Worthington Steel's Q1 2026: Contradictions Emerge on Automotive Market Share, Volume Trends, and Outlook

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

Date of Call: September 25, 2025

Financials Results

• Revenue: $872.9M, up 5% YOY
• EPS: $0.72 per diluted share, up 29% YOY (vs $0.56)

Guidance:

• Expect Q2 FY26 pretax inventory holding losses of ~$5–$10M (vs $5.6M gains in Q1)
• Direct sales mix expected at 60–65%; toll at 35–40%
• Typical seasonality: Q2 volumes 3–4% below Q1; Q3 ~3–4% below Q1
• Auto outlook: 2025 U.S. light-vehicle build ~15M units; continued share gains; contract season could add in 2026
• FY26 CapEx forecast ~$100M; may be revised after Sitem review
• Mexico electrical steel laminations to begin production in a few months; Canada transformer core facility to start early CY2026
• Demand to remain mixed near term; no major catalyst expected

Business Commentary:

* Earnings and Revenue Performance: - Worthington Steel reported earnings of $36.8 million or $0.72 per share, up from $28.4 million or $0.56 per share in the prior year quarter. - This increase was primarily due to the acquisition of Sitem and higher direct volume, despite lower selling prices and a decline in toll processing volumes.

• Volume and Market Share Growth in Automotive:
• Shipments to the automotive market increased by 17%, with new programs ramping up to drive volume.

• The company's shipments increased nearly 13% compared to the prior year, outpacing the Detroit 3's production increase of 5%.

• Sitem Acquisition and Integration:

• The acquisition of a 52% stake in Sitem was completed in June, contributing to the company's growth and global presence in the EV market.

• This acquisition is expected to strengthen competitiveness across the electrical steel platform by integrating Sitem's automation and toolmaking capabilities.

• Cost Management and AI Implementation:

• The company achieved its safest quarter on record, with a commitment to continuous improvement and safety initiatives.
• Worthington Steel is leveraging AI to automate low-value tasks, such as predictive maintenance and inventory management, to improve operational efficiency and free up cash flow.

Sentiment Analysis:

• “We’re off to a strong start… Adjusted EBITDA $75.2M… EPS $0.72 and net sales $872.9M.” Yet, “Visibility is limited… we expect this to persist.” Management expects “inventory holding losses in the second quarter… approximately $5–$10 million,” and markets to “move along as they have been.” They remain “cautiously optimistic” with share gains in auto and ongoing investments.

Q&A:

• Question from Philip Gibbs (KeyBanc Capital Markets Inc., Research Division): More color on the Sitem transaction, mezzanine structure, purchase price, and initial cash outlay?
  Response: $60M cash plus contribution of the Nagold facility; financed via ABL. Minority interest classified as mezzanine equity due to partner put option and FX—an equity classification, not debt.

• Question from Philip Gibbs (KeyBanc Capital Markets Inc., Research Division): Auto outlook and potential for further share gains into FY26?
  Response: Cautiously optimistic; U.S. build ~15M units. Continued share gains expected with additional opportunities in upcoming contract season for 2026.

• Question from Philip Gibbs (KeyBanc Capital Markets Inc., Research Division): Impact of Section 232 derivative tariffs on electrical steel laminations and profitability/volume goals?
  Response: Minimal impact; customers largely willing to pay tariffs and many are USMCA-compliant; demand remains robust and capacity constrained, positioning is strong.

• Question from John Tumazos (John Tumazos Very Independent Research, LLC): Any supply disruption from U.S. Steel’s coke accident, and implications for market crude capacity?
  Response: No impact to Worthington supply due to diversified mill relationships; uncertain on U.S. Steel’s response, and slab purchases are unlikely.

• Question from Martin Englert (Seaport Research Partners): What drove the 22% YOY decline in toll volumes versus the Worthington Samuel closure and other factors?
  Response: About half from softer market conditions; most of the remainder from the WSCP shutdown, with minor program changes and customer freight-driven resourcing.

• Question from Martin Englert (Seaport Research Partners): Will direct mix stay above 60%?
  Response: Yes; expect direct at 60–65% and toll at 35–40% going forward.

• Question from Martin Englert (Seaport Research Partners): What are you seeing for fiscal Q2 volumes and seasonality?
  Response: Expect normal seasonality: Q2 ~3–4% below Q1; demand steady with no major catalyst visible.

• Question from Martin Englert (Seaport Research Partners): Any change in upstream mill order books and lead times?
  Response: No changes observed.