Executive Summary

Q3 FY2025 was weak: net sales $687.4M (-15% YoY), GAAP diluted EPS $0.27 and adjusted EPS $0.35; margins compressed on lower volumes and pricing and a swing to inventory holding losses .
Management cited signs of demand improvement in February/March, with automotive volumes strengthening and momentum carrying into March, supporting cautious optimism for 2H 2025 .
CFO guided to expected pre-tax inventory holding gains of approximately $20–$25M in Q4 FY2025 on higher hot-rolled coil pricing; WS declared a $0.16 quarterly dividend payable June 27, 2025 .
Wall Street consensus for Q3 FY2025 was missed: revenue $711.4M* vs $687.4M actual and Primary EPS $0.48* vs $0.35 adjusted EPS; inventory holding dynamics were the primary driver of the miss .

What Went Well and What Went Wrong

What Went Well

Electrical steel growth initiatives advancing: Mexico presses installed and testing underway (start late CY2025), Canada transformer core expansion on track (start early CY2026) .
Strategic progress: regulatory approval for 52% Sitem Group stake; expected closing in early FY2026; CEO emphasized cultural and technical fit to enhance laminations offering .
Recognition and commercial wins: Mahle 2024 Best Supplier of the Year award for the electrical steel operation; new automotive OEM programs beginning to ramp and expected to build over the next several quarters .

Quote: “We saw signs of fundamental demand improvements… most of the volume improvement at the end of the quarter was due to fundamental demand improvements” — Geoff Gilmore, CEO .

What Went Wrong

Gross margin fell $38.9M YoY to $81.2M, driven by lower direct spreads and volume; a swing from an estimated $19.3M inventory holding gain last year to a $1.2M loss this quarter (-$20.5M impact) .
Asset impairments ($7.4M pre-tax) related to R&D intangible write-off and WSCP Cleveland-to-Twinsburg consolidation; restructuring expense $0.9M (TWB voluntary retirement) .
Volumes: total tons -11% YoY to ~881k; construction volumes -20% YoY; toll tons -15% YoY; SG&A +$1.8M on wages/benefits and Sitem-related fees .

Financial Results

Consolidated P&L and Profitability (oldest → newest)

Metric	Q1 2025	Q2 2025	Q3 2025
Net sales ($USD Millions)	$834.0	$739.0	$687.4
Diluted EPS ($)	$0.56	$0.25	$0.27
Adjusted EPS ($)	$0.56 (ex-items)	$0.19 (ex-items)	$0.35
Adjusted EBIT ($USD Millions)	$39.4	$14.3	$25.3
Adjusted EBITDA ($USD Millions)	$86.5	$30.6	$41.9

Volumes and Mix

Metric	Q1 2025	Q2 2025	Q3 2025
Shipments (tons)	~1,000,000	~936,000	~881,000
Direct vs Toll Mix (%)	56% / 44%	55% / 45%	57% / 43%

Margins and Cash Flow

Metric	Q3 2025
Gross margin ($USD Millions)	$81.2
Net earnings margin (%)	2.0%
Adjusted EBITDA margin (%)	6.1%
Cash from operations ($USD Millions)	$53.8
Capital expenditures ($USD Millions)	$28.6
Free cash flow ($USD Millions)	$25.2

Consensus vs Actual (Q3 FY2025)

Metric	Consensus	Actual
Revenue ($USD Millions)	$711.4*	$687.4
Primary EPS ($)	$0.48*	$0.35 (Adjusted EPS)

Values with asterisks (*) retrieved from S&P Global.

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Inventory holding gains (pre-tax)	Q4 FY2025	N/A	~$20–$25M expected based on HRC ≥ ~$950/ton	New quantitative outlook
Toll processing volumes	Ongoing	N/A	~100,000 annual ton decrease due to WSCP Cleveland-to-Twinsburg consolidation	New structural change
Dividend	Q3 FY2025	$0.16 declared in Q2	$0.16 per share; payable Jun 27, 2025; record Jun 13, 2025	Maintained
Mexico electrical steel (xEV)	Start of prod.	Late CY2025 target	On track: 5 presses installed; testing underway	Maintained timeline
Canada transformer cores	Start of prod.	Early CY2026 target	On track; construction ongoing	Maintained timeline
Sitem Group (52% stake)	Closing	Early FY2026 expected	Regulatory approval received; closing expected early FY2026	Maintained timeline

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1 & Q2 FY2025)	Current Period (Q3 FY2025)	Trend
AI/technology initiatives	ERP at Tempel; analytics for inventory; ablation tech at TWB building pipeline	Launched AI journey: expanding advanced analytics; gen-AI education; exploring AI in Worthington Business System	Increasing focus on AI enablement
Supply chain & demand cadence	Auto model changeover delays; OEM retooling; customers cautious; construction mixed; ag/heavy truck muted	February demand improvement; automotive strengthening; momentum into March; normal buying patterns returning	Improving near-term demand signals
Tariffs/macro	Anticipated fair trade cases; potential upward pressure on steel prices longer-term	Minimal direct impact expected; HRC price spike to ~$950/ton; reciprocal tariffs uncertainty	Price impact, earnings resilient strategy
Product performance (automotive)	Auto down 10% YoY in Q1; share gains; new programs ramping	Auto shipments down ~3% YoY; new awards ramp over next 6 months; mix shift (less high value add vs prior OEM)	Gradual ramp offsets OEM cuts
Regional trends (Mexico JV Serviacero)	Equity earnings pressured by peso volatility and spreads; new slitter planned	Demand compression; FX headwinds; slight inventory losses; new slitter running in Monterrey	FX and demand headwinds persist; equipment ramp
Regulatory/legal	Sitem deal announced (Q2); regulatory approvals pending	Regulatory approval received; closing expected early FY2026	Advancing to close
R&D execution	TWB ablation capability buildout; pipeline growing	Write-off of in-process R&D intangible at TWB (impairment $1.3M)	Cleanup to refocus on executable R&D
Health/safety culture	Safety recognitions; ESG report highlights	Continued emphasis; leadership recognition	Consistent priority

Management Commentary

“As expected, the headwinds from the second quarter continued into our third quarter… we saw signs of fundamental demand improvements.” — Geoff Gilmore, CEO .
“With the recent increase in market pricing, we expect estimated inventory holding gains in the fourth quarter of Fiscal 2025… approximately $20 to $25 million.” — Tim Adams, CFO .
“We remain bullish on… the electrical steel market. AI initiatives and more data centers mean more demand for power… there is a two-year backlog on transformers.” — Geoff Gilmore .
“We have made excellent progress toward closing on our 52 percent ownership stake in Sitem… we hope to close… in the next few months.” — Geoff Gilmore .
“Our leadership team kicked off our AI journey… expanding our advanced analytics portfolio… introducing generative AI education.” — Geoff Gilmore .

Q&A Highlights

Tariffs impact: Management expects little direct impact due to localized sourcing; price spike to ~$950/ton observed; biggest issue is uncertainty, not operational disruption .
TWB charges: ~$0.9M voluntary retirement and $1.3M R&D intangible impairment; TWB typically insulated from holding gains/losses due to directed buy programs .
Serviacero JV: Demand compression similar to U.S.; peso FX headwinds significant; new Monterrey slitter commissioned and running production .
Demand cadence: February strength carried into March; one large OEM making progress to normalize builds and reduce inventory; construction down 20% YoY was a tough comp vs prior-year strike pivot .
Mix and margins: New auto programs ramping but less high value-add than the struggling OEM; expected to be meaningful to volumes and margins over next six months .

Estimates Context

Q3 FY2025 miss vs consensus: Revenue $711.4M* vs $687.4M actual; Primary EPS $0.48* vs adjusted EPS $0.35 actual. Inventory holding losses and lower volumes/pricing drove the gap .
Near-term outlook embedded in consensus reflects expected Q4 inventory holding gains; no explicit company EPS or revenue guidance provided. Values with asterisks (*) retrieved from S&P Global.

Key Takeaways for Investors

Inventory cycle is turning: CFO flagged ~$20–$25M pre-tax holding gains in Q4, which should support margin rebound absent volume shocks .
Auto exposure is stabilizing: New program ramps and a normalizing OEM build schedule should offset prior OEM-specific cuts over coming quarters .
Electrical steel secular growth intact: Mexico/Canada capacity additions align with transformer backlog and hybrid/EV traction motor demand; Sitem enhances global laminations capability .
Cost/structure actions: WSCP consolidation will reduce toll capacity by ~100k annual tons, aiming to streamline and improve efficiency; expect some near-term volume impact .
Cash generation and balance sheet: $53.8M CFO and $25.2M FCF in Q3; net debt only ~$48.9M, providing flexibility for capex/M&A while maintaining the dividend .
Trading lens: Q4 setup favors a recovery in spreads from holding gains and improving volumes; watch steel prices, tariff developments, and auto build trajectories as key catalysts .
Medium-term thesis: Margin accretion from electrical steel expansions and potential Sitem close, plus transformation/AI initiatives to drive operational efficiency and working capital improvements .

Note: Values with asterisks (*) in the estimates table are retrieved from S&P Global.

Worthington Steel, Inc. (WS)·Q3 2025 Earnings Summary