• Adjusted EBITDA: $30.6 million, up from $23 million in the prior year quarter.
• Earnings Per Share (EPS): $0.25, compared to a loss of $0.12 per share in the same period last year.
• Net Sales: $739 million, down 9% from the prior year quarter.
• Adjusted EBIT: $14.3 million, up from $6.6 million in the prior year quarter.
• Gross Margin: Improved due to higher direct material spreads, despite lower direct volume.
• SG&A Expense: Increased by $7 million over the prior year second quarter.
• Cash Flow from Operations: $68 million.
• Free Cash Flow: $33.2 million.
• Capital Expenditures: $34.8 million during the quarter, with a revised estimate of $125 million for fiscal 2025.
• Net Debt: $63 million at the end of the quarter.
• Dividend: Quarterly dividend of $0.16 per share announced.
• Automotive Shipments: Down 2% compared to the prior year quarter.
• Construction Market Volumes: Decreased by 20% year-over-year.
• Shipments: Approximately 936,000 tons, down 3% compared with the prior year quarter.

• Warning! GuruFocus has detected 2 Warning Sign with WS.

Release Date: December 19, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Worthington Steel Inc (NYSE:WS) reported a significant increase in adjusted EBITDA, reaching $30.6 million compared to $23 million in the prior year quarter.
• Earnings per share improved to $0.25 from a loss of $0.12 per share in the same period last year.
• The company announced a strategic acquisition of a 52% stake in Sitem Group, enhancing its presence in the European market for electrical steel laminations.
• Worthington Steel Inc (NYSE:WS) released its first corporate citizenship and sustainability report, highlighting achievements such as a safety record nearly two times better than the industry average and a decrease in carbon emissions.
• The company was recognized as a Military Friendly Employer for the 10th consecutive year and was included in Computerworld's list of Top Places to Work in IT.

Negative Points

• The quarter was impacted by lower volumes and lower average selling prices, affecting overall results.
• SG&A expenses increased by $7 million due to costs associated with being a standalone company and bad debt expenses from a customer bankruptcy.
• The company faced challenges in the automotive market, with significant production cuts from a major OEM customer.
• Net sales decreased by 9% compared to the prior year quarter, primarily due to lower direct volumes and market pricing.
• The company experienced a volume decrease of more than 30% with a major automotive customer, impacting overall automotive shipments.

Q & A Highlights

Q: What caused the EBITDA per ton to drop significantly, and when can we expect it to recover? A: Tim Adams, CFO, explained that the drop was due to three main factors: unexpected volume decreases, increased SG&A expenses, and lower performance at Serviacero. The volume was down 7% instead of the expected 2-3%, largely due to unexpected production cuts from a major customer. SG&A expenses rose due to bad debt and professional fees related to the Sitem transaction. Recovery is expected as these issues are addressed.

Q: Can you provide details on the bad debt expense and professional fees? A: Tim Adams stated that the bad debt expense was about $2 million, stemming from a customer bankruptcy and increased reserves for another customer. Professional fees related to the Sitem transaction were approximately $2 million. These are considered normal business expenses and are not expected to recur.

Q: What is the outlook for customer sentiment and volumes in the coming quarters? A: Geoff Gilmore, CEO, expressed cautious optimism, particularly in the automotive sector. He noted that while there are short-term challenges with a major OEM, the company has gained market share with other OEMs. Lower interest rates and aging vehicles are expected to drive demand, with improvements anticipated by spring.

Q: Are there any risks in the industries related to the increased reserve and bad debt expense? A: Geoff Gilmore clarified that the reserve increase was related to a scrap dealer, and the bankruptcy was in the heavy truck industry. These were specific customer issues, and there are no broader concerns in these industries.

Q: How might changes in US trade policy affect Worthington Steel's operations? A: Tim Adams indicated that potential tariff changes are not a major concern. The company sources locally and expects minimal impact on raw material supply. While there could be some effects in Canada and Mexico, Worthington Steel is well-positioned to manage any challenges.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.