Summary of Worthington Steel Investor Call on M&A Announcement Company and Industry - **Company**: Worthington Steel (NYSE: WS) - **Acquisition Target**: Klöckner, a company listed on the Frankfurt Stock Exchange Core Points and Arguments 1. **Strategic Acquisition**: Worthington Steel is acquiring Klöckner to strengthen its position in high-value metals processing, enhance shareholder value, and create new opportunities for employees [3][4] 2. **Market Position**: Post-acquisition, Worthington Steel expects to become the second largest service center in North America, expanding its geographic reach and product offerings [4][12] 3. **Synergies and Growth Initiatives**: The acquisition is anticipated to generate approximately $150 million in annual run-rate synergies by the end of 2028, with about 50% expected to be realized in the first year [15][17] 4. **Financial Structure**: The transaction is an all-cash acquisition valued at approximately $2.4 billion, with an expected EBITDA margin of 7% and combined sales of $9.5 billion [15][16] 5. **Cultural Alignment**: Both companies share a focus on safety, operational excellence, and innovation, which is expected to facilitate a smooth integration process [3][5] 6. **Diversification**: The acquisition will broaden Worthington's product portfolio to include aluminum, stainless steel, long products, and downstream fabrication, enhancing resilience against market cyclicality [10][12] 7. **Geographic Expansion**: Klöckner's operations will enhance Worthington's presence, particularly in the southern U.S., where demand is growing due to manufacturing activity and reshoring trends [9][12] 8. **Operational Efficiency**: The integration is expected to improve operational efficiency through procurement savings, logistics optimization, and reduced administrative costs [18][20] Additional Important Content 1. **Shareholder Support**: Klöckner's largest shareholder, Swactim, has agreed to tender their shares in support of the acquisition [8] 2. **Market Dynamics**: The acquisition is seen as timely due to favorable market conditions for consolidation in the steel industry [53] 3. **Long-term Goals**: Worthington aims to achieve over 10% group EBITDA margins, which the acquisition is expected to accelerate [45][46] 4. **Integration Management**: A dedicated integration management office will oversee the synergy capture process, ensuring accountability and clear goals [26][60] 5. **European Market Exposure**: Approximately 20% of the combined company's revenue is expected to come from Europe, with a focus on North America for synergy realization [30][39] This summary encapsulates the key points discussed during the investor call regarding Worthington Steel's acquisition of Klöckner, highlighting the strategic rationale, expected synergies, and operational benefits of the transaction.

Acquisition Overview - Worthington Steel will acquire Kloeckner & Co for €11 per share in cash[11, 40, 57] - The implied enterprise value of the acquisition is $2.4 billion[40] - Approximately 42% of Kloeckner shares are already committed to accepting the offer[16, 39, 51] Strategic Rationale - The acquisition is expected to deliver $150 million in annual run-rate synergies by the end of FY 2028[13, 39, 47, 51, 59] - The combined company's sales are projected to be $9.5 billion, with an EBITDA margin of 70% including run-rate synergies[39, 43] - The acquisition creates the second-largest service center in North America[13, 34, 59] Financial Impact - The transaction is expected to be substantially accretive to Worthington Steel's EPS within the first full year of operation[14, 39, 44] - The expected pro forma net leverage at closing is approximately 40x[39, 51, 53, 56] - The target net leverage is approximately 25x within 24 months[13, 39, 53, 56, 59] Kloeckner's Business - Kloeckner has TTM sales of $63 billion and TTM shipments of 42 million tons[16] - Kloeckner's net debt was $12 billion as of September 30, 2025[16] - Distribution share in sales mix reduced from approximately 37% in 2021 to approximately 13% in 2025[22]

Core Viewpoint - Worthington Steel announced its intention to acquire metal processing firm Kloeckner & Co in a transaction valued at $2.4 billion [1] Company Summary - Worthington Steel is pursuing a strategic acquisition to enhance its market position and capabilities in the metal processing sector [1] - Kloeckner & Co is identified as a key player in the metal processing industry, which suggests its significance in the market [1] Industry Summary - The acquisition reflects ongoing consolidation trends within the metal processing industry, indicating potential shifts in competitive dynamics [1] - The deal's valuation at $2.4 billion highlights the financial scale and investment interest in the metal processing sector [1]

Financial Performance - Net sales for the three months ended November 30, 2025, were $871.9 million, an increase of 17.9% compared to $739.0 million for the same period in 2024[20] - Gross margin for the six months ended November 30, 2025, was $208.4 million, up from $180.4 million in the prior year, reflecting a 15.5% increase[20] - Operating income for the three months ended November 30, 2025, was $21.7 million, compared to $18.9 million for the same period in 2024, representing a growth of 14.8%[20] - Net earnings attributable to controlling interest for the three months ended November 30, 2025, were $18.8 million, a 46.9% increase from $12.8 million in the same period last year[20] - Net earnings for the six months ended November 30, 2025, increased to $60.1 million, up from $48.3 million in the same period of 2024, representing a growth of 24%[27] - Earnings per share attributable to controlling interest for the six months ended November 30, 2025, was $1.12, up from $0.83 in the same period last year, an increase of 34.9%[20] Assets and Liabilities - Total assets increased to $2,150.0 million as of November 30, 2025, compared to $1,961.8 million as of May 31, 2025, marking an increase of 9.6%[15] - Total current liabilities decreased to $584.9 million as of November 30, 2025, down from $631.5 million as of May 31, 2025, a reduction of 7.4%[17] - Total shareholders' equity increased to $1,248.7 million as of November 30, 2025, compared to $1,197.9 million as of May 31, 2025, an increase of 4.2%[17] - The balance of shareholders' equity at November 30, 2025, was $1,248.7 million, up from $1,145.1 million a year earlier, reflecting an increase of 9%[28] - The Company reported a total debt of $182.1 million as of November 30, 2025, compared to $151.5 million as of May 31, 2025, reflecting an increase of 20.5%[66] Cash Flow and Investments - Cash and cash equivalents increased to $89.8 million as of November 30, 2025, compared to $38.0 million as of May 31, 2025, reflecting a growth of 136.8%[15] - Net cash provided by operating activities decreased to $93.0 million from $122.6 million, a decline of 24%[27] - The Company reported a net cash used in investing activities of $54.3 million, slightly down from $55.2 million in the prior year[27] - Financing activities resulted in a net cash outflow of $41.9 million, compared to $55.6 million in the previous period, indicating a reduction of 25%[27] Dividends - The company declared cash dividends of $0.16 per share for both the three months ended November 30, 2025, and 2024, maintaining consistent dividend payments[20] - The Company declared cash dividends of $0.16 per common share, totaling $8.3 million for the period[28] Acquisitions and Spin-offs - The company completed a spin-off from Worthington Industries, becoming a stand-alone publicly traded entity on December 1, 2023[32] - The Company completed the acquisition of 52% of S.I.T.E.M. S.p.A. on June 3, 2025, with results included in consolidated financial statements on a one-month reporting lag[34] - The acquisition of 52% of Sitem Group was completed on June 3, 2025, with a total purchase price of approximately $48.9 million in cash consideration and a cash capital contribution of $11.3 million[107] Market and Industry Insights - Worthington Steel is positioned as a leading value-added steel processor in North America, serving diverse end markets including automotive and construction[31] - The automotive industry accounted for 56% of net sales for the three months ended November 30, 2025, up from 52% in the same period of 2024[42] - Direct sales for the six months ended November 30, 2025, were $1,683.6 million, an increase from $1,490.8 million in the same period of 2024[55] Operational Performance - The Company recognized total net sales of $1,744.8 million for the six months ended November 30, 2025, compared to $1,573.0 million for the same period in 2024[55] - The Company reported a pre-tax impairment charge of $0.6 million during the second quarter of fiscal 2026 due to a reduction in net asset value of certain machinery[46] - The Company recognized interest income of less than $0.1 million related to the cross-currency swap during the three months ended November 30, 2025[127] Economic and Regulatory Environment - The U.S. inflation rate remained above the Federal Reserve's targeted rate of 2%, impacting economic conditions[172] - The U.S. government increased tariffs on steel and aluminum from 25% to 50% in June 2025, creating uncertainty in global trade and potentially impacting financial performance[175] - The company expects cash tax savings in fiscal year 2026 due to provisions in the One Big Beautiful Bill Act, although the overall impact on financials remains uncertain[176] Risk Management - The company utilizes derivative financial instruments to manage commodity price risk, foreign currency exchange risk, and interest rate risk[117] - The company has established strict counterparty credit guidelines to mitigate counterparty credit risk associated with its derivative financial instruments[122] Restructuring and Future Outlook - The company plans to combine its toll processing manufacturing facility in Cleveland, Ohio, with its existing facility in Twinsburg, Ohio, as part of restructuring activities[211] - The company believes it has adequate resources to meet operational needs for at least the next 12 months, including cash and cash equivalents[212] - Uncertain economic conditions and a heightened interest rate environment may impact the company's ability to access capital markets[213]

Financial Performance - Net sales for Q2 2026 were $871.9 million, an increase of 18% compared to $739.0 million in Q2 2025[4] - Operating income rose to $21.7 million, up from $18.9 million in the prior year quarter[4] - Net earnings attributable to controlling interest increased to $18.8 million, compared to $12.8 million in Q2 2025[8] - Adjusted EBIT for Q2 2026 was $26.6 million, significantly higher than $14.3 million in Q2 2025[4] - Gross margin improved by $13.2 million to $93.2 million, driven by higher direct volumes and spreads[6] - Free cash flow for Q2 2026 was $74.6 million, compared to $33.2 million in the prior year quarter[11] - Net sales for the three months ended November 30, 2025, were $871.9 million, an increase of 17.9% compared to $739.0 million for the same period in 2024[21] - Gross margin for the six months ended November 30, 2025, was $208.4 million, up from $180.4 million in 2024, reflecting a 15.5% increase[21] - Operating income for the three months ended November 30, 2025, was $21.7 million, compared to $18.9 million in 2024, representing a 14.8% increase[21] - Net earnings attributable to controlling interest for the six months ended November 30, 2025, were $55.6 million, up from $41.2 million in 2024, a growth of 34.9%[21] - Net earnings for the six months ended November 30, 2025, increased to $60.1 million, up from $48.3 million in the same period of 2024, representing a growth of 24%[27] - Adjusted net earnings per diluted share attributable to controlling interest for the six months ended November 30, 2025, was $1.15, up from $0.76 in the same period of 2024, a growth of 51%[33] - The company’s adjusted EBITDA for the six months ended November 30, 2025, was $82.2 million, compared to $56.1 million in the prior year, representing a 46% increase[33] - Adjusted EBITDA for the three months ended November 30, 2025, was $48.3 million, compared to $30.6 million in the same period of 2024, marking a significant increase of 57.0%[35] - The net earnings margin improved to 3.2% for the six months ended November 30, 2025, up from 2.6% in 2024[35] - Adjusted EBIT margin for the three months ended November 30, 2025, improved to 3.1%, compared to 1.9% in the same period of 2024[35] - Adjusted EBITDA margin for the six months ended November 30, 2025, was 7.1%, up from 5.5% in 2024[35] Cash and Debt Management - As of November 30, 2025, the company had cash and cash equivalents of $89.8 million and net debt of $92.3 million[12] - Cash and cash equivalents increased to $89.8 million as of November 30, 2025, compared to $38.0 million as of May 31, 2025[23] - Total cash, cash equivalents, and restricted cash at the end of the period was $89.8 million, compared to $52.0 million at the end of the previous year, indicating a 73% increase[27] - Total debt as of November 30, 2025, was $182.1 million, with net debt calculated at $92.3 million after accounting for cash and cash equivalents of $89.8 million[43] - The company reported a net cash used in financing activities of $41.9 million, compared to $55.6 million in the same period last year, showing a 25% improvement[27] Shareholder Returns - The company declared a quarterly dividend of $0.16 per share, payable on March 27, 2026[12] - The company declared cash dividends of $0.16 per share for both the three and six months ended November 30, 2025[21] Asset Management - Total assets as of November 30, 2025, were $2,150.0 million, an increase from $1,961.8 million as of May 31, 2025[23] - Current liabilities decreased to $584.9 million as of November 30, 2025, from $631.5 million as of May 31, 2025[25] - The company’s total shareholders' equity attributable to controlling interest increased to $1,117.1 million as of November 30, 2025, from $1,074.1 million as of May 31, 2025[25] Operational Efficiency - Direct tons sold increased by 13%, while toll volumes decreased by 24% compared to the prior year quarter[5] - The company reported a volume of 901,838 tons for the three months ended November 30, 2025, down from 936,069 tons in the same period of 2024, indicating a decrease of 3.6%[35] - The company reported an impairment of assets of $0.6 million for the three months ended November 30, 2025[21] - The company incurred a bad debt expense of $0.2 million in the current period, a significant decrease from $2.1 million in the prior year[27] - The company reported a depreciation and amortization expense of $42.0 million for the six months ended November 30, 2025, compared to $32.5 million in 2024, reflecting a 29% increase[27] Future Outlook - The company anticipates that its focus on higher-value solutions will continue to strengthen its earnings profile as market conditions evolve[2]

Company Overview - Worthington Steel, Inc. is a newly public company that has been spun out of Worthington Industries, focusing on value-added steel processing for automotive, construction, and industrial customers [1] - The company is also expanding into the production of electrical steel parts used in transformers, indicating a diversification of its product offerings [1] Investment Focus - The analysis primarily targets small- to mid-cap companies, which are often overlooked by many investors, while also occasionally reviewing large-cap companies to provide a broader market perspective [1]

Worthington Steel (NYSE:WS) Q2 2026 Earnings Call December 18, 2025 08:30 AM ET Company ParticipantsJohn Tumazos - PrincipalTim Adams - VP and CFOMelissa Dykstra - VP of Corporate Communications and Investor RelationsGeoff Gilmore - President and CEOConference Call ParticipantsPhil Gibbs - Managing Director and Metals Equity Research AnalystMartin Englert - Senior Equity Research AnalystOperatorGood morning and welcome to Worthington Steel's Second Quarter Fiscal Year 2026 Earnings Call. All lines have been ...

Financial Data and Key Metrics Changes - Net sales for the second quarter were $871.9 million, with adjusted EBITDA at $48.3 million and adjusted earnings per share at $0.38, reflecting a solid performance despite market headwinds [4][15] - Adjusted EBIT increased to $26.6 million, up from $14.3 million year-over-year, driven by higher direct volumes and improved direct spreads [15][16] - Earnings for the quarter were reported at $18.8 million or $0.37 per share, compared to $12.8 million or $0.25 per share in the prior year quarter [15][16] Business Line Data and Key Metrics Changes - Direct sales volume made up 65% of the mix in the current quarter, up from 55% in the prior year quarter, with direct volumes increasing by 13% year-over-year [16] - Automotive shipments increased by 26% year-over-year, reflecting market share gains and a return to normal production levels at a key OEM [16][17] - Energy shipments rose by 50% year-over-year, driven by project-based solar programs, while agriculture volume increased by 1% [17] Market Data and Key Metrics Changes - North American light vehicle output is expected to hold near 15.2 million units in calendar year 2025, essentially flat with 2024 [5] - The construction market remains stable but subdued, with pockets of strength in power and infrastructure [6] - The heavy truck and trailer market is expected to see a rebound beginning in late calendar year 2026 [6] Company Strategy and Development Direction - The company is focused on long-term strategies, including electrical steel growth plans, new product development, and business optimization through transformation [7][9] - Expansion projects for electrical steel are on track, with initial production in Mexico expected in the first quarter of calendar year 2026 [7][8] - The integration of CDEM is progressing well, enhancing the company's capabilities in stamping electrical steel laminations and improving competitiveness [9] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism for early 2026, anticipating improvements as interest rates ease and policy uncertainties subside [6][14] - The company is well-positioned to navigate uncertainty and act decisively when opportunities arise, maintaining a strong balance sheet and generating consistent cash flow [21][22] - Management highlighted the importance of transformation and artificial intelligence in driving operational efficiency and cost savings [10][50] Other Important Information - The company received recognition as a 2025 Supplier of the Year by Schaeffler Group USA and was named a Military Friendly Employer for the 11th consecutive year [11][12] - The 2025 Corporate Citizenship and Sustainability Report was released, showcasing progress in safety, emissions reduction, and community support [12] Q&A Session Summary Question: What is the nature of the SG&A increase? - The increase in SG&A was primarily due to higher compensation and benefits, with professional fees related to strategic projects being more one-time in nature [26][27] Question: What contributed to the automotive momentum? - The automotive momentum was largely due to market share gains from new programs reaching expected volumes, rather than solely from the cold-rolled strip segment [33][34] Question: What is the impact of compressed galvanized spreads? - Decreased demand, particularly in construction, has contributed to compressed galvanized spreads, but management expects margin expansion moving forward [45][46] Question: What are the top transformation initiatives for calendar year 2026? - Key initiatives include focusing on back-office transformation and leveraging artificial intelligence to drive operational efficiencies [49][50]

Financial Data and Key Metrics Changes - Net sales for the second quarter were $871.9 million, with adjusted EBITDA at $48.3 million and adjusted earnings per share at $0.38, reflecting a solid performance despite market headwinds [4][17] - Adjusted EBIT increased to $26.6 million, up $12.3 million from the prior year quarter, driven by higher direct volumes and improved direct spreads [18] - Earnings for the quarter were reported at $18.8 million or $0.37 per share, compared to $12.8 million or $0.25 per share in the prior year quarter [17] Business Line Data and Key Metrics Changes - Direct sales volume increased by 13% year over year, making up 65% of the sales mix, compared to 55% in the prior year [18] - Automotive shipments increased by 26% year over year, reflecting market share gains and a return to normal production levels at an OEM customer [19] - Energy shipments rose by 50% year over year, driven by project-based solar programs, while agriculture volume was up 1% [19] Market Data and Key Metrics Changes - North American light vehicle output is expected to hold near 15.2 million units in calendar year 2025, essentially flat with 2024 [5] - The construction market remains stable but subdued, with pockets of strength in power and infrastructure [6] - The heavy truck and trailer market is expected to see a rebound beginning in late calendar year 2026 [6] Company Strategy and Development Direction - The company is focused on long-term strategies, including electrical steel growth plans, new growth opportunities through CapEx and acquisitions, and continuous improvement through transformation [7][10] - Expansion projects for electrical steel are on track, with initial production in Mexico expected in the first quarter of calendar year 2026 [8] - The integration of CDEM is progressing well, enhancing competitiveness in advanced mobility and industrial markets [10] Management's Comments on Operating Environment and Future Outlook - The management expressed cautious optimism for early 2026 and a positive outlook for the second half of the calendar year, despite a mixed macroeconomic environment [6][15] - The company anticipates improvements in market conditions as interest rates ease and policy uncertainties subside [6] - Management highlighted the importance of transformation and AI integration in improving operational efficiency and financial discipline [11][12] Other Important Information - The company reported cash flow from operations of $99 million and free cash flow of $75 million for the quarter [23] - A quarterly dividend of $0.16 per share was announced, payable on March 27, 2026 [23] - Worthington Steel was recognized as a 2025 Supplier of the Year by Schaeffler Group USA and received the Military Friendly Employer Gold designation for the 11th consecutive year [12][13] Q&A Session Summary Question: What is the nature of the SG&A increase? - The increase in SG&A was primarily due to higher compensation and benefits, as well as professional fees related to strategic projects [28][34] Question: What contributed to the automotive momentum? - The automotive momentum was largely due to market share gains from new programs reaching expected volumes, rather than solely from the cold-rolled strip business [36] Question: What is the impact of decreased demand on galvanized spreads? - Decreased demand, particularly in construction, has created competitive rivalry, but management expects margin expansion going forward [48] Question: What are the top transformation initiatives for 2026? - Key initiatives include back office transformation and leveraging AI for operational improvements [52][53]

1 Investment Highlights Worthington Steel Investor Presentation | December 2025 Safe Harbor Statement Selected statements contained in this release constitute "forward-looking statements," as that term is used in the Private Securities Litigation Reform Act of 1995 (the "Act"). The Company wishes to take advantage of the safe harbor provisions included in the Act. Forward-looking statements reflect the Company's current expectations, estimates or projections concerning future results or events. These statem ...