Worthington Enterprises, Inc. CG 46th Annual Growth Conference
Review the key takeaways and the transcript of this earnings call.
- Worthington Enterprises separated from its steel business nearly three years ago to create two distinct public companies, focusing on higher margin, lower capital intensity businesses with market-leading brands and attractive niches.
- In fiscal year 26, Worthington Enterprises grew revenue by 20% to $1.4 billion, including 9% organic growth, and achieved adjusted EBITDA of $296 million, up 12% year over year.
- EBITDA margins in wholly owned businesses expanded by about 500 basis points over the last two years, with a 150 basis point margin improvement in fiscal 26 and SG&A as a percent of sales declining by 190 basis points.
- Free cash flow was $170 million with 102% cash flow conversion despite $25 million spent on facility modernization.
- The building products segment is the largest business, serving HVAC, roofing, plumbing, and building envelope markets, driven mainly by non-residential construction and repair/remodel activity.
- Key brands in building products include Worthington, Elgin, LSI, and joint ventures Wave and Clark Dietrich.
- Wave is a 50% JV with Armstrong, a leader in steel ceiling grids, generating over $500 million in revenue with about 49% EBITDA margin, and focuses on labor-saving innovations for contractors and installers.
- Clark Dietrich is a leader in light gauge steel framing, heavily tied to new construction, with earnings impacted by steel price volatility and weaker new construction demand, contributing $22 million in equity income in fiscal 26, down $19 million from prior year.
- Worthington expects Clark Dietrich earnings to have troughed and sees potential upside depending on steel pricing and new construction environment.
- The company participates in the data center market as a supplier of framing, ceiling grid, HVAC components, and roofing products, and has developed liquid cooling solutions for data centers, generating $13 million revenue in fiscal 26 and expecting similar revenue in Q1 fiscal 27, viewing it as a multiyear growth opportunity.
- The consumer products business, with about $500 million revenue, serves contractors and retail customers like Home Depot, Lowe's, and Walmart, with key brands Bernzomatic, Coleman camping gas cylinders, and Balloon Time, all category leaders with high EBITDA margins.
- Consumer products grew organically 4% last year, maintaining high teens to 20% EBITDA margins, with emerging brands Level 5 and General Tools and Instruments expanding into new categories and retailers.
- Long-term growth ambition is 6 to 8%, split evenly between 3 to 4% organic growth driven by innovation, new customer placements, market share gains, and value-based pricing, and 3 to 4% inorganic growth through acquisitions.
- Worthington is a predominantly domestic manufacturer with about 80% of revenue from North American-made products, benefiting from tariffs by being a reliable, close supplier with shorter lead times and less working capital needs, amplifying its competitive advantage.
- The company seeks acquisitions of market leaders in attractive niches with higher margins (20%+ EBITDA) and lower capital intensity, sustainable competitive advantages, and opportunities to benefit from Worthington's business system.
- The M&A pipeline is healthy but selective due to buyer-seller valuation spreads; recent acquisitions include Elgin, a leader in commercial HVAC components acquired in June last year, and LSI, a leader in metal roofing clips with 40% EBITDA margins.
- Elgin acquisition offers manufacturing and supply chain optimization opportunities, while LSI offers commercial growth and geographic and adjacency expansion potential.
- Management views consumer health as stable compared to last year, focusing on essential, value-conscious products expected to perform well in the current environment, with upside potential if end markets recover.
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annual growth conference. I am Brian McNamara, one of Canaccord's analysts in the consumer/industrial space. We are delighted to have Worthington Enterprises join us today, and host CFO Colin Souza and Marcus Rogier, who heads up IR and treasury. Thanks very much for joining us.
Thanks for having us. Colin, let's start at a high level.
As Worthington separated from its steel business nearly three years ago, can you give us the rationale for the separation and what's gone better/worse than expected as a standalone?
Absolutely. The separation largely accomplished what we intended to do there. It was to create two distinct public companies, Worthington Steel, being a leader in steel processing. They're off and running as a standalone company. Worthington Enterprises is the higher margin, lower capital intensity business that has market-leading brands and attractive niches. These are really high-quality niches, and that's the journey we've been on. Our operations is really truly a differentiator there to our end markets that we serve. I'd say, since the separation, it's been almost three years. The pace of improvement has been really good for the company, especially within our wholly owned businesses. We've expanded EBITDA margins in our wholly owned businesses about 500 basis points over the last two years. We're really pleased with that. We've got great organic strategies.
We're growing quickly with innovative solutions, which I'm sure we'll get into details on. Then we've been able to layer on acquisitions. Really pleased with the performance since the separation. Like you said, it's been almost 3 years. I think one of the things that is maybe underappreciated is just the power of the portfolio. We come to events like this, we talk with investors regularly just to make sure that's as well understood as possible, but I think we have some more work to do there just to achieve that, and a few more data points on our performance and our results will obviously help as well.
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