Worthington Steel Swings to Loss on Impairments as Kloeckner Deal Closes
The steel processor posted a $57.6 million operating loss in its fiscal fourth quarter, dragged down by $94.5 million in Electrical Steel impairments and acquisition costs.
Worthington Steel (WS), the steel processing and electrical steel manufacturer, reported a fiscal fourth-quarter operating loss of $57.6 million, reversing $66.4 million in operating income a year earlier, as impairments and costs tied to its Kloeckner acquisition overshadowed a 12% rise in net sales.
The swing was driven by $94.5 million in goodwill and long-lived asset impairments at the company's Electrical Steel unit, where weakened demand in industrial motors—both in Europe and the U.S.—and delayed automotive program launches forced the write-down. On top of that, $15.5 million in professional fees related to the Kloeckner acquisition pushed SG&A expense up $22.3 million to $81.2 million. Adjusted to exclude those items, EBIT fell 23% to $54.0 million, and adjusted net earnings per diluted share declined to $0.74 from $1.05.
Revenue reached $929.2 million, up from $832.9 million, lifted by higher direct volumes—including $47.6 million contributed by the Sitem Group acquisition—and a 5% increase in direct selling prices on a legacy basis. Direct tons sold rose 3% year over year, though legacy volumes grew just 1%, with the remainder coming from Sitem. Toll volumes, meanwhile, fell 15% following the May 2024 closure of the company's Cleveland-area WSCP facility and softening mill-customer demand, shifting the direct-to-toll mix to 65/35 from 60/40 a year ago.
Gross margin contracted by $8.9 million to $118.1 million as direct spreads narrowed by $6.6 million and toll spreads by $2.4 million. Inventory holding gains shrank to an estimated $14.7 million from $20.8 million, creating a $6.1 million headwind, while value-added market spread compression added another $2.6 million drag—though management said spreads are "beginning to normalize".
For the full fiscal year, the picture was more constructive. Adjusted EBIT rose 8% to $160.8 million and adjusted EPS edged up to $2.23 from $2.16, as an 11% increase in net sales to $3.44 billion more than offset a 5% decline in total volume to 3.59 million tons. Equity in net income of unconsolidated affiliates jumped more than fourfold to $20.3 million for the year.
The Kloeckner transaction closed on June 3, 2024, giving Worthington a roughly 62% stake in the German steel distributor. The company subsequently launched a delisting tender offer at €11.00 per share, with an acceptance window running from July 15 to August 12. Financing the $1.4 billion deal required a $700 million notes offering and a $700 million term loan, lifting net debt to $172.2 million at fiscal year-end and driving quarterly interest expense to $19.2 million from $1.0 million a year ago.
Free cash flow was essentially flat at $7.8 million in the quarter, as lower capital spending of $37.1 million offset a decline in operating cash flow to $44.9 million. The quarterly dividend held steady at $0.16 a share.