Good afternoon, and welcome to the Worthington Industries Second Quarter 2014 Earnings Conference Call. [Operator Instructions] This conference is being recorded at the request of Worthington Industries. If anyone objects, you may disconnect at this time. I'd like to introduce Ms. Cathy Lyttle, Vice President of Corporate Communications and Investor Relations. Ms. Lyttle, please, you may begin.

Good afternoon and Season's Greetings to everyone. Thanks for joining us on our second quarter conference call. We want to remind you that certain statements made on this call are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties and could cause actual results to differ from those suggested. Please refer to our earnings release issued this morning for more details on those factors that could cause actual results to differ materially. If you'd like to listen to today's call again, a replay will be made available on our company website, worthingtonindustries.com. On the call today are John McConnell, Chairman and Chief Executive Officer; Mark Russell, President and Chief Operating Officer; and Andy Rose, Vice President and Chief Financial Officer. John will begin.

Well, thank you, Cathy, and good afternoon, everyone. Our second quarter results were very good, particularly Steel Processing. More importantly, as you'll hear from Andy and Mark, beyond our results, we continue to improve our underlying fundamentals. So let's move onto their comments. Andy?

Thank you, John, and good afternoon. The company's performance in the second quarter of fiscal 2013 was once again solid, driven by a strong performance at Steel, modest growth at Cylinders and several joint ventures, partially offset by weakness in the Engineered Cabs business. Quarterly earnings per share of $0.32 were negatively impacted by a $31 million non-cash impairment charge. This charge was attributable to the write-off of all of our non-retail tradename intangibles, $19 million in Engineered Cabs and $12 million in Pressure Cylinders. This write-off was required after we launched a new branding strategy where we will no longer utilize legacy business names from our acquired companies. Instead, we will re-brand them all under the name of Worthington Industries. These changes do not affect our valuable portfolio of retail brands. In addition to this impairment charge, we also recognized a $2.5 million gain in miscellaneous income from insurance proceeds received for the fire at our Austria acetylene facility. The net impact of these 2 items reduced earnings by $0.25 per share. Inventory holding gains were $0.04 per share during the quarter, as steel prices rose modestly. SG&A increased $13 million year-over-year, but much of that was due to acquisitions. The balance was compensation and benefits. Cylinders' operating income, excluding the net impact of impairment and restructuring charges, was up 6% to $18 million, driven by strong contributions from the Energy business. Softness in retail and our European Cylinder operations limited earnings growth during the quarter. Steel Processing had one of its strongest second quarters ever, with operating income of $35 million, an increase of $21 million or 152% over the prior year. Steel Processing volumes were up 16% even after excluding volumes from the newly consolidated TWB. Steel had strengthen in agriculture, construction and automotive. Excluding the impairment…

Thanks, Andy. Engineered Cabs business continues to operate in a weak North American commercial environment, with most of our key customers continuing to face flat demand in several key markets. Most equipment manufacturers we serve are currently forecasting 2014 volume as flat, compared to this calendar year. In the Cab business unit, we continue to move decisively with a strong team now in place under the leadership of John Lamprinakos, who came from our highly successful WAVE joint venture, 6 months ago. The Cabs' transformation team is currently focused on our largest facility in Watertown, South Dakota. And our transformation model always starts with cultural change, since without that, improvements are not sustainable. Transformation relies on data measurement, stretch goals, execution accountability, incentives and recognition. Our Greeneville, Tennessee and Florence, South Carolina facilities are continuing their transformation process, improving their base metrics as they also work on some new product ramp ups. We see the situation in Cabs as similar to the early stage of our pilot transformation work in the Steel Company years ago. As we saw in Steel back then, safety and several other key metrics have already significantly improved in the Cabs company, and we expect these trends to continue as we also move to implement our historically successful profit-sharing incentive program at each Cabs facility in the coming quarter. Formerly, we were Angus-Palm. Today, we're Worthington Industries Engineered Cabs, leading with safety and operating with integrity. Pressure Cylinders segment volumes during the quarter were seasonally lighter than normal, based on the timing of sales to major retailers for camping and gas grill cylinders, and also by the extended period of weather-related soft ground that curtailed in-field shipments from our Energy facility in Kansas to oil and gas well-site customers in the Western United States. We've seen…

Well thank you, both. Again, we are pleased with our employees' continued drive to improve in every business and our results those efforts are producing. When you look at our improving fundamentals in all of our businesses, we remain confident in our ability to deliver year-over-year gains going forward, regardless of the overall economic environment. At this point, we'll be happy to entertain any questions you might have.

[Operator Instructions] Our first question will come from the line of Martin Englert with Jefferies.

Just wanted to check. I believe you called it out in the prepared remarks there, the impact from inventory holding gains was, what, $0.04 a share?

Correct.

So that would have been about, what, $4.5 million for EBIT contribution?

Right around $4 million.

Okay. What else were you seeing as far as the impact from having TWB in the mix now for the Steel segment?

It's been fairly early since they've been in there, they've worked somewhat together before. But, Mark, I don't know if you have anything you'd like to shed light on.

No, it's early days, but one of the reasons that we were excited to become the managing partner of that business in North America and -- was to more closely integrate it with our overall automotive sales efforts and commercial team, generally. And the initial work there is promising and we have -- we expect positive results from that closer cooperation between TWB and our other automotive-focused businesses.

Okay. I guess just looking at -- even if you strip out the inventory holding gains on a per-ton basis for the quarter, there were still very strong results within Steel Processing. Was -- would you attribute any of that to TWB being in the mix or any other type of mix shift doing more galv [ph] or more pickled oil in the spot market?

The TWB impact on steel would be very limited at this point. Going forward, we have hopes for that increasing, but it would be limited for the quarter. Not really material.

Okay. And nothing else from a greater mix of any higher-value products or anything like that?

No. In fact, our -- we had strong volumes across the board and in fact, we had even stronger volume in some of the pickling businesses and some of the other more high-volume markets, so that actually may have made the mix slightly down, but not because we lost any share or any volume anywhere else.

The -- both of our coated lines also filled nicely during the past quarter.

So strong in galvanizing, strong in strip and strong in pickle. And especially strong on the base pickle business. They did very well.

So for the -- generally speaking, for the coated products, fair to say that it was a greater mix of those, relative to the prior quarter?

Definitely. It was -- there was higher volume of coated products. Yes.

Okay. And if I could one last question there. What are you seeing in terms of the contract structures from the North American steel producers now for flat-rolled products as we head into calendar '14? Is anything changing there as far as what they're doing? Whether they're basing more off-index, or fixed or trying to, I guess, get rid of the discounts they had previously done? And is this expected to impact your business at all?

Well, first of all, I'd say that answer really belongs to the mills, so you ought to ask them about their pricing structures. I think we would say, and I'll ask Mark to comment in a second, we're pleased with the kind of discipline they're showing in the market, and I think that's positive for everybody. I don't know if you want to...

Yes. And I would reiterate that, that if you want to talk to them about their pricing policies, that would be the best approach for that. But our relationship with them has never been stronger. We are working very closely with our mill partners and are very grateful for them.

Our next question will come from the line of Phil Gibbs with KeyBanc Capital Markets.

I had a question on the Western Energy business. I think you had mentioned that it's starting to pick up a little bit, moving into the third quarter. Just curious as to some of the issues that you were having in the last couple months, and what you're seeing on the demand side.

Well, we're shipping out of Kansas into Westville and the big storms that happened some time ago there softened up the ground so much in those producing fields out there that you couldn't -- we couldn't get tanks onto the well pad and things were just sinking up to the axle, so we stopped deliveries for a time and then they came back very slowly. And -- but we -- now that things have dried up or frozen, in some cases, it's much better.

When -- Mark, when did that start coming back more toward the trend line? I think, that's how you characterized it.

Just in recent weeks. So starting in November, it started strengthening and we're looking better now.

Okay. And how do we think about WAVE's momentum into the third quarter and then into, maybe, the back of the year? Maybe what do they -- I know you don't give an outlook, but what do you think they're expecting from a kind of near-term prospect standpoint?

They continue to perform very well. ClarkDietrich also performed on an improving basis. And I think we feel comfortable that's going to continue some incremental improvement for the rest of the fiscal year. Mark or Andy?

Yes, I think that's right. ClarkDietrich's volumes were up during the quarter, mid-single-digits. They are early in the construction -- the commercial construction process. WAVE's were not up that high, but I think they're feeling optimistic that, that market is definitely showing signs of life.

I would echo that. I think the strength in WAVE was more focused in Europe, even than in North America, which was more a reflection on the really strong performance of our team there, because the market there isn't any stronger.

Okay. And then just lastly, if I could. On the cryogenic side, Mark, did you make some comments along the lines of LNG and the possibility of being in a commercial position there in the next year?

Yes. It's a very important focus for us to continue the expansion of our cylinder capabilities around natural gas. We have a tank out in the field and we're continuing to look for ways we can accelerate our entry in a much broader fashion.

Our next question will come from the line of John Tumazos with John Tumazos Very Independent Research.

Could you elaborate a little more in terms of the mix in Cylinders and Steel Processing? Which are the Cylinder volumes where losing the volumes didn't lose any profit? It's good to see good results, but usually it's on up rather than down volume. And could you elaborate a little more on autos, construction and agriculture strong market comments. Corn pricing has been down a little bit and some parts of the farm economy are starting to slow down like fertilizers.

That was a very broad series of questions. I hope -- I'm going to give it to Mark, I hope he can remember all of them.

John, if we miss any of it, just -- tell us after we're done. I'm going to start from the back and go forward. So agriculture, we see the same thing you just described there. There is a little bit of softness there. They're coming off 3 pretty strong years in some agriculture markets like cultural [ph] markets, and then there may be a little bit of softness going forward. The construction strength is still -- we see largely driven by residential at this point. There are some signs of commercial strength, but it's not broad. I don't think you asked about automotive, but automotive, also, very strong for us. So those markets were strong, but in addition to the strength, I think I cited that we, in some cases, we saw our numbers go up double what the market did in the strengthening markets, according to MSCI data, so we feel good about the fact that our team did well in the market and we earned some additional share from our customers.

Maybe just on Cylinders, John. If I understood your question correctly, the overall volume metric for Cylinders is not particularly useful anymore because we sell tanks for $2 and $3, lots of them, and we sell tanks for $200,000. So obviously, within those product categories, if the volume declines in a Cylinder category, the margins, our margin contribution, anyway, is likely to decline, the margin percentage not so much. So it's really become a business -- the profitability is going to be driven by the mix. If we're selling a lot of our higher-margin products, that's going to drive higher margin in that business.

So what took us off trend line in Cylinders was the 16-ouncers and the 20-pounders, which both go through retail channels. And there it looks to us to be aberrational order patterns that right now look like they've recovered, both of the order books for those have come back to normal. So it seemed like, maybe, an inventory correction for some customers.

Is there a trade association or data series or public competitor that we, as outsiders, could study or -- to understand different segments of your Cylinder business, over and above your own disclosures?

If there were, we would probably try and include it. I mean, that business, sort of, we've tried to start breaking down into segments. So annually, we break out the revenue into 4 categories: retail, industrial, energy and alternative fuels. And even when we start breaking down into those categories, which are our best attempt to kind of group them according to behavior, there's still not great metrics to comp off of that.

Our next question will come from the line of Charles Bradford with Bradford Research.

Could you talk a little bit about the steel pricing situation? We've had some increases in flat-rolled announced in November. Didn't seem to be followed very much. But then a few days ago, I think U.S. Steel went up a pretty paltry $20. At the same time, they've got some equipment out, couple blast furnaces down. Where do you see this thing developing? Because scrap is up over the last 2 months almost $50.

Charles, the -- this is Mark. The scrap market, I think, is what's giving them the base on which to continue to push prices up. And that -- I think, that's caught everybody by surprise, including us. We didn't see it continuing to go up, especially this past week, continuing to be strong. So that's what we can see. Beyond that, I think, mills are in a better position to answer those questions.

Are any of your mill sales people talking, at all, about the sale of the ThyssenKrupp, Alabama plant, and will that have any impact on your availability?

We're pleased to see that, that ended up with the Metal Sumitomo (sic) (Sumitomo Metal) group. We have a great relationship with them and we're pleased that they'll be in control of that asset. We think that's a positive development for us, both in the U.S. and Mexico.

And finally, I've been hearing sort of mixed stories about the automobile industry because inventories are at very, very high levels. And there's some people very much afraid that we're heading into a slower period, yet your comments were quite positive. Is there anyway to square the circle?

Well, for us, we have to respond to what they want to build, and so far -- and that's what you people are seeing, is there's starting to be a little bit of a mismatch between the build and the sales rate. And we -- but we respond just in time to their build rates and so that's why we're still strong, because they haven't adjusted those yet.

[Operator Instructions] Our next question will come from the line of Sohail Tharani with Goldman Sachs.

Your comments on WAVE Europe segment was interesting. I was wondering is there something you're seeing an improvement in demand or is it just that the product mix you have is helping you to withstand the recession over there?

It's definitely not an improvement in demand. The market is still pretty soft over there, and I think that's just a reflection on the strong performance by our European team in that business.

How big is that for them, the European business, as a percentage of your business, base total business?

10%, 15%.

And we have no further questions in queue at this time.

Thank you all for joining us today. As I said, we're looking forward to our next conference call with you, and I'm confident that our results will be very good. Thank you.

Thank you, ladies and gentlemen. That does conclude your conference call for today. Thank you for your participation and for using AT&T Executive TeleConference service. You may now disconnect.