Worthington Steel(WS) - 2026 Q1 - Quarterly Results

First Quarter Fiscal 2026 Results Overview First Quarter Highlights Worthington Steel reported a strong start to fiscal 2026, achieving year-over-year volume growth despite a soft market, attributed to disciplined execution and the integration of the Sitem team - Worthington Steel achieved year-over-year volume growth in a soft market, driven by disciplined execution and a transformation mindset[3] - The company welcomed the Sitem team into the Worthington Steel family during the quarter, positioning for long-term growth[3] Key Financial Highlights The first quarter of fiscal 2026 saw significant financial improvements, including a 5% increase in net sales, a 11.3% rise in operating income, and a 29.6% increase in net earnings attributable to Worthington Steel, alongside a declared quarterly dividend of $0.16 per share | Metric | 1Q 2026 | 1Q 2025 | | :------------------------------------------------ | :------ | :------ | | Volume (tons) | 928,866 | 994,093 | | Net sales (in millions) | $872.9 | $834.0 | | Operating income (in millions) | $48.3 | $43.4 | | Net earnings attributable to Worthington Steel (in millions) | $36.8 | $28.4 | | Adjusted EBIT (Non-GAAP) (in millions) | $54.9 | $39.4 | | Equity in net income of unconsolidated affiliate (in millions) | $6.4 | $1.3 | | Net earnings per diluted share attributable to Worthington Steel shareholders | $0.72 | $0.56 | | Adjusted net earnings per diluted share attributable to Worthington Steel shareholders (Non-GAAP) | $0.77 | $0.56 | - Net sales increased 5% to $872.9 million from $834.0 million[5] - A quarterly dividend of $0.16 per share was declared, payable on December 26, 2025[5] Detailed Quarterly Financial Performance Net Sales and Volume Analysis Net sales for Q1 FY26 increased by 5% to $872.9 million, driven by higher direct volumes and selling prices, partially offset by decreased toll volumes and selling prices | Metric | 1Q 2026 | 1Q 2025 | Change (YoY) | | :----------------------- | :------ | :------ | :----------- | | Net sales (in millions) | $872.9 | $834.0 | +5% | | Direct tons sold | +6% | - | - | | Sitem Group contribution to direct tons | ~1% | - | - | | Toll volumes | -22% | - | - | | Direct selling prices | +1% | - | - | | Toll selling prices | -3% | - | - | | Direct vs. Toll mix | 63% to 37% | 56% to 44% | Shift towards direct | - The increase in net sales was primarily driven by higher direct volumes and slightly higher average direct selling prices[6] - Lower toll volumes were mainly due to softening demand from mill customers and the closure of a toll processing facility in Cleveland, Ohio[6] Gross Margin Analysis Gross margin increased by $14.8 million to $115.2 million, primarily due to improved direct spreads and higher direct volumes, despite lower toll margins | Metric | 1Q 2026 | 1Q 2025 | Change (YoY) | | :-------------------------------- | :------ | :------ | :----------- | | Gross margin (in millions) | $115.2 | $100.4 | +$14.8 | | Direct spreads impact (in millions) | +$23.0 | - | - | | Inventory holding gain (in millions) | $5.6 | -$16.6 (loss) | +$22.2 (favorable change) | | Higher direct volumes impact (in millions) | +$4.6 | - | - | | Toll margins impact (in millions) | -$11.0 | - | - | - Direct spreads were favorably impacted by a $22.2 million change from an estimated inventory holding loss in the prior year to an estimated gain in the current quarter[7] Operating Income Analysis Operating income rose by $4.9 million to $48.3 million, driven by gross margin improvement and restructuring gains, partially offset by increased SG&A expenses | Metric | 1Q 2026 | 1Q 2025 | Change (YoY) | | :-------------------------------- | :------ | :------ | :----------- | | Operating income (in millions) | $48.3 | $43.4 | +$4.9 | | Gross margin increase impact (in millions) | +$14.8 | - | - | | Restructuring and other (income), net (in millions) | +$1.0 | - | - | | SG&A expense (in millions) | $67.9 | $57.0 | +$10.9 | | Sitem Group SG&A contribution (in millions) | $7.9 | - | - | | Acquisition completion bonus (in millions) | $4.6 | - | - | - The $10.9 million increase in SG&A expense was primarily due to the Sitem Group acquisition, which included a one-time bonus of $4.6 million paid to key individuals[8] Net Earnings and EPS (GAAP & Adjusted) Net earnings attributable to Worthington Steel increased to $36.8 million, with diluted EPS rising to $0.72, and adjusted figures also showing significant growth | Metric | 1Q 2026 | 1Q 2025 | Change (YoY) | | :------------------------------------------------ | :------ | :------ | :----------- | | Net earnings attributable to Worthington Steel (in millions) | $36.8 | $28.4 | +$8.4 | | Net earnings per diluted share (GAAP) | $0.72 | $0.56 | +$0.16 | | Adjusted net earnings attributable to Worthington Steel (in millions) | $38.9 | $28.4 | +$10.5 | | Adjusted net earnings per diluted share | $0.77 | $0.56 | +$0.21 | - Fiscal 2026 first quarter adjusted results exclude a $0.01 per diluted share adjustment for a deemed dividend, a $0.04 per diluted share acquisition completion bonus expense, and a $0.01 per diluted share deferred tax asset adjustment, offset by a $0.01 per diluted share gain on asset sale[10] Financial Position and Cash Flow Balance Sheet Overview As of August 31, 2025, the Company reported $78.3 million in cash, $233.4 million in total debt, and a net debt of $155.1 million, with Sitem Group consolidated | Metric | August 31, 2025 (in millions) | | :-------------------------- | :---------------------------- | | Cash and cash equivalents | $78.3 | | Total debt | $233.4 | | Net debt | $155.1 | - The Sitem Group joint venture is consolidated within the Company's financial statements, and mezzanine equity was recorded on the consolidated balance sheet[13] Cash Flow Activities Net cash used in operating activities was $5.0 million, a shift from the prior year, with increased capital investment and negative free cash flow of $34.4 million | Metric | 1Q 2026 (in millions) | 1Q 2025 (in millions) | | :-------------------------------------- | :-------------------- | :-------------------- | | Net cash (used in) provided by operating activities | $(5.0) | $54.6 | | Investment in property, plant and equipment | $29.4 | $21.5 | | Acquisitions, net of cash acquired | $1.6 | - | | Free cash flow | $(34.4) | $33.1 | Capital Allocation and Dividends The Board of Directors declared a quarterly dividend of $0.16 per common share, maintaining consistency with the previous year | Metric | 1Q 2026 | 1Q 2025 | | :-------------------------- | :------ | :------ | | Cash dividends declared per share | $0.16 | $0.16 | Company Information About Worthington Steel Worthington Steel is a market-leading metals processor providing value-added solutions across 37 facilities in seven states and 10 countries, employing approximately 6,000 people - Worthington Steel is a metals processor providing highly technical and customized solutions in carbon flat-roll steel processing, electrical steel laminations, and tailor welded solutions[16] - The company operates 37 facilities in seven states and 10 countries, with approximately 6,000 employees[17] - Worthington Steel's purpose is to generate positive returns by providing trusted and innovative solutions for customers, creating opportunities for employees, and strengthening communities, following a people-first philosophy and commitment to sustainability[17] Legal and Forward-Looking Statements Safe Harbor Statement This section outlines forward-looking statements, emphasizing inherent risks and uncertainties that could cause actual results to differ materially from projections, advising against undue reliance - Forward-looking statements reflect current expectations and are subject to risks and uncertainties that could cause actual results to differ materially[18][19] - Risk factors include conditions in financial markets, tariffs, product demand and pricing, raw material volatility, supply chain constraints, and the impact of acquisitions and economic conditions[19][20] - The company disclaims any obligation to update forward-looking statements, except as required by applicable law[21] Consolidated Financial Statements Consolidated Statements of Earnings The consolidated statements of earnings show year-over-year increases in net sales, gross margin, and net earnings attributable to Worthington Steel for Q1 FY26 | | Three Months Ended August 31, | | :------------------------------------------------ | :------ | :------ | | | 2025 | 2024 | | Net sales | $872.9 | $834.0 | | Cost of goods sold | 757.7 | 733.6 | | Gross margin | 115.2 | 100.4 | | Selling, general and administrative expense | 67.9 | 57.0 | | Restructuring and other (income), net | (1.0) | - | | Operating income | 48.3 | 43.4 | | Miscellaneous income (expense), net | 0.2 | (5.9) | | Interest expense, net | (2.9) | (2.6) | | Equity in net income of unconsolidated affiliate | 6.4 | 1.3 | | Earnings before income taxes | 52.0 | 36.2 | | Income tax expense | 13.4 | 4.0 | | Net earnings | 38.6 | 32.2 | | Net earnings attributable to noncontrolling interests | 1.8 | 3.8 | | Net earnings attributable to Worthington Steel | $36.8 | $28.4 | | Deemed dividend of redeemable noncontrolling interest | (0.5) | - | | Net earnings attributable to Worthington Steel shareholders | $36.3 | $28.4 | | Basic Earnings per share attributable to Worthington Steel shareholders | $0.73 | $0.57 | | Diluted Earnings per share attributable to Worthington Steel shareholders | $0.72 | $0.56 | | Cash dividends declared per share | $0.16 | $0.16 | Consolidated Balance Sheets The consolidated balance sheets show an increase in total assets and liabilities, with the introduction of mezzanine equity due to the Sitem Group acquisition | Assets | August 31, 2025 (in millions) | May 31, 2025 (in millions) | | :------------------------------------------------ | :---------------------------- | :--------------------------- | | Cash and cash equivalents | $78.3 | $38.0 | | Total current assets | 1,148.5 | 1,048.5 | | Investment in unconsolidated affiliate | 133.0 | 126.6 | | Goodwill | 101.7 | 79.6 | | Other intangible assets, net | 90.0 | 67.9 | | Total property, plant and equipment, net | 656.0 | 548.2 | | Total assets | $2,243.3 | $1,961.8 | | Liabilities, Mezzanine Equity, and Equity | August 31, 2025 (in millions) | May 31, 2025 (in millions) | | :------------------------------------------------ | :---------------------------- | :--------------------------- | | Total current liabilities | $693.6 | $631.5 | | Total liabilities | 912.4 | 763.9 | | Total mezzanine equity | 97.7 | - | | Total Shareholders' equity - controlling interest | 1,104.9 | 1,074.1 | | Total equity | 1,233.2 | 1,197.9 | | Total liabilities, mezzanine equity, and equity | $2,243.3 | $1,961.8 | Consolidated Statements of Cash Flows The consolidated statements of cash flows indicate a shift to net cash used in operating activities, increased investing cash usage, and an overall decrease in cash and cash equivalents | | Three Months Ended August 31, | | :------------------------------------------------ | :------ | :------ | | | 2025 | 2024 | | Net cash (used in) provided by operating activities | $(5.0) | $54.6 | | Net cash used in investing activities | $(30.9) | $(21.5) | | Net cash provided by (used in) financing activities | $21.0 | $(37.3) | | Decrease in cash, cash equivalents, and restricted cash | $(14.6) | $(4.2) | | Cash, cash equivalents, and restricted cash at end of period | $78.3 | $36.0 | Non-GAAP Financial Measures / Supplemental Data Non-GAAP Definitions and Purpose Worthington Steel uses non-GAAP measures like adjusted operating income and free cash flow to provide additional perspective on ongoing operations and facilitate performance evaluation - The Company reports non-GAAP financial measures including adjusted operating income, adjusted EBIT, adjusted EBITDA, free cash flow, and net debt[31] - These non-GAAP measures exclude items not reflective of ongoing operations, such as impairment and restructuring charges, to provide useful information for evaluating performance, planning, and compensation[32] Reconciliation of Adjusted Net Earnings and EPS This section reconciles GAAP to adjusted net earnings and diluted EPS for Q1 FY26 and Q1 FY25, detailing specific adjustments for non-recurring items | | Three Months Ended August 31, 2025 | | :------------------------------------------------ | :------ | :------ | :------ | :------ | | | Operating Income | Earnings Before Income Taxes | Income Tax Expense (Benefit) | Net Earnings Attributable to Worthington Steel | Net Earnings per Diluted Share Attributable to Worthington Steel shareholders | | GAAP | $48.3 | $52.0 | $13.4 | $36.8 | $0.72 | | Deemed dividend of redeemable noncontrolling interest | - | - | - | - | 0.01 | | Restructuring and other (income), net | (1.0) | (1.0) | (0.1) | (0.5) | (0.01) | | Acquisition completion bonus payment | 4.6 | 4.6 | 0.6 | 1.8 | 0.04 | | Deferred tax asset adjustment | - | - | (0.8) | 0.8 | 0.01 | | Non-GAAP | $51.9 | $55.6 | $13.1 | $38.9 | $0.77 | | | Three Months Ended August 31, 2024 | | :------------------------------------------------ | :------ | :------ | :------ | :------ | | | Operating Income | Earnings Before Income Taxes | Income Tax Expense (Benefit) | Net Earnings Attributable to Worthington Steel | Net Earnings per Diluted Share Attributable to Worthington Steel shareholders | | GAAP | $43.4 | $36.2 | $4.0 | $28.4 | $0.56 | | Tax indemnification adjustment | - | - | 4.4 | - | - | | Non-GAAP | $43.4 | $40.6 | $8.4 | $28.4 | $0.56 | - Key adjustments for fiscal 2026 include a deemed dividend of redeemable noncontrolling interest, restructuring income, an acquisition completion bonus payment, and a deferred tax asset adjustment[34] Reconciliation of EBIT, Adjusted EBIT, and Adjusted EBITDA This section reconciles GAAP net earnings to EBIT, Adjusted EBIT, and Adjusted EBITDA for Q1 FY26 and Q1 FY25, highlighting the impact of interest, taxes, depreciation, amortization, and specific non-recurring items | (In millions, except volume) | Three Months Ended August 31, | | :-------------------------------- | :------ | :------ | | | 2025 | 2024 | | Volume (tons) | 928,866 | 994,093 | | Net sales | $872.9 | $834.0 | | Net earnings attributable to Worthington Steel | $36.8 | $28.4 | | Interest expense, net | 2.9 | 2.6 | | Income tax expense | 13.4 | 4.0 | | EBIT | 53.1 | 35.0 | | Restructuring and other (income), net | (0.6) | - | | Tax indemnification adjustment | - | 4.4 | | Acquisition completion bonus payment | 2.4 | - | | Adjusted EBIT | 54.9 | 39.4 | | Depreciation and amortization | 20.3 | 16.2 | | Adjusted EBITDA | $75.2 | $55.6 | | Net earnings margin | 4.2% | 3.4% | | Adjusted EBIT margin | 6.3% | 4.7% | | Adjusted EBITDA margin | 8.6% | 6.7% | - Adjusted EBIT increased to $54.9 million in Q1 FY26 from $39.4 million in Q1 FY25, with Adjusted EBIT margin improving from 4.7% to 6.3%[37] - Adjusted EBITDA rose to $75.2 million in Q1 FY26 from $55.6 million in Q1 FY25, with Adjusted EBITDA margin increasing from 6.7% to 8.6%[37] Reconciliation of Free Cash Flow This section provides a reconciliation of net cash provided by operating activities to free cash flow for the past five fiscal quarters, illustrating the company's ability to generate cash beyond operational and capital expenditure needs | | First Quarter 2026 | Fourth Quarter 2025 | Third Quarter 2025 | Second Quarter 2025 | First Quarter 2025 | | :------------------------------------------ | :----------------- | :------------------ | :----------------- | :------------------ | :----------------- | | Net cash (used in) provided by operating activities | $(5.0) | $53.9 | $53.8 | $68.0 | $54.6 | | Investment in property, plant and equipment | (29.4) | (45.5) | (28.6) | (34.8) | (21.5) | | Free cash flow | $(34.4) | $8.4 | $25.2 | $33.2 | $33.1 | | Trailing 12 months free cash flow | $32.4 | - | - | - | - | - Free cash flow was negative $34.4 million in Q1 FY26, compared to positive $33.1 million in Q1 FY25[44] Reconciliation of Net Debt This section reconciles total debt to net debt as of August 31, 2025, by subtracting cash and cash equivalents from the aggregate of short-term borrowings, current maturities of long-term debt, and long-term debt | | August 31, 2025 (in millions) | | :-------------------------------- | :---------------------------- | | Short-term borrowings | $160.0 | | Current maturities of long-term debt | 30.3 | | Long-term debt | 43.1 | | Total debt | $233.4 | | Less: cash and cash equivalents | (78.3) | | Net debt | $155.1 | - As of August 31, 2025, Worthington Steel reported a net debt position of $155.1 million[45]