Worthington Steel's Third-Quarter Fiscal 2025 Results: A Year of Challenges and Strategic Adjustments
Worthington Steel, Inc., a leader in value-added metals processing, reported its financial results for the third quarter of fiscal year 2025, which ended on February 28, 2025. The company saw a significant decrease in key financial metrics, including net sales, operating income, and net earnings. Despite the challenging quarter, Worthington Steel remains focused on its strategic growth initiatives and improving its operational efficiency.
Key Financial Highlights for Q3 Fiscal 2025:
• Net Sales: $687.4 million, down by 15% from the previous year's $805.8 million.
• Operating Income: $18.3 million, a significant decrease from $66.3 million.
• Net Earnings: $13.8 million, compared to $49.0 million in the same quarter of the prior year.
• Adjusted Net Earnings: $0.35 per diluted share, a drop from $0.99 per diluted share last year.
• Volume Sold: 881,410 metric tons, down by 10.6% from the 985,668 metric tons sold in Q3 FY2024.
The company faced considerable pressure from lower direct selling prices, reduced volume, and a challenging market environment. The volume of direct tons sold fell by 7%, while toll tons sold dropped by 15%. This decline in volume, coupled with a reduction in selling prices, directly impacted the company's top-line performance.
Challenges Impacting Q3 Performance
The company’s performance was largely affected by the following factors:
• Lower direct selling prices: A decrease of 8% in direct selling prices was a major factor in the decline in overall sales.
• Volume reduction: A decrease of 7% in direct tons sold and a 15% drop in toll tons sold contributed significantly to the 15% decline in net sales.
• Gross Margin Decline: Gross margin fell by $38.9 million, primarily due to lower direct spreads and a shift from a favorable inventory holding gain in the previous year to an inventory holding loss.
• Impairment of Assets: The company recorded $7.4 million in asset impairments due to adjustments in its operations, including an R&D intangible asset impairment and plans to consolidate toll processing facilities.
• Restructuring Costs: Restructuring expenses of $0.9 million related to a voluntary retirement program at the TWB Company further impacted profitability.
Strategic Developments Amidst Decline
Despite the financial challenges, Worthington Steel has made notable progress in several areas:
1. Acquisition of Sitem Group: Worthington Steel is in the process of acquiring a controlling equity stake in the Italy-based Sitem Group, which includes subsidiaries such as Stanzwerk AG, Decoup S.A.S., and Sitem Slovakia spol. s r.o.. This acquisition is set to close in early fiscal year 2026 following regulatory approval, a move that is expected to strengthen the company's global position.
2. Supplier Recognition: Worthington Steel earned Mahle’s 2024 Best Supplier of the Year Award, highlighting its commitment to excellence and strong relationships with key clients. The company primarily serves Mahle from its Tempel Steel facility in Chennai, India.
3. Quarterly Dividend: Despite the financial downturn, the company declared a quarterly dividend of $0.16 per share, which will be payable on June 27, 2025 to shareholders of record on June 13, 2025. This demonstrates the company's continued focus on shareholder returns even during challenging times.
Market Outlook and CEO Statement
In a statement from Geoff Gilmore, President and CEO of Worthington Steel, he acknowledged that the headwinds from the second quarter of fiscal 2025 continued into the third quarter. These challenges were largely driven by uncertainty in the marketplace, causing customers to adjust their buying patterns. However, the company did see improvements in demand during the final month of the quarter.
Gilmore commended the Worthington Steel team for their flexibility and resilience in responding to market dynamics, emphasizing their continued focus on safety and customer service amidst a turbulent business environment.
Year-to-Date Financial Performance (FY2025)
• Net Sales: $2.26 billion, a decrease of $259.2 million compared to $2.52 billion in the same period in fiscal 2024.
• Operating Income: $80.6 million, down from $127.2 million year-over-year.
• Net Earnings: $55.0 million, compared to $101.5 million in FY2024.
• Adjusted EBIT: $79.0 million, a decline from $154.0 million last year.
• Volume: 2.81 million metric tons, down from 2.98 million metric tons in the previous fiscal year.
Key Takeaways:
• Net Sales for Q3 FY2025 decreased by 15%, totaling $687.4 million compared to $805.8 million in Q3 FY2024.
• Operating Income fell sharply by $48.0 million, reaching only $18.3 million in Q3 FY2025.
• Net Earnings dropped to $13.8 million, down from $49.0 million in Q3 FY2024.
• Adjusted EBIT decreased to $25.3 million, down from $66.9 million year-over-year.
• Volume Sold declined by 10.6% to 881,410 metric tons compared to 985,668 metric tons in the prior year.
• Gross Margin saw a significant decline of $38.9 million due to lower direct spreads and inventory holding losses.
• Strategic Acquisitions: The company is on track to acquire a controlling stake in the Italy-based Sitem Group, with the deal expected to close in early fiscal 2026.
• Mahle Award: Worthington Steel was awarded Best Supplier of the Year by Mahle for 2024, recognizing its excellence in supply chain operations.
• Quarterly Dividend: Worthington declared a dividend of $0.16 per share to be paid on June 27, 2025.
Despite a challenging fiscal third quarter, Worthington Steel remains focused on its long-term strategy, including acquisitions and maintaining strong customer relationships, while continuing to weather market challenges.
