Diversified industrial manufacturing company Worthington (NYSE:WOR) met Wall Street’s revenue expectations in Q4 CY2024, but sales fell by 74.8% year on year to $274 million. Its non-GAAP profit of $0.60 per share was 15.4% above analysts’ consensus estimates.

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“We delivered solid financial results for the quarter despite mild but persistent macro headwinds, achieving year over year and sequential growth in 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

A company’s long-term sales performance signals its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Worthington struggled to consistently generate demand over the last five years as its sales dropped at a 19.7% annual rate. This was below our standards and is a sign of poor business quality.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Worthington’s recent history shows its demand has stayed suppressed as its revenue has declined by 53.9% 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 dig further into the company’s revenue dynamics by analyzing its most important segments, Consumer Products and Building Products, which are 42.6% and 57.4% of revenue. Over the last two years, Worthington’s Consumer Products revenue (cylinders, torches, balloon kits, tools) averaged 14.5% year-on-year declines. On the other hand, its Building Products revenue (refrigerant, cylinders, tanks) averaged 2.1% growth.

This quarter, Worthington reported a rather uninspiring 74.8% year-on-year revenue decline to $274 million of revenue, in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to decline by 1% over the next 12 months. While this projection is better than its two-year trend, it's hard to get excited about a company that is struggling with demand.

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Operating Margin

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses–everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Worthington was profitable over the last five years but held back by its large cost base. Its average operating margin of 5.7% 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 3.8 percentage points over the last five years. The company’s performance was poor no matter how you look at it. It shows operating expenses were rising and it couldn’t pass those costs onto its customers.

This quarter, Worthington generated an operating profit margin of 1.3%,

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 weak 2% compounded annual growth rate over the last five years. This performance was better than its 19.7% annualized revenue declines but 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 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.

In Q4, Worthington reported EPS at $0.60, down from $0.78 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. We also like to analyze expected EPS growth based on Wall Street analysts’ consensus projections, but there is insufficient data.

Key Takeaways from Worthington’s Q4 Results

We enjoyed seeing Worthington exceed analysts’ EPS and EBITDA expectations this quarter. Zooming out, we think this quarter featured some important positives. The stock traded up 16.9% to $44.55 immediately following the results.

Sure, Worthington had a solid quarter, but if we look at the bigger picture, is this stock a buy? What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.