Worthington pauses M&A to focus on electrical steel expansions

Recall that Worthington Steel recently completed its first quarter as a standalone company after completing its planned spinoff from Worthington Industries in December.

Expansion projects

Worthington Steel spent $22.4 million on capital expenditure projects in the quarter ended Feb. 29, VP and CFO Tim Adams said on the call. That total includes previously announced expansions in Mexico and Canada at Tempel Steel facilities acquired in 2021.

Tempel is a manufacturer of precision motor and transformer laminations for the electrical steel market.

The Tempel expansion project in Apodaca, Mexico, is on time and on budget, EVP and COO Jeff Klingler said, noting that about $17 million has already been spent there.

“The building expansion really should be complete here by late spring or early summer. And we’ll be installing the first presses here in just the next couple of months,” he commented.

Once the expansion is completed, the Apodaca site will be Tempel’s largest production site for motor and transformer laminations for the EV market.

Worthington has so far invested about $5 million in the expansion project in Canada. According to Klingler, spending there will ramp up over the next few quarters. Production is not expected to begin until the end of 2025.

Tempel Steel’s only location in Canada is in Burlington, Ontario, according to Worthington’s website.

With a transformer backlog of two years or more, president and CEO Geoff Gilmore said Worthington is “still quite bullish on that market.” He believes the transformer market “will grow much faster than GDP over the next seven to 10 years.” That’s a “big driver of why we’re making that expansion in Canada,” he added.

Revenues from the expansion projects in Mexico and Canada are expected to be $80 million+ at each facility, once they are fully ramped up, Klingler said.

While there may be some bumps in the road in the EV market, Gilmore noted that, “It’s a supply chain that needs to be built out, but that’s going to happen, and costs will come down.”

He said a lot of automotive companies want to add more hybrid vehicles to their portfolios. He also noted that ICE and hybrids require cold-rolled strip, and BEVs and electrification, in general, need electrical steel laminations.

“My point in sharing that is, I don’t know that there’s anybody else globally that’s better positioned to take advantage of that,” Gilmore stated.

Pause on M&A

“We are continuing to look at M&A opportunities. We haven’t really stopped,” Gilmore said on the call, noting the company’s focus on the previously discussed big growth capex projects.

“We’re pretty selective in who we want to buy … We’re looking for high value-added companies that we can bolt on and complement what we have or enter new niches,” he noted.

“So we’re not out of M&A. We’ve just paused a little bit to get through the spin, and we’ll crank that effort up and continue to look for companies that match us from a culture standpoint and match us from a high-value-add standpoint,” he added.

Don’t miss the opportunity to hear from Worthington Steel’s leader Geoff Gilmore at this year’s Steel Summit in August in Atlanta!