- Adjusted EBITDA: $48 million, down from $66 million in Q1 of last year.
- Adjusted Earnings Per Share: $0.50, down from $0.75 in the prior year.
- GAAP Earnings from Continuing Operations: $0.48 per share, down from $0.54 in the prior year.
- Restructuring Charges: $1 million or $0.02 per share.
- Consolidated Net Sales: $257 million, down 17.5% from $312 million in the prior year.
- Gross Profit: $62 million, down from $70 million in the prior year.
- Gross Margin: Increased approximately 200 basis points to 24.3%.
- Cash Flow from Operations: $41 million.
- Free Cash Flow: $32 million.
- Capital Projects Investment: $10 million.
- Hexagon Ragasco Acquisition Cost: $89 million.
- Dividends Paid: $8 million.
- Share Repurchase: $7 million for 150,000 shares.
- Proceeds from SES Segment Sale: $12 million.
- Dividends from Unconsolidated JVs: $39 million.
- Long-term Funded Debt: $300 million with an average interest rate of 3.6%.
- Cash on Hand: $179 million yielding around 5%.
- Net Debt to Trailing EBITDA Leverage Ratio: Approximately 0.5 turns.
- Undrawn Bank Credit Facility: $500 million.
- Consumer Products Net Sales: $118 million, flat from the prior year.
- Consumer Products Adjusted EBITDA: $18 million, up from $14 million in the prior year.
- Consumer Products Adjusted EBITDA Margin: 15.1%, up from 12.2% in the prior year.
- Building Products Net Sales: $140 million, down 16% from $166 million in the prior year.
- Building Products Adjusted EBITDA: $40 million, down from $60 million in the prior year.
- Building Products Adjusted EBITDA Margin: 28.4%, down from 36% in the prior year.
- ClarkDietrich Contribution: $9 million, down from $17 million in the prior year.
- WAVE Equity Earnings: $28 million, down slightly from the prior year.
- Hexagon Ragasco Q1 Sales: $16 million.
- Hexagon Ragasco Adjusted EBITDA: $2 million.
Release Date: September 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Worthington Enterprises Inc (WOR, Financial) delivered a respectable quarter with adjusted EBITDA of $48 million and adjusted earnings per share of $0.50.
- The integration of the Hexagon Ragasco acquisition and the launch of the Sustainable Energy Solutions joint venture with Hexagon Composites have gone well.
- The company broke ground on a modernization project at its Chilton, Wisconsin campus, which will increase production efficiencies and allow for future expansion.
- Worthington Enterprises Inc (WOR) received two awards from Newsweek: America's Greatest Workplaces and the World's Most Trustworthy Companies.
- The company published its annual corporate citizenship and sustainability report, highlighting significant strides in sustainability and responsible governance.
Negative Points
- Adjusted earnings per share decreased from $0.75 in the prior year to $0.50 in the current quarter.
- Consolidated net sales decreased by 17.5% from $312 million to $257 million year-over-year.
- The ClarkDietrich segment saw a significant decline, contributing $9 million compared to $17 million in the prior year.
- The heating and cooking business faced challenges, with lower volumes and an unfavorable product mix.
- The company incurred restructuring charges of $1 million and purchase accounting adjustments and costs associated with the Hexagon Ragasco acquisition, impacting quarterly results.
Q & A Highlights
Q: Focus on getting more on the ClarkDietrich relative weakness in the quarter. How much is due to more timing versus cancellation of projects? And is there any additional color if there are regions or end markets that have been more sluggish versus others?
A: (Andy Rose, President and CEO) Overall, their market is holding up pretty well, though it has been a bit choppy. When steel prices decline, contractors tend to hold off for lower prices, causing margin compression. (Joe Hayek, CFO & COO) ClarkDietrich often buys ahead, and in a declining steel price market, smaller competitors buying spot can buy better, leading to margin compression. Demand is relatively steady, and as steel prices stabilize or rise, this dynamic should improve.
Q: Given the steel pricing, what insight do you have in terms of inventories right now because there may need to be a little bit of catch-up? How does ClarkDietrich win with these mega projects?
A: (Andy Rose, President and CEO) ClarkDietrich wins with the breadth of their product line, national presence, and capabilities like delivering full truckloads of steel to job sites in 24 hours. Regarding inventories, their distributor customers typically hold less inventory, and we are not overly concerned about it being too heavy.
Q: Can you talk across the business and especially in the consumer segment, what's your hearing from your retail partners? How would you characterize the state of demand in the consumer as we head into the fall and the winter?
A: (Andy Rose, President and CEO) We saw some improvement in the consumer products business this quarter. Tools are the weakest segment due to the repair and remodel recession. Other segments are selling at POS levels, which are down from COVID levels but back to more normalized levels. (Joe Hayek, CFO & COO) Consumer confidence is real, and a decline in interest rates is a step in the right direction. Lower interest rates will likely benefit our consumer business.
Q: Can you also talk a bit about the price cost dynamics across both the consumer segment and the building products segment as the steel prices have come down?
A: (Andy Rose, President and CEO) We try to fix prices for an extended period to avoid uncertainty. Year-over-year, prices have come down, benefiting our numbers. Steel prices are currently flat but can change quickly. We believe we are well-positioned to do well in any environment.
Q: The WAVE JV was a bright spot in the quarter. Can you talk about the dynamics you're seeing there and how you're thinking about the performance as we go into the calendar year-end?
A: (Joe Hayek, CFO & COO) WAVE had another terrific quarter with volumes flat to slightly down. The data center space is a growing part of WAVE’s portfolio. Healthcare and education projects continue to bode well for WAVE. Their mix of repair and remodel versus new has also been beneficial.
Q: What was the biggest surprise or delta in the quarter relative to your expectations 90 days ago?
A: (Andy Rose, President and CEO) The biggest driver of the decline year-over-year was ClarkDietrich’s margin coming down. The heating business in building products also surprised us with a longer-than-expected destocking period. We are seeing evidence that the market is picking up.
Q: Have you seen any mood change with your customers in building products following the Fed announcement last week?
A: (Joe Hayek, CFO & COO) Yes, there is a sense that capital will be less expensive going forward, which is positive for our building products customers. Lower interest rates will help, but it’s not an immediate switch. Customers appreciate the potential for lower capital costs.
Q: Your balance sheet remains undercapitalized relative to your cash generation even after the Hexagon acquisition. What are your priorities for capital development?
A: (Andy Rose, President and CEO) Our top priority is building the M&A pipeline. We are focused on finding the right companies at the right price. We may consider share buybacks opportunistically, but our primary focus is on growth through M&A.
Q: In terms of your building products, what fraction is tied to housing as opposed to commercial construction?
A: (Joe Hayek, CFO & COO) The wholly owned businesses are close to 50-50, with a bias towards maintenance, repair, and remodel versus new. The JVs are almost entirely commercial.
Q: Why pay large multiples to acquire consumer businesses? Why not sell underperformers and buy back stock?
A: (Joe Hayek, CFO & COO) We believe our products are well-positioned even in a soft economy. People may trade down from more expensive experiences to using our products. We are constantly evaluating capital allocation and will consider different strategies if we can't find the right deals.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
