Worthington Steel Tops Revenue Targets but Falls Short on Earnings Amid Kloeckner Integration

The steel company reported first-quarter net sales of $2.726 billion, substantially exceeding the consensus estimate of $912.5 million thanks to the inclusion of recently acquired Kloeckner & Co. SE, which contributed $1.773 billion. However, adjusted earnings per share came in at $0.57, falling 18% short of the $0.70 estimate as the company absorbed acquisition-related costs and elevated financing expenses totaling $38.8 million in interest. The underlying legacy business showed resilience with a 9% revenue increase on higher selling prices, though the Kloeckner acquisition's integration costs and inventory fair value adjustments pressured profitability.

Worthington Steel's first-quarter results reflect the complications that arise when large acquisitions close mid-period. The company's standalone operations demonstrated underlying strength, with legacy business revenue climbing 9% driven by both volume gains and pricing power in direct sales channels. However, the Kloeckner acquisition introduced several headwinds: $43 million in inventory revaluation charges from purchase accounting mechanics, a 13-fold increase in interest costs to $38.8 million annually, and integration-related professional fees totaling $18.6 million.

The company is progressing toward full ownership of Kloeckner following a delisting tender, with a control agreement signed pending regulatory and shareholder approvals effective no earlier than January 2027. Capital intensity has risen sharply, with capex doubling year-over-year and free cash flow swinging negative, typical patterns for post-acquisition periods as synergy realization remains incomplete.