Good morning and welcome to the Worthington Industries' First Quarter 2016 Earnings Conference Call. [Operator Instructions] I'd like to introduce Ms. Cathy Lyttle, Vice President of Corporate Communications and Investor Relations. Ms. Lyttle, you may begin. Please go ahead.

Thank you. Good morning. Thanks for joining our first quarter earnings conference call. As a reminder certain statements made on this call are forward-looking within the meaning of the 1995 Private Securities Litigation Reform Act. Therefore these statements are subject to risks and uncertainties and could cause actual results to differ from those suggested. Please review our earnings release issued last evening for more detail 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 later on our website. On the call with us this morning, John McConnell, Chairman and Chief Executive Officer; Mark Russell, President and Chief Operating Officer; and Andy Rose, Executive Vice President and Chief Financial Officer. John will start things off.

Well, thank you, Cathy, and thanks to all of you for joining us today. While each of our businesses are operating in varying market conditions, each are doing a very good job of maximizing their respective opportunities. In the case of engineered cabs and the oil and gas business that meant the very difficult and emotional task of aggressively cutting costs to right size these businesses to mask reduction in volumes that exhibit no sign of recovering quickly. In COAs and pressure cylinders we are identifying and maximizing opportunities in markets where volumes have remained strong. I'm proud of our company's efforts and our results during the opening quarter of fiscal 2016. Now Andy and Mark will provide more detail on the quarter.

Thank you, John, and good morning, everyone. Despite challenging headwinds from declining steel and oil prices, the company posted a solid performance in the first quarter of fiscal 2016. Although inventory holding losses from declining steel prices continued to hold down profits, lower manufacturing costs, improved operations in pressures cylinders, and a solid performance from our joint ventures highlighted the quarter. Demand is generally good in most of our key markets with the exception of oil and gas and engineered cabs where we continue to take action to reduce our cost structure and remain cash flow positive in these businesses. Quarterly earnings per share adjusted for restructuring was $0.54 per share, down $0.11 per share from the prior-year quarter. However, declining steel prices caused inventory holding losses of $0.07 per share during the quarter as compared to inventory holding gains of $0.02 per share in the prior-year quarter when prices were rising. It is also worth noting that our tax rate returned to a more normal 31.8% during the quarter from 32.8% in last year's quarter. Unique items during the quarter were as follows, restructuring charges of $6.1 million were attributable to impairments and severance of $4.9 million related to the pending shutdown of our Florence facility in cabs, and $1.2 million related to severance accruals in cylinders where we just announced additional cost reductions to mitigate the decline in oil and gas and in steel from the previously announced closure of PSN [ph]. Cylinders operating income, excluding restructuring, was down $2.1 million year-over-year to $17.6 million driven by lower volumes particularly in oil and gas equipment. Operating margins for the quarter were up over the prior quarter and flat as compared to the prior year quarter, helped by lower manufacturing costs and solid improvements in operations at our industrial…

Thanks, Andy. Direct shipment volume in our steel business was up just slightly compared to the same quarter last year and was down 2% if you exclude our recent cold rolled strip acquisition in Rome, New York. Metals Service Center Institute data for the same period shows a decrease in total industry shipments of nearly 6%, indicating our continuing strength compared to the overall direct market. Demand from our mill customers for toll pickling and related services increased compared to last year, but toll galvanizing demand at our Spartan joint venture was still off significantly and that drove our overall toll volume down 11%. By market we saw a modest decline in our shipments to the Detroit Three. Heavy truck was our strongest segment, with shipment up 14%, and the construction market continues to grow with shipments up 6%. Agriculture was down 29% and was again our weakest market segment for the quarter. All these comparisons exclude the Rome acquisition. Integration of Rome continues on pace, and the performance of the business is exceeding our expectations so far. Our joint venture cold rolling facility with Mission [ph] and Nisshin in China remains on track for start up in the first half of calendar 2016. Our tailor welded blank a joint venture with Wuhan Iron and Steel, which is uniquely positioned to drive weight reductions for our automotive customers, continues to grow with the first of three new lines now in place at our newest facility just outside Nashville. Next generation equipment for curved welds and rotary line technology for high volume short welds will be in place by the end of the following quarter, and TWB's development of friction stir welded aluminum blanks is picking up momentum with blank prototypes currently being tested at several North American OEMs. Our Serviacero…

Thank you, Andy and Mark. At this time we'll take any questions you may have.

[Operator Instructions] Our first question is from Martin Engler with Jefferies. Please go ahead.

Hi. Good morning, everyone.

Good morning.

Can you talk a little bit about any potential tailwind you're seeing due to the lower steel pricing within cylinders and WAVE and if you are benefiting from this or if you're passing it on to the consumer?

I mean, we did see a little bit of benefit in the quarter. We do run balanced price risk positions for most of the commodities that we buy in that business. And so the benefit that we're going to get is going to come over time because we forward bought some of the commodities there. But we do expect to see a benefit over the next several quarters.

Okay. And you think you'll capture most of that rather than passing it on to the consumer?

Yes. It depends on the product line and who the customer is. Some of the products do not have pass-throughs and some of them do.

Okay. And if you can provide any more detail around the timing of I guess potential impacts from - it seems like there's some incremental weakness in steel prices with inventory holding losses within steel processing. You saw some continue this quarter I guess, would the expectation be that will also continue in fiscal 2Q?

These are very difficult things to predict. I think our general feeling is we're getting pretty flat at this point. But that doesn't mean it doesn't have room to continue to go down. Mark, I don't know if you have any other…

Yes, I would - as you know, price has softened just a little bit just recently, and if that holds that will pass through with our typical lead time.

Okay.

But other than that as John says you can't predict it from here.

Okay. And if I could one more, in the release you talked about the momentum heading into fiscal 2Q. Can you just talk about what you've seen so far maybe from a very high level quarter to date across a couple of your businesses?

Yes. I would just say at a high level the first half of the calendar year, maybe first three quarters of the calendar year, we've just had significant macro headwinds with oil prices continuing to fall, with steel prices continuing to fall and the requisite FIFO accounting losses that follow that. Steel prices have stabilized, although we did see a takedown earlier this week, but they're certainly at a much lower level. So just that alone helps improve our business with that stability, and then you just mentioned the raw material costs flowing through, lower raw material costs in cylinders, that will help that business. And then probably the third thing I would mention is just on the operations side we had some challenges last year, and I would say we're making very good progress on a number of those fronts in terms of improving those operations. And we saw it particularly in consumer products this quarter, and so we expect that momentum to continue.

Excellent. Thanks and congratulations on the strong results.

Thank you.

We have question from Tyler Kenyon with KeyBanc Capital Markets. Please go ahead.

Hi. Good morning.

Good morning.

Andy, question for you. Just the SG&A in the cylinders business looked a bit high, both as a percentage of sales and year-over-year. Was there any short-term program costs or upfront costs you may have been accruing as part of your efforts here to improve the business. And how should we be thinking about that line item moving forward here?

Yes. I did see that actually in your note. I probably need to take a deeper look. But one thing I can call out is we did have about three quarters of $1 million [ph] of I'll call them one time M&A expenses that flowed through in the quarter for a transaction that we have not completed and may not complete. So that's certainly one thing that impacted that. And then the other piece would just be year-over-year increase is related to acquisitions that we did do earlier this year or late last year.

Okay. Great. And then you said on the JV line there was a $1.7 million impact, I think if I heard that correctly, just from some product development costs related to alternative fuels. So something that you're not expecting to recur moving forward? And I guess just broadly speaking as far as how we should be thinking about the JV business here. Do you think maybe you benefited from some seasonal strength, and do you think some of the momentum that you saw in the first quarter here can continue through the rest of the year?

Yes. On the first piece it's sort of the accounting rules drive where you account for things, but we did make an investment in some R&D in a business related to our alt fuels business. The way that investment was structured actually is such that it's going to flow through the equity income. It's not something that's a recurring quarterly expense. There is, I suppose, a possibility down the road that we decide to make additional investment around that. But at least for the time being that's kind of a one timer. And then, what was the second part of your question, Tyler?

Just on the momentum within the JVs moving forward here throughout the course of the year.

Yes. I think as I look at the JVs, at least the big contributors there, one of the things that certainly impacts WAVE and ClarkDietrich is when steel prices are declining distributors and customers try and hold off. They de-stock inventory and so as steel prices start to stabilize then the reverse starts to occur. So I do think there's a possibility of some of that momentum continuing, although the construction market has been very finicky and we'll see bits of strength and then all the sudden we'll have a month that's weak. So it's a little bit uncertain exactly how strong that momentum might be there.

And of course you have the different base market drivers there, Tyler. ClarkDietrich and WAVE are driven by construction and Serviacero and TWB for example are driven by automotive. So you can have your own view of the strength of those markets.

Sure. And then just to Martin's early question just as to how you feel about the momentum moving forward. I mean, clearly what has been surfacing out there more recently is just incremental weakness in the industrial sector and clearly a more perverse impact on the machinery sub-sector of industrials and clearly more tempered expectations for an improvement in oil and gas. So kind as you look at your business moving through the remainder of the year, what do you expect the impact to be from an end market perspective within those businesses? Have we seen the weakness in oil and gas, I mean is that behind us and should we expect perhaps some level of stabilization here, and same thing on the industrial side too?

Really what we want to focus on is the agility to be quick and react to what we see happening. The world right now is about as volatile as I've seen it. So it's very hard to predict any market. So that's what we do, we watch all those factors out there. But again there's just a lot of volatility, potential volatility. It's not the - certain what's going to happen, but there are actions that could occur around the world that would affect oil prices in - we just don't know what they are. So we aren't going to predict any of those things. We're just going to be agile and quick.

Okay. Sure appreciate that. And then just one last one just on cash flow. One, any change to your CapEx plans for the remainder of the year? And then Andy, if you could provide maybe a little bit of color as to how you think about cash generation via changes in working capital as we progress throughout the remainder of the year here?

I don't think there's any significant change to our CapEx forecast. We did have a pretty big quarter in terms of spending, I think just under $40 million. We do have a number of projects that are related to capacity expansion in our laser welding business, TWB, in our strip business, and then also in cylinders the finishing up of the Bandirma plant. I don't expect the next three quarters to be at the same level. I think we said just north of $100 million was kind of the over, under for the year. Some of it depends on timing too, but that's a good number for right now. The good news is most of it is sort of capacity expansion in markets where our business is strong. And it's also good news because they tend to be higher margin markets for us. With respect to working capital, that one is a little more difficult. But the decline in steel prices is really the big driver of what created the big operating cash flow and the big liquidation of working capital in the last quarter. Going forward it kind of depends on what steel prices are going to do.

Okay. Fair enough. Thanks for the color.

[Operator Instructions] At this time there are no further questions in queue.

Thank you all for joining us. We look forward to talking to you at the end of Q2. And as I said we're going to continue to focus on the management of our business. Thank you again.

Ladies and gentlemen, this conference will be available for replay after 12:30 PM Eastern time today through midnight Eastern time on October 1. You may access AT&T executive replay service at any time by dialing 1-800-475-6701 and entering the access code 368750. International participants dial 320-365-3844. Those numbers once again are 1-800-475-6701 and 320-365-3844, access code 368750. That does conclude our conference for today. Thank you for your participation and you may now disconnect.