Worthington Steel, Inc. Q4 FY2025 earnings call

• The team demonstrated resilience, flexibility, and commitment to safety. Adjusted EBITDA and EPS improved. - End markets: Automotive volume strengthened with market share gain; Construction down slightly; Heavy truck up due to market share gain; Agricultural facing pressure; Energy/transformer cores growing. - Long-term strategy: 3 pillars - focused investments in electrical steel, margin-accretive growth, base business improvements. - Capital investments: Electrical steel expansions in Mexico (testing underway on 5 presses) and Canada (on track to begin production early 2026). - Acquisition: Closed on 52% ownership stake in Sitem, enhancing European electric motor lamination position. - AI adoption: Kicked off AI journey to be a force multiplier. - Governance: Added Mark Davis to Board with finance, M&A, and governance background.

In the fourth quarter, Worthington Steel generated adjusted EBITDA of $87 million compared with $86.5 million in the prior year quarter. Earnings per share were $1.10 compared to $1.06 in the same period last year. Automotive volume strengthened with market share gain. Construction markets were down slightly year-over-year. Heavy truck saw an uptick due to market share gain. Agricultural market faced pressure. Energy demand and transformer core growth continued. Electrical steel market had expansions in Mexico and Canada with testing underway in Mexico and Canada project on track. Revenue contribution: Automotive volume up, Construction down, Heavy Truck up, Agricultural down, Energy/transformer cores growing.

• Cautious optimism due to uncertainty in policy and macro economy. - Team is finding ways to win, improving processes, gaining market share, and embracing AI for potential. - Believes in the right strategy, customer relationships, and people.

• Macro environment uncertainty. - Tariffs introducing uncertainty and impacting markets. - Competition intensifying in the agricultural market. - Potential supply chain disruptions due to mill idlings.

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: Tim Adams discussed that fourth quarter is typically the strongest, volume was flat year-over-year but quarter-over-quarter up, and spread compression due to product mix and market spreads. Need to back out inventory holding gains and losses.

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 Gilmore explained that in North America, ArcelorMittal Tailored Blanks and Worthington Steel are key players. Business is technical with high barriers to entry. Early retirements in tailor-welded blanks were due to recent acquisitions, aligning with company philosophy to embrace acquired companies and scale up as the business grows.