Worthington Enterprises Q4 2025 Earnings Call Transcript

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Provided by Quartr
June 25, 2025

Key Takeaways

  • In Q4, revenue rose 14% year-over-year (8% excl. SCS & Bradesco), with gross margin at 29.3% and adjusted EBITDA margin at 26.8%, driving sequential and annual growth in revenue, EBITDA and EPS.
  • The quarter included $61 million of net pre-tax restructuring, impairment and one-time charges (≈$0.98 per share), largely tied to the GTI business and equity in the SES joint venture.
  • Building Products posted 25% sales growth to $192 million and a 37% adjusted EBITDA margin ($71 million EBITDA), fueled by higher volumes, Regasco acquisition contributions and normal seasonal trends.
  • Strategic M&A continued with the acquisition of LG Manufacturing, adding HVAC component and framing capabilities in niche markets to boost margins and cash flow.
  • The company generated $159 million in free cash flow for the fiscal year, returned $18 million to shareholders via dividends and buybacks, and raised its quarterly dividend by 12%.
AI Generated. May Contain Errors.
Earnings Conference Call
Worthington Enterprises Q4 2025
00:00 / 00:00

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Operator

Good morning, and welcome to the Worthington Enterprises Fourth Quarter Fiscal twenty twenty five 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 Enterprises. If anyone objects, you may disconnect at this time. I'd now like to introduce Marcus Roger, Treasurer and Investor Relations Officer. Mr. Raje, you may begin.

Marcus Rogier
Marcus Rogier
Treasurer & Investor Relations Officer at Worthington Enterprises

Thank you, Rob. Good morning, everyone, and thank you for joining us for Worthington Enterprises fourth quarter fiscal twenty twenty five earnings call. On the call today are Joe Hayek, our President and Chief Executive Officer and Colin Souza, our Chief Financial Officer. Before we begin, I'd like to remind everyone that certain statements made during today's call are forward looking in nature and subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied. For more information on these risks and uncertainties, please refer to our earnings release issued yesterday after the market closed, which is available on the Investor Relations section of our website.

Marcus Rogier
Marcus Rogier
Treasurer & Investor Relations Officer at Worthington Enterprises

Additionally, our remarks today will include references to non GAAP financial measures. Reconciliations of these measures to the most directly comparable GAAP measures can also be found in the earnings release. With that, I'll turn the call over to Joe for opening remarks.

Joseph Hayek
Joseph Hayek
President & CEO at Worthington Enterprises

Thank you, Marcus, and good morning, everyone. Welcome to Northeastern Enterprises fiscal twenty twenty five fourth quarter earnings call. Been a great fiscal twenty twenty five for us on several fronts. We're exceptionally proud of and grateful for our people who continue to work safely, taking care of each other and our customers. We're a people first company and our culture powers our success. So to all of my colleagues, thank you.

Joseph Hayek
Joseph Hayek
President & CEO at Worthington Enterprises

In the quarter, we delivered year over year and sequential growth in revenue, adjusted EBITDA and earnings per share, Driven by great work across our teams in Building Products and Consumer Products, our revenue in Q4 was up 14% from last year excluding the deconsolidation of SCS and was up 8% excluding both SCS and revenues at Bradesco. Gross margin was 29.3% versus 24.8% and adjusted EBITDA margin in the quarter was 26.8% versus 19.8% in Q4 a year ago. Our results in Q4 reflect our strategy and action. We are delivering on the commitments we make to each other and to our customers every day as we optimize our current businesses and grow Worthington. And we continue to leverage the Worthington business system and its three growth drivers innovation, transformation and M and A to maximize both our near and long term success.

Joseph Hayek
Joseph Hayek
President & CEO at Worthington Enterprises

On the innovation front, we've made great strides this year. The success of our new Balloon Time Mini has created opportunities for us in new channels and we recently began partnering with CBS. They'll soon be able to buy our suite of Balloon Time products in their stores nationwide. Halo griddles continue to receive accolades from various publications and in Q4 Men's Journal and CNET both named Halo as among the best riddles of 2025. Finally, our PowerCore cylinder was part of the solution three ms Leverage to develop their three ms Fast Bond water based adhesives, which in April won the Adhesives and Sealants Council's 2025 innovation award.

Joseph Hayek
Joseph Hayek
President & CEO at Worthington Enterprises

Our teams continue to focus on productivity improvements across our network by leveraging transformation. These efficiency gains driven by automation and technology continue to contribute to our success. Our team in the Water business has made good progress as they embrace eightytwenty as a way of thinking differently. While it's early, we're confident that eightytwenty will have a positive impact on that business and eventually across more of our value streams. Strategic M and A that leverages our core capabilities is the third vital leg of the Worthington business system that powers our growth.

Joseph Hayek
Joseph Hayek
President & CEO at Worthington Enterprises

Last week we were in New Jersey with our new colleagues at LG Manufacturing announcing that acquisition. LG is a leader in HVAC components and structural framing for commercial buildings and is a strong strategic and cultural fit that complements our existing building products business. It's a great example of how we apply our investment criteria to identify and acquire companies with leading positions in niche markets that we believe will be accretive to our margins and cash flows. The Ocean team has much to be proud of. Above and beyond their over $115,000,000 in LTM revenue and $13,000,000 in adjusted EBITDA, they're positioned for growth and we think we can help them accelerate that.

Joseph Hayek
Joseph Hayek
President & CEO at Worthington Enterprises

Forms coiled steel, something with which we have deep experience. Their processes, go to market strategies and end markets mirror ours, creating meaningful opportunities for synergies and growth. We're thrilled to welcome their two fifty employees to Worthington and look forward with their contribution to our collective success. For seven years we have championed the idea that people are our most important asset. That conviction makes it particularly gratifying for us in Q4 to have been named the top workplace in Central Ohio for the thirteenth consecutive year and in our first year as Worthington Enterprises.

Joseph Hayek
Joseph Hayek
President & CEO at Worthington Enterprises

In the quarter we also announced the U. S. Army Partnership for Your Success at our facility in Wisconsin. We're very proud to be part of this unique program partnering with the U. S.

Joseph Hayek
Joseph Hayek
President & CEO at Worthington Enterprises

Army as they integrate veterans into the workforce after their service to our country. Our powerful people first performance based culture continues to serve us exceptionally well and we leverage that strength every day as we focus on both the near term, executing our strategies and managing tariff and economic uncertainty and on our long term growth aspirations and performance. While we're happy to be here today discussing our Q4 results, we are constantly thinking about and investing in our future. Leveraging our culture, the Worthington business system and our strong balance sheet, we believe we are very well positioned going forward. Our focus is on our people, our customers, our value propositions and the opportunities we have to continue to improve everyday life by elevating spaces and experiences, which will ultimately enable us to create long term value for shareholders.

Joseph Hayek
Joseph Hayek
President & CEO at Worthington Enterprises

We'll now turn the call over to Collins who will take you through some details related to our financial performance in the quarter.

Colin Souza
Colin Souza
VP & CFO at Worthington Enterprises

Thank you, Joe, good morning, everyone. We delivered strong financial results in Q4 to close out our fiscal year even with a few unique items impacting comparability. On a GAAP basis, we reported earnings from continuing operations of $08 per share compared to a loss of $0.64 per share in the prior year quarter. Our quarterly results included the following unique items: a negative impact from net pretax restructuring, impairment and other one time charges of $61,000,000 or $0.98 per share. These charges were primarily related to a noncash impairment associated with our General Tools and Instruments business, or GTI, in Consumer Products, along with a noncash impairment charge related to our equity investment in the Sustainable Energy Solutions joint venture and related investments.

Colin Souza
Colin Souza
VP & CFO at Worthington Enterprises

Both GTI and SES represent relatively small portions of our overall business and these actions reflect updated long term assumptions for these assets, inclusive of the changing tariff landscape. The prior year quarter included pretax charges of $74,000,000 or $1.38 per share, primarily related to the deconsolidation of SES. Excluding these items, adjusted earnings from continuing operations was $1.06 per share, marking another strong quarter for us at Worthington Enterprises. This compares to adjusted earnings from continuing operations of $0.74 per share in the prior year quarter. Consolidated net sales for the quarter were $318,000,000 essentially flat compared to the prior year period.

Colin Souza
Colin Souza
VP & CFO at Worthington Enterprises

This reflects the deconsolidation of our former Sustainable Energy Solutions segment, which contributed $40,000,000 in sales last year. Excluding SES in both periods, net sales grew nearly 14%, driven by higher overall volumes and contributions from the Regasco acquisition. Gross profit increased significantly to $93,000,000 up from $79,000,000 in the prior year quarter, reflecting an approximately four fifty basis point expansion in gross margin to 29.3%, consistent with the levels we reported in Q3. Adjusted EBITDA for the quarter was $85,000,000 up from $63,000,000 in Q4 of last year and sequentially higher from $74,000,000 in Q3. Adjusted EBITDA margin was 26.8%, up from 19.8% last year.

Colin Souza
Colin Souza
VP & CFO at Worthington Enterprises

For the full fiscal year, adjusted EBITDA was $263,000,000 with a TTM adjusted EBITDA margin of 22.8%. The second half of our fiscal year tends to be seasonally stronger and this year follows that pattern, suggesting a return to normalized seasonal trends. We've been adding capacity in our heating, cooling, construction and celebrations product lines in response to our customers who have in some cases seen significant increases in demand and value as domestic manufacturing partner. Turning to our cash flow and capital allocation, we continue to invest in our operations while maintaining a disciplined and balanced approach. During the quarter, we invested $13,000,000 in capital expenditures, including $8,000,000 related to our facility modernization projects.

Colin Souza
Colin Souza
VP & CFO at Worthington Enterprises

We also returned capital to shareholders paying $8,000,000 in dividends and repurchasing 200,000 shares of our common stock for $10,000,000 at an average price of $49.16 per share. Our joint ventures generated $41,000,000 in dividends during the quarter, representing a 95% cash conversion rate on equity income. For the full fiscal year, we invested approximately $51,000,000 in CapEx, including $25,000,000 related to our facility modernization projects. We have approximately $40,000,000 remaining to spend on these projects and we expect the majority of this to be spent over fiscal year twenty six with completion anticipated in early fiscal year twenty twenty seven. Cash flow from operations for the quarter was $62,000,000 and free cash flow was $49,000,000 For the full fiscal year, free cash flow totaled $159,000,000 representing a 103% free cash flow conversion rate relative to our adjusted net earnings.

Colin Souza
Colin Souza
VP & CFO at Worthington Enterprises

Turning to our balance sheet and liquidity, we closed the quarter with $3.00 $3,000,000 in long term funded debt during an average interest rate of 3.6% along with $250,000,000 in cash. Subsequent to quarter end, in mid June, we used approximately $93,000,000 of that cash to complete the recently announced acquisition of Elgin Manufacturing. Our leverage remains

Colin Souza
Colin Souza
VP & CFO at Worthington Enterprises

Net debt at quarter end was $53,000,000 resulting in a net debt to trailing adjusted EBITDA leverage ratio of less than a quarter turn. Yesterday, our Board of Directors declared quarterly dividend of $0.19 per share, an increase of $02 or 12% relative to the dividend paid last quarter payable in September 2025. We are very pleased to continue rewarding shareholders as we deliver strong earnings while prioritizing and investing in long term growth. I will now briefly walk through our segment performance where both businesses delivered excellent results to close out the fiscal year. In Consumer Products, Q4 net sales were $126,000,000 essentially flat compared to the prior year quarter with a slight increase in volume.

Colin Souza
Colin Souza
VP & CFO at Worthington Enterprises

Adjusted EBITDA was $21,000,000 with a 16.6% margin, up from $17,000,000 and 13.6% in Q4 last year. The improvement was driven by lower SG and A expenses and a more favorable product mix. The consumer team continued to execute well in Q4, delivering higher profitability despite uncertainty in the broader consumer environment. As we have seen throughout the year, volumes remain closely tied to point of sale activity. And while consumers remain cautious, our market leading brands and strong retail partnerships position us well.

Colin Souza
Colin Souza
VP & CFO at Worthington Enterprises

Our products remain highly relevant and valued by consumers as they elevate everyday experiences around outdoor living, celebrations and home improvement. With a solid foundation in place, we believe we are poised for long term growth as market conditions normalize and consumer confidence and repair and remodel activity improve. In Building Products, Q4 net sales grew 25% year over year to $192,000,000 up from $154,000,000 in the prior year quarter. This growth was driven by higher overall volumes along with the contributions from the Regasco acquisition completed in Q1. Q4 is typically our strongest seasonal quarter for building products and this year was no exception with volumes up 19% both sequentially and year over year.

Colin Souza
Colin Souza
VP & CFO at Worthington Enterprises

Adjusted EBITDA for the quarter was $71,000,000 37% of sales compared to $52,000,000 and 33.6 percent in the prior year quarter. The year over year increase in adjusted EBITDA was driven by volume growth and a combined $6,000,000 increase in equity income from WAVE and Park WAVE delivered another solid performance, while Park Eatery continues to navigate a mixed demand environment and competitive pressures exceptionally well. Overall, the Building Products team had a strong finish to the fiscal year and continues to win with customers by providing reliable service, product innovation and value added solutions. Our portfolio of market leading products and solutions support critical building systems and components that elevate the spaces where people live, work and gather. As we look ahead, we remain confident in the long term outlook for our Building Products business and the recent addition of LG manufacturing strengthens our offerings and further supports our growth strategy. At this point, we're happy to take any questions.

Operator

Thank you. We will now begin the question and answer session. And your first question comes from the line of Kathryn Thompson from Thompson Research Group. Your line is open.

Kathryn Thompson
Founding Partner & CEO at Thompson Research Group

Hi, thank you for taking my questions today. Morning, Cath. Good morning. Theme this quarter is pretty similar to the prior quarter, which was a pretty solid margin expansion for your wholly owned margins. The part of this is, we acknowledge, lapping some easier comps, but also a large portion is company initiatives.

Kathryn Thompson
Founding Partner & CEO at Thompson Research Group

Can you break down or break out what margin growth is? What is it more one time? And how much of it is more company specific initiatives?

Colin Souza
Colin Souza
VP & CFO at Worthington Enterprises

Yes. Thanks, Catherine. So as you said, right, good gross margin expansion in the quarter, four fifty basis points. Similar to last quarter, we did have in Q4 last year, we completed the transaction for our SES business, so deconsolidated that from our financials. That led to roughly half of the four fifty basis point margin expansion in the quarter.

Colin Souza
Colin Souza
VP & CFO at Worthington Enterprises

And then the balance of that was really driven by in the wholly owned building products business significant volume growth, which translated to good conversion costs and good product mix improvements as that business and the end markets there really returned to seasonally normal demand patterns, in particular some of the higher margin products like the large format heating tanks there. So ultimately those things combined led to the operating margin improvement and this will be the last quarter for the SES flat.

Joseph Hayek
Joseph Hayek
President & CEO at Worthington Enterprises

Yes. And Catherine, Colin, that's what you're writing. A couple of other things and when you talk about company specific initiatives, you're absolutely right. And we've talked about this in the last couple of quarters. When you see gross margin go up by $14,000,000 and SG and A go down by $2,000,000 year over year, that's not on accident.

Joseph Hayek
Joseph Hayek
President & CEO at Worthington Enterprises

And our teams have been doing a fantastic job of optimizing our businesses and certainly growing our businesses as Colin said as our conversion costs come down. But our goals over the next couple of years which we've talked about is to get gross margin over 30% and to have our SG and A as a percentage of sales at 20% or less. So we're not there yet. And we know that we have work to do, but we feel like we have plans in place and people are really leaning in and we're pretty convicted and excited about where we can go in the next couple of years.

Kathryn Thompson
Founding Partner & CEO at Thompson Research Group

Okay. That's helpful. Wanted to shift to Wave. Contributions were above $30,000,000 this quarter. It's the first time we've seen that.

Kathryn Thompson
Founding Partner & CEO at Thompson Research Group

Can you talk about the drivers for is this timing of projects, price or a true uptick in volume demand? And is this level achievable going forward? Or maybe help us to think about how to frame Wave based on what you're seeing in the market right now. Thank you.

Joseph Hayek
Joseph Hayek
President & CEO at Worthington Enterprises

Great question. It's a mix, Catherine, of all the things that you mentioned, know, a little bit on the volume side. Certainly, it's it's a great business, and they do a really good job taking care of their customers and understanding how customers can make more money using their products, and and that allows them to to generate returns that they're entitled to. But I would say from an end market perspective, they continue to see relative strength in health care, education, transportation, retail is okay, office is still a little soft, obviously. Not a lot different than it would have been when we were together in March.

Joseph Hayek
Joseph Hayek
President & CEO at Worthington Enterprises

So more so I think steady as she goes there. I think as the rest of the year lays out that will have a lot to do with both Wave and Clark Dietrich and our businesses on the building product side. We'll get a little bit dependent on market, but we kind of feel like steady as she goes for Wave.

Kathryn Thompson
Founding Partner & CEO at Thompson Research Group

Okay. And tying into that for ClarkDietrich, which for that JV, I mean, that's very heavily tied to just traditional commercial construction. But you saw a nice uplift at $13,000,000 which is higher than the sub-ten million dollars range you've had in the past few quarters. Is that a signaling that we're we've hit more of a trough, but or is it more and you have some demand? Or is it more kind of like what we talked about with Wave, timing, price, true volume demand?

Joseph Hayek
Joseph Hayek
President & CEO at Worthington Enterprises

Other very fair question. On ClarkDetrix, what we know and what you point out is there are a couple of differences. It is much more new construction centric versus r and r on some of our core businesses and and on way. So it's a bit more exposed to higher interest rates. Yeah.

Joseph Hayek
Joseph Hayek
President & CEO at Worthington Enterprises

And it's, you know, a bit more exposed to that commercial construction, which is a bit more challenged and has been challenged and we think in the next several months will be more challenged. And so we actually view q four for us as a reflection of Clarkeetriq being a market leader and having a great value proposition, but probably a little more of at least in the near term an aberration. And so we would look for our future to be in Q1 at least probably closer to flat with Q1 of last year.

Kathryn Thompson
Founding Partner & CEO at Thompson Research Group

Okay, great. I'll hop back in the queue. Thanks so much.

Operator

Your next question comes from the line of Daniel Moore from CJS Securities. Your line is open.

Daniel Moore
Director of Research at CJS Securities

Thank you. Good morning, Joe, Marcus. Thanks for taking the questions.

Joseph Hayek
Joseph Hayek
President & CEO at Worthington Enterprises

Good morning, Dan.

Daniel Moore
Director of Research at CJS Securities

If I missed it, forgive me. What were the revenue and EBITDA contributions from Regasco in the quarter, if you break those out? And what are your expectations for organic wholly owned top line growth both consumer and building products for Q1 and the balance of the year? I know you don't like to give specific guidance, but just wondering if you expect to generate positive organic growth in fiscal twenty twenty six or are we thinking closer to flat given all the current macro uncertainty?

Colin Souza
Colin Souza
VP & CFO at Worthington Enterprises

Thanks, Dan. I'll take the first part of your question and then we'll attack the latter part. So on Regasco specifically, very happy with that acquisition. They continue to perform well within the quarter. They contributed roughly $16,500,000 in revenue and a couple of million dollars roughly $2,000,000 in EBITDA to the building products business. So it's adding to the year over year growth in building products in addition to the base business is operating very well as I mentioned earlier where those end markets are and products are returning to seasonally normal demand patterns there. So very pleased with Regasco so far and excited of what's become as well.

Joseph Hayek
Joseph Hayek
President & CEO at Worthington Enterprises

Yeah. Dan, relative to to Q1 and beyond, you're right. We we don't talk a lot about sort of specific guidance. I I would type, you know, type back to the market outlook is is not terribly different than it was in March, which which is to say it's a little bit murky.

Joseph Hayek
Joseph Hayek
President & CEO at Worthington Enterprises

And you've got unemployment relatively low. You've got interest rates stubbornly high. Your consumer confidence is okay, getting better. You've got a lot of tariff uncertainty, and and you continue to have a lot of things happening in the world and certainly in the economy for consumers and in building products that caused, I think, everybody to not have phenomenal visibility. When we were together in March, you know, a week and a half later was April 2.

Joseph Hayek
Joseph Hayek
President & CEO at Worthington Enterprises

And, you know, the tariff announcements and all the things that happened pursuant to that. We're we're sitting here chatting now in in early July. They'll they'll potentially be another set of data points that come out relative to what the trade policy and the entire environment is likely to look like. And so what we're focused on is really taking care of our customers. And I look at maybe the next few months as a reflection of the last quarter.

Joseph Hayek
Joseph Hayek
President & CEO at Worthington Enterprises

And when we think about the the quarter, I would say maybe take consumer and building products but consumer we held Surf in Q4. If you remember last year Q3 was a very strong quarter for the consumer business because of some of the storms and the weather phenomenon that were there. And then Q4 wasn't as good as we hoped it was going to be. In this year 2025 it was another excellent q three and q four was significantly better. There are two things going on there.

Joseph Hayek
Joseph Hayek
President & CEO at Worthington Enterprises

We we we we've gotten better at supporting our our retailers and making sure that that demand for products is met with consistent supply. Mhmm. And and our helium business has also showed, you know, a really good improvement in part because some of the things that we've been doing with our new products and and with our supply chain. But also remember the the Party City bankruptcy and those stores closing has has created more demand for our customers that are selling our products and we're happy to support them. We think that's going to kind of continue to take place and be incremental.

Joseph Hayek
Joseph Hayek
President & CEO at Worthington Enterprises

On the building product side, there's probably a little more visibility in the next several months based on some of the trends that we've seen in our cooling and construction business, in our heating business and in our water business. And obviously, we'll now have certainly for a little bit of June and then the balance of fiscal twenty twenty six inclusion of Elgin's results. But so yes, we feel good about all the things that we can control and are pretty cautiously optimistic, I would say, about what will unfold in the next six months. But a lot of that won't always be totally in our control.

Daniel Moore
Director of Research at CJS Securities

Understood. Appreciate it, Joe. Maybe just provide a little bit more detail on Elgin, how it came about, how their HVAC components fit into the rest of your wholly owned building products and any potential revenue or cost synergies?

Joseph Hayek
Joseph Hayek
President & CEO at Worthington Enterprises

Sure. As we mentioned, that acquisition is a great example of our strategy in action, Dan. They're they're a leader in a niche market. They roll form steel. We can help them with that.

Joseph Hayek
Joseph Hayek
President & CEO at Worthington Enterprises

They purchase coils of steel. We'd like to think that we're pretty good at that. They have a good operational footprint. We think that we're pretty good at that and can be helpful there. And they sell into not the exact same customers that we have, but several overlapping customers and the same types of customers, which is really building products distribution.

Joseph Hayek
Joseph Hayek
President & CEO at Worthington Enterprises

So we think that creates meaningful opportunities for us for synergies both on the top line and on the efficiency side. We're one weekend, so it's really hard to to quantify anything right now, but we're we're pretty excited and we've got folks up there right now helping to to get people more integrated into Worthington. So again, it's early, but we're optimistic and excited.

Daniel Moore
Director of Research at CJS Securities

And just out of curiosity, the the purchase price is pretty attractive. It's it's, I think, around seven times EBITDA. Anything with the word HVAC in it, generally trading at much higher levels. So just talk about maybe the customer base they serve and kind of the growth outlook organically would be really helpful.

Colin Souza
Colin Souza
VP & CFO at Worthington Enterprises

Yes. So it is, Dan, on for Belgium in particular, their channels they're serving is primarily building products, distribution, but also contractors as well. And we've through our M and A process where we've talked about it before with you and others just we continue to have a pipeline of attractive areas and adjacencies niche areas within building products and consumer products. And HVAC components, we identified as one of those attractive areas. The M and A markets are what they are a little softer than they've been historically.

Colin Souza
Colin Souza
VP & CFO at Worthington Enterprises

But we're able to fortunately get this transaction done and are excited to invest in this attractive niche area and excited as Joe mentioned of what's to come with that business and what we can do together.

Daniel Moore
Director of Research at CJS Securities

All right. Very good. I'll circle back with my follow ups. Thank you.

Colin Souza
Colin Souza
VP & CFO at Worthington Enterprises

Thanks, Dave.

Operator

Your next question comes from the line of Susan Maklari from Goldman Sachs. Your line is open.

Susan Maklari
Susan Maklari
Senior Equity Research Analyst at Goldman Sachs

Thank you. Good morning, everyone. Good My first question is on steel. Can you talk a bit about what you're seeing in terms of input costs across the business? And maybe how you're also approaching pricing relative to any inflation that you're seeing there just given the softness that we are seeing across both the consumer and perhaps some of that building product space?

Colin Souza
Colin Souza
VP & CFO at Worthington Enterprises

Yes. Thanks, Susan. So just on the steel market in particular, it is a big input cost to our products. The steel market, as you've seen, there's a run up in pricing in April and it's come back down in a little range down recently. But our teams are really working hard just around price risk mitigation and we're hedging as necessary to support our customers and offer prices that are locked in.

Colin Souza
Colin Souza
VP & CFO at Worthington Enterprises

Ultimately, for us, it's about mitigating any volatility of those costs within our results. We continue to do that. We've been working through that for a long time with our price mitigation price risk teams and, you know, we don't anticipate any volatility as a result of that coming through here. And then just on the price and mix piece, we've talked about it a little bit just around as our building products in particular is a good story around margin expansion in the wholly owned business with the increased volume there. We saw some good improvement from a conversion cost perspective that has trickled through the results as well.

Susan Maklari
Susan Maklari
Senior Equity Research Analyst at Goldman Sachs

Okay. That's helpful. And then turning to the modernization efforts, it's good to hear that that spend is coming through and it seems like it's been a really good effort there. Can you talk about the benefits that we should expect as we look to fiscal twenty twenty six? Anything that you're especially focused on and how we should think about perhaps some of that flow through across the various segments?

Joseph Hayek
Joseph Hayek
President & CEO at Worthington Enterprises

Sure, Susan. So some of that is in 2026. But if you remember that there were two specific facilities, one within is in Columbus and the other is in Wisconsin. We spent $51,000,000 over the last couple of years in our gas grill, aluminum, forklift and other refillable tanks here in Columbus automating and really investing in that business to be able to increase throughput and ultimately increase our efficiencies. That's served us well and I think will serve our customers well since a lot of them have seen an increase in demand. And as a domestic manufacturer, our supply chain is pretty tight and so we talked about some of the things that that we're able to do in cases of natural disasters and things like that. The the other piece which is really in the the Camping Gas business and some of our towards businesses up in Wisconsin.

Joseph Hayek
Joseph Hayek
President & CEO at Worthington Enterprises

That will run through probably another fifteen months from now. And so the benefits from that won't really manifest themselves until maybe later in fiscal twenty twenty seven.

Susan Maklari
Susan Maklari
Senior Equity Research Analyst at Goldman Sachs

Okay. And then just one last question. You mentioned in response to a prior question that the M and A pipeline has perhaps softened a bit just given the backdrop that we're in. Can you talk a bit more about capital allocation, how you're thinking about the potential for deals in this environment? And it was nice to see the dividend raise come through yesterday.

Susan Maklari
Susan Maklari
Senior Equity Research Analyst at Goldman Sachs

Any thoughts on how you're balancing M and A versus shareholder returns?

Joseph Hayek
Joseph Hayek
President & CEO at Worthington Enterprises

Yes, great question. And I'll maybe talk for thirty seconds and let Colin kind of go into some of his thoughts. But capital allocation for us has long been balanced and we're buying back shares not super aggressively because we have a bias towards growth and not growth at any price. As just as Dave just alluded to, we found an acquisition that we thought made a lot of sense for us and was a reasonable value. And so we increased our dividend by 12%.

Joseph Hayek
Joseph Hayek
President & CEO at Worthington Enterprises

The Board of Directors did that yesterday. And so we're still pretty committed to a balanced approach. But from an M and A pipeline perspective, I'll let Colin give you his or his thoughts.

Colin Souza
Colin Souza
VP & CFO at Worthington Enterprises

Yeah. So Susan, the M and A market, I would say, are softer. Our pipeline on process, what our team is focused on is really identifying targets both could be private equity owned, could be family owned, private companies, and progressing those through the pipeline, having a number of conversations. And ultimately, it takes a buyer and seller to come together to agree on something, and we were fortunate to get that something done on LG manufacturing. So, we're continuing to focus there.

Colin Souza
Colin Souza
VP & CFO at Worthington Enterprises

It's a key part of our growth strategy. As Joe mentioned, the LGN acquisition is our strategy in action. And our capital allocation focus will definitely include M and A in the future. With that being said, we do feel like we've got good free cash flow generation in the business, 159,000,000 this year, this fiscal year, and are mindful as well about the facility modernization spend that we talked about earlier, which will be elevated from a CapEx standpoint here for the next fifteen months or so.

Joseph Hayek
Joseph Hayek
President & CEO at Worthington Enterprises

Yes. I mean bottom line is uncertainty with tariffs and interest rates and things like that tends to be a little chilling for the M and A market generally. But I I would would tell you that that our teams are engaged in strategic conversations today talking to to folks and where it makes sense, we'll we'll continue to have those conversations and would look to, continue to grow certainly both organically, but also through M and A.

Susan Maklari
Susan Maklari
Senior Equity Research Analyst at Goldman Sachs

Yes. Okay. Thank you for all the color. Good luck with everything.

Joseph Hayek
Joseph Hayek
President & CEO at Worthington Enterprises

Thank you.

Operator

Your next question comes from the line of Brian McNamara from Canaccord Genuity. Your line is open.

Brian McNamara
MD & Senior Analyst - Consumer at Canaccord Genuity - Global Capital Markets

Good morning, Brian. Hey, good morning, guys. Congrats on the strong results. I'm curious what you're seeing in the marketplace as it relates to tariffs being a domestic manufacturer, presumably your advantage. But a lot has changed, as you mentioned, on China tariffs since your Q3 report in late March.

Brian McNamara
MD & Senior Analyst - Consumer at Canaccord Genuity - Global Capital Markets

What specifically are your China source competitors doing that you're observing? Are they running down inventories on hand? Have they already taken price on the shelf? Are they doing something else? That would be helpful. Thanks.

Joseph Hayek
Joseph Hayek
President & CEO at Worthington Enterprises

The answer to your question is yes, yes, yes, yes and yes. Related to tariffs, we first talked about this, I think in December and we talked about it again in March and we will certainly it's appropriate to talk about it now. But it's been an interesting sort of six months as people continue to plan and continue to react and ultimately we'll have to continue to do those things. But yes, only 7% or 8% of our revenues are sourced from overseas predominantly in Asia. 80% of our ish of our revenue is source produced and sold in in North America, and then another 13% looks like that only is in Europe.

Joseph Hayek
Joseph Hayek
President & CEO at Worthington Enterprises

And so on the businesses, our tools businesses, so currently that's GTI and that's level five and certainly Halo. Our mitigation efforts along the way, you have included and will include asking our suppliers to help us trying to find cost savings everywhere we can when it's appropriate resourcing the locations where those products are made and if it's necessary, it would include price increases. And I think people have taken a variety of approaches and some of those things are already in place and others I think people are still trying to sub out or ascertain what the longer term plan will be and so we'll we'll stay flexible and we'll stay kind of close with our customers. And one of the things about our products is they tend to be pretty differentiated. And as you mentioned as domestic manufacturer we've added capacity in in in a number of places to try and help our customers who are seeing increases in demand for there.

Joseph Hayek
Joseph Hayek
President & CEO at Worthington Enterprises

So it's hard to give a really definitive answer because things could change next week or in a couple of weeks relative to the trade environment, but we feel reasonably good about where we sit.

Brian McNamara
MD & Senior Analyst - Consumer at Canaccord Genuity - Global Capital Markets

Great. And then secondly on gross margins, obviously a big improvement in H2. I think you said Q3 is typically a little stronger than Q4, and they're kind of in line ish. So like is it reasonable to assume kind of 29 plus percent sustains next year? I know that I guess the medium term target is 30.

Brian McNamara
MD & Senior Analyst - Consumer at Canaccord Genuity - Global Capital Markets

I'm just trying to figure out the nuances here. I know I think H1 is typically a bit weaker than H2, but any help there on the gross margin line for next year would be helpful.

Colin Souza
Colin Souza
VP & CFO at Worthington Enterprises

Yes. Thanks, Brian. So just on the margin, we've had a couple of quarters in a row here of 29%. And you're right, Q3 and Q4 are actually our seasonally stronger quarters here. And we're we don't think things will revert to significantly less than that over time, but we're going be working hard to get those up to 30% as Joe talked about earlier.

Colin Souza
Colin Souza
VP & CFO at Worthington Enterprises

So that's all the initiatives in place here around whether it's price risk, whether it's conversion costs, and a lot of where we're investing as well in our some of our facilities. Over the near term, right, medium term, we'll be working towards to get that higher as best we can.

Brian McNamara
MD & Senior Analyst - Consumer at Canaccord Genuity - Global Capital Markets

Okay. And then finally on Elgin, just three quick ones. One, in terms of modeling any seasonality on revenues? Two, I think the trailing twelve month EBITDA margin was a bit south of 12%. Is there a path to get that to 20% just in line with your M and A framework?

Brian McNamara
MD & Senior Analyst - Consumer at Canaccord Genuity - Global Capital Markets

And if so, how do you get there? And then three, is there any China sourcing there?

Colin Souza
Colin Souza
VP & CFO at Worthington Enterprises

So the question, Brian, on Elgin, roughly $115,000,000 in revenue, 13,000,000 with their trailing EBITDA. Seasonally, the second half of the calendar year tends to be a little stronger for them and where they play. From a margin standpoint, we feel, as Joe mentioned, this is attractive business for us to to really deploy our business system, Worthington business system. And what we feel like we can bring to them is a lot of operational experience, know how, efficiencies, some benefits from a purchasing standpoint and price risk, and then, you know, complement that with, you know, where we play from a channel perspective and serving a number of areas across the building product space and overlap with customers. So that's on top of the strong leadership team and the cultural fit that they have.

Colin Souza
Colin Souza
VP & CFO at Worthington Enterprises

So we're excited to get to work together and we'll absolutely be focused on improving margins there.

Joseph Hayek
Joseph Hayek
President & CEO at Worthington Enterprises

Yes. They don't have any sourcing from China.

Colin Souza
Colin Souza
VP & CFO at Worthington Enterprises

Yes.

Brian McNamara
MD & Senior Analyst - Consumer at Canaccord Genuity - Global Capital Markets

Excellent. All right. Thanks a lot guys. Best of luck.

Joseph Hayek
Joseph Hayek
President & CEO at Worthington Enterprises

Thanks, Brian.

Operator

Your next question comes from the line of Walt Lipstick from Seaport Research. Your line is open.

Walter Liptak
Industry Analyst at Seaport Research Partners

Thanks. Good morning, Joe and It's Walt Lipstick. But quarter. And I wanted to ask about building products. And you've gone into some detail already about the tariff impact, but I wonder if we could talk a little bit kind of specifically about building products and any just your thoughts on how tariffs impacted pricing, supply, demand, those kind of issues?

Joseph Hayek
Joseph Hayek
President & CEO at Worthington Enterprises

Yes. We didn't really it's very hard for us well to quantify any of that because it continues to be a little bit of a moving target. I think the teams certainly in consumer but also in building products have done a nice job. We're through the destocking and some of those phenomenon that we had to deal with. And we're seeing some real strength in our cooling and construction business as a lot of those things are kind of rolling out throughout the North American building products landscape and just done a really good job increasing volumes which gets conversion costs lower and ultimately margins higher.

Walter Liptak
Industry Analyst at Seaport Research Partners

Okay. Great. Kind of along those lines, think you're talking about a little bit of this question here. But in Building Products, it's when in your prepared remarks, it sounded like you're gaining some market share or is there a share opportunity? I wonder if you could talk about that.

Joseph Hayek
Joseph Hayek
President & CEO at Worthington Enterprises

So we're pretty focused. And as you know we are zeroed in on having leadership in niche markets. And we do that effectively leveraging with the business system innovation, transformation, and m and a. But that gives us the seat at the table with our customers when they're thinking through things and and when they're understanding their own markets and we're trying really hard to work with them and understand their pain points. And so in a couple of different areas in, I think, on the heating and cooking side, but also on the refrigeration side and in the celebrations side.

Joseph Hayek
Joseph Hayek
President & CEO at Worthington Enterprises

There's been increases in demand from our customers and so we've responded there both the investments we've historically made in and certainly adding capacity and adding shifts. Is some of that related to us being a domestic manufacturer? Certainly probable, but we can't really quantify it relative to tariffs, some of it related to what we think we do pretty well and having a freight type supply chain very likely.

Walter Liptak
Industry Analyst at Seaport Research Partners

Okay. That sounds great. And then in your prepared remarks also Colin, I think you talked about consumer mix. Was that consumer mix the balloon time or is there some other consumer mix that was positive for you guys?

Colin Souza
Colin Souza
VP & CFO at Worthington Enterprises

Yes. So good mix and balloon time, yes, performing very well. Joe mentioned it earlier. We make inroads on new product development there with the the mini tank as well as channel expansion that we're seeing there. So so absolutely, the balloon time and the other products contributing well as well.

Colin Souza
Colin Souza
VP & CFO at Worthington Enterprises

And, demand holding up similar to what we saw last quarter.

Walter Liptak
Industry Analyst at Seaport Research Partners

Okay. Good. And you guys so you gave some idea about the stability of the market but no guidance. I wonder, Joe, if you could help us just by talking about the year ahead as a new ish CEO. What are your objectives?

Walter Liptak
Industry Analyst at Seaport Research Partners

What would you like to see happen over the next four quarters?

Joseph Hayek
Joseph Hayek
President & CEO at Worthington Enterprises

So you're giving me one more chance to give guidance, Well, okay.

Walter Liptak
Industry Analyst at Seaport Research Partners

But don't give guidance, Keith. Whatever you do. You do, don't.

Joseph Hayek
Joseph Hayek
President & CEO at Worthington Enterprises

Just it's Ethan. We we have a lot to be proud of, and I I said it at the beginning of my remarks. You know, our culture is is such a massive advantage for us, and it leads to us being able to attract and retain the best and brightest for extended periods of time, and people just get better the more they're in a role. And we have so, you know, kind of many fantastic people that have been working hard on it, not just for the last ninety days, but but for the last six months and the last twelve months and the last eighteen months. And so, you know, when we think about what is is possible for us, again, we're very happy to be talking about our q four results, but we've always had the luxury and a focus on thinking not just about the near term but about the long term.

Joseph Hayek
Joseph Hayek
President & CEO at Worthington Enterprises

And so we continue to invest and so we're spending a lot of time when we talk about this with with our people, we talk about why we win today but then how we'll win tomorrow. So that's going to continue investments in connected culture and automation and AI and additional leadership in these niche markets and the impactful strategic M and A. And so I think as we sit here today, we think we're really well positioned for the long term. We have to manage through some tariff uncertainty and some economic uncertainty. But our value propositions are are really good.

Joseph Hayek
Joseph Hayek
President & CEO at Worthington Enterprises

And if you think about going back to really our, sort of, our vision, right, is to to elevate spaces and experiences. Sometimes that's making a a a room or part of a building more comfortable or more aesthetically pleasing. Other times, it's giving somebody the ability to have that experience. And and in a recession, sometimes it's harder for somebody to get on an airplane or stay in a hotel. And so they might wanna be barbecuing or on a camping trip.

Joseph Hayek
Joseph Hayek
President & CEO at Worthington Enterprises

And in other times, those those spaces and experiences are in a time of need where there's a natural disaster or a storm that can create hardships for somebody and our products can can be there to to make things maybe just a little better or a little less bad. And so, what what I want us to accomplish, what we all want us to accomplish is to continue to take care of our customers, continue to work our strategies, which which are really, really good. And ultimately, we do those things and there might be some bumps in the road, but we see a lot of growth opportunities for us ahead. Our aspirations are kind of, you know, we just talked about them a little bit ago, but we feel really good about what the future can look like for our teams.

Walter Liptak
Industry Analyst at Seaport Research Partners

Okay, great. Yes. Good luck in 2026. I hope you keep winning.

Colin Souza
Colin Souza
VP & CFO at Worthington Enterprises

Thank you.

Operator

And that concludes our question and answer session. I will now turn the call back over to Joe Heig for closing comments.

Joseph Hayek
Joseph Hayek
President & CEO at Worthington Enterprises

Thank you everybody for joining us this morning. Have a wonderful fourth of July holiday and a great summer. We look forward to speaking to everybody again soon.

Operator

This concludes today's conference call. Thank you for your participation. You may now disconnect.

Executives
    • Marcus Rogier
      Marcus Rogier
      Treasurer & Investor Relations Officer
    • Joseph Hayek
      Joseph Hayek
      President & CEO
    • Colin Souza
      Colin Souza
      VP & CFO
Analysts
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