Columbus-based Worthington Industries is a metal processor; it takes steel and turns it into flat-rolled sheets that other companies use to make their products. And despite an ongoing crisis in the steel industry, Worthington Industries has managed to stay profitable, largely due its renewed focus on its core competencies.
"In the mid '90s, we sold the companies that were unrelated to our core focus," says Worthington chairman and CEO John P. McConnell, who took the helm of the $2 billion company from his father, John H. McConnell, in 1996, after working his way through the ranks for more than 20 years. "Those companies produced a very different product stream involving different groups of buyers."
The company sold Worthington Custom Plastics and Buckeye Metal Castings, and in their place, purchased companies more closely related to the flat-rolled steel processing business. For example, in 1997, it acquired the Gerstenslager Co. of Wooster, which produces aftermarket body panels from flat-rolled sheets of metal for the automotive industry.
To diversify revenue, Worthington also added Worthington Cylinders, which makes and sells pressure cylinders. But no other division comes close to contributing to the bottom line as much as steel processing does.
"Steel processing remains our top revenue maker," says McConnell.
An untapped market
Although the gap between the revenue produced by steel processing compared to that provided by other divisions is large, one division acquired by Worthington Industries in 1996 is closing in.
When Worthington purchased Dietrich Metal Framing in Pittsburgh, it was a leading producer of metal framing products for the commercial and residential construction industries, making floor joists, roof trusses and other metal parts. Now, it is Worthington's second largest income producer, McConnell says.
While the steel produced at Worthington has been used as a building material in the construction of commercial facilities for years, it has only recently begun to enter the residential market.
"Ninety-five percent of our steel framing products are used by commercial construction," says McConnell. "We are working on developing a residential market, a market that is 10 times larger than the commercial market and virtually untapped."
McConnell says the company is also targeting the residential market because commercial construction is beginning to slow.
So far, the primary markets for residential steel framing have been states prone to natural disasters including hurricanes and earthquakes.
"In Hawaii, building code calls for steel framing," McConnell says.
In those markets, Dietrich is building market share.
"We are working to break down the barriers in the rest of the country," says McConnell. "There was a philosophy out there that it was purely a price issue. No one would buy steel until it was priced under wood."
Last summer, Worthington partnered with Centex Homes to provide the builder with steel floors for homes it was building in the Columbus market over the next two years. McConnell says the partnership was a good match for both companies because Centex is new to the area, and adding steel floors to its higher-end home model gave it a competitive edge.
Since the agreement was announced, McConnell says sales have been good for Centex, and home buyers have been selecting steel flooring as an option in other models, too.
In addition to added strength, McConnell says there are other benefits to using steel floors and roof trusses.
"The frames are pre-engineered, and there is no waste of material," he says. "The floor has tabs where it is screwed into the joists, so it saves a lot of time."
And when it comes to cost, McConnell says steel is now competitive with wood.
"They are both commodity products, so the prices change," he says. "But our interior light steel stud is cost-competitive with wood."
So why haven't steel frames taken the residential construction industry by storm? McConnell says it is a matter of re-educating both builders and inspectors.
"We had problems because construction workers weren't used to putting the floors together," he says. "And there was no one there from our company to help them learn how to use it. Building inspectors didn't know what they were inspecting."
Worthington is solving these problems by training field personnel to assist crews and inspectors on site.
Steeling itself for a more secure future
While McConnell doesn't foresee steel framing overtaking steel processing as Worthington's primary product, he says there's no doubt it will be an important part of the company's future growth.
"We are staying focused and will continue to develop our current markets," he says. "We are building relationships and staying in touch with large national builders."
In the meantime, it will continue to work with Centex and other interested builders locally.
"We are looking forward to next season with Centex, and we'd love to work with others like M/I or Dominion," McConnell says.
Howard Burnett, a research analyst with Salomon Smith Barney, says Worthington Industries' reputation will help leverage its position in this new market.
"Worthington has the reputation of being the best in processed steel, and that will help them be a big factor in the residential construction market," says Burnett.
However he cautions that this market holds as many risks as it does potential profits.
"If looking at a national market, the company needs to look at delivery costs," Burnett says. "The cost of delivery to other places in the United States could be prohibitive."
Burnett says some economists predict the housing construction market has reached its peak. And there are a number of competitors after the same market.
However, McConnell says so far, Worthington has acquired the greatest share of the residential construction steel market.
"But we don't just consider our competitors other steel companies, we also consider wood and masonry competitors, too," says McConnell.
Yet the advantages of steel frames could outweigh concerns about cost and delivery.
"Steel frames are good alternatives in areas where there is environmental concern about the overuse of lumber and in areas where termites are a problem," says Burnett.
McConnell says Worthington Industries is not in the business of trying to predict the future, and it is keeping its options open.
"In the next five years or longer, we could drive down different avenues we don't even have on the radar screen yet, as long as we see synergy with what we're doing," he says. "We might not even have one of our businesses. Will processed steel still be our primary focus in 10 years? I don't know.
"We are interested in generating additional wealth, so we'll focus on being better than anyone else." How to reach: Worthington Industries, (614) 438-3210 or www.worthingtonindustries.com; Salomon Smith Barney, (614) 460-2714.