Detailed Article:
Worthington Steel, Inc., a leading player in the metal processing industry, has announced its financial results for the third quarter of fiscal year 2025, which ended on February 28, 2025. The report shows a significant decline in key financial metrics, marking a sharp contrast to the same period in the previous year. Despite the downturn, the company remains committed to long-term strategic goals, including expansion initiatives and maintaining operational excellence.
Third Quarter Financial Overview
For the third quarter of fiscal year 2025, Worthington Steel reported net sales of $687.4 million, a 15% decrease from the $805.8 million reported in the same period of fiscal 2024. This reduction in sales can primarily be attributed to a combination of factors, including lower volume and declining direct selling prices. The company processed 881,410 tons of steel during the quarter, a 7% decrease compared to 985,668 tons in the third quarter of fiscal 2024.
Net Earnings Drop Significantly
The most concerning aspect of the financial report is the significant decrease in net earnings attributable to controlling interest. The company posted earnings of $13.8 million or $0.27 per diluted share, down from $49.0 million or $0.98 per diluted share during the same quarter last year. This marks a staggering 72% decline in profitability.
This steep drop in earnings can be attributed to a combination of lower gross margins and an impairment of assets. During the quarter, the company recognized a $7.4 million impairment charge, largely due to the write-down of an in-process research and development intangible asset, as well as restructuring efforts at its Worthington Samuel Coil Processing facility in Cleveland, Ohio.
Adjusted Earnings Reflect Deeper Impact
When adjusted for non-recurring items such as asset impairments and restructuring costs, Worthington Steel's adjusted net earnings stood at $17.6 million or $0.35 per diluted share, down from $49.6 million or $0.99 per diluted share in the previous year. The adjusted results offer a clearer picture of the underlying operational challenges, which were further compounded by a $1.0 million increase in selling, general, and administrative (SG&A) expenses, driven primarily by higher wages and additional professional fees related to its acquisition efforts.
Decline in Gross Margin
One of the most significant contributors to the company’s reduced operating income is the decline in gross margin. Worthington Steel's gross margin for Q3 FY2025 was $81.2 million, a decrease of $38.9 million compared to the same period last year. This drop was largely driven by lower direct spreads, which fell by $22.5 million due to a shift from an inventory holding gain in Q3 FY2024 to an inventory holding loss in Q3 FY2025. The company experienced an unfavorable change of $20.5 million, from a $19.3 million gain to a $1.2 million loss.
Additionally, direct selling prices dropped by 8%, and the toll tons selling prices decreased by 7%, both factors contributing to the reduced revenue and margin pressure.
Volume and Pricing Impact
The reduction in processed steel volume and lower pricing contributed to a decline in sales, with direct tons sold dropping by 7% and toll tons sold decreasing by 15% compared to Q3 FY2024. The shift in the mix of direct tons versus toll tons also had an impact on revenue generation, with the ratio for Q3 FY2025 standing at 57% direct tons and 43% toll tons, compared to 55% direct tons and 45% toll tons in Q3 FY2024.
Strategic Acquisition in Progress
Despite the negative financial results, Worthington Steel continues to focus on growth and expansion. The company is making significant strides with its acquisition of an equity stake in Sitem S.p.A., an Italy-based company, along with its subsidiaries Stanzwerk AG, Decoup S.A.S., and Sitem Slovakia spol. s r.o., collectively known as the Sitem Group. The acquisition, which has already received regulatory approval, is expected to close in the early part of fiscal year 2026. This acquisition represents a significant strategic move, as it will enable Worthington Steel to expand its footprint in Europe and strengthen its product offerings.
Dividend Declaration
In addition to its financial results, Worthington Steel announced a quarterly dividend of $0.16 per share, which will be payable on June 27, 2025, to shareholders of record at the close of business on June 13, 2025. This decision underscores the company’s commitment to delivering value to its shareholders, even in the face of challenging financial results.
CEO Comments on the Quarter
Geoff Gilmore, President and CEO of Worthington Steel, commented on the challenges faced during the quarter, stating:
"As expected, the headwinds from the second quarter continued into our third quarter of fiscal 2025 as customers managed uncertainty. During the last month of the quarter, we saw signs of fundamental demand improvements. I’d like to thank the Worthington Steel team, who demonstrated remarkable flexibility and resilience this quarter. They focused on what they could control, while maintaining a strong commitment to safety and serving our customers."
Despite the financial setbacks, Gilmore highlighted the company's ability to adapt to the market conditions and its ongoing efforts to position itself for long-term success.
Financial Performance Analysis: Q3 FY2025 vs Q3 FY2024
In the third quarter of FY2025, the company reported net sales of $687.4 million, reflecting a decrease from the $805.8 million posted in the same period of FY2024. This decline in net sales highlights a reduction in revenue generation compared to the previous year, signaling a challenging market environment.
The company’s operating income also took a significant hit, dropping to $18.3 million in Q3 FY2025, compared to $66.3 million in Q3 FY2024. This sharp decline is indicative of increased operational costs or lower profitability from core activities.
Similarly, net earnings attributable to controlling interest decreased from $49.0 million in Q3 FY2024 to $13.8 million in Q3 FY2025. This drop underscores the impact of lower sales and operating income on the company’s bottom line, affecting overall profitability.
Earnings per diluted share saw a notable reduction, falling from $0.98 in Q3 FY2024 to $0.27 in Q3 FY2025. This decline in earnings per share is reflective of the reduced net income, signaling a challenging quarter for shareholders.
In terms of adjusted figures, the company’s adjusted net earnings decreased to $17.6 million from $49.6 million in Q3 FY2024, while adjusted earnings per diluted share fell from $0.99 to $0.35. These adjusted figures provide a clearer view of the company’s performance, excluding one-time items, yet still indicate a substantial drop in profitability.
Finally, the company processed 881,410 tons of material in Q3 FY2025, compared to 985,668 tons in Q3 FY2024. This decrease in tons processed further reflects a decline in operational capacity or demand during the quarter.
Overall, the Q3 FY2025 performance shows significant declines in revenue, profit, and operational throughput when compared to the same quarter last year, signaling potential challenges ahead for the company.
Key Takeaways:
• Net Sales: $687.4 million, a 15% decline from $805.8 million in Q3 FY2024.
• Operating Income: $18.3 million, a decrease of 72% from $66.3 million in the prior year.
• Net Earnings: $13.8 million ($0.27 per share), a 72% decline from $49.0 million ($0.98 per share).
• Adjusted Net Earnings: $17.6 million ($0.35 per share), down from $49.6 million ($0.99 per share).
• Volume of Steel Processed: 881,410 tons, 11% lower than 985,668 tons in Q3 FY2024.
• Gross Margin: Reduced by $38.9 million due to lower spreads and an unfavorable inventory holding loss.
• Impairment Charges: $7.4 million impairment recognized during the quarter.
• Strategic Acquisition: Acquisition of Sitem Group in progress, expected to close by early FY2026.
• Dividend Declared: $0.16 per share, payable June 27, 2025.
While Worthington Steel is facing significant challenges in the short term, its focus on strategic acquisitions and resilience during tough periods highlights its long-term growth potential.
