Worthington Steel Inc (NYSE:WS) Tops Q1 Estimates Amidst Mixed Market Reaction

Worthington Steel Inc (NYSE:WS) Tops Q1 Estimates Amidst Mixed Market Reaction

Earnings Overview

Worthington Steel Inc has reported financial results for its first quarter of fiscal 2026, ended August 31, 2025. The company demonstrated strength by exceeding analyst expectations on both the top and bottom lines. Net sales for the quarter reached $872.9 million, a 5% increase compared to the $834.0 million reported in the same period last year. This performance surpassed the analyst revenue estimate of approximately $803.2 million.

The earnings picture was even more robust. Net earnings attributable to Worthington Steel were $36.8 million, up from $28.4 million in the prior year quarter. On a per-share basis, adjusted net earnings came in at $0.77 per diluted share. This figure notably exceeded the consensus estimate of $0.74 per share and showed significant improvement over the $0.56 per share reported in the first quarter of fiscal 2025.

Key Performance Drivers

The company's strong quarter was driven by several factors:

• Higher Direct Volumes: Direct tons sold increased by 6% year-over-year, contributing to the sales growth.
• Improved Margins: Gross margin expanded to $115.2 million, up from $100.4 million in the prior year quarter. This was primarily due to more favorable direct spreads, which benefited from an inventory holding gain compared to a loss in the previous year.
• Strategic Acquisition: The quarter included the contribution from the recently acquired Sitem Group, which added approximately 1% to the direct volume growth. The acquisition did, however, lead to a one-time acquisition completion bonus payment of $4.6 million, which impacted SG&A expenses.
• Profitability Metrics: Operating income rose to $48.3 million from $43.4 million, while the non-GAAP metric Adjusted EBIT saw a more substantial increase to $54.9 million, up from $39.4 million in the prior year.

Market Reaction and Financial Position

Despite the earnings beat, the market reaction in after-hours trading was notably negative, with the stock price declining over 7%. This suggests that investor expectations may have been even higher, or that certain aspects of the report are causing concern.

A key area of focus is the company's cash flow and balance sheet position following the Sitem acquisition.

• The company reported negative free cash flow of $34.4 million for the quarter, a shift from the positive $33.1 million in the prior year period. This was attributed to a use of cash in operating activities and higher capital expenditures.
• As of August 31, 2025, Worthington Steel had a net debt position of $155.1 million.
• The Board of Directors declared a steady quarterly dividend of $0.16 per share, payable in December 2025.

Looking Ahead

The press release did not provide a specific financial outlook for the coming quarters or the full 2026 fiscal year. This absence of forward guidance may be a factor in the market's cautious reaction. Investors will be looking to management's commentary during the earnings conference call for insights into the company's expectations for integrating the Sitem acquisition and navigating what CEO Geoff Gilmore described as a "soft market."

Analysts' current estimates project second-quarter fiscal 2026 revenue of approximately $756.5 million and EPS of $0.44. For the full 2026 fiscal year, the sales estimate stands at around $3.18 billion.

Conclusion

Worthington Steel delivered a strong start to fiscal 2026, with earnings and sales comfortably beating analyst forecasts. The results highlight the resilience of its base business and the initial benefits of its acquisition strategy. However, the negative after-market price action indicates that investors are weighing these positives against the increased debt load, short-term cash flow pressures, and the lack of formal guidance. The company's ability to maintain disciplined execution and demonstrate the long-term value of its investments will be critical for regaining positive momentum.

For a detailed look at historical earnings and future analyst estimates for Worthington Steel Inc, visit the earnings estimates page.

Disclaimer: This article is for informational purposes only and does not constitute financial advice or a recommendation to buy or sell any security.