Executive Summary
Worthington Steel delivered a solid QQ3 2024 performance as a standalone public company, with revenue of $687.4 million and net income of $13.8 million (EPS $0.28). Excluding separation-related costs and inventory swings, adjusted EBIT rose meaningfully to $66.9 million, up from $10.7 million a year earlier, driven by a higher gross margin and favorable pre-tax inventory movements. The quarter featured substantial non-operating items—most notably, anticipated fourth-quarter inventory holding losses of $5–$10 million pre-tax as steel prices normalized from the spike seen earlier in the quarter. Management underscored a transformation program designed to lift margins, reduce working capital, and add capacity, with ongoing investments in capacity expansion (Canada and Mexico electrical steel expansions) and a first-mover licensing agreement for ablation technology to differentiate the product mix.
Key operational vectors include: (1) volume dynamics—quarterly shipments of 986,000 tons (+4% YoY; +9% total tons YoY) with direct sales up slightly but automotive direct down 4% due to end-of-life programs and launch delays; (2) pricing and spreads—steel prices ranged from $700/ton to $1,100/ton intra-quarter, ending near $750/ton, supporting material spreads and a robust gross margin; (3) cash generation—operating cash flow of $53.8 million and free cash flow of $25.2 million in QQ3, aided by favorable working capital movements despite higher receivables and inventory; (4) balance sheet and liquidity—cash at period-end approximately $63.3 million; $147 million ABL debt; total debt $222.3 million; trailing-12-month free cash flow of $175 million; and a $150 million dividend paid to the former parent related to the separation. The company also signaled a multi-year capex path totaling roughly $100 million annually for 2024–2026, with additional near-term increments from ERP projects and the ablation line.
Looking forward, the management narrative centers on: (i) expanding niche, high-value-add capabilities (Tempel, electrical steel laminations, tailor-welded blanks) to capture premium tolling and end-market demand (auto and electrification); (ii) potential revenue upside from ramping new plants in Canada, Mexico, and Germany and (iii) an expected cadence of inventory normalization that may swing working capital in the near term. Investors should monitor the progress of the ablation/LASER-coated line ramp (timing is ~24 months to full production) and the realization of revenue from the Canada/Mexico expansions, the Nagold integration in Germany, and the ERP upgrade at Tempel as success multipliers on margins and ROIC over the next 2–4 quarters.
Key Performance Indicators
QoQ: -6.98% | YoY:-14.69%
QoQ: -3.17% | YoY:-73.59%
Key Insights
Revenue: $687.4 million in QQ3 2024, up +3% YoY; Gross Profit: $81.2 million; Gross Margin: 11.8%; Operating Income: $18.3 million; Operating Margin: 2.66%; EBITDA: $35.1 million; EBITDA Margin: 5.11%; Net Income: $13.8 million; Net Margin: 2.01%; EPS: $0.28 (GAAP); Diluted-EPS: $0.27; Weighted Avg Shares: 49.5 million; Cash Flow from Operations: $53.8 million; Free Cash Flow: $25.2 million; Capex in QQ3 2024: $22.4 million; Free Cash Flow (ttm): $175 million; Cash at End of Period: ~$63.3 milli...
Financial Highlights
Revenue: $687.4 million in QQ3 2024, up +3% YoY; Gross Profit: $81.2 million; Gross Margin: 11.8%; Operating Income: $18.3 million; Operating Margin: 2.66%; EBITDA: $35.1 million; EBITDA Margin: 5.11%; Net Income: $13.8 million; Net Margin: 2.01%; EPS: $0.28 (GAAP); Diluted-EPS: $0.27; Weighted Avg Shares: 49.5 million; Cash Flow from Operations: $53.8 million; Free Cash Flow: $25.2 million; Capex in QQ3 2024: $22.4 million; Free Cash Flow (ttm): $175 million; Cash at End of Period: ~$63.3 million; Total Debt: $222.3 million; Net Debt: $161.5 million; ABL Facility: $550 million; Leverage indicators and liquidity metrics reflect a disciplined financial posture post-separation.
YoY comparisons (incomeMetrics): Revenue YoY -14.69%; Gross Profit YoY -33.50%; Operating Income YoY -73.59%; Net Income YoY -71.84%; EPS YoY -71.72%. QoQ comparisons: Revenue -6.98%; Gross Profit +1.50%; Operating Income -3.17%; Net Income +7.81%; EPS +7.69%.
Income Statement
| Metric |
Value |
YoY Change |
QoQ Change |
| Revenue |
687.40M |
-14.69% |
-6.98% |
| Gross Profit |
81.20M |
-33.50% |
1.50% |
| Operating Income |
18.30M |
-73.59% |
-3.17% |
| Net Income |
13.80M |
-71.84% |
7.81% |
| EPS |
0.28 |
-71.72% |
7.69% |
Key Financial Ratios
operatingProfitMargin
2.66%
operatingCashFlowPerShare
$1.09
freeCashFlowPerShare
$0.51
Management Commentary
Themes and quotes from the QQ3 2024 earnings call:
- Transformation strategy and margins: "Transformation, our system of continuous improvement to increase margins, reduce working capital, and add capacity, is integral to our strategy." (Geoff Gilmore)
- Safety and operational excellence: "We continue to see positive trends in our safety metrics..." and the Tempel zero PPM Award for quality; the focus on data analytics and process improvement under SafeWorks program (Jeff Klingler).
- Growth projects and expansions: Management highlighted expansions in Canada and Mexico for electrical steel laminations, the Nagold integration in Germany, and the TWB license for ablation technology (Jeff Klingler, Tim Adams). The company expects the ablation line to deliver material advantages and a broader addressable market; full ramp in years three and four with >$100 million annual revenue potential when fully ramped.
- Financial performance and cash flow: Tim Adams emphasized that QQ3 is the first quarter as a standalone company and noted a substantial pre-tax swing in inventory gains ($19.3 million in Q3 vs. -$26.6 million prior year) contributing to adjusted EBIT of $66.9 million (vs. $10.7 million prior year). He also noted that SG&A was modest in Q3 but will likely be higher going forward due to standalone costs; he guided that Q4 could see inventory holding losses of $5–$10 million pre-tax. He also confirmed a $150 million dividend paid to the former parent and a $550 million ABL facility with a rate just under 7% (Tim Adams).
- Market dynamics and volume: Geoff noted volatility in steel pricing during the quarter, with hot-rolled pricing moving from roughly $700/ton to $1,100/ton, and currently around $750/ton; shipments totaled 986,000 tons (+4% YoY; +9% total tons YoY). Direct sale tons were 55% of mix (vs. 56% prior year). Automotive direct sales were down 4% YoY due to program wind-downs, while construction and energy volumes benefited from spot orders and ramp-ups (Geoff Gilmore).
"We are only one of two companies now that, are able to offer this product in North America."
— Jeff Klingler
"In years three and four, we expect to feel the full benefit."
— Jeff Klingler
Forward Guidance
Near-term outlook highlights and risk factors:
- Inventory dynamics: Management expects Q4 inventory holding gains to reverse into losses of approximately $5–$10 million pre-tax as steel price normalization continues. Investors should monitor the swing in working capital and its impact on quarterly cash generation.
- Capex trajectory: The company signaled a multi-year capex plan totaling about $100 million per year for 2024–2026, with incremental spend for the ablation line (~$10 million in 2025 and ~another $10 million in 2026) and ERP enhancements at Tempel estimated to add roughly $10 million across 2025/2026. This capex supports long-run margin improvement and capacity expansion.
- Growth catalysts: The ablation-based nanostructured tailoring, the expansion of electrical steel laminations in Canada and Mexico, and the Germany Nagold expansion are expected to lift volumes and mix toward higher-margin products (e.g., Tempel laminations, tailor-welded blanks). In the medium term (years 3–4), Worthington expects the ablation line and associated expansions to contribute meaningfully to revenue beyond the current base, with management citing a total potential of “more than $100 million a year” once fully ramped.
- Margin and earnings trajectory: Q3 adjusted EBIT rose sharply due to gross margin improvements and inventory gains; SG&A is expected to run higher as the company operates as a standalone entity. The ability to sustain elevated gross margins and improve asset turnover will be key to expanding operating leverage.
- Watchlines for investors: Autmotive program wins, ramp timing of Canada/Mexico deployments, and the rate of EU/North American cross-border growth; ongoing commodity price volatility; and the realization of ERP/automation efficiencies that translate into lower cycle times and improved decision-making.
- Bottom-line assessment: The company is transitioning from a post-spin setup to a growth phase anchored by high value-add products and niche capabilities. If the growth initiatives scale as planned and inventory swings stabilize, free cash flow generation could remain robust, supporting potential buyback opportunities and selective acquisitions when capital allocation criteria are met.