Worthington Steel, Inc. Q2 FY2026 earnings call

• Thanked over 6,000 employees across North America and Europe for their commitment to safety, quality, and service. • Commercial team won high-margin business in Cold Rolled Strip, gained market share with new and existing customers, and saw all-time high shipments to a D3 automotive customer and new business with a large Japanese OEM. • North American light vehicle output expected to hold, consumer demand driving electrified vehicle growth. • Construction stable but subdued with pockets of strength in power and infrastructure; agriculture hopeful to rebound later in 2026. • Acquired Patient die casting and automation to extend European reach and improve competitiveness. • Announced full surface bonding technology for electrical steel laminations. • AI integrated into processes with two agents deployed in credit department and automation improving advanced shipping notices. • Received multiple awards including Supplier of the Year, Military Friendly Employer Gold, and Best Places to Work in IT. • Released 2025 Corporate Citizenship and Sustainability Report and exceeded the 70 for Good goal.

Net sales were $871.9 million, Adjusted EBITDA was $48.3 million, and adjusted earnings per share was 38¢. Total shipments were approximately 902,000 tons, down modestly year over year. Direct sale volume made up 65% of the mix in the current year quarter compared with 55% in the prior year quarter. Direct volumes increased 13% year over year, with direct shipments to automotive increasing 26% year over year. Energy shipments were up 50% year over year, agriculture volume was up 1%, construction was down 9%, heavy truck down 6%, and toll processing volumes declined year over year primarily due to the closure of the Cleveland area facility and softer market conditions.

• Conditions setting up for improvement in 2026 and intend to be ready. • Estimates 2026 inventory holding gains and losses to fall within a pretax gain of $3 million to a pretax loss of up to $3 million. • Expect toll volumes to improve as end market demand normalizes. • 2026 capital expenditures expected to be approximately $110 million. • Quarterly dividend of 16¢ per share payable on March 27, 2026.

• Mixed market and compressed galvanized spreads. • Uncertain demand conditions. • Volatile steel market prices. • Cyclical nature of toll processing volumes. • Volatility in SG&A due to professional fees related to strategic projects and potential M&A.

Q: You'd mentioned in the SG&A increase in your remarks, Tim, that compensation and benefits were up $5.9 million and higher professional fees were up $2.3 million. So I'm wondering what out of that larger increase is more one-time in nature because I know you had called out a CEDIM fee. You know, I also know that some of this is related to some of the M&A that you're potentially working on. So just trying to think about what may be core because clearly, it was elevated this quarter.

A: It was. If you look at it from a year-over-year perspective, we now have CEDIM in there. That's one thing we pointed out during my opening remarks. But if you're talking about one-time, it's those professional fees of $2.3 million. I think that's how we had it quantified. That is related to the strategic projects.

Q: Could you walk us through the deductions for your minority interest partners? They were a little smaller this quarter than last year.

A: Compared to year over year, I think what you're seeing is there's definitely some slowness in demand. Right? And I think we're seeing some of that. So also, what you have to keep in mind is last year, at this time, we had the Samuel Worthington Samuel coil processing joint venture in there. And we've removed that this year. So you know, we've had some differences in profitability year over year. Really due to demand.

Q: The compressed galvanized spreads in recent history do you think is contributing to that, and what may prompt it to normalize?

A: Yeah. I mean, question. I mean, I think the first thing you're gonna point to is certainly just decreased demand, Martin, and specifically construction. And so, you know, with decreased demand, it just creates certainly a lot more competitive rivalry. And certainly, that's what we have been facing Martin, we feel like we hit the trough and we'll start to see some margin expansion going forward. We saw a little of that in CRU here. On Wednesday. And the reason for the expansion and then potentially normalizing, hopefully, in the second quarter of the calendar year, it has much to do with the February. So, I mean, there is obviously limited galvanized product coming into the US at this point. I think it was down Tim, correct me if I'm wrong, 35% and probably will continue to increase. That has to do with antidumping as well. So I'd expect we continue to see that. It expand and then normalize somewhere around the second quarter. I think there's a ceiling because there certainly has been added capacity in the US as well, but we're certainly looking forward to that, Martin. Good question.

Q: calendar year 2026. What are your top transformation initiatives that you're focused on?

A: Yeah. So we have we mentioned in prior quarters everything in our facilities, we have transformation events ongoing. You're very familiar with that. That's just how we do business. We really turned our focus after separation was transformation through our back office. And that's been certainly a big priority of ours. We just had our fourth report out with the back office teams. And the progress has been nothing less than amazing. The team has embraced it. We are seeing certainly savings and the hours saved have been significant as well. And in addition to that, Martin, that group has fully embraced artificial intelligence and we have had some great success stories with automation. And have launched our first two agents. So we've now moved to agentik.ai with much on deck there. And then the second, which is a key priority, is Temple. Transformation is not an area where we got too deep into it while we were getting integrated and familiar with their business. We have really started to double down on those efforts as we just think whether it's the income statement or the balance sheet there's gonna be a lot of good meaningful opportunities for the shareholders. And in addition to that, I say Temple is CEDIM. You know, we have mentioned they are world-class at tool and die making as well as world-class in automation. And so we have been excited to learn their best practices and embrace them because they're all scalable across that footprint. But back office and Temple would be the priorities.