Worthington Steel, Inc. Reports Fiscal 2026 Third Quarter Financial Results
Overview of Third Quarter Performance
Worthington Steel, Inc. reported its financial results for the third quarter of fiscal 2026 ended February 28, 2026, reflecting a mixed performance shaped by macroeconomic pressures, strategic investments, and ongoing transformation initiatives across its operations Net sales reached $769.8 million, representing a 12% increase compared to $687.4 million in the third quarter of fiscal 2025, driven primarily by higher direct volumes and improved average selling prices Operating income declined significantly to $3.1 million from $18.3 million in the prior year period, indicating margin pressure despite revenue growth Net earnings attributable to controlling interest stood at $10.4 million compared to $13.8 million in the same period last year, while diluted earnings per share decreased to $0.20 from $0.27 Adjusted earnings per diluted share were $0.27 compared to $0.35 in the prior year quarter Adjusted EBIT also declined to $20.0 million from $25.3 million, reflecting higher operating costs and acquisition-related expenses
Strategic Acquisition of Kloeckner & Co SE
During the quarter, Worthington Steel entered into a Business Combination Agreement with Kloeckner & Co SE, a Germany-based metals processor with a strong presence in Europe and North America As part of this agreement, Worthington Steel launched a voluntary public tender offer to acquire all outstanding shares of Kloeckner at €11 per share The acquisition is expected to close in the second half of calendar year 2026, subject to regulatory approvals and customary conditions This strategic move is considered transformational, as it aims to expand Worthington Steel’s geographic footprint, enhance its product portfolio, and strengthen long-term value creation The company incurred significant professional fees and acquisition-related expenses during the quarter, which contributed to increased SG&A costs and impacted overall profitability
Leadership Commentary and Strategic Direction
President and Chief Executive Officer Geoff Gilmore emphasized that the quarter was challenging due to macroeconomic conditions but highlighted the company’s continued commitment to safety, operational discipline, and customer service He noted that the proposed acquisition of Kloeckner represents a critical step forward in Worthington Steel’s growth strategy, positioning the company for long-term success and resilience Despite near-term financial pressures, the company remains focused on executing its strategic priorities and delivering value to stakeholders
Revenue Growth and Volume Trends
The increase in net sales was driven largely by higher direct sales volumes and improved pricing Direct tons sold increased by 4% compared to the prior year quarter, with growth evenly split between the legacy business and contributions from the Sitem Group acquisition Direct selling prices rose by 9%, reflecting favorable market conditions and pricing strategies However, toll volumes declined by 22% due to the closure of the Cleveland-area Worthington Samuel Coil Processing facility in May 2025 and softer demand from mill customers The mix of direct versus toll tons shifted to 63% direct and 37% toll in the third quarter of fiscal 2026, compared to 57% and 43% respectively in the prior year
Margin Performance and Cost Pressures
Gross margin for the third quarter of fiscal 2026 decreased to $76.1 million, down $5.1 million from the previous year The decline was primarily attributed to lower toll volumes and an unfavorable $3.2 million impact from the Sitem Group acquisition Toll spreads decreased by $6.4 million due to reduced volumes and slight pricing pressure Meanwhile, direct spreads improved by $4.9 million, supported by higher volumes and favorable inventory holding gains compared to losses in the prior year quarter Despite these improvements, overall profitability was affected by rising costs and operational challenges
Operating Income and Expense Dynamics
Operating income dropped sharply to $3.1 million, reflecting a $15.2 million decline compared to the prior year quarter This decrease was driven by a $22.9 million increase in selling, general, and administrative expenses, including $15.4 million in professional fees related to the Kloeckner acquisition and $4.8 million associated with the Sitem Group Additionally, gross margin contraction contributed to lower operating income These negative factors were partially offset by favorable changes in restructuring and other income, as well as reduced asset impairment charges The company recorded a pre-tax gain of $6.0 million from asset sales and recognized $1.5 million in software-related impairments during the quarter
Net Earnings and Adjusted Results
Net earnings attributable to controlling interest were $10.4 million, down from $13.8 million in the prior year quarter Adjusted net earnings were $13.6 million compared to $17.6 million previously Adjusted earnings per diluted share declined to $0.27 from $0.35 The adjusted results exclude several non-recurring items, including asset impairments, restructuring gains, derivative gains related to the Kloeckner transaction, and acquisition-related expenses These adjustments provide a clearer view of underlying operational performance, which still showed pressure due to cost increases and market conditions
Year-to-Date Financial Performance
For the first nine months of fiscal 2026, Worthington Steel reported net sales of $2.51 billion, up from $2.26 billion in the same period of fiscal 2025 Operating income was $73.1 million compared to $80.6 million in the prior year Net earnings attributable to controlling interest increased to $66.0 million from $55.0 million Adjusted EBIT rose to $106.4 million compared to $79.0 million, reflecting stronger performance earlier in the fiscal year despite third-quarter challenges Diluted earnings per share for the year-to-date period increased to $1.30 from $1.09, while adjusted EPS rose to $1.49 from $1.11
Balance Sheet and Liquidity Position
As of February 28, 2026, Worthington Steel maintained a solid liquidity position with $90.0 million in cash and cash equivalents The company generated $63.3 million in net cash from operating activities during the quarter, up from $53.8 million in the prior year Capital expenditures totaled $30.0 million, reflecting ongoing investments in property, plant, and equipment Free cash flow increased to $33.3 million compared to $25.2 million in the previous year The company ended the quarter with total debt of $251.4 million, resulting in a net debt position of $161.4 million
Investment Activity and Capital Allocation
During the quarter, Worthington Steel increased its short-term borrowings to fund the acquisition of $101.4 million in Kloeckner equity securities Despite this investment, the company does not yet hold a controlling interest or significant influence over Kloeckner The board of directors declared a quarterly dividend of $0.16 per share, payable on June 26, 2026, to shareholders of record as of June 12, 2026 This reflects the company’s continued commitment to returning value to shareholders while pursuing growth opportunities
Operational Footprint and Capabilities
Worthington Steel continues to strengthen its position as a leading metals processor in North America, leveraging its expertise in carbon flat-roll steel processing, electrical steel laminations, and tailor welded solutions The company operates 37 facilities across seven states and 10 countries, supported by approximately 6,000 employees Its value-added capabilities include galvanizing, pickling, configured blanking, specialty cold reduction, lightweighting, and electrical lamination These capabilities enable the company to deliver highly customized solutions to customers across diverse industries
Outlook and Future Growth Strategy
Looking ahead, Worthington Steel remains focused on navigating macroeconomic uncertainties while advancing its strategic initiatives The proposed acquisition of Kloeckner is expected to play a pivotal role in expanding the company’s global presence and enhancing its competitive positioning Additionally, the company continues to invest in operational efficiency, innovation, and sustainability to drive long-term growth Despite near-term challenges, Worthington Steel’s disciplined approach, strong customer relationships, and commitment to value-added processing position it well for future success
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