Worthington Steel Earnings Call Highlights Growth Amid Headwinds

Worthington Steel, Inc. ((WS)) has held its Q2 earnings call. Read on for the main highlights of the call.

Worthington Steel’s Earnings Call Balances Strength with Sector Headwinds

Worthington Steel, Inc. delivered an overall upbeat earnings call, underscoring solid financial performance, meaningful market share gains, and early wins from its AI and automation initiatives. Management’s tone was confident yet measured, acknowledging both the company’s positive momentum and the pressures from softer toll processing volumes, higher selling, general and administrative (SG&A) costs, and squeezed galvanized spreads tied to weak construction demand.

Strong Financial Performance Underpins Confidence

Worthington Steel reported net sales of $871.9 million and adjusted EBITDA of $48.3 million, with adjusted earnings per share climbing to $0.38 from $0.19 a year ago. This near-doubling of EPS reflects a combination of higher direct volumes and improved spreads in key product lines, translating operational progress directly into bottom-line growth. Adjusted EBIT rose to $26.6 million from $14.3 million, and the company generated $99 million in cash flow from operations, supporting a solid balance sheet that includes $90 million in cash. Overall, the financial metrics show a company that is gaining earnings leverage as it executes on its strategy.

Market Share Gains, Especially in Automotive

Market share gains were a standout theme, particularly in the automotive sector. Direct automotive shipments rose 26% year over year, driven by strong sales into North American light vehicle markets and new business wins with a major Japanese original equipment manufacturer. Worthington Steel also reported notable gains in Cold Rolled Strip, cementing its position as a key supplier in critical steel applications. These wins highlight the company’s ability to outperform its end markets and capture incremental volumes even against a mixed macroeconomic backdrop.

AI and Automation Begin to Pay Off

The company emphasized the successful integration of artificial intelligence and automation into its operations. AI agents deployed within the credit department and automation in shipping have improved accuracy and sped up decision-making. Importantly for investors, these initiatives helped keep operating expenses flat despite growth efforts and a complex operating environment. The early benefits signal that Worthington Steel’s transformation program is not just a cost initiative but a structural upgrade that can enhance scalability and efficiency over time.

Recognition and Awards Reinforce Competitive Position

Worthington Steel’s operational progress has been reinforced by external recognition. The company received the 2025 Supplier of the Year award from Shepler Group USA, underscoring its reputation for quality, reliability, and service within the supply chain. Additionally, it was named a Military Friendly Employer Gold for the eleventh consecutive year, a distinction that highlights its strong employment practices, culture, and ability to attract and retain high-quality talent. For investors, these accolades bolster the case that Worthington Steel is a preferred partner for both customers and employees.

Corporate Citizenship and Sustainability in Focus

Beyond financials, Worthington Steel showcased its corporate citizenship efforts through the release of its 2025 Corporate Citizenship and Sustainability Report. The report outlines progress in safety performance, emissions reduction, and community engagement, signaling that environmental, social, and governance (ESG) considerations remain embedded in the company’s strategy. Improved safety and lower emissions can translate into lower long-term risk and potentially better access to premium customer relationships, while community engagement supports brand value and workforce stability.

Decreased Toll Processing Volumes Pressure Top Line

Not all trends were positive. Toll processing volumes declined, primarily due to the closure of a facility in the Cleveland area and softer market conditions in certain segments. This reduction in toll volumes modestly pressured revenue and highlights the cyclical exposure that still exists in parts of the business. Management framed these headwinds as manageable and largely offset by growth in direct volumes, but investors should recognize that some revenue streams are facing structural and cyclical challenges.

Higher SG&A Reflects Strategic Investment

SG&A expenses rose by $9.8 million, driven mainly by higher compensation, benefits, and professional fees tied to strategic projects. While higher overhead is a near-term drag on margins, management positioned these costs as investments in transformation, technology, and growth initiatives that should yield longer-term returns. For shareholders, the key question will be whether future operating leverage from AI, automation, and process improvements can more than offset this permanent step-up in expense levels.

Compressed Galvanized Spreads Weigh on Construction-Linked Business

Worthington Steel also faced pressure from compressed galvanized spreads, largely due to weaker demand in the construction sector. This spread compression impacts profitability in products directly linked to building and infrastructure activity. While automotive and other markets are helping to offset the shortfall, the company remains exposed to construction cycles, which may limit margin expansion until demand returns or pricing improves.

Guidance and Outlook: Cautious Optimism for 2026

Looking ahead, management expressed cautious optimism for fiscal 2026. The company expects ongoing benefits from its transformation initiatives, including broader use of AI and automation, as well as continued market share gains in key segments like automotive and Cold Rolled Strip. With adjusted EBITDA of $48.3 million this quarter, improving spreads in direct business, strong cash generation, and a healthy cash position of $90 million, Worthington Steel is positioning itself for incremental improvement as market conditions stabilize or strengthen. While acknowledging risks from construction demand and toll processing softness, leadership signaled confidence that operational upgrades and strategic investments will drive better performance over time.

In summary, Worthington Steel’s earnings call painted a picture of a company successfully strengthening its core business and capabilities while managing through sector-specific headwinds. Strong financial results, notable market share gains, and visible progress in AI-driven efficiency and corporate citizenship are balanced against higher SG&A, weaker toll processing volumes, and compressed galvanized spreads. For investors, the story is one of disciplined transformation, with a constructive—if measured—view on the company’s potential as markets normalize.