Worthington Steel, Inc. — Form 10-Q Summary
Reporting period: Second quarter and first six months of fiscal 2024, ended November 30, 2023; comparisons are to the same periods of fiscal 2023. Financial statements are unaudited and presented on a carve-out basis from Worthington Enterprises. Worthington Steel completed its spin-off and began NYSE trading as WS on December 1, 2023.
Key financial metrics
| Metric | Three months ended Nov. 30, 2023 | Three months ended Nov. 30, 2022 | Six months ended Nov. 30, 2023 | Six months ended Nov. 30, 2022 |
|---|---|---|---|---|
| Net sales | $808.0 million | $868.4 million | $1,713.8 million | $1,943.0 million |
| Gross margin | $60.2 million; 7.5% | $34.5 million; 4.0% | $188.7 million; 11.0% | $123.1 million; 6.3% |
| Operating income (loss) | $(8.8) million | $(19.9) million | $60.9 million | $21.0 million |
| Net earnings (loss) attributable to controlling interest | $(6.0) million | $(15.8) million | $52.5 million | $14.4 million |
| EPS attributable to controlling interest | $(0.12) | $(0.32) | $1.07 | $0.29 |
| Adjusted EBIT (non-GAAP) | $6.6 million | $(14.9) million | $87.1 million | $27.1 million |
Second-quarter volume was 968,595 tons, up 15,707 tons year over year; six-month volume was 1,992,140 tons, up 35,344. Lower average selling prices—reflecting lower steel prices—drove the sales declines. Automotive represented 52% of second-quarter sales and 53% of six-month sales. One automotive customer accounted for 14.9% and 15.8% of sales, respectively.
Cash flow and liquidity: Operating cash flow was $139.9 million for the quarter and $119.2 million for the six months, versus $103.3 million and $117.5 million in the comparable prior periods. Six-month investing cash outflow was $56.4 million, including $36.2 million of capital expenditures and $21.0 million for an acquisition. Cash at November 30 was $214.4 million, compared with $32.7 million at May 31, 2023. Management stated liquidity sources were adequate for operations over the next 12 months and foreseeable future.
Debt: Total borrowings and current maturities were $195.0 million at November 30, comprising $175.0 million drawn on a new asset-based revolving facility and a $20.0 million term loan payable to Worthington Enterprises. The facility has a stated maximum of $550.0 million, subject to eligible receivables and inventory, and matures November 30, 2028; the reported rate was 6.95%. The company reported $375.0 million of remaining availability, subject to the borrowing base, and compliance with financial covenants. After quarter-end, $150.0 million of facility proceeds was distributed to Worthington Enterprises in connection with the separation.
Material changes and unusual items
- Quarterly gross margin improved $25.7 million; management attributed the improvement principally to better direct spreads and an $18.3 million year-over-year reduction in estimated inventory holding losses. Six-month estimated holding losses were $19.3 million, compared with $54.6 million a year earlier.
- Separation costs were $14.9 million in the quarter and $18.5 million for six months, versus $8.0 million in each prior-year comparison. SG&A rose $3.4 million for the quarter and $9.9 million for six months, reflecting factors including higher wages, profit sharing, benefits and healthcare costs.
- Equity income from unconsolidated affiliate Serviacero Worthington increased to $3.8 million for the quarter and $12.8 million for six months, supported by improved spreads and, for the six-month period, higher volume.
- On November 16, the company acquired Voestalpine Automotive Components Nagold in Germany for $21.0 million net cash consideration and assumed a $0.9 million pension liability. Management cited a strategic entry into Europe, including EV and industrial motor markets.
- Quarter-end cash and debt reflect the pre-separation reporting date; the spin-off, $150.0 million distribution to the former parent, and standalone-company arrangements occurred after quarter-end.
Outlook, risks and contingencies
No specific earnings or revenue guidance was provided. Management estimated that incremental standalone public-company costs above historically allocated costs could be $10 million–$15 million annually, in addition to certain nonrecurring separation costs. Transition services from Worthington Enterprises will continue under an agreement for a transitional period; actual standalone costs may differ from historical allocations. The board declared a quarterly dividend of $0.16 per share on December 20, 2023, payable March 28, 2024; future dividends are discretionary.
Management cited inflation and higher interest rates as pressures on input, conversion and SG&A costs and on end-market demand. Other key exposures include steel-price volatility and the ability to pass through raw-material costs, supply availability, cyclical working-capital needs, competitive pricing, and concentrated automotive exposure. North American vehicle production increased, but Detroit Three production was affected by the UAW strike during the quarter. The filing says risk factors were not significantly changed from the company’s Form 10. Ordinary-course legal proceedings were not considered likely to have a material adverse effect; a $1.2 million standby letter of credit was outstanding, with no amounts drawn. Management cautioned that quarterly results are not necessarily indicative of full-year results.
Investor verification points
- Track standalone operating costs against the estimated $10 million–$15 million annual incremental public-company cost range and assess the effect on margins.
- Review post-separation cash, debt, borrowing-base availability, interest expense and covenant headroom, including the impact of the $150.0 million distribution.
- Monitor steel-price movements, inventory holding gains or losses, direct spreads and working-capital conversion.
- Assess automotive demand and customer concentration, including any continuing effects from labor disruptions and changes in customer production schedules.
- Follow the integration and performance of the Nagold acquisition, the separation-related tax treatment and obligations under agreements with Worthington Enterprises.