Worthington's Q1 2026: Contradictions Emerge on WAVE Performance, Gross Margins, ClarkDietrich, and Tariff Impact

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; excluding Elgen, up ~10% YOY
• EPS: $0.70 GAAP ($0.74 adjusted), vs $0.48 GAAP ($0.50 adjusted) prior year
• Gross Margin: 27.1%, up from 24.3% in the prior year; negatively impacted by a $2.2M Elgen inventory step-up

Business Commentary:

* Revenue and Earnings Growth: - Worthington Enterprises reported consolidated sales for the quarter were $304 million, up 18% compared to $257 million in the prior year quarter. - The growth was primarily driven by higher volumes in the Building Products segment, along with the inclusion of Elgen, which contributed $21 million in sales.

• Building Products Market Share and Margins:
• The Building Products segment saw sales grow by 32% year-over-year, with adjusted EBITDA margin increasing to 31.3% from 28.4% in the prior year.

• The margin improvement was due to volume growth, especially in heating and cooking, and contributions from Elgen, although offset by a nonrecurring purchase accounting charge.

• Consumer Product Challenges and Innovation:

• In the Consumer Products segment, sales were up 1% to $119 million, despite lower gross margin due to tariff charges and lower volumes.

• The introduction of new products like Balloon Time Mini and the A2L refrigerant cylinders is helping to maintain market share and drive new market growth.

• Integration and Synergies with Recent Acquisitions:

• Worthington's acquisition of Elgen in June contributed $21 million to sales in Q1, with expectations for synergies and growth in the HVAC and building envelope markets.
• The integration of Elgen is progressing well, with the company embracing Worthington's safety culture and capturing synergies.

Sentiment Analysis:

• Management reported a “very solid start,” with sales up 18% YOY, adjusted EPS up to $0.74 from $0.50, and adjusted EBITDA margin at 21.4% vs 18.8% last year. Gross margin expanded to 27.1% from 24.3% despite a $2.2M purchase accounting charge. Building Products grew 32% with WAVE equity income up, liquidity and leverage remain strong (net debt/EBITDA ~0.5x).

Q&A:

• Question from Kathryn Thompson (Thompson Research Group, LLC): What drove wholly owned Building Products margin improvement, and where do you see normalized margins trending?
  Response: Better execution and volume in heating/cooking and cooling/construction; water improved; Europe flat; aiming to lift EBITDA margins toward ~12–13% over time, with seasonality.

• Question from Kathryn Thompson (Thompson Research Group, LLC): WAVE outperformance drivers and sustainability into future quarters?
  Response: WAVE benefits from strong end markets (education, healthcare, transportation, data centers) and a value-added model; performance expected to remain steady with normal seasonality.

• Question from Kathryn Thompson (Thompson Research Group, LLC): Impact of tariffs given your domestic manufacturing—any wins tied to tariffs?
  Response: Tariffs raised Consumer costs by a couple million, but domestic production improves price competitiveness vs imports; ongoing customer wins are hard to quantify but value proposition is improving.

• Question from Dan Moore (CJS Securities, Inc.): Sources of strength in Building Products and ability to outpace market over 1–3 years?
  Response: Mix of market normalization and share gains; refrigerant transition (A2L) is expanding the market; expect continued growth from regulatory-driven demand.

• Question from Dan Moore (CJS Securities, Inc.): Consumer new products and retail expansion (Balloon Time Mini, others) and growth runway?
  Response: Helium/celebrations offset declines in camping gas/tools; Balloon Time Mini expanding to CVS/Walgreens; Halo Griddles expanding at Walmart in spring 2026; tariffs pressured profitability.

• Question from Dan Moore (CJS Securities, Inc.): ClarkDietrich outlook after lower contribution this quarter?
  Response: Near-term flat to down as new construction slows and margins compress; leading indicators (Dodge Momentum) improving but sales lag ~18 months.

• Question from Dan Moore (CJS Securities, Inc.): M&A pipeline and capital allocation priorities over next 12+ months?
  Response: Balanced but growth-biased; solid pipeline despite softer markets; targeting niche leaders where Worthington can add channel, manufacturing, and purchasing expertise; Elgen is a template.

• Question from Brian McNamara (Canaccord Genuity): Price versus volume in both segments?
  Response: Building Products: volumes up, pricing stable. Consumer: volumes down, mix shifted to higher-priced celebrations; volumes not disclosed due to complexity.

• Question from Brian McNamara (Canaccord Genuity): Are tariffs driving higher shelf prices from competitors, widening price gaps?
  Response: Worthington bears tariff costs in Consumer, but shelf pricing impact is mixed; many competitors are still deciding how to respond.

• Question from Brian McNamara (Canaccord Genuity): Gross margin trajectory near term vs 30% medium-term goal?
  Response: Q1 GM 27% vs 24% prior year; seasonally weaker Q1/Q2; still targeting >30% over time and SG&A ~20% of sales as initiatives build.

• Question from Susan Maklari (Goldman Sachs): Progress on operational efficiencies (80/20) and where next?
  Response: 80/20 in water is reducing complexity and improving focus; expanding to other areas; cost discipline kept SG&A flat YOY ex-Elgen.

• Question from Susan Maklari (Goldman Sachs): How does Elgen support targets and resilience if macro slows?
  Response: Elgen added $21M revenue; EBITDA breakeven due to $2.2M purchase accounting; commercial HVAC is resilient; integration strong; cross-sell opportunities across the portfolio.

• Question from Susan Maklari (Goldman Sachs): Balancing growth investments vs potential macro softness next year?
  Response: Continuing investment in AI/automation/analytics and DTC; portfolio skewed to RRM and affordable Consumer options; maintain cost discipline to perform through cycles.

• Question from Walter Liptak (Seaport Research Partners): Is A2L refrigerant-cylinder strength a one-year bump or sustainable?
  Response: Likely more sustained given ongoing mandates; will meet demand and backfill if initial load-ins normalize.

• Question from Walter Liptak (Seaport Research Partners): Seasonality into fall/winter and spring selling timing?
  Response: Q1/Q2 typically weaker; Q3/Q4 stronger; weather events can shift demand; timing varies by category.