Worthington Steel sees demand improvement after earnings slump

Lower volumes and steel prices dampened Worthington Steel’s profits, but market momentum is building, the metals processor said in its most recent quarterly earnings report.

The Columbus, Ohio-based company reported sales of $687.4 million in its fiscal third quarter ended Feb. 28, 15% lower than a year earlier. Volumes fell 11% to 881,410 short tons, while earnings attributable to its controlling interest plunged 72% to $13.8 million.

With the consolidation of the Worthington Samuel Coil Processing facility in Cleveland announced last month, Worthington expects to see a fall of ~100,000 annual toll processing tons.

Customer uncertainty was a major headwind during the period.

“However, we saw signs of improvement during the last month of the quarter,” President and CEO Geoff Gilmore said on an earnings conference call on Thursday.

With the momentum continuing into March, the improved volumes were “due to fundamental demand improvements rather than a buy ahead effort to beat potential steel price increases,” Gilmore said.

For fiscal Q3, Worthington estimated pretax inventory holding losses of $1.2 million. That compares to pretax inventory holding gains of $19.3 million in the same quarter last year.

Vice President and CFO Tim Adams noted that, with the recent increases in steel prices, pretax holding gains could be as high as $20-25 million in the current quarter.

Focus on electrical steel laminations

The electrical steel market remains a key area of focus for Worthington.

“AI initiatives and more data centers mean more demand for power and the infrastructure to carry it,” Gilmore elaborated. “There’s a 2-year backlog on transformers, which use the electrical steel cores we make, and the need for power is expected to grow at more than 6% per year over the next 15 years.”

Additionally, the company hopes to close on its purchase of a 52% stake in Sitem SpA, an Italian producer of electric motor laminations, in the next few months. Gilmore believes the purchase will strengthen Worthington’s market-leading position in electrical steel lamination offerings.

A note on tariffs

Gilmore commented that he expects very little direct impact from the Trump tariffs.

Worthington employs a localized strategy, buying steel where its customers are and where it will be making its products, so it “shouldn’t see much interruption at all in the supply chain,” he said.

End market outlook

“Due to the amount of uncertainty in many markets, we are cautiously optimistic about the near term,” Gilmore told investors on the call. “However, we think clarity will improve as the year moves forward, and we are more optimistic about the second half of 2025.”

Shipments to the automotive sector were down 3% from last year, with lower sales to one major OEM customer working to rightsize its business. Still, Worthington expressed guarded optimism on the North American auto market this year.

On the construction side, Gilmore expects a fairly flat market in the first half of calendar-year 2025, with the sector “gaining momentum later in the year.”

Gilmore said the heavy truck market has been slow but is starting to show some signs of improvement.

The company doesn’t foresee much improvement on the agricultural side this year. “The ag industry continues to be held back by interest rates, commodity prices, and tariffs that further delay farmers’ decisions to purchase new equipment,” Gilmore commented.

“Overall, we sense a bit of an ease in some supply chains as customers deal with the current uncertainty. However, we are seeing normal buying patterns from many of our customers,” he stated on the call.