Worthington Steel, Inc (WS) Q3 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reveals weak financial performance with significant declines in EBITDA, EPS, and net sales. Market challenges include automotive and construction sector declines, supply chain issues, and increased SG&A expenses. The Q&A section shows management's uncertainty about future demand and reluctance to provide specific guidance. Despite some positive developments, like automotive demand momentum, the overall sentiment is negative due to financial declines, debt concerns, and lack of clear guidance. Given these factors, the stock price is likely to experience a negative movement in the short term.
Key Financial Performance
Adjusted EBITDA $41.9 million (down $40.9 million or 49% year-over-year) due to lower volumes and lower average selling prices.
Earnings per Share (EPS) $0.27 (down $0.71 or 72% year-over-year) impacted by lower volumes and average selling prices.
Net Sales $687 million (down $118 million or 15% year-over-year) primarily due to lower direct volumes and lower direct market pricing.
Shipments 881,000 tons (down 11% year-over-year) with decreases in most markets, particularly automotive and construction.
Adjusted EBIT $25.3 million (down $41.6 million year-over-year) primarily due to lower gross margin and higher SG&A expenses.
Gross Margin Impacted by lower volume and lower direct material spreads, primarily due to year-over-year pretax inventory holding losses.
Cash Flow from Operations $54 million.
Free Cash Flow $25 million.
Capital Expenditures $28.6 million on various projects including electrical steel expansions.
Net Debt $49 million (with $63 million in cash and $112 million in outstanding debt).
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Operating Highlights
New Product Development: Collaborated with Cleveland-Cliffs to develop a lightweighting solution for electric vehicle battery trays, helping OEMs achieve weight savings.
Electrical Steel Operations: Awarded Best Supplier of the Year by Mahle for exceptional performance in quality, delivery, and support of new product development.
Automotive Market: Shipments to automotive were down 3% in Q3, but new programs are expected to ramp up over the next few months.
Construction Market: Shipments to the construction market decreased 20% year-over-year due to economic uncertainty.
Heavy Truck Market: Signs of improvement are noted in the heavy truck market, expected to show GDP-type growth for the rest of 2025.
Operational Efficiency: Reduced press changeover times, work-in-progress inventory, and streamlined HR functions through collaboration and data analytics.
Cash Flow: Generated $54 million in cash flow from operations and $25 million in free cash flow.
Acquisition Strategy: Progressing towards closing a 52% ownership stake in Sitem, a European electrical steel lamination manufacturer.
Expansion Plans: Electrical steel capabilities are expanding in Canada and Mexico, with production expected to begin in late 2025.
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Risk or Challenges
Lower Volumes and Prices: The company reported a significant decrease in adjusted EBITDA from $82.8 million to $41.9 million year-over-year, attributed to lower volumes and average selling prices.
Economic Uncertainty: Customers are managing uncertain macroeconomic conditions, leading to cautious optimism about the North American auto market and a flat construction market.
Automotive Market Challenges: Shipments to the automotive sector were down 3%, impacted by production cuts from a major OEM, which reduced overall production by approximately 25%.
Construction Market Decline: Shipments to the construction market decreased year-over-year due to economic uncertainty, with expectations of a flat first half of 2025.
Agricultural Market Weakness: The agriculture market remains soft due to high interest rates, commodity prices, and tariffs affecting farmers' purchasing decisions.
Supply Chain Issues: While there are signs of easing in some supply chains, the overall uncertainty continues to affect customer buying patterns.
Impairment Charges: The company incurred $7.4 million in pretax asset impairment charges due to operational consolidations and R&D intangible write-offs.
Inventory Holding Losses: Estimated pretax inventory holding losses of $1.2 million were reported, contrasting with gains of $19.3 million in the prior year.
Increased SG&A Expenses: SG&A expenses rose by $1.8 million due to higher wage costs and professional fees related to the Sitem acquisition.
Debt Levels: The company ended the quarter with $112 million in outstanding debt, which poses a financial risk if market conditions do not improve.
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Guidance & Outlook
Electrical Steel Market Investments: Worthington remains bullish on investments in the electrical steel market, anticipating a 6% annual growth in power demand over the next 15 years.
Sitem Acquisition: Worthington is progressing towards closing a 52% ownership stake in Sitem, a European electrical steel lamination manufacturer, expected to enhance their offerings.
CapEx and Expansion: Capital investments in electrical steel capabilities in Canada and Mexico are ongoing, with production expected to begin in late 2025 and early 2026 respectively.
Transformation Strategy: The company is implementing a transformation strategy to improve efficiency and reduce costs through collaboration and data analytics.
AI Initiatives: Worthington has initiated AI integration into its operations, focusing on advanced analytics and generative AI education.
Automotive Market Outlook: Cautiously optimistic about the North American auto market in 2025, with production forecasted at approximately 15.3 million units.
Construction Market Outlook: Expecting a flat construction market in the first half of 2025, with potential growth in the second half due to interest rate cuts.
Heavy Truck Market Outlook: Anticipating GDP-type growth in the heavy truck market for the remainder of 2025.
Fourth Quarter Inventory Gains: Estimated pretax inventory holding gains of $20 million to $25 million for Q4 2025, compared to losses in Q3.
Free Cash Flow: Generated $25 million in free cash flow for the quarter, with a trailing 12-month total of $82.3 million.
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Shareholder Return Plan
Quarterly Dividend: $0.16 per share payable on June 27, 2025.
Share Repurchase Program: None
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Key Q&A
Q:Can you discuss the impact that you're seeing thus far with the tariff policy?
A:We anticipate very little impact on our business. Our strategy is to buy steel where our customers are, so there shouldn't be much interruption in the supply chain. Steel prices have seen a brief jump, but we have strategies to mitigate any tariff impacts.
Q:What is happening with TWB and the small charge reported?
A:There were 2 special charges related to TWB: a write-off of R&D from the Shiloh acquisition and an early retirement program, totaling about $2.2 million.
Q:What are your expectations for underlying EBITDA normalization?
A:It's driven by demand and volume, and there's a lot of uncertainty in the market. We are cautiously optimistic that by the end of the calendar year, we should see more normalized run rates.
Q:Can you provide any numbers on the fixed cost impact within steel?
A:I don't have any numbers to give you. I suggest looking at historical data and our Form 10 for insights.
Q:What is the situation with Serviacero?
A:Serviacero faced demand compression similar to ours, impacted by the automotive market and exchange rate movements.
Q:What are you seeing in March following February's strong performance?
A:We saw momentum from February carry into March, with stronger automotive demand and a larger OEM normalizing.
Q:Is there an effort to regain market share in construction?
A:Yes, we are actively pursuing more opportunities in the construction market due to anticipated gaps.
Q:What can you tell us about new customer awards in automotive?
A:We have gained share in automotive, and we expect to see that impact on volume and margins over the next 6 months.
Q:What fraction of the 16 million unit market is U.S. made?
A:I don't know that exact number, but I will validate it later.
Q:If 16 million units were handed to U.S. companies, how much could they take?
A:I don't have a guess on that.
Q:What percent growth do you think the electric utility industry can supply?
A:The 6% growth mentioned refers to transformer growth, driven by demand and the need to upgrade old infrastructure.
Q:Review of Unclear Management Responses
A:Management avoided giving a direct answer to the question about how much of the 16 million unit market U.S. companies could take if handed to them, stating they don't have a guess. Additionally, they did not provide specific numbers regarding the fixed cost impact within steel, suggesting to look at historical data instead.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI center
AI education
AI journey
AI model
Adams Vice
ET Hello
Geoff Gilmore
Gilmore today
Mahle
Martin Englert
Mexico steel
Officer Adams
Officer Martin
Partners Phil
Phil Gibbs
Relations Geoff
Research Results
Sitem expertise
Tumazos
analytics
approach
battery
core
cost
day Adams
hybrid
manufacturer
market calendar
motor
pillar
position
power
production calendar
quality
sign improvement
today Geoff
transformer
truck market
weight
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.
