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WOR
Earnings call · Aug 2026 (Q1 FY27)

WORTHINGTON ENTERPRISES Q1 FY27 earnings call WOR

Sep 23, 2026 Source

Executive summary

Worthington Enterprises Q1 FY27 — Strong Start Driven by Organic Growth and Cash Flow

Worthington Enterprises delivered a strong start to fiscal 2027, driven by robust organic growth, particularly in data center-related ASME tanks, and record cash flow generation. Despite facing headwinds in the cooling and construction segment and tight steel markets, the company's strategic initiatives, including 80-20 optimization and M&A integration, are yielding positive results. Management remains focused on leveraging innovation and operational improvements to drive sustainable profitable growth.

Highlights

5

  • Sales grew 13% year-over-year, including 7% organically, to $344 million.

  • Adjusted EBITDA increased 10% to $74 million, with a 21.5% margin.

  • Free cash flow nearly doubled to $54 million, up from $28 million in the prior year quarter.

  • Adjusted EPS rose to $0.82 from $0.78 in the prior year quarter.

  • Equity income from WAVE increased by approximately $3 million year-over-year to $35 million.

Concerns

4

  • Cooling and construction business faced headwinds from right-sized channel inventories and muted new home sales, leading to lower A2L refrigerant cylinder demand.

  • Tight steel availability and extended lead times created production and scheduling disruptions, costing a few million dollars in the quarter.

  • Gross margin declined to 26.4% from 27.1% in the prior year, primarily due to lower volumes and less favorable mix in Building Performance Solutions.

  • The A2L impact on adjusted EBITDA was approximately $7 million, more than anticipated.

Guidance & targets

CategoryTargetConfidence
ASME tank revenues for data centers
continue to grow sequentially quarter over quarter
high materiality
High
Liquid cooling and thermal management ASME tank market size
more than 10 times the size of the legacy market
high materiality
Medium
A2L comparison for Q2
remain a difficult comparison
medium materiality
High
A2L normalization
expect normalization
medium materiality
Medium
WAVE business performance
some sequential moderation
low materiality
High

Segment performance

SegmentRevenueYoYQoQMargin
Building Performance Solutions
Net sales grew from $185 million in the prior year quarter. Acquisitions contributed $19 million. Organic sales driven by strength in water and European businesses, partially offset by lower revenue in cooling and construction. Adjusted EBITDA was essentially flat year-over-year. Impacted by normalization of demand in cooling and construction following A2L refrigerant transition and less favorable product mix. Tight steel availability and extended lead times created production challenges. Data center engineered ASME tanks are an increasingly meaningful organic growth platform.
Organic sales growth: 6%Adjusted EBITDA margin: 27.8%WAVE equity income: $35M (up ~$3M YoY)ClarkDietrich equity income: $7M (up >$1M YoY)
$215M16%—$60M Adjusted EBITDA
Trade and Specialty Solutions
Net sales grew from $119 million in the prior year quarter, driven by higher overall volumes and average selling prices. Adjusted EBITDA increased from $16 million in the prior year quarter. Improvement in profitability reflected higher sales, pricing, improved manufacturing performance, and net benefit from IEPA tariff refunds. Underlying profitability improved even excluding tariff benefit, particularly in tools and portable fuel businesses. Applying 80-20 principles to portable fuel and torch businesses.
Adjusted EBITDA margin: 18.6% (up from 13.6% YoY)
$129M8%—$24M Adjusted EBITDA

Deals & partnerships

LSI Acquisition of a high-quality business with attractive margins and a strong position in a specialized niche of metal systems.

Integration is in early stages but performance is pleasing. Focus on deploying Worthington's capabilities to accelerate growth. Good cultural fit.

Elgen Acquisition of a business serving commercial HVAC end markets.

Integration has made good progress over the past year, with a focus on operations and deploying the Worthington Business System. Commercial HVAC end markets remain healthy, with significant long-term opportunity. Good cultural fit.

Risks & headwinds

Cooling and construction market headwinds Q1 FY27, expected to continue into Q2 FY27, normalizing in H2 FY27

Lower demand for A2L refrigerant cylinders; channel inventories right-sized; new home sales muted.

Mitigation:Positioning the business to benefit as temporary headwinds normalize; strong adoption of A2L equipment creates long-term service and replacement opportunities.

Tight steel availability and extended lead times Q1 FY27, expected to be better positioned through calendar year end, limited visibility beyond.

Cost a few million dollars in Q1 FY27; lead times extended; price of steel increased.

Mitigation:Leveraging sophisticated buying, strong supply chain, broad manufacturing footprint; actively managing across suppliers, products, and network; taking pricing actions where appropriate.

Volatile markets, geopolitical instability, inflation, elevated interest rates, supply constraints, and operational challenges Ongoing

Unquantified, but noted as ongoing challenges.

Mitigation:Teams prioritizing customers and one another; strategy focused on innovation, transformation, M&A, and cash generation.

What to watch in Q2 FY27

ASME tank revenues for data centers

Q2 FY27
Current $13M in Q1 FY27
Target Sequential growth

Why it matters

This is a key organic growth driver with significant long-term market potential, and sequential growth is guided.

Near term, we believe that our ASME tank revenues will continue to grow sequentially quarter over quarter through the balance of this fiscal year.

Q&A highlights

Given the tight steel market and extended lead times, how is Worthington navigating this, and what advantages does it have over competitors?

The steel market has tightened with longer lead times and increased prices, partly due to 232 tariffs. Worthington, as a sophisticated buyer with a strong supply chain and broad manufacturing footprint, is actively managing the situation by looking across suppliers and its network. Pricing actions have been taken to offset increased input costs. The availability issue cost a few million dollars in Q1, but the company is better positioned for the rest of the calendar year, with limited visibility beyond that.

“But as you say, tight markets can create challenges, but there are also environments where we think some of our capabilities really do matter. We're a pretty sophisticated buyer of steel. We have very strong supply chain and we have a broad manufacturing footprint, it gives us additional options to manage through periods of compliance, and the strain supply.”

asked by Brian Beros · answered by Joseph Hayek

2 min read 6 chapters

Detailed narrative

Strategic Initiatives and 80-20 Optimization

Worthington's strategy focuses on leveraging the Worthington Business System, transformation for improvement, disciplined M&A, and innovation for organic growth. The company continues to use 80-20 principles to optimize businesses, improve working capital, and allocate resources effectively. Meaningful progress has been seen in the water business, and this discipline is now being extended to portable fuel and torch businesses to simplify portfolios and drive margin improvement.

Data Center Growth Opportunity

The company is experiencing significant organic growth from engineered ASME tanks used in liquid cooling systems for data centers. This market is projected to be more than 10 times the size of the legacy market in the next few years. In Q1 FY27, ASME tank revenues for data centers generated $13 million, matching the entire FY26 revenue. The company is investing in equipment, engineering talent, and production capacity to support this accelerating opportunity, with sequential growth expected through the balance of FY27.

Steel Market Dynamics and Mitigation

The steel market has tightened, leading to longer lead times and increased prices, which impacted Q1 operations, particularly in cooling and construction and balloon technologies. Management estimates this cost a few million dollars in the quarter. Worthington leverages its sophisticated buying capabilities, strong supply chain, and broad manufacturing footprint to navigate these challenges, taking pricing actions where appropriate. Visibility beyond the calendar year remains limited.

Joint Venture Performance

Joint ventures, particularly WAVE and ClarkDietrich, were significant contributors. WAVE delivered a record quarter with equity income increasing by approximately $3 million year-over-year to $35 million, driven by stable end markets like education, healthcare, transportation, and data centers, and resilience from repair and remodel activity. ClarkDietrich also improved, with equity income increasing by over $1 million year-over-year to $7 million, despite soft commercial construction outside of data centers.

Capital Allocation and M&A

The company maintains a strong balance sheet and significant financial flexibility, with net debt of $250 million and record TTM free cash flow of $196 million. Capital allocation is balanced with a bias towards growth, including reinvesting in businesses, pursuing strategic acquisitions, and returning capital to shareholders. The M&A pipeline is healthy, with a slight uptick in activity, and the company's strong balance sheet positions it favorably in a higher interest rate environment. Recent acquisitions, Elgen and LSI, are integrating well and contributing to sales.

A2L Refrigerant Transition Impact

The Building Performance Solutions segment faced a difficult year-over-year comparison due to the normalization of demand in cooling and construction following the A2L refrigerant transition. The prior year benefited from unusually strong demand as channel inventories were built ahead of the regulated transition. This impact on adjusted EBITDA was approximately $7 million in Q1. While channel inventories are taking longer to normalize, the company views this as a timing issue, with strong adoption of A2L equipment creating long-term service and replacement opportunities.

AI-generated summary of the company's earnings call. Not investment advice.