Worthington's Q1 2026 Earnings Call: Contradictions on Wave's Performance and Seasonality, ClarkDietrich Outlook, Tariff Impacts, and Gross Margin Targets

The above is the analysis of the conflicting points in this earnings call

Date of Call: September 24, 2025

Financials Results

• Revenue: $304M, up 18% YOY (vs $257M prior year)
• EPS: $0.70 per share, up from $0.48 in the prior year
• Gross Margin: 27.1%, compared to 24.3% in the prior year

Business Commentary:

• Strong Financial Performance:
• Worthington Industries reported an increase in sales to $304 million, up 18% year-on-year, with adjusted EBITDA reaching $65 million, up from $48 million in the prior year.

• The growth was driven by higher volumes in the Building Products segment and the inclusion of recently acquired Elgen.

• Margin Improvement:

• The company's gross margin expanded by 280 basis points to 27.1%, despite a $2.2 million purchase accounting charge related to Elgen.

• This improvement was due to strong execution in markets and operational efficiencies.

• Product Launches and Market Share Gains:

• Worthington launched new products such as the Balloon Time Mini, AQL refrigerant cylinders, and Halo grids, which have contributed to market share gains and new customer acquisitions.

• These innovations are part of their strategy to leverage the Worthington Business System, focusing on innovation, transformation, and acquisitions.

• Consumer Segment Challenges:

• The Consumer Products segment saw sales increase by 1% despite a decline in gross margin due to tariff charges and lower volumes.
• The decline in gross margin is attributed to cautious consumer behavior and tariff costs, while the company remains optimistic about future improvements as consumer sentiment improves.

Sentiment Analysis:

• Management highlighted a “very solid start,” with sales up 18% YOY, gross margin expanding to 27.1% from 24.3%, and adjusted EBITDA margin rising to 21.4% from 18.8%. EPS increased to $0.70 from $0.48. They cited strong Building Products volumes (including refrigerant transition tailwinds) and stable brands/channels in Consumer despite headwinds.

Q&A:

• Question from Kathryn Thompson (TRG): What drove margin expansion in Building Products and where do margins normalize?
  Response: Execution and market normalization across heating/cooking, cooling/construction, and water; wholly owned EBITDA margins ~10.5% this quarter with a path toward ~12–13% over time, noting seasonality.

• Question from Kathryn Thompson (TRG): Is WAVE’s contribution sustainable near current levels?
  Response: WAVE remains strong with healthy end markets (education, healthcare, transportation, data centers) offsetting office/retail; expect steady performance with typical seasonal strength in Q4/Q1.

• Question from Kathryn Thompson (TRG): How are tariffs and your domestic footprint affecting customer wins?
  Response: Tariffs are complex and cost a few million in Consumer, but domestic manufacturing tightens supply chains and levels pricing, enhancing competitiveness and customer conversations.

• Question from Dan Moore (CJS Securities): What’s driving organic growth in Building Products and can you outpace the market?
  Response: Mix of market normalization and share gains; refrigerant transition mandates are expanding the market, supporting continued outperformance.

• Question from Dan Moore (CJS Securities): Progress on Consumer new products and retail expansion (e.g., Balloon Time Mini)?
  Response: Balloon Time Mini secured CVS/Walgreens/Target placements; Halo Griddles expanding at Walmart in spring 2026; Celebrations offset softness in camping gas/tools, with tariffs pressuring margins.

• Question from Dan Moore (CJS Securities): Outlook for ClarkDietrich given a softer environment?
  Response: With new construction soft and steel prices lower, expect near-term flat-to-down performance and margin pressure; longer-term uptick as leading indicators (e.g., Dodge Momentum) convert.

• Question from Dan Moore (CJS Securities): Capital allocation and M&A pipeline outlook?
  Response: Balanced approach with a growth bias; pipeline is solid despite softer markets; focus on niche leaders and adjacencies (including around Elgen) to drive accretive growth.

• Question from Brian McNamara (Canaccord Genuity): Price vs. volume by segment in Q1?
  Response: Building Products saw volume gains with stable pricing; Consumer volumes declined but mix shifted toward higher-priced Celebrations products.

• Question from Brian McNamara (Canaccord Genuity): Are tariffs widening shelf price gaps versus imports?
  Response: Worthington is absorbing tariff impacts internally in some areas, but shelf pricing changes are mixed as competitors assess pass-through timing.

• Question from Brian McNamara (Canaccord Genuity): Gross margin outlook relative to 30% medium-term target?
  Response: Q1 gross margin was 27% (seasonally weaker with purchase accounting); tracking toward >30% over time, with stronger seasonal performance expected in Q3/Q4.

• Question from Susan Maklari (Goldman Sachs): Update on 80/20 and operational efficiencies, particularly in water?
  Response: 80/20 in water is reducing complexity and improving results; rollouts to other areas planned, while SG&A remains tightly controlled (flat YOY ex-Elgen despite growth).

• Question from Susan Maklari (Goldman Sachs): How does Elgen support targets and resilience in a tougher macro?
  Response: Elgen added $21M revenue in Q1; EBITDA near breakeven due to a $2.2M purchase accounting charge; HVAC is resilient, integration is strong, and cross-selling opportunities exist.

• Question from Susan Maklari (Goldman Sachs): Balancing growth investments with potential macro softness?
  Response: Continuing investments in AI/automation/analytics and DTC, while managing costs; RRM-focused portfolio provides resilience and positions the company to outperform through cycles.

• Question from Walter Liptak (Seaport Research): Is refrigerant cylinder demand a one-year bump or sustained?
  Response: Expect sustained demand as environmental mandates continue; focus is on meeting elevated customer needs.

• Question from Walter Liptak (Seaport Research): Seasonal cadence into fall and spring?
  Response: Q1/Q2 are typically weaker than Q3/Q4; weather events can shift demand timing, varying by category.