Release Date: December 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Worthington Steel Inc (WS, Financial) reported a significant increase in adjusted EBITDA, reaching $30.6 million compared to $23 million in the prior year quarter.
- Earnings per share improved to $0.25 from a loss of $0.12 per share in the same period last year.
- The company announced a strategic acquisition of a 52% stake in Sitem Group, enhancing its presence in the European market for electrical steel laminations.
- Worthington Steel Inc (WS) released its first corporate citizenship and sustainability report, highlighting achievements such as a safety record nearly two times better than the industry average and a decrease in carbon emissions.
- The company was recognized as a Military Friendly Employer for the 10th consecutive year and was included in Computerworld's list of Top Places to Work in IT.
Negative Points
- The quarter was impacted by lower volumes and lower average selling prices, affecting overall results.
- SG&A expenses increased by $7 million due to costs associated with being a standalone company and bad debt expenses from a customer bankruptcy.
- The company faced challenges in the automotive market, with significant production cuts from a major OEM customer.
- Net sales decreased by 9% compared to the prior year quarter, primarily due to lower direct volumes and market pricing.
- The company experienced a volume decrease of more than 30% with a major automotive customer, impacting overall automotive shipments.
Q & A Highlights
Q: What caused the EBITDA per ton to drop significantly, and when can we expect it to recover?
A: Tim Adams, CFO, explained that the drop was due to three main factors: unexpected volume decreases, increased SG&A expenses, and lower performance at Serviacero. The volume was down 7% instead of the expected 2-3%, largely due to unexpected production cuts from a major customer. SG&A expenses rose due to bad debt and professional fees related to the Sitem transaction. Recovery is expected as these issues are addressed.
Q: Can you provide details on the bad debt expense and professional fees?
A: Tim Adams stated that the bad debt expense was about $2 million, stemming from a customer bankruptcy and increased reserves for another customer. Professional fees related to the Sitem transaction were approximately $2 million. These are considered normal business expenses and are not expected to recur.
Q: What is the outlook for customer sentiment and volumes in the coming quarters?
A: Geoff Gilmore, CEO, expressed cautious optimism, particularly in the automotive sector. He noted that while there are short-term challenges with a major OEM, the company has gained market share with other OEMs. Lower interest rates and aging vehicles are expected to drive demand, with improvements anticipated by spring.
Q: Are there any risks in the industries related to the increased reserve and bad debt expense?
A: Geoff Gilmore clarified that the reserve increase was related to a scrap dealer, and the bankruptcy was in the heavy truck industry. These were specific customer issues, and there are no broader concerns in these industries.
Q: How might changes in US trade policy affect Worthington Steel's operations?
A: Tim Adams indicated that potential tariff changes are not a major concern. The company sources locally and expects minimal impact on raw material supply. While there could be some effects in Canada and Mexico, Worthington Steel is well-positioned to manage any challenges.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
