Worthington Industries(WOR) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Worthington Enterprises reported GAAP earnings from continuing operations of $0.79 per share, up from$ 0.44 in the prior year quarter, reflecting strong earnings growth [15] - Adjusted EBITDA for the quarter was $74 million, an increase from$ 67 million in Q3 of the previous year, with an adjusted EBITDA margin of over 24% compared to 21% last year [17][19] - Consolidated net sales for the quarter were $305 million, a 3.9% decrease from$ 317 million in the prior year quarter, primarily due to the deconsolidation of the former Sustainable Energy Solutions segment [16][19] Business Line Data and Key Metrics Changes - Consumer products net sales grew 5% year over year to $140 million, with adjusted EBITDA of$ 29 million and a 20.5% margin [20] - Building products net sales increased 11% year over year to $165 million, with adjusted EBITDA of$ 53 million and a 32% margin [21] - Excluding the Sustainable Energy Solutions segment, sales grew over 8%, driven by the Regasco acquisition and improved demand [16][19] Market Data and Key Metrics Changes - The consumer products segment benefited from higher volumes despite ongoing macroeconomic uncertainty, while the building products segment saw strong performance in heating, cooling, and water businesses [20][21] - Joint ventures contributed $35 million in dividends during the quarter, with a 110% cash conversion rate on net equity income [18] Company Strategy and Development Direction - The company continues to leverage its business system focusing on innovation, transformation, and M&A to maximize near and long-term success [7][13] - Worthington is investing in automation and facility modernization to enhance operational efficiency and is embracing AI across its facilities [12][13] - The company aims to maintain a strong balance sheet and liquidity to pursue growth through acquisitions, focusing on market-leading businesses that can enhance margins and free cash flows [13][19] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating the current operating environment, emphasizing the company's domestic manufacturing strength and diversified sourcing capabilities [28] - The company anticipates continued growth driven by strong market positions and innovative product offerings, despite potential macroeconomic challenges [14][23] - Management highlighted the importance of maintaining a disciplined approach to capital allocation while pursuing growth opportunities [18][55] Other Important Information - The company declared a quarterly dividend of$ 0.17 per share payable in June 2025 [19] - Free cash flow totaled $144 million on a trailing twelve-month basis, representing a 104% free cash flow conversion rate relative to adjusted net earnings [18] Q&A Session Summary Question: How are tariffs being navigated in today's market? - Management indicated that they are well-positioned as a domestic manufacturer and have diversified sourcing capabilities to manage cost pressures, including potential price increases [28][30] Question: What are the contributing factors for progress in core products' EBITDA margin? - The building products business saw an EBITDA margin increase from 6% to 11% year over year, driven by positive mix shifts and seasonal demand recovery [36] Question: Can you provide an update on the M&A pipeline? - The M&A pipeline remains healthy, with ongoing assessments of opportunities despite current market uncertainties [68] Question: What is the outlook for free cash flow conversion? - Management aims to sustain free cash flow conversion above 100%, even with ongoing capital expenditures for facility modernization [55] Question: How is the company addressing the challenges in the consumer segment? - Management noted that they are proactively working with retail partners to manage inventory levels and ensure product availability, which has led to healthy demand [99]