WORTHINGTON ENTERPRISES, INC. Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Despite tough environment with high interest rates and macroeconomic uncertainty, adjusted EBITDA was $48 million and adjusted EPS was $0.50 vs $0.75 prior year. Declines driven by ClarkDietrich down $8 million and building products de-stocking.
• Positive long-term outlook with balance of businesses steady and some markets improving. Integration of Hexagon Ragasco acquisition and Sustainable Energy Solutions JV with Hexagon Composites went well.
• Notable events: Groundbreaking on Chilton, Wisconsin, campus modernization; Newsweek awards for America's Greatest Workplaces and World's Most Trustworthy Companies; publication of sustainability report detailing commitment to people-first, process and planet, etc.

Segment Performance

• Consumer Products: Net sales in Q1 were $118 million, essentially flat year-over-year. Adjusted EBITDA was $18 million with a margin of 15.1%, compared to $14 million and 12.2% in Q1 of the prior year. Volumes were slightly up, but consumer spending was impacted by general economic uncertainty, particularly in the tools category.
• Building Products: Net sales were $140 million, down 16% from the prior year. Adjusted EBITDA was $40 million with a margin of 28.4%, versus $60 million and 36% prior year. ClarkDietrich contributed $9 million in the quarter compared to $17 million prior year. Hexagon Ragasco contributed Q1 sales of $16 million and adjusted EBITDA of $2 million, including $1.5 million of purchase accounting and deal cost adjustments not expected to repeat.

Guidance

• Positive long-term outlook with favorable interest rate backdrop as rates fall. Focus on building M&A pipeline and enhancing innovation capabilities to bring more products to market and incorporate sustainable technologies. Expect continued focus on growth through strategic acquisitions and operational improvements.

Risks

• Macro factors: High interest rates and macroeconomic uncertainty impacting business. Steel price fluctuations affecting ClarkDietrich margins, with margin compression due to steel price declines and contractors holding off for lower prices.

Question and Answer

Q: Focus on ClarkDietrich relative weakness in the quarter. How much is due to timing vs cancellation of projects and regions/end markets sluggishness?

A: Andy Rose said market holding up pretty well, margin compression due to steel prices where ClarkDietrich buys ahead and smaller competitors buy spot. Joe Hayek added it's a function of steel prices, demand steady but margin compression exists.

Q: Talk about health of consumer, volumes relative to expectations, and demand into fall/winter?

A: Andy Rose said consumer products showed improvement, tools weakest due to repair/remodel recession, rest at POS levels. Joe Hayek mentioned lower interest rates beneficial for repair/remodel projects.

Q: Price cost dynamics across segments as steel prices come down?

A: Andy Rose said steel prices hard to predict, prices fixed for 9-12 months, year-over-year prices down, steel prices relatively flat but can change quickly.

Q: WAVE JV dynamics going into year-end?

A: Joe Hayek said WAVE had strong quarter, volumes flat to slightly down, commercial soft but relative strength in other end markets like data center, healthcare, education; value proposition of saving contractors labor costs.

Q: Biggest delta in quarter relative to expectations?

A: Andy Rose said ClarkDietrich margin decline and building products de-stocking lasting longer than expected. Joe Hayek added market factors like a company with aggressive pricing on gas rail cylinders impacting revenues.

Q: Mood change with building products customers post-Fed rate cut?

A: Joe Hayek said customers anticipate lower interest rates a year from now, which will help CapEx for building products customers.

Q: Priorities for capital development, M&A focus, cash return?

A: Andy Rose said top priority is building M&A pipeline, but would consider share buyback opportunistically, with recent buyback to offset dilution.

Q: Fraction of building products tied to housing vs commercial construction? Consumer strategy and capital allocation?

A: Joe Hayek said wholly owned building products ~50-50 housing/maintenance and commercial, JVs almost no residential. Joe Hayek also discussed Hexagon Ragasco positioning relative to consumer softness and constant evaluation of capital allocation.