G, And welcome to the Worthington Industries' First Quarter Fiscal 2024 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 Rogier, Treasurer and Investor Relations Officer. Mr. Rogier, you may begin.

Thank you, Julianne. Good morning, everyone, and welcome to Worthington Industries' first 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 Officer. In addition, we also have Tim Adams, who is currently the Vice President of Strategy and Corporate Development for our Steel Processing Business, and who will become the CFO of Worthington Steel after we complete the planned business separation. 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 risks and uncertainties that could cause actual results to differ from those suggested. We issued our earnings release yesterday after the market close. Please refer to it for more detail on those factors that can 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 started the fiscal year with a strong quarter, reporting Q1 earnings of $1.93 per share versus $1.30 at the year ago. There were a few unique items that impacted our quarterly results, including the following. We incurred pre-tax expenses of $6 million or $0.09 cents a share related to the planned separation of our Steel Processing business into a new public company, which we're now targeting to complete as early as December of 2023. We took advantage of our strong cash balance using $244 million to pay off our 2026 bonds. The early extinguishment of debt resulted in a $2 million pre-tax or $0.02 per share non-cash charge as the debt was called at par. We recognized $1 million in pre-tax or $0.02 per share of impairment charges in Steel Processing related to idle equipment that we no longer use as compared to a $0.02 per share restructuring gain in the prior year. In addition, the prior-year quarter was negatively impacted by $0.33 per share due to several items, including a loss on the divestiture of ArtiFlex, a pension settlement charge and expenses related to an earnout at Level5. Excluding these unique items, we generated earnings of $2.06 per share in the current quarter compared to $1.61 per share in Q1 of last year. In addition, in Q1, we had inventory holding gains estimated to be $15 million or $0.24 a share compared to inventory holding losses of $2 million or $0.03 per share in Q1 2023. Consolidated net sales in the quarter of $1.2 billion decreased 15% from the prior year due to lower average selling prices in Steel Processing combined with lower volumes across most of our segments. Gross profit for the quarter increased to $197 million from $169 million…

Thank you, Joe. In Steel Processing, net sales of $881 million were down 15% from $1 billion in Q1 of last year, primarily due to lower average selling prices. In Q1 of last year, the market price for hot rolled steel averaged approximately $975 per ton, while in Q1 of this year the market price for hot rolled was approximately $875 per ton, resulting in a 17% decrease in our average selling prices. Total tons shipped were up 3% compared with the prior quarter. Direct sale tons were down 1%, while total tons shipped were up 8%, primarily due to increased volume with both mills and service centers. Direct sale tons made up 56% of our mix compared to 58% of our mix in Q1 of 2023. From a demand perspective, we experienced significant increases in automotive shipments, primarily due to increases in year-over-year automotive production. However, the growth in our automotive volume was offset by year-over-year decreases in both residential and non-residential construction. In Q1, Steel Processing reported EBIT of $78 million, which was up $43 million from the $35 million reported in the prior-year quarter. This is primarily due to increased direct spreads as well as an incremental $7.2 million of equity income from our unconsolidated joint venture, Serviacero, as compared to the prior-year quarter. For the quarter, we had estimated inventory holding gains of $15 million compared to estimated inventory holding losses of $2 million last year. As noted last quarter, steel prices increased approximately $500 per ton over the first four months of calendar 2023 and softened in May through August, decreasing $400 per ton over that same time period. We expect the inventory holding gains of Q1 will flip to inventory holding losses in Q2 and anticipate those losses could be similar in size to the holding gains we had in Q4 of 2023. The steel business had an excellent first quarter and all of our teams performed at very high levels. Specifically, our teams did a great job launching several new programs for automotive customers. We recognize there could potentially be some near term challenges in the automotive market that may impact our results in Q2, but we are confident our employees will meet any challenge arising during the contract negotiations taking place in Detroit. Similar to other market disruptions in recent years, we will manage through the situation and be prepared to meet our customers' needs when the Detroit OEMs return to normal build schedules. Despite some potential near term challenges, it's a very exciting time to be at Steel. Our teams are experienced and focused, and they will continue to meet any short term challenge with hard work, collaboration and innovative ideas. I'm proud of our teams for their dedication and for their continued commitment to safety. At this point, I'll turn it over to Andy.

Thank you, Tim. And good morning, everyone. Our fiscal 2024 first quarter adjusted earnings per share results were the second best first quarter in our 68-year history after adjusting for restructuring and non-recurring items. We have a lot of our people putting in extra hours to make the separation of our Steel Processing business a success, all while continuing to ensure that our businesses perform at a high level. Thank you to our employees across the organization who continue to prove their outstanding and dedicated to supporting our customers, suppliers and shareholders every day. Earlier this week, we released our fourth annual sustainability report on the back of being named Investor Business Daily's 100 Best ESG Companies in 2022 and Newsweek America's Most Responsible Companies in 2023. We continue to expand and evolve our approach to profitably improving our ESG performance to benefit all of our stakeholders. As we close in on our Worthington 2024 plan to separate into two distinct, financially strong growth companies, we are pleased to report that we are ahead of schedule and on track to complete the separation before the end of 2023. There is still a lot of work and a few key milestones in front of us, but we are getting close. Our employees continue to embrace the coming changes and are working hard to position both companies for success. We also announced the names and branding for the two businesses, Worthington Steel and Worthington Enterprises. We decided to keep Worthington in both names and celebrate our philosophy and culture, which will continue in both businesses, but changed the names to reflect the unique growth prospects of both businesses. Worthington Steel has significant opportunities to grow its core market and develop higher growth markets, such as electrical steel for electric vehicles and transformers.…

[Operator Instructions]. Our first question comes from Katja Jancic from BMO Capital Markets.

Can you talk a little bit more about the current auto market environment? Specifically, what impact you're seeing from the strike? And is there anything or are there any steps you can take to potentially minimize the impact?

Obviously, the situation is front and center for us. So far, we've seen little impact to our business, given the scope of the strike has been limited and it's actually been a short period of time. We recognize that there's risks associated with the strike, but there's also opportunities for us. So if the strike expands, our facilities have playbooks that will address volume slowdowns. So as you would expect, the playbooks are going to align with the Worthington philosophy and the golden rule of doing things, the right way for our customers, our employees and our shareholders. But one of the things I want to point out about the strike is, these are opportunities for us as well. So our recent history shows we do a great job putting ourselves in position to win new business when markets rebound. Our commercial and supply chain teams do an excellent job helping our customers navigate all the moving parts that occur when a supply chain suddenly stops. But then more importantly, when that supply chain suddenly turns back on, customers absolutely remember which suppliers did the best job helping them navigate through these tough situations.

Just on the Consumer Product segment, you mentioned that you expect volumes and margins to gradually improve from these levels. What's giving you confidence that that will happen?

We believe, Katja, that the demand moderation that we've seen is a little episodic, right? Some of the things that were happening this summer, people just didn't spend as much time outside, whether that was in their backyard or on a camping trip. And so, we think that Consumer is going to have – a lot of the sort of demand softening was really more in our in our camping gas segment. And so, with that being said, you get into the winter season, we think that Q2 will probably have some continuing headwinds for the Consumer business. But we do absolutely expect that volumes will return to seasonally normal patterns, just because we have seen this movie before. And, typically, people respond. Our products don't cost $1,000. You don't need a home equity line of credit to afford what we have. And we've seen some softness throughout retail, and certainly, throughout the outdoor category. So we're not immune some of those things, but we believe our value proposition is awfully good. And kind of heading into late 2023 and early 2024, we feel much better about volumes returning to some more normal patterns.

This was a little bit of the perfect storm of bad weather this summer, hot fires as well as big box retailers destocking inventory and consumers maybe having a little extra inventory as a COVID hangover. So that's why we feel confident that things will return to more normal levels in the coming months.

Our next question comes from Martin Englert from Seaport Research Partners,

I wanted to also touch on Consumer Products and profitability. Like, I was a little bit surprised, at least relative to what I was expecting on the quarter there. And I know you called out volumes as a key driver there on a year-on-year basis, but I'm looking at the sequential volumes there, last quarter, I think you were mid-teens EBITDA margins, then a sequential drop into this Q, I think, of about 15% on volumes. And that drove, seemed like, the gross margins below 10%. Is that the right way to read it as far as the underlying key driver on the sequential change there was related to the volumes there and fixed costs?

I think you're exactly right.

Underlying Steel Processing profitability, and I've mentioned this, I think, several calls in the past, but I've typically kept it in the back of my head, like this – excluding inventory holding gains and losses, historical underlying EBITDA may be $50, $60 per ton. It's been a bit better than that in recent quarters, including this quarter. Any thoughts on, is this a structural shift, something that's sustainable going forward, or not necessarily, yet to be determined?

Martin, I think you're thinking about the right way by taking out the inventory holding gains and losses. But for us to target a specific dollar per ton is fairly difficult because of a number of factors, including the mix. So I think the way you're thinking about it of pulling out inventory holding gains and one-time items is the right way to think about it.

Anything else worth highlighting on the mix that maybe isn't presented in the release here that you could discuss, this big change? I know we get the rush versus toll and we can get some idea there. But anything else that's going on with like a positive mix shift that might sustain?

I think, there, we think of it in terms of the electrical steel business. That's the business that's going to continue to grow. And we're investing in that business. So that will have a positive impact on our profitability going forward. So I think that will that will happen over time. I think with tolling, tolling bounces around a little bit because we're often an outsource for the mills and other customers. So that one's a little more difficult to predict. For example, we had an increase in tolling this quarter. And mostly that was due to an increase in tolling in Northeast Ohio at our pickling facility. So that once – again, tolling is a little bit more difficult to pin down. But in the long term, as we invest in the electrical steel business, you should see our margins increase.

WAVE profitability also, that was a bit better than I expected. What are you kind of seeing today out of that compared to the year-ago period, and I'm referencing the fiscal kind of 2Q window, just kind of what you've seen to date and how that compares year-on-year?

In Q1, I think, as you mentioned, Martin, volumes for WAVE were up slightly from where they were in Q1 of last year. But keep in mind that they're about two-thirds repair and remodel. And so, you're starting to see some pretty reasonable stability. Those end markets are certainly not growing at 10% or 15% per year, but they're low-single digit or flattish. And that's a good environment for WAVE. Honestly, the reason that they're able to grow has a lot to do with how innovative their products are and how they really think about the pain points of their customers. And think about speed of install. If you're trying to put up 10 floors of acoustical ceilings, your highest cost is not your materials, your highest cost is your labor and WAVE has historically done an absolutely terrific job of understanding how people need to do their jobs and how to make them more efficient. And so, I think you're just seeing some really – a reflection of some of that goodness show up in the way that they're able to perform and continue to have really good margins.

Our next question comes from Phil Gibbs from KeyBanc.

As it relates to the joint venture portfolio in totality, obviously, WAVE is a big piece, but we probably do have some seasonality as we enter the fall and winter seasons, and I'm not exactly clear what spreads are doing across the portfolio because you've had a lot of volatility in results over the last 12 months? So how do we think about just the joint venture bucket as we look at the next couple of quarters? Is seasonality a bigger factor? Or spread is a bigger factor? Are they both factors, trying to think about everything as it relates to that bucket?

I think, specifically, the JV portfolio in Building Products, I think Tim can certainly speak to the JV portfolio within Steel, but within Building Products, with WAVE, we just talked about that. Don't expect anything that's substantial one way or the other. ClarkDietrich, we've talked about this. They're a little bit of a different mix than WAVE is. They're two-thirds-ish new construction. And so, they're seeing similar headwinds related to their exposure to that market versus somebody who's maintenance, repair and remodel focused. And so, we've talked about this. We do expect – ClarkDietrich is a phenomenal business and a great team. But they will more than likely be down year-over-year for the next several quarters just coming off of a great year that they had in our fiscal 2023.

And then, Tim, on the Steel side?

I think the unconsolidated JV in Mexico, Serviacero Worthington, they are going to see similar headwinds and impact, maybe not to the same extent that we do in the US, but automotive strike is going to potentially impact them as well because it can have far reaching effects. I think our other joint ventures, there's a lot of automotive in there as well. Two of those are toll processing. So, Spartan and Worthington Specialty Processing or Worthington Samuel Coil Processing – SCP is how we refer to it usually – those have a lot of automotive in there as well. And then TWB, they have a lot of blank operation, is 100% automotive. So I think it really depends on how the strike goes will dictate how the North American joint ventures go for Steel.

You also have some of the kind of normalization in metal spreads happening, though, in those businesses irrespective of the strike, though, I would imagine, right?

Spartan is toll processing. The SCP is toll processing. TWB has a pretty decent sized order book in tolling. And a lot of that is directed buy. So, there really is no metal margin impact there. And then, at Serviacero, they do have a high toll processing orderbook, but they're also fairly large in direct, and so they will be exposed to the metal margin changes.

[Operator Instructions]. Our next question comes from John Tumazos from John Tumazos Very Independent Research.

Congratulations on the great results. In 2022 to 2025, there's 3 million tons of sheet and plate capacity coming on each year, Steel Dynamics, Nucor, US Steel, then Nucor again. While this year's steel demand has rebounded from the November/December lows, it looks like the apparent demand is going to be about 7 million tons or less than the 2017/2018/2019 average pre-pandemic, which doesn't help to absorb 3 million tons a year for four years. How are you managing steel processing differently to access these new mills? Do you anticipate that some of your prior suppliers may disappear and are you going to deliberately hold lower inventories out of concern that we don't see $2,000 a ton or $1,500 a ton anytime soon?

So there's a lot of a lot of questions packed in there. So I would say we are deliberately always trying to drive down our inventory in terms of tons, right? We recognize that the price of steel is volatile. And we want to keep those tons as low as possible at all times, right, because it's just sleeping money. And that becomes even more important when we're standalone. I think in terms of new capacity coming online, what we envision is – and we don't participate in the plate market, but in the sheet market, I would say that we will use those mills. I'm not worried or we're not worried about any potential suppliers going away. We welcome the new capacity. We think it's great. And we will try to use those mills to gain access to customers we don't already have. If those mills are located in southern Texas, we will attempt to go after business that's down there that we haven't traditionally had access to.

I can ask another question or the same question that was asked earlier, but a little bit differently concerning Consumer. In the last four quarters in the containerboard market, the market shrank 10%. It's historically unusual for containerboard to fall more than steel on a slowdown, but the consumer is under pressure. About half of containerboard goes to supermarkets and drugstores. Historically, it's a very stable market, unlike manufacturing or autos or steel. Is it fair to say that consumer being down 21% greater than 10% might reflect poor outdoor activity? But if you were only down 8%, you'd be heroes. In other words, this sector is systemically down.

So I think, John, down 24% – keep in mind that down 24% from record volumes a year ago, so tough compare. But, yes, we absolutely have seen and you've seen from Dick's Sporting Goods and from other folks that participate in the outdoor category, in particular, that spending is down in activities. This summer, we're down. Andy referred to it exactly right. It was a bit of the perfect storm. One of the things for us was also that we did really well in Q1 of last year. So we created the tough comp for ourselves.

Are you doing anything to cut costs in the Consumer segment in view of the consumer being strapped everywhere and mortgage rates are almost 8% today, the 30-year mortgages?

Yeah, every single day, John, regardless of market conditions, we are using our transformation playbook and our continuous improvement mindset to try and get better, not just when things aren't going as well as we want them to, but every single day.

We have no further questions in queue. I would like to turn the call back over to Andy Rose for any closing remarks.

Thanks, everyone, for joining us today. We are super excited about our future and look forward to speaking to you on October 11 at our Investor Day in New York City. Thanks, everybody.

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