Worthington Steel, Inc. (NYSE: WS) Q1 2026 Earnings Call | 09/25/2025

inancial Highlights

• Net Sales: $872.9 million, up 5% year-over-year, driven by the CDEM acquisition and higher direct volumes, partially offset by lower selling prices and toll volumes.

• Adjusted EBITDA: $75.2 million.

• Earnings Per Share: $0.72, compared to $0.56 in the prior year, including:

  • $0.01 negative impact from a deemed dividend due to euro-to-dollar exchange rate changes on CDEM's redeemable non-controlling interest.

  • $0.01 pre-tax gain from asset sale related to Worthington Samuel Coil Processing closure.

  • $0.04 pre-tax compensation expense for a one-time CDEM employee bonus.

  • $0.01 tax expense from disallowed tax assets due to NAGOLD contribution in CDEM acquisition.

• Adjusted EPS (excluding unique items): $0.77, up from $0.56 in the prior year.

• Adjusted EBIT: $54.9 million, up $15.5 million from $39.4 million, driven by higher gross margin and equity earnings at Servia-Cero, offset by higher SG&A ($10.9 million increase, including $4.6 million one-time CDEM bonus).

• Gross Margin: Up $14.8 million, due to:

  • $23 million increase from direct material spreads (driven by $22.2 million swing from $16.6 million inventory holding losses last year to $5.6 million gains this year).

  • $4.6 million from higher direct volumes.

  • Offset by $11 million decrease in toll processing gross margin due to lower volumes and less value-added mix.

• Shipments: 929,000 tons, down 7% year-over-year due to lower toll volumes.

  • Direct Sales Volume: 63% of mix (up from 56%), increased 6% year-over-year, driven by existing facilities and CDEM.

  • Toll Processing Volume: Down 22%, due to market softness, Worthington Samuel closure, and customer program changes.

• Market Performance:

  • Automotive: Shipments up 17% (Detroit 3 shipments up 13% vs. 5% production growth), driven by new programs and market share gains.

  • Construction: Down 3%.

  • Agriculture: Down nearly 50% due to market softness.

  • Heavy Truck: Down 7%, partially offset by new business.

  • Energy and Container: Modest increases.

• Cash Flow and Balance Sheet:

  • Cash flow from operations: $5 million outflow; free cash flow: $34 million outflow, impacted by working capital increases.

  • Capital Expenditures: $29 million, with a fiscal 2026 forecast of $100 million.

  • Cash: $78 million; Net Debt: $155 million (increased due to working capital).

  • Dividend: $0.16 per share, payable December 26, 2025.

Strategic Updates

• CDEM Acquisition (June 2025):

  • Acquired 52% stake for $60 million cash and NAGOLD facility contribution.

  • Reported on a one-month lag; includes two months of results.

  • Mezzanine equity reflects redeemable non-controlling interest due to put/call options in euros.

  • Enhances electrical steel capabilities for the global EV market.

• Safety: Achieved safest quarter on record, with ongoing focus on zero injuries.

• Market Outlook: Mixed macro environment with limited visibility; cautiously optimistic for automotive in 2025.

• Electrical Steel Investments:

  • Canada facility on track for early 2026 production to support transformer core demand (7% annual market growth expected).

  • Mexico facility nearing production for EV traction motor laminations.

• Transformation and AI:

  • AI-driven pilots: demand forecasting, predictive inventory optimization, predictive maintenance, and forecast automation to improve efficiency and cash flow.

  • Back-office automation: Saved 10 hours/month on cash posting, 20 hours/week on IT access provisioning, and 80 hours/month on credit functions.

• Capital Allocation: Focus on strong free cash flow, high-return investments, and strategic M&A.

Analyst Questions

• Phil Gibbs (KeyBank Capital Markets):

  • Asked about CDEM financing: Adams clarified $60 million cash plus NAGOLD facility, financed via ABL; mezzanine equity reflects euro-denominated minority interest.

  • Inquired about automotive outlook: Gilmore noted a projected 15 million unit build rate for 2025, with continued market share gains expected.

  • Asked about Section 232 tariffs on electrical steel: Gilmore stated minimal impact, as customers pay tariffs or are USMCA-compliant, with strong demand and limited U.S. capacity.

• John Tomasos (Ferry Independent Research):

  • Asked about U.S. Steel coke accident impact: Gilmore confirmed no supply chain disruptions due to diverse mill relationships; unclear on U.S. Steel’s response to capacity loss.

• Martin Englert (Seaport Research Partners):

  • Asked about toll volume decline: Adams noted half due to market softness, most of the rest from Worthington Samuel closure, with minor impacts from customer program changes.

  • Inquired about Q2 volumes: Adams expected normal seasonality (3-4% below Q1) and stable demand with no major changes anticipated.

  • Asked about upstream order books/lead times: Gilmore reported no changes.