WOR - Worthington Industries, Inc.

Operator: Hello, everyone. Thank you for joining us, and welcome to the Worthington Enterprises fourth quarter fiscal 2026 earnings call. After today's prepared remarks, we will host a question and answer session. I will now hand the conference over to Marcus Rogier, Treasurer and Investor Relations Officer.
Marcus Rogier: Thank you, Paige. Good morning, everyone, and thank you for joining us for Worthington Enterprises fourth quarter fiscal 2026 earnings call. On the call today are Joseph Hayek, our President and Chief Executive Officer, and Colin Souza, our Chief Financial Officer. Before we begin, I'd like to remind everyone that certain statements made during today's call are forward-looking in nature and subject to risks and uncertainties. For more information, please refer to our earnings release issued yesterday after the market close. Our remarks today will include references to non-GAAP financial measures, and reconciliations can be found in the earnings release. Today's call is being recorded, and a replay will be available on our website at worthingtonenterprises.com. With that, I'll turn the call over to Joe.
Joe Hayek: Thank you, Marcus. Good morning, everybody. Fiscal 2026 was an important year for Worthington Enterprises. We delivered 20% sales growth — 9% of that was organic — and 12% adjusted EBITDA growth. We generated $170 million of free cash flow while successfully reducing SG&A as a percentage of sales by 200 basis points. We acquired and began the integration of both Elgen and LSI. These results demonstrate the strength of our portfolio, our strategy, and most importantly, our people. We achieved these results while navigating tariffs, global conflicts, supply chain challenges, and continued uncertainty around the health of the U.S. economy. Through it all, our business remained resilient and focused on serving our customers. In the quarter, sales increased by 17% and organic growth was 3%. Net earnings increased to $48 million from $4 million a year ago. Adjusted net earnings were $48 million, adjusted EBITDA was $83.5 million, and free cash flow was $55 million — our highest quarterly cash flow as Worthington Enterprises, despite elevated capital spending associated with our ongoing facility modernization project. While we were pleased with the quarter, our adjusted EBITDA and margin performance were impacted by two factors: lower earnings from ClarkDietrich compared with a strong prior year quarter, and margin pressure in our cooling and construction business. All of our other wholly-owned value streams saw year-over-year growth in adjusted EBITDA during the quarter, and we believe the dynamics that created those headwinds are more a timing issue than anything systemic. Our results reflect continued execution around the core pillars of our strategy, leveraging the Worthington business system and its three growth drivers: innovation, transformation, and acquisitions. Innovation remains the key driver of our organic growth strategy. Last quarter, we discussed our ASME water tanks used for liquid cooling in data centers, and momentum there continues to build. We shipped approximately $13 million of ASME tanks for data centers during fiscal 2026, and we currently expect to ship at least that much in the first quarter of fiscal 2027. Demand continues to grow, and we're investing in additional equipment and capacity to support the opportunities we see ahead. What began as a promising opportunity is increasingly becoming a growth platform for us. We also drive innovation into more mature markets. The Balloon Time Mini continues to drive momentum in our celebrations business — we recently secured new placement in a majority of Walmart stores for that product as consumer adoption continues to grow. During fiscal 2026, our teams continued to focus on productivity improvements through transformation, with efficiency gains driven by automation and AI-enabled technologies contributing to our 150 basis points reduction in SG&A as a percentage of sales in the quarter. The success we're having with 80/20 in our water business has led us to launch a similar initiative in our camping gas and torch business. Our acquisitions of Elgen and LSI are excellent examples of the type of strategic M&A we prioritize. Integration of both businesses is on track, and together they strengthen our position across the building envelope and allow us to offer increasingly comprehensive solutions to our customers. We were also recognized in Q4 as a top workplace in Central Ohio for the 14th consecutive year, one of America's most charitable companies, and one of America's most patriotic companies. Several of our market-leading brands are also celebrating significant milestones this year — Balloon Time is celebrating 40 years, Amtrol 80 years, and Bernzomatic 150 years. As we enter fiscal 2027, we're operating from a position of strength. We have leading brands, attractive end markets, a strong balance sheet, significant free cash flow generation, and multiple avenues for growth. I will now turn it over to Colin to take you through additional details related to our financial performance in the quarter.
Colin Souza: Thank you, Joe, and good morning, everyone. Fiscal 2026 was our strongest year yet as Worthington Enterprises. We delivered another year of increased adjusted EBITDA and adjusted EPS, outstanding free cash flow conversion, meaningful margin expansion across our wholly owned businesses, and continued progress executing our growth strategy. We delivered solid financial results in Q4, reporting GAAP earnings of $0.97 per share compared to $0.08 per share in the prior year quarter. Excluding restructuring and other non-recurring items in both periods, adjusted earnings were $0.97 per share, compared to $1.06 per share in the prior year quarter. On a full year basis, GAAP earnings were $3.14 per share compared to $1.92 per share in the prior year. Adjusted earnings for fiscal 2026 increased 9% to $3.37 per share, compared to $3.09 per share in the prior year. Consolidated net sales for the quarter were $371 million, up 17% compared to $318 million in the prior year quarter. Recent acquisitions contributed $44 million in net sales for Q4, while organic growth was 3% year-over-year. For the full year, net sales were $1.4 billion, an increase of 20% including 9% organic growth, while adjusted EBITDA increased 12% to $296 million. Gross profit increased to $102 million compared to $93 million in the prior year quarter. Gross margin was 27.4% compared to 29.3% a year ago, reflecting less favorable product mix within building products, the purchase accounting impact of the inventory step-up at LSI, and inflationary cost pressures. We have implemented pricing actions and continue to execute other mitigation initiatives to offset those cost increases. Adjusted EBITDA was $83.5 million compared to $85.1 million in the prior year quarter, while adjusted EBITDA margin was 22.5%. The year-over-year comparison was impacted by lower equity income contributions from ClarkDietrich, which were down $7 million, and a particularly strong prior year comparison in our cooling and construction business. On cash flow and capital allocation — capital expenditures totaled $16 million in the quarter, including $7 million related to our facility modernization project in consumer products. We returned $9 million in dividends to shareholders and spent $18 million to repurchase 350,000 shares. Our joint ventures provided $35 million in dividends during the quarter, representing 90% of equity income. Operating cash flow was $72 million in the quarter compared to $62 million in the prior year period, while free cash flow increased to $55 million from $49 million. For fiscal 2026, free cash flow totaled $170 million, representing a 102% conversion rate relative to adjusted net earnings, achieved while funding $25 million in elevated capital investments associated with our modernization projects and absorbing $30 million less in dividend distributions from ClarkDietrich compared to the prior year. We have approximately $16 million of modernization spend remaining and expect to complete the project by the middle of fiscal 2027, after which capital expenditures should return to more normalized levels. We closed the quarter with net debt of $278 million, resulting in a net debt to trailing adjusted EBITDA ratio of less than one time, and we maintain ample liquidity with a $500 million undrawn revolving credit facility, providing significant financial flexibility for both organic and acquisition-driven growth. Yesterday, our board declared a quarterly dividend of $0.20 per share, an increase of 5% from the prior quarter, payable in September 2026. On segment performance — Building Products Q4 net sales grew 28% year-over-year to $245 million, up from $192 million in the prior year quarter, primarily driven by acquisitions which contributed $44 million. Excluding acquisitions, net sales increased 5% year-over-year on higher overall volumes. Adjusted EBITDA for the quarter was $69 million compared to $71 million in the prior year quarter, with an adjusted EBITDA margin of 27.9%. The slight decrease was primarily driven by lower equity income contributions from ClarkDietrich, which were down approximately $7 million, and a less favorable mix in our wholly owned businesses, largely driven by particularly strong demand in certain cooling-related products in the prior year. The year-over-year comparison reflects a normalization following elevated demand associated with the industry's transition to A2L refrigerants in the prior year. While that created a difficult comparison in the current quarter, adoption of A2L products remains strong and we feel good about the long-term outlook. As new AC and replacement units enter service, they will utilize A2L refrigerants, supporting new sales and an attractive service and repair opportunity in the future. In fiscal 2026, Building Products adjusted EBITDA increased approximately $27 million or 13% to $240 million, despite a $19 million decline in equity earnings from ClarkDietrich. Within our wholly owned businesses, adjusted EBITDA increased 62% to $100 million during fiscal 2026, while adjusted EBITDA margin expanded 220 basis points to 11.7%. Consumer Products Q4 net sales were $126 million, essentially flat compared to the prior year quarter, as higher average selling prices offset lower overall volumes. Adjusted EBITDA was $24 million with EBITDA margins of 19.2%, up from $21 million and 16.6% in Q4 last year, driven by gross margin expansion and lower SG&A expenses. For fiscal 2026, Consumer Products net sales increased 4% to $520 million, while adjusted EBITDA increased 10% to $91 million, with adjusted EBITDA margin expanding approximately 100 basis points to 17.5%. These results were achieved while navigating tariffs and supply chain uncertainty throughout the year. As we enter fiscal 2027, we believe Worthington Enterprises is increasingly differentiated by four key attributes: a portfolio of market-leading brands, expanding margins within our wholly owned operations, substantial free cash flow generation, and a balance sheet that provides significant flexibility for future growth investments. Each of those attributes is stronger today than it was just a year ago. We're happy to take questions.
Operator: Your first question comes from the line of Will Gildea with CJS Securities.
Will Gildea: In Building Products, for the first three quarters of fiscal year 2026, strong mid-teens organic growth slowed to a still healthy 5% in Q4. You talked about the tough comp from A2L sales. Are we lapping those comps for the next three quarters? Any more color on that dynamic would be helpful.
Colin Souza: On the A2L comparison — the prior year quarter benefited from particularly strong demand as the industry went through the A2L transition. Manufacturers, distributors, and contractors all had to navigate this transition and build inventory. That level of demand did not repeat in the current year quarter. From an EBITDA standpoint, we estimate the impact was approximately $5 million relative to the prior year quarter. Importantly, this was primarily a comparison issue rather than a change in the underlying health of the business. Nearly all new residential equipment is now A2L, meaning every new installation grows the installed base for A2L and should support an increasing service and repair opportunity over time. Demand for refrigerant solutions remained healthy. From a comparison standpoint, those effects could continue over the next couple of quarters as inventory associated with the A2L transition continues to normalize, although the magnitude of those headwinds should moderate by Q2.
Joe Hayek: The only thing I'd add is that all of the other value streams in Building Products, excluding the JVs, and the value streams in consumer were actually up and showed growth in EBITDA relative to Q4 last year, which was a pretty strong quarter.
Will Gildea: Turning to the JVs — WAVE continues to perform well. On ClarkDietrich, we're kind of back to pre-COVID levels. Can you talk about your level of confidence that the business is stabilizing or perhaps returning to growth in fiscal year 2027?
Joe Hayek: ClarkDietrich is a great business and a market leader, operating in a challenging environment. They're very strong in data centers, which is helping with volumes, although that's a little lower profitability than some of their other end markets. It was $22 million in equity earnings for the fiscal year, down about $19 million from the prior year. We're pretty confident that's a trough for the business. We see a bit of upside with limited downside, assuming market conditions stay where they are. ClarkDietrich is very well run, continues to gain operational efficiencies, and is really well-positioned to benefit and grow when end market conditions improve, which we certainly think will happen.
Operator: Your next question comes from the line of Brian Biros with Thompson Research Group.
Brian Biros: On Building Products wholly owned, you saw good margin growth for the year. You've said the long-term margin target is 12% to 13%, and you're just below that threshold now. How do we think about that long-term margin target and when it becomes achievable?
Colin Souza: The wholly owned building products business has improved significantly. EBITDA increased 62% this year to $100 million and margin expanded 220 basis points in fiscal 2026. We still feel good about our targets of operating consistently in a low-teens EBITDA margin range. We think we've got a good chance to get there over the coming years and stay there, and we'll evaluate going higher from there.
Brian Biros: You added a new board member yesterday, Brad Southern, formerly of Louisiana-Pacific. Can you talk about how his background in residential building products and siding can be leveraged at the board level for Worthington?
Joe Hayek: We have a terrific board of directors, and it's gotten even better as we've grown into our shoes as Worthington Enterprises. Brad is a fantastic addition. He was the chair and CEO of Louisiana-Pacific, and he brings great operating experience. He's a real culture guy, incredibly smart, strategic, and thoughtful. There wasn't one specific thing, but the opportunity to add somebody like him having just recently retired from being a sitting CEO was really something we were excited about. He fits in really well with the rest of our board, which is populated with very strategic, very experienced, and dedicated folks.
Operator: Your next question comes from the line of Susan Maklari with Goldman Sachs.
Susan Maklari: On the consumer products side, you mentioned continued momentum with Balloon Time Mini. Can you talk about how new products and innovation are driving revenue streams there, and how the macro uncertainty and inflation might actually benefit you given your exposure to smaller consumer products?
Joe Hayek: Consumer products for us is actually a mix of products used by contractors or by DIYers and consumers. Many of our value streams in consumer are geared toward contractors and pros, where demand has looked fairly stable with some growth. Our more traditional consumer categories are products used to elevate experiences at a relatively low cost, or they serve as an alternative to more expensive options. As a result, demand has been and continues to be pretty resilient — more so than you might see across broader consumer discretionary spending. Tariffs were in place all year, and the consumer products team delivered 4% sales growth and 10% EBITDA growth for the full year in what a lot of people would probably consider a mixed environment. Innovation is really how we drive organic growth and margins — in newer end markets like ASME data center tanks, but also in more established markets like Balloon Time and the Balloon Time Mini. We're also excited about the pipeline of new products scheduled to launch later in fiscal 2027. Our teams continue to develop expertise and muscle memory around NPD and product launches, and they're having successes. That bodes well not just for this year but beyond.
Susan Maklari: On the price-cost side, you mentioned implementing pricing across the business. Can you talk a bit more about that and how we should think about it relative to the inflation you're anticipating?
Colin Souza: We experienced inflationary pressures across a number of areas — commodities like steel, aluminum, brass, and freight and diesel, among other inputs. These were not isolated to any single business or product category. We have implemented pricing actions — some announced broadly, some adjustments to existing contracts, and some repricing when we've won new business. We have a disciplined price-risk capability and are always managing a balanced position on the supply and demand side. We don't sell products priced as a spread above a base commodity price — we sell solutions. We don't expect material cost inputs to whip around our margins, and we feel good about the actions we've taken on these pressures.
Joe Hayek: The steel market is tight right now — lead times are extended at a lot of mills, and prices have moved up. That actually creates markets where we really shine. Our purchasing and supply chain capabilities create a competitive advantage for us, because we're able to do what we do very well on the procurement and raw material side, and it creates opportunities to set ourselves apart and take share.
Operator: Your next question comes from the line of Madison Callinan with Canaccord Genuity.
Madison Callinan: Can you give any additional color on the total data center opportunity in dollars? Which of your businesses — LSI, Elgen, WAVE, or Water — has the most upside in data centers?
Joe Hayek: We think about data centers in a couple of ways. Data centers are commercial buildings, so a lot of our businesses naturally participate in that activity — WAVE, ClarkDietrich, Elgen, LSI, and portions of our water business all provide solutions and products supporting the construction and operation of those data centers. More specifically, our ASME water tanks are increasingly becoming a critical component of the liquid cooling systems being deployed to support next-gen computing infrastructure. That's a separate opportunity from the building itself and one that has grown rapidly for us in just the last several quarters. We shipped $13 million into data centers on the ASME side in 2026 and will ship at least that much in Q1 of 2027. Keep in mind there can be up to two years between the announcement of a data center and when you'd see liquid cooling units installed, so there's a real lag from when you see something in the media to when the revenue opportunity materializes for us. The market has also only very recently started transitioning from air-cooled to liquid cooling, so this is truly an emerging end market and a multi-year growth opportunity. We've been thoughtful in our approach — we've cultivated a network of manufacturing partners where we provide the engineering expertise while they support on manufacturing, which keeps our overall capital investment low relative to the revenue and profitability opportunity. We really think we're in a great position to become one of the default solution providers to a host of integrators when it comes to liquid cooling. Our teams have moved from answering "can you build this?" to actually participating in the design phase and guiding customers to innovative and scalable designs.
Madison Callinan: The stock is indicating down today. What's the market missing and what do you think you're not getting enough credit for?
Joe Hayek: We're still a little new as Worthington Enterprises, and we probably aren't the easiest company to model. When people understand the story and the true potential earnings power of the business, they tend to have different conversations with us. When we think about fiscal 2026, we think about it as a really strong year that sets the table for even more growth ahead. We have a lot to be proud of — the innovation engine, the ability to continue driving growth through strategic acquisitions, and increasingly powerful free cash flow generation that will set us up to take advantage of the growth opportunities we see. As markets recover, we're really well-positioned.
Operator: There are no further questions at this time. I will now turn the call back to Joe for closing remarks.
Joe Hayek: Thank you, thanks everybody for joining us this morning. I certainly look forward to being with everybody again soon. Have a wonderful Fourth of July, celebrate with people that you love, have a great time, and be safe. Thank you.
Operator: This concludes today's call. Thank you for attending. You may now disconnect.