Q3 2025 Worthington Steel Inc Earnings Call
Hello, and welcome to where they couldn't Steel's third quarter 2025 earnings call. All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session and if he would like to ask a question. During this time simply press star one on your telephone keypad.
Speaker Change: I would now like to turn the call over to Melissa Dykstra VP corporate communications and Investor Relations you may begin.
Melissa Dykstra: Thank you operator.
Speaker Change: Morning, welcome to Worthington steel third quarter fiscal year 2025 earnings call on our call today, we have Jeff Gilmore Worthington steel, President and Chief Executive Officer, and Tim Adams, Vice President and Chief Financial Officer.
Speaker Change: Before we begin 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 risks and uncertainties that could cause actual results to differ from those suggested.
Speaker Change: We issued our earnings release yesterday after the market close please refer to it for more detail on the factors that could cause actual results to differ materially.
Speaker Change: Unless noted as reported today's discussion will reference non-GAAP financial measures, which adjust for certain items included in our GAAP results and which are presented on a standalone basis, you can find definitions of each non-GAAP measure and GAAP to non-GAAP reconciliations within our earnings release.
Jeff Gilmore: This call is being recorded and a replay will be available later today on Worthington steel Dot com now I will turn it over to Jeff Gilmore.
Jeff Gilmore: Good morning, and thank you for joining us I'd like to start today's call with a heartfelt. Thank you to the Worthington steel team in a quarter filled with uncertainty and change our employees showed remarkable flexibility and resilience I am proud of all they did this quarter to focus on what they could control while maintaining a strong commitment to say.
Jeff Gilmore: 50, and serving our customers.
Jeff Gilmore: In the third quarter, we generated adjusted EBITDA of $41 $9 million compared with $82 $8 million in the prior year quarter earnings per share came in at 27.
Jeff Gilmore: Versus 98 per share in the same period last year.
Jeff Gilmore: <unk> were impacted by both lower volumes and lower average selling prices as we expected many of the headwinds from Q2 continued into the third quarter as customers manage uncertain macroeconomic conditions. However, we saw signs of improvement during the last month of the quarter and we believe most of the <unk>.
Jeff Gilmore: The improvement at the end of the quarter was due to fundamental demand improvements rather than a buy ahead effort to be potential steel price increases.
Jeff Gilmore: Taking a look at our key markets our shipments to automotive were down 3% in the third quarter.
Jeff Gilmore: Given the level of current uncertainty we are cautiously optimistic about the north American auto market in calendar year 2025.
Jeff Gilmore: Calendar year 2024 ended the year at $15 4 million units produced.
Jeff Gilmore: Given the challenges occurring late in the year, but still below pre COVID-19 levels.
Jeff Gilmore: The latest calendar year 2025 forecasts are showing flat builds on a year over year basis at approximately $15 3 million units produced however, there is likely some upside to that forecast due to lower interest rates and lower inflation.
Jeff Gilmore: Our commercial teams continue to aggressively pursue and win new incremental automotive business.
Jeff Gilmore: Our shipments to the construction market were down on a year over year basis, We believe part of the decrease compared to last year was due to lower demand, resulting from economic uncertainty.
Jeff Gilmore: When looking at the overall construction market for calendar year 2025, we see it as more of a first half second half story in the first half of 2025, we expect the construction market to be fairly flat.
Jeff Gilmore: Then begin gaining momentum later in the year.
Jeff Gilmore: Certainly the construction market will benefit from interest rate cuts in 2025, which we are keeping a close eye on.
Jeff Gilmore: We expect the agricultural market to remain soft for a while.
Jeff Gilmore: The AG industry continues to be held back by interest rates commodity prices and tariffs that further delay farmers' decisions to purchase new equipment.
Jeff Gilmore: Demand in the heavy truck market continued to be slow, but we are starting to see signs of improvement.
Jeff Gilmore: Just on what we see today, we think the heavy truck market will show GDP type growth for the rest of calendar year 2025.
Jeff Gilmore: Overall, we sense a bit of uneven and some supply chains as customers deal with the current uncertainty. However, we are seeing normal buying patterns for many of our customers.
Jeff Gilmore: And the long term, we have the right strategy and solid growth plans.
Jeff Gilmore: Firstly, we remain bullish on the first pillar in our strategy focus investments in the electrical steel market AI initiatives and more data centers means more demand for power and the infrastructure to carry it.
Jeff Gilmore: There is a two year backlog on Transformers, which use the electrical steel of course, we make and the need for power is expected to grow at more than 6% per year over the next 15 years.
Jeff Gilmore: 2024, so the continued surge in electrified vehicles, particularly hybrids Worthington is at a very good position to benefit from this preference as we process feel for both the clutch plate and the electrical motor Laminations and hybrids.
Jeff Gilmore: Additionally, we have made excellent progress toward closing on our 52% ownership stake in Sweden.
Jeff Gilmore: A leading European electrical steel lamination manufacturer.
Jeff Gilmore: A few weeks ago, Tim and I had the opportunity to tour see them facilities in Italy, and Switzerland and to meet the local management teams and many other employees.
Jeff Gilmore: I was impressed by <unk> culture, and how closely their values and approach and people match Worthingtons philosophy.
Jeff Gilmore: These are technical expertise and Knowhow will add to our electrical steel eliminations offering and strengthen our position as a market leader.
Jeff Gilmore: I'm excited to have the folks should see them combine their expertise with Worthington, we hope to close on this transaction in the next few months.
Jeff Gilmore: Our second strategic growth pillar includes a strong commercial focus and strategic Capex and acquisitions, our capital investments in the expansion of our electrical steel capabilities in Canada, and Mexico continue to move forward in Mexico, where we manufacture electrical steel laminations for you.
Jeff Gilmore: In industrial Motors and electrified vehicles, we have installed the first five presses and testing is underway we.
Jeff Gilmore: We remain on track to begin production late this calendar year.
Jeff Gilmore: Construction of our expansion in Canada, where we manufactured transformer cores continues to move forward. We expect to begin production early in calendar year 2026, we have new commercial initiatives underway to grow share in volume. We are just starting to see the effects of this effort.
Jeff Gilmore: All the while we continue to consider M&A opportunities that complement our business and fit both our strategy and our culture.
Jeff Gilmore: The third pillar of our growth strategy is the transformation, our systematic approach to making base business improvements.
Jeff Gilmore: The transformation mindset as part of our ongoing workflow and simply put if we find something thats. Good we look for ways to double it if we find something bad we find ways to cut it in half this quarter GSK together across the company using collaboration standard work and data analytics to reduce <unk>.
Jeff Gilmore: This changeover times work in progress inventory and streamline HR functions. This is just a sampling of the transformation activities happening throughout the company and can lead to reductions in both working capital and cost while at the same time, increasing efficiency and capacity.
Jeff Gilmore: Before I conclude my remarks, I'd like to touch on a few highlights from the quarter. This quarter. Our teams continued to grow market share with new automotive OEM business, which ramps up over the next coming months.
Jeff Gilmore: In January our electrical steel operation was awarded the best supplier of the year award by male a leading global automotive parts manufacturer.
Jeff Gilmore: This marks the third consecutive year, our team based mainly in India has been honored by male for their exceptional performance in quality delivery and support of new product development I'd like to congratulate them on this achievement.
Jeff Gilmore: We collaborated with Cleveland cliffs to develop a light weighting solutions to reduce weight and optimized cost and battery trays for electric vehicles a battery.
Jeff Gilmore: Battery and electric vehicle typically represents 20% to 25% of the vehicles overall weight and our tailor welded blank solutions helps Oems achieve weight savings.
Jeff Gilmore: Our Mexico steel processing joint venture, Serbia zero commissioned its new sliver in Monterrey and is now running production orders.
Jeff Gilmore: Lastly, Worthington steel leadership team kicked off our AI journey, we are exploring how to incorporate AI into our operating model. The Worthington business system, expanding our advanced analytics portfolio with targeted experimentation and introducing generative AI education for our corporate and functional employees.
Jeff Gilmore: To summarize due to the amount of uncertainty in many markets. We are cautiously optimistic about the near term. However, we think clarity will improve as the year moves forward and we are more optimistic about the second half of 2025.
Speaker Change: I believe we are well positioned to grow our business. Once again I offer my thanks to the entire Worthington steel team for keeping safety quality performance and our customers front and center each and every day now I'll turn things over to Tim Adams to discuss financials.
Tim Adams: Thank you, Jeff and good morning, everyone for the third quarter, we are reporting earnings of $13 8 million or 27 per share as compared with earnings of $49 million or <unk> 98 per share in the prior year quarter. There were several unique items that impacted our quarterly results, including the following.
Tim Adams: The current quarter results include seven $4 million or <unk> <unk> per share of pretax asset impairment charges related to two discrete items. The first was for the operational consolidation of our Worthington Samuel coil processing toll pickling facility in Cleveland into <unk>.
Tim Adams: <unk> remaining existing facility in twinsburg, Ohio, the consolidation resulted in an asset impairment of $6 $1 million the.
Tim Adams: The second item is the impairment of an in process research and development intangible acquired in connection with the 2021 PWB Shiloh acquisition. The write off of the R&D intangible resulted in an impairment charge of $1 3 million.
Tim Adams: Additionally, we recognized pre tax restructuring expenses of $900000 or <unk> <unk> per share related to a voluntary retirement plan at our tailor welded blank joint venture.
Tim Adams: The prior year results included pre tax separation expense of $1 million or <unk> <unk> per share.
Tim Adams: Excluding these unique items, we generated earnings of 35 per share in the current quarter compared with 99 per share in the prior year quarter.
Tim Adams: In addition in the third quarter, we had estimated pre tax inventory holding losses of $1 2 million or <unk> <unk> per share compared to estimated pre tax inventory holding gains of $19 $3 million or <unk> 29 per share in the prior year quarter and unfavorable pretax swing.
Tim Adams: <unk> of $25 million or <unk> 31 per share.
Tim Adams: In the third quarter, we reported adjusted EBIT of $25 $3 million, which was down $41 6 million from.
Tim Adams: From the prior year quarter, adjusted EBIT of $66 $9 million.
Tim Adams: This decrease was primarily due to lower gross margin and to a lesser extent higher SG&A expense and lower equity earnings at Serbia sorrow.
Tim Adams: Gross margin was impacted by lower volume and lower direct materials spreads primarily due to year over year pre tax inventory holding losses, I will touch on markets and volumes in a moment.
Tim Adams: SG&A increased $1 $8 million over the prior year third quarter, primarily due to higher wage and benefit costs as well as incremental professional fees associated with the announced <unk> acquisition.
Tim Adams: Equity earnings from service zero decreased due to lower direct volumes as well as the impact of exchange rate movements.
Tim Adams: Next I'll provide some perspective on the market and our shipments.
Tim Adams: The market pricing for hot rolled coil has been in a relatively tight band between $650 million and $700 per ton from July through January with a modest increase in February to the mid $700 range.
Tim Adams: Hot rolled coil pricing in March increased to approximately $950 per ton and is expected to remain at this level in the near term as a result of tariffs.
Tim Adams: With the recent increase in market pricing, we expect estimated inventory holding gains in the fourth quarter of fiscal 2025, we estimate those pre tax holding gains could be approximately $20 million to $25 million as compared with $1 $2 million of estimated pre tax holding losses in the third quarter.
Tim Adams: <unk> of 2025.
Tim Adams: Net sales in the quarter were $687 million down $118 million or 15% from the prior year quarter, primarily due to lower direct volumes and lower direct market pricing.
Tim Adams: We shipped approximately 881000 tons during the quarter, which was down 11% compared with the prior year quarter.
Tim Adams: Direct sales volume made up 57% of our mix in the current year quarter as compared with 55% in the prior year quarter.
Tim Adams: Direct sale volume was down 7% over the prior year quarter with shipments down in most markets our.
Tim Adams: Our shipments to the automotive market were down 3% compared to the prior year quarter as we discussed last quarter. Our automotive book of business has been impacted by production cuts at one of our Detroit three OEM customers as they rightsize their inventory levels and adjust their commercial strategy. We are optimistic the Oems moving in a positive direction.
Tim Adams: The Oems year over year production cuts of approximately 25% continue to impact our results in Q3. However, it appears the OEM is making progress to replenish their supply chains in anticipation of improvements in sales.
Tim Adams: We believe the OEM is making progress towards a more normal build schedule later in the calendar year.
Tim Adams: The impact of reduced shipments in the quarter to this OEM were partially offset by increases in shipments with others. As we've noted over the past few quarters. 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. These platforms will continue to ramp up.
Tim Adams: Over the next several quarters.
Tim Adams: Similar to last quarter, our year over year shipments to the remaining Detroit three grew despite a drop in OEM unit production.
Tim Adams: Our teams are doing a great job working with our automotive customers to deliver solutions that meet our customers' market objectives, we look forward to continuing to grow our partnership with our automotive customers.
Tim Adams: 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 part of our contingency plan related to the <unk> automotive strength and its potential near term.
Tim Adams: After math.
Tim Adams: We also believe overall economic uncertainty impacted construction volumes as well as volume and many other markets. We believe many buyers took a wait and see approach in December and January we.
Tim Adams: We saw volumes pick up throughout February and we believe our February volume increase may have included some pull ahead demand. However, the feedback from our customers leads us to believe most of the increase was due to fundamental improvements in demand.
Tim Adams: Bolt ons were down 15% year over year, primarily due to a general slowness in many markets, including automotive.
Tim Adams: As is typical during volume slowdown some of our customers pulled toll processing jobs back in house, because they had open capacity.
Tim Adams: When the end market demand picks up we expect our toll processing volumes to increase however, we expect to see a decrease of approximately 100000 annual toll processing tons. As a result of the Ws CP consolidation from Cleveland to Twinsburg.
Tim Adams: Turning to cash flows and the balance sheet cash flow from operations was $54 million and free cash flow was $25 million.
Tim Adams: During the quarter, we spent $28 6 million on capital expenditures related to a variety of projects, including the previously announced electrical steel expansions.
Tim Adams: On a trailing 12 month basis, we generated $82 $3 million of free cash flow.
Tim Adams: Wednesday, we announced a quarterly dividend of <unk> 16 per share payable on June 27, 2025.
Tim Adams: We ended the quarter with $63 million of cash and our outstanding debt at February 28 was $112 million, resulting in net debt of $49 million.
Tim Adams: Finally, I would like to thank our team for making safety their highest priority at every facility and for driving results in a challenging quarter I look forward to working with our entire team to continue driving value for Worthington steel stakeholders.
Tim Adams: At this point, we would be happy to take your questions.
Tim Adams: Thank you if you would like to ask a question. Please press star one on your telephone keypad. If you would like to withdraw your question simply press Star one again.
Tim Adams: Please make sure you are not on speaker phone and that your phone is not on mute when called upon thank you.
Tim Adams: One moment. Please for your first question.
Speaker Change: Your first question comes from Martin Engler with Seaport Research Your line is open.
Tim Adams: Hello, Good morning, everyone.
Speaker Change: Hi, Martin.
Speaker Change: Okay. Just wanted to see if you can discuss.
Speaker Change: Credit Youre seeing thus far with the tariff policy, maybe if you could run through positives and negatives.
Speaker Change: And anything you're hearing from your customers in the supply chain.
Speaker Change: Yes, Mark no problem.
Speaker Change: First of all I would tell you that we would anticipate.
Speaker Change: Very little impact on our business.
Speaker Change: Just maybe.
Speaker Change: You never know where to start and this conversation probably the easiest place is just looking at $2 32.
Speaker Change: And the tariffs on steel and aluminum.
Speaker Change: Stay little impact on our business I know youre very well aware of this but our strategy is.
Speaker Change: We buy steel.
Speaker Change: We our customers are and where we're going to produce there so very localized that's been our strategy.
Speaker Change: We will continue to be our strategy going forward. So it shouldnt see.
Speaker Change: Interruption at all on the supply chain.
Speaker Change: I would say the secondary impact of that is simply steel prices and you're already seeing that theres been a brief jump up in pricing.
Speaker Change: Really probably $250 per ton over the last six months or so up to around 950, whether or not that sustainable.
Speaker Change: As certainly debatable, so not a lot of impact there now beyond that there is reciprocal tariffs.
Speaker Change: There's a lot that's being discussed.
Speaker Change: Now and I would tell you again, regardless of the direction. It goes.
Speaker Change: We feel like there's going to be little impact on our earnings we've dealt with tariffs.
Speaker Change: We have great strategies in place to mitigate and really the most important thing.
Speaker Change: That we can do right now is stay completely aligned with our customers.
Speaker Change: And our suppliers, but we cant make any knee jerk reactions or big decisions at this point simply because there is so much uncertainty.
Speaker Change: So I would say the biggest downfall right now it is that uncertainty and it's.
<unk>.
Speaker Change: Probably I'm laughing a bit the intellectual strain of trying to trying to keep up and keep the conversations going with the customers.
Speaker Change: So we can get a better understanding of what the rules are going to be.
Speaker Change: Going forward. So we will continue to watch it and see how it plays out but again I wanted to share those listen then we'll be in good shape, regardless and have good plans in place Martin.
Speaker Change: Okay understood.
Speaker Change: Wanted to ask about TWD.
Speaker Change: I think there was a small charge in there, but I think it was a loss for the quarter, which was somewhat abnormal I think if I remember right.
Speaker Change: We're typically not susceptible or as susceptible to inventory holding gains and losses. So I just wanted to understand what's happening there.
Speaker Change: So there were two special charges related to TWD, we wrote off some R&D that we had acquired through the Shiloh acquisition that was part of it and then they had an early retirement program that they offered to select departments and that was youre seeing the impact of both those charges I think the early retirement charge.
Speaker Change: Was about $900000.
Speaker Change: And the in place R&D that we wrote off was about $1 $3 million.
Speaker Change: Okay.
Speaker Change: And typically they're not susceptible to inventory holding gains or losses, because it's usually a.
Speaker Change: <unk> by program related to that really the Oems tell tw.
Speaker Change: Who they need to buy from.
Speaker Change: Alright.
Speaker Change: Stripping out the one off items for the quarter.
Speaker Change: Fair regarding your expectations of.
Speaker Change: Underlying EBIT unit, EBITDA, and steel and kind of the cadence or trajectory of normalization, there and again stripping out one off items as well as inventory holding gains and losses I guess, what I'm asking for is your best guess based on visibility.
Speaker Change: This takes.
Speaker Change: A quarter or two quarters four quarters before things are kind of back to a normalized level on the underlying EBITDA.
Speaker Change: Yes, I mean, that's so much driven by demands right in volume and how your fixed costs are covered right. So I think it's and I don't want to I don't want to punt. This but there's so much uncertainty right now right in the market what is demand going to be for the rest of the year and I think that's the challenge that everybody is working through right.
Speaker Change: Now I think jetblue comments in his prepared remarks related to automotive is going to be flattish year over year.
Speaker Change: We think construction is going to pick up in the second half of the year, but.
Speaker Change: Hey, all bets are off right now right what happens to inflation, what happens to interest rates what happens to the economy as a whole do we do we tend more towards a recession versus small growth rate.
Speaker Change: It could be I think we're cautiously optimistic that by the end of the year, we should be at more normalized run rates from a volume perspective.
Speaker Change: But theres a lot of moving parts.
Speaker Change: When you say end of the year.
Speaker Change: In calendar year, I'll say calendar year calendar year yet.
Speaker Change: Okay.
Speaker Change: Any way to parse out.
Speaker Change: The fixed unit fixed cost impact potentially.
Speaker Change: Youre seeing maybe using this quarter as an example within steel.
Speaker Change: Volumes were off pretty substantially year on year was.
Speaker Change: Thank you Dave.
Speaker Change: $2 $5 $10 $15 a ton headwind.
Speaker Change: I don't have any numbers to give you I think what I would do is I would go back and look at what we've done historically I'd look at the form 10, what we put out there I would look at what we've put out over the last five months as our five quarters as a publicly traded company I think you can start to get a feel as demand moved around or kind of what the mix is between variable and fixed.
Speaker Change: Okay.
Speaker Change: I mean I.
Speaker Change: I guess pivoting to the JV there typically they do better in a rising steel price environment.
Speaker Change: I think it was breakeven if I remember right from this quarter, but I would guess should step up yes, youre talking about serious zero.
Speaker Change: Yes, <unk>, yes, yes, yes.
Speaker Change: I think the challenge in Serbia zero is they felt the same demand compression that we had in the U S. They sell a lot of automotive as well down there I mean their markets are virtually the same as ours may be slightly different.
Speaker Change: They do maybe even a little bit more appliance, but in general their market is our market and when automotive down is down here, it's down there as well.
Speaker Change: Pretty integrated supply chain I think the other thing you're seeing is the impact of exchange rate movements in the peso I think that's the other piece that's there.
Speaker Change: And they may have suffered a little bit of inventory holding losses as well, but those other two things far outweighed the demand really the volume piece and the peso exchange rate really outweighed.
Speaker Change: The inventory holding loss.
Speaker Change: Okay I appreciate the color. Thank you for the time and good luck.
Martin Engler: Thanks Martin.
Phil Gibbs: The next question comes from Phil Gibbs with Keybanc capital markets. Your line is open.
Phil Gibbs: Hey, good morning.
Speaker Change: Hey, Phil.
Speaker Change: Hey, Jeff you had mentioned that February was was was reasonably strong and we did see that in the MSCI data as well.
Speaker Change: What are you seeing in.
Speaker Change: In March thus far I guess falling following February.
Speaker Change: Yes, Phil that's why I made the comment I felt like what we experienced in February was more just underlying demand better fundamentals versus any type of pull ahead, because we've seen that momentum from February definitely.
Speaker Change: Wing into March.
Speaker Change: So obviously, that's why we're feeling more cautiously optimistic than specifically automotive we saw that.
Speaker Change: Demand come back and much stronger in.
Speaker Change: In February and then Phil you you've heard US talk the last two earnings calls.
Speaker Change: One of our customers one of our larger Oems, which was having some challenges and fortunately they've been executing on their plan and been successful, bringing inventory down starting to get back market shares and normalize so.
Speaker Change: We should continue to see a buildup with that customer over the next few months.
Speaker Change: And you had mentioned.
Speaker Change: Our remarks that construction volumes volumes I think specifically, we're down 20%, obviously, a very difficult comparison and not I don't think overall indicative of the demand drop itself in the marketplace is there going to be an effort to get.
Speaker Change: Some more some more market share back within construction or is it just some of the some of the customers that you're serving.
Speaker Change: <unk>.
Speaker Change: At this point.
Speaker Change: Hey, good good question.
Speaker Change: I'll start with that.
Speaker Change: It's a bad comp, it's a tough comp.
Speaker Change: As you recall last year we.
Speaker Change: We anticipated the strike at the <unk> three and so we had an effort to really pursue opportunities specifically in the construction market and we're able to.
Speaker Change: Now when those awards and obviously construction made up a big piece of our shipment portfolio that quarter so that.
Speaker Change: That is really the big difference between this year the difference in construction.
Speaker Change: And last year I will tell you that.
We have had more of an effort, though to answer the second part of your question to go after more opportunities in that market here over the last couple of months, just because we had that larger OEM that was a little bit slower than we anticipated some holes in the book that also helped out a bit in February Phil.
Speaker Change: And I think youll see that carryover into March April and May as well.
Speaker Change: Thanks, Jeff and any any color on some of the newer customer awards within within automotive I Wouldnt think that they would have been visible in.
Speaker Change: In this quarter.
Speaker Change: Maybe more visible as the year progresses, but maybe some color on that.
Speaker Change: New awards, there and whether or not you expect them to be.
Speaker Change: Accretive to your margin profile. Thank you.
Speaker Change: Yeah, Thanks, Phil so.
Speaker Change: Yes, Yes, we mentioned in our comments the commercial group has been quite successful.
Speaker Change: Targeting new programs and specifically.
Speaker Change: <unk> automotive so we have clearly gained share.
Speaker Change: <unk> did see some of that trickle into shipments in February and as Youre right on and we will continue to see that build up March April may and really even into the into the summer.
Speaker Change: So yes over the next six months, you'll start to see that make an impact on our volume and and then therefore hopefully on our margins I will tell you.
Speaker Change: <unk>.
Speaker Change: The customer that the OEM, particularly that was struggling as high value add they buy our all of our high value add products. So it's higher margin business. Some of the automotive the majority of the automotive we're picking up though.
Speaker Change: Great business and we appreciate the opportunities.
Speaker Change: Or not necessarily as high value add as that business, but overall going to be meaningful to the bottom line longer term.
Speaker Change: Okay.
Speaker Change: The next question comes from John Tumazos, with John Tumazos, very independent research. Your line is open.
John Tumazos: Thank you Eric or taking my question for your service to the company.
John Tumazos: First thanks John.
Speaker Change: What fraction.
Speaker Change: A fraction of the 16 million unit market last year or this year as you estimated.
Speaker Change: Lorenzo on the call said that last year was the first year that has a majority of foreign imports.
Speaker Change: The literature search I found out a different statistic and maybe I just didn't find the right number.
Jeff Gilmore: John I'm sorry, this is Jeff I don't know that exact number.
Speaker Change: And I'll say this we'll validate it later.
Jeff Gilmore: With you because I do want to give you an answer.
Speaker Change: I'd also doubt.
Jeff Gilmore: That comment.
Jeff Gilmore: The majority had been foreign shipments are important here of the U S market, but we'll have to validate it yes, I think John at the end of the day right. We don't think of it in terms, we think of in terms of the North American production right. Because we have operations in Mexico, we have operations in the states and we have some operations in Canada, we think of it.
Jeff Gilmore: In terms of really Holistically North America, So themis squares.
Jeff Gilmore: Question around.
Jeff Gilmore: Go ahead.
Jeff Gilmore: Right.
Jeff Gilmore: Let's just say for discussion with its a $9 million in U S $7 million.
Jeff Gilmore: Abroad, or six or something and Trump puts up a wall.
Jeff Gilmore: With 16 million units were handed to the U S companies on a platter.
Jeff Gilmore: How much of it could they take could they make $1 million more 2 million more what's your best guess.
Speaker Change: John I don't have a guess that's a good call for there is a good question for their earnings call.
Speaker Change: I don't know I don't I don't know, we don't know their capacity we know ours.
Speaker Change: Since I'm not smart enough to figure out.
Speaker Change: Well I guess I'm not either.
Speaker Change: On electrical.
Speaker Change: There was some electricity conference a year or two ago, where the utility companies.
Speaker Change: Only one or 2% demand growth.
Speaker Change: So it's going to be over five <unk>.
Speaker Change: You used a number of 6% today.
Speaker Change: What percent growth do you think the electric utility industry is in a position to supply I don't think theyre ready to make 6% more.
Well I think the 6% the Jeff referred to really as transformer growth right. So that's a combination of a couple of things right. That's a combination of new growth in transformers right because of demand, but it's also going back to the the grid that is old and brittle.
Speaker Change: That is most probably 75% of transformers in use today are at their 30 year beyond their 30 year useful life and at the same time you have.
Speaker Change: What they're doing with respect to grid hardening.
Speaker Change: Which means they're trying to take some of these things underground because of wildfires and hurricanes and variety of other issues that are out there. So it's the transformer market more so we don't look at necessarily the electrical demand itself, that's part of it and that's adding to the demand for transformers, but it's really a combination of all.
Speaker Change: All of those things.
Speaker Change: This concludes the question and answer session I'll turn the call to Jeff Gilmore, President and CEO for closing remarks.
Speaker Change: I want to thank everybody for their interest in Worthington steel and joining the call today.
Speaker Change: Again, I want to stress, how just pleased I am with our efforts and how proud I am of the overall team and we will look forward to sharing more on our progress next quarter. Thank you.
Speaker Change: This concludes today's conference call. Thank you for joining you may now disconnect.
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Speaker Change: Sure.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.