Worthington Steel, Inc. 2027 Q1 Earnings Call

Good morning and welcome to Worthington Steel's first quarter fiscal year 2027 earnings call. On our call today, we have Geoff G. Gilmore, Worthington Steel's President and Chief Executive Officer, and Tim Adams, Vice President and Chief Financial Officer. Before we begin, I'd like to remind everyone that certain statements made today are forward-looking within the meaning of the 1995 Private Securities Litigation Reform Act. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those suggested. We issued our earnings release yesterday after the market closed. Please refer to it for more detail on factors that could cause actual results to differ materially. Unless noted as reported, today's discussion will reference non-GAAP financial measures, which adjust for certain items included in our GAAP results and are presented on a standalone basis.

You can find definitions of each non-GAAP measure and GAAP to non-GAAP reconciliations within our earnings release. Today's call is being recorded, and a replay will be available later today on worthingtonsteel.com. Now, I'll turn it over to Geoff G.

Gilmore. Good morning and thanks for joining us.

Today marks another major milestone for Worthington Steel as we report Kloeckner financials as part of our results for the first time. This achievement follows several important steps over the last few months. We closed the transaction on June 3. Kloeckner's shares were delisted from the Frankfurt Stock Exchange on August 12, and the Domination and Profit and Loss Transfer Agreement, or DPLTA, was signed on September 8. The DPLTA remains subject to shareholder approval in October. If approved and effective, it would provide a clear framework for operating control as well as formal integration and synergy capture beginning in the first quarter of calendar year 2027. Planning for that phase is already underway on our side. Teams from Worthington Steel and Kloeckner are spending time together learning each other's business, processes, and cultures.

The better we understand each other now, the better prepared we will be to move with discipline when we have operational control. These early interactions continue to reinforce what we believed when we announced the transaction. These are two strong companies with talented people, deep customer relationships, and cultures that value performance. We have more work ahead, but we are encouraged by the foundation we are building. Before I move to our results and end markets, I want to take time to thank our team. In addition to the work happening to ensure the successful integration with Kloeckner, they have been navigating difficult market conditions. Simply put, this is one of the most challenging steel supply environments most of us have ever seen. Supply remains tight, lead times are long, production schedules are shifting, and securing the right material for customers has been difficult.

Through it all, our employees continue to shine in their unwavering commitment to our customers and our company. With that, let us turn to the quarter. Net sales were $2.7 billion. Adjusted EBITDA was $111 million, and an adjusted earnings per share was $0.57. Because this is the first quarter that includes Kloeckner in our reported results, Tim will spend a bit more time on the financial details, including leverage, purchase accounting, and the items investors should consider when comparing results to prior periods. From my perspective, the bigger point is straightforward. Kloeckner changes the size, shape, and reach of our company. It expands our product and processing capabilities, broadens the markets we serve, and extends our geographic footprint. This is the kind of high-quality scale we have talked about for some time.

This scale gives us more ways to serve customers, more balance across cycles, and more opportunities to create long-term value. From a macro standpoint, the quarter remained dynamic. Demand was uneven across end markets, and customers continued to be careful with inventories and commitments. Steel supply also remained tight in the U.S., with imports down and lead times extended in many parts of the market. In an environment like this, execution makes a real difference. Across the business, our teams worked constructively with customers and supply partners, adjusted plans, and helped customers secure the material they needed. This is one of the ways Worthington Steel earns trust. Customers need communication, problem-solving, and a team that stays engaged when conditions are difficult. That has always been part of who we are, and it will remain a strength as we operate as a larger company.

Let me walk through what we saw across our key markets, comparing legacy Worthington Steel for both periods and what we are watching in the months ahead. North American automotive production has remained resilient so far in calendar year 2026, and we expect that to continue through year-end. Based on the latest industry forecast, North American production is expected to be essentially flat compared to calendar year 2025. Regardless of the overall build environment, our commercial and technical teams continue to win new business by helping customers solve challenges, support key programs, and develop new products. Our teams really shine in this sector. One example from the quarter was TWB, our joint venture, being recognized with two supplier awards from Subaru. It reflects strong execution, technical expertise, and the customer focus that helps us build long-term relationships. Congratulations to the entire TWB team.

Overall, we remain optimistic that automotive will remain solid through the end of calendar year 2026. We are not assuming a significant near-term inflection in builds, but we believe Worthington Steel is well-positioned to grow through targeted customer wins, technical solutions, and longer-term localization and nearshoring trends. Demand in the construction market was down in the first quarter. Data center construction continues to support demand, but broader construction activity remains more sensitive to interest rates and consumer confidence. We are also watching interest rates and broader geopolitical stability closely. The recent Fed action reinforces that rates may remain a headwind for longer than many expected, particularly in markets tied to construction, equipment purchases, and larger capital decisions. At the same time, the economy continues to show resilience, and we believe demand can improve as inflation moderates, uncertainty eases, and consumers gain more confidence in the rate environment.

Our posture is practical. We're not counting on a quick macro tailwind, but we are staying close to customers, managing what we can control, and positioning the business to respond as conditions improve. Agriculture was a bright spot this quarter, with a 40% year-over-year increase in shipments. That was mostly driven by the OEM and grain bin markets. We have strong customer relationships in this space, and we are staying focused on where we can add value. We will remain disciplined while positioning the business to benefit if demand continues to improve. Heavy truck and trailer continue to show signs of stabilizing. The market started slowly in calendar year 2026, but we saw benefits from share gains and new business wins. We would not characterize the market as fully recovered, but the direction is more constructive than it was earlier in the year. For us, the priority is readiness.

We will manage the current environment carefully and stay prepared to capture opportunities as activity strengthens. As we bring Kloeckner into our reported results, our market discussion will also evolve. We will continue to talk about the end markets investors know well for Worthington Steel, including automotive construction, agriculture, and heavy truck and trailer. Over time, we also expect to add more perspective on other industrial sectors where Kloeckner has meaningful exposure. Turning to strategic priorities, Kloeckner is clearly at the top of the list. We are focused on preparing for integration. That means learning the businesses, reviewing processes, and building relationships while protecting customer service and respecting the strengths of both organizations. We want to move with discipline, not just speed. We want to capture value, but we want to do it thoughtfully and with the same operating discipline that has guided Worthington Steel for decades.

We continue to believe in the long-term demand drivers tied to electrification, grid investment, and higher-efficiency applications. We are taking a disciplined view of the business under current market conditions, and we remain focused on improving performance and building value from the capabilities we have developed. We also continue to find practical ways to make the business better. Some of that comes through technology and AI, and some of it comes from disciplined problem-solving by our teams. Regardless of the technology involved, our approach is consistent: simplify the work, improve the process, automate where it makes sense, and apply AI to enhance decision-making. In indirect purchasing, for example, we've been simplifying workflows, reducing manual effort, and giving our buyers better information to make decisions. Last year, that work allowed buyers to spend more time on supplier negotiations, sourcing strategy, and commodity management.

This led to significant cost avoidance across the company. This year, we built on that foundation by applying AI to improve inventory decisions across our maintenance, repair, and operations network. Our buyers now have better visibility across the enterprise, while AI helps evaluate demand patterns, identify duplicate purchasing opportunities, recommend transfers between facilities, and support inventory level decisions. Importantly, our people remain in control, but they have a new tool to help make better decisions. Buyers and maintenance teams confirm recommendations before decisions are made, avoiding unnecessary purchases. We have identified and validated the value. Now, the work is converting that into financial results over time through disciplined operating reviews and better inventory management. Longer term, we also see this as a capability that can scale across a larger footprint as we move through Kloeckner integration.