Worthington Steel(WS) - 2024 Q1 - Quarterly Results

Executive Summary & Company Overview Worthington Steel delivered strong fiscal 2024 results, highlighting strategic execution, industry recognition, and its core identity as a leading metals processor focused on customer solutions and sustainability Fourth Quarter & Full Year Fiscal 2024 Highlights Worthington Steel reported a solid performance in Q4 and finished fiscal 2024 strong, with a focus on executing strategy, driving organic growth, and strategic M&A. The company achieved notable industry recognition and declared a quarterly dividend - Worthington Steel's President and CEO, Geoff Gilmore, highlighted solid Q4 performance and a strong finish to fiscal 2024, attributing momentum to employees and their continuous improvement efforts. The company remains focused on executing its strategy and driving shareholder value through organic growth and strategic M&A[2] Fourth Quarter & Full Year Fiscal 2024 Financial Highlights (Millions) | Metric | 4Q 2024 (Millions) | 4Q 2023 (Millions) | 12M 2024 (Millions) | 12M 2023 (Millions) | | :------------------------------------------------------------------ | :----------------- | :----------------- | :------------------ | :------------------ | | Net sales | $911.0 | $884.0 | $3,430.6 | $3,607.7 | | Operating income | $67.3 | $89.8 | $194.5 | $120.3 | | Net earnings attributable to controlling interest | $53.2 | $67.3 | $154.7 | $87.1 | | Net earnings per diluted share attributable to controlling interest | $1.06 | $1.37 | $3.11 | $1.77 | | Adjusted EBIT (Non-GAAP) | $70.4 | $98.4 | $224.4 | $136.1 | - Worthington Steel earned the 2023 Supplier of the Year by General Motors for the third time in four years and was recognized as a John Deere Partner-level Supplier for the 12th consecutive year[9] - A quarterly dividend of $0.16 per share was declared, payable on September 27, 2024, to shareholders of record on September 13, 2024[9] Company Profile & Strategy Worthington Steel is a leading North American metals processor, specializing in value-added steel processing and customized solutions. The company operates 32 facilities globally, driven by a 'people-first Philosophy' and a commitment to sustainability, aiming to generate positive returns through innovation and community strengthening - Worthington Steel (NYSE:WS) is a metals processor that partners with customers to deliver highly technical and customized solutions, specializing in carbon flat-roll steel processing, electrical steel laminations, and tailor welded solutions[31] - The company, headquartered in Columbus, Ohio, operates 32 facilities in seven states and six countries, employing 4,600 individuals[14] - Worthington Steel's purpose is to generate positive returns by providing trusted and innovative solutions for customers, creating opportunities for employees, and strengthening its communities, guided by a 'people-first Philosophy' and a system of continuous improvement[2][32] Consolidated Financial Results This section details Worthington Steel's financial performance for both the fourth quarter and the full fiscal year 2024, covering net sales, operating income, and net earnings Fourth Quarter Financial Performance In the fourth quarter of fiscal 2024, Worthington Steel experienced a 3% increase in net sales, primarily driven by higher direct selling prices and a favorable mix. However, operating income and gross margin decreased due to lower direct spreads and an inventory holding loss, leading to a decline in net earnings attributable to controlling interest Net Sales and Volume Fourth quarter fiscal 2024 net sales increased by 3% to $911.0 million, driven by higher direct selling prices and a favorable mix, despite a slight decrease in direct and toll tons sold - Net sales for Q4 fiscal 2024 were $911.0 million, an increase of $27.0 million (3%) compared to the prior year quarter[3] - The increase in net sales was primarily driven by a 4% increase in direct selling prices and a more favorable mix within toll processing, partially offset by a 1% decrease in direct tons and a 3% decrease in toll tons sold[3] - The mix of direct tons versus toll tons processed was 58% to 42% in Q4 fiscal 2024, compared to 57% to 43% in the prior year quarter[3] Operating Income and Gross Margin Operating income decreased by $22.5 million to $67.3 million in Q4 fiscal 2024, primarily due to a $19.2 million decline in gross margin and increased SG&A expenses, impacted by an inventory holding loss - Operating income decreased by $22.5 million to $67.3 million in Q4 fiscal 2024 compared to the prior year quarter[4] - The decrease in operating income was primarily due to a $19.2 million decline in gross margin and a $10.6 million increase in selling, general and administrative (SG&A) expense, driven by higher wage and benefit costs, other costs of being a stand-alone public company, and increased bad debt expense[4] - Gross margin decreased by $19.2 million to $131.0 million, primarily due to lower direct spreads, which were impacted by a $36.0 million unfavorable change from an estimated $32.6 million inventory holding gain in the prior year quarter to an an estimated $3.4 million inventory holding loss in Q4 fiscal 2024[11] Net Earnings and EPS Net earnings attributable to controlling interest for Q4 fiscal 2024 were $53.2 million, or $1.06 per diluted share, a decrease from the prior year quarter - Net earnings attributable to controlling interest for Q4 fiscal 2024 were $53.2 million, or $1.06 per diluted share, compared to $67.3 million, or $1.37 per diluted share, in Q4 fiscal 2023[12] - Adjusted net earnings attributable to controlling interest were $53.2 million, or $1.06 per diluted share, in Q4 fiscal 2024, compared to $72.4 million, or $1.47 per diluted share, in the prior year quarter[5] Full Year Financial Performance For the full fiscal year 2024, Worthington Steel reported a decrease in net sales but a significant increase in operating income and net earnings attributable to controlling interest compared to fiscal 2023. Adjusted EBIT also saw a substantial rise Full Year Financial Performance (Millions) | Metric | 12M 2024 (Millions) | 12M 2023 (Millions) | Change (Millions) | Change (%) | | :------------------------------------------------------------------ | :------------------ | :------------------ | :---------------- | :--------- | | Net sales | $3,430.6 | $3,607.7 | $(177.1) | -4.9% | | Operating income | $194.5 | $120.3 | $74.2 | 61.7% | | Net earnings attributable to controlling interest | $154.7 | $87.1 | $67.6 | 77.6% | | Net earnings per diluted share attributable to controlling interest | $3.11 | $1.77 | $1.34 | 75.7% | | Adjusted EBIT (Non-GAAP) | $224.4 | $136.1 | $88.3 | 64.9% | Financial Position & Cash Flow This section reviews Worthington Steel's balance sheet, cash flow activities, and capital allocation strategies, including debt levels, capital expenditures, and dividend declarations Balance Sheet Overview As of May 31, 2024, Worthington Steel reported a net debt position of $107.8 million, with $148.0 million in debt under its revolving credit facility and $40.2 million in cash and cash equivalents. Total assets increased to $1,866.4 million, while total liabilities rose to $748.9 million - The Company ended Q4 fiscal 2024 with debt of $148.0 million under its revolving credit facility and $40.2 million in cash and cash equivalents, resulting in a net debt position of $107.8 million[13] Balance Sheet Summary (Millions) | Metric | May 31, 2024 (Millions) | May 31, 2023 (Millions) | | :------------------------------------ | :---------------------- | :---------------------- | | Total assets | $1,866.4 | $1,764.4 | | Total liabilities | $748.9 | $609.8 | | Total Shareholders' equity - controlling interest | $985.3 | $1,029.0 | | Cash and cash equivalents | $40.2 | $32.7 | | Short-term borrowings | $148.0 | $2.8 | Cash Flow Activities Cash flow from operations decreased in Q4 fiscal 2024 compared to the prior year, while capital expenditures significantly increased, primarily due to strategic expansions in electrical steel operations. This resulted in negative free cash flow for the quarter - During Q4 fiscal 2024, the Company generated cash flow from operations of $35.6 million, a decrease from $79.2 million in the prior year period[29] - Capital expenditures for Q4 fiscal 2024 equaled $44.8 million, a significant increase from $9.0 million in the prior year quarter, primarily related to strategic expansions in electrical steel operations in Mexico and Canada[29] - The Company had negative free cash flow of $9.2 million in Q4 fiscal 2024, compared to $70.2 million in the prior year quarter[29] Cash Flow Summary (Millions) | Cash Flow Item (Millions) | 3 Months Ended May 31, 2024 | 3 Months Ended May 31, 2023 | 12 Months Ended May 31, 2024 | 12 Months Ended May 31, 2023 | | :---------------------------------------- | :-------------------------- | :-------------------------- | :--------------------------- | :--------------------------- | | Net cash provided by operating activities | $35.6 | $79.2 | $199.5 | $315.0 | | Net cash used in investing activities | $(44.4) | $(8.9) | $(123.2) | $(22.2) | | Net cash used in financing activities | $(11.8) | $(70.3) | $(68.8) | $(280.2) | | Cash and cash equivalents at end of period| $40.2 | $32.7 | $40.2 | $32.7 | Capital Allocation & Dividends The Board of Directors declared a quarterly dividend of $0.16 per common share, reflecting the company's commitment to returning value to shareholders - The Board of Directors declared a quarterly dividend of $0.16 per common share, payable on September 27, 2024, to shareholders of record on September 13, 2024[13] Non-GAAP Financial Measures & Reconciliations This section defines and reconciles Worthington Steel's non-GAAP financial measures, including adjusted operating income, EBIT, EBITDA, free cash flow, and net debt, providing clarity on performance metrics Non-GAAP Definitions and Purpose Worthington Steel utilizes various non-GAAP financial measures, such as adjusted operating income, EBIT, EBITDA, free cash flow, and net debt, to provide investors with a clearer view of the company's ongoing operational performance by excluding non-recurring or non-cash items like impairments, restructuring, and separation costs - The Company presents non-GAAP financial measures including adjusted operating income, adjusted earnings before income taxes, adjusted net earnings attributable to controlling interest, adjusted net earnings per diluted share, EBIT, adjusted EBIT, EBITDA, adjusted EBITDA, free cash flow, net debt, and pro forma adjusted EBIT[21] - Management uses these non-GAAP measures to evaluate performance, engage in financial and operational planning, and determine incentive compensation, believing they provide useful information to investors by offering additional perspective on ongoing operations and enabling meaningful comparisons and trend analysis[41] - Key exclusions from GAAP measures for non-GAAP adjustments include impairment of long-lived assets, restructuring activities, separation costs, and tax indemnification adjustments, as these are considered not reflective of ordinary course business operations[22] Adjusted Operating Income, Net Earnings & EPS Reconciliations for adjusted operating income, net earnings, and EPS are provided for quarterly and full-year periods, demonstrating the impact of specific adjustments like impairment of long-lived assets, separation costs, and tax indemnification on reported GAAP figures GAAP vs. Non-GAAP 4Q 2024 (Millions) | Metric | GAAP 4Q 2024 (Millions) | Non-GAAP 4Q 2024 (Millions) | | :------------------------------------------------------------------ | :---------------------- | :-------------------------- | | Operating Income | $67.3 | $67.3 | | Earnings Before Income Taxes | $75.3 | $72.5 | | Income Tax Expense | $17.6 | $14.8 | | Net Earnings Attributable to Controlling Interest | $53.2 | $53.2 | | Net Earnings per Diluted Share Attributable to Controlling Interest | $1.06 | $1.06 | GAAP vs. Non-GAAP 4Q 2023 (Millions) | Metric | GAAP 4Q 2023 (Millions) | Non-GAAP 4Q 2023 (Millions) | | :------------------------------------------------------------------ | :---------------------- | :-------------------------- | | Operating Income | $89.8 | $97.1 | | Earnings Before Income Taxes | $95.0 | $102.3 | | Income Tax Expense | $23.4 | $21.2 | | Net Earnings Attributable to Controlling Interest | $67.3 | $72.4 | | Net Earnings per Diluted Share Attributable to Controlling Interest | $1.37 | $1.47 | GAAP vs. Non-GAAP 12M 2024 (Millions) | Metric | GAAP 12M 2024 (Millions) | Non-GAAP 12M 2024 (Millions) | | :------------------------------------------------------------------ | :----------------------- | :--------------------------- | | Operating Income | $194.5 | $215.4 | | Earnings Before Income Taxes | $216.2 | $234.3 | | Income Tax Expense | $46.1 | $38.8 | | Net Earnings Attributable to Controlling Interest | $154.7 | $170.5 | | Net Earnings per Diluted Share Attributable to Controlling Interest | $3.11 | $3.42 | Adjusted EBIT & Adjusted EBITDA Reconciliations for Adjusted EBIT and Adjusted EBITDA are provided for quarterly and full-year periods, highlighting adjustments for interest, taxes, depreciation, amortization, impairments, and separation costs. For Q4 FY2024, Adjusted EBIT was $70.4 million and Adjusted EBITDA was $86.5 million, while for the full year FY2024, these figures were $224.4 million and $289.7 million, respectively Adjusted EBIT & EBITDA (Millions) | Metric (Millions) | 3 Months Ended May 31, 2024 | 3 Months Ended May 31, 2023 | | :-------------------------- | :-------------------------- | :-------------------------- | | Net earnings attributable to controlling interest | $53.2 | $67.3 | | EBIT | $73.2 | $91.1 | | Adjusted EBIT | $70.4 | $98.4 | | Adjusted EBITDA | $86.5 | $115.5 | Full Year Adjusted EBIT & EBITDA (Millions) | Metric (Millions) | 12 Months Ended May 31, 2024 | 12 Months Ended May 31, 2023 | | :-------------------------- | :--------------------------- | :--------------------------- | | Net earnings attributable to controlling interest | $154.7 | $87.1 |\ | EBIT | $206.8 | $119.1 | | Adjusted EBIT | $224.4 | $136.1 | | Adjusted EBITDA | $289.7 | $205.7 | Quarterly and Trailing Twelve Months Adjusted EBITDA (Millions) | Metric (Millions) | 4Q 2024 | 3Q 2024 | 2Q 2024 | 1Q 2024 | 4Q 2023 | | :-------------------------- | :------ | :------ | :------ | :------ | :------ | | EBITDA | $89.3 | $81.8 | $8.1 | $92.9 | $108.2 | | Adjusted EBITDA | $86.5 | $82.8 | $23.0 | $97.4 | $115.5 | | Trailing twelve months adjusted EBITDA | $289.7 | $318.7 | | | | Free Cash Flow Free cash flow, a non-GAAP measure indicating cash generated beyond operational and capital expenditure needs, was negative $(9.2) million in Q4 fiscal 2024, a decrease from $70.2 million in the prior year quarter. The trailing twelve months free cash flow was $96.1 million - Free cash flow is defined as net cash provided by (used in) operating activities less investment in property, plant and equipment[53] Quarterly and Trailing Twelve Months Free Cash Flow (Millions) | Metric (Millions) | 4Q 2024 | 3Q 2024 | 2Q 2024 | 1Q 2024 | 4Q 2023 | | :----------------------------------------------- | :------ | :------ | :------ | :------ | :------ | | Net cash provided by (used in) operating activities | $35.6 | $44.7 | $139.9 | $(20.7) | $79.2 | | Investment in property, plant and equipment | $(44.8) | $(22.4) | $(18.9) | $(17.3) | $(9.0) | | Free cash flow | $(9.2) | $22.3 | $121.0 | $(38.0) | $70.2 | | Trailing twelve months free cash flow | $96.1 | | | | | Net Debt Net debt, calculated as total debt less cash and cash equivalents, increased to $107.8 million as of May 31, 2024, from $86.4 million as of February 29, 2024 - Net debt is calculated by subtracting cash and cash equivalents from total debt (aggregate of short-term borrowings, current maturities of long-term debt, and long-term debt)[28] Net Debt Reconciliation (Millions) | Metric (Millions) | May 31, 2024 | February 29, 2024 | | :-------------------------------- | :----------- | :---------------- | | Total debt | $148.0 | $147.2 | | Less: cash and cash equivalents | $(40.2) | $(60.8) | | Net debt | $107.8 | $86.4 | Pro Forma Adjusted EBIT Pro forma adjusted EBIT is presented to illustrate the financial impact of operating as a stand-alone public company, assuming the Separation occurred on June 1, 2022. For Q4 FY2024, Pro Forma Adjusted EBIT was $70.4 million, and for the full year FY2024, it was $217.8 million, incorporating adjustments for incremental steel supply agreement margin and stand-alone corporate costs - Pro forma adjusted EBIT is a non-GAAP financial measure that management believes includes incremental and ongoing impacts to the Company's operating results as a stand-alone public company resulting from the Separation from Former Parent[54] Pro Forma Adjusted EBIT (Millions) | Metric (Millions) | 3 Months Ended May 31, 2024 | 3 Months Ended May 31, 2023 | | :-------------------------- | :-------------------------- | :-------------------------- | | Adjusted EBIT | $70.4 | $98.4 | | Total Pro Forma Adjustments | - | $(2.4) | | Pro Forma Adjusted EBIT | $70.4 | $96.0 | Full Year Pro Forma Adjusted EBIT (Millions) | Metric (Millions) | 12 Months Ended May 31, 2024 | 12 Months Ended May 31, 2023 | | :-------------------------- | :--------------------------- | :--------------------------- | | Adjusted EBIT | $224.4 | $136.1 | | Total Pro Forma Adjustments | $(6.6) | $(9.5) | | Pro Forma Adjusted EBIT | $217.8 | $126.6 | - Pro forma adjustments include incremental margin on sales to Former Parent under the steel supply agreement and an increase in SG&A expense for recurring stand-alone corporate functions and public company costs, offset by lower corporate profit sharing and bonus expense post-separation[58] Forward-Looking Statements & Risks This section outlines the inherent uncertainties and potential risk factors associated with Worthington Steel's forward-looking statements, emphasizing the possibility of actual results differing materially from projections Safe Harbor Statement This section provides a safe harbor statement for forward-looking statements, as defined by the Private Securities Litigation Reform Act of 1995, indicating that such statements are subject to inherent risks and uncertainties that could cause actual results to differ materially from projections - Selected statements in the release constitute 'forward-looking statements' under the Private Securities Litigation Reform Act of 1995, reflecting the Company's current expectations, estimates, or projections concerning future results or events[33] - Forward-looking statements are inherently subject to risks and uncertainties that could cause actual results to differ materially from those projected[16] Risk Factors Numerous factors could impact actual results, including financial market conditions, trade policies, raw material volatility, supply chain disruptions, operational challenges, strategic integration risks, and regulatory changes. Readers are cautioned against undue reliance on these forward-looking statements due to the impossibility of predicting all potential risk factors - Factors affecting actual results include the ability to realize anticipated benefits of the Separation, conditions in national and worldwide financial markets (inflation, interest rates, recession), and the impact of tariffs and trade restrictions[16] - Risks also involve volatility in pricing, quality, or availability of raw materials (particularly steel), supplies, transportation, utilities, and labor, as well as effects of sourcing and supply chain constraints[16] - Other risks include financial difficulties of business partners, the ability to realize targeted expense reductions and operational improvements, the overall success and integration of newly acquired businesses, capacity levels, business disruptions due to various causes, changes in customer demand, international business risks, environmental laws and regulations, and tax laws[16][34] Financial Statements This section provides Worthington Steel's detailed consolidated and combined financial statements, including statements of earnings, balance sheets, and cash flows, for the specified periods Consolidated and Combined Statements of Earnings This section presents the detailed Consolidated and Combined Statements of Earnings for the three and twelve months ended May 31, 2024, and May 31, 2023, outlining revenue, cost of goods sold, gross margin, operating expenses, and net earnings attributable to controlling interest, along with earnings per share Consolidated and Combined Statements of Earnings (Millions) | Metric (Millions) | 3 Months Ended May 31, 2024 | 3 Months Ended May 31, 2023 | 12 Months Ended May 31, 2024 | 12 Months Ended May 31, 2023 | | :-------------------------------------------------- | :-------------------------- | :-------------------------- | :--------------------------- | :--------------------------- | | Net sales | $911.0 | $884.0 | $3,430.6 | $3,607.7 | | Cost of goods sold | $780.0 | $733.8 | $2,990.8 | $3,271.2 | | Gross margin | $131.0 | $150.2 | $439.8 | $336.5 | | Operating income | $67.3 | $89.8 | $194.5 | $120.3 | | Net earnings attributable to controlling interest | $53.2 | $67.3 | $154.7 | $87.1 | | Diluted Earnings per share attributable to controlling interest | $1.06 | $1.37 | $3.11 | $1.77 | Consolidated and Combined Balance Sheets This section provides the Consolidated and Combined Balance Sheets as of May 31, 2024, and May 31, 2023, detailing the company's assets, liabilities, and equity, offering a snapshot of its financial position Consolidated and Combined Balance Sheets (Millions) | Asset/Liability/Equity (Millions) | May 31, 2024 | May 31, 2023 | | :------------------------------------------------ | :----------- | :----------- | | Cash and cash equivalents | $40.2 | $32.7 | | Total current assets | $1,001.8 | $980.9 | | Total property, plant and equipment, net | $474.8 | $414.4 | | Total assets | $1,866.4 | $1,764.4 | | Accounts payable | $380.4 | $402.2 | | Short-term borrowings | $148.0 | $2.8 | | Total current liabilities | $618.4 | $478.4 | | Total liabilities | $748.9 | $609.8 | | Total Shareholders' equity - controlling interest | $985.3 | $1,029.0 | | Total equity | $1,117.5 | $1,154.6 | Consolidated and Combined Statements of Cash Flows This section presents the Consolidated and Combined Statements of Cash Flows for the three and twelve months ended May 31, 2024, and May 31, 2023, categorizing cash movements into operating, investing, and financing activities Consolidated and Combined Statements of Cash Flows (Millions) | Cash Flow Activity (Millions) | 3 Months Ended May 31, 2024 | 3 Months Ended May 31, 2023 | 12 Months Ended May 31, 2024 | 12 Months Ended May 31, 2023 | | :---------------------------------------- | :-------------------------- | :-------------------------- | :--------------------------- | :--------------------------- | | Net cash provided by operating activities | $35.6 | $79.2 | $199.5 | $315.0 | | Net cash used in investing activities | $(44.4) | $(8.9) | $(123.2) | $(22.2) | | Net cash used in financing activities | $(11.8) | $(70.3) | $(68.8) | $(280.2) | | Increase (decrease) in cash and cash equivalents | $(20.6) | - | $7.5 | $12.6 | | Cash and cash equivalents at end of period| $40.2 | $32.7 | $40.2 | $32.7 |