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01/11 11:05
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call summary and Q&A indicate strong growth in net sales, particularly in the Building Products segment. The acquisition strategy and innovation focus are promising, and the consumer products segment shows positive momentum with new partnerships. Despite some margin compression challenges, strategic cost improvements and a balanced capital allocation strategy are in place. The overall sentiment is positive, with strong financial metrics and optimistic guidance, suggesting a likely stock price increase in the short term.
Revenue Revenue in Q2 was up over 19% from last year. Excluding revenues from recently acquired Elgen, revenues increased by over 10% year-over-year. The increase was driven by higher volumes in Building Products and the inclusion of Elgen following its acquisition in June.
Adjusted EBITDA Adjusted EBITDA grew by 8% year-over-year. In the last 12 months, adjusted EBITDA is now $284 million, up $49 million from a year ago, despite a $15 million negative swing in equity earnings from ClarkDietrich during the same period.
Adjusted EBITDA Margin Adjusted EBITDA margin is now almost 23% versus 20% a year ago. This improvement reflects strong performance and successful navigation of the current environment.
SG&A Expenditures SG&A expenditures declined by 320 basis points as a percentage of sales. Excluding Elgen, SG&A was held flat, contributing to improved margins.
Gross Profit Gross profit increased to $85 million, up from $74 million last year, with gross margin at 25.8% compared to 27% in the prior year quarter. The decline in gross margin was partially due to the integration of Elgen, which temporarily limited shipping capabilities and impacted consolidated gross margins.
Adjusted Earnings Per Share (EPS) Adjusted earnings were $0.65 per share, up from $0.60 per share in the prior year quarter. The increase reflects strong operational execution despite a seasonally weaker quarter.
Free Cash Flow Free cash flow for the quarter was $39 million. On a trailing 12-month basis, free cash flow totaled $161 million, representing a 96% free cash flow conversion rate relative to adjusted net earnings. This reflects elevated capital expenditures from facility modernization projects.
Net Sales (Consolidated) Consolidated net sales for the quarter were $327 million, up over 19% compared to $274 million in the prior year quarter. The increase was primarily driven by higher volumes in Building Products and the inclusion of Elgen.
Building Products Net Sales Q2 net sales grew 32% year-over-year to $208 million. Excluding Elgen, net sales were up 16% year-over-year, driven by broad-based strength across multiple categories, including heating, cooking, water, cooling, and construction.
Consumer Products Net Sales Net sales in Q2 were $120 million, up 3% compared to the prior year quarter. Growth was supported by positive momentum in the celebrations category, offsetting modestly lower volumes.
New product launches: Momentum with new product launches, including large ASME water tanks for data centers and refurbishment of large-format propane tanks. Balloon Time products will soon be available in Costco stores nationwide.
Market expansion: Planned acquisition of LSI, a market leader in metal roofing components, for $205 million. LSI reported adjusted EBITDA of $22.4 million and net sales of $51.1 million in the last 12 months. Expansion into Costco for Balloon Time products.
Operational efficiencies: SG&A expenditures declined by 320 basis points as a percentage of sales. Integration of Elgen with focus on safety, new equipment, and workforce improvements. 80/20 initiative in water business positively impacting operations.
Strategic acquisitions: Acquisition of LSI to enhance position in engineered building systems and add resilient revenue. Focus on acquiring companies in niche markets with sustainable competitive advantages.
Market Conditions: Mixed market conditions, cautious consumer sentiment, muted construction activity, and a sluggish housing market are creating challenges for the company.
Acquisition Integration: The integration of Elgen has temporarily limited the company's ability to meet demand, impacting Elgen's revenues and margins, and ultimately affecting consolidated gross margins.
Supply Chain and Operational Adjustments: Efforts to reset Elgen's operations, including safety focus, new equipment additions, and workforce retention, have caused temporary disruptions.
Economic Environment: A softer macroeconomic environment characterized by subdued commercial construction activity and mixed consumer sentiment is impacting performance.
Joint Venture Performance: Lower equity earnings from ClarkDietrich joint venture due to a challenging market environment.
Capital Expenditures: Elevated capital expenditures for facility modernization projects are impacting free cash flow conversion.
Divestiture Impact: Losses related to a divestiture within the SES joint venture and revaluation of marketable securities have negatively impacted financial results.
Growth in Data Center Cooling Solutions: The company is optimistic about growth prospects in the data center cooling space, driven by innovation around large ASME water tanks, which has led to increasing opportunities and several new orders.
Expansion in Propane Tank Refurbishment: Worthington has expanded its capabilities to include the refurbishment of large-format propane tanks, addressing customer needs for hybrid portfolios of new and refurbished tanks.
Acquisition of LSI: The planned acquisition of LSI, a market leader in metal roofing components, is expected to close in January 2026. LSI is projected to be accretive to adjusted EBITDA margins, adjusted EPS, and free cash flows. The purchase price is approximately $205 million, and LSI reported adjusted EBITDA of $22.4 million and net sales of $51.1 million in the last 12 months.
Capital Expenditures and Free Cash Flow: Capital expenditures are expected to normalize after the completion of facility modernization projects over the next three quarters. This is anticipated to improve free cash flow conversion over time.
Building Products Segment Growth: The Building Products segment is expected to benefit from the LSI acquisition and continued strength in environmentally friendly refrigerant adoption. The segment is positioned for growth as market conditions improve.
Consumer Products Segment Outlook: The Consumer Products segment is entering a seasonally stronger period and is positioned to outgrow the market as conditions improve, supported by a portfolio of affordable and essential products.
Dividends Paid: $10 million in dividends were paid during the quarter.
Quarterly Dividend Declared: A quarterly dividend of $0.19 per share was declared, payable in March 2026.
Share Repurchase: 250,000 shares of common stock were repurchased for $14 million at an average price of $54.87 per share.
The earnings call summary and Q&A indicate strong growth in net sales, particularly in the Building Products segment. The acquisition strategy and innovation focus are promising, and the consumer products segment shows positive momentum with new partnerships. Despite some margin compression challenges, strategic cost improvements and a balanced capital allocation strategy are in place. The overall sentiment is positive, with strong financial metrics and optimistic guidance, suggesting a likely stock price increase in the short term.
The earnings call presents a positive outlook with strong financial performance, strategic growth through acquisitions, and benefits from tariffs. Despite some challenges in the construction segment, the company is well-positioned for growth with its focus on high-margin, low-asset-intensity businesses. The positive sentiment is reinforced by strong gross margins and operational efficiencies, alongside strategic investments in AI and automation. The company's market cap suggests a moderate reaction, leading to a 'Positive' prediction for stock price movement.
The earnings call summary and Q&A reveal strong financial performance, strategic product launches, and a balanced approach to M&A and shareholder returns. Management's focus on modernization, margin expansion, and strategic M&A, coupled with a 12% dividend increase, signals confidence. Despite macroeconomic uncertainties, the company shows resilience with steady WAVE contributions and margin growth. The market cap suggests moderate stock movement, aligning with a positive sentiment. The lack of specific guidance and murky outlook are concerns but are offset by operational strengths and strategic initiatives.
The earnings call highlights strong financial performance with increased earnings per share, improved gross margin, and solid free cash flow conversion. The Q&A section reveals management's confidence in navigating tariffs and maintaining a healthy M&A pipeline. Despite a slight decline in net sales, the acquisition of Ragasco and increased volumes offset this. The shareholder return plan, including dividends and share repurchases, further supports a positive outlook. Considering the company's market cap, the stock price is likely to experience a positive movement of 2% to 8% over the next two weeks.
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