Q2 2025 Worthington Steel Inc Earnings Call
Operator: This increase is primarily due to higher gross margin, partially offset by higher SG&A expense, and lower equity earnings at service. Gross margin was impacted by higher direct material spreads, including the impact of lower year-over-year pre-tax inventory holding losses, partially offset by lower direct volume.
This increase was primarily due to higher gross margin, partially offset by higher SG&A expense and lower equity earnings at Serbia zero.
Gross margin was impacted by higher direct materials spreads, including the impact of lower year over year pre tax inventory holding losses, partially offset by lower direct volume.
Operator: SG&A increased $7 million over the prior year's second quarter, primarily due to incremental costs associated with being a standalone company. as well as an increase in bad debt expense associated with the bankruptcy of a customer and an increase in our reserves associated with a separate bank.
SG&A increased $7 million over the prior year second quarter, primarily due to incremental costs associated with being a standalone company as well as an increase in bad debt expense associated with the bankruptcy of a customer and an increase in our reserves associated with a separate customer.
Operator: Additionally, the company incurred higher than normal professional fees, most of which were associated with the announced pending European Equity earnings from Servius Aero decreased due to lower direct spreads, which were unfavorably impacted by lower steel prices, as well as the impact of exchange Next, I will provide some content on the market and our Since July, the market pricing for Hot Roll Coil has fluctuated in a relatively tight band between $650 and $700. With little movement in market pricing, we expect minimal estimated inventory holding gains in the third quarter of fiscal 2025, as compared with the $13.4 million of estimated holding losses in the second quarter.
Additionally, the company incurred higher than normal professional fees, most of which were associated with the announced pending European acquisition.
Equity earnings from Serbia, Cerro decreased due to lower direct spreads, which were unfavorably impacted by lower steel prices as well as the impact of exchange rate movements.
Next I will provide some content on the market and our shipments.
Since July the market pricing for hot rolled coil has fluctuated in a relatively tight band between $650 million and $700 per ton with little movement in market pricing, we expect minimal estimated inventory holding gains in the third quarter of fiscal 2025, as compared with $13 $4 million.
Of estimated holding losses in the second quarter of 2025 net sales in the quarter were $739 million down $69 million or 9% from the prior year quarter, primarily due to lower direct volumes and lower direct market pricing with.
Operator: Net sales in the quarter were $739 million, down $69 million, or 9% from the prior year quarter, primarily due to lower direct volumes and lower direct We shipped approximately 936,000 tons during the quarter, which was down 3% compared with the prior year. Direct sales volume made up 55% of our mix in the current year quarter as compared with 56% in the prior year. direct sale volume was down 5% over the prior year quarter with shipments down in most Our shipments to the automotive market were down 2% compared to the prior year. As you know, the Detroit 3 automakers represent approximately 30% of our net sales.
We shipped approximately 936000 tonnes during the quarter, which was down 3% compared with the prior year quarter.
Direct sales volume made up 55% of our mix in the current year quarter as compared with 56% in the prior year quarter.
Direct sale volume was down 5% over the prior year quarter with shipments down in most markets our shipments to the automotive market were down 2% compared to the prior year quarter.
As you know the Detroit three automakers represent approximately 30% of our net sales the.
Operator: The decrease in automotive volume was primarily due to deeper-than-expected production cuts at one of those customers as they attempted to right-size their inventory levels and reset their commercial strategy. The OEM production cuts continue to increase as the quarter progresses. on a year-over-year basis. For the second quarter, we experienced a volume decrease of more than 30% with that customer, mirroring the customer's estimated decrease in units. We are monitoring the situation very closely as the OEM navigates their challenges, and we believe they could return to a more normal build schedule within the next two quarters. As we have done in prior years, we are working closely with our partners throughout the entire automotive supply chain to prepare for increased volume requirements as the OEM or The vast majority of the year-over-year decrease in our automotive shipments were offset by increases in volume with the other automotive OEMs. We have noted over the past few quarters that we have won new programs and increased our share in the automotive market.
The decrease in automotive volume was primarily due to deeper than expected production cuts at one of those customers as they attempted to rightsize their inventory levels and reset their commercial strategy.
The OEM production cuts continue to increase as the quarter progressed on a year over year basis for the second quarter, we experienced a volume decrease of more than 30% with that customer mirroring the customer's estimated decrease in unit production.
We are monitoring the situation very closely as the OEM navigate their challenges and we believe they could return to a more normal build schedule within the next two quarters.
As we have done in prior years, we are working closely with our partners throughout the entire automotive supply chain to prepare for increased volume requirements as the OEM ramps back up.
The vast majority of the year over year decrease in our automotive shipments were offset by increases in volume with the other automotive Oems. We have noted over the past few quarters that we have won new programs and increased our share in the automotive market. We are beginning to see the volume impact of some of those new programs are shipments to there.
Operator: We are beginning to see the volume impact of some of those new programs. The shipments to the remaining Detroit Three increased by more than thirty percent. Our strategy continues to be collaborating with our automotive customers to find mutually beneficial solutions that help them meet their strategic goals.
Remaining Detroit three increased by more than 30%.
Our strategy continues to be collaborating with our automotive customers to find mutually beneficial solutions that help them meet their strategic goals, we look forward to continuing our partnership with our automotive customers.
Operator: We look forward to continuing our partnership with our automotive customers.
Operator: turning to the construction market, our volumes decreased 20% on a year over year. The decrease was a combination of several factors. First, in the prior year, we successfully pivoted to a more construction-heavy mix as we prepared for the potential automotive strike at the Detroit Second, in the current year, we anticipated a more typical mix between automotive and However, as I mentioned, we experienced sudden and deep cuts to our automotive order. Both the timing and the magnitude of those cuts limited our ability to secure replacement volume and Total tons were down 1% year-over-year, primarily due to lower coded volumes partially offset by an increase in pickling.
Turning to the construction market our volumes decreased 20% on a year over year basis. The decrease was a combination of several factors first in the prior year, we successfully pivoted to a more construction heavy mix as we prepared for the potential automotive strike at the Detroit three.
In the current year, we anticipated a more typical mix between automotive and construction. However, as I mentioned, we experienced sudden and deep cuts to our automotive order book, both the timing and the magnitude of those cuts limited our ability to secure replacement volume in other markets.
Total tons were down 1% year over year, primarily due to lower coated volumes, partially offset by an increase in pickling and tailor welded blanks.
Operator: turning to cash flows in the balance sheet. Cash flow from operations was $68 million and free cash flow was $33.2 million. During the quarter, we spent $34.8 million on capital expenditures related to a variety of projects, including the previously announced electric We now expect capital expenditure. for fiscal 2025 to be approximately $125 million versus our previous estimate of $110 million. We are increasing the estimate for fiscal 2025 CapEx for several reasons. First, we now expect a larger portion of the CapEx for our candidates. to be spent in fiscal 2025 rather than fiscal... Second, as we talked about in the past.
Turning to cash flows and the balance sheet cash flow from operations was $68 million and free cash flow was $33 2 million during the.
We spent $34 8 million on capital expenditures related to a variety of projects, including the previously announced electrical steel expansion. We now expect capital expenditures for fiscal 2025 to be approximately $125 million versus our previous estimate of $110 million.
We are increasingly estimate for fiscal 2025 Capex for several reasons first we now expect a larger portion of the Capex for our Canada expansion to be spent in fiscal 2025, rather than fiscal 2026. This is simply a change in timing second.
Second as we talked about in the past.
Operator: We expect other projects to come up during the course of any fiscal year. For example, we are adding a new press to our electrical steel facility in China to support In addition, as part of the previously mentioned Temple ERP system, we have elected to upgrade our SHOP4 system and data warehouse to maximize the future opportunities for process improvements At a trailing 12-month basis, we generated $79.4 million of free cash flow.
We expect other projects to come up during the course of any fiscal year. For example, we are adding a new press to our electrical steel facility in China to support New business. In addition, as part of the previously mentioned temple ERP system, we have elected to upgrade our shop for system and data warehouse to maximize the future opportunities.
For process improvements using the transformation.
On a trailing 12 month basis, we generated $79 $4 million of free cash flow.
Geoffrey Gilmore: Wednesday, we announced a quarterly dividend of $0.16 per share, payable on March 28. We ended the quarter with $52 million of cash, and our ABL debt at November 30 was $115 million, resulting in net debt of $63 million.
Wednesday, we announced a quarterly dividend of <unk> 16 per share payable on March 28 2025.
We ended the quarter with $52 million of cash and our ABL debt at November 30 was $115 million, resulting in net debt of $63 million.
Geoffrey Gilmore: Finally, I would like to thank our team for making safety the highest priority at every facility and for delivering incredible performance in our first year as a public safety team. I'm proud to be part of Worthington Steel and look forward to working with our entire team to continue driving value for all stakeholders.
Finally, I would like to thank our team for making safety their highest priority at every facility and for delivering incredible performance in our first year as a public company I am proud to be part of Worthington steel and look forward to working with our entire team to continue driving value for all stakeholders.
Operator: At this point, we would be happy to take your questions. Thank you.
At this point, we would be happy to take your questions.
Speaker Change: Thank you we will now begin the question and answer session. If you would like to ask a question. Please press star one on your telephone keypad to raise your hand and join the queue and if you'd like to withdraw that question again press star one.
Operator: We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. And if you'd like to withdraw that question, again press star 1. Your first question comes from Phil Gibbs with KeyBank Capital Markets.
Speaker Change: First question comes from Phil Gibbs with Keybanc capital markets. Please go ahead.
Philip Gibbs: Hey, good morning.
Hey, good morning.
Hey, Phil.
Operator: Bye.
Philip Gibbs: Geoff, the EBITDA per ton X inventory holding gains and losses, I think, was down about $26 a ton sequentially. Certainly not something we were expecting. I know you guys have been managing your profitability within a pretty tight range.
Speaker Change: Jeff.
Speaker Change: EBITDA per ton ex inventory holding gains and losses I think was down.
Speaker Change: $26 a ton sequentially certainly not something we were expecting I know you guys have been managing managing your profitability within a pretty tight range.
Philip Gibbs: What made it drop off so abruptly sequentially in particular? I know you did give some color, but what were some of the biggest impacts to that and when should we expect you guys to get back to some of the levels we're more used to?
Speaker Change: What made it drop off so.
Speaker Change: Abruptly.
Speaker Change: Sequentially in particular, I know you did give some color, but what were the what were some of the biggest impacts.
Speaker Change: Impacts to that and when should we expect you guys to get back to some of the yes.
The levels were more used to.
Geoffrey Gilmore: Thanks for the question, Phil. I'm actually going to pass that to Tim to answer for you.
Speaker Change: Thanks for the question, Phil I'm actually going to pass that to Tim to answer for you.
Timothy Adams: Hey, Phil. I think it's the three drivers, whether it's sequential or year-over-year. I think the three big drivers, number one is volume. We would have expected volume on a sequential basis to be down 2 to 3 percent, and it was actually down 7 percent. And what we outlined with the D3 customer, that was unexpected. And if that would occur over a long period of time, you could take a look at your operating expense, and everything would be variable. But the way the production cuts came in, they came fast and furious and kept expanding over the course of the quarter.
Tim: So I think it's the three drivers whether it's sequential or year over year I think the three big drivers number one is volume.
Speaker Change: We would have expected volume on a sequential basis to be down two to 2% to 3% and it was actually down 7% and what we outlined with the <unk> customer that was unexpected and if that would occur over a long period of time you could take a look at your operating expense and everything would be variable, but the way the production.
Speaker Change: <unk> came in they came fast and furious and kept expanding over the course of the quarter.
Timothy Adams: You know, most of our costs are fixed at that point. The other two drivers are SG&A, which we touched on. We had an increase in bad debt, as well as the professional fees associated with the CDEM transaction. Now, that transaction is not closed yet, but the fees came in. And then, finally, performance at Serviocero. So you've got a couple things happening down there. You've got volume. You've got some spread compression, plus the FX gains that occurred. FX losses, I should say, rather than gains.
Speaker Change: Most of our costs are fixed at that point.
Speaker Change: The other two drivers our SG&A, which we touched on we had an increase in bad debt as well as the professional fees associated with the <unk> transaction that transaction is not closed yet but the fees came in and then finally performance AD service zero. So you've got a couple of things happening down there you have got.
Speaker Change: Volume, you've got some spread compression plus.
Speaker Change: FX gains that occurred FX losses, I should say rather than gain so so those are really the drivers.
Timothy Adams: So those are really the drivers.
Philip Gibbs: And then when you guys highlighted the bad debt expense from the customer bankruptcy and the increased reserve and then also the professional fees, any way to square up the magnitude of those three items? Sure. I mean, I think if you look at that bad debt expense, let me start with our credit group does a fantastic job.
Speaker Change: And then what are you guys highlighted the bad debt expense from from the customer bankruptcy and the increased reserve and then also the professional fees.
Speaker Change: Any way to square up the magnitude of those three items.
Speaker Change: Sure I mean, I think if you if you look at that bad debt expense I mean, let me start with our credit group does a fantastic job I'll just start with that they work hand in hand, with our commercial group. So we take that very seriously and we've got an outstanding track record and we rarely have bad debt write offs.
Timothy Adams: I'll just start with that. They work hand-in-hand with our commercial group. So we take that very seriously. We've got an outstanding track record and we rarely have bad debt write-offs. But two things that happened in the quarter, the unexpected bankruptcy of one of our customers, that was probably about a million dollars, maybe a little bit less. And then we elected to reserve a little over a million dollars for a second customer where we think collection of that specific receivable is at risk. So we review, as you would guess, we review AR on a customer-by-customer basis every quarter.
Speaker Change: But two things that happened in the quarter. The the unexpected bankruptcy of one of our customers that was probably about $1 million, maybe a little bit less and then we elected to reserve a little over $1 million for a second customer where we think collection.
Speaker Change: Of that specific receivables at risk. So we review as you would guess we review.
Speaker Change: On a customer by customer basis every quarter, we don't think beyond this quarter, we should have any additional issues from a collectability standpoint, but if you add those two up about $2 million.
Timothy Adams: We don't think beyond this quarter we should have any additional issues from a collectability standpoint. But if you add those two up, it's about $2 million.
Timothy Adams: And then the professional fees, I'm sorry. a professional fees of probably about $2 million, give or take.
Speaker Change: And then the professional fees I'm sorry.
Professional fees are probably about $2 million give or take.
Philip Gibbs: Any reason you guys didn't carve those out similar to the other items that you did, or is some of that expected to recur as you take on Sedum, or should that wind down as the transaction gets closer to close? And we typically, I mean, that's kind of normal course of business, right? Those are normal things versus the, you know, the pension liftout or the gain on the sale of land. These things are kind of normal. Of course, we're looking at acquisitions all the time, and we're going to have transaction expenses, whether the transaction goes through or not.
Speaker Change: Any reason you guys didn't carve those out similar to the other items that you did or is some of that expected to recur as you take on.
Speaker Change: <unk> showed that showed that wind down as the transaction gets closer to close.
Speaker Change: Yes, we typically I mean, that's kind of normal course of business right. Those are normal things versus the the pension lift out or the gain on the sale of land. These things are kind of normal course, we're looking at acquisitions all the time, but we're going to have transaction expenses, whether the transaction goes through or not so we don't expect those to recur reoccur.
Timothy Adams: So we don't expect those to reoccur.
Philip Gibbs: Thanks.
Thanks, and then lastly, as you guys look out into the early part of next year I know typically.
Philip Gibbs: And then lastly, as you guys look out into the early part of next year, I know typically volumes do lift a little bit into the first part of the calendar year, and then certainly much stronger in the latter part of the fiscal year for you all. What are you expecting in terms of customer sentiment, particularly as you come out of this period of deep carve-out from one of your key auto customers?
Speaker Change: Volumes do lift a little bit into the first part of calendar year.
Speaker Change: And then certainly much stronger in the latter part of the fiscal year for you all.
Speaker Change: What are you expecting in terms of the kind of customer sentiment, particularly as you come out of this period of deep deep carve out from from one of your key auto customers. Thanks.
Timothy Adams: Thanks. Yeah, Phil, I think we're overall, you know, I had mentioned in my intro cautiously optimistic, I specifically said that about automotive, but that's where we feel across the board. I think things will be fairly stable, excluding the one large OEM customer here looking out the next few months. But as we start to get to spring and beyond, I think our optimism gets greater. For various reasons, I think that's really the sentiment from our customers. And Phil, that's what you've been reading and hearing from other executives as well. I think specifically, with automotive, lower interest rates, the fact that the vehicle is averaging almost 13 years at this point, which is decade highs, people want to replace those vehicles.
Phil Gibbs: Yes, Phil I think overall.
Phil Gibbs: I had mentioned in my intro cautiously optimistic I, specifically said that about automotive, but thats, where we feel across the board I think things will be.
Phil Gibbs: It's fairly stable, excluding the one large OEM customer here looking out the next few months, but as we start to get to spring and beyond.
Phil Gibbs: I think our optimism gets greater for various reasons I think that's really the sentiment from our customers and so thats, what <unk> been reading and hearing from other.
Phil Gibbs: Executives as well I think specifically.
Phil Gibbs: With automotive.
Phil Gibbs: Lower interest rates.
Phil Gibbs: Fact that the vehicle is averaging almost 13 years at this point, which is decade highs.
Phil Gibbs: People want to replace those those vehicles in addition to that.
Timothy Adams: In addition to that, that's overall market. If I look specifically, at Worthington, my optimism also comes from how we've positioned ourselves with automotive. You know, even with that large OEM down, we were more than able to offset that specifically into the other OEMs, and that was because of market share gains that I have been sharing with you over the last few quarters. Now, that's excluding Tier 1s, and that's where we had a bit of a hole. We're feeling good, specific about the market, that's 52% of our business going forward. And that large OEM, this isn't a long-term situation.
Phil Gibbs: <unk> overall market, if I look specifically.
Phil Gibbs: At Worthington.
Phil Gibbs: Optimism also comes from how we positioned ourselves with automotive you know even with that large OEM down we.
Phil Gibbs: We were more than able to offset that specifically into the other Oems and that was because of market share gains that I have been sharing with you over the last the last few quarters now that's excluding tier ones and that's where we had a bit of a hole.
Phil Gibbs: We're feeling good and specific about the market, that's 52% of our business.
Phil Gibbs: Going forward and that large OEM. This is a long term situation I think we got another quarter and we're going to have to continue to work with them and it's a short term frustration not a long term problem. So we'll work through that and I think we're going to be in very good shape.
Timothy Adams: I think we've got another quarter, and we're going to have to continue to work with them. And it's a short-term frustration, not a long-term problem. So we'll work through that, and I think we're going to be in very good shape.
Operator: Thank you. Please press star 1.
Thank you.
Speaker Change: So you'd like to ask a question got it.
Speaker Change: Please press star one.
Martin Englert: Your next question comes from Martin Englert with Seaport Research Partners.
Speaker Change: Your next question comes from Martin Engler with Seaport Research partners. Please go ahead.
Martin Englert: Hello. Good morning, everyone.
Martin Engler: Good morning, everyone.
Timothy Adams: A question on the increase in the reserve and the bad debt expense. What type of industry were those customers operating in? The reserve increase was a scrap dealer. So we sell our scrap to that scrap dealer. That was the reserve.
Speaker Change: Hey, Martin question question on the increase in the reserve and the bad debt expense, what type of industry or those customers operating in.
Speaker Change: Uh huh.
Speaker Change: The reserve increase was a scrap dealer so we sell our scrap to that scrap dealer that was the reserve.
Timothy Adams: And then the bankruptcy was in the heavy truck. Okay.
Speaker Change: And then the.
Speaker Change: The bankruptcy was in the heavy truck industry.
Speaker Change: Okay.
Timothy Adams: Are you seeing, I guess, other risks across any of... elsewhere in those industries or those verticals? Not, no, not in those industries specifically. These were customer-specific situations, so no, we don't, you know, fundamentally we think the people we work with from a scrap perspective or the other heavy truck suppliers, we feel, you know, pretty good about those things.
Are you seeing.
Speaker Change: Other risks across any yet.
Speaker Change: Elsewhere in those industries are those verticals.
Speaker Change: Not no not in those industry specifically these were customer specific situations. So no. We don't fundamentally we think the.
Martin Engler: There are people, we've worked with from a scrap perspective or the other heavy truck suppliers, we feel pretty good about those things there is nothing fundamentally wrong with either of those verticals at all and Martin and I would add even this specific customer in that heavy truck market we feel.
Timothy Adams: There's nothing fundamentally wrong with either of those verticals at all.
Timothy Adams: And Martin, I would add, even this specific customer in that heavy truck market, we feel feel good about continuing to do business with them going forward.
Martin Engler: I feel good about continuing to do business with them going forward.
Martin Englert: appreciate that and then a follow-up question on looking forward change in the U.S.
Speaker Change: I appreciate that and then a follow up question on looking forward change in the U S administration and a thorough of changes on the trade front worth tariffs with our trading partners to the north and the south.
Martin Englert: administration and if there are changes on the trade front with tariffs with our trading partners to the north and the south could you walk through the puts and takes for your businesses positives negatives or neutrals as you think about it i know you have significant operations to the north and the south and continued investment there and growth Yeah, you got it, Martin. I mean, first, as you know, the devil's in the details. And the tariffs could take different directions. Is it on steel? Is it on finished products? So until we're fully aware of what the implications, you know, I can I can just give you a general answer.
Speaker Change: Could you walk through the puts and takes for your businesses positive negative or neutral as you think about it I know you have significant operations to the north and the South and continued investment there and growth.
Speaker Change: Yes, you got it Martin.
Speaker Change: I mean, it's first as you know the Devil's in the details and.
Speaker Change: The tariffs could take different interactions as it on steel as it on finished products. So.
Until we are fully aware of what the implications.
Speaker Change: I can I can just give you a general answer I think.
Timothy Adams: I think we're not very concerned. We see little impact on our business. You know this. We source locally. So as far as our raw material perspective, wouldn't expect any interruptions. Think we'd be able to manage through costs efficiently as well. Where, you know, maybe a bit of a difference is in Canada, to your point on the north, and Mexico in the south. You know, we are importing. Those countries are less at risk right now of imports. So we don't see an interruption in supply there. The exception may be Canada, who is also looking to put tariffs in place.
We're not.
Speaker Change: Very concerned we see little impact on our business you know this we source locally so as far as a raw material perspective, Wouldnt expect any interruptions think we'd be able to manage through cost efficiently as well where.
Speaker Change: It may be a bit of a difference is in Canada to your point on the north of Mexico and the south.
Speaker Change: We are importing those countries are less at risk right now of imports. So we don't see any interruption in supply there. The exception may be Canada, who is also looking to put tariffs in place.
Timothy Adams: on China. But even if that were to occur, not an issue for us to be able to pivot and mitigate any type of issue there. So overall, I think we're in very good shape. And Martin, you know this. Since 1955, we've been dealing with different administrations and different policies. And some markets are impacted negatively, some are positively. And we've always been able to navigate that quite well. So from a business perspective, we think we're well positioned. Now my personal opinion, you know, I guess I'd be a bit surprised if we see that aggressive position on Mexico and Canada, Martin.
Speaker Change: On China.
Speaker Change: But even if that were to our core our core occur sorry Martin.
Martin Engler: It's not an issue for us to be able to pivot and mitigate any type of issue. There. So overall I think we're in very good shape and Martin.
Speaker Change: Since 1955 have been dealing with different administrations and different policies.
And some markets are impacted negatively some are positively and we've always been able to navigate that.
Speaker Change: Quite well so from a business perspective, we think we're well positioned now in my personal opinion.
Speaker Change: I guess it'd be a bit surprised if we see that aggressive position on Mexico and Canada Martin.
Timothy Adams: We've been under a Trump administration and he wants to negotiate. I think that administration has certain things they'd like to see Canada and Mexico tighten up on. And at the end of the day, I think they'll get that cooperation. We're already seeing that. So hopefully we're able to avoid the terrorists and it's business as usual. Canada, Mexico, and U.S. are too critical to one another to have any type of interruptions. But that's how we feel at this point.
Speaker Change: Ben under a Trump administration and.
Speaker Change: He wants to negotiate I think that administration as certain things they'd like to see Canada, and Mexico tighten up on and at the end of the day I think they'll get that cooperation we're already seeing that so.
Speaker Change: Hopefully, we're able to avoid the tariffs and it's business as usual, Canada, Mexico and U S are two critical to one another to have any type of interruptions, but that's that's how we feel at this point.
Martin Englert: I appreciate the color.
Speaker Change: Okay understood appreciate the color if I could one last one when you look across all your end markets.
Martin Englert: If I could, one last one.
Martin Englert: When you look out across all your end markets, automotive, construction, general manufacturing, and elsewhere, I understand you're moving through a lull right now. Maybe volumes were a bit worse than expected, and I understand the context with one specific OEM. But what are the customer, I understand that they're constructive with their outlook, it seems like you are maybe a couple quarters, some type of recovery, but are you seeing any green shoots on the margin today of improved activity?
Speaker Change: Automotive construction and general manufacturing and elsewhere I understand Europe, we're moving through a lull right now maybe volumes were a bit worse than expected and I understand the context with one specific OEM.
Speaker Change: But what are the customer I understand that they're constructive what's our outlook. It seems like you are maybe a couple of quarters. Some type of recovery, but are you seeing any green shoots on the margin today of improved activity or folks with order books out into early next year too.
Martin Englert: or folks with order books out into early next year speaking to improvements or inflections in the marketplace.
Speaker Change: Two improvements or inflections in the marketplace.
Speaker Change: Okay.
Timothy Adams: Yeah, I mean, I think, Martin, I mean, when it comes to our markets, I mean, I think we'll start with automotive. This year, I think we're going to end at about 15.5 million units. Next year, depending on how that OEM plays out, I think the market in automotive is going to be 15.4 to 15.7, somewhere around like that. And we'll see how it all plays out.
Speaker Change: Yes, I mean, I think Martin when it comes to our markets I mean, I think almost start with automotive.
Speaker Change: This year I think we're going to end at about $15 5 million units next year, depending on how that OEM plays out I think the market in automotive is going to be 15, four to 15 seven somewhere around like that.
Speaker Change: And we will see how it all plays out.
Timothy Adams: I think in construction, we're generally positive about construction. Again, I think a lot of people sat on the sidelines here at the end of the year, and it was tough for people to understand what the future was going to be like. But overall, in the construction markets that we serve, we feel positive generally about where the market's going.
Speaker Change: I think in construction were generally positive about construction.
Speaker Change: Again, I think a lot of people sat on the sidelines here at the end of the year and it was tough to tough for people to understand what the future was going to be like but overall in the construction markets that we serve we feel positive generally about about where the market's going.
Timothy Adams: I think ag is going to continue to have some challenges throughout the year, again, with interest rates still being relatively high and commodity prices being relatively low. And then whatever happens with trade, right? I mean, that has a big impact on the ag market as well.
Speaker Change: AG is going to continue to have.
Speaker Change: Some challenges throughout the year again with interest rates still being relatively high in commodity prices being relatively low.
Speaker Change: And then whatever happens with trade right that has a big impact on the AD market as well and then heavy truck I think heavy truck will will probably pick up towards the end of the year. There are some regulatory changes that are coming.
Timothy Adams: And then heavy truck, I think heavy truck will probably pick up towards the end of the year. There's some regulatory changes that are coming. And as you know, in the heavy truck market, when the regulatory changes happen, usually it's very cyclical and related to those regulatory changes. So we may see some pickup in heavy truck as we get to the end of the year.
And as you know in the heavy truck market when the regulatory changes happen theres, usually it's very cyclical and related to those regulatory changes. So we may see some pickup in heavy truck as we get to the end of the year.
Timothy Adams: Hey, Martin, just to add to that, and specifically automotive, I agree with everything Tim said. The tailwinds there that could speed up that recovery is, hey, if that larger OEM is able to meet their inventory target sooner. And right now, we're cautiously optimistic. It seems that they are making progress. That certainly is good for us. And then again, I think interest rates continuing to come down is certainly going to fuel buyers to get off the sideline. And the other bit of optimism there, you know, Tim had mentioned 15.5, maybe a little bit flat in 2025 with that 2024 calendar year number.
Martin Engler: Martin just and just to add to that and specifically automotive I agree with everything Tim said.
Martin Engler: The tailwind is there that could speed up that recovery is hey, if that larger OEM is able to meet their inventory targets sooner.
Martin Engler: And right now we're cautiously optimistic it seems that they are making progress that certainly is good for us and then again I think interest rates continuing to come down is certainly going to fuel.
Martin Engler: Buyers to get off the sideline and the other bit of optimism there.
Speaker Change: Tim had mentioned $15 five maybe a little bit flat in 2025 with that 2024 calendar year number, but a few data points for you.
Timothy Adams: But a few data points for you. September and October, seasonally adjusted rates were at 16 million. Even more importantly, November was 16.7. So that's the highest it's been in three years. So your point, we have a large OEM. We have a little bit of difficulty to overcome in the short term. But if you start looking out, you know, six months and beyond, we think automotive is going to start marching back to those pre-COVID levels. and that's a good sign on those data points.
Speaker Change: September and October are seasonally adjusted rates, we're at $16 million.
Speaker Change: Even more importantly November was $16 seven so thats the highest its been.
Speaker Change: And three years. So your point, we have a large OEM, we have a little bit of difficulty to overcome in the short term, but if you start looking out.
Speaker Change: Six months and beyond we think automotive is going to start marching back to those pre COVID-19 levels.
Speaker Change: And Thats a good sign on those data points.
Martin Englert: Do you think there may be some demand pull forward in automotive and or other end markets because of anticipated broad-based tariffs with the incoming administration? So, people trying to get ahead of potential inflation. So, by now before that might be...
Speaker Change: Do you think there may be some demand pull forward in the automotive and or other end markets because of anticipated broad base tariffs, what's the incoming administration. So people trying to get ahead of potential inflation. So by now before that might be implemented.
Timothy Adams: So, hard to predict. We haven't seen that yet, so we're not seeing anything that's been strange in our order books. And honestly, Martin, I would find that difficult to believe. I think the size of these customers, the OEMs, how we manage our business, they're going to want to manage their working capital smart and with discipline. So, I don't know that we're going to see a big pull ahead from the OEMs. The only wild card I would tell you is the tier ones. Certainly, they may try to time things a little bit more and go long.
Speaker Change: So hard to predict Mike Mike, we haven't seen that yet so we're not seeing anything thats been strange.
In our in our order books and honestly Martin.
Speaker Change: I would find that difficult to believe I think the size of these customers. The Oems, how we manage our business, they're going to want to manage their working capital smart and with discipline.
Speaker Change: I don't know that we're going to see a big pull ahead.
Speaker Change: From the Oems the only wildcard I would tell you is that as the tier ones certainly.
Speaker Change: They may decide to try to tighten things a little bit more in and go long, but I.
Timothy Adams: But, you know, I think living through those cycles over the last five years, all of our customers have gotten a bit more disciplined on that front.
Speaker Change: I think leaving through those cycles.
Speaker Change: At five years, all of our customers have gotten a bit more disciplined on that front.
Martin Englert: Okay, appreciate all the color and context and congratulations on your first year of post-separation. We appreciate that, Martin. Thanks for following us.
Speaker Change: Okay. Appreciate all the color and context and congratulations on your first year post separation.
Speaker Change: We appreciate that Martin Thanks for following us and thanks Martin.
Geoffrey Gilmore: And this concludes our question and answer session and I will now turn the conference back over to Geoff Gilmore, President and Chief Executive Officer for closing comments. First of all, thank you for everybody joining today and showing interest in Worthington Steel. Obviously, we explained to you some of the short-term frustrations, but hopefully what you heard is a lot of optimism about how we start looking going forward. In my opinion, we had a great quarter. The things that we could control, we controlled them and controlled them well. I think our team continues to exceed my expectations and couldn't feel better about our future.
Speaker Change: And this concludes our question and answer session and I will now turn the conference back over to Jeff Gilmore, President and Chief Executive Officer for closing comments.
First of all thank you for everybody joining today and showing interest in Worthington steel.
Speaker Change: We explained to you at some of the short term frustration, but hopefully what you heard is a lot of optimism about how we start looking going forward in my opinion, we had a great quarter the things that we could control.
Speaker Change: We can control, we control them and control them well I think our team continues to exceed my expectations and that Couldnt feel better about our future. So thank you again for joining and happy holidays to everybody look forward to talking to you next quarter.
Geoffrey Gilmore: So thank you again for joining and happy holidays to everybody. Look forward to talking to you next quarter.
Operator: This concludes today's conference call. Thank you for your participation and you may now disconnect.
This concludes today's conference call. Thank you for your participation and you may now disconnect.
Speaker Change: Okay.