Worthington Steel reported disappointing first-quarter fiscal 2027 results on October 6, 2026, sending its stock down 4.3% in after-hours trading to $37.45 as investors grappled with integration challenges and elevated debt levels from its June 2026 acquisition of Kloeckner & Co. The company's adjusted earnings of $0.57 per share fell 16.2% short of the $0.68 consensus estimate, according to the company's October investor presentation. The acquisition of Kloeckner & Co represents a transformational expansion for Worthington Steel, bringing $7.3 billion in trailing twelve-month revenue and approximately 6,100 employees across 110 locations in North America and Europe.
However, the integration is proving costly in the near term. Net interest expense surged to $38.8 million in the first quarter compared with $2.9 million a year earlier, while acquisition-related expenses totaled $22.6 million. The company also recorded a $15.5 million loss on remeasuring previously held Kloeckner equity securities and faced a $43 million non-cash inventory step-up from purchase accounting that management expects will normalize in subsequent quarters.
Despite the challenging environment, legacy Worthington Steel operations demonstrated resilience with 9% sales growth to $954 million, driven by market share gains in automotive, agriculture and heavy truck segments. CEO Geoff Gilmore characterized market conditions as "one of the most challenging steel supply environments most of us have ever seen," citing tight supply, extended lead times and cautious customer inventory management. The company reported net sales of $2,726.6 million for the quarter, up 212% year-over-year due to the Kloeckner consolidation, but posted a net loss from continuing operations of $7.0 million or $0.14 per share versus net income of $36.8 million in the prior-year quarter.
The presentation outlined an ambitious integration strategy targeting approximately $150 million in annual EBITDA improvements and an additional $150 million in working capital reductions within two years of DPLTA effectiveness. Management expects to achieve roughly 50% of run-rate synergies in the first full year following DPLTA effectiveness, with the full run-rate expected by the end of Year 2. The synergies span four categories: approximately $55 million from procurement optimization, $40 million from commercial process improvements including cross-selling opportunities, $30 million from operational efficiency gains, and $25 million from overhead reduction and elimination of duplicate public company costs.
With net debt of $1.9 billion following the Kloeckner acquisition, management has made deleveraging the company's top capital allocation priority. The company is targeting net leverage below 2.5 times EBITDA within 24 months of DPLTA effectiveness. Despite elevated debt levels, management affirmed its intention to maintain the annual dividend of $0.64 per share, stating it believes this is supported by cash generation through the cycle.
Combined capital expenditures for fiscal 2027 are expected to total $160 million to $180 million. The DPLTA, which would grant Worthington full operational control of Kloeckner, was signed in September 2026 and is scheduled for shareholder vote at an extraordinary general meeting on October 23, 2026. The agreement requires approval from 75% of share capital represented at the meeting and is expected to become effective as early as January 1, 2027, at which point formal integration and synergy capture efforts will begin in earnest.
Until that milestone is reached, Worthington owns approximately 62% of Kloeckner but lacks operational control to direct cash flows or consolidate entities. Analysts forecast earnings per share of $2.55 for fiscal 2027, implying significant sequential improvement from the first quarter's adjusted $0.57 result. The company did not provide specific full-year guidance, stating that combined guidance, margin targets and detailed synergy phasing will be communicated once the DPLTA becomes effective.
Worthington's stock remains approximately 22% below its 52-week high of $49.17, reflecting market caution around the transformational acquisition and execution risks inherent in integrating a business nearly twice Worthington's legacy size. Source: Investing.com
Source: uk.investing.com