WORTHINGTON ENTERPRISES, INC. Q2 FY2025 earnings call

• Thanked the team for building a strong foundation and embracing a people-first, performance-based culture. - Highlighted financial results with adjusted EBITDA and earnings per share growth despite macro headwinds. - Mentioned innovation examples like partnership with 3M on PowerCore engineered cylinder and HALO Versa pizza oven named best gift. - Emphasized inorganic growth through acquisitions, having completed integration of Ragasco and focusing on acquiring market-leading businesses. - Discussed sustainability initiatives, including production of green propane cylinder and West Africa Clean Cooking Fund commitment. - Noted balance sheet strength with $296 million in long-term funded debt, $194 million in cash, and a $500 million undrawn bank credit facility.

In the second quarter, consumer products had Q2 net sales of $117 million, down 2% year-over-year despite a 3% increase in volumes. Adjusted EBITDA for the segment was $15 million with an adjusted EBITDA margin of 13.3%. Building products reported Q2 net sales of $157 million, a 4% increase from the prior year, driven by the acquisition of Ragasco which contributed $18 million in sales. Adjusted EBITDA for the quarter was $47 million with an adjusted EBITDA margin of 30%. The deconsolidation of the former SES business unit and inclusion of Ragasco contributed to margin expansion, with gross margin increasing 580 basis points to 27%.

• Expect margins to be around 27% moving forward, with factors like deconsolidation of SES and inclusion of Ragasco contributing. - Focus on inorganic growth through acquiring market-leading businesses to enhance margins, free cash flows, and competitive position. - Capital allocation bias towards growth, with continued focus on M&A and considering buybacks to offset dilution as appropriate.

• Macro headwinds impacting sales and margins. - Potential trade policy impacts affecting global competitive environment. - Increase in bad debt reserves specific to two customers who declared bankruptcy.

Q: Can you help understand the larger drivers of gross margin increase?

A: Gross margin up 580 basis points due to exclusion of SES sales/margin, inclusion of Ragasco, and positive mix in higher margin products.

Q: How should we think about SG&A with addition of Ragasco?

A: SG&A to be considered in context of running the business, focusing on optimizing and growing the business.

Q: Expand on WAVE JV performance and growth outlook?

A: WAVE JV has solid performance, with growth driven by understanding customers and providing reliable solutions, expecting steady performance.

Q: Thoughts on business activity amid lackluster spring/summer?

A: Some infrastructure-oriented spending and stimulus helping, with mild but persistent headwinds but some green shoots.

Q: Elaborate on building products, heating/cooking space outlook?

A: Large format heating tanks returned to growth, smaller tanks hampered by facility modernization project now completed, expecting better performance.

Q: Elaborate on thinking like a startup?

A: Maintaining people-first culture, leveraging strategies, and resetting to optimize business for growth.

Q: Sustainable energy JV outlook?

A: Likely to be flattish.

Q: Capital allocation perspective on buybacks?

A: Bias for growth, but considering M&A and buybacks based on market conditions.

Q: Thoughts on price cost and trade policy?

A: Expect steel deflation to be flat, positioned well for trade policy scenarios, seeking level playing field.

Q: Succession and longer-term financial targets?

A: Timing of succession, focusing on maintaining/growing gross margins, working down SG&A, impacted by market conditions.

Q: Confirm gross margin expectation?

A: 27% is where they expect to be moving forward.

Q: M&A opportunities in consumer?

A: Focus on adding companies that can be made better, particularly in value-added tool space.