Worthington Steel, Inc. Q2 FY2025 earnings call

• Achieved solid quarterly earnings despite market headwinds, with adjusted EBITDA up and EPS positive. - Implemented strategic moves like acquiring a 52% stake in Sitem Group to strengthen European presence in electrical steel lamination. - Recognized for ESG efforts, including safety record, carbon emissions reduction, and being a military-friendly employer. - Restructured leadership roles, with Cliff Larivey named President of Flat-Roll Steel Processing. - Continued transformation efforts to improve quality, service, and efficiency, including inventory control analytics tool and ERP implementation at Tempel. - Added Scott Kelly to the Board of Directors.

In the second quarter, Worthington Steel generated adjusted EBITDA of $30.6 million compared to $23 million in the prior year quarter. Net sales were $739 million, down 9% from the prior year quarter. Shipments were approximately 936,000 tons, down 3% year-over-year. Adjusted EBIT was $14.3 million, up from $6.6 million in the prior year quarter. Gross margin was impacted by higher direct material spreads and lower direct volume, while SG&A increased due to standalone company costs and bad debt expenses.

• Cautiously optimistic about automotive market with potential OEM strategy adjustments; headwinds could be offset by lower interest rates and inflation. - Expect moderate growth in construction market areas like data centers and manufacturing in 2025. - Heavy truck to remain slow in first half 2025 but pick up in second half 2025 and 2026. - Capital expenditures for fiscal 2025 revised to approximately $125 million from $110 million, due to timing changes and additional projects.

• Headwinds in automotive, construction, and heavy truck markets. - Specific customer issues: bad debt from a heavy truck customer bankruptcy and reserve increase for a scrap dealer. - Potential trade policy changes impacting imports/exports of steel and finished products.

Q: Phil Gibbs asked about the drop in EBITDA per ton and what caused it, with Tim Adams responding about volume decrease, SG&A increase, and performance at Serviacero.

A: Tim Adams explained volume was down more than expected, SG&A increased due to standalone costs and bad debt, and Serviacero's performance was affected by lower spreads and exchange rates.

Q: Martin Englert asked about the industry of customers with bad debt and reserve increase, and risks in those industries, with Tim and Geoff responding about the customers being in scrap and heavy truck industries, and no broader industry risks.