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.

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]

Core Insights - Meros Investment Management has fully exited its position in Worthington Steel, resulting in a liquidation valued at nearly $5.3 million, which reflects a significant portfolio adjustment [2][10]. Company Overview - Worthington Steel, based in Columbus, Ohio, operates as a steel processor with a diversified product portfolio, serving various industrial sectors including automotive, heavy truck, agriculture, construction, and energy [6][9]. - As of the latest market close, Worthington Steel shares were priced at $35.92, with a market capitalization of $1.8 billion, revenue of $3.1 billion, and net income of $118.6 million for the trailing twelve months (TTM) [4][6]. Recent Performance - The company reported a 5% revenue growth to $872.9 million in the most recent quarter, alongside an increase in operating income to $48.3 million and net earnings of $36.8 million, all showing meaningful improvement from the previous year [7]. - Adjusted earnings per share rose to $0.77 from $0.56, indicating positive traction in core spreads despite some volume softness in certain categories [7]. Market Context - Worthington Steel's stock has underperformed, down 18% over the past year, while the S&P 500 has increased by 13% during the same period [3]. - The exit by Meros Investment Management raises questions about investor sentiment, especially as the company appears to be stabilizing after its spin-off [7][10]. Strategic Positioning - Worthington Steel's vertically integrated model, strong balance sheet, and recent acquisition of the Sitem Group contribute to its ongoing transformation efforts [10]. - The company continues to focus on dividend continuity and steady margin improvement, which are key factors for fundamentals-driven investors to monitor [10].

Financial Data and Key Metrics Changes - Adjusted EBITDA for Q1 2026 was $75.2 million, with earnings per share at $0.72, and net sales reached $872.9 million, reflecting a year-over-year increase [4][13][19] - Earnings increased from $28.4 million or $0.56 per share in the prior year quarter to $36.8 million or $0.72 per share in the current quarter [13][19] - Adjusted EBIT rose to $54.9 million, up $15.5 million from $39.4 million in the prior year quarter, primarily due to higher gross margin and increased equity earnings [16][17] Business Line Data and Key Metrics Changes - Automotive shipments increased by 17% year-over-year, with shipments to the Detroit Three OEMs up nearly 13%, while production for these OEMs grew approximately 5% [21][22] - Direct sales volume constituted 63% of the mix in the current quarter, up from 56% in the prior year quarter, with direct sales volume increasing by 6% [20][21] - Toll processing volumes decreased by 22% year-over-year, attributed to market conditions and the closure of the Worthington Samuel Coil Processing facility [23][24] Market Data and Key Metrics Changes - Market pricing for hot rolled coil peaked at $950 per ton in March but has since decreased to approximately $800 per ton due to softer market demand [18] - The agricultural market faced challenges, with volumes down nearly 50% compared to the prior year quarter, while construction market shipments fell modestly by 3% [22] - The energy and container markets saw modest increases, contrasting with declines in the construction and heavy truck markets [22] Company Strategy and Development Direction - The company is focused on electrical steel investments and margin-accretive growth, with production in Canada expected to start in early 2026 [7][8] - The expansion of the facility in Mexico will begin production soon, supplying electrical steel laminations for hybrid and electric vehicles [8] - The integration of AI into operations aims to enhance productivity and customer outcomes, with several AI-driven pilots underway [9][10] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding the automotive market, anticipating continued growth despite market uncertainties [6][32] - The company is positioned to capitalize on opportunities arising from supply chain shifts and customer complexities [6][7] - Management noted that the macro environment remains mixed, with limited visibility in several sectors expected to persist [5][6] Other Important Information - The company reported a cash flow from operations outflow of $5 million and a free cash flow outflow of $34 million, impacted by increases in working capital [24][25] - A quarterly dividend of $0.16 per share was announced, payable on December 26, 2025 [24] Q&A Session Summary Question: Can you provide more details on the Sedum transaction and mezzanine financing structure? - The Sedum acquisition cost $60 million in cash, financed using ABL, with the minority interest classified as mezzanine equity due to foreign currency considerations [30][31] Question: What are the future opportunities in the automotive sector? - Management is cautiously optimistic about the automotive market, expecting to gain further market share and positive momentum in 2026 [32] Question: How does the company manage the impact of Section 232 tariffs on electrical steel laminations? - Management indicated minimal impact from tariffs, as customers are willing to pay, and a significant portion of the customer base is USMCA compliant [35] Question: Will the closure of the Worthington Samuel facility impact supply? - Management confirmed no anticipated disruptions in supply chains due to strong relationships with multiple mill sources [38] Question: What is the outlook for volumes in fiscal Q2? - Management expects normal seasonal trends, with Q2 typically 3% to 4% below Q1, and no significant demand triggers anticipated [42]

Financial Data and Key Metrics Changes - Adjusted EBITDA for the quarter was $75.2 million, with earnings per share at $0.72, and net sales of $872.9 million, reflecting a year-over-year increase [4][13] - Earnings increased from $28.4 million or $0.56 per share in the prior year quarter to $36.8 million or $0.72 per share in the current quarter [13][15] - Estimated pre-tax inventory holding gains were $5.6 million compared to losses of $16.6 million in the prior year, marking a favorable swing of $22.2 million [16] Business Line Data and Key Metrics Changes - Automotive shipments increased by 17% year-over-year, with the Detroit 3 OEMs experiencing a 5% production increase while Worthington's shipments rose nearly 13% [21][22] - Direct sales volume constituted 63% of the mix, up from 56% in the prior year quarter, while toll processing volumes decreased by 22% year-over-year [20][23] - The construction market saw a modest decline of 3%, while agricultural volumes dropped nearly 50% due to ongoing challenges in the agricultural equipment market [22] Market Data and Key Metrics Changes - Current pricing for hot rolled coil is approximately $800 per ton, down from a peak of $950 per ton in March, reflecting softer market demand [18] - The market for transformers is expected to grow by up to 7% per year over the next decade, driven by the increasing need for electricity in the U.S. [7] - The company shipped approximately 929,000 tons during the quarter, down 7% compared to the prior year quarter, primarily due to decreased toll volume [19] Company Strategy and Development Direction - The company is focused on electrical steel investments and margin-accretive growth, with production in Canada expected to start in early calendar year 2026 [7][8] - The expansion of the facility in Mexico will begin production soon, supplying electrical steel laminations for hybrid and electric vehicles [8] - The company is leveraging artificial intelligence to enhance operations, including demand forecasting and predictive maintenance [9][10] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about the automotive market for the remainder of calendar year 2025, despite ongoing market uncertainties [6][21] - The company is positioned to capitalize on opportunities arising from supply chain shifts and customer complexities [6] - Management noted that the current macro environment remains mixed, with limited visibility in several sectors expected to persist [5] Other Important Information - The company reported a cash flow from operations outflow of $5 million and a free cash flow outflow of $34 million, impacted by increases in working capital [24] - A quarterly dividend of $0.16 per share was announced, payable on December 26, 2025 [24] Q&A Session Summary Question: Can you provide more details on the Sedum transaction and mezzanine financing structure? - The Sedum purchase price was composed of $60 million in cash and the contribution of the NOG Gold facility, financed using ABL [31] Question: What are the future opportunities in the automotive sector? - Management is cautiously optimistic, projecting a unit build rate of $15 million and expecting further market share gains [33] Question: How does the company manage the impact of Section 232 tariffs on electrical steel laminations? - Management indicated minimal impact from tariffs, as customers are willing to pay them, and a significant portion of the customer base is USMCA compliant [36] Question: Will the closure of the Worthington Samuel facility impact toll processing volumes? - The majority of the toll volume decline is attributed to market conditions and the facility closure, with some reductions due to customer program changes [43] Question: What is the expectation for direct sales volume moving forward? - Direct sales volume is expected to remain in the 60%-65% range, with toll processing at 35%-40% [45]

Financial Data and Key Metrics Changes - Adjusted EBITDA for the first quarter was $75.2 million, with earnings per share at $0.72, and net sales reached $872.9 million, reflecting a year-over-year increase [4][13] - Earnings increased from $28.4 million or $0.56 per share in the prior year quarter to $36.8 million or $0.72 per share in the current quarter [13][15] - Estimated pre-tax inventory holding gains were $5.6 million compared to losses of $16.6 million in the prior year, marking a favorable swing of $22.2 million [16] Business Line Data and Key Metrics Changes - Automotive shipments increased by 17% year-over-year, with shipments to the Detroit Three OEMs growing nearly 13% against a 5% production increase [21][22] - Direct sales volume constituted 63% of the mix, up from 56% in the prior year quarter, while toll processing volumes decreased by 22% year-over-year [20][23] - The construction market saw a modest decline of 3%, while agricultural volumes dropped nearly 50% due to ongoing challenges in the agricultural equipment market [22] Market Data and Key Metrics Changes - Market pricing for hot rolled coil peaked at $950 per ton in March but has since decreased to approximately $800 per ton due to softer market demand [18] - The company shipped approximately 929,000 tons during the quarter, down 7% compared to the prior year quarter, primarily due to decreased toll volume [19][20] - The energy and container markets experienced modest increases, while the heavy truck market saw a 7% decline [22] Company Strategy and Development Direction - The company is focused on electrical steel investments and margin-accretive growth, with production in Canada expected to start in early calendar year 2026 [7][8] - The expansion of the facility in Mexico is set to begin production soon, supporting the electrification of transportation [8] - The company is leveraging artificial intelligence to enhance operations and back-office functions, aiming for improved efficiency and cost savings [9][10] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism despite market uncertainties, emphasizing the importance of agility and collaboration in navigating challenges [5][6] - The company anticipates continued growth in the automotive sector and is preparing for potential market recovery in 2026 [32] - Management highlighted a disciplined approach to capital allocation and a commitment to generating strong free cash flow [11][24] Other Important Information - The company reported a cash outflow of $5 million from operations and a free cash flow outflow of $34 million, impacted by increases in working capital [24][25] - A quarterly dividend of $0.16 per share was announced, payable on December 26, 2025 [24] Q&A Session Summary Question: Can you provide more details on the Sedum transaction and mezzanine financing structure? - The Sedum acquisition was financed with $60 million in cash and the contribution of a facility, with the minority interest classified as mezzanine equity due to its unique structure [30][31] Question: What are the future opportunities in the automotive sector? - Management remains cautiously optimistic about the automotive market, expecting to gain further market share and positive momentum in 2026 [32] Question: How does the company manage the impact of Section 232 tariffs on electrical steel laminations? - The company has seen little impact from the tariffs, as customers are willing to pay them, and a significant portion of the customer base is USMCA compliant [35] Question: Will the closure of the Worthington Samuel facility impact toll processing volumes? - The decline in toll processing volumes is primarily due to market conditions and the closure of the facility, with some additional impacts from customer decisions [42] Question: What is the expectation for direct sales volume moving forward? - Direct sales volume is expected to remain in the 60% to 65% range, with toll processing making up 35% to 40% [44]

Financial Performance - Worthington Steel's net sales for FY2025 were $3.093 billion[13, 74] - The adjusted EBITDA for FY2025 was $215 million, with a margin of 7.0%[13, 76] - Free cash flow for FY2025 was $99.9 million[13] - Capital expenditures for FY2025 were $130.4 million, representing 4.2% of sales[13, 91] Market Position and Strategy - Worthington Steel delivered 3.8 million tons of steel[13] - Automotive end-market accounts for 52% of net sales[14, 39] - The company has 32 manufacturing facilities primarily in North America[13, 27] - The company aims to achieve a 10%+ adjusted EBITDA margin through the Worthington Business System, product mix optimization, new product introductions, and strategic acquisitions[81, 82] Strategic Initiatives - The company is investing $85 million to expand xEV production capacity in Mexico, with 50% of the additional capacity already filled with new business and targeting start of production for fall 2025[64] - The company is investing $85 million to increase transformer core making capacity in Canada, with 80% already spent and targeting start of production for early CY2026[64] - The company acquired 52% ownership of Sitem Group to strengthen its electrical steel business globally[28, 70]