Worthington Steel, Inc. — FY2024 Form 10-K
Reporting period: Fiscal year ended May 31, 2024—not calendar 2023 Q4. Worthington Steel became an independent, publicly traded company on December 1, 2023. The year’s statements combine pre-separation carve-out results with post-separation standalone results, so comparisons with FY2023 are not fully like-for-like.
Business context
Worthington Steel processes carbon flat-rolled steel, produces tailor-welded products and manufactures electrical steel laminations. It operates 29 manufacturing facilities and serves approximately 1,400 customers. Automotive was its largest end market. Three operating joint ventures are consolidated; Serviacero Worthington is a 50%-owned equity-method investment.
Financial performance and liquidity
| Metric | FY2024 | FY2023 |
|---|---|---|
| Net sales | $3,430.6 million | $3,607.7 million |
| Gross margin | $439.8 million; 12.8% of sales | $336.5 million; 9.3% of sales |
| Operating income | $194.5 million | $120.3 million |
| Net earnings attributable to controlling interest | $154.7 million | $87.1 million |
| Diluted earnings per share | $3.11 | $1.77 |
| Adjusted EBIT (non-GAAP) | $224.4 million | $136.1 million |
| Cash provided by operating activities | $199.5 million | $315.0 million |
| Capital expenditures | $103.4 million | $45.5 million |
- Sales declined 4.9%, while processed volume increased 1.3% to 4.01 million tons. Lower direct selling prices, down approximately 6%, more than offset volume growth.
- Gross margin improved mainly on stronger direct spreads and a more favorable toll-processing mix. Estimated inventory holding losses narrowed to $3.4 million from $48.7 million, a $45.2 million favorable year-over-year change.
- SG&A rose $23.6 million to $224.4 million, primarily reflecting higher wages and benefits as a standalone company and increased incentive compensation. Separation costs were $19.5 million; management said none were expected after FY2024.
- Equity income from Serviacero Worthington increased to $22.4 million from $7.7 million, mainly on improved spreads and inventory holding gains.
- Operating cash flow fell $115.5 million year over year, principally because FY2023 benefited from a large working-capital release as steel prices fell. FY2024 operating working capital used $11.7 million of cash.
- At May 31, 2024, cash was $40.2 million; current assets were $1,001.8 million and current liabilities were $618.4 million. Short-term borrowings were $148.0 million, versus $22.8 million of short-term borrowings and current debt maturities in FY2023.
- The $550 million asset-based revolving facility matures November 30, 2028. Borrowings were $148.0 million, with $402.0 million of stated remaining capacity subject to the eligible borrowing base. Weighted-average interest on facility borrowings was 6.92%; the swing-loan rate was 9.0%. The company reported covenant compliance.
- FY2024 investing cash use was $123.2 million, including $103.4 million of capital expenditures and $21.0 million for the Voestalpine Nagold acquisition. The company paid a $150.0 million distribution to Worthington Enterprises in connection with the separation, funded in part through facility borrowings.
Material changes, outlook and risks
- The separation created a standalone cost structure and independent financing arrangements. FY2024 included $38.5 million of allocated former-parent expenses, all incurred before separation; future costs may differ from historical allocations.
- Capital spending increased to support electrical-steel expansion in Mexico and Canada. Management estimates annual maintenance capital needs of approximately $35–$40 million and says available liquidity is adequate for operations and obligations for at least 12 months and the foreseeable future. No quantified earnings or revenue guidance is provided.
- The Board declared a quarterly dividend of $0.16 per share in June 2024, payable September 27, 2024. FY2024 dividends declared totaled $0.32 per share; future dividends remain discretionary and subject to facility conditions.
- Demand is concentrated in automotive (52% of FY2024 sales) and construction (13%). One automotive customer represented 14.6% of sales; the three largest customers represented approximately 32%.
- Key risks include cyclical end markets; steel-price volatility and the ability to pass through input costs; inventory holding losses if prices fall; supplier concentration and disruptions; customer financial distress; competition and material substitution; interest-rate and borrowing-cost exposure; and risks arising from the recent separation, including possible indemnification and tax obligations.
- Other notable items: the $21.0 million Nagold acquisition expanded the company’s European presence in automotive and electrical-steel stampings. The company reported no cybersecurity incident in FY2024 that materially affected, or was reasonably likely to materially affect, the business. Management stated environmental compliance costs were not expected to be material.
Important facts for investors to verify
- How much of the FY2024 margin improvement reflects durable operating performance versus the favorable year-over-year change in inventory holding losses and higher equity income.
- Whether standalone corporate costs, separation-related expenses and post-separation operating arrangements will affect margins beyond FY2024.
- Current revolver borrowings, borrowing-base availability, interest costs and covenant headroom, particularly if steel prices or working-capital needs change.
- Electrical-steel expansion spending, expected returns and execution against demand in automotive electrification and transformer markets.
- Exposure to the largest customers and automotive/construction demand, and the ability to manage steel-price declines, supplier disruptions and customer order changes.
- Potential obligations under separation, tax and indemnification agreements, and the terms and durability of future dividends.
Audit and controls: KPMG issued an unqualified opinion on the financial statements and identified sufficiency of audit evidence over net sales as a critical audit matter. Management concluded disclosure controls were effective; the filing did not include a management assessment or auditor attestation of internal control over financial reporting because of the transition period for newly public companies.