Worthington Steel (WS) 22 Mar 242024 Q3 Earnings call transcript

Good morning, ladies and gentlemen. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the Worthington Steel Third Quarter 2024 Earnings Conference Call. Today's conference is being recorded. [Operator Instructions] And I will now turn the conference over to Melissa Dykstra, Vice President of Corporate Communications and Investor Relations.

begin. may You

Executive Good Vice Quarter operator. today, welcome Worthington Officer; and to have President Executive Thank Chief and and XXXX morning, Chief Earnings Third Operating Chief President Steel's Fiscal Gilmore, Tim call Jeff Call. Steel's Klingler, Geoff Vice Adams, you, and Worthington's and Officer; President On we Officer. our Financial

Securities today to Litigation are are risks started, from could get results our reported, that everyone market yesterday materially. Unless issued we refer the statements a remind after closed. XXXX our Act. cause standalone earnings to basis. certain discussion We more today's I'd are of to Reform like results Private within Please and These detail in subject included forward-looking on and to statements for reference could Before GAAP which the noted uncertainties adjust for results differ measures, differ which non-GAAP meaning made cause factors release suggested. items certain to those that financial as the it actual will that on those presented actual

is later find recorded, will this non-GAAP definitions of call GAAP a turn to and non-GAAP and time, within today the available on can will our worthingtonsteel.com. release. be Gilmore. I Today's measure made reconciliations replay earnings over Geoff You to each being At call

Worthington dedication X,XXX a employees everyone, community hard I'd third Steel to to led and today like our shareholders, our day morning, thanking start for do great customers, other. welcome. and Good and call Melissa. to Their quarter the Worthington support work every work Steel. Thanks, by each for they the

continuous our is strategy. a to had the visit our working capacity I facilities, of system improvement action, Transformation, and transformation integral saw to the increase of to reduce safety add capital where on margins, several Over and I focus our in opportunity quarter, experienced our

of into with their and employees am I work it each work. I've energized recognize the around teams pride our their by and incorporate dozens company. in clearly this takes and the company. talked role daily Our the them of

team sales [indiscernible] on our a better and that continue day progress quarter product continue shareholders. customers the uses have our first We more focused value durable. In on and stronger, goals. teams to and every our a creating make strategy help Together, ensure performing as are our stand-alone on our for is our productivity to safety, and we executed intent quality, company,

and We accomplish. and but great team more to are on in to sharing how much updates the in have our our start, look we strategy a off perform. am forward confident to I we future

look Now COO, Jeff some I'll for a quarter. turn highlights over to of the at Klingler, the it of

my Thanks, by thanking Geoff. I'd to remarks like to for commitment our safety. continued their begin employees

they use ensuring in and metrics our example recognizing India, with assurance. Tempel our our well, we supply best X-wheelers. entire Electric and Mahle excellence practice quality our electrical and trends EV our possible Energy's for Tempel of commitment An Congratulations our award manufacturing helps PPM every customers Ather the kind quality our this service see said, program. product in laminations commitment of to same ergonomic electrical X from use to to the our as continuously Geoff analytics, January, steel data and positive best Safeworks sharing metrics, team improve daily improve from the for performance. The in to received by receive Drives focus supported continue We Mahle to team interaction. As to safety Tempel achievement. us that, measurement on provides motors tools, involvement

a Mexico recently announced many to come lines, for our online. in seeing of we're great kicked Canada one commitments solution and financial Similar our better is progress Germany customers we business, with rest what more are Nagel, making real-time drive from to moving a data. This Tempel operational will decision-making and example multiyear at integration consistent we our of processes with believe at effective ERP reduce and the seen implementation we've help is Our across to We our divisions. and of improve transformation. well, already areas. Along those long-term us all another risk, expansions that's commitment off going this in move

production the technology a tailored blanks. front, signed tailored of for technology TWB ArcelorMittal and has blanks patented use On licensing the with agreement of ablation its the Hotform

America technology all only our a North ablation install line Monroe customers. at these teams will Michigan, companies offer of TWB fully making in X our automated this on impressive to facility one the the We to in Steel to Worthington Congratulations achievements.

it turn Tim to I'll over Adams. Now

everyone. would good for well independent I the our public like as on focused our Thanks, Jeff, customers our staying serving also employees during quarter, as thank to morning, company. and first an third as safety

the results with reminder, compared a year third were results company, for on carve-out our consolidated a As which with are quarter this stand-alone basis. quarter being prepared our first as data, prior the a reporting

share in $X.XX quarter, quarter. $X.X third prior our as million the of earnings net For million year we or with per compared $X.XX $XX reported or per share

with per results as expenses year quarter. I will separation. Our share this per be quarter in we third pretax $X.XX included of last separation $X associated share compared expense with quarter million the or expect the recognized $X or million the $X.XX prior

we per Excluding per earnings quarter. these year in $X.XX $X.XX share to the third quarter the in of generated prior items, share compared

or million or share pretax a swing favorable $XX.X holding $XX.X EBIT is estimated pretax the million reported gains. gross the $XX.X million, adjusted higher had including share. In of prior quarter up or increase in $X.XX losses from to quarter, addition, pretax benefited $X.XX $XX.X the was to quarter, which of increased due primarily third pretax compared million we the third holding per share of margin, material This we inventory per quarter, from impact of which the year spreads, $XX.X holding inventory in year million. of $X.XX per estimated $XX.X inventory estimated prior gains In of million

from $X.X was primarily year, costs million stand-alone to up the with prior associated a incremental being due SG&A company. Our

what Next, steel increased throughout market October on in per sharply over ton $XXX experienced I'll Similar current recent $X,XXX then ton. content market from is per prices shipments. we volatile over to per pricing our price quarter. Steel the to The March. was $XXX January, approximately ton decreased hot-rolled provide history, some the in and for steel

due up year combined market construction were experiencing continued prior compared year increased We direct expect shipped and and primarily end to to $X pricing platforms prior be gains primarily X% basis. Net programs X% sales in and during with XXX,XXX third the energy, will the pretax could the tons $XX to the quarter quarter, $XXX was toll. up was decrease the in million prior ramp-up to spot with prior X% estimated launch down certain the million The losses quarter. from compared volume fourth quarter. Direct due orders holding on losses year was the third were slightly quarter. combined due sales Volumes primarily volumes tons inventory approximately of over estimate third both We Direct and with automotive holding quarter up in those to their in inventory in we to million, a quarter, which of life, replacement sales delays. higher the several reaching were up the X% year quarter, to the direct business. flip

book healthy. Our continues be of automotive business to

our closely help their commercial partnership. resulting teams increased and Our work technical a collaboration strong them and solutions provide to with needs, that challenges in customers overcome and meet

automotive primarily quarter. prior X% leadership automotive year-over-year, as of mix expect industry. Total We the due to Direct programs. year were made tons within our to position several XX% up third tons continue quarter with new the up mills in as with the sales growing the compared increased tolling our in XX% well

cash balance $XX.X sheet. $XX.X free operations from and cash flows to flow the Turning flow million. Cash and was million was

the expenditures June million steel as related $XXX payable higher ended previously operating quarter, due including of and working payable. We in In million we we result quarter of expansions paid to tenant by cash, we which million a quarter increase the Canada. On an generated balance third cash former XX-month $XX.X XXXX. our electrical connection a $XXX the the inventory have to accounts trailing to our announced as projects, the dividend during $XX.X $X.XX increased basis, on offset with announced increased $XX.X free During capital in flow. quarterly partially the of we of of the second sheet, is million with spent dividend from and Mexico share XX, million prices, quarter receivables per variety separation. Thursday, third down in regards to capital a steel a on

at their basis. Everyone excellent both $XX Steel At ABL performed stakeholder Worthington debt million was a and proud take Steel on all commitment teams well. our teams their I'm at the million, of and $XXX would you. focused long-term February driving from our on for we to Thank to for your summary, this continued continues quarter. In to second point, be an happy value questions. down Our quarter, third had safety. XX and be near-term dedication Worthington

we'll take question first from Instructions] Capital Gibbs KeyBanc with our Markets. [Operator And Phil

strongest What's the volume the typical volume patterns. perspective from I timing your quarter? given it's May a of usually buying know customer the your seasonality for

Yes.

you your kind answered of think question. I own

automotive the to from tends shutdowns you tends to lower December be on the side. It perspective. right. quarter QX on volume tends our strongest be higher. because a usually It's QX You're got and be in to side higher

on just double curious minus plus a single terms magnitude. it digits, expect volume high what historical from low pickup? digits so in More the you Is or of

digits. single it's would I say not low huge. It's

fact your commentary a XQ And effectively cost for your pointed structure. good then baseline that the use and adjustments the the from as we spin, should go-forward as

Yes.

tends think that to is little see is month you've got what in December probably there. a there little SG&A a you light. in I be light because QX

in So travel vacations is down, there.

bit, So SG&A perspective quite up some that little had from fully an plus from hadn't down a ramped QX we is SG&A standpoint. an things usually

look bit you go-forward a probably little higher at a in what QX. So was than it basis,

the working And on year? about update fourth for to then then in CapEx a is the outlook and the fourth expected quarter the use of maybe as net us be quarter, or cash? source And that we think just capital a

happens gains, holding losses, when Typically, you're to to inventory working And you you when holding what Yes. have have capital. you're build inventory release. going going

in we would working expect So release to capital some QX.

and quarter think side we then then fourth some projects that the maybe on and ultimately... for CapEx as growth working on about the XXXX of you're for these And

Yes.

$XX million number. We've million $XXX got Depending got is close So $XX to some in, that another announced what that week. add to we in million doing we've at in I we're We've for the million had It's projects an the been the for 'XX. come well QX, we're $XX got project We've $XXX that to think run we as going we and had ablation to pretty million XXXX. 'XX, probably XXXX We've $XXX million get CapEx. project as $XXX about the last to XXXX. in estimate another how ERP date 'XX million Tempel. signaling additional estimate to actually going on

in is And million piece the as That's for following it business the play? profitability you win next then the what really terms a Monroe, ablation sliced in a put on this all how bit along what for operational differentiator standpoint sounds what financially? $XX CapEx does trying and it or X in it's of in could means helpful. out to you like investment just it from mix this a timing? over pickup guys figure possibly the in the with you a big It into mean ERP mean one. But this years of And

this Jeff Klingler. We're very obviously excited Phil, project. this is about

to market only this able do to are X market. We now this products about XX% welded X blank companies existing We opportunities believe opens offer in that and are America. new by that North up our product new of

going very months production. So typical it's full the timing takes type and to to this this and a excited a to about from win about standpoint, the you time technology an award XX get award, automotive install by It's equipment project. again, that take cycle

pretty that's happening feel So out there, it's excited years all X, now pretty and the the about expect confident And X -- line. right in bit full we'll activity it's fill that benefit. a we but we're and little to

Tumazos John [Operator Varian Instructions] question Research. Independent John And will we Tumazos from take our next with

stands for you Just could ERP ablation what explanation, what and is explain for?

lasers take but I'll process tell quickly. to ablation, explain Jeff a very I'm uses going John, weld welding coating press that morning Klingler to to you not the Good is the silicon fully I prior it patented remains will again. hardened so intact. steels remove that the those

That's for electrical steel.

enterprise resource for steel for ERP no. stands simply and hard system. tailor-welded for planning No, press That automotive is blanks for parts.

it's So our computer system.

How a system? is hit big a computer of

lump $XX CapEx basically I'm total, when we projects. to to I both given that's in to total. John, going years I think projects, They're have for don't numbers million I those breakout was to together. in -- were X million each. going cover the But $XX million probably adding them the $XX using X forward, those just next both the

Is ablation what separate part is Or licensing Arcelor from a item? of you're middle? it

from we It licensing are -- is exactly what their it's process.

patented licensing the of process, are the process aluminum silicon the ablation for We the coating. removal

You made and for reference [ projects, and saying to Canada it expansions, and profits. revenue good ablation, I'm to add if hopefully, Mexico license correctly. TWB X ] Germany

Yes.

love in comprehend these I I'd they're double sales revenue they're going in whether roughly $XX need get the a of Real are and sales but $XX that $XXX might annual million how or not We impacts of much to million. in probably think terms listeners a million company, to shower. excited the range, cold annual items? as or

question. understand. I It's No, No. a good

the I these the a $XXX revenue It's once to years a are end million ramp full ramped them up. we to of think going up, going as at to more few they in up. year us for all than things it's of day, be ramp take

So...

so In one of we versus singles get terms is individually, the about idea big the an of ones. what each can

be going of about is little talking big ablation smaller. projects in overall. a to under terms would are going there Mexico up. plus in be whereas million $XX line to going start ones. the I and The I'm say small each. mean got X that the bit are projects Yes, X $XX you've and is other those Canada the I Tempel ablation ramp to million We're

more now, $XXX fully a than we're they're saying So year ramped right million comfortable when up.

projects the of and Tempel revenue In the Mexico. impact how Canada much expansion? Germany, So, of that is

number? don't buy it Electrical activity a Germany around have million didn't just Europe That's few as presence what -- that there our customer just to That's also that year. then facility exceeded buy to months. just in acquisition was. that our place relatively And do with plans small. Nagel what would was we but also excitement in and in growth for Steel. I per going grow it and probably over We It do our $XX in plans we're add going put Germany to it has around after the we're expectations yet, have those you done to well. as

we're pretty optimistic, we're do So to some things good going there.

They're They've very [indiscernible]... green got there. all

It's certainly are.

and They got rid right of nuclear and coal faster arms. into than jumped anybody Putin's

machinery, a bolts? of could Canada terms place in Germany, in In specific of better Mexico kind understand us nuts the you to just what putting flavor and and and you're of give machines

you Jeff, answer why don't that?

be Sure. I'll will start lamination Germany Germany. presses. with

cores specific that stator that miter and So of some These production very But it requires the that TRANCO got of EV battery addition but grain rotors range. in of of be things Canada, is high the to technical, we're pieces traction got of stamp very Gap primary specifically automation lines motors steel and that it's that wide And well. end, a a a designed as transformer electrical more for Mexico, will Mexico for orientated equipment. And distributed slitter for We've then, equipment. all furnaces, cut stacks are equipment steel, then the support slitter, grain furnaces, making machines, laminations steel the we've hybrids miter to and as same. vehicles. in presses. orientated process is large very cores little with electric in comes that for more along course, downstream

very This just already familiar John, competency part core to familiar this. and equipment, our with demand. we're It you're with. expansions are of machinery to these is and probably and just is making want And I we already add increased due

So we the know-how. have

highest process? a has a way competitive? the buying processes them sitter Which come long Worthington of Worthington of value-add are and that are from more And better XX machine. or which does XXXX most

all, are niche truly Well, in a I'm terms we first value-add you producer. of -- of glad recognize

lot what's hence, definitely add, electrical laminations, to engineering we're very I equipment if it, higher and steel run at Tempel expertise value a most value So looking think of margins. certainly implement high add, and that needed

a type and margins. again, niche I the blanks think unique hence, similar also high-value-add lightweighting very to market, tailor-welded Tempel, higher solutions. very That's

And that there's then familiar galvanizing certainly, you're John, with.

of, And hot-rolled markets be operations. a bit recognized. That's march a And is, strategy. bit value-add of why not our think also story we've a would we strongly pickling and it's in big the it's proud years, why markets on company operations more competitive. future. over great Ours all add. And chain obviously, the course, slitting then, well have and different, is often XXXX be so really with we performed niche it's a value the we're of continued a on our and play substrate. is we Cold-rolled and we differentiator. and comment But to those strip you're into very will up would the what that your part very familiar and these innovation, high are But why type has that

a have I an company or need. utilizing where a mill bottleneck could auto a like or a very understand process volume particular was large might a they pickler tolling,

or HVAC sales. something you're going New rather Worthington independents, those Dynamics, few galvanizing, or usage than customers, from independent buy end galvanized a would they Core other and your For small Clips, right buying from galvanizers? I like companies why Steel U.S. customers to Steel guess for

would have We're we us? we're tell to And why buy we it's continue premier bit you would telling from it's I'm probably just with our We're But our -- with from what hear the they cost we customers, going they customers. we from from a from scheduling customers. our be what service and I service. competitive the us And see very why and specifically the to the responsive. John, really hear Of what to or you But it's buy it's be specifically? quality flexible would course, going wouldn't hear So do think I'm mills. to orders. help. Clearly, the speed, our more able that's flexibility. I

many me tend that to a want itself in I would neighbors. and would after facility all those galvanized forgive maybe national their people mills be relatively big and me the to to close scattered queue. And mate. radius too relationships hog would in lend have if don't there's and customers your customers better with questions to But, I'm asking place, the your XX over service

to do We really answer that The course, do makes that products, But no. is a ship lot our of of over the specifically, more galvanized to that product all tend locally, we country. with sell sense.

I should chance. give and stop a other people

for John, support. thanks your

our And will Research next Seaport Partners. take with Martin we Englert question from

of electrical steel on couple in and Canada expansion the for A amination questions Mexico.

are If things just you once headcount deliveries environment how up pending any time could on staffing update you those to and start in on locations? and respective an provide the whether the is equipment for ramp

this take is to I'll happy Klingler. Jeff Sure. that. be Good morning,

is true projects quick We've excitement the up To around time budget. seen complete on of just staffing all maybe a in we'll next to overall ability by around the and date, we've here lot and these project seen early building should staff be The expansion In here presses months. spring, on Just installing of $XX that update. is really from be late positive internally. expansions. an very general first Mexico, We've summer. And really spent million. and of our -- couple about this

community. budget, or quarters. We're the towards expansion, date, but don't year. catch facility about but lot to is the -- to a bit spent a the able to talking two. few that the awful calendar start end think about next time, month ramp thing up due on start this maybe through little we've we're and of excitement some not to in $X to see on delayed an going to lot. see to to similar -- project we We until then million, the going problems ramping again, But any going be And there's spending of up. that's We're a production we Canada, there. In here land, to the going at internally is next So

appropriately. foresee any able to don't staff this we So with problems being up at point

cap there Of add was the more sorry, of the there? remainder -- to

ahead, Martin, No, it's go fine.

Okay.

the much whether incremental some it how versus CapEx about Of the any equipment the or within that of spend price. Sorry pricing all might that. is that to be projects, of inflation there of what's for would is have buys, risk respective component planned remainder the the that scope variability still fixed

I Tim this -- is Martin. think

in we I lock right? and of price negotiated We think price, terms those most is everything locked things the in.

there's think don't there. variability I So much

looking? Okay. backlog the Any comments and or Canada in updates that's how transformers on for

greater Martin, Geoff be years it Gilmore, transformers. X to or continues backlog for

So driver GDP why it's years we're market heard in a quite still to the X we're and feel much Canada. will Again, market. we say, of that than next a faster grow bullish out on you've big XX expansion me that making

So nothing front. on down is slowing that

EVs what Navy, demand, when as you're of seeing think legacy as a diverse the recent hybrid like the and as curious seems history? there's platforms I It still headlines activity have pure you the but with about know a little you Anything in some of mix but on bit what Okay. reviewing a seeing. far as or well just pause, hybrids, you're

out, to and a nail thinking head. BEVs. And enter momentum There's from are this there away on. going about We a ICE politicized, much hybrid things headlines especially bumpy business will in that certainly, a companies there cold-rolled still a curve but need not was hybrids And supply that slope. growth ICE and how attention is hybrid and lot And going for innovation. spot we to a figured from on It's an because It's piece year, happen the to It be a mean strip. get be talk built are portfolio. you a hybrid, engine, market strip We times it's it's that to if of significant to internal you going I feeling of lot needs bigger was be you're come that's Martin, at costs is Yes, going produce be it's importantly, BEV. If lot and but great straight-line automotive question. cold-rolled if be just to there's to clutch didn't of bullish growth more move chain are of that hit election a a we giving. the combustion bit the down. But there'd these to more plates. a that great. lot needs

You point know need electrical to for BEV, take electrical you there's sharing laminations. My that. advantage that need in it's If steel steel positioned lamination anybody electrification. that's that don't better is, I globally of else

when at versus versus vehicle one -- does some How typical is not Is a change intensity the battery electrical looking hybrid you're Or it different? multiple, the a platform? markedly EV, it how from other? steel

it's Martin, tough intensive to as a But is It and going any a by some number does marginally full add. you It electric this motors a good Klingler. electrical get data. the of program, to steel for one varies evolve. in That's But thing go is to definitely transition. we Jeff more traction vehicle. have us

will follow-up Phil questions take We Markets. Gibbs Capital KeyBanc with from

the quarter, done residual company this payments there following the ahead? moving For to any parent is

is got to some a some right, and we've But and specifically, you're We the about nothing moved that long-term it's if else and paid I share do. on we that done, things. paid million There's X. some of got dividend of we we've those $XXX mean campus, types December dividend on. the TSAs have agreements, we talking

just us quarter, payments you following what remind all current following the liquidity in -- the can the your is? And

and of liquidity, ABL we and ample I think in projects got is we've leverage in note, from to put your noted these growth the We've you it place. liquidity low, got pretty pursue Yes. ample any our

the of ABL, us And the that? remind size of what's just

ABL. million $XXX

the interest what's right the that rate And just and volatility given all on now, rates?

Just It's under type an [indiscernible] X%. arrangement.

the you're for kind thoughts in [indiscernible] any there question. one a and or under of as active is me put consistency historical both buyback company, in stand-alone operating flow, of to or I your over the cash just given know is M&A a a just getting broad flow consideration. free cash last midterm And channel the remain but

a little capital during talked to we Day. that dividends. be It's way Investor going we along shareholders a with return Buybacks, about bit to

place. anything put formal not have in We

We are still discussing that.

So continuing M&A at buyback would some have expect place. to opportunities. we look in a at we are to And program point,

to haven't really CapEx we're projects. companies looking want who niches. buy, right? and value-added bolt what as that mean, we But these We on stopped. We've got for selective talk growth big we high pretty I we enter or We're in we complement can new about, have

that us we're We've just through up out effort look a to paused us we'll crank of spin not bit So continue to standpoint a value-add match and for high the little standpoint. get M&A. that and a from companies match from culture and

I did actually have one more.

mix Is tolling to release your was year-over-year. good in just up a mentioned You've forward? timing thing? nicely quite pricing a that that and the baseline use moving Or that was

in and you about ways. thing. it's got mixed to a this -- X think I It's mean

a ship it's process value-added But report So do we command ton tolling. per a tons if going and high galvanizing, then you say, a to price slit. like higher straight for

that's processes high multiple going is you high-priced so a do to a as to situation item, it invoice up right? it, you of then galve, if you pickle, slit mix you a a So show for steel, us. really or So coil

to I So on about want circle question automotive. QX back your and

probably or It's said up is Our digits to volume high I single low high in the single automotive -- digits. single closer digits. our typically

all ladies the of and today. gentlemen, questions that time we And for have is

closing the So remarks. for back Gilmore to will turn now I Mr. Geoff call

to our great interest participation progress look our very about and excited about of call weekend, everybody. we'll Steel. forward Thank the Again, excited a in everybody. more and Have sharing Worthington come, and to strategy. Thank the the this employees, our proud you. appreciate I even you, next our what's quarter progress and on

and and thank for gentlemen, this we your concludes today's Ladies you call, participation.

now You disconnect. may