Worthington Enterprises, Inc. Q1 FY2026 Earnings Call

Good morning, and welcome to the Worthington Enterprises First Quarter Fiscal 2026 Earnings Conference Call. This conference is being recorded at the request of Worthington Enterprises. If anyone has any objections, you may disconnect at this time. I'd now like to introduce Marcus Rogier, Treasurer and Investor Relations Officer. Mr. Rogier, you may begin.

Thank you, Rob. Good morning, everyone, and thank you for joining us for Worthington Enterprises First Quarter Fiscal 2026 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 close, which is available on the Investor Relations section of our website. 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. Today's call is being recorded, and a replay will be available later on our website at worthingtonenterprises.com. With that, I'll turn the call over to Joe for opening remarks.

Thank you, Marcus, and good morning, everyone. Welcome to Worthington Enterprises Fiscal 2026 First Quarter Earnings Call. We had a very solid start to our fiscal year due to the collective efforts of our teams. And I want to start by saying thank you to all my colleagues for their dedication to each other, our company, our customers, and our shareholders. In the quarter, we delivered strong year-over-year growth in sales, adjusted EBITDA, and earnings per share. Our sales in Q1 were up 18% over last year and up 10% year-over-year, excluding sales from recently acquired Elgen. The gross margin was 27.1% in Q1 versus 24.3% last year. This improvement is after the adverse impact of a $2.2 million purchase accounting charge related to inventory acquired from Elgen. Adjusted EBITDA margin in the quarter was 21.4% versus 18.8% in Q1 a year ago. I said this related to our Q4 results when we were together in June, but our results in Q1 again reflect our strategy and action. Despite numerous headwinds, including cautious consumers and a hot summer that impacted outdoor activities as well as tariff costs and high interest rates impacting residential and commercial repair, remodeling, and construction activity, we grew our year-over-year adjusted EBITDA by 34%. Our SG&A expenses were $4.5 million in the quarter but flat, excluding the addition of Elgen, despite our organic growth in sales and gross profit. As we continue our efforts to optimize our current businesses and grow Worthington, we do so not just as stewards of Worthington's proud history, but as drivers of innovation and strategies that will power our future. We're committed to building a sustainable growth platform, and we will continue to leverage the Worthington Business System and its three growth drivers: innovation, transformation, and acquisitions to maximize both our near- and long-term success. We've generated tremendous momentum with new product launches, including the Balloon Time Mini, A2L refrigerant cylinders, and new Halo Griddles. These new products are enabling us to take market share, grow new markets, and win new customers. Our transformation efforts continue to be driven by value stream analysis, automation, and new ways of thinking, but our goals do not change. We prioritize safety, asset utilization, and cost optimization. The ongoing 80/20 initiative in our water business is having a positive impact, and we're planning for additional 80/20 work streams in other areas of our business. We believe our culture is a differentiator, and we're focused on acquiring companies with great teams that have developed sustainable competitive advantages in niche markets. Our acquisition of Elgen in June is an example of that. We're pleased with our integration of Elgen thus far, and we're excited about its growth prospects. That team has embraced our safety culture, and we're focused on capturing synergies and pursuing growth opportunities in multiple areas. Last June, we acquired Ragasco, a pioneer and world leader in lightweight composite LPG cylinders. Ragasco recently celebrated 25 years in business and has manufactured and sold over 25 million cylinders in over 100 countries around the world. Their people, culture, and ongoing initiatives around safety, innovation, and quality are second to none. We're very happy that they're part of Worthington, and a group of us is looking forward to celebrating with that team in person in Norway next week. Earlier in September, we published our second sustainability report at Worthington Enterprises, and the content of that report makes us proud. For instance, we continue to outperform our industry benchmarks in safety with a total incident case rate 40% lower than our peers. We're constantly trying to improve. And in fiscal '25, we renamed our safety culture LiveSafe. It is based on proactive mindsets, processes, and actions that ensure our teams can be the best version of themselves at work and at home. While many of our end markets continue to face headwinds, we're performing very well and believe our best days are ahead of us. Leveraging our people-first performance-based culture, market-leading brands, a start-up mindset, the Worthington Business System, and our strong balance sheet, we will continue to improve everyday life by elevating spaces and experiences in a way that creates meaningful value for our employees, customers, and investors. I will now turn it over to Colin, who will take you through some details related to our financial performance in the quarter.

Thank you, Joe, and good morning, everyone. We delivered strong financial results in Q1, getting our fiscal year off to a solid start. On a GAAP basis, we reported earnings of $0.70 per share compared to $0.48 per share in the prior year quarter. The current quarter included pretax restructuring and other expenses of $2 million or $0.04 per share compared to similar charges of $0.02 per share in the prior year quarter. Excluding these items, adjusted earnings were $0.74 per share, up from $0.50 per share in the prior year quarter. Q1 also included a one-time pretax purchase accounting charge of $2.2 million related to the stepped-up value of inventory at Elgen, which negatively impacted profitability in the quarter. Consolidated sales for the quarter were $304 million, up 18% compared to $257 million in the prior year quarter. The increase was primarily driven by higher volumes in our Building Products segment, along with the inclusion of Elgen, which contributed $21 million following its acquisition in June. Gross profit increased significantly to $82 million, up from $62 million, with gross margin expanding approximately 280 basis points to 27.1% despite the $2.2 million purchase accounting charge at Elgen. Adjusted EBITDA for the quarter was $65 million, up from $48 million in Q1 of last year, and adjusted EBITDA margin in the quarter was 21.4% compared to 18.8% in the prior year quarter. On a trailing 12-month basis, adjusted EBITDA now stands at $280 million with a TTM adjusted EBITDA margin of 23.3%. 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 million in capital expenditures, including $9 million related to our ongoing facility modernization project. We also returned capital to shareholders, paying $9 million in dividends and repurchasing 100,000 shares of our common stock for $6 million at an average price of $62.59 per share. Our joint ventures provided $36 million in dividends, representing a 100% cash conversion rate on equity income. Cash flow from operations for the quarter was $41 million and free cash flow was $28 million. On a trailing 12-month basis, free cash flow totaled $156 million, representing a 94% free cash flow conversion rate relative to our adjusted net earnings. As a reminder, this figure includes elevated capital expenditures related to our facility modernization projects, which totaled $29 million over the same period. We have approximately $35 million of modernization spend remaining with the majority expected to be completed during fiscal 2026 and capital expenditures returning to more normalized levels thereafter. As that spend tapers down, we expect to see further improvement in free cash flow conversion over time. Turning to our balance sheet and liquidity. We closed the quarter with $306 million in long-term funded debt, carrying an average interest rate of 3.6% and $167 million in cash. Our leverage remains extremely low with ample liquidity supported by a $500 million undrawn credit facility. Net debt at quarter end was $139 million, resulting in a net debt to trailing adjusted EBITDA ratio of approximately 0.5 turn. Yesterday, our Board of Directors declared a quarterly dividend of $0.19 per share payable in December 2025. Let me now turn to our segment performance, where both businesses delivered solid results to start the fiscal year. In Consumer Products, sales in Q1 were $119 million, up 1% compared to the prior year quarter as a favorable shift in product mix was mostly offset by lower volumes. Adjusted EBITDA was $16 million with a 13.6% margin compared to $18 million and 15.1% in Q1 last year. The year-over-year decline was primarily driven by lower gross margin due to tariff charges and lower volumes. The broader consumer environment remains cautious and demand continues to be closely correlated to point-of-sale activity. That said, our brands are strong, our channels are stable, and our products are not large ticket items. They are affordable, essential, and play a meaningful role in elevating everyday experiences around outdoor living, celebration, and home improvement. We're proud of how our Consumer Products team continues to perform and deliver value for customers despite macro headwinds. Looking ahead, we believe the business is well positioned to benefit as consumer sentiment improves and demand returns to more normalized levels, supported by our market-leading brands, strong customer relationships, and a transformational mindset. In Building Products, Q1 sales grew 32% year-over-year to $185 million, up from $140 million in the prior year quarter. Growth was driven by higher volumes and contributions from Elgen, which closed in June and contributed $21 million in sales for Q1. Excluding Elgen, net sales were up 17%, reflecting continued strength in our cooling and construction products, where we are supporting the refrigerant industry's transition to more environmentally friendly refrigerants, along with growth in our heating and cooking products, where we've enhanced our capacity and throughput as a result of the facility modernization investments made over the last year. Adjusted EBITDA for the quarter was $58 million with an adjusted EBITDA margin of 31.3% compared to $40 million and 28.4% in Q1 last year. The improvement was primarily driven by volume growth in our wholly owned businesses, along with a modest year-over-year increase in equity income. Elgen's contribution to adjusted EBITDA was nominal as expected due to the previously mentioned nonrecurring purchase accounting charge. WAVE delivered another solid performance, contributing $32 million in equity earnings, up from $28 million in the prior year quarter. ClarkDietrich, operating in a more challenging environment, delivered a respectable $6 million in equity earnings compared to $9 million last year. The Building Products team is executing well and continues to do a great job delivering value-added and innovative solutions for our customers. We're also very pleased with our integration efforts thus far at Elgen. We remain excited about the potential growth at Elgen and believe their capabilities strengthen our presence in commercial HVAC and broaden our reach within the building envelope. At this point, we're happy to take any questions.

Your first question today comes from Kathryn Thompson from TRG.

I just have a couple of operational and then a bigger picture question. For your wholly owned Building Products segment, margins again were up in the quarter. I know that that's an initiative that you've been working on. But could you help us understand what drove the margin in the quarter and really kind of the glide path of where you see it going? And what would be a normalized level based on your current portfolio?

Sure, Kathryn, it's Joe. In Building Products, excluding WAVE and ClarkDietrich for now, I want to highlight the strong execution in markets that are stabilizing. We experienced solid growth in our heating and cooking business as well as in our cooling and construction segments. The water business also showed improvement. The European business remained flat, largely due to significant orders and the overall economic situation in Europe. Regarding Building Products, the EBITDA margin for one of the businesses was at 10.5% this quarter. We expect this to gradually rise to around 12% to 13% over time, though not immediately, as that is the trend we are observing. We still experience some seasonality, particularly in colder months when activity tends to increase. This success is a testament to our teams. In fact, last week we held our first all-employee banquet and awards in six years to celebrate service anniversaries and recognize exceptional performances, including the inaugural John H. McConnell philosophy award. This award was presented to a group or facility that excelled in safety and performance over the fiscal year, contributing to our main corporate goal of generating profit for our shareholders. We were thrilled to present this award to our facility in Paducah, Kentucky, which, with fewer than 100 employees, produced 900,000 A2L refrigerant cylinders last year, nearly tripling their output from the previous year. These types of market-driven opportunities are what we are striving to capitalize on, which contributes to the significant momentum we are seeing in Building Products.

That's helpful. Shifting to WAVE, we had another great quarter and an increase of $30 million in contribution. Can you discuss the factors behind this outperformance? Should we expect this level for the upcoming quarters?

Yes, Kathryn, this is Colin. WAVE continues to perform very well, showing year-over-year growth in equity contribution for us, although it is slightly down from Q4. Q4 and Q1 are their stronger quarters. Overall, their end markets, especially in education, health care, transportation, and data centers, remain healthy and strong, helping to offset some weaknesses in areas like office and retail. WAVE's operating model and market approach are delivering significant value to contractors, effectively reducing labor, time, and ultimately costs associated with installations. They excel at this, and it reflects positively in their performance. We are quite satisfied with how WAVE is progressing so far.

Okay. And then a final question if I may. This is the bigger picture question. So Worthington is often the only domestic manufacturer of some of your product lines. And tariffs are complicating the supply chain this year. And theoretically, Worthington should be in a better position relative to competitors with that domestic manufacturing footprint. In the last quarter, you touched briefly on having more conversations with customers, but it's difficult to quantify. Can you give an update on how that dynamic is progressing? Are there any further wins that Worthington can tie back to tariffs and just broader implications going forward?

Thanks, Kathryn. It's Joe. I'll take a shot at it and certainly Colin add in. Yes, tariffs are complex for everybody, and they have multiple touch points for us. In our consumer business, where we have some of those tools that are manufactured for us, we effectively had to write a check for a couple of million dollars in the quarter to Uncle Sam. But as you point out, in a lot of our business, some in consumer and a lot within building products, we are the primary or only domestic manufacturer for those products, and we compete with imports. So having a more level playing field with respect to pricing is helpful. We've always prided ourselves on trying to be commercially excellent and trying to be really easy to do business with. We have absolutely had and continue to have good conversations with our customers domestically. Our supply chain is going to be tighter than somebody that's manufacturing overseas. We've always really strived to create value and understand our customers' pain points, trying to make their lives easier so that they can better serve their customers. A lot of our products and two-thirds end up in the hands of contractors. Whether it's a distributor or whether it's a retailer, we try really hard to help our customers better serve their own customers, which really are what they and we care about. It is hard to pinpoint value, but candidly, it is easier to drive when prices are competitive and people are sensitive to prices. We're able to keep prices at a very reasonable level historically because we aren't subject to the tariffs that other people might be. Those conversations are ongoing, and we hope when we execute well that, that makes our value proposition that much more compelling.

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

So I'll shift back to Building Products just for a second, very healthy organic growth. Can you just elaborate a little bit more on the pockets of strength? You mentioned cooling and construction products, some of the heating products. How much of it is market growth? How much of it is share gains? And as we think about moving forward, talk about the potential to outpace the market over the next 1, 2, 3 years?

I believe it's a combination of factors, Dan. There's some market normalization, particularly in heating, cooking, and water. Additionally, we've seen market share gains in the heating and cooking segment as well as in cooling and construction. The markets are returning to a more typical state, with some recovery in heating and cooking and a slight growth in water. In terms of refrigerants within our cooling and construction business, the American Manufacturing Act from late 2020 and 2021 really drove a transition towards more eco-friendly gases. We've observed this shift taking place over the last six to eight months. These trends are cyclical, but I expect that the market will continue to grow, possibly even more than it historically has, due to these changes.

Okay. That is helpful. Please continue, I'm sorry.

No, you're good.

Alright. Shifting to consumer. Maybe just talk about progress you're making in terms of new product lines and expanding distribution at retail. I'm thinking specifically about Balloon Time Mini, but you've got some of the other new products and initiatives where you're seeing the biggest increases in terms of retail customer penetration? And what's the runway for growth look like?

Sure. With respect to consumer, revenue is up a little bit, profitability down. We did have a tariff impact that was effectively more than the miss relative to last year. We've seen point-of-sale tracking really mirroring our own orders. Our camping gas business and the tools business were down a little bit, offset in large part by our celebrations business, our helium business, which we continue to execute very well in, in part because of some of the shifts that have gone on with Party City not being part of the mix and our customers getting more of those customers, Walmart, Target, and other people like that. But then you mentioned a couple of things on the new product side, Dan. With Balloon Time Mini specifically, that continues to enable us to have great conversations with new customers. We talked about Target, and CVS, and Walgreens is a recent win. You'll soon be able to find in a couple of thousand Walgreens stores, our products, both the Balloon Time Mini and the standard legacy Balloon Time product. We're delighted about that. Then Halo Griddles and Walmart, we talked about that historically, small numbers, but that's gone well. In fact, in the spring of 2026, that's kind of the beginning of grilling or griddle season, you'll be able to find Halo Griddles at even more stores than you could in these past few months. That team is working really hard and doing a fantastic job really understanding our markets, understanding our consumers, and trying to reach consumers both independently and through our retail partners. We're really pleased with that. Consumer is probably more impacted sometimes than pieces of building products around people's ability to be mobile and to move. We get lower interest rates that translate into lower mortgage rates, which, as you know, have more to do with the longer end of the curve there. We expect that would add to our revenues and growth as well.

Very helpful. Kathryn mentioned WAVE. ClarkDietrich's contribution has decreased to its lowest levels since the beginning of the pandemic, indicating that the current environment is somewhat challenging. Can you discuss whether this is the new normal, at least for now, and what the outlook is for the next few quarters?

Yes. No, you're exactly right. The way that we think of our portfolio of businesses, a lot of our businesses really are right in the middle of repair, remodel, maintenance. We don't depend on new construction spending as much as some folks might. In ClarkDietrich, it is a little dependent on new construction spending, and the U.S. Census Bureau suggested recently that 14 months have passed since construction spending peaked in May of 2024. You do have that number and that growth figure a little depressed. ClarkDietrich is a market leader and they have continued to do well, but you have fewer opportunities that are out there, especially on the smaller contracting side. You do have infrastructure projects and data center projects and mega projects continuing to get greenlighted, which is great. But you'd like to have that mix of smaller projects as well. You'll see lower steel prices, and so you'll see people being very competitive trying to keep the lights on at some of these smaller companies. All that tends to lead to some margin compression for ClarkDietrich. We do see Dodge Momentum finally kind of picking up and looking good. That is a very leading indicator. A lot of times, you see a spike there, it takes 18 months plus for those to translate into sales for folks like ClarkDietrich. Pretty well positioned, but we think it's flat to potentially down a little bit in the next quarter or two just because you've got to get through this period of uncertainty where people aren't willing to or able to get construction projects going. We know that will change. It always changes. ClarkDietrich tends to come out better on the other side, but we do have to get through this period, and it's hard for us to be able to forecast whether it lasts two weeks or a couple of months or six or eight, but that's kind of where we are with that business.

Okay. Last one, I'll jump back in queue. Just maybe talk about the M&A pipeline. As you described, free cash flow is solid and poised to inflect higher as the CapEx cycle winds down. So priorities for capital allocation and the outlook for potential either whether it's bolt-ons around Elgen Manufacturing or other areas that could be potential opportunities to deploy capital over the next kind of 12-plus months.

Sure. Our capital allocation priorities continue to center around being balanced with a bias towards growth. You'll see we paid $9 million in the dividend, and we continue to buy back shares selectively. But we have a bias for growth. When we think about M&A and our ability to continue to seek and add businesses that are high margin, low asset intensity, leaders in niche markets, we're pretty excited about it. I'll let Colin maybe comment a bit more in sort of some details around the pipeline and how we're thinking about it.

Yes, and thanks, Joe. We feel like the pipeline is solid right now. The M&A markets are softer, but we're still finding those opportunities that are out there and spending time to really build those relationships and are excited about what that could become as we progress throughout the year. Our criteria, we're looking for leaders in niche areas across consumer and building products and that can demonstrate a sustainable competitive advantage. When we deploy our diligence process, that's what we're really looking to test. A lot of those are in channels where we already have a big presence and a leadership position. That gives us some ability to add value, whether it's through channel expertise or through manufacturing expertise or purchasing or price risk capabilities. Absolutely right, Dan. The acquisition of Elgen was a great one for us, and we're excited about that. That also gives us the opportunity to look around our business into adjacencies to see where there may be some more value ahead. We're excited about M&A in the future. It's going to be an important lever for us in terms of capital allocation and growth.

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

I don't think you guys disclosed volumes in the release, but you mentioned them qualitatively. Can you give us an idea of price versus volume growth for both segments in the quarter?

I'll take a quick shot at it. Volumes up in Building Products, price pretty stable. In Consumer, volumes were down, but the mix shifted more heavily towards our celebrations business, which per unit cost more, and that was really the driver there.

Yes. And Brian, we did not disclose volumes. It becomes very complex, given the size of the products we're offering and then some of our recent acquisitions and different types of products. We're not just selling cylinders anymore. We're selling tools, we're selling components. So the volume data points become a little too cloudy to be able to speak to and lumpy.

Got it. Okay. I know you got a tariff question earlier. I'm just curious, are you seeing tariff impacts and pricing in your markets? I think back around Liberation Day, there was a reasonable school of thought that there was enough inventory in the channel to get us to the fall, and we're kind of here now. Your home center customers are also being careful with their comments on pricing. But are you seeing price increases on the shelf from your internationally sourced competitors and price gaps widen there? And is that helping the company?

Yes. Brian, not yet. The tariffs are driving impact. Joe mentioned it a couple of million dollars in our business that we paid on the consumer side related to tariffs. A lot of companies are still trying to work through how to handle that and what to do and also kind of waiting and seeing how things unfold. We're seeing that impact in our business, but at the shelf, it's a bit mixed.

Great. And then finally, I know there's a $2.2 million purchase accounting charge in there, but gross margins are lumpy. I know you're targeting kind of 30% over the medium term. How should we think about gross margins in the coming quarters and any puts and takes there?

Yes. Brian, we did 27% this quarter, up from 24%. There was purchase accounting in both periods for the acquisition of Elgen and then on Ragasco. Strong volumes within Building Products, we talked about earlier, drove some of the volume increase as well as some of the incremental initiatives across the company that are paying off. Sequentially, gross margin was down. Q1 and Q2 are seasonally weaker for us compared to Q3 and Q4, so that wasn't unexpected. Our goal over time is to drive gross margins north of 30% and drive our SG&A as a percent of sales down to 20%. We feel like we're still on track with that, and our initiatives are driving some momentum and want that trend to continue.

Yes. Colin is absolutely right. Those numbers, right, that we're striving towards are annual numbers, and there'll be a little bit of puts and takes when you have seasonally slower periods like Q1 and Q2; your conversion costs will be naturally a bit higher. You will probably overperform that in Q3 and Q4 relatively speaking. But our goal for that is more of an annual number.

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

My first question is going back to the operational efficiencies that you mentioned in your prepared remarks. You noted that you've seen some nice progress in the water business. I guess, can you talk a bit more about that? And how do we think about where else those efforts can go to across the business and what they could mean over time?

Yes, Susan, I think Joe mentioned in his remarks, 80/20 initiatives. We piloted that in the water business about seven months ago. It's going very well. A lot of the focus there is how do we reduce complexity, increase focus, and drive better results. So we're in the middle of that. We're excited, and the teams are very, very engaged. We've been pleased with what we've seen so far. To Joe's comments earlier, we're starting to evaluate where could this apply next across our portfolio so we can continue to build that muscle and really drive this way of operating.

Yes. A couple of other thoughts. We do really like how that way of thinking is challenging our historic norms. We've been at it for almost six months and so we've seen enough to know a couple of things. One, it's going to have a positive impact; and two, we'd like to do more of it. You'll see us be thoughtful about how best to roll it out. We don't want to kind of try and sort of boil the ocean, but we want to be thoughtful about it. It's going to be a great tool in our kit as we go forward. The other piece, broader maybe than 80/20, is our constant evergreen initiatives on holding costs down. In our facilities, there are goals every single month, every single quarter, and every single year in terms of taking costs out. Our health care costs continue to go up. Obviously, people get merit increases. But if you look at Q1 versus Q1 last year, we grew revenue, we grew gross profit. But absent the inclusion of Elgen's SG&A, our SG&A was flat year-over-year. That's a great testament to the work our teams are doing. That might not happen every single quarter, but it's something we are very conscious of, and we believe we have a great platform. We can grow our revenues and gross profits and keep the same kind of infrastructure and base, and we hope over time that is consistent with being able to grow margins.

Yeah. Okay. That's helpful color. And then turning to Elgen. Can you talk a bit about how that business can actually help in terms of hitting some of these targets that you've laid out, growing the business overall and especially thinking about perhaps the less discretionary nature of HVAC and what that could mean in a tougher macro and especially if things slow further from here?

Yes, Susan. We're very pleased with Elgen so far. It contributed, as I mentioned, $21 million in revenue and relatively breakeven from an EBITDA standpoint, which included the $2.2 million in purchase accounting. The stats we released on the business right when we acquired it, $115 million of revenue annually, $13 million in adjusted EBITDA. At the end of the day, this is a good example of our M&A strategy in action and our goal in expanding our portfolio in commercial HVAC and the structural framing. We found this fantastic business that so far has been a great fit for us. Integration, we believe, we're 90 days in. It's going very, very well. We have our operations teams together working side by side, the commercial teams, the purchasing teams. What we're very pleased with is just the more time we spend with that business, we find a lot of really, really good talent at the company, and we're very pleased with how that's gone so far. To your point, Susan, the commercial HVAC market, we believe, is attractive, and it's resilient over time and provides above GDP type growth. That was a key target market of ours, and we found this opportunity with Elgen, where we can bring some value and sophistication from a steel manufacturing standpoint and purchasing and operational expertise. We're getting to work with how we can continue to increase value with them at that company over time. This is one of hopefully many that we do over time as an example here.

Yes. Susan, your question is really a good one relative to growth opportunities and to the resiliency of that market. We certainly agree with the latter point. We think there are growth opportunities organically within Elgen, but also we look at cross-selling opportunities in our water business, some crossover with ClarkDietrich, some things related to WAVE. Any time we continue to be able to add value with this sort of two-step distribution market into HVAC and things that are above the ceiling or behind the walls, people are looking for creative, innovative ways to consolidate their own spend and save money, and we think we can be a part of that solution for them.

Yes, that's helpful, Joe. I have another question regarding how you are managing investments in growth alongside cost reduction efforts, especially considering the possibility of facing a tougher economic environment next year and the pressure on consumers. What are your thoughts on these various factors and how you're approaching the situation, given the uncertainty involved?

It's a great question. There is a lot of uncertainty in the current environment. Lower interest rates are intended to stimulate growth. While we've seen short-term rates decrease, longer-term rates like 5, 10, or 30-year rates haven't followed suit. People are hesitant to invest in capital expenditures, even though reshoring is a priority. In many of our businesses, we excel in providing substitutes for those who may not travel or stay in hotels, as they might spend more time outdoors or camping. We're also focusing on direct-to-consumer initiatives and reconsidering our physical store placements, as our solutions cater to DIYers looking to take on projects themselves. Overall, a significant portion of our portfolio focuses on repair, remodeling, and maintenance, which offers some insulation against economic shifts, though it's not immune. We're committed to being a smarter and more agile company by investing in AI, automation, and analytics, while also managing expenses that may not yield desirable returns. In this kind of environment, as the cost of capital rises, so does the required return due to increased risks. However, we are confident in our current strategies. If the economy does decline, we believe we will perform well and likely exceed expectations. Historically, markets have recovered, and we feel optimistic about our positioning and the impact of our solutions in the medium to long term.

Your next question comes from the line of Walt Liptak from Seaport Research.

Yes, great call so far. A lot of questions answered. I would like to try a follow-on on the HVAC refrigerant containers. I think it's been a couple of periods so far where you've been maybe doing well with your customers, increasing penetration. Is this the kind of thing where it's like a one-year bump where you start getting onto more difficult comparisons at some point? Or is there enough customers, a big enough market where you can just continue to serve those customers really well and increase that penetration beyond like a one-year bump in sales?

Yes. It's hard to predict what the future looks like. Walt, it's a very fair question. We think it's probably more the latter than the former. There are lots of things happening in these mandates for more environmentally friendly gases will continue to proliferate. It's up to us to continue doing our level best to service our customers and service their customers. If ultimately, you see things change in a year, it's likely that you would have something to potentially replace a load-in that runs its course. So never say never, but we're feeling relatively good about the future of that business while understanding that these types of things don't happen every quarter.

Okay, great. I was curious about the different forms of seasonality and their impact on the business. Could you provide some details about the fall and winter seasons, especially as we approach the spring selling season? When do you typically start selling products for spring? When does inventory increase, and what are the signals from your larger customers? Additionally, what does the seasonality look like for building products over the next few quarters?

Yes, Walt, I'll take a shot at it, and Joe can fill in. Just generally, it could vary from year-to-year depending on what's happened throughout the year. Q1 and Q2 are typically seasonally weaker than Q3 and Q4. It varies a little bit across consumer and building. In particular, as you get into Q2 and Q3, it could depend on weather-related events, if it's colder sooner or if there are hurricanes or snowstorms that would drive activity. We can't predict from year-to-year, but they do happen in those time periods. That's the high-level way we think about it, and then you have to go category by category.

And that concludes our question-and-answer session. I will now turn the call back over to the company for some closing remarks.

Thank you all for joining us this morning. Have a wonderful rest of your week, and we look forward to speaking with everybody soon. Thank you.

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