On Thursday, Canaccord Genuity adjusted its outlook on Worthington Industries (NYSE:WOR), reducing the price target from $52.00 to $46.00 while maintaining a Hold rating on the stock. This revision follows Worthington's announcement of their first quarter 2025 results, which fell short of both Canaccord Genuity's expectations (CGe) and the wider market consensus.
Worthington reported a sales drop that was 11% below Canaccord's estimates and 13% under the consensus. The Consumer Products division notably underperformed, missing Canaccord's projections by 23%. On a brighter note, the Building Products segment exceeded expectations modestly, registering sales approximately 2% higher than anticipated.
The company's gross profit also disappointed, coming in 11% lower than the consensus. More significantly, adjusted EBITDA and earnings per share (EPS) were 23% and 30% beneath expectations, respectively. These results come as Worthington continues to adjust to its new structure following the separation of its steel business and the formation of a joint venture in sustainable energy solutions.
Despite the reduction in the price target, Canaccord Genuity's analyst noted that Worthington's stock has seen a significant decrease of 36% since reaching its post-separation peak on March 21, compared to a 5% increase in the Russell 2000 index. The firm acknowledges that Worthington may benefit from the current cycle of interest rate cuts and suggests that the worst may be over for the company. Canaccord Genuity remains open to adopting a more positive stance as Worthington establishes its performance as an independent entity.
In other recent news, Worthington Enterprises announced a downturn in its Q1 fiscal 2025 performance during its latest earnings call. The company reported a decrease in adjusted EBITDA to $48 million from $66 million the previous year, and adjusted earnings per share fell to $0.50 from $0.75. Consolidated net sales also dropped by 17.5% to $257 million. Despite these challenges, the company declared a dividend of $0.17 per share and initiated a modernization project in Chilton, Wisconsin.
Management at Worthington Enterprises remains optimistic about long-term growth, particularly in the commercial sector, and anticipates recovery in the heating and cooking market as the colder season approaches. They expressed satisfaction with the recent integration of Hexagon Ragasco and are focusing on M&A opportunities and share buybacks as part of their capital allocation strategy.
However, the company also acknowledged challenges such as a decline in large heating and gas rail tank sales due to aggressive pricing from competitors, and concerns over consumer spending amid rising food costs. Despite these headwinds, the company's balance sheet remains strong, with a net debt to trailing EBITDA ratio of approximately 0.5, indicating financial stability.
InvestingPro Insights
As Worthington Industries navigates through its post-separation phase, real-time data from InvestingPro provides a nuanced view of the company's financial health. The market capitalization stands at $2.15 billion, with a price-to-earnings (P/E) ratio currently at 19.41, indicating investor expectations for future earnings. Despite recent challenges, Worthington's commitment to shareholder value is evident through a high shareholder yield and a track record of raising its dividend for 10 consecutive years, a streak that has now reached 52 years of consistent dividend payments.
InvestingPro Tips suggest that while the stock has experienced a significant downturn over the last week, with a price total return of -8.18%, analysts remain optimistic about the company's profitability in the coming year. This sentiment is supported by an expected net income growth for this year. For investors seeking detailed analysis and additional insights, InvestingPro offers a comprehensive list of tips, including the company's moderate level of debt and its ability to cover short-term obligations with liquid assets.
For those considering an investment in Worthington Industries, it is noteworthy that the company is trading at a high EBITDA valuation multiple, and the current price is 61.09% of its 52-week high. With an InvestingPro Fair Value estimate at $43.28, slightly above the previous close price of $42.74, the platform provides a valuable resource for investors looking to make an informed decision. There are numerous additional tips available on InvestingPro for a deeper dive into Worthington's financials and future prospects.
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