Worthington Steel, Inc. (WS) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reveals mixed signals: slight improvements in EBITDA and EPS, but a significant decline in net sales and gross margin. The Q&A section shows cautious optimism with concerns about tariffs and interest rates, and management's vague responses add uncertainty. Despite market share gains and strategic initiatives, these factors balance out, resulting in a neutral sentiment.
Key Financial Performance
Adjusted EBITDA $87 million compared with $86.5 million in the prior year quarter, showing a slight increase. The increase is attributed to strategic progress and execution despite a mixed macroeconomic environment.
Earnings per Share (EPS) $1.10 compared to $1.06 in the same period last year, reflecting a year-over-year increase. The increase is due to improved operational performance and strategic initiatives.
Net Sales $833 million, down $78 million or 9% from the prior year quarter. The decline is primarily due to lower direct selling prices, lower toll volumes, and an unfavorable toll processing mix.
Gross Margin $4 million lower than the prior year quarter, primarily due to unfavorable tolling margins, offset by increased direct spreads.
SG&A Expense Decreased by $4.8 million over the prior year fourth quarter, primarily due to a $3.3 million decrease in compensation and benefit costs as well as lower bad debt expense.
Toll Processing Tons Down 11% year-over-year due to slowness in some automotive tolling programs, the wind down of the Cleveland facility, and customer decisions to change or resource programs.
Direct Sales Volume Flat year-over-year, with automotive shipments up 5% due to market share gains, while construction and agricultural markets saw declines.
Free Cash Flow $8 million for the quarter, with $54 million cash flow from operations. Capital expenditures for fiscal 2025 totaled $130.4 million.
Net Debt $114 million as of May 31, 2025, an increase due to funding the Sitem acquisition.
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Operating Highlights
Electrical Steel Expansions: Progressing on expansions in Mexico and Canada. Testing underway on 5 presses in Mexico, with initial production expected later this year. Canada project on track for early 2026 production.
Sitem Acquisition: Acquired 52% ownership in Sitem, a European electrical steel lamination manufacturer. Enhances position in European electric motor lamination market and supports global automotive and industrial motor customers.
Automotive Market: Gained market share with 5% increase in shipments. New programs expected to drive incremental volume in upcoming quarters.
Heavy Truck Market: Volume increased due to market share gains despite a slowdown in the truck and trailer market.
Transformer Market: Growth driven by electrification and aging infrastructure replacement. U.S. transformer market expected to double in 10 years.
AI Implementation: Initiated AI integration to improve productivity, quality, and customer value.
Operational Efficiencies: Focused on reducing changeover time, optimizing working capital, and streamlining operations.
Long-term Strategy: Focused investments in electrical steel, margin-accretive growth through CapEx and acquisitions, and base business improvements.
Governance: Added Mark Davis to the Board of Directors, bringing expertise in finance, M&A, and corporate governance.
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Risk or Challenges
Macroeconomic Environment: The macroeconomic environment remains mixed, creating uncertainty for the company's operations and strategic planning.
Agricultural Market: The agricultural market continues to face pressure, with a 40% year-over-year decline in volumes due to softness in the agricultural equipment market and increased competition in the grain bin sector, leading to spread compression.
Construction Market: Construction markets served by the company were down slightly year-over-year, reflecting potential challenges in this sector.
Toll Processing Volumes: Toll processing volumes were down 11% year-over-year due to slowness in automotive tolling programs, the wind-down of a facility, and customer decisions to change or resource programs.
Tariffs and Steel Pricing: The implementation of steel tariffs has introduced additional uncertainty and potential upward pressure on steel prices, which could impact costs and margins.
Supply Chain Disruptions: Potential supply chain disruptions due to the idling of several mill locations required significant management effort to ensure uninterrupted supply for customers.
Restructuring Costs: The company incurred restructuring charges related to the closure of a facility and an early retirement program, which could impact short-term financial performance.
Market Compression: Direct spreads were negatively impacted by a shift to lower value-added products and market compression in the spread between hot-rolled and higher value-added products.
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Guidance & Outlook
Capital Investments: Worthington Steel is progressing on electrical steel expansions in Mexico and Canada. Testing is underway on the 5 presses in Mexico, with initial production expected later this calendar year. The Canada transformer core expansion project is on track to begin production in early calendar year 2026.
Market Trends: Electrified vehicle adoption is projected to grow globally, with hybrids and BEVs expected to make up more than two-thirds of the global market share by 2030. The U.S. transformer market is expected to double over the next 10 years due to growing electrification demand.
Acquisition Strategy: The company closed on the acquisition of a 52% ownership stake in Sitem, a European electrical steel lamination manufacturer. This acquisition enhances Worthington Steel's position in the European electric motor lamination market and supports global automotive and industrial motor customers.
Automotive Market Growth: Worthington Steel has gained market share in the automotive sector, with new programs expected to drive incremental volume over the next few quarters. The company anticipates a more normal build schedule for one of its Detroit 3 OEM customers later in calendar 2025.
Heavy Truck Market: Volume increases are expected due to market share gains, despite a slowdown in the truck and trailer market.
Agricultural Market Challenges: The agricultural market faces softness and increased competition, but Worthington Steel remains strategically positioned to adapt quickly as conditions evolve.
Toll Processing Volumes: Toll processing volumes are expected to decrease by approximately 100,000 annual tons due to the consolidation of operations from Cleveland to Twinsburg. However, volumes are expected to increase when end-market demand picks up.
Capital Expenditures: Capital expenditures for fiscal 2026 are expected to be approximately $100 million, aligned with long-term priorities, particularly in electrical steel.
Steel Pricing and Inventory Gains: Hot-rolled coil prices may see upward pressure due to tariffs. Inventory holding gains of $5 million to $10 million are expected in the first quarter of fiscal 2026.
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Shareholder Return Plan
Quarterly Dividend: $0.16 per share payable on September 26, 2025
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Key Q&A
Q:Congrats on the great quarter. Starting on fourth quarter gross margin, up nearly 350 basis points quarter-on-quarter, and it was the best figure you guys have posted in 2 years. Talk us through how you achieved the richer mix of direct tons and stronger metal spreads despite the macro headwinds that you're still facing in some key end markets.
A:Timothy A. Adams explained that Q4 is typically the strongest quarter in terms of volume. Year-over-year, volume was flat, but quarter-over-quarter, it increased significantly. He noted that the market is solid across many industries. He also mentioned spread compression in both Q3 and Q4 due to product mix and market spreads, with a richer product mix in Q3 and the prior year.
Q:Galvanized spreads, like you said, still relatively compressed with demand still cautious on tariff uncertainty, interest rates? And how do you view that market as we move into fiscal year '26?
A:Geoffrey G. Gilmore expressed cautious optimism. He highlighted the lack of clarity on tariffs and interest rates, muted demand, and increased galvanized capacity and imports. He expects improvements due to higher tariffs, anti-dumping cases, and eventual demand recovery driven by government spending and economic growth.
Q:I know throughout the course of fiscal year '25, you guys dealt with some destocking from the automotive OEMs. With the understanding that they're probably not going to build up a huge amount of inventory anytime soon. I mean how can you guys continue to be successful in that end market? I know you noted the new market share wins.
A:Geoffrey G. Gilmore attributed success to market share gains and close monitoring of forecasts and build rates. He noted that despite lower build rates from major OEMs, their automotive volume was up 5% due to market share gains. He also mentioned a rebound from a key customer and anticipated a more favorable product mix in the future.
Q:Could you describe the competitive dynamics in the tailor-welded blanks business? Who else makes them besides ArcelorMittal? Are there trading companies in that business? I'm surprised that you have to take early retirements there.
A:Geoffrey G. Gilmore explained that the tailor-welded blanks market is highly technical with high barriers to entry. Key players include ArcelorMittal and Worthington Steel. He highlighted the growth in this market due to lightweighting and safety needs. Early retirements were attributed to acquisitions and aligning with their philosophy of identifying top talent without impulsive layoffs.
Q:If the products are growing, why are you thinning out your people?
A:Geoffrey G. Gilmore clarified that early retirements were part of their strategy following acquisitions. He emphasized their philosophy of avoiding impulsive layoffs and aligning with long-term growth opportunities, including scaling up as the business grows.
Q:Review of Unclear Management Responses
A:Management appeared to avoid giving a direct answer or used vague language when discussing the future of galvanized spreads and the impact of tariffs and interest rates. While they expressed cautious optimism, the response lacked specific details or timelines for recovery.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI customer
AI expectation
AI force
Achieving Excellence
America purpose
BEVs market
CEO President
CFO Tumazos
Canada Testing
Communication Investor
Corporate Communication
DNA team
Davis Directors
Deere Achieving
Deere supplier
Director Vice
Division Results
ET Steel
Energy
Geoff Gilmore
Gilmore Steel
President Corporate
Sitem
Supplier
ability
base
front
governance
intelligence
investment steel
motor lamination
need
production calendar
share market
today Geoff
tool
transformer core
WS Transcript
Worthington Steel, Inc. (WS) Q2 2026 Earnings Call Transcript
Positive12-18
The earnings call summary shows strong performance in automotive and energy shipments, with positive direct spreads and increased Serviacero equity income. Although there are some declines in construction and heavy truck volumes, the overall financial performance appears solid. The Q&A section highlights strategic gains in market share and onshoring benefits, with management addressing SG&A increases as partially one-time. The company's AI-driven transformation initiatives and electrical steel investments suggest future growth potential. Despite some uncertainties, the overall sentiment is positive, likely resulting in a stock price increase of 2% to 8%.
Worthington Steel, Inc. (WS) Q1 2026 Earnings Call Transcript
Unknown9-25
The earnings call summary indicates a mixed outlook. Financial performance shows growth in EPS and net sales, but challenges like inventory losses and economic uncertainty persist. The Sitem acquisition strengthens market position, but integration risks exist. The Q&A section highlights cautious optimism in the automotive sector and resilience against tariffs, but also notes unclear management responses. The strategic plan outlines market opportunities, yet faces agricultural market softness and toll processing declines. Overall, the sentiment is balanced, leading to a neutral stock price prediction.
Worthington Steel, Inc. (WS) Q4 2025 Earnings Call Transcript
Unknown6-26
The earnings call reveals mixed signals: slight improvements in EBITDA and EPS, but a significant decline in net sales and gross margin. The Q&A section shows cautious optimism with concerns about tariffs and interest rates, and management's vague responses add uncertainty. Despite market share gains and strategic initiatives, these factors balance out, resulting in a neutral sentiment.
Worthington Steel, Inc (WS) Q3 2025 Earnings Call Transcript
Neutral3-20
WS Slides
WS Report
Frequently Asked Questions
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They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
