Worthington Enterprises, Inc.

Good morning and welcome to the Worthington Industries fourth quarter fiscal 2022 earnings conference call. All participants will be able to listen only until the question and answer session of the call. This conference is being recorded at the request of Worthington Industries. If anyone objects, you may disconnect at this time. I'd like to introduce Marcus Rogi, treasurer and investor relations officer. Mr. Rogi, you may begin.

Thank you, Chris. Good morning, everyone, and welcome to Worthington Industries' fourth quarter fiscal 2022 earnings call. On our call today, we have Andy Rose, Worthington's President and Chief Executive Officer, and Joe Hayek, Worthington's Chief Financial Officer. Before we get started, I'd like to remind everyone that certain statements made today are forward-looking within the meaning of the 1995 Private Securities Litigation Reform Act. These statements are subject to risk and uncertainties that could cause actual results to differ from those suggested. We issued our earnings release yesterday after the market closed. Please refer to it for more detail on those factors that could cause actual results to differ materially. Today's call is being recorded, and a replay will be made available later on our WorthingtonIndustries.com website. At this point, I will turn the call over to Joe for a discussion of the financial results.

Thank you, Marcus, and good morning, everyone. We finished our fiscal year with a very strong quarter, reporting Q4 earnings of $1.61 a share versus $2.15 in the prior year. Excluding a small one-time restructuring gain, we generated $1.58 per share in the current quarter compared to $2.33 in Q4 of last year after adjusting for restructuring and a small gain on our investment in Nikola. In Q4, we had inventory holding losses estimated to be 42 million or 64 cents per share compared to inventory holding gains of 51 million or 71 cents per share in the prior year. An unfavorable swing, $93 million, which is $1.35 per share. Consolidated net sales in the quarter of 1.5 billion were up significantly compared to 978 million in Q4 of last year. Increase in sales is primarily due to higher steel prices, the inclusion of our most recent acquisition, and higher average selling prices in both consumer and building products. Gross profit for the quarter decreased to $168 million from $226 million in the prior year. Gross margin was 11% versus 23%, primarily due to the swing from inventory holding gains to losses, which were partially offset by margin increases in both consumer and building products. Adjusted EBITDA in Q4 was $139 million, down from $186 million in Q4 of last year, and our adjusted EBITDA for fiscal 2022 was a record $615 million. I'm going to spend a few minutes on each of the businesses. to higher average selling prices and the inclusion of both Temple Steel and Shiloh's blank light business in our results. Total ship tons were down 5% compared to last year's fourth quarter, despite those recent acquisitions, which contributed 97,000 tons during the quarter. Excluding the impact of the acquisitions, total ship tons were down 14% year-over-year, driven primarily by lower tooling volumes with mills. Direct tons in Q4 were actually up slightly year-over-year, excluding acquisition and the facility we closed in Decatur, Alabama, and were 56% in the mix compared to 48% in the prior year quarter. With the exception of the lower tolling volumes in our JVs, demand in the quarter was solid. We saw year-over-year increases in key end markets, including automotive, construction, and agriculture. While automotive volume increased from the prior year quarter, it remains below seasonal norms due to production constraints at the OEMs, and it continues to be difficult to predict when this dynamic will improve. Overall, demand across our end markets is steady, and our teams are doing a very good job winning new business as they manage through volatile steel pricing markets and challenging supply chains. In Q4, steel generated adjusted EBIT of $17 million compared to $98 million in the quarter last year. A large year-over-year decrease was driven by the inventory holding losses I mentioned earlier, estimated to be $42 million in this quarter compared to gains of $51 million last year, an unfavorable swing of $93 million. Steel prices continue to be volatile and were rising at the beginning of the quarter, but then resumed falling later in the quarter. Based on current steel pricing, we do believe that we will see modest inventory holding gains in Q1. In consumer products, net sales in Q4 were $186 million, up 18% from $157 million in the prior year quarter. Increase was driven by higher average selling prices, partially offset by an unfavorable shift in product mix. EBIT for the consumer business was a record $29 million, and EBIT margin was 15.8% in Q4, compared to $19 million and 12.1% last year. Our consumer team continues to do a people and equipment to increase production capacity to better serve our customers. In addition, we remain focused on growing the business through innovation, new product development, and acquisitions. Earlier this month, we announced the acquisition of Level 5 Tools, a market leader, offering a complete lineup of drywall tools for both pros and do-it-yourselfers. We welcome the Level 5 team to Worthington. We're very excited about this acquisition as it expands our existing portfolio of specialty tools and provides us entry into attractive new end markets. Building products generated net sales of $173 million in Q4, up 40% from $124 million in the prior year. Increase was driven by higher average selling prices and improved product mix. Building products delivered record EBIT for the quarter of $64 million, and EBIT margin was 36.8%, up from $41 million and 33.3% in Q4 of last year. Our wholly-owned building products business continued to show solid growth, more than doubling their EBIT from the prior year and on a sequential basis due to continued strong demand and favorable mix, combined with higher average selling presence. At our JVs, Tartetric's results improved by 15 million year-over-year, while Wave was down 4 million year-over-year. Wave's customers have been impacted by construction delays caused by labor availability and stretched supply chains for HVAC and other equipment, but there are early indications that those issues are improving. Tartetric and Wave contributed equity earnings of $23 million and $21 million, respectively. The building products team continues to do an excellent job serving their customers in the near term as they invest in new product development and production capacity. The business has a healthy order book, and we are optimistic about demand going forward. In sustainable energy solutions, net sales in Q4 of $41 million were in line with the prior year despite significantly lower volumes due to the divestiture at the end of Q4 last year of our LPG autogas business in Poland. Excluding the divestiture, net sales were up 20% in Q4 versus last year. The business reported an even loss of $2 million in the quarter compared to a profit of $4 million in the prior year quarter, roughly $800,000 of which was attributable to the divested business. Higher average selling prices were more than offset by mix and the impact of significantly increased input costs. Given the war in Ukraine and its impact on the European economy, input costs, freight costs, Sustainable Energy Solutions is likely to remain challenged in the near term. We are very excited about the long-term growth prospects for this business as we develop and optimize solutions that serve the rapidly expanding global hydrogen ecosystem and adjacent sustainable energy. With respect to cash flows and our balance sheet, cash flow from operations was $165 million in the quarter, and free cash flow was $142 million. We had a strong release of cash from operating working capital, primarily due to lower steel prices and reduced inventories, which added $77 million to cash flow. For the full fiscal year, cash flow from operations was $70 million, and free cash flow was an outflow of $24 million, as operating working capital increased by $258 million during the year, primarily a result of higher steel prices. We expect a substantial portion of that working quarters, assuming steel prices do not increase. During the quarter, we received $23 million in dividends from our unconsolidated JVs, invested $23 million on capital projects, paid $14 million in dividends, and spent $52 million to repurchase a million shares of our common stock. Following the Q4 purchases, we had slightly over 6 million shares remaining under our share repurchase authorization. Looking at our balance sheet and liquidity position, 68 million sequentially. Interest expense of 8 million was up slightly due to higher average debt levels. During the quarter, we established an accounts receivable securitization facility that allows us to borrow up to $175 million at favorable short-term rates, further bolstering the company's already strong liquidity position. We ended Q4 with $34 million in cash and $632 million in availability under our revolving credit facilities We believe we are well positioned heading into the new fiscal year. Yesterday, the board declared a dividend of 31 cents per share for the quarter, which is an 11% increase over last quarter and is payable in September of 2022. This marks the 12th consecutive year we've increased our dividend, and we are very pleased to be able to continue rewarding our shareholders as we deliver strong results.