Worthington Steel, Inc. Q3 FY2025 earnings call

Key Messages - Thanked the Worthington Steel team for their flexibility and resilience in a quarter with uncertainty. - Highlighted that results were impacted by lower volumes and lower average selling prices, but saw signs of improvement at the end of the quarter. - Discussed key markets: automotive shipments down 3%, cautiously optimistic about North American auto market; construction market seen as first half flat then gaining momentum later; agriculture market soft; heavy truck market showing improvement. - Strategic growth pillars: 1. Focused investments in electrical steel market, progress on acquiring Sitem, expansion of electrical steel capabilities in Canada and Mexico. 2. Strong commercial focus, strategic CapEx and acquisitions, ongoing commercial initiatives and M&A consideration. 3. Transformation mindset to make base business improvements, reducing press changeover times, work-in-progress inventory and streamlining HR functions. - Quarterly highlights: grew market share with new automotive OEM business, electrical steel operation awarded Best Supplier of the Year by Mahle, collaborated with Cleveland-Cliffs on lightweighting solution, Mexico steel processing joint venture commissioned new slitter Monterrey, kicked off AI journey.

In the third quarter, Worthington Steel generated adjusted EBITDA of $41.9 million compared to $82.8 million in the prior year quarter. Earnings per share were $0.27 versus $0.98 per share in the same period last year. Net sales were $687 million, down $118 million or 15% from the prior year quarter. Shipments were approximately 881,000 tons, down 11% compared with the prior year quarter. Direct sales volume made up 57% of the mix in the current year quarter. Shipments to the automotive market were down 3% in the third quarter. Shipments to the construction market were down year-over-year. The agriculture market remained soft. The heavy truck market showed signs of improvement.

Forward-Looking Statements - Cautiously optimistic about the near term but more optimistic about the second half of 2025. - Estimates pretax inventory holding gains in the fourth quarter of fiscal 2025 could be approximately $20 million to $25 million compared with $1.2 million of estimated pretax holding losses in the third quarter of 2025. - Anticipates volume improvement to approach normalized levels by the end of the calendar year.

Risks - Macro-economic uncertainty impacting market conditions. - Uncertainty regarding tariff policy and its potential impact on the supply chain and earnings. - Exchange rate movements affecting results, especially for Serviacero.

Q: Martin Englert asked about the impact of tariff policy, positives and negatives, and customer feedback in the supply chain.

A: Geoff Gilmore said little impact on business as strategy is localized, steel prices have briefly jumped but uncertainty is the biggest issue.

Q: Martin Englert asked about TWB charges and Serviacero.

A: Tim Adams explained TWB charges related to R&D write-off and early retirement program, and Serviacero faced demand compression and exchange rate impacts.

Q: Phil Gibbs asked about March market following February's strength.

A: Geoff Gilmore said February momentum carried into March, automotive demand came back stronger, and a larger OEM is normalizing.

Q: Phil Gibbs asked about construction market share and new automotive customer awards.

A: Geoff Gilmore said it's a tough comp vs last year, and commercial group has gained automotive share with new programs being accretive to margins over time.

Q: John Tumazos asked about U.S. made auto market share, tariff impact on U.S. companies, and electric utility industry growth.

A: Geoff Gilmore said he'd validate U.S. made auto market share, and Tim Adams discussed transformer growth being a combination of new demand and grid hardening issues.