Worthington (NYSE:WOR) Reports Bullish Q1

Diversified industrial manufacturing company Worthington (NYSE: WOR) beat Wall Street’s revenue expectations in Q1 CY2025, but sales fell by 3.9% year on year to $304.5 million. Its non-GAAP profit of $0.91 per share was 29.5% above analysts’ consensus estimates.

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"We delivered strong results in Q3, achieving year-over-year and sequential growth in revenue, adjusted EBITDA and adjusted EPS," said Worthington Enterprises President and CEO Joe Hayek.

Company Overview

Founded by a steel salesman, Worthington (NYSE: WOR) specializes in steel processing, pressure cylinders, and engineered cabs for commercial markets.

Engineered Components and Systems

Engineered components and systems companies possess technical know-how in sometimes narrow areas such as metal forming or intelligent robotics. Lately, automation and connected equipment collecting analyzable data have been trending, creating new demand. On the other hand, like the broader industrials sector, engineered components and systems companies are at the whim of economic cycles. Consumer spending and interest rates, for example, can greatly impact the industrial production that drives demand for these companies’ offerings.

Sales Growth

Examining a company’s long-term performance can provide clues about its quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, Worthington’s demand was weak and its revenue declined by 19.4% per year. This was below our standards and suggests it’s a low quality business.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Worthington’s recent performance shows its demand remained suppressed as its revenue has declined by 49.1% annually over the last two years. Worthington isn’t alone in its struggles as the Engineered Components and Systems industry experienced a cyclical downturn, with many similar businesses observing lower sales at this time.

We can better understand the company’s revenue dynamics by analyzing its most important segments, Consumer Products and Building Products, which are 45.9% and 54.1% of revenue. Over the last two years, Worthington’s Consumer Products revenue (cylinders, torches, balloon kits, tools) averaged 11.4% year-on-year declines while its Building Products revenue (refrigerant, cylinders, tanks) averaged 1.7% declines.

This quarter, Worthington’s revenue fell by 3.9% year on year to $304.5 million but beat Wall Street’s estimates by 6.7%.

Looking ahead, sell-side analysts expect revenue to remain flat over the next 12 months. Although this projection implies its newer products and services will catalyze better top-line performance, it is still below the sector average.

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Operating Margin

Worthington was profitable over the last five years but held back by its large cost base. Its average operating margin of 3.7% was weak for an industrials business. This result isn’t too surprising given its low gross margin as a starting point.

Looking at the trend in its profitability, Worthington’s operating margin decreased by 5.4 percentage points over the last five years. Worthington’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

This quarter, Worthington generated an operating profit margin of 6.9%, up 5.5 percentage points year on year. The increase was driven by stronger leverage on its cost of sales (not higher efficiency with its operating expenses), as indicated by its larger rise in gross margin.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Worthington’s EPS grew at a decent 9.3% compounded annual growth rate over the last five years, higher than its 19.4% annualized revenue declines. However, this alone doesn’t tell us much about its business quality because its operating margin didn’t expand.

We can take a deeper look into Worthington’s earnings quality to better understand the drivers of its performance. A five-year view shows that Worthington has repurchased its stock, shrinking its share count by 10.6%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Worthington, its two-year annual EPS declines of 21% mark a reversal from its five-year trend. We hope Worthington can return to earnings growth in the future.

In Q1, Worthington reported EPS at $0.91, up from $0.80 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Worthington’s full-year EPS of $2.77 to grow 6.9%.

Key Takeaways from Worthington’s Q1 Results

We were impressed by how significantly Worthington blew past analysts’ EPS expectations this quarter. We were also excited its revenue and EBITDA outperformed Wall Street’s estimates by a wide margin. Zooming out, we think this quarter featured some important positives. The stock traded up 3.3% to $43 immediately after reporting.

Indeed, Worthington had a rock-solid quarterly earnings result, but is this stock a good investment here? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.