Operator: Thank you for standing by, and welcome to Worthington Steel's fourth quarter fiscal 2026 earnings call. I would now like to turn the call over to Melissa Dykstra, Vice President of Corporate Communications and Investor Relations.
Melissa Dykstra: Thank you, operator. Good morning and welcome to Worthington Steel's fourth quarter fiscal year 2026 earnings call. On our call today, we have Jeff Gilmore, Worthington Steel's President and Chief Executive Officer, and Tim Adams, Vice President and Chief Financial Officer. Before we begin, I'd like to remind everyone that certain statements made today are forward-looking within the meaning of the 1995 Private Securities Litigation Reform Act. We issued our earnings release yesterday after the market closed. Unless noted as reported, today's discussion will reference non-GAAP financial measures. You can find definitions of each non-GAAP measure and GAAP to non-GAAP reconciliations within our earnings release. Today's call is being recorded, and a replay will be available later today on worthingtonsteel.com. Now, I'll turn it over to Jeff Gilmore.
Geoff Gilmore: Good morning, and thank you for joining us. Before I get into the quarter, I want to start with the most important development since our last call. On June 3rd, we completed the Klöckner & Co. transaction and became the majority shareholder of the company. This is the largest acquisition in Worthington Steel's history, and it is a defining step in building our future. I want to thank our teams across Worthington Steel and our new colleagues at Klöckner. This was a demanding quarter with a lot happening at once. Through it all, our team stayed focused on safety, serving customers, and executing every day while we took a major strategic step as a company. The transaction builds directly on what we have been working towards since becoming a standalone public company — a business anchored in value-added processing, disciplined capital allocation, and continuous improvement through the Worthington Business System. The Klöckner acquisition materially expands our scale, capabilities, and reach. It gives us a broader set of products and processing capabilities, a larger and more complementary footprint, and increased end market diversification. Klöckner brings an established footprint and a portfolio that broadens our offerings to include aluminum, stainless, long products, plate, and fabrication, while complementing our strengths in carbon flat roll and our growing position in electrical steel. This transaction gives us more ways to serve our customers, more avenues for profitable growth, and further strengthens our ability to deliver strong performance through cycles. A broader, more balanced portfolio paired with more value-added processing can improve the quality of earnings through the cycle and reduce reliance on any single end market or product category. We also see a clear opportunity to create value over time through operating discipline, procurement scale, network efficiency, and best practice sharing. I want to spend a few minutes on where we are in the Klöckner takeover process. Worthington owns approximately 62% of Klöckner's outstanding shares. There are still several steps to take before Worthington Steel and Klöckner operate as one company. In late March, we announced our intention to pursue a domination and profit and loss transfer agreement, or DPLTA. This is a German corporate structure that, once approved and effective, allows the parent company to direct the management board of the subsidiary and assures alignment across the combined organization. For Worthington Steel, the practical benefit is that it supports more effective coordination, helps us move faster once the appropriate approvals are in place, and creates a clearer path to realizing synergies we identified. Like the tender offer process, approval of a DPLTA has to follow the required German legal steps, including shareholder approval. We have also announced our intention to pursue a delisting of Klöckner shares. Now that the transaction is closed, we believe the business is better positioned as part of Worthington Steel's operating platform as a non-listed company. Over time, delisting should simplify the structure, eliminate public company requirements, and reduce administrative burden, giving us greater flexibility to focus on operating performance, customer service, integration, and value creation. With the close behind us, our focus turns to execution. Integration is not something you just announce — it is something you deliver. Our teams are focused on day one readiness, integration governance, and aligning priorities so we can bring the organizations together effectively and begin capturing the value we've committed to. We will be deliberate. We will protect customer service, focus on cultural integration, and share more each quarter. I want to recognize the teams who got us here. Closing a highly structured cross-border transaction, raising more than $1 billion of new capital, and securing regulatory approvals sooner than expected requires real discipline and intense coordination across legal, finance, treasury, operations, IT, HR, communications, and many other functions. Thank you to everyone on our team who had a hand in bringing the transaction to a successful close. Turning to our results for the fourth quarter — as we mentioned during our last call, we expected several non-recurring items related to the Klöckner transaction. In addition, we recorded one-time non-cash impairment charges related to certain electrical steel assets in both Europe and the United States. Net sales increased by 12% to $929.2 million. Adjusted EBITDA was $75.2 million. Adjusted earnings per share were $0.74. From a macro standpoint, the quarter reflected stable to soft conditions. Customers remained deliberate and inventory-disciplined, and we continued to see sensitivity to interest rates and broader uncertainty. Trade policy continues to be an important factor — the industry needs consistency, and customers make long-term sourcing and investment decisions based on rules that must be reliable. As we head toward USMCA negotiations, we welcome steps that tighten enforcement and ensure the agreement delivers on its intent to support North American supply chains and North American manufacturing. We remain cautiously optimistic that conditions will improve, particularly if the interest rate path and broader geopolitical stability move in a constructive direction. In automotive, the broader North American market has been steadier than many expected, even with affordability and macro noise. Production and build plans are holding up, and the mix continues to shift pragmatically, with OEMs placing more emphasis on hybrids while EV growth has slowed as expected. This is an environment where execution and share matter, and we like how we are positioned in the programs and applications where quality and reliability win. In construction, conditions remain mixed. There are small pockets that continue to do well, including data center-related activity, but we saw broader weakness as sustained improvement is still sensitive to interest rates and confidence. Until rates move down more meaningfully, customers are going to stay disciplined and selective. We saw improvements in the ag sector this quarter, partially due to share gains. Looking more broadly, the ag market remains relatively weak — recovery is likely to be gradual rather than immediate, influenced by farm economics and policy conditions. Our shipments to heavy truck and trailer were down this quarter. We are seeing signs of improvement in the Class 8 sector and are more optimistic about the back half of calendar year 2026. We expect a rebound in the trailer market to push back into 2027. On the transformation front, we continue to build repeatable operating capabilities that will improve performance across our network. Last quarter, I described using lean flow principles at our Delta, Ohio facility. This quarter, we successfully applied those same concepts at our Bowling Green, Kentucky facility. Working closely with one of our largest customers, the team redesigned how raw material enters the operation, transitioning from a traditional push system to a demand-driven pull-and-replenish model. The result was roughly a 37% reduction in inventory while maintaining 100% on-time delivery performance. The redesign also removed a significant raw material storage constraint, freeing floor space and creating additional flexibility to support future demand and growth without additional capital investment. The methodology is proving transferable — we are packaging the lessons learned from Delta and Bowling Green into a scalable operating model that can be deployed across our footprint. As we enter fiscal 2027, we are already expanding these flow concepts into our specialty strip business while evaluating where they may apply across the Klöckner footprint. We also continue to make practical progress with artificial intelligence. This quarter, we expanded our automation work into customer order management at Spartan Steel Coating. Our teams developed an AI agent to process highly variable work orders from a key customer — work that historically required employees to review emails, interpret different order formats, identify specifications, and manually enter information into our ERP system. Because the orders varied so much, this was not a good fit for traditional rules-based automation. We created an AI agent trained with historical transaction data. The agent can understand multiple order formats, identify the correct specifications, and create transactions automatically. In testing, it achieved greater than 90% accuracy, and we expect to deploy it later this quarter. We did not ask the customer to change how they do business with us — we built the tool to adapt to the work. This is where we see real opportunity with AI: improving scalability and controls, reducing manual effort, and freeing our teams to focus on higher-value work. We also received important recognition from key customers. Worthington Steel earned John Deere's partner level supplier rating for the 14th consecutive year. We were also recognized as a General Motors Supplier of the Year for 2025 — our fourth time achieving that distinction and our third year in a row. Those recognitions reflect how we show up through safety, quality, delivery, partnership, and consistency over time. To the teams serving Deere and GM, thank you. We were also selected for the 14th consecutive year as a Top Workplace in Central Ohio, based on feedback directly from our employees. Our colleagues at Klöckner are recognized for that designation as well, and I find it particularly inspiring as we bring our two cultures together.
To close — this quarter reflects two things at once: steady execution in a mixed macro environment, and a major strategic step forward with the completion of the Klöckner transaction. We remain focused on what we can control — safety, customer service, operational discipline, and transformation — and we will bring that same approach to integration. I will now turn the call over to Tim.
Tim Adams: Thank you, Jeff, and good morning, everyone. I will frame my comments around three areas: the underlying operating performance in the fourth quarter, the items that make reported results difficult to compare year-over-year, and cash flow, capital allocation, and the balance sheet as we enter fiscal 2027. Our reported results include several significant items, including Klöckner-related transaction and financing costs, as well as a non-cash impairment in our electrical steel reporting unit. Those items had a meaningful impact on results, so I will separate them from the performance of the ongoing business. In the fourth quarter, we reported a net loss attributable to controlling interest of $48.7 million, or $0.98 per share, compared with earnings of $55.7 million, or $1.10 per share, in the prior year quarter. The Klöckner-related items fall into four categories. First, we incurred $15.5 million of pre-tax acquisition-related expenses, primarily advisory, legal, and regulatory fees. Second, we recognized an $11.5 million pre-tax loss on the foreign currency forward contract used to hedge a portion of the purchase price. Third, we recognized $17.2 million of pre-tax income related to Klöckner securities we held during the quarter, primarily mark-to-market gains. Fourth, we expensed $16.2 million of previously deferred bridge financing costs, reported in interest expense. In addition to the Klöckner-related items, we recognized a $94.5 million pre-tax non-cash impairment in our electrical steel reporting unit, or $1.31 per share. The charge included impairments to both goodwill and certain long-lived assets, reflecting a reset in near-term expectations for certain electrical steel end markets. In Europe, economic activity has remained softer than anticipated. In the U.S., we have experienced increased foreign competition and a temporary slowdown in industrial motor demand. These factors affected our near-term outlook and the valuation of certain assets. While these conditions have impacted results in the short term, they do not change our confidence in the long-term fundamentals of the electrical steel market. Electrification trends, grid investment, and demand for energy-efficient applications continue to support attractive growth opportunities. We remain focused on improving performance through commercial execution, operational excellence, and our transformation initiatives, and expect momentum to build especially with our new transformer core facility in Canada coming online. The impairment does not affect our liquidity, our cash generation, or our ability to invest in the business. Additionally, we recognized a $1.4 million pre-tax pension gain primarily related to a pension curtailment in Switzerland. The prior year quarterly results included $1.7 million of pre-tax restructuring charges primarily related to severance costs, and a $4 million gain in miscellaneous income associated with a currency hedge on the Sitem purchase price. Excluding these items, we generated adjusted earnings of $0.74 per share in the current year quarter, compared with $1.05 per share in the prior year quarter. In the fourth quarter, we reported adjusted EBIT of $54 million, down $16.1 million from the prior year quarter adjusted EBIT of $70.1 million. The year-over-year decrease was driven primarily by lower direct spreads including the impact of the year-over-year change in inventory holding gains, lower toll processing volumes, and higher SG&A, largely related to compensation and benefits, partially offset by higher direct volumes and improved toll mix. Total shipments were approximately 939,000 tons, down 44,000 tons or 4% year-over-year, as lower toll volumes more than offset volume growth in direct sales. Direct sale volume made up 65% of our mix versus 60% in the prior year quarter. Direct volume increased 3% year-over-year. Direct shipments to automotive increased 5% year-over-year, reflecting an automotive OEM returning to a more normal build schedule and share gains from new programs. Energy volume was up 24% due to new program wins in solar, and agriculture volume was up 11% due to improved OEM equipment demand and share gains. These gains were partially offset by lower shipments to construction, down 14%, and heavy truck, down 14%. Direct spreads, excluding volume gains, were down $8.7 million year-over-year, excluding the impact of the Sitem acquisition. We had estimated pre-tax inventory holding gains of $14.7 million in the current year quarter, compared to $20.8 million in the prior year quarter. Additionally, direct spreads were unfavorably impacted by continued compression of value-added market spreads, as well as the increasing market spread between steel raw material prices and scrap recovery. Hot rolled coil prices ended the calendar year around $900 per ton and have increased each month since then, ending at nearly $1,075 per ton in May. We expect steel market prices to remain volatile in the near term, with expected mill maintenance outages resulting in continued extended lead times and a tight market for flat-rolled steel. Given that many of our contracts use lagging index-based pricing mechanisms, we estimate pre-tax inventory holding gains in the first quarter of fiscal 2027 will be in the range of $10 million to $15 million. Our toll processing volumes declined 15% year-over-year due to a combination of closing our Cleveland area Worthington Samuel Coil Processing facility in fiscal 2025 and near-term demand headwinds. Manufacturing expenses excluding Sitem were up $2.3 million, an increase of 1%, primarily due to inflationary pressures. SG&A expense, excluding the $15.5 million impact of Klöckner-related acquisition expenses, was up $6.8 million, primarily due to increased compensation and benefits expense in the legacy business and $4.3 million of incremental SG&A with the addition of Sitem. Equity earnings from Serviacero decreased $400,000 due to lower direct volumes. Cash flow from operations was $45 million for the quarter, and free cash flow was $8 million. Capital expenditures were $37.1 million. For legacy Worthington Steel, we expect fiscal 2027 capital expenditures to be approximately $60 million, which includes maintenance projects. On a trailing 12-month basis, we generated $80 million of free cash flow. At May 31, prior to the Klöckner settlement and related financing, we ended the quarter with $85 million of cash and net debt of $172 million. We announced a quarterly dividend of $0.16 per share, payable September 29, 2026. To close — the fourth quarter had a number of moving pieces, but underlying results were resilient. The business remained cash generative, direct volumes grew, and we ended fiscal 2026 with liquidity and financial flexibility. Shortly after year-end, we completed the acquisition of a majority interest in Klöckner, which shifts our focus from transaction execution to integration, synergy capture, working capital discipline, and debt reduction. We will provide additional color on the combined company next quarter and expect to report combined results, with earnings announced a couple of weeks later than usual. Our financial priorities for fiscal 2027 are clear: support the integration of Klöckner, execute on our synergy plans, complete strategic growth projects already underway, improve performance in electrical steel, and maintain disciplined capital allocation. We are happy to take your questions.
Operator: Our first question comes from the line of Samuel McKinney with KeyBanc Capital Markets.
Samuel McKinney: Metal spreads expanded really nicely off the trough last quarter. We've seen spreads widen even further since the end of your fourth quarter. Can you talk about the potential upside that provides as we move forward?
Tim Adams: Sequentially, we saw an improvement because of volume, with gross margins up as a result. We continue to focus on high value-added products to push those spreads. When you look at year-over-year, the contractual business is based on the market spread — the margin per ton is locked over the contract period, and as the price of steel moves, the index pricing also moves. Year-over-year, you're seeing a pretty sizable jump of about $175 in the price of steel.
Geoff Gilmore: Historically, the average spread for galvanized has probably been around $170–$180 per ton. That got as low as $95, which you're well aware of. More recently, we've seen that approach $200 per ton or a little north of that. With galvanized and cold-rolled strip being a heavy portion of our value-added business, that's something for us to start looking forward to over the next six to 12 months, assuming that holds intact.
Samuel McKinney: Given automotive build rate trends this year versus last, how are you thinking about volume impacts as we move into the new fiscal year in the context of the market share wins you talked about?
Geoff Gilmore: We're looking at it similarly. 2025 ended up around 15.3 million units and we'll probably finish near that level at the end of this calendar year. We're still cautiously optimistic — if we can get past some clarity around interest rates and USMCA, there could certainly be some upside. We're still well off pre-COVID levels and we would look forward to that. Our commercial team has done an excellent job positioning us and we've more than offset the softness through market share gains — we're up north of Stellantis build rates, and where we've seen softening at GM and Ford, we're up over that as well or down less. We continue to do well in that market, and we have several indications that more meaningful market share gains are coming, likely in calendar year 2027 as we start new programs and new contracts.
Operator: Your next question comes from the line of Martin Englert with Seaport.
Martin Englert: Are you seeing any shift away from aluminum back toward steel, or anticipating one through the balance of this year?
Geoff Gilmore: We've not heard of any major shifts quite yet. It is absolutely something automotive companies are considering — given what's occurred in the aluminum market, going back to steel is certainly attractive. That said, a lot of where aluminum substituted for steel, or may go back, is on the exterior of the vehicle, such as closures and exposed parts, and that's just not an area where we play at Worthington Steel. We are solely in propulsion systems and more on the interior part of the automobile.
Martin Englert: Are you seeing any pickup in relocation and reshoring of the auto supply chain from Mexico to the U.S.?
Geoff Gilmore: No, we have not seen a lot of movement at this point. I think there are a lot of plans in place and customers and OEMs are evaluating those opportunities, but until we have more clarity on USMCA, I don't anticipate those decisions being made. If we're able to get that agreement in place sooner rather than later, I certainly would expect to start hearing those types of announcements.
Martin Englert: Within the tolling business, what portion of volumes are being processed for steel mills generally?
Geoff Gilmore: Generally, our toll mix is pretty heavily weighted towards the mills — about 75% or so.
Martin Englert: In your prepared remarks, you noted construction headwinds from elevated interest rates. What are you hearing within the supply chain regarding other inflationary factors such as high steel and metals prices inhibiting or pausing activity?
Geoff Gilmore: I haven't heard any market intelligence of cancellations. The pressure of higher interest rates combined with rising steel costs and other inflation just becomes that much more of a challenge. We start to feel a bit more optimistic about construction in the later second half of the year, and that's really going to come with lower interest rates and getting past the uncertainty from geopolitical issues, inflation, and tariffs. Until we get more clarity there, I think projects will continue to sit on the sidelines outside of data centers.
Martin Englert: You gave an example of the AI application at Spartan Steel Coating. You noted 90% accuracy in testing. What bridges the 10% to get to 100%?
Geoff Gilmore: Just a little bit more practice and testing. AI is fascinating and certainly a game changer. The information you feed it has to be 100% accurate. Just like any other process, you work through it, trial and error, and we have to feel positive that we're providing the AI with all accurate and right information. We'll get there pretty smoothly and easily.
Martin Englert: Do you have a specific budget for AI spend for the upcoming fiscal year?
Geoff Gilmore: No, we haven't set a specific budget. It's certainly an area we want to continue to invest in. We took on quite a bit of debt for the deal and want to be mindful of paying it down, but AI is an area where we want to keep investing. We are pretty close to announcing some partnerships with two different firms to help us accelerate our AI journey.
Martin Englert: Could you revisit the synergy targets with Klöckner — the key categories, the time horizon, and whether there's an upper or lower bound around the $150 million?
Geoff Gilmore: We're sticking with $150 million EBITDA synergies. We also said we think there's another $150 million of working capital opportunities. I would split that roughly 50/50 between year one and year two. We are highly confident in our ability to achieve this, as well as cutting the debt in half within the same time period. Until we reach DPLTA, we're not really able to start integration — that's what was exciting about accelerating the closing. It allows us to get to DPLTA sooner and start working closely, collaborating, putting our plans in place, and getting to action. That's what we're most excited about.
Operator: There are no further questions at this time. I will now turn the call back to Geoff Gilmore for closing remarks.
Geoff Gilmore: Thank you again for joining us this morning. Our strategy remains intact. Electrical steel continues to be a key part of our growth strategy. We're now turning to the next phase of the Klöckner transaction with focus and confidence, ready to execute, integrate thoughtfully, and create value over time. Thanks for joining us. This concludes today's call. Thank you for attending. You may now disconnect.
