gains in Q4 of this year as well.
In our Pressure Cylinders business, net sales were $255 million down 6% from the prior year quarter, primarily due to lower sales in our recently divested oil and gas business, where sales declined year-over-year by $24 million.
Sales were up in both industrial products and in consumer as we continue to see strong demand for our consumer-facing products and our European business while still facing headwinds is starting to show signs of recovery.
Cylinders operating income excluding impairment and restructuring charges and the benefit we had last year from the reserve adjustment I mentioned earlier was $13 million up $1million from the prior year quarter, while operating margins increased to 5% from 4.4%.
The current quarter results include losses on the oil and gas business through January and losses in Structural Composites Industries or SCI for the entire quarter as well as one-time charges related to our acquisition of General Tools and Instruments, GTI in January.
Collectively, these headwinds totaled roughly $4 million.
As you may have seen in addition to the divestiture of the oil and gas business, we sold our SCI business earlier this month.
Including the divestiture of our CryoScience operations in Alabama, which we completed in Q2.
We've now divested three unprofitable businesses in the last six months and made two strategic acquisitions GTI and PTEC Pressure Technology.
GTI significantly expands our presence in specialty tools and gives us new sourcing and supply chain expertise.
The PTEC acquisition complements our recent investments and sustainable mobility enabled by hydrogen and CNG.
These investments include the expansion of our composite cylinder facility in Poland and the construction of a new Type 3 and Type 4 hydrogen cylinder production facility in Austria.
We believe these strategic transactions and investments position cylinders very well for future growth and will be additive to our profitability.
With respect to our JVs, equity income during the current quarter was $32 million compared to $25 million last year.
We saw year-over-year improvements from all of our JVs with the exception of WAVE.
WAVE's results were down slightly because of increased partner allocations, but improved on a sequential basis as the commercial construction market continues to recover.
During the quarter, we received $18 million in dividends from our unconsolidated JVs.
Turning to the cash flow statement in the balance sheet.
Cash flow from operations was $9 million in the quarter and $234 million for the first nine months of our fiscal year with free cash flow totaling $169 million in the same period.
Free cash flow for the quarter was actually negative by $7 million due primarily to increase in steel prices that caused our working capital levels to increase by $71 million.
During the quarter, we generated $147 million in pre-tax proceeds from the sale of Nikola stock.
We completed two acquisitions totaling $130 million, invested $16 million on capital projects, paid $13 million in dividends and spent $52 million to repurchase $1 million of our common stock on the shares of our common stock at an average price of $52.37.
Looking at our balance sheet and liquidity position.
On the debt at quarter end of $709 million was relatively flat sequentially and interest expense of $8 million was in line with the prior year quarter.
And in Q3, with $650 million in cash and are well positioned to continue our balanced approach to capital allocation that focused on growth and rewarding shareholders.
Earlier today, the Board increased the authorization on our stock repurchase program to an aggregate of $10 million shares and declared a dividend of $0.28 per share for the quarter, a 12% increase over last quarter, which is payable in June of 2021.
This marks the 11th consecutive year we have increased our dividends and we are very pleased to be able to reward our shareholders with this increase.
Our fiscal third quarter was a record financial performance.
We faced some lingering operational challenges, including steel supply shortages, staffing issues related to COVID quarantines and some extreme weather, all of which impacted production schedules, but our teams did a terrific job and we delivered outstanding results.
The good news is that demand is excellent across most of our end markets and there does not appear to be any signs of let off.
We continue to be grateful to our mill partners who are working hard to ensure that we receive steel in a timely manner.
The rapid rise in steel prices over the past two quarters created large inventory holding gains in our Steel Processing business.
We have been raising prices in our downstream manufacturing businesses to offset increased raw material cost.
I want to give yet another shout out to the dedicated employees of Worthington Industries who have come together in inspiring ways to keep our operations running safely and effectively in this trying time.
Without question our people deserve recognition for these exceptional financial results.
So with our core business is performing well and the cleanup of our underperforming operations largely complete, our focus has shifted to accelerating our strategic growth initiatives.
We continued to have sizable cash balance in a growing pipeline of attractive M&A opportunities that will accelerate our growth.
Our lean transformation playbook and new product development and innovation will augment our M&A to drive shareholder value.
Our opportunistic and balanced approach to capital allocation has served us well over the years.
That approach led us to raise our quarterly dividend by 12% today, a reflection of our strong financial position and performance, further rewarding our shareholders.
With the vaccine rollout under way, we are hopeful that a normal business environment is only months away.
We need to stay vigilant until such time as we can all come together again, but we are well positioned to come out of this pandemic stronger and more nimble than before.
We have learned a lot this past year including how to adapt quickly to changing rules and safety protocols, to manage and work remotely and perhaps most importantly to be flexible in our daily activities to do what it takes to help get the job done.
We will now take any questions.

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worthington industries inc - net sales for q3 of fiscal 2021 were $759.1 million, down 1% from comparable quarter in prior year.
worthington industries inc - qtrly earnings per share attributable to controlling interest $1.27.

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