Yahoo Finance Worthington Industries, Inc. (NYSE:WOR) Q4 2024 Earnings Call Transcript
Worthington Industries, Inc. (NYSE:WOR) Q4 2024 Earnings Call Transcript June 26, 2024
Operator: Good morning, and welcome to the Worthington Enterprises Fourth Quarter Fiscal 2024 Earnings Conference Call. [Operator Instructions] This conference is being recorded at the request of Worthington Enterprises. [Operator Instructions] I'd like to introduce Marcus Rogier, Treasurer and Investor Relations Officer. Mr. Rogier, you may begin.
Marcus Rogier: Thank you, Krista. Good morning, everyone, and welcome to Worthington Enterprises fourth quarter fiscal 2024 earnings call. On our call today, we have Andy Rose, Worthington's President and Chief Executive Officer; and Joe Hayek, Worthington's Chief Financial and Operations Officer. Before we get started, I'd like to note that certain statements made today are forward-looking within the meaning of the 1995 Private Securities Litigation Reform Act. These statements are subject to risks 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.
In addition, our discussion today will include non-GAAP financial measures. A reconciliation of these measures with the most appropriate comparable GAAP measure is included in the earnings press release, which is available on our Investor Relations website. Today's call is being recorded, and a replay will be made available later on our website. At this point, I will turn the call over to Andy for opening remarks.
Andy Rose: Thank you, Marcus, and good morning. I want to welcome you to Worthington Enterprise's fiscal fourth quarter earnings call. We had a respectable quarter with adjusted EBITDA of $63 million and adjusted earnings per share of $0.74. We also had a busy quarter on the M&A front, further executing on our strategy and positioning our portfolio for long-term success. The last 1.5 years was a lot of work, positioning us as a stand-alone business, but our teams have transitioned well to driving towards above-market growth through innovation and M&A. I could not be more proud of the continued focus and hard work that our people carry out every day. We recently announced two transactions, the acquisition of Hexagon Ragasco and the formation of a joint venture of our Sustainable Energy Solutions business with Hexagon Composites.
Both transactions are great examples of how we are good stewards of capital and create long-term value for our shareholders. First, we acquired Hexagon Ragasco, a global market leader in lightweight composite liquefied propane gas cylinders used for leisure, household and industrial applications. Hexagon Ragasco pioneered composite technology for liquid gas cylinders in 2000 and with its highly automated manufacturing facility in Norway today makes the most efficiently produced and quality consistent composite LPG cylinder in the world, selling into 100 countries. This acquisition is now part of our Building Products segment and complements our operations in Portugal, expands our product portfolio and extends our global reach. Second, we also announced the formation of a joint venture of our Sustainable Energy Solutions business with Hexagon Composites, a global leader in the storage and transport of hydrogen and compressed natural gas.
Worthington has a long history of establishing joint ventures with strong partners to make a business better and maximize long-term value creation. The hydrogen market has been slow to develop in the U.S. and Europe, and this partnership will provide a better platform to capitalize on opportunities as they emerge. Our remaining ownership interest will no longer be reported on a consolidated basis but rather earnings will flow through equity income. This strategic move results in a reduction of invested capital, higher earnings in the prospect of a brighter future for our SES business. I would like to welcome the entire Hexagon Ragasco team to Worthington Enterprises, and we are already working hard alongside the Hexagon Composites team to maximize the potential of our newly formed JV.
The changes above mean our Consumer Products and Building Products businesses are now the primary pillars of Worthington enterprises. We will continue to implement the Worthington business system of transformation, innovation and M&A to enable us to achieve accelerated growth in earnings. We are particularly focused today on further enhancing our innovation capabilities, so we can bring more and better products to market faster and incorporate sustainable technologies that will deliver significant value to our customers and make us a more valuable partner. As evidenced in collaboration with our customer, GALP, our NEXI IoT solutions series recently received a design award from the IF Design Foundation and won gold in the business to consumer household appliance category from the renowned German Innovation Awards.
Additionally, our HALO Elite Series Griddle was recognized as the best grills of 2024 by CNET and one of the 10 best grills of the year by the Wall Street Journal. Our expertise in strategic M&A, which is showcased by the Hexagon transactions will help us drive growth and higher returns as we add new products, new brands and consolidated markets. We will continue to be disciplined stewards of capital, not only making new investments to deliver long-term value creation, but also redeploying capital in situations where we can earn a better return. There is no better example of this than the transactions just completed. We're off to a good start as Worthington Enterprises, and Joe will now walk you through the numbers. Joe?
Joseph Hayek: Thank you, Andy, and good morning, everybody. On a GAAP basis, in Q4, we reported a loss from continuing operations of $0.64 a share and versus earnings of $1.01 per share in the prior year. There were several unique items that impacted our quarterly results, including the following: we incurred pretax restructuring, impairment and onetime charges of $74 million or $1.38 per share during the current quarter. These charges were primarily related to the sale of 51% of our Sustainable Energy Solutions segment as part of the formation of a joint venture with Hexagon Composites, a global leader in the clean energy space. Results in the prior year quarter were negatively impacted by $0.18 per share due to several items, largest being corporate costs that were eliminated at the time of separation, along with costs related to the separation of our steel processing business, and other smaller nonrecurring items.
Excluding these items, we generated adjusted earnings from continuing operations of $0.74 per share in the current quarter compared to $1.19 per share in Q4 of last year. Consolidated net sales in the quarter of $319 million decreased 13.6% from $369 million in the prior year due to lower volumes across all of our segments compared to a very strong Q4 last year. Gross profit for the quarter decreased to $79 million from $94 million in Q4 a year ago. Despite the lower volumes, gross margin decreased only slightly to 24.8% from 25.5% and was up sequentially. Adjusted EBITDA in Q4 was $63 million, down from $94 million in Q4 of last year, and our trailing 12-month adjusted EBITDA is now $251 million with a trailing 12-month adjusted EBITDA margin of 20.1%.
With respect to cash flows and our balance sheet, cash flows from operations was $45 million in the quarter and free cash flow was $34 million. During the quarter, we invested $11 million on capital projects, which included $5 million related to the previously mentioned facility modernization projects. We spent $12 million on acquisitions, which was primarily a deposit for the Hexagon Ragasco acquisition, which closed on June 3, and we paid $8 million in dividends. We also received $43 million in dividends from our unconsolidated JVs during the quarter, a 106% cash conversion rate on net equity income. For the full fiscal year, we spent approximately $19 million in CapEx related to the facility modernization projects, and we have about $60 million remaining to spend on those projects which will be spread out over the next two years and they're expected to be completed by early fiscal 2027.
Looking at our balance sheet and liquidity positions. We ended the quarter with an exceptionally strong balance sheet, $298 million of long-term funded debt carrying at an average interest rate of 3.6%, combined with $244 million of cash, yielding around 5%. We used approximately $84 million of this cash in early June to complete the Hexagon Ragasco acquisition, net of proceeds that we received from Hexagon related to the JV's formation. Continue to operate with extremely low leverage, ending the quarter with a net debt to trailing EBITDA leverage ratio of less than 25 turn, and we are well positioned with ample liquidity, including a $500 million undrawn bank credit facility. Yesterday, the Worthington Enterprises Board declared a dividend of $0.17 per share for the quarter, which is payable in September of 2024 that's a 6% increase relative to the dividend last quarter, and we're very pleased to be able to continue rewarding our shareholders as we balance growth in our market-leading businesses with capital returns to shareholders.
We'll now spend a few minutes on each of the businesses. In Consumer Products, net sales in Q4 were $125 million, down from $149 million a year ago. The decrease was a result of lower volumes, which were down 17.9% to Q4 of last year. Adjusted EBITDA for the Consumer business was $17 million and adjusted EBITDA margin was 13.6% in Q4 compared to $30 million and 19.8% in the prior year. The decline in adjusted EBITDA compared to the prior year quarter was primarily a result of lower volumes in our outdoor living products and slightly higher SG&A related to our tools business as we are investing in that business for future growth. We had a tough comp relative to the prior year when that business generated record results, but we also believe that consumers have pulled back on discretionary purchases and as we discussed last quarter, Q4 was also negatively impacted by volume that was pulled forward into Q3.
While there are indications that consumers continue to be challenged by inflation and are spending less on nonessentials, the median age of a home in the U.S. is now over 40 years and long-term trends favor companies with innovative tools and solutions used to repair and maintain those homes. In addition, our outdoor living products continue to win praise from publications and consumers, and we believe destocking has run its course and demand for those products moving forward will be more correlated with point-of-sale results. We have a solid lineup of market-leading brands that are important and affordable part of outdoor living activities, celebrations and home improvement projects, and we remain optimistic heading into our new fiscal year.
Building Products generated net sales of $154 million in Q4, down 12% from $175 million a year ago. The decrease was driven by a less favorable product mix and lower volumes, especially in the large format heating end market, which continued to see some destocking. We are optimistic that this destocking cycle run its course this summer and demand will return to a more normal seasonal normally levels in time for the fall heating season. Our water business continued to improve on the top and bottom lines, and our cooling and construction products have returned to seasonally normal volumes as well. Building Products generated adjusted EBITDA of $52 million in the quarter, and adjusted EBITDA margin was 33.6% compared to $65 million and 37.1% in Q4 of last year.
The decrease was largely driven by lower equity earnings at ClarkDietrich. The team continues to do a great job taking care of its customers but slightly lower volumes and pricing competition from regional players has created some margin compression for them. ClarkDietrich contributed $12 million for the quarter compared to a near record $25 million in the prior year quarter. WAVE continued to deliver very strong results, seeing relative strength in volumes across multiple end markets and contributed equity earnings of $28 million in the quarter up from $24 million a year ago. For the year, WAVE generated record equity earnings of $103 million for us. The Building Products team has done a very good job managing through the destocking that occurred in fiscal 2024, while enhancing its value proposition for customers, and they are very well positioned as demand trends normalize.
In Q4, Sustainable Energy Solutions generated net sales and adjusted EBITDA of $40 million and $1 million compared to $45 million and $4 million a year ago. As I mentioned earlier, during the quarter, we sold an interest in our sustainable energy solutions business to Hexagon Composites, effectively turning that business into an unconsolidated JV, of which we own 49%. This occurred on May 29. So Q4 and historical results for SES are being reported in other, along with unallocated corporate expenses. Going forward, starting with our fiscal 2025 Q1 any profits or loss related to SES will flow through equity income within corporate and other. At this point, we are happy to take any questions that people might have.
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