Worthington Steel Q1 Sales Rise 212%, Adjusted EBIT Gains

Worthington Steel (NYSE: WS) reported sharply higher fiscal first-quarter sales and adjusted operating earnings as it moved forward with its acquisition of a roughly 62% stake in Klöckner & Co SE. Net sales increased 212% year over year to $2.73 billion, while adjusted EBIT rose to $78.5 million from $55.5 million. However, the company recorded a GAAP net loss attributable to controlling interest, and adjusted earnings per share also declined.

Operating income for the first quarter of fiscal 2027 was $56 million, up from $48.3 million a year earlier. The company reported a $7 million net loss from continuing operations attributable to controlling interest, compared with net earnings of $36.8 million in the prior-year quarter. Diluted loss per share was $0.14, versus diluted earnings of $0.73 per share.

On an adjusted basis, diluted EPS fell to $0.57 from $0.77. The company’s non-GAAP adjustments cover items including acquisition-related expenses, restructuring, impairments and changes in the value of securities and derivatives. In the latest quarter, Worthington Steel recorded a $15.5 million remeasurement loss after valuing its previously held Klöckner shares at €11 per share when the acquisition closed.

Worthington Steel also declared a quarterly dividend of $0.16 per share, payable on December 28, 2026, to shareholders of record as of December 14.

Processing model supports earnings and cash flow

Worthington Steel described its business as primarily earning a processing spread rather than a commodity margin. About 90% of direct-sale shipments pass through at least two value-added processes, including galvanizing, cold rolling, blanking, electrical-steel laminations, slitting and tailor-welded solutions.

The company uses mirrored customer and supplier contracts, firm pricing where available and steel futures when mills do not offer fixed pricing. It said approximately 100% of its contracts are mirrored, an approach intended to limit exposure to steel-price movements. Inventory discipline is another focus, with flat-rolled inventory days based on tons falling to 54 in fiscal 2026 from 73 across fiscal 2008 through fiscal 2010.

For the 12 months ended August 31, 2026, Worthington Steel reported $5.30 billion in net sales, shipments of 4.6 million tons and adjusted EBITDA of $283 million, representing a 5.3% margin. Estimated inventory holding gains were $22 million over that period. Cumulative operating cash flow from fiscal 2024 through the first quarter of fiscal 2027 totaled $625 million.

Management said working capital has historically released cash when steel prices decline. The company is also using lean practices, advanced analytics and artificial intelligence to reduce inventory and production cycle times. Examples cited in the presentation included a 60% reduction in work-in-process coils and a 25% cut in cycle times at its Delta, Ohio, operation.

Klöckner integration depends on control agreement

Worthington Steel completed the acquisition of approximately 62% of Klöckner on June 3, 2026. The investment expands the company’s North American scale and adds capabilities in aluminum, stainless steel, long products, plate and fabrication. Klöckner had $7.3 billion of revenue and $204 million of EBITDA before material special effects for the 12 months ended March 31, 2026.

Worthington Steel does not yet have operational control of Klöckner. A domination and profit-and-loss transfer agreement, or DPLTA, was signed on September 8 and is scheduled for a shareholder vote on October 23. Approval requires support from 75% of the share capital represented at the meeting. Subject to approval and registration, the agreement could become effective as early as January 1, 2027.

Once effective, the DPLTA would give Worthington Steel full control, including the ability to direct cash flows, consolidate entities and pledge Klöckner assets. Integration and synergy work would then begin. The company said combined guidance, margin targets and more detailed synergy timing will be provided after the agreement takes effect.

Worthington Steel has identified approximately $150 million of annual EBITDA synergies, including about $55 million from procurement, $40 million from commercial initiatives, $30 million from operational efficiencies and $25 million from overhead reductions. It expects to capture about half of the targeted run-rate synergies in the first full year after the DPLTA becomes effective and the full amount by the end of the second year.

The company also targets $150 million of working-capital reductions through measures involving safety stocks, inventory norms and payment terms. Achieving the EBITDA synergies is expected to require roughly $50 million of one-time costs during the first 12 months of integration.

Deleveraging remains the top capital priority

Worthington Steel identified debt reduction as its leading capital-allocation priority for the two years following DPLTA effectiveness. It is targeting net leverage below 2.5 times within 24 months, supported by combined EBITDA, synergies, working-capital reductions and portfolio optimization.

Combined capital expenditures are expected to total about $160 million to $180 million in fiscal 2027, including investments in Klöckner’s value-added projects. Management also intends to continue paying annual dividends of $0.64 per share and may pursue tuck-in acquisitions that meet its criteria.

The Klöckner transaction carries execution and financial risks. The presentation cautioned that anticipated synergies, working-capital savings, margin benefits and deleveraging may be delayed, cost more than expected or not materialize. Other uncertainties include the timing and approval of the DPLTA, integration demands, obligations to minority shareholders, reduced financial flexibility and higher interest expense. Worthington Steel also remains exposed to cyclical steel demand, raw-material prices, tariffs, supply-chain disruptions, customer conditions and broader economic volatility.