Worthington Steel (NYSE:WS) executives highlighted progress on the company’s proposed acquisition of Kloeckner, detailed a “disciplined” third-quarter performance amid uneven demand, and discussed how pricing dynamics and end-market conditions are shaping expectations for the remainder of fiscal 2026 during the company’s Q3 fiscal year 2026 earnings call.
Kloeckner acquisition update
President and CEO Geoff Gilmore said the proposed acquisition of Kloeckner would be the largest in Worthington Steel’s history and described it as a step toward a “larger, more diversified metals processing platform” with opportunities to generate value and synergies through the company’s internal continuous improvement program, which it calls “the transformation.”
Management said it has begun internal planning for integration, governance, and “day one readiness,” emphasizing a deliberate approach designed to maintain company cultures while unlocking value and accelerating growth. Gilmore added that interactions with Kloeckner personnel reinforced management’s view that the two organizations are culturally aligned, and he said the response from customers, suppliers, and investors has been “overwhelmingly positive.”
Quarterly results and notable items
For the third quarter, Worthington Steel reported net sales of $769.8 million. Gilmore said adjusted EBITDA was $41.6 million and adjusted earnings per share were $0.27.
CFO Tim Adams said the company reported earnings of $10.4 million, or $0.20 per share, compared with $13.8 million, or $0.27 per share, in the prior-year quarter. He outlined several items affecting comparability, including transaction-related expenses and hedging impacts tied to the proposed Kloeckner acquisition.
- $15.4 million of pre-tax SG&A expense for advisory, legal, and regulatory fees related to the Kloeckner acquisition.
- $9.1 million of pre-tax miscellaneous income related to a foreign currency forward contract intended to hedge a portion of the Kloeckner purchase price.
- $6.0 million pre-tax restructuring gain tied to the sale of real estate and equipment associated with the previously announced closure of the Worthington Samuel Coil Processing plant in Cleveland, Ohio.
- $1.5 million pre-tax impairment of certain internal-use software.
Adams said the prior-year quarter included a $7.4 million pre-tax impairment primarily related to consolidation of the Cleveland facility into a remaining facility in Twinsburg, Ohio, as well as $900,000 of pre-tax restructuring expenses tied to a voluntary retirement plan at the TWB joint venture. Excluding the items management cited, adjusted EPS was $0.27 in the current-year quarter compared with $0.35 in the prior-year quarter.
Volumes, end markets, and pricing dynamics
Adams said adjusted EBITDA for the quarter was $20.0 million, down from $25.3 million in the prior-year quarter. He attributed the year-over-year decline primarily to lower toll processing volumes, higher SG&A (largely compensation-related), and unfavorable results in Europe. Those factors were partially offset by higher direct volumes and higher equity earnings from Serviacero.
Total shipments were approximately 818,000 tons, down 7% year over year, as lower toll volumes more than offset growth in direct sales. Direct sale volume represented 63% of the mix, up from 57% in the prior-year quarter, and direct volume increased 4% year over year. Adams said the direct volume increase was split evenly between the legacy business and the addition of Sitem versus the prior year.
Automotive was a focal point in both the prepared remarks and Q&A. Adams said direct shipments to automotive increased 10% year over year, reflecting share gains from new programs and the impact of a key automotive OEM returning to a more normal build schedule after curtailing production last fiscal year. Gilmore added that Worthington Steel’s direct shipments in the quarter to the Detroit Three increased by approximately 13%, compared with reported 3% growth in Detroit Three production.
In response to an analyst question about why overall direct volumes rose modestly while automotive shipments increased more sharply, Gilmore pointed to supply-chain disruption from winter weather in the Midwest. He said late-January weather disrupted mills shipping to Worthington Steel and Worthington Steel shipments to customers, estimating an impact of 10,000 to 15,000 tons. Gilmore said the company was not able to fully make up the backlog during February due to extended lead times and mill on-time delivery challenges, but characterized the shortfall as delayed rather than lost orders.
Outside of automotive, Adams said agriculture volume increased 9% due primarily to improved OEM equipment demand and that container volume was up 11%. These gains were partially offset by declines in energy (down 22% year over year, largely driven by project-based solar programs), construction (down 7%), service center shipments (down 21% amid increased competition), and heavy truck (down 12% due to market weakness). Toll processing volumes declined 22% year over year due to the Cleveland-area facility closure and near-term demand headwinds; Adams said management views the softer conditions in toll processing as “cyclical, not structural.”
On pricing, Adams said direct spreads were relatively flat year over year excluding the impact of the CEDAM acquisition, which closed in June. He also highlighted a $3.3 million favorable swing in estimated pre-tax inventory holding gains, with estimated gains of $2.1 million in the current-year quarter compared with estimated losses of $1.2 million in the prior-year quarter. He noted hot-rolled coil prices increased about $175 per ton during the quarter to approximately $975 per ton after stabilizing around $800 per ton in the fall. Adams said the company expects steel prices to remain volatile near term due to expected mill outages, extended lead times, and a tightening market, and he estimated pre-tax inventory holding gains of $15 million to $20 million in the fourth quarter of fiscal 2026 due to lagging index-based pricing mechanisms.
Europe performance and electrical steel investments
Adams said Worthington Steel’s results included “increased headwinds in Europe,” and noted that CEDAM EBITDA prior to minority interest decreased $8.4 million during the quarter. He attributed that performance to challenging economic conditions in Europe, particularly in electrical steel and automotive end markets, where demand remains weak and competition—especially from China—has intensified. Adams said the company is taking cost actions and operational adjustments and that the team in Europe is working with urgency to improve performance.
Gilmore also provided updates on electrical steel growth projects. In Canada, he said the company has shifted some production to its new facility and is shipping from both locations, with plans to complete moving existing equipment and production to the new site over the next few months. He said more than 60% of the facility’s increased capacity is sold and that the startup is being sequenced to protect performance and service levels.
In Mexico, Gilmore said the company’s traction motor lamination facility expansion is on track and will begin shipping production parts during the quarter, but he noted that “almost all” OEMs tied to the expansion are experiencing delays. While full production had previously been expected in fiscal 2028, Gilmore said timing has shifted and that, when platforms reach full production in fiscal 2029, the expansion would be at 75% capacity based on current contracts. Gilmore discussed a market shift from a government-driven battery electric vehicle mandate to consumer-led demand for hybrids, saying hybrid quote activity is increasing while pure BEV quoting has slowed.
Cash flow, balance sheet, and dividend
Adams said cash flow from operations was $63 million and free cash flow was $33 million in the quarter, both benefiting from a reduction in working capital. Capital expenditures were $30 million, tied to multiple projects including previously announced electrical steel investments. He said fiscal 2026 capex is expected to finish in the range of $110 million to $115 million as major growth projects transition from build into startup production.
Adams also discussed Kloeckner share purchases made in the open market. During Q&A, he said Worthington Steel increased borrowings on its ABL by $126 million and used $101 million to purchase approximately 8.3 million shares, or about 8% of Kloeckner shares, noting the company could buy up to 10% in the open market under antitrust-related considerations. He said the company bought shares early in the quarter and has not bought much since as Kloeckner’s price rose.
Worthington Steel ended the quarter with $90 million of cash and net debt of $161 million, which Adams said was up sequentially primarily due to the Kloeckner share purchases. The company also announced a quarterly dividend of $0.16 per share, payable on June 26, 2026.
In closing remarks, Gilmore reiterated that he believed the company had experienced the trough in market conditions and said management was “cautiously optimistic” as it sees signs of recovery. He added that the company felt well-positioned for growth and expressed confidence in achieving the tender threshold for Kloeckner.
About Worthington Steel (NYSE:WS)
Worthington Steel (NYSE: WS) is a leading North American steel processor specializing in the production of flat-rolled, coated and painted sheet and coil products. Operating as a wholly owned subsidiary of Worthington Industries, the company serves a broad range of industries, including construction, automotive, appliance, energy and agricultural equipment. Its core business activities encompass the processing, finishing and distribution of carbon and advanced high-strength steels, aluminum and stainless products to manufacturers across the continent.
The company’s product portfolio includes hot-dip galvanizing, galvannealed, aluminized and pre-painted steel products, as well as cold-rolled and hot-rolled coil.
