Q1 2024 Worthington Industries Inc Earnings Call
Speaker 1: Good morning and welcome to the Worthington Industries first quarter fiscal 2024 earnings conference call.
Good morning, and welcome to the Worthington Industries' first quarter fiscal 'twenty 'twenty four earnings conference call.
Speaker 1: All participants will be able to listen only until the question and answer session of the call.
All participants will be able to listen only until the question and answer session of the call.
Speaker 1: This conference is being recorded at the request of Worthington Industries. If anyone objects, you may disconnect.
This conference is being recorded at the request of where the Worthington industries anyone objects you may disconnect at this time.
Speaker 1: I'd now like to introduce Marcus Roji, Treasurer and Investor Relations Officer. Mr. Roji, you may be...
I'd now like to introduce Marcus <unk>, Treasurer, and Investor Relations Officer, Mr. Ritchie you may begin.
Speaker 2: Thank you, Julianne. Good morning, everyone, and welcome to Worthington Industries' first quarter of fiscal 2024 earnings call. On our call today, we have Andy Rose, Worthington's president and chief executive officer, and Joe Hayek, Worthington's chief financial officer.
Thank you Julien good morning, everyone and welcome to Worthington Industries first quarter fiscal 2024 earnings call on our call today, we have Andy Rose Worthingtons, President and Chief Executive Officer, and Joe Hayek, Worthingtons Chief Financial Officer.
Speaker 2: In addition, we also have Tim Adams, who is currently the Vice President of Strategy and Corporate Development for our steel processing business and who will become the CFO of Worthington Steel after we complete the planned business separation.
In addition, we also have Tim Adams, who is currently the vice president of strategy and corporate development for our steel processing business.
It will become the CFO of Worthington steel after we complete the planned business separation.
Speaker 2: Before we get started, I'd like to remind everyone that certain statements made today are forward-looking within the meaning of the 1995 Private Securities Litigation Reform Act. These statements are subject to risk and uncertainties that could cause actual results to differ from those suggested.
Before we get started I'd like to remind everyone that certain statements made today are forward looking within the meaning of the 1995 Private Securities Litigation Reform Act. These.
These statements are subject to risks and uncertainties that could cause actual results to differ from those suggested.
Speaker 2: We issued our earnings release yesterday after the market closed. Please refer to it for more detail on those factors that could cause actual results to differ materially.
We issued our earnings release yesterday after the market close please refer to it for more detail on those factors that could cause actual results to differ materially.
Speaker 2: Today's call is being recorded and a replay will be made available later on our WorthingtonIndustries.com website.
Today's call is being recorded and a replay will be made available later on our Worthington industries Dot com website.
Speaker 2: At this point, I will turn the call over to Joe for a discussion of the quarterly financial results. Thank you, Mark.
At this point I will turn the call over to Joe for a discussion of the quarterly financial results.
Thank you Marcus and good morning, everyone.
Speaker 3: We started the fiscal year with a strong quarter, reporting Q1 earnings of $1.93 per share versus $1.30 a year ago.
We started the fiscal year with a strong quarter reporting Q1 earnings of $1 93 per share versus $1 30, a year ago.
Speaker 3: There were a few unique items that impacted our quarterly results, including the following.
There were a few unique items that impacted our quarterly results, including the following.
Speaker 3: We incurred pre-tax expenses of $6 million or $0.09 a share related to the planned separation of our steel processing business into a new public company, which we are now targeting to complete as early as December of 2023.
We incurred pre tax expenses of $6 million or nine cents per share related to the planned separation of our steel processing business into a new public company. We are now targeting to complete as early as December of 2023.
Speaker 3: We took advantage of our strong cash balance using $244 million to pay off our 2026 bonds. The early extinguishment of debt resulted in a $2 million pre-tax or 2 cent per share non-cash charge as the debt was called at par.
We took advantage of our strong cash balance using 244 million to pay off our 2026 bonds.
Early extinguishment of debt resulted in a $2 million pre tax or <unk> <unk> per share noncash charge as the debt was called at par.
Speaker 3: We recognized $1 million in pre-tax for $0.02 per share of impairment charges in steel processing related to idle equipment that we no longer use, as compared to a $0.02 per share restructuring gain in the prior year.
We recognized $1 million pre tax or two cents per share of impairment charges in steel processing related.
Idled equipment that we no longer use as compared to a two cents per share restructuring gain in the prior year.
Speaker 3: In addition, the prior year quarter was negatively impacted by 33 cents per share due to several items including a loss on the divestiture of Artiflex, a pension settlement charge, and expenses related to an earnout at level 5.
In addition.
Prior year quarter was negatively impacted by 30 <unk> per share due to several items, including a loss on the divestiture of artefacts.
Pension settlement charge and expenses related to an earn out at level five.
Speaker 3: Excluding these unique items, we generated earnings of $2.06 per share in the current quarter compared to $1.61 per share in Q1 of last year.
Excluding these unique items, we generated earnings of $2.06 per share in the current quarter compared to $1 61 per share in Q1 of last year.
Speaker 3: In addition, in Q1 we had inventory holding gains estimated to be $15 million or $0.24 cents a share compared to inventory holding losses of $2 million or $0.03 per share in Q1 2023.
In addition in Q1, we had inventory holding gains estimated to be 15 million or <unk> 24, a share compared to inventory holding losses of $2 million or <unk> <unk> per share in Q1 2023.
Speaker 3: Consolidated net sales in the quarter of $1.2 billion decreased 15% from the prior year due to lower average selling prices and steel processing combined with lower volumes across most of our segments.
Consolidated net sales in the quarter of $1 2 billion decreased 15% from the prior year due to lower average selling prices in steel processing combined with lower volumes across most of our segments.
Speaker 3: Our gross profit for the quarter increased to $197 million from $169 million in the prior year. Our gross margin increased 16.6% from 12% primarily due to improved spreads in steel frost.
Gross profit for the quarter increased to 197 million from $169 million in the prior year.
Gross margin increased to 16, 6% from 12% primarily due to improved spreads in steel processing.
Speaker 3: Our adjusted EBITDA in Q1 was $165 million, up from $140 million in Q1 of last year. And our trailing 12-month adjusted EBITDA is now $539 million.
Adjusted EBITDA in Q1 was $165 million up from $140 million in Q1 of last year and our trailing 12 months adjusted EBITDA is now $539 million.
Speaker 3: With respect to cash flows in our balance sheet, cash flow from operations was 60 million in the quarter, which we achieved despite the $73 million increase in working capital levels, primarily in our field business. Every cash flow was 30 million.
With respect to cash flows and our balance sheet cash flow from operations was $60 million in the quarter, which we achieved despite a $73 million increase in working capital levels, primarily in our fuel business for.
Free cash flow was $30 million in Q1.
Speaker 3: During the quarter, we invested $29 million on capital projects and paid $16 million in dividends. We also received $65 million in dividends from our unconsolidated JVs during the quarter, a 119% cash conversion rate on that equity income.
During the quarter, we invested 29 million on capital projects in page $16 million in dividends.
<unk> received 65 million in dividends from our unconsolidated jv's during the quarter, a 119% cash conversion rate on that equity income.
Speaker 3: Looking at our balance sheet and liquidity position, funded debt at quarter end of $448 million was down $244 million sequentially due to the payoff of our 26 bonds that I mentioned earlier.
Looking at our balance sheet and liquidity position funded debt at quarter end up $448 million was down 244 million sequentially due to the payoff of our 26 bonds that I mentioned earlier.
Speaker 3: Net interest expense, $3 million, was down by $6 million, primarily due to interest income we earned on our cash balances and, to a lesser extent, lower average debt level.
Net interest expense of $3 million was down by $6 million, primarily due to interest income we earned on our cash balances and to a lesser extent lower average debt levels.
Speaker 3: We continue to operate with extremely low leverage and our net debt to trailing EBITDA average ratio remains under 0.5x.
Continue to operate with extremely low leverage and our net debt to trailing EBITDA leverage ratio remains under a <unk> five times.
Speaker 3: We believe that we're well positioned for the future with ample liquidity, ending Q1 with $201 million in cash and $500 million in availability on our revolving credit facility, which was recently amended to extend the maturity to September of 2028.
I'll leave that we're well positioned for the future with ample liquidity and in Q1 with $201 million in cash and $500 million in availability on our revolving credit facility, which was recently amended to extend the maturity to September of 2028.
Speaker 3: Yesterday, the board declared a dividend of 32 cents per share for the quarter, which is payable in December of 2023.
Yesterday, the board declared a dividend of 32 per share for the quarter, which is payable in December of 2023.
I will now spend a few minutes on each of the businesses and consumer products net sales in Q1 were $149 million down 21% from $189 million a year ago.
Speaker 3: In consumer products, net sales in Q1 were 149 million, down 21% from 189 million a year ago.
Speaker 3: The decrease was a result of lower volumes, which was partially offset by a favorable product mix and higher average selling price.
The decrease was a result of lower volumes was partially offset by a favorable product mix and higher average selling prices adjusted EBIT for the consumer business was $9 million and adjusted EBIT margin was 6% in Q1 compared to $21 million and 11% last year.
Speaker 3: adjusted EBIT for the consumer business was 9 million and adjusted EBIT margin was 6% compared to 21 million and 11% percent.
Speaker 3: Consumer's earnings during the quarter suffered as volume was down 24% from the record volumes achieved Q1 of last year due to a number of factors.
Consumers earnings during the quarter suffered as volume was down 24% from the record volumes achieved Q1 of last year due to a number of factors.
Speaker 3: We have seen consumer demand moderate in the past several months, and this summer's poor air quality caused by hot, smoky weather conditions depressed outdoor activities for many Americans. We've also seen some additional...
We have seen consumer demand moderate in the past several months and this summer's poor air quality caused by heart Smoky weather conditions depressed outdoor activities for many Americans.
We've also seen some additional destocking at our customers.
Speaker 3: While the quarter presented significant headwinds for our consumer business, that team continues to execute well and remains laser focused on delivering new and value-added products for consumers over the long term.
While the quarter presented significant headwinds for our consumer business that team continues to execute well and remains laser focused on delivering new and value added products for our consumers over the long term.
Speaker 3: While there is significant uncertainty related to the outlook for consumer spending, we do expect volumes and margins to gradually improve and anticipate that they will return to more seasonally normal patterns.
While there is significant uncertainty related to the outlook for consumer spending we do expect volumes and margins to gradually improve and anticipate that they will return to more seasonally normal patterns.
Speaker 3: Voting products generated net sales of $134 million in Q1, down 11% from $150 million a year ago.
Building products generated net sales of $134 million in Q1 down 11% from $150 million a year ago.
Speaker 3: The decrease was driven by lower volumes combined with lower average selling price.
The decrease was driven by lower volumes combined with lower average selling prices.
Speaker 3: Building products generated adjusted EBIT of $54 million for the quarter and adjusted EBIT margin was 40% compared to $53 million and 35% in Q1 of last year.
<unk> products generated adjusted EBIT of $54 million for the quarter and adjusted EBIT margin was 40% compared to $53 million and 35% in Q1 of last year.
Speaker 3: The increase in adjusted EBIT was driven by higher equity earnings from Wave, which increased by $5 million year over year and contributed a record $28 million during the quarter.
The increase in adjusted EBIT was driven by higher equity earnings from wave, which increased by $5 million year over year and contributed a record $28 million during the quarter.
Speaker 3: The increase in WAVES equity earnings was partially offset by strong but lower equity earnings from Clark Dietrich, which contributed $17 million during the quarter.
Increase in waves equity earnings was partially offset by strong, but lower equity earnings from Clark Dietrich, which contributed $17 million during the quarter. Despite.
Speaker 3: Despite lower volumes in our wholly owned businesses, higher gross margins drove margin improvement and those businesses generated operating income of $9 million in the quarter.
Despite lower volumes in our wholly owned businesses higher gross margins drove margin improvement in those businesses generated operating income of $9 million in the quarter.
Speaker 3: The team in Building Products continues to do an outstanding job executing in the current environment while focusing on long-term growth as they continue to partner with customers to develop new and innovative solutions in their market.
The team in building products continues to do an outstanding job executing in the current environment, while focusing on long term growth as they continue to partner with customers to develop new and innovative solutions in their markets.
Speaker 3: In Sustainable Energy Solutions, net sales in Q1 of 29 million were down 7% or 2 million from the prior year primarily due to lower volumes as the economy in Europe remains challenged.
And sustainable energy solutions net sales in Q1 of $29 million were down 7% or $2 million from the prior year, primarily due to lower volumes as the economy in Europe remains challenged.
Speaker 3: FCS reported an adjusted EBIT loss of $5 million in the current quarter as volumes were simply too low to absorb the fixed costs in the business.
SCS reported an adjusted EBIT loss of $5 million in the current quarter as volumes were simply too low to absorb the fixed costs in the business.
This compares to a loss of $1 million in Q1 of last year.
Speaker 3: We believe our business is well positioned and one of only a handful of companies globally with the scale and expertise to effectively serve the hydrogen ecosystem and adjacent sustainable energies like compressed natural gas.
We believe our business is well positioned and one of only a handful of companies globally with the scale and expertise to effectively serve the hydrogen ecosystem and adjacent sustainable energies like compressed natural gas.
Speaker 3: That said, this market is unlikely to develop quickly, and until then, Sustainable Energy Solutions results will be impacted.
That said this market is unlikely to develop quickly and until then sustainable energy solutions results will be impacted.
Speaker 3: The SES team is talented and experienced and we're confident in their ability to navigate the current environment and set the business up for long-term success.
His team is talented and experienced and we are confident in their ability to navigate the current environment and set the business up for long term success.
Speaker 3: That team recently took action to reduce costs as we focus on aligning our costs with both legacy market demand and the coming growth driven by the transition to low and zero emission transportation.
That team recently took action to reduce costs as we focus on aligning our cost with both legacy and market demand and the coming growth driven by the transition to low and zero emission transportation.
Speaker 3: At this point, I will turn it over to Tim, who will discuss steel processing.
At this point I will turn it over to Tim who will discuss steel processing results. Thank you Joe in steel processing net sales of $881 million were down 15% from $1 billion in Q1 of last year, primarily due to lower average selling prices in Q1 of last year and the market price for hot rolled steel averaged approximately 975.
Speaker 3: Thank you, Joe. In steel processing, net sales of $881 million were down 15% from $1 billion in Q1 of last year, primarily due to lower average selling prices. In Q1 of last year, the market price for hot rolled steel averaged approximately $975 per ton, while in Q1 of this year, the market price for hot roll was approximately $875 per ton, resulting in a 17% decrease in our average selling.
<unk> per ton in Q1 of this year the market price for hot rolled was approximately $875 per ton, resulting in a 17% decrease in our average selling prices.
Speaker 3: Total tons shipped were up 3% compared with prior quarter.
Total tons shipped were up 3% compared with the prior quarter.
Speaker 3: Direct sale tons were down 1% while total tons shift were up 8% primarily due to increased volume with both mills and service centers. Direct sale tons made up 56% while total tons shift were down 1% while total tons shift were up 8% mainly due to increased volume with both mills and service centers.
Direct sales tons were down 1%, while total tons shipped were up 8% primarily due to increased volume with both mills and service centers direct sales tons made up 56% of our mix compared to 58% of our mix in Q1 of 2000 22023 from a demand perspective, we experienced significant increases in <unk>.
Speaker 3: compared to 58% of our mix in Q1 of 2023. From a demand perspective, we experienced significant increases in automotive shipments, primarily due to increases in year-over-year automotive production. However, the growth in our automotive volume was offset by year-over-year decreases in both residential and non-residential construction. In Q1, Steel Processing reported EBIT of 78 million, which was up 43 million from the 35 million reported in the prior year quarter.
In motive shipments primarily due to increases in year over year automotive production. However, the growth in our automotive volume was offset by year over year decreases in both residential and nonresidential construction.
In Q1 steel processing reported EBIT of $78 million, which was up $43 million from the $35 million reported in the prior year quarter. This was primarily due to increased direct spreads as well as an incremental $7 2 million of equity income from our unconsolidated joint venture, Serbia, Sara as well or as compared to.
Speaker 3: This is primarily due to increased direct spread as well as an incremental 7.2 million of equity income from our unconsolidated joint venture Servicero. As well as or as compared to the price of the
The prior year quarter.
Speaker 3: For the quarter, we had estimated inventory holding gains of $15 million compared to estimated inventory holding losses of $2 million last year.
For the quarter, we had estimated inventory holding gains of $15 million compared to estimated inventory holding losses of $2 million last year.
Speaker 3: As noted last quarter, steel prices increased approximately $500 per ton over the first four months of calendar 2023, but softened in May through August , decreasing $400 per ton over that same time period.
As noted last quarter steel prices increased approximately $500 per tonne over the first four months of calendar 2023, but softened in may through August decreasing $400 per tonne over that same time period.
Speaker 3: we expect the inventory holding gains of Q1 will slip to inventory holding losses in Q2 and anticipate those losses could be similar in size to the holding gains we had in Q4 of 2023.
We expect the inventory holding gains of Q1, we'll flip to inventory holding losses in Q2 and anticipate those losses could be similar in size to the holding gains we had in Q4 of 2023.
Speaker 3: The steel business had an excellent first quarter and all of our teams performed at very high levels. Specifically, our teams did a great job launching several new programs for automotive customers.
Steel business had an excellent first quarter and all of our teams performed at very high levels, specifically, our teams did a great job launching several new programs for automotive customers.
Speaker 3: We recognize there could potentially be some near-term challenges in the automotive market that may impact our results in Q2, but we are confident our employees will meet any challenge arising during the contract negotiations taking place in Detroit.
Recognize there could potentially be some near term challenges in the automotive market that may impact our results in Q2, but we are confident our employees will meet any challenge arising during the contract negotiations taking place in Detroit similar to other market disruptions in recent years, we will manage through the situation and be prepared to meet our customers' needs.
Speaker 3: Similar to other market disruptions in recent years, we will manage through the situation and be prepared to meet our customers' needs when the Detroit OEMs return to normal build schedule.
When the Detroit Oems returned to normal build schedules, despite some potential near term challenges.
Speaker 3: Despite some potential near-term challenges, it's a very exciting time to be at STEAL. Our teams are experienced and focused, and they will continue to meet any short-term challenge with hard work, collaboration, and innovative ideas. I'm proud of our teams for their dedication and for their continued commitment to safety. At this point, I'll turn it over to Andy.
Exciting time to be at steel our teams are experienced and focused and they will continue to meet any short term challenge with hard work collaboration and innovative ideas I'm proud of our teams for their dedication and for their continued commitment to safety at this point I will turn it over to Ed.
Speaker 3: Thank you, Tim. Excuse me. And good morning, everyone. Our fiscal 2024 first quarter adjusted earnings per share results were the second best first quarter in our 68 year history after adjusting for restructuring and non-recurring items.
Thank you Tim.
Gives me and good morning, everyone. Our fiscal 2024 first quarter adjusted earnings per share results were the second best first quarter in our 68 year history after adjusting for restructuring and nonrecurring items.
Speaker 3: We have a lot of our people putting in extra hours to make the separation of our steel processing business a success, all while continuing to ensure that our businesses perform at a high level. Thank you to our employees across the organization who continue to prove they are outstanding and dedicated to supporting our customers, suppliers and shareholders every day.
We have a lot of our people putting in extra hours to make the separation of our steel processing business a success all while continuing to ensure that our businesses performed at a high level. Thank.
Thank you to our employees across the organization, who continue to prove their outstanding and dedicated to supporting our customers suppliers and shareholders every day.
Speaker 3: Earlier this week, we released our fourth annual sustainability report on the back of being named Investor Business Daily's 100 Best ESG Companies in 2022 and Newsweek America's Most Responsible Companies in 2023. We continue to expand and evolve our approach to profitably improving our ESG performance to benefit all of our stakeholders.
Earlier. This week, we released our fourth annual sustainability report on the back of being named Investor business Dailies 100, best ESG companies in 2022, and Newsweek America's most responsible companies in 2023, we continue to expand and evolve our approach to profitably.
Improving our ESG performance to benefit all of our stakeholders.
Okay.
Speaker 3: As we close in on our Worthington 2024 plan to separate into two distinct financially strong growth companies, we are pleased to report that we are ahead of schedule and on track to complete the separation before the end of 2023.
As we close in on our Worthington 2024 plan to separate into two distinct financially strong growth companies. We are pleased to report that we are ahead of schedule and on track to complete the separation before the end of 2023.
Speaker 3: There is still a lot of work and a few key milestones in front of us, but we are getting close.
There is still a lot of work and a few key milestones in front of us, but we are getting close.
Speaker 3: Our employees continue to embrace the coming changes and are working hard to position both companies for success.
Our employees continue to embrace the coming changes and are working hard to position both companies for success.
Speaker 3: We also announced the names and branding for the two businesses, Worthington Steel and Worthington Enterprise.
We also announced the names and branding for the two businesses Worthington steel and Worthington enterprises, we decided to keep Worthington in both names and celebrate our philosophy and culture, which will continue in both businesses have changed the names to reflect the unique growth prospects of both businesses.
Speaker 3: We decided to keep Worthington in both names and celebrate our philosophy and culture, which will continue in both businesses, but change the names to reflect the unique growth prospects of both businesses.
Speaker 3: Worthington Steel has significant opportunities to grow its core market and develop higher growth markets.
Lincoln Steel has significant opportunities to grow its core market and develop higher growth markets.
Speaker 3: such as electrical steel for electric vehicles and transformers.
Such as electrical steel for electric vehicles and Transformers.
Speaker 3: Worthington Enterprises will continue to build out its market-leading positions in building products, consumer products, and sustainable energy solutions.
Worthington enterprises will continue to build out its market leading positions in building products consumer products and sustainable energy solutions.
Speaker 3: To ensure that both businesses begin their new lives with very strong balance sheets and plenty of available capital, we made several moves to renew credit facilities and pay down debt. Our cash position also remains strong at $201 million.
To ensure that both businesses begin their new lives with very strong balance sheets and plenty of available capital. We made several moves to a new credit facilities and pay down debt or.
Our cash position also remains strong at $201 million.
Speaker 3: Once the separation is complete, we are likely to continue with our historical balanced capital application strategy in both businesses.
Once the separation is complete we are likely to continue with our historical balanced capital allocation strategy in both businesses.
Speaker 3: Both businesses will also be run with our philosophy and golden rule principles and utilize the Worthington business system of transformation, innovation and acquisitions to drive growth and shareholder value.
Both businesses will also be run with our philosophy and Golden rule principles and utilize the Worthington business system of transformation innovation and acquisitions to drive growth and shareholder value.
Speaker 3: We are excited to announce that on October 11th in New York City, we will be hosting an investor day for both Worthington Enterprises at 9.30am and Worthington Steel at 1pm. We are looking forward to showcasing the exciting prospects for both of these companies as they embark on their own independent growth strategy.
We are excited to announce that on October 11th in New York City, we will be hosting an investor day for both Worthington enterprises at 930 am and Worthington steel at one P M.
We are looking forward to showcasing the exciting prospects for both of these companies as they embark on their own independent growth strategies.
Speaker 3: To all of our customers, suppliers, employees, shareholders, and other stakeholders, thank you for your continued partnership, and we look forward to shared success in the coming months and years as we continue as Worthington Steel and Worthington Enterprises.
To all of our customers suppliers employees shareholders and other stakeholders. Thank you for your continued partnership and we look forward to shared success in the coming months and years as we continue as Worthington steel and Worthington enterprises.
We will now take any questions.
Speaker 1: If you would like to ask a question, please press star followed by the number one on your telephone keypad. To withdraw your question, please press star one again. We'll pause for just a moment to compile the.
Thank you I'd like to ask a question.
But the number one on your telephone keypad to withdraw your question. Please press star one again, we'll pause for just a moment to compile the Q&A roster.
Speaker 1: Our first question comes from Katia Janczyk from BMO Capital Markets. Please go ahead. Your line is open. Good morning.
Our first question comes from Katia Janssen from BMO capital markets. Please go ahead. Your line is open.
Yeah.
Good morning, Thank you for taking my questions.
Gotcha.
Speaker 4: Can you talk a little bit more about the current auto market environment, specifically what impact you're seeing from the strike? And is there anything or are there any steps you can take to potentially minimize the impact?
Can you talk a little bit more about the current auto market environment, specifically, what impact you're seeing from the strike.
And is there anything or are there any steps you can take to potentially minimize the impact.
Okay.
Unknown Executive: Good morning and welcome to the Worthington Industries' first quarter fiscal 2024 earnings conference call. All participants will be able to listen only until the question and answer session of the call. This conference is being recorded at the request of Worthington Industries.
Speaker 3: Hey, gotcha, it's Tim. Thanks for the question. So yeah, obviously, this situation is front and center for us. So far, we've seen little impact to our business given the scope of the strike has been limited and it's actually been a short period of time. We recognize that there's risks associated with the strike, but there's also opportunities for us.
Hey, Tim Thanks for the question. So yes, obviously the situation is front and center for us So far we've seen little impact to our business given the scope of the strike has been limited and it's actually been a short period of time.
We recognize that there's risks associated with the strike, but theres also opportunities for us. So if the strike expands our facilities have playbooks that will address volume slowdowns. So as you would expect the playbooks are going to align with the Worthington philosophy in the Golden rule doing things.
Unknown Executive: If anyone objects, you may disconnect at this time.
Speaker 3: So if the strike expands, our facilities have playbooks that will address volume slowdowns. So as you would expect, the playbooks are going to align with the Worthington philosophy and the golden rule of doing things.
Marcus Rogier: I now I can introduce Marcus Rogier, Treasure and Investor Relations Officer, Mr. Rogier, you may begin. Thank you Julian. Good morning everyone and welcome to Worthington Industries' first quarter fiscal 2024 earnings call.
Speaker 3: the right way for our customers, our employees, and our shareholders.
The right way for our customers, our employees and our shareholders well.
Marcus Rogier: On our call today, we have Andy Rose, Worthington's President and Chief Executive Officer, and Joe Hayek, Worthington's Chief Financial Officer.
Speaker 3: But one of the things I want to point out about the strike is these are opportunities for us as well. So, our recent history shows we do a great job putting ourselves in position to win new business when markets rebound.
One of the things I want to point out about the strike is these are opportunities for us as well. So our recent history shows we do a great job putting ourselves in position to win new business when markets rebound.
Marcus Rogier: In addition, we also have Tim Adams, who is currently the Vice President of Strategy and Corporate Development for our Steel Processing Business, and who will become the CFO of Worthington Steel after we complete the planned business separation.
Speaker 3: Our commercial and supply chain teams do an excellent job helping our customers navigate all the moving parts that occur when a supply chain suddenly stops, but then more importantly when that supply chain suddenly turns back on.
Our commercial and supply chain teams do an excellent job of helping our customers navigate all the moving parts that occur when a supply chain suddenly stops, but then more importantly, when that supply chain suddenly turns back on customers.
Marcus Rogier: Before we get started, I'd like to remind everyone that certain statements made today are forward looking within the meaning of the 1995 Private Security's Litigation Reform Act. These statements are subject to risk and uncertainties that could cause actual results to differ from those suggested.
Speaker 3: Customers absolutely remember which suppliers did the best job helping them navigate through these tough situations.
Customers, absolutely remember, which suppliers did the best job, helping them navigate through these tough situations.
Speaker 4: Okay, thank you. And then just on the consumer product segment, you mentioned that you expect volumes and margins to gradually improve from these levels. What's giving you confidence that that will happen?
Okay. Thank you and then just on the consumer products segment, you mentioned that you expect volumes and margins to gradually improve from.
Marcus Rogier: We issued our earnings release yesterday after the market closed. Please refer to it for more detail on those factors that could cause actual results to differ materially.
These levels, what's giving you confidence that that will happen.
Marcus Rogier: Today's call is being recorded and a replay will be made available later on our Worthington Industries.com website.
Speaker 3: We believe, Katja, that the demand moderation that we've seen is a little episodic, right? Some of the things that were happening this summer, people just didn't spend as much time outside, whether that was in their backyard or on a camping trip. And so we think that consumers are going to have a lot of the demand.
Okay.
We believe gotcha.
Got you that the <unk>.
Joe Hayek: At this point, I will turn the call over at Joe for a discussion of the quarterly financial results. Thank you Marcus and good morning everyone. We started the fiscal year with a strong quarter, according to Q1 earnings of $1.93 per share versus $1.30 a year ago. There were a few unique items that impacted our quarterly results, including the following. We incurred pre-tax expenses of $6 million or nine cents a share related to the planned separation of our Steel Processing Business into a new public company.
Demand moderation that we've seen.
As a little episodic right some of the things that were happening. This summer people just didn't spend as much time outside whether that was in their backyard or on a camping trip and so we think that consumer is going to have.
A lot of the sort of demand.
Speaker 3: demand softening was really more in our camping gas segment. And so with that being said, you get into the, you know, the winter season, we think that Q2 will probably have some continuing headwinds for the consumer business, but we do absolutely expect that volumes will return to seasonally normal patterns just because, uh, you know, we have seen this movie before and
Demand softening was really more in our in our camping gas segment, and so with that being said you get into the winter season, and we think that Q2 will probably have some continuing headwinds for the consumer business, but we do absolutely expect that volumes will return.
Joe Hayek: We are now targeting the complete as early as December of 2023. We took advantage of our strong cash balance using $244 million to pay off our $2,026 bonds. The early extinguishment of debt resulted in a $2 million pre-tax or $2.00 per share non-cash charge as the debt was called at par. We recognized $1 million in pre-tax or $2.00 per share of impairment charges in Steel Processing related to idle equipment that we no longer use compared to a $2.00 per share restructuring gain in the prior year.
To seasonally normal patterns just because.
We have seen this movie before and typically people respond our products don't cost $1000, you don't need a home equity line of credit to afford what we have and we've seen some softness throughout retail and certainly throughout the outdoor category.
Speaker 5: Typically people respond our products don't cost a thousand dollars. You don't need a home equity line of credit to afford what we have. And we've seen some softness throughout retail and certainly throughout the outdoor category. So we're not
Joe Hayek: In addition, the prior year quarter was negatively impacted by 33 cents per share due to several items including a loss on the investor of Artiflex, a pension settlement charge and expenses related to an earnout at level 5. Excluding these unique items we generated earnings of $2.00 and $6.00 per share in the current quarter compared to a $1.61 per share in Q1 of last year. In addition, in Q1 we had inventory-holding gains estimated to be $15 million or $24 cents a share compared to inventory-holding losses of $2 million or $3 cents per share in Q1 of 2023.
So we're not.
Speaker 5: immune some of those things, but we believe our value proposition is awfully good. Heading into the late 23 and early 24, we feel much better about volumes returning to some more normal patterns. This was a little bit of the perfect storm of, you know,
Immune to some of those things, but we believe our value proposition is awfully, good and kind of heading into late 'twenty three in early 'twenty four we feel much better about volumes returning to more normal patterns. This was a little bit of the perfect storm of you know.
Speaker 5: bad weather this summer, hot fires as well as
Bad weather this summer hot fires as well as.
Speaker 5: big box retailers de-stocking inventory and consumers may be having a little extra inventory as a COVID hangover. So that's why we feel confident that things will return to more normal levels in the coming months.
Big box retailers, Destocking inventory and consumers may be having a little extra inventory as a COVID-19 hangover. So.
And that's why we feel confident that things will return to more normal.
Levels in the coming months.
Joe Hayek: Confounded net sales in the quarter of $1.2 billion decreased 15% from the prior year to the lower average selling prices in Steel Processing combined with lower volumes across most of our segments. Our gross profit for the quarter increased to 197 million from 169 million in the prior year, and our gross margin increased to 16.6% from 12% primarily due to improved spreads and steel processing. Our adjusted EBITDA in Q1 was 165 million up from 140 million in Q1 of last year, and our trailing 12 month adjusted EBITDA is now $539 million.
Okay. Thank you.
Thank you.
Speaker 6: Our next question comes from Martin Englert from Seaport Research Partners. Please go ahead. Your line is open. Hello, good morning everyone. Morning Martin. I wanted to also touch on consumer products and profitability. I was a little bit...
Our next question comes from Martin Engler from Seaport Research Partners. Please go ahead. Your line is open.
Yeah.
Hello, Good morning, everyone.
Martin.
Wanted to also touch on consumer products.
Suitability.
It was a little bit surprised.
Okay.
At least relative to what I was expecting on.
For the quarter I know you called out.
As a key driver there.
Joe Hayek: With respect to cash flows in our balance sheet, cash flow from operations was $60 million in the quarter, which we achieved despite the $73 million increase in working capital levels, primarily in our steel business, free cash flow was $30 million in Q1. During the quarter we invested $29 million on capital projects and paid $16 million in dividends. We also received $65 million in dividends from our unconsolidated JVs during the quarter, a 119% cash conversion rate on that equity income.
Year on year basis.
Looking at taxes.
Looking at the sequential volumes there.
Last quarter I think your.
The EBITDA margin.
One is will drop into the queue.
As a percent on volumes.
Yes.
Please go ahead, good gross margins below 10%.
Okay.
Is that the right way to read as far as key.
A key driver on the sequential change was it really the volume there.
Joe Hayek: Looking at our balance sheet and liquidity position, funded debt at quarter end of $448 million was down to $244 million sequentially due to the payoff of our 26 bonds that I mentioned earlier. Net interest expense, $3 million was down by $6 million, primarily due to interest income we earned on our cash balances and to a lesser extent lower average debt levels. We continued to operate with extremely low leverage, and our net debt to trailing EBITDA leverage ratio remained under .5 times.
Thanks Scott.
Yes, I think youre exactly right.
Okay.
Got it.
Uh huh.
Underlying yield processes and profitability.
I think so.
On the call in the past.
Yes.
Typically.
Sure.
Excluding inventory holding gains and losses.
Joe Hayek: We believe that we're well positioned for the future with ample liquidity ending Q1 with $201 million in cash and $500 million in availability on our revolving credit facility, which was recently amended to extend the maturity to September of 2028. Yesterday the board declared a dividend of 32 cents per share for the quarter, which is payable in December of 2023.
Historical underlying EBITDA.
$60 per tonne.
Other than quarters, including this quarter.
Any thoughts on.
This is structural shifts.
Yeah.
Our work.
Not necessarily.
Yes.
Speaker 3: Martin, I think you're thinking about the right way by taking out the inventory holding gains and losses, but for us to target a specific dollar per ton is fairly difficult because of a number of factors including the mix. So I think the way you're thinking about it of pulling out inventory holding gains and one-time items is the right way to think about it. Anything else worth...
Joe Hayek: We now spend a few minutes on each of the businesses and consumer products, net sales and Q1 were $149 million down 21% from 189 million a year ago. The decrease was a result of lower volumes, partially offset by a favorable product mix and higher average selling prices. Just that EBITDA for the consumer business was 9 million and adjusted EBITDA margin was 6% in Q1 compared to 21 million and 11% last year.
Martin I think youre thinking about the right way by taking out the.
Inventory holding gains and losses, but for us to target a specific dollar per ton is fairly difficult because of the number a number of factors, including the mix itself.
The way Youre thinking about it in pulling out inventory holding gains and one time <unk>.
One time items is the right way to think about it.
Anything else worth highlighting.
Yeah.
Percent.
Joe Hayek: Consumers earnings during the quarter suffered as volume was down 24% from the record volumes achieved in Q1 of last year due to a number of factors. We have seen consumer demand moderate in the past several months and this summer's poor air quality caused by hot smokey weather conditions depressed outdoor activities for many Americans. We've also seen some additional destocking at our customers. While the quarter presented significant headwinds for our consumer business, that team continues to execute well and remains laser focused on delivering new and value added products for consumers over the long term. While there is significant uncertainty related to the outlook for consumer spending, we do expect volumes and margins to gradually improve and anticipate that they will return to more seasonally normal patterns.
<unk>.
The release here that you could discuss that.
J&J.
Versus toll.
Some idea there, but anything else that's going on with that kind of a positive mix shift.
Speaker 3: I think there we think of it in terms of the electrical steel business, right? That's a business that's going to continue to grow and we're investing in that business. So that will have a positive impact on our profitability going forward. So I think that will happen over time. I think with tolling, tolling bounces around a little bit because we are often...
I think there we think of it in terms of the electrical steel business right. That's a business that's going to continue to grow and we're investing in that business. So that will have a positive impact on our our profitability going forward. So I think that will that will happen over time, I think with tolling totaling bounces around a little bit because we.
We're often.
Speaker 3: an outsource for the mills and other customers. So that one's a little more difficult to predict. For example, we had an increase in tolling this quarter and mostly that was due to increase in tolling in Northeast Ohio at our pickling facility. So that one's again, tolling is a little bit more difficult to pin down. But in the long term, as we invest in the electrical steel business, you should see our margins increase.
And outsourced for the mills and other customers so that one's a little more difficult to predict for example, we had an increase in tolling this quarter and mostly that was due to.
Joe Hayek: Building products generated net sales of 134 million in Q1 down 11% from 150 million a year ago. The decrease was driven by lower volumes combined with lower average selling price. Building products generated adjusted EBIT, a 54 million for the quarter, and a just EBIT margin was 40% compared to 53 million and 35% in Q1 of last year. The increase in adjusted EBIT was driven by higher equity earnings from WAVE, which increased by 5 million year over year and contributed a record 28 million during the quarter.
An increase in tolling in northeast, Ohio, and our pickling facility. So that once again <unk> is a little bit more difficult to pin down but in the long term as we invest in the electrical steel business you should see our margins increase.
Okay.
Speaker 7: waived profitability also that was a good title.
Wade profitability also.
At the Pentagon.
Speaker 7: What are you kind of seeing today and how does that compare to the...
What are you kind of see today.
Compared to the.
Joe Hayek: The increase in WAVE's equity earnings was partially offset by strong but lower equity earnings from Clark Dietrich, which contributed 17 million during the quarter. Despite lower volumes in our wholly owned businesses, higher gross margins drove margin improvement and those businesses generated operating income of 9 million in the quarter. The team in building products continues to do an outstanding job executing in the current environment while focusing on long-term growth as they continue to partner with customers to develop new and innovative solutions in their markets.
A year ago period.
The.
<unk> Q.
Q window.
Just kind of work to do.
And how that compares year on year.
Speaker 5: Yeah, well, in Q1, I think, as you mentioned, Martin, volumes for wave were up.
Yes.
In Q1, I think as you mentioned Martin beam volumes for wave were up.
Speaker 5: slightly from where they were in Q1 of last year. Keep in mind that they're about two-thirds repair and remodel, and so you're starting to see some pretty reasonable stability. Those end markets are certainly not growing at 10 or 15% per year, but they're low single digit or flat-ish, and that's a good...
Slightly from where they were in Q1 of last year.
In mind that there are about two thirds repair and remodel and so you're starting to see some pretty reasonable stability. Those end markets are certainly not growing at 10 or 15% per year, but.
Joe Hayek: In sustainable energy solutions that sales in Q1 of 29 million were down 7% or 2 million from the prior year, primarily due to lower volumes as the economy in Europe remains challenged. A CES reported on adjusted EBIT loss of 5 million in the current quarter as volumes were simply too low to absorb the fixed costs in the business, as compares to a loss of a million dollars in Q1 of last year.
Low single digit or flat ish and that's a that's a good environment for wave honestly.
Speaker 5: environment for Wave. Honestly, the reason that they're able to grow has a lot to do with how innovative their products are and how they really think about the pain points of their customers.
The reason that they're able to grow as a lot to do with how innovative they are products are and how they really think about the pain points of their customers and.
Joe Hayek: We believe our business is well positioned in one of only a handful of companies globally with the scale and expertise to effectively serve the hydrogen ecosystem and adjacent sustainable energies like compressed natural gas. That said, this market is unlikely to develop quickly and until then sustainable energy solutions results will be impacted. The SES team has talented and experienced and were confident in their ability to navigate the current environment and set the business up for long-term success. A team recently took action to reduce costs as we focus on aligning our costs with both legacy market demand and the coming growth driven by the transition to low and zero emission transportation.
Speaker 5: Think about speed of install if you're trying to put up.
Think about speed of install if youre trying to put up 10 floors of acoustical ceilings. Your highest cost is not in your materials or highest cost as your labor and wave has historically done an absolutely terrific job of understanding how people need to do their job.
Speaker 5: ten floors of acoustical ceilings, your highest cost is not your materials, your highest cost is your labor. Wave has historically done an absolutely terrific job of understanding how people need to do their jobs and how to make them more efficient. I think you're just seeing some really a reflection of some of that goodness show up in the way that they're able to.
<unk> and how to make them more efficient and so I think youre just seeing some really a reflection of some of that goodness show up in the way that theyre able to.
Speaker 5: perform and continue to have really good margins.
Perform and continue to have really good margins.
Tim Adams: At this point, I will turn it over to Tim who will discuss steel processing results. Thank you, Joe. In steel processing, net sales of 881 million were down 15% from 1 billion in Q1 of last year, primarily due to lower average selling prices. In Q1 of last year, the market price for hot-rolled steel averaged approximately $975 per ton. While in Q1 of this year, the market price for hot-roll was approximately $875 per ton, resulting in a 17% decrease in our average selling prices.
Okay.
Okay I appreciate it thank you very much.
You bet.
Speaker 1: Our next question comes from Phil Gibbs from KeyBank. Please go ahead. Your line is open.
Our next question comes from Phil Gibbs from Keybanc. Please go ahead. Your line is open.
Hey, good morning.
Good morning.
Speaker 2: So as it relates to the joint venture portfolio in totality, obviously, wave.
So as it relates to the joint venture portfolio in totality, obviously wave is a big piece, but we probably do have some seasonality as we enter the fall.
Speaker 2: but we probably do have some seasonality as we enter the fall and winter seasons, and I'm not exactly clear what...
In winter seasons, and I'm not exactly clear what the.
Tim Adams: Total tons shipped were up 3% compared with the prior quarter. Direct sales tons were down 1%, while total tons shipped were up 8%, primarily due to increased volume with both mills and service centers. Direct sales tons made up 56% of our mix compared to 58% of our mix in Q1 of 2023. From a demand perspective, we experienced significant increases in automotive shipments, primarily due to increases in year over year automotive production.
Speaker 2: spreads are doing across the portfolio because you've had a lot of volatility.
The spreads are doing across the portfolio because you've had a lot of volatility in the results over the last 12 months. So.
Speaker 2: the last 12 months. So how do we think about just the joint venture, you know, bucket as we look at the next couple quarters of seasonality a bigger factor or spreads a bigger factor, are they both factors? Trying to think about everything as it relates to that.
How do we think about just the just the joint venture.
As we look at the next couple of quarters of seasonality a bigger factor spreads the bigger factor that both factors.
Trying to think about everything as it relates to that bucket.
Tim Adams: However, the growth in our automotive volume was offset by year over year decreases in both residential and non-residential constructions. In Q1, steel processing reported a bit of 78 million, which was up 43 million from the 35 million reported in the prior year quarter. This is primarily due to increased direct spread, as well as an incremental 7.2 million of equity income from our unconsolidated joint venture, Servius Sarah, as compared to the prior year quarter.
Speaker 5: So I think specifically the JV portfolio in building products, I think Tim can certainly speak to the JV portfolio within steel, but within building products.
So I think specifically the JV portfolio in building products I think Tim Tim can certainly speak to the JV portfolio within steel but within.
Within building products.
Speaker 5: With WAVE, we just talked about that. Don't expect.
With wave, we just we just talked about that.
Don't expect.
Speaker 5: anything that's substantial one way or the other. Clark Dietrich, we've talked about this. They're a little bit of a different mix than Wave is. They're 2-thirds-ish new construction. And so they're seeing some more headwinds related to their exposure to that market versus somebody who's...
Anything that's substantial one way or the other at Clark Dietrich, we've talked about this a little bit of a different mix than than wave is there two thirds ish new construction.
And so they're seeing similar headwinds related to their exposure to that market.
Tim Adams: For the quarter, we had estimated inventory holding gains of 15 million compared to estimated inventory holding losses of 2 million last year. As noted last quarter, steel prices increased approximately $500 per ton over the first four months of calendar 2023, but softened in May through August decreasing $400 per ton over that same time period. We expect the inventory holding gains of Q1 will flip to inventory holding losses in Q2 and anticipate those losses could be similar in size to the holding gains we had in Q4 of 2023.
Versus somebody who as you know maintenance repair and remodel focused and so we've talked about this we do expect Clark.
Speaker 5: maintenance, repair, and remodel focused. And so we've talked about this. We do expect.
Speaker 5: Clark Tetrick is a phenomenal business and a great team, but they will.
<unk> is a phenomenal business and a great team.
They will more than likely be down year over year for the next several quarters, just coming off of a great year that they had in our fiscal 'twenty three.
Speaker 5: more than likely be down year over year for the next several quarters just coming off of a great year that they had in our fiscal 23.
And then Tim on the steel side.
Speaker 3: Yeah, I think the unconsolidated JV in Mexico, Service Area Worthington, I think they are going to see similar headwinds and impact, maybe not to the same extent that we do in the US, but automotive strikes going to potentially impact them as well, because it can have far reaching effect.
Tim Adams: The steel business had an excellent first quarter and all of our teams performed at very high levels. Specifically, our teams did a great job launching several new programs for automotive customers. We recognize there could potentially be some near-term challenges in the automotive market that may impact our results in Q2, but we are confident our employees will meet any challenge arising during the contract negotiations taking place in Detroit. Similar to other market disruptions in recent years, we will manage through the situation and be prepared to meet our customers' needs when the Detroit OEMs return to normal build schedules.
Yes, I think.
The unconsolidated JV in Mexico servicer of Worthington.
We're going to see similar headwinds and impact maybe not to the same extent that we do in the U S. But automotive strike is going to potentially impact them as well right because it can have are reaching effects.
Speaker 3: I think our other joint ventures, there's a lot of automotive in there as well. Two of those are toll processing. So Spartan and Worthington Specialty Processing or Worthington.
I think.
Our other joint ventures, there's a lot of automotive in there as well on.
Those two of those are toll processing so.
So Spartan and Worthington specialty processing, our Worthington coiled Worthington Samuel coil processing <unk> AOI for two it usually.
Speaker 3: Worthington Samuel coil processing, WSCP is how we refer to it usually. Those have a lot of automotive in there as well. And then TWB, Table-Welded Blank operation is 100% automotive. So I think it really depends on how the strike goes will dictate how the North American joint ventures go for steel.
Tim Adams: Despite some potential near-term challenges, it's a very exciting time to be at steel. Our teams are experienced and focused and they will continue to meet any short-term challenge with hard work, collaboration, and innovative ideas. I'm proud of our teams for their dedication and for their continued commitment to safety.
We have a lot of automotive in there as well and then TWD tailor welded blank operation is 100% automotive. So I think it really depends on how the strike goes will dictate how the North American joint ventures go for steel.
Andy Rose: At this point, I will turn it over to Andy. Thank you, Tim. Excuse me.
Youll still have some of the.
Speaker 2: kind of the normalization and metal spreads happening though in those businesses irrespective of the strike that I would have.
Some of the kind of the normalization in metal spreads happening, though in those businesses irrespective of the strike, though I would imagine right.
Andy Rose: Good morning, everyone. Our fiscal 2024 first quarter adjusted earnings per share results were the second best first quarter in our 68-year history after adjusting for restructuring and non-recurring items. We have a lot of our people putting in extra hours to make the separation of our steel processing business a success, all while continuing to ensure that our businesses perform at a high level. Thank you to our employees across the organization who continue to prove they are outstanding and dedicated to supporting our customers, suppliers, and shareholders every day.
Speaker 3: Spartan is toll processing, WSCP is toll processing, TWDB has a pretty decent sized order book in tolling. And a lot of that is directed by, so there really is no metal margin impact there. And then at Survey of Cerro, they do have a high toll processing order book, but they're also fairly large and direct, and so they will be exposed to the metal margin changes. Very helpful.
Yeah.
Spartan is toll processing.
CP is toll processing <unk> has a pretty decent sized order book in total Wang.
And a lot of that is directed by so there really is no metal margin impact there.
And then it's very thorough they do they have do they do have a high toll processing order book, but Theyre also a fairly large and direct and so they will be exposed to the metal margin changes.
Andy Rose: Earlier this week, we released our fourth annual Sustainability Report on the back of being named Investor Business Daily's 100 Best ESG Companies in 2022 and Newsweek America's most responsible companies in 2023. We continue to expand and evolve our approach to profitably improving our ESG performance to benefit all of our stakeholders. As we close in on our Worthington 2024 plan to separate into two distinct financially strong growth companies, we are pleased to report that we are ahead of schedule and on track to complete the separation before the end of 2023.
Very helpful. Thank you so much you guys soon.
Thanks, Bill Thanks Bill.
Speaker 1: As a reminder, if you'd like to ask a question, please press star followed by the number one on your telephone.
As a reminder, if you'd like to ask a question. Please press star followed by the number one on your telephone keypad.
Speaker 1: Our next question comes from John Tomazos from John Tomazos very independent research. Please go ahead. Your line is open. Thank you. Congratulations on the great results.
Our next question comes from John Tumazos from John Tumazos, very independent Research. Please go ahead. Your line is open.
Thank you congratulations on the great results.
Thank you John .
In 2022 to $5 three.
3 million tons of sheet and plate capacity coming on in each year steel dynamics Nucor.
U S steel then nucor again.
Andy Rose: There is still a lot of work and a few key milestones in front of us, but we are getting close. Our employees continue to embrace the coming changes in our working hard to position both companies for success. We also announce the names and branding for the two businesses Worthington Steel and Worthington Enterprises. We decided to keep Worthington in both names and celebrate our philosophy and culture which will continue in both businesses but change the names to reflect the unique growth prospects of both businesses.
Yeah.
Well this year as steel demand has rebounded from the November December lows. It looks like the apparent demand is going to be about 7 million tons of less.
And the 2017 18 19.
Average pre pandemic, which.
Doesn't help to absorb 3 million tons a year for four years.
How are you managing steel processing differently.
Andy Rose: Worthington Steel has significant opportunities to grow its core market and develop higher growth markets, such as electrical steel for electric vehicles and transformers. Worthington Enterprises will continue to build out its market leading physicians in building products, consumer products, and sustainable energy solutions. To ensure that both businesses begin their new lives with very strong balance sheets and plenty of available capital, we made several moves to renew credit facilities and pay down debt.
To access these new mills.
Do you anticipate that some of your suppliers.
Your suppliers may disappear in <unk>.
Or are you going to.
Deliberately hold lower inventories.
CERN.
Don't see $2000 a ton.
<unk> thousand $500 a ton anytime soon.
Okay.
Speaker 3: So there's a lot of questions packed in there. So I would say we are deliberately always trying to drive down our inventory in terms of tons. We recognize that the price of steel is volatile, and we want to keep those tons as low as possible at all times because it's just sleeping money. And that becomes even more important when we're standalone. I think in terms of new capacity capacity,
Andy Rose: Our cash position also remains strong at 201 million. Once the separation is complete, we are likely to continue with our historical balanced capital allocation strategy in both businesses. Both businesses will also be run with our philosophy and golden rule principles and utilize the Worthington business system of transformation, innovation, and acquisitions to drive growth and shareholder value.
So theres a lot of questions packed in there. So I would say we are deliberately always trying to drive down our inventory in terms of times right.
We recognize that the price steel is volatile and we want to keep those tons as low as possible at all times right, because it's just sleeping money and that becomes even more important when we're stand alone.
I think in terms of new capacity coming online.
Andy Rose: We are excited to announce that on October 11th in New York City, we will be hosting an investor day for both Worthington Enterprises at 9.30 a.m, and Worthington Steel at 1.00 p.m. We are looking forward to showcasing the exciting prospects for both of these companies as they embark on their own independent growth strategies.
Speaker 3: What we envision is, and we don't participate in the plate market, but in the sheet market, I would say that
What we envision is and we don't participate in the plate market, but in the sheet market I would say that.
Speaker 3: We will use those mills. I'm not worried or we are not worried about any potential suppliers going away. We welcome the new capacity. We think it's great, and we will try to use those mills to gain access to customers we don't already have. So if those mills are located in southern Texas, we will attempt to go after business that's down there that we haven't traditionally had access to.
We will use those mills not worried or we're not worried about any potential supplier is going away.
We welcome the new capacity, we think it's great and we will try to use those mills.
Andy Rose: To all of our customers, suppliers, employees, shareholders, and other stakeholders, thank you for your continued partnership and we look forward to shared success in the coming months and years as we continue as Worthington Steel and Worthington Enterprises.
To gain access to customers, we don't already have so if those mills are located in southern Texas. We will attempt to go after business that's down there that we haven't traditionally had access to.
Unknown Executive: We will now take any questions. If you would like to ask a question, please press star or follow by the number one on your telephone keypad. To withdraw your question, please press star one again. We'll pause for just a moment to compile the Q&A roster.
Okay.
I can ask another question or the same question that was asked earlier, but a little bit differently.
Concerning consumer.
Katja Tansik: Our first question comes from Katia Tansik from BMO Capital Markets. Please go ahead to line as open. Good morning. Thank you for taking my questions. Good morning, Katia.
And the last four quarters in the containerboard market.
The market shrank, 10%.
Yes, historically unusual for containerboard to fall more than steel and has slowed down but.
Andy Rose: Can you talk a little bit more about the current auto market environment, specifically what impact you're seeing from the strike? Is there anything or are there any steps you can take to potentially minimize the impact? Thank you. Thank you for the question. So, yeah, obviously this situation is front and center for us. So far, we've seen little impact on our business given the scope of the strike has been limited and it's actually been a short period of time.
The consumer is under pressure.
About half of containerboard goes to supermarkets and drug stores.
Historically, it's a very stable market. Unlike.
Manufacturing or autos or steel.
Is it fair to say that consumer being down 21% greater than 10% might reflect poor outdoor activity.
Good.
If you were only down 8% you'd be heroes.
Andy Rose: We recognize that there's risk associated with the strike, but there's also opportunities for us. So, if the strike expands, our facilities have playbooks that will address volume slowdowns. So, as you would expect, the playbooks are going to align with the Worthington philosophy and the gold rule of doing things the right way for our customers, our employees and our shareholders. But one of the things I want to point out about the strike is these are opportunities for us as well.
In other words.
This sector is systemically down.
So I think John .
Speaker 5: you know, down 24%. Keep in mind that's down 24% from record volumes a year ago. So tough compare, but yes, we absolutely have seen and you've seen from exporting goods and from other folks that participate in the outdoor category in particular that.
Down 24% keep in mind, that's down 24% from record volumes a year ago, so tough compare.
But yes, we absolutely have seen and you've seen from <unk>.
Andy Rose: So, our recent history shows we do a great job putting ourselves in position to win new business when markets rebound. Our commercial and supply chain teams do an excellent job helping our customers navigate all the moving parts that occur when a supply chain suddenly stops, but then more importantly when that supply chain suddenly turns back on. Customers absolutely remember which suppliers did the best job helping them navigate through these tough situations.
Exporting goods and from other folks that participate in the outdoor category in particular that spa.
Speaker 5: Spending is down and activities this summer were down. Andy referred to it exactly right. It was a bit of the perfect storm. One of the things for us was also that we...
Spending is down and activities. This summer we're down Andy referred to it exactly right. It was a bit of the perfect storm one of the things for US was also that we.
Speaker 5: did really well in Q1 of last year, so we created a tough comp for ourselves.
Did really well in Q1 of last year. So we created a tough comp for ourselves.
Okay.
Are you doing anything to cut costs consumer segment.
Andy Rose: Okay, thank you. And then just on the consumer product segment, you mentioned that you expect volumes and margins to gradually improve from these levels. What's giving you confidence that that will help? We believe, Katja, that the man moderation that we've seen is a little episodic, right? Some of the things that were happening this summer, people just didn't spend as much time outside, whether that was in their backyard or on a camping trip.
The consumer being strapped everywhere.
Mortgage rates are almost 8% today.
Year mortgages.
Speaker 5: Yeah, every single day, John , regardless of market conditions, we are using our transformation playbook and our continuous improvement mindset to try and get better, not just when things aren't going as well as we want them to, but every single day.
Every every single day, John regardless of market conditions, we are using our transformation playbook and our continuous improvement mindset to try and get better not just when things arent going as well as we want them to but every single day.
Thank you.
Okay.
Andy Rose: And so we think that consumers are going to have a lot of the sort of demand and softening was really more in our camping gas segment. And so with that being said, you get into the winter season. We think that Q2 will probably have some continuing headwinds for the consumer business, but we do absolutely expect that volumes will return to seasonally normal patterns just because we have seen this movie before. And typically people respond.
Speaker 1: We have no further questions in queue. I would like to turn the call back over to Andy Rose for any closing remarks.
We have no further questions in queue I would like to turn the call back over to Andy Rose for any closing remarks.
Speaker 3: Thanks everyone for joining us today. We are super excited about our future and look forward to speaking to you on October 11th at our Investor Day in New York City.
Thanks, everyone for joining us today, we are super excited about our future and look forward to speaking to you on October 11th at our Investor Day in New York City.
Thanks, everybody.
Speaker 1: This concludes today's conference call. Thank you for your participation. You may now.
This concludes today's conference call. Thank you for your participation you may now disconnect.
Okay.
Andy Rose: Our products don't cost $1,000. You don't need a home equity line of credit to a poor, but we have. And we've seen some softness throughout retail and certainly throughout the outdoor category. So we're not immune some of those things, but we believe our value proposition is awfully good. And, you know, kind of heading into the late 23 and early 24 will feel much better about volumes returning to some more normal patterns.
Andy Rose: This was a little bit of the perfect storm of, you know, bad weather this summer hot fires as well as big box retailers destocking inventory and consumers may be having a little extra inventory as a COVID hangover. So that's why we feel confident that things will return to more normal levels in the coming months.
Unknown Executive: Okay. Thank you.
Martin Engler: Our next question comes from Martin Engler from Seaport Research Partners. Please go ahead. You're going to open.
Joe Hayek: Hello. Good morning, everyone. Morning, Martin. I wanted to also touch on consumer products and profitability. I was a little bit surprised. I mean, at least relative to what I was expecting on the quarter there. And I know you called out volumes as a key driver there. On a year on your basis, but I'm looking at just looking at the sequential volumes there. Last quarter, I think you were mid team either down margins, then as the sequential drop into this queue, I think of about 15% on volumes.
Joe Hayek: And that drove being like a drove margins below 10%. Um, is that the right way to read it as far as like the underlying key driver on the sequential change there was really the volumes there and, you know, fixed costs. Yeah, I think you're exactly right. Okay. Um, got it. Um, underlying deal processing profitability and I've mentioned this, I think several calls in the past, but, you know, I've typically kept it in the back, to my head, excluding inventory holding gains in losses, historical underline EBITDA, $80, $50, $60 per ton.
Joe Hayek: It's been a bit better than that in recent quarters, including this quarter. Any thoughts on, you know, is this a structural shift, something that's going forward or not necessarily yet to be determined. Martin, I think you're thinking about the right way by taking out the inventory holding gains in losses, but for us to target a specific dollar per ton is fairly difficult because of the number of factors including the mix. So I think the way you're thinking about it of pulling out inventory holding gains in one time, one time items is the right way to think about it.
Joe Hayek: Anything else worth highlighting on the mix that maybe isn't presented in the release here that you could discuss that's been changing, I know we get to rush versus toll on making, you know, given some idea there, but anything else that's going on with like a positive mix shift that might sustain. I think there, we think of it in terms of the electrical steel business, right, that's a business that's going to continue to grow and we're investing in that business, so that will have a positive impact on our profitability going forward, so I think that will happen over time.
Joe Hayek: I think with tolling bounces around a little bit because we are often an outsourced for the mills and other customers, so that one's a little more difficult to predict, for example, we had an increase in tolling this quarter, and mostly that was due to increase in tolling in northeast Ohio at our pickling facility, so that one's again tolling's a little bit more difficult to pin down, but in the long term as we invest in the electrical steel business, you should see our margins increase. Waves profitability also that was a bit better than I expected.
Joe Hayek: What are you kind of seeing today and how does that compare to the year ago period and I'm referencing the fiscal kind of to cue window, you know, just kind of what you've seen to date and how that compares year on year. Yeah, well, in Q1, I think as you mentioned, Martin, volumes for Waves were up slightly from where they were in Q1 of last year. Keep in mind that they're about two thirds repair and remodel, and so you're starting to see some pretty reasonable stability, you know, those end markets are certainly not growing at 10 or 15% per year, but, you know, they're low single digit or flatish.
Joe Hayek: And that's a good environment for Waves. Honestly, the reason that they're able to grow has a lot to do with how innovative their products are and how they really think about the pain points of their customers and think about speed of install. If you're trying to put up 10 floors of acoustical ceilings, you know, your highest cost is not your materials, your highest cost is your labor and and Waves has historically done an absolutely terrific job of understanding how people need to do their jobs and how to make them more efficient.
Joe Hayek: And so I think you're just seeing some really a reflection of some of that goodness show up in the way that they're able to perform and, you know, continue to have really good margins. Thanks. Okay, appreciate it. Thank you very much. You bet.
Phil Gibbs: Our next question comes from Phil Gibbs from Keybank. Please go ahead. Your line is open. Hey, good morning. Good morning. So as it relates to the joint venture portfolio in totality, obviously, wave is a big piece, but we probably do have some seasonality as we enter the fall and in winter seasons. And I'm not exactly clear what spreads are doing across the portfolio because you've had a lot of volatility in the results over the last few months.
Andy Rose: So how do we think about just the joint venture bucket as we look at the next couple quarters of seasonality, a bigger factor or spreads a bigger factor or they go with factors trying to think about everything as it relates to that bucket. So I think specifically the the JV portfolio in building products, I think Tim, Tim can certainly speak to the JV portfolio within steel, but within within building products with wave, we just we just talked about that, you know, don't expect anything that's substantial one way or the other.
Andy Rose: Clark Dietrich, we've talked about this. You know, they're a little bit of a different mix than than wave is. You know, they're, you know, two-thirds-ish new construction. And so they're seeing some more headwinds related to their exposure to that market towards versus somebody who's, you know, maintenance repair and remodel focused. And so, you know, we've talked about this. We do expect Clark Dietrich is a phenomenal business and a great team, but they will more than likely be down year-over-year for the next several quarters just coming off of a great year that they had in our physical 23.
Tim Adams: And then Tim on the steel side? Yeah, I think the unsolidated JV in Mexico, Serbia, Sarah Worthington think they are going to see similar headwinds and impact maybe not to the same extent that we do in the U.S., but automotive strikes are going to potentially impact them as well, right? Because it can have far-reaching effects. I think our other joint ventures, there's a lot of automotive in there as well. Those two of those are toll processing.
Tim Adams: So Spartan and Worthington, especially processing or Worthington, Worthington, same quote processing, WSCP is how we refer to it usually. Those have a lot of automotive in there as well. And then TWB, the able lot of blank operation is 100% automotive. So I think it really depends on how the strike goes. We'll dictate how the North American joint ventures go for steel. You'll still have some of the kind of the normalization metal spreads happening, though, in those businesses, irrespective of the strike, though I would imagine, right?
Tim Adams: Spartan is toll processing. WSCP is toll processing. TWB has a pretty decent sized order book in tolling. And a lot of that is directed by, so there really is no metal margin impact there. And then in Serbia, Sarah, they do have a high toll processing order book, but they're also fairly large and direct, and so they will be exposed to the metal margin change.
Unknown Executive: Very helpful. Thank you so much. You guys too. Thanks Bill.
Unknown Executive: As a reminder, if you'd like to ask a question, please press star, follow up on the number one on your telephone keypad.
John Tumazos: Our next question comes from John Tumazos, from John Tumazos, very independent research. Please go ahead, your line is open. Thank you.
Andy Rose: Congratulations on the great results. Thank you, Joe. In 2022 to fall. There's three million tons of sheet and plate capacity coming on each year, steel dynamics, new core, US steel, then new core again. While this year's steel demand has rebounded from the November December lows, it looks like the apparent demand is going to be about seven million tons less than the 2017-18-19. The average pre-pandemic, which doesn't help to absorb three million tons a year for four years, how are you managing steel processing differently to access these new mills?
Andy Rose: Do you anticipate that some of your suppliers are going to, your prior suppliers may disappear? Are you going to deliberately hold lower inventories out of the concern that we don't see $2,000 a ton or $1,500 a ton any time soon? There's a lot of questions packed in there. So I would say we are deliberately always trying to drive down our inventory in terms of tons. We recognize that the price steel is volatile and we want to keep those tons as low as possible at all times, because it's just sleeping money.
Andy Rose: And that becomes even more important when we're standalone. I think in terms of new capacity coming online, what we envision is, and we don't participate in the plate market, but in the sheet market, I would say that we will use those mills, not worried or we are not worried about any potential suppliers going away. We welcome the new capacity, we think it's great, and we will try to use those mills to gain access to customers we don't already have.
Andy Rose: So if those mills are located in southern Texas, we will attempt to go after business that's down there that we haven't traditionally had access to. I can ask another question or the same question that was asked earlier, but a little bit differently.
Andy Rose: Concerning consumer, in the last four quarters in the container board market, the market shrank 10%, it's historically unusual for container board to fall more than steel on a slow down, but the consumer is under pressure. About half of container board goes to supermarkets and drug stores, or historically it's a very stable market unlike manufacturing or auto's or steel. Is it fair to say that consumer being down 21% greater than 10% might reflect poor off?
Andy Rose: Optoractivity, but if you were only down 8% you'd be heroes. In other words, the sector is systemically down. So I think John, you know, down 24%, keep in mind that's down 24% from record volumes a year ago. So tough compare, but yes, we absolutely have seen and you've seen from exporting goods and from other folks that participate in the outdoor category in particular that spending is down and activities this summer, we're down 80 referred to it exactly right.
Andy Rose: It was a bit of the perfect storm. One of the things for us was also that we did really well into one of last year, so we created a tough comp for ourselves. Are you doing anything to cut costs and consumer segment in view of the consumer being strapped everywhere and mortgage rates are almost 8% today for 30 or mortgages? Yeah, every single day, John, regardless of market conditions, we are using our transformation playbook and our continuous improvement mindset to try and get better not just when things aren't going as well as we want them to, but every single day. We have no further questions in queue.
Andy Rose: I would like to turn the call back over to Andy Rose for any closing remarks. Thanks, everyone, for joining us today. We are super excited about our future and look forward to speaking to you on October 11th at our investor day in New York City. Thanks, everybody. This concludes today's conference call. Thank you for your participation. You may now disconnect. Thank you.