Worthington Steel Inc (WS) Q1 2025 Earnings Call Transcript Highlights: Revenue Decline and ...
Revenue: $834 million, down $72 million or 8% from the prior year quarter.
Net Income: $28.4 million or $0.56 per share, compared to $58.5 million or $1.19 per share in the prior year quarter.
Adjusted EBIT: $39.4 million, down $41.1 million from the prior year quarter adjusted EBIT of $80.5 million.
Gross Margin: Impacted by lower direct material spreads and lower direct volumes.
SG&A Expenses: $3.2 million higher than the prior year Q1, primarily due to incremental costs associated with being a stand-alone company.
Automotive Market Sales: 51% of first quarter fiscal year 2025 sales, down from 54% in the prior year quarter.
Construction Market Sales: 11% of first quarter fiscal year 2025 sales, same as the prior year quarter.
Direct Sales Volume: Down 4% over the prior year quarter.
Toll Tons: Down 2% year-over-year.
Cash Flow from Operations: $54.6 million.
Free Cash Flow: $33.1 million.
Capital Expenditures: $21.5 million.
Operating Working Capital: Decreased $16.1 million during the first quarter.
Net Debt: $86 million.
Release Date: September 26, 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 solid first quarter for fiscal year 2025 despite some headwinds.
The company is making focused investments in the rapidly growing electrical steel market, supporting the transition to more electrified light vehicle fleets and modernization of electrical infrastructure.
Strategic growth via CapEx and selective acquisitions is leading to margin accretive growth.
Continuous improvement initiatives are increasing margins, reducing working capital, and adding capacity.
The company has a strong culture and philosophy, driving improvements not only in business but also in community engagement.
Negative Points
Sales to the automotive market decreased from 54% to 51% year-over-year, with a 10% decrease in volume shipped to the automotive market.
First quarter earnings were $28.4 million or $0.56 per share, down from $58.5 million or $1.19 per share in the prior year quarter.
The company experienced estimated pre-tax inventory holding losses of $16.6 million, compared to gains of $15.5 million in the prior year quarter.
Gross margin was impacted by lower direct material spreads and lower direct volumes.
Equity earnings from Serviacero decreased due to lower direct spreads and unfavorable exchange rate movements.
Q & A Highlights
Highlights from Worthington Steel Inc's Q1 2025 Earnings Call
Q: Can you elaborate on the slower start-up of newer automotive programs and any changes in program needs for steel? A: Geoff Gilmore, President and CEO: We experienced delays in model changeovers and a customer retooling their commercial strategy, which has since rebounded. We also saw some pull-ahead orders last year due to the looming auto strike. We expect these issues to normalize over time.
Q: What prompted the shift from direct volumes to tolling in your business model? A: Geoff Gilmore, President and CEO: The shift was due to increased customer demand for toll galvanizing and a change in business model for some customers in tailor-welded blanks, where they preferred to own the material and hire us for toll processing.
Q: How do you view the demand and availability for galvanized products? A: Jeff Klingler, COO: The market remains solid, particularly in automotive and construction. We are cautiously optimistic about 2025, expecting stable demand and potential positive impacts from lower interest rates.
Q: Can you provide an update on the electrical steel capacity expansions in Mexico and Canada? A: Geoff Gilmore, President and CEO: We have won additional business for the new capacity in Mexico, with three of the five presses installed and spoken for. In Canada, we have additional customer interest but no specific new commitments yet.
Q: What caused the significant drop in equity income from Serviacero? A: Tim Adams, CFO: The decrease was due to lower inventory holding gains and the volatility of the Mexican peso. Both factors equally impacted the results.
Q: What are the expected returns from the integration of IT systems and new business practices at Tempel? A: Geoff Gilmore, President and CEO: We are optimistic but need more time to quantify the savings. We are focused on implementing the ERP system to get timely data and set a baseline for future improvements.
Q: Why did the laser welded blank business perform well despite overall market trends? A: Tim Adams, CFO: The business saw increased spreads due to cost recovery efforts, including freight costs. The product is highly differentiated, allowing us to raise prices even when hot-rolled sheet prices were low.
Q: How will Cleveland-Cliffs' entry into the transformer market impact Worthington Steel? A: Geoff Gilmore, President and CEO: We do not see it as a disruption. The market for electrical steel laminations and transformer cores is growing faster than GDP, and we will continue to support our customers who are experts in making transformers.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.