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Cylinder business driving Worthington

Keywords: Tags  Worthington Industries, steel, cylinders, acquisitions, Andy Rose, Mark Russell, John McConnell, energy natural gas

CHICAGO — Worthington Industries Inc.’s pressure cylinder business continues to grow, with the unit’s employed capital now outpacing that of its steel segment and more acquisitions likely on the radar, the company’s top executives said.

"The continued strong growth of cylinders has driven us to a notable milestone in the history of Worthington," president and chief operating officer Mark A. Russell said during an earnings call March 21. "Since 1955, the steel company has been Worthington’s largest entity by all key measures. The growth of cylinders has been so significant that we now have more capital employed in the cylinders business than in the steel company."

Columbus, Ohio-based Worthington, which last year purchased tank and pressure vessel manufacturer Westerman Cos. (, Sept. 18), is seeing strong demand from customers in the cylinder sector and will likely target more acquisitions in short order, executives said.

"The integration and financial performance of Westerman, our entry into the oil and gas production space, exceeded our expectations," vice president and chief financial officer Andy Rose said during the call. "We’re already investing in new capacity for this business in anticipation of strong growth over the coming years. We’re exploring a number of other acquisition and expansion opportunities."

The energy production and alternative fuels markets, in particular, will be key growth areas for the cylinders business, Rose said. "Energy production in alternative fuels will continue to be among our best growth ideas," he added.

Worthington today supplies the fuel cylinder for the natural gas model of the Honda Civic, chairman and chief executive officer John P. McConnell said. "We’re working with the other automakers on special products, and that’s a market with just huge growth potential."

The biggest driver of today’s market, however, is commercial vehicles, with more fleets than ever purchasing natural gas models, Rose said.

Even some railroads are starting to test natural gas-fueled locomotives (, March 8).

"Anything with wheels moves most cheaply and cleanly on natural gas," Russel said.

The strategy in the cylinders business is to seek out new products, new geographies and concentrate market position, Rose said. "We’re trying to acquire in higher growth end markets—energy, alternative fuels—and higher-margin businesses. ... We find the margin profiles of a lot of these (cylinder) companies are attractive. We can buy them at reasonable prices. There are almost always synergies. We can plug them into our global sales force suite."

There might also be steel purchasing synergies, so the combination of all these factors "make that an attractive market for us to continue to consolidate," he added.

In terms of transaction sizes, Rose said he doesn’t expect Worthington to spend $1 billion on one deal. "One, we don’t like that risk profile. We’re not a bet-the-ranch kind of company. Secondly, there just really aren’t any huge cylinder acquisitions out there. Most of the industry is relatively small and fragmented, so it’s a good structure for us to consolidate."

Worthington will invest in its cylinders unit’s organic growth as well, McConnell said. "This is where we’re putting a lot of our energy and our focus. We have two cryogenic prototypes working at the moment. We are looking at every opportunity, and there are a lot of them. It’s a fast-growing market and we’re very focused on it," he said.

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