Worthington Enterprises, Inc. Q4 FY2026 Earnings Call

Hello everyone. Thank you for joining us and welcome to the Worthington Enterprises' fourth quarter fiscal 2026 earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Marcus Rogier, Treasurer and Investor Relations Officer. Marcus, please go ahead.

Thank you, Paige. Good morning, everyone, and thank you for joining us for Worthington Enterprise's fourth quarter fiscal 2026 earnings call. On the call today are Joe Haick, our president and chief executive officer, and Colin Souza, our chief financial officer. They, during today's call, are forward-looking in nature and subject to risk and uncertainties that can cause actual results to differ materially from those expressed. 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. 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...

Thank you, Marcus.

Good morning, everybody. in the 2026 fourth and important year for women's enterprises. We delivered 20% sales growth, 9% of that was organic growth, and 12% adjusted EBITDA growth. We generated $170 million of free cash flow while successfully reducing SG&A as percentage of sales by 200 basis points. We acquired and began the integration of both Elgin and LSI. And most importantly, our people, and continued uncertainty around the health of the U.S. economy. The focus of our talented and dedicated teams. Thank you. Earnings increased to $48 million from $4 million a year ago. Adjusted net earnings were $48 million, and adjusted EBITDA was $83.5 million. It was $65 million, our highest quarterly cash flow at Whittington Enterprises. Modernization project. While we were pleased with the quarter, adjusted EBITDA and margin performance, lower earnings from car feature compared with a strong prior year quarter and margin pressure in our cooling and construction business which colin will spend a few minutes on later all of our other only in the value streams saw year-to-year growth and adjusted during the quarter additionally we believe the dynamics that created those headwinds for our cooling and construction business are more timing issues than any system our results reflect continued execution around the core pillars of our strategy, Whittington, as we deliver value to customers, and leveraging the Whittington business system and its three growth drivers, innovation, transformation, and acquisitions. Innovation remains the key driver of our organic growth strategy used for liquid cooling in data centers, and momentum there continues to build. I found innovation mindset creates entirely new opportunities for us. They send me thanks for data centers during fiscal 2026. We currently expect to shift at least that much in the first quarter of fiscal 2027. Domain continues to grow, and we're investing in additional equipment and capacity to support the opportunities we see ahead. Because we leaned in from an engineering, innovation, and solutions development perspective, what began as a promising opportunity is increasingly becoming a growth platform for us. We innovate in emerging end markets to create opportunities for growth, but we also drive innovation into more mature markets where growth can be harder to achieve. A great example is Balloon Time. The Balloon Time Mini continues to drive momentum in our celebration service. It recently secured new placement in a majority of Walmart stores for that product as consumer adoption continues to grow. During fiscal 2026, our teams continue to focus on productivity improvements across our network through transformation. These efficiency gains, driven by automation and AI-enabled technologies continued to help us and contributed to our 150 basis points reduction in SG&A as a percentage of sales in the quarter. The success we're having with 8020 in our water business has led us to launch a similar initiative in our camping gas and tourist business and we're excited about the impact 8020 can have on those value streams. These are excellent examples of the type of strategic M&A we prioritize. Integration of both businesses is on track and the expanded capabilities they provide us. Together, they strengthen our position across the building envelope and allow us to offer increasingly comprehensive solutions to our customers. We've always believed to be named the top workplace in Central Ohio for the 14th consecutive year or second year as Winston Enterprise. It's one of America's most charitable companies and one of America's most patriotic companies to our communities and to our people mission this year as we celebrate America's significant milestones this year innovation and enduring relevance that defines our portfolio balloon time is celebrating four years April eight years in Bernthamatic 150 years as we enter fiscal 2027 we're operating from a position of strength we have leading very strong balance sheet significant free cash flow generation and multiple avenues for growth most importantly we have a talented team executing a proven strategy we're excited about the opportunities ahead and we remain focused on creating long-term value for our shareholders take you through some additional details related to our financial performance in the court thank you joe and good morning everyone fiscal 2026 was our strongest year yet as worthington enterprises we delivered another year of increased adjusted ebitda and adjusted eps outstanding free cash flow conversion, meaningful margin expansion across our wholly owned businesses, and continued progress

executing our growth strategy. While headwinds at Clark Dietrich and in our cooling and construction business caused fourth quarter results to decline modestly compared to last year's exceptionally strong Q4, the underlying earnings power of the company continues to strengthen. We delivered solid financial results in Q4 to finish fiscal 2026, reporting gap earnings of 97 cents per share compared to $0.08 per share in the prior year quarter. Excluding restructuring and other non-recurring items in both periods, adjusted earnings were $0.97 per share compared to $1.06 per share in the prior year quarter. On a full year basis, we delivered gap earnings of $3.14 per share compared to $1.92 per share in the prior year. Excluding restructuring and other non-recurring items in both periods, adjusted earnings for fiscal 2026 increased 9% to $3.37 per share compared to $3.09 per share in the prior year. Consolidated net sales for the quarter were $371 million, up 17% compared to $318 million in the prior year quarter. The increase was largely driven by recent acquisitions which contributed $44 million in net sales for Q4, while organic growth was 3% year over year. For the full year, net sales were $1.4 billion, an increase of 20%, including 9% organic growth, while adjusted EBITDA increased 12% to $296 million. Gross profit increased to $102 million compared to $93 million dollars in the prior year quarter reflecting the impact of higher net sales gross margin was 27.4 percent compared to 29.3 percent a year ago reflecting less favorable product mix within building products the purchase accounting impact of the inventory step up at lsi and inflationary cost pressures we have implemented pricing actions and continue to execute other mitigation initiatives across the company to offset those cost increases adjusted evita was 83.5 million dollars compared to 85.1 million dollars in the prior year quarter while adjusted evita margin was 22.5 percent the year-over-year comparison was impacted by lower equity income contributions from clark district which were down seven million dollars and a particularly strong prior year comparison in our cooling and construction business turning to our cash flow and capital allocation we remain focused on reinvesting in our business and pursuing strategic acquisitions while returning excess cash to shareholders via dividend and sherry purchases capital expenditures totaled 16 million dollars in the quarter including 7 million dollars related to our facility modernization project and consumer products we return capital to shareholders through $9 million in dividends and spent $18 million to repurchase 350,000 shares of our common stock. Our joint ventures continue to deliver strong cash generation providing $35 million in dividends during the quarter, representing 90% of equity income. Operating cash flow was $72 million in the quarter compared to $62 million in a prior year period, while free cash flow increased to $55 million from $49 million. I want to spend another minute on free cash flow. Free cash flow remains one of our most important operating metrics. We managed business with a deliberate focus on converting earnings into cash. That discipline was evident again this quarter as we delivered our strongest quarter of cash generation since becoming Worthington Enterprises. This performance reflects intentional efforts across our organization to optimize working capital, strengthen our balance sheet, and improve cash conversion. For fiscal 2026, free cash flow totaled $170 million, representing a 102% conversion rate relative to adjusted net earnings. Importantly, we achieved this result while funding elevated capital investments associated with our modernization projects, which totaled $25 million during the year. We also received $30 million less in dividend distributions from Clark-Dietrich compared to the prior year. We have approximately $16 million of modernization spend remaining and expect to complete the project by the middle of fiscal 2027. Thereafter, capital expenditures should return to more normalized levels, supporting continued strong cash flow generation going forward. Turning to our balance sheet and liquidity, we closed the quarter with net debt of $278 million, resulting in a net debt to trailing adjusted EBITDA ratio of less than one time. Our leverage remains conservative and we maintain ample liquidity with a $500 million undrawn revolving credit facility at fiscal year end, providing us significant financial flexibility to pursue both organic and acquisition driven growth opportunities. yesterday our board of directors declared a quarterly dividend of 20 cents per share an increase of five percent from the prior quarter table in September 2026 our demonstrated ability to consistently deliver strong free cash flow allows us to execute on our capital allocation priorities let me now turn to our segment performance building products Q4 net sales grew 28% year-over-year to $245 million, up from $192 million in the prior year quarter. Growth was primarily driven by acquisitions, which contributed $44 million in net sales in the quarter. Excluding acquisitions, net sales increased 5% year-over-year on higher overall volumes. Adjusted EBITDA for the quarter was $69 million compared to $71 million in the prior year quarter with an adjusted EBITDA margin of 27.9%. The slight decrease was primarily driven by lower equity income contributions and a less favorable mix in our wholly owned businesses. Specifically, Clark-Dietrich's contributions were down approximately $7 million compared to Key4 last year, while the less favorable mix was largely driven by particularly strong demand in certain cooling-related products in the prior year. Let me spend a moment on the cooling and construction The year-over-year comparison reflects a normalization following elevated demand associated with the industry's transition to A2L refrigerants in the prior year. While that created a difficult comparison in the current quarter, adoption of A2L products remains strong, and we feel good about the long-term outlook for the business and don't see this quarter's comparison as a structural change. Additionally, as new AC units and replacement units enter service, they will utilize ACL refrigerants, supporting new sales and an attractive service and repair opportunity in the future. In fiscal 2026, building products adjusted to the dot increased approximately $27 million, or 13%, to $240 million, despite a $19 million decline in equity earnings from Cartetric. The growing contribution from our wholly owned businesses, combined with our recent acquisitions, continues to improve the resilience and diversification of our earnings profile and positions as well as Clark Beatrix end markets recover and ultimately return to historical norms. Within our wholly owned businesses, adjusted EBITDA increased 62% to $100 million during fiscal 2026, while adjusted EBITDA margin expanded 220 basis points to 11.7%. We are particularly pleased with the early performance of our most recent acquisition, LSI, and continue to make good progress on integration initiatives at both LSI and LGIM. We are also continuing to leverage the Worthington business system of innovation, transformation, and acquisitions to create meaningful opportunities to accelerate growth across our building product platform over time. In consumer products, Q4 net sales were $126 million, essentially flat compared to the prior year quarter, as higher average selling prices offset lower overall volumes. Adjusted EBITDA was $24 million, and EBITDA margins were 19.2%, up from $21 million and 16.6% in Q4 last year. The improvement was driven by gross margin expansion and lower SG&A expenses. The quarter is a testament to the team's ability to bring innovative products to market while continuing to improve profitability through discipline execution and margin-focused initiatives. For fiscal 2026, consumer products net sales increased 4% to $520 million, while adjusted EBITDA increased 10% to $91 million, with adjusted EBITDA margin expanding approximately 100 basis points to 17.5%. The consumer products team achieved these results while navigating tariffs and supply chain uncertainty throughout the year. With a solid foundation in place and a growing funnel of future new products, we believe consumer products is well positioned to drive growth and build on its momentum as market conditions improve. While there are two discrete factors affecting the quarter, lower-clark future contributions and an unusually strong prior-year comparison associated with A2L-related demand in the cooling and construction business, we believe the trajectory of the business is very healthy. Both organic growth and cash generation are solid. As we enter fiscal 2027, we believe Williamson Enterprises is increasingly differentiated by four key attributes. A portfolio of market-leading brands, expanding margins within our wholly owned operations, substantial free cash flow generation, and a balance sheet that provides significant flexibility for future growth investments. Each of those attributes is stronger today than it was just a year ago, reflecting the continued evolution of the company in a business mix that is generating higher margins, improved cash flow, and greater earnings diversification.

We believe those attributes position us exceptionally well to continue creating long-term shareholder value regardless of market conditions at this point we're happy to take any questions we will now begin the question and answer session please limit yourself to one question and one follow-up if you would like to ask a question please press star one to raise your hand to withdraw your question press star one again we ask that you pick up your handset when asking a question to allow for optimum sound quality if you are muted locally please remember to unmute your device please stand by while we compile the Q&A roster your

first question comes from the line of will gld with CJS securities your line is open please go ahead hi good morning thanks for taking our questions so in building products you know for the first three quarters of fiscal year 26 strong the teams organic growth slowed to a still healthy five percent in Q4. You talked about the tough comp from A2L sales in the quarter. Are we labbing those comps for the next three quarters? Just any more color on that dynamic would be helpful.

Yeah, well, good question. Just on building products, really good improvement, and we're really pleased overall on the Holyon side, expanding margins, 220 basis points. Just on the comparison, you know, really getting to the A2L question, you know, that is the largest component of the mixed comparison relating to kind of this quarter. And as we discussed previously, the prior year quarter benefited from particularly strong demand is that the industry went through the A2L transition. And this impacted manufacturers, distributors, contractors, they all had to navigate this transition around A2L and build inventory. And that level of demand did not repeat in the current year quarter, creating the difficult comparison this quarter. From an EBITDA standpoint, we would estimate that the impact was approximately $5 million in, you know, relative to the prior year quarter. But importantly, you know, this was primarily a comparison issue rather than a change in the underlying health of the business. So we feel good about the broader profitability trends within cooling construction. And then just on the market, you know, nearly all new residential equipment is now A2L, meaning every new installation grows the installed base for A2L. So over time, that installed base should support an increasing service and repair opportunity that doesn't really exist meaningfully today. And demand for refrigerant solutions, you know, remain healthy, and we view the results kind of this quarter primarily as a timing issue will associate with that transition. And from a comparison standpoint, those effects could continue over the next couple of quarters. as the inventory associated with the A2L's transition continues to normalize, and although the magnitude of those headwinds should moderate by Q2. So hopefully that helps with just the comparison and moving forward.

And Will, the only thing I'd add is that, you know, all of the other value streams in building products, you know, And the value streams in consumer were actually, you know, often showed growth, you know, relative to Q4 last year, which was a pretty strong quarter.

Yep, that is super helpful. I just wanted to switch to the JVs. You know, WAVE continues to perform well. The guidance from Armstrong was healthy. Looking at Clark Dietrich, we're kind of back to pre-COVID levels. Can you talk about your level of confidence that the business is stabilizing or perhaps returning to growth? in fiscal year 27.

Yeah, and you're spot on. They're operating in a challenging environment, although that's a little bit lower profitability than some of their other value streams in end markets might be. You know, fiscal year, as Colin mentioned, is down about 19 million from the prior year. We're pretty confident that's a trough for the business, and we see good upside there with limited downside, assuming market conditions stay the way that they are, which is to say the challenge. You know, Cartier is very well run. They continue to gain operational efficiencies, and they're really well positioned to benefit and to grow, you know, when market conditions improve, which we certainly think, you know, will happen.

We can't predict exactly when, but we know they will thank you your next question comes from the line of Brian Byros with Thompson Richards group your line is open please go ahead hey good morning thank you for taking my questions today Brian good morning on building products the Holy Ones you know it's all good marketing growth for the year down in the quarter as you mentioned on mix and stuff but still solid performance for the year I think you said long term the margin target for that is maybe 12 to 13 percent um so you're kind of just below that threshold

it rounds up to 12 i guess how do we think about that long-term margin target which seems now achievable over the next few quarters yeah thanks brian thanks for the question um you know the wholly owned building product business has has improved significantly as you mentioned uh we're really pleased with performance over the course of the year um and this is where we've been layering on incremental acquisitions. So, you know, we mentioned it earlier, but the wholly owned building product business EBITDA increased 62% this year, $38 million, to exclude the joint ventures, to $100 million. And, you know, even more impressive is the margin expansion, up 220 basis points in the fiscal year compared to the last fiscal year. So, we still feel pretty good about the our targets there are operating consistently in a low teams and either margin and we think we've got a good chance to get there over the coming years and stay there and then we'll you know evaluate and go higher from there got it and then follow up I guess you you had a new board member yesterday Brad Southerns formerly of Louisiana Pacific great addition in our view.

We have a lot of respect for the Louisiana Civic team. I'm sure you saw that background of a residential building product and siding in OSB, you know, most of the R&R focus, home builder, contract-driven products. How you can leverage that at the board level for Worthington? So if any thoughts on that addition would be appreciated. Thank you.

Sure. So I would first say we have a it's been that way for a long time and it's gotten even better and more focused as owned into our shoes as Worthington Enterprises. Brad is a fantastic addition, as you mentioned. He was the chair and CEO of Louise Manhattan Civic. He's got great and deep operating experience. He's a real culture guy. He's incredibly smart and strategic and thoughtful. We think there are lots of ways that he will benefit both our board and the company. And so, you know, it wasn't one thing specifically, Brian, but the opportunity to add somebody like him, you know, having just retired from being, you know, a city CEO several months ago was really something that we were excited about. And we're very grateful that he was willing to spend time with us and join the board. So, yeah, we're pretty excited about that, what that will mean for us. And he fits in really well with, you know, the rest of our board, which is populated with very strategic, very experienced, and dedicated folks. So we're very lucky with respect to our board, and we think it got better yesterday.

I'm going to hear a nice addition. Sure.

Your next question comes from the line of Susan McClary with Goldman Sachs. Your line is open. Please go ahead. Thank you. Good morning, everyone.

My first question is turning to the consumer product side. You mentioned that you're seeing some continued nice momentum with Balloon Time Mini. Can you just talk about how these new products and the innovation are driving some of the revenue streams in that part of the business? And then I guess also within that, you know, when you think about this macro and obviously the increased uncertainty and the inflation, how do you think that that will drive benefits for you, just given your exposure to some of these smaller type of consumer products?

That's a really good question. And, you know, used by contractors or by DIYers and consumers, you know, We segment the businesses more based on where people buy those tools and products by what they are. And so many of our value streams in consumer are geared towards contractors and pros. In those value streams, demand has tended to look a little more like what we're seeing in building products, which is pretty stable conditions with some growth. Then our more traditional consumer categories, a lot of those products are used to elevate experiences as an alternative to more expensive options that people have and so you know as a result that demand has has been uh and continues to be pretty resilient uh certainly more so than you might see across a broader consumer discretionary spending metric you know we certainly saw that again in in the quarter in in the fiscal year i mean keep in mind that you know tariffs were in place all year, but, you know, the consumer products team delivered, I think, 4% sales growth and 10% EBITDA growth for the whole year in what a lot of people would probably consider to be a mixed environment. And I think the nature of the, just your question is that's really because of innovation. You know, and innovation is in new red markets, as we talked about on the ASME data center side but also in you know more established mature markets like like balloon time and pretty stable uh basically tariffs and supply chain uncertainties and it's really because of innovation um and we're really excited about the the pipeline of new products that we've got that are scheduled to launch and hit the market later in our fiscal year 2027. there's been a lot our teams, you know, and I think our company appreciates how we're elevating the experiences at least continues to develop expertise and muscle memory, you know, around NPE and product launches and think about innovation because that really is the core.

Okay, that's great color, Joe. Thank you for all of that. And then, you know, turning to the price cost side, I think you mentioned in your prepared remarks that you have implemented pricing across the business. Can you just talk a bit more about that pricing and how we think about it relative to the inflation that you are anticipating coming through the business?

Yeah, thanks, Susan. So, you know, I did mention, you know, we experienced some inflationary pressures across a number of areas, and these were in commodities like steel, aluminum, brass, and then freight and diesel, among other inputs. But they're not isolated. Those pressures were not isolated to any single business or product category. It did vary throughout the portfolio. But as we discussed, you know, we have implemented pricing actions. Some of those were announced broadly. Some of them were more adjustments to existing contracts or adjustments to contracts or will reprice when we've won some new business or new contracts. But overall, you know, we have a disciplined price risk capability, and we're always looking to manage a balanced position on the supply and demand side. And so as new volume comes up, right, or new customer rewards on the commercial end, we're factoring those higher infocups in and increasing our margin certainty and reducing margin volatility. So, you know, we don't really sell products that are, you know, a spread above a base price or anything like that. We're selling products that provide solutions, and so we don't expect some of the material cost inputs to really whip around our margins, and that's really the discipline around the price risk and the strong portfolio products that we have. So, you know, nothing that, you know, we feel good about the actions we've taken on some of these pressures, you know, moving forward.

Yeah, and Susan, the only thing I'd add is, because I'm sure you're seeing this and talking about it with people, you know, is the steel market. You know, the market is tight. Lead times are extended at a lot of the mills. You know, prices have moved up. You know, that creates markets where we actually really, purchasing and supply chain capabilities and those teams are really, really good at what they do. And so it creates, you know, a competitive advantage for us. It's certainly difficult to deal with, you know, a wash in cheap steel. but for us it creates opportunities to set ourselves apart and to take care because we're able to do what we do very well on the procurement and on the rumpter side.

Okay yes that's great color thank you both and good luck with the quarter.

Thank you.

As a reminder if you would like to ask a question press star one to raise your hand. Your next question comes from the line of Brian McNamara with Canaccord Genuity. Your line is open. Please go ahead.

Good morning. This is Madison Cowan. Hey, guys. Sorry to say Madison. Sorry to say Madison. Sorry to say Madison. It's all good. Can you give any additional color on the total opportunity in dollars and data centers? And which of your businesses, whether it be LSI, Eligen, WAVE, or what has the most upside in data centers? Thanks, guys.

So, Madison, great question. Opportunity is there. And again, a couple ways. Being a data center, we actually participate in that activity. That includes WAVE, that includes CART-DETRIC, that includes Eligen, and that includes LSI from the support construction and the operation of those data centers. And so it is absolutely an important area. You know, more sort of that we manufacture liquid cooling systems that are being deployed to support the next-gen community from a building itself and one that's into the data centers on the SME side in 26 will ship at least that much in Q1 of 27, between the announcement of a data center and when you'd see liquid cooling units installed. So there's a real lag from when you would see something in the media to when the revenue opportunity for us might materialize. And the other thing that you should keep in mind is that the market has only very recently started transitioning from air-cooled in an emerging end market. We're making many of the manufacturer's expertise and we'll kind of keep.

And then the stock is indicating down today and would be down a couple quarters in a row in earnings. What do you think you're not getting enough credit for? Thank you.

Well, that's a really good question. I think that we're still, you know, a little new. And I know that we probably aren't the easiest, most plain to know-love company to model conversations. And when people are out of the business, they tend to kind of understand it. And you have different conversations. I don't really want to comment on anything else other than to say I'd be proud of, but if you think about the innovation engine that we have, you think about the ability that we have to continue driving growth through strategic acquisitions, you think about one of the things that Colin talked about is our real increasingly important and powerful cash flow generation engine really well to be able to take advantage of the growth opportunities that we see, you know, markets recover. We're really well positioned.

Great, thank you. Thank you.

There are no further questions at this time. I will now turn the call back to Joe for closing remarks.

Thank you this morning. I certainly look forward to seeing with everybody again soon. Have a wonderful Fourth of July and celebrate with people that you love and have a great time and be safe. Thank you.

This concludes today's call. Thank you for attending. You may now disconnect.