Key Points
Worthington reported 12% growth in the quarter, but that was driven by higher prices.
Volumes fell, and costs rose.
Its acquisition of Kloeckner could be a turning point for the business.
Shares of Worthington Steel (NYSE: WS) were heading lower today after the company posted solid top-line growth, but disappointing bottom-line results, as the company noted a challenging macroeconomic environment and pressure from tariffs.
As a result, the stock was trading down 12.8% as of 10:01 a.m. ET this morning.
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What's happening with Worthington Steel
Worthington, a processor of carbon flat-rolled steel, reported 12% revenue growth to $769.8 million, though that was well behind the average estimate of the two analysts following the stock at $888 million.
Volume in the quarter fell from 881,410 tons to 817,524, but higher prices, in part due to tariffs, drove sales growth. Costs rose sharply, as gross profit declined from $81.2 million to $76.1 million, and adjusted operating income slipped from $26.6 million to $14 million.
Adjusted earnings per share came in at $0.27, which compared to $0.35 in the quarter a year ago, and an expectation of $0.46 from the two analysts following the stock.
CEO Geoff Gilmore said, "This was a challenging quarter from a macroeconomic standpoint, but our focus did not change."
The company also entered an agreement to acquire Kloeckner, a German metals processor with operations in Europe and North America.
What's next for Worthington
Worthington didn't provide guidance for the fourth quarter, but its volume declines seem likely to continue as global steel demand is down, driven by weakness in China. Additionally, there's still uncertainty over where tariff rates will settle.
The merger with Kloeckner could be transformative as it will create the second-largest steel service center company in North American with more than $9.5 billion combined revenue.
Worthington trades at a P/E of just around 12. If the steel market starts to turn around, the stock could be a winner.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
