Worthington Steel gains automotive share, calls trough in compressed galv spreads

Executives on the call emphasized that the company’s standout fiscal Q2 performance came from capturing new automotive business. The result: direct automotive shipments rose 26% year over year (y/y).

Gilmore also highlighted cold-rolled strip as the product line where the Columbus, Ohio-based service center was winning high-margin business.

He in addition noted record October shipments to a key automotive customer and new business with a Japanese OEM. “A pretty significant amount [of recent market share gains] is coming due to the onshoring of supply chains,” Gilmore added.

Energy shipments surged 50% year over year, driven mainly by project-based solar programs. This was one of the strongest growth areas outside automotive. And it has brought attention to demand tied to renewable energy projects, company executives said.

Meanwhile, construction volumes were down 9% y/y. Gilmore described the sector as “stable but subdued,” with pockets of strength in power and infrastructure.

Company executives linked compressed galvanized spreads to weaker construction demand, a trend that has created more competitive pricing pressure. But management thinks the market has hit bottom in terms of low spreads between hot-rolled coil (HR) and galvanized base prices. Gilmore said the company expects margin expansion going forward, with normalization likely by Q2 of calendar 2026.

Gilmore pointed out that imports of galvanized products into the US are down about 35% due to Section 232 tariffs and anti-dumping measures. This reduction in foreign supply should help spreads recover. But he cautioned that added US capacity will cap how high margins can rise.

In another key market, heavy truck and trailer volumes fell 6% y/y. Company executives said that market remains slow. But they expect a rebound to begin late in calendar 2026.

“We view this decline as cyclical, not structural, and expect toll volumes to improve, as market demand normalizes,” CFO Tim Adams said.

The company noted that toll processing volumes slipped modestly following the closure of the Cleveland-area Samuel joint venture facility. Fiscal Q2 toll shipments totaled ~902,000 short tons.

As for steel prices, “We expect the market price for steel to remain volatile in the near term,” Adams said. He noted that HR prices have risen by ~$100 per short ton since September-October. For the current quarter, he estimated inventory gains and losses would fall within a range of a pretax gain of $3 million to a pretax loss of up to $3 million.

Adams also underlined stronger direct spreads and equity earnings from Serviacero in Mexico. But those were offset by lower toll volumes and higher SG&A. The Serviacero joint venture added a new slitter in Northern Mexico about a year ago. The company said the line is now filling capacity, and a second slitter is being added in central Mexico.

Electrical steel expansion projects in Mexico and Canada, meanwhile, remain on track for initial production in the first half of calendar 2026.

And integration of Sitem in Europe is progressing, with Gilmore citing “world-class” tooling and automation capabilities that are scalable across Worthington’s footprint.

For its fiscal year 2026, Worthington expects about $110 million in capex. The bulk of that spending is directed toward electrical steel expansion projects in Mexico (laminations for traction motors) and Canada (transformer core manufacturing). These projects are scheduled to begin production early in 2026.

Worthington’s transformation initiatives continue as well. Gilmore highlighted the deployment of AI agents for credit processing and for automated shipping notice generation.

“While the macro remains uncertain, we believe conditions are setting up for improvement in calendar year 2026 as interest rates ease and some policy uncertainty subsides,” the Worthington CEO said. “We’re positioning the business so we’re ready.”