Worthington Steel Reports Fourth Quarter and Full Year Fiscal 2024 Results

COLUMBUS, Ohio, June 26, 2024 – Worthington Steel, Inc. (NYSE: WS), a market-leading, value-added steel processing company, today reported financial results for the fiscal 2024 fourth quarter and full fiscal year ended May 31, 2024.

Fourth Quarter Highlights (all comparisons to the fourth quarter of fiscal 2023):

“Worthington Steel saw a solid performance in Q4 and finished fiscal 2024 strong,” said Geoff Gilmore, President and CEO of Worthington Steel. “Employees continue to be the driving force behind Worthington Steel’s momentum, I’d like to thank them for continuing to find improvements for our customers and our business through the transformation process – our system of continuous improvement. As we enter fiscal 2025 we remain focused on executing our strategy and driving shareholder value through organic growth and strategic M&A. Worthington Steel’s strategy and differentiation help ensure we are well positioned to grow and deliver strong returns for our shareholders.”

Financial highlights for fiscal 2024 periods and comparative periods are as follows:

(In millions, except volume and per share amounts)

Consolidated Quarterly Results

Net sales for the fourth quarter of fiscal 2024 were $911.0 million, an increase of $27.0 million, or 3%, compared to the prior year quarter. The increase was driven primarily by a 4% increase in direct selling prices and a more favorable mix within toll processing. This was partially offset by a 1% decrease in direct tons and a 3% decrease in toll tons sold in the fourth quarter of fiscal 2024 compared to the prior year quarter. The mix of direct tons versus toll tons processed was 58% to 42% in the fourth quarter of fiscal 2024, compared to 57% to 43% in the prior year quarter.

Gross margin decreased by $19.2 million over the prior year quarter to $131.0 million. The decrease was driven primarily by lower direct spreads and lower volume. Direct spreads, down $14.2 million, were impacted by a $36.0 million unfavorable change from an estimated $32.6 million inventory holding gain in the prior year quarter to an estimated $3.4 million inventory holding loss in the fourth quarter of fiscal 2024.

Operating income decreased $22.5 million over the prior year quarter to $67.3 million, primarily due to a $19.2 million decline in gross margin and a $10.6 million increase in selling, general and administrative (“SG&A”) expense driven by an increase in wage and benefit costs and other costs of being a stand-alone public company, as well as increased bad debt expense. The decrease in operating income was partially offset by a $5.5 million decrease in costs associated with the Company’s December 1, 2023 separation from Worthington Enterprises, Inc. (“Separation”) compared to the prior year quarter. Additionally, there were no impairments of long-lived assets in the fourth quarter of fiscal 2024, as compared to $1.8 million in the prior year quarter.

The Company reported net earnings attributable to controlling interest of $53.2 million, or $1.06 per diluted share, for its fiscal 2024 fourth quarter. For the fourth quarter of fiscal 2023, the Company recorded net earnings attributable to controlling interest of $67.3 million, or $1.37 per diluted share.

Adjusted net earnings attributable to controlling interest of $53.2 million, or $1.06 per diluted share, compares to the prior year quarter adjusted net earnings attributable to controlling interest of $72.4 million, or $1.47 per diluted share. The prior year quarter adjusted results exclude both $3.8 million in after-tax separation costs, or $0.07 per diluted share, and $1.3 million in after-tax impairment of long-lived assets, or $0.03 per diluted share.

Balance Sheet, Cash Flow, and Capital Allocation

As of May 31, 2024, the Company had cash and cash equivalents of $40.2 million. During the fourth quarter of fiscal 2024, the Company generated cash flow from operations of $35.6 million compared to $79.2 million in the prior year period. Capital expenditures for the fourth quarter of fiscal 2024 equaled $44.8 million compared to $9.0 million in the prior year quarter. The increase in capital expenditures was primarily related to the previously announced strategic expansions in our electrical steel operations in Mexico and Canada. The Company had negative free cash flow of $9.2 million in the fourth quarter of fiscal 2024 compared to $70.2 million in the prior year quarter.

The Company ended the fourth quarter of fiscal 2024 with debt of $148.0 million under our revolving credit facility and $40.2 million in cash and cash equivalents, resulting in a net debt position of $107.8 million.

The Board of Directors declared a quarterly dividend of $0.16 per common share. The dividend is payable on September 27, 2024, to shareholders of record at the close of business on September 13, 2024.

Conference Call

The Company will review fiscal 2024 fourth quarter results during its quarterly conference call on June 27, 2024, beginning at 8:30 a.m., Eastern Time. Details regarding the conference call are located in the investor section of the Company’s website at www.WorthingtonSteel.com.

About Worthington Steel

Worthington Steel (NYSE:WS) is a metals processor that partners with customers to deliver highly technical and customized solutions. Worthington Steel’s expertise in carbon flat-roll steel processing, electrical steel laminations and tailor welded solutions are driving steel toward a more sustainable future.

As one of the most trusted metals processors in North America, Worthington Steel and its 4,600 employees harness the power of steel to advance our customers’ visions through value-added processing capabilities including galvanizing, pickling, configured blanking, specialty cold reduction, lightweighting and electrical lamination. Headquartered in Columbus, Ohio, Worthington Steel operates 32 facilities in seven states and six countries. Following a people-first Philosophy, commitment to sustainability and proven business

system, Worthington Steel’s purpose is to generate positive returns by providing trusted and innovative solutions for customers, creating opportunities for employees, and strengthening its communities.

Safe Harbor Statement

Selected statements contained in this release constitute “forward-looking statements,” as that term is used in the Private Securities Litigation Reform Act of 1995 (the “Act”). The Company wishes to take advantage of the safe harbor provisions included in the Act. Forward-looking statements reflect the Company’s current expectations, estimates or projections concerning future results or events. These statements are often identified by the use of forward-looking words or phrases such as “believe,” “anticipate,” “may,” “could,” “should,” “would,” “intend,” “plan,” “will,” “likely,” “expect,” “estimate,” “project,” “position,” “strategy,” “target,” “aim,” “seek,” “foresee” and similar words or phrases. These forward-looking statements include, without limitation, statements relating to: future or expected cash positions, liquidity and ability to access financial markets and capital; outlook, strategy or business plans; the anticipated benefits of the Company’s separation from Worthington Enterprises, Inc. (the “Separation”); the expected financial and operational performance of, and future opportunities for, the Company following the Separation; the tax treatment of the Separation transaction; the leadership of the Company following the Separation; future or expected growth, growth potential, forward momentum, performance, competitive position, sales, volumes, cash flows, earnings, margins, balance sheet strengths, debt, financial condition or other financial measures; pricing trends for raw materials and finished goods and the impact of pricing changes; the ability to improve or maintain margins; expected demand or demand trends for the Company or its markets; additions to product lines and opportunities to participate in new markets; expected benefits from transformation and innovation efforts; the ability to improve performance and competitive position at the Company’s operations; anticipated working capital needs, capital expenditures and asset sales; anticipated improvements and efficiencies in costs, operations, sales, inventory management, sourcing and the supply chain and the results thereof; projected profitability potential; the ability to make acquisitions and the projected timing, results, benefits, costs, charges and expenditures related to acquisitions, joint ventures, headcount reductions and facility dispositions, shutdowns and consolidations; projected capacity and the alignment of operations with demand; the ability to operate profitably and generate cash in down markets; the ability to capture and maintain market share and to develop or take advantage of future opportunities, customer initiatives, new businesses, new products and new markets; expectations for Company and customer inventories, jobs and orders; expectations for the economy and markets or improvements therein; expectations for generating improving and sustainable earnings, earnings potential, margins or shareholder value; effects of judicial rulings; the ever-changing effects of the novel coronavirus (“COVID-19”) pandemic and the various responses of governmental and nongovernmental authorities thereto on economies and markets, and on our customers, counterparties, employees and third-party service providers; and other non-historical matters.

Because they are based on beliefs, estimates and assumptions, forward-looking statements are inherently subject to risks and uncertainties that could cause actual results to differ materially from those projected. Any number of factors could affect actual results, including, without limitation, those that follow: our ability to successfully realize the anticipated benefits of the Separation; the effect of conditions in national and worldwide financial markets, including inflation, increases in interest rates and economic recession, and with respect to the ability of financial institutions to provide capital; the impact of tariffs, the adoption of trade restrictions affecting the Company’s products or suppliers, a United States withdrawal from or significant renegotiation of trade agreements, the occurrence of trade wars, the closing of border crossings, and other changes in trade regulations or relationships; changing oil prices and/or supply; product demand and pricing; changes in product mix, product substitution and market acceptance of the Company’s products; volatility or fluctuations in the pricing, quality or availability of raw materials (particularly steel), supplies, transportation, utilities, labor and other items required by operations (especially in light of Russia’s invasion of Ukraine); effects of sourcing and supply chain constraints; the outcome of adverse claims experience with respect to workers’ compensation, product recalls or product liability, casualty events or other matters; effects of facility closures and the consolidation of operations; the effect of financial difficulties, consolidation and other changes within the steel, automotive, construction and other industries in which the Company participates; failure to maintain appropriate levels of inventories; financial difficulties (including bankruptcy filings) of original equipment manufacturers, end-users and customers, suppliers, joint venture partners and others with whom the Company does business; the ability to realize targeted expense reductions from headcount reductions, facility closures and other cost reduction efforts; the ability to realize cost savings and operational, sales and sourcing improvements and efficiencies, and other expected benefits from transformation initiatives, on a timely basis; the overall success of, and the ability to integrate, newly acquired businesses and joint ventures, maintain and develop their customers, and achieve synergies and other expected benefits and cost savings therefrom; capacity levels and efficiencies, within facilities, within major product markets and within the industries in which the Company participates as a whole; the effect of disruption in the business of suppliers, customers, facilities and shipping operations due to adverse weather, casualty events, equipment breakdowns, labor shortages, interruption in utility services, civil unrest, international conflicts (especially in light of Russia’s invasion of Ukraine), terrorist activities or other causes; changes in customer demand, inventories, spending patterns, product choices, and supplier choices; risks associated with doing business internationally, including economic, political and social instability (especially in light of Russia’s invasion of Ukraine), foreign currency exchange rate exposure and the acceptance of the Company’s products in global markets; the ability to improve and maintain processes and business practices to keep pace with the economic, competitive and technological environment; the effect of inflation, interest rate increases and economic recession, as well as potential adverse impacts as a result of the Inflation Reduction Act of 2022, which may negatively impact the Company’s operations and financial results; deviation of actual results from estimates and/or assumptions used by the Company in the application of its significant accounting policies; the level of imports and import prices in the Company’s markets; the impact of environmental laws and regulations or the actions of the United States

Environmental Protection Agency or similar regulators which increase costs or limit the Company’s ability to use or sell certain products; the impact of increasing environmental, greenhouse gas emission and sustainability regulations and considerations; the impact of judicial rulings and governmental regulations, both in the United States and abroad, including those adopted by the United States Securities and Exchange Commission (“SEC”) and other governmental agencies as contemplated by the Coronavirus Aid, Relief and Economic Security (CARES) Act, the Consolidated Appropriations Act, 2021, the American Rescue Plan Act of 2021, and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010; the effect of healthcare laws in the United States and potential changes for such laws, which may increase the Company’s healthcare and other costs and negatively impact the Company’s operations and financial results; the effect of tax laws in the United States and potential changes for such laws, which may increase the Company's costs and negatively impact its operations and financial results; cyber security risks; the effects of privacy and information security laws and standards; and other risks described from time to time in the Company’s filings with the SEC, including those described in the “Risk Factors” section of the information statement filed as Exhibit 99.1 to the Company’s Amendment No. 3 to its registration statement on Form 10 filed with the SEC on November 14, 2023.

Forward-looking statements should be construed in the light of such risks. The Company notes these factors for investors as contemplated by the Act. It is impossible to predict or identify all potential risk factors. Consequently, you should not consider the foregoing list to be a complete set of all potential risks and uncertainties. Readers are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date made. The Company does not undertake, and hereby disclaims, any obligation to update any forward-looking statements, whether as a result of new information, future developments or otherwise, except as required by applicable law.

WORTHINGTON STEEL, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF EARNINGS
(In millions, except per share amounts)

(Unaudited)

WORTHINGTON STEEL, INC.
CONSOLIDATED AND COMBINED BALANCE SHEETS
(In millions, except share amounts)

(Unaudited)

WORTHINGTON STEEL, INC.
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(In millions)

(Unaudited)

WORTHINGTON STEEL, INC.
NON-GAAP FINANCIAL MEASURES / SUPPLEMENTAL DATA
(In millions, except volume and per share amounts)

The Company reports its financial results in accordance with accounting principles generally accepted in the United States (“GAAP”). The Company also presents certain non-GAAP financial measures including (a) adjusted operating income, (b) adjusted earnings before income taxes, (c) adjusted income tax expense, (d) adjusted net earnings attributable to controlling interest, (e) adjusted net earnings per diluted share attributable to controlling interest, (f) net earnings before interest and taxes attributable to controlling interest (“EBIT”), (g) adjusted net earnings before interest and taxes attributable to controlling interest (“adjusted EBIT”), (h) net earnings before interest, taxes, depreciation and amortization attributable to controlling interest (“EBITDA”), (i) adjusted net earnings before interest, taxes, depreciation and amortization attributable to controlling interest (“adjusted EBITDA”), (j) free cash flow, (k) total debt less cash and cash equivalents (“net debt”), and (l) pro forma adjusted net earnings before interest and taxes attributable to controlling interest (“pro forma adjusted EBIT”).

These non-GAAP financial measures typically exclude impairment and restructuring charges (gains), but may also exclude other items that management believes are not reflective of, and thus should not be included when evaluating the performance of the Company’s ongoing operations. Management uses these non-GAAP financial measures to evaluate the Company’s performance, engage in financial and operational planning, and determine incentive compensation and believes these non-GAAP financial measures provide useful information to investors because they provide additional perspective on the performance of the Company’s ongoing operations. Additionally, management believes these non-GAAP financial measures provide useful information to investors because they allow for meaningful comparisons and analysis of trends in the Company’s business and enable investors to evaluate operations and future prospects in the same manner as management.

For the purposes of the subsequent tables, the non-GAAP measures have been adjusted for the items identified below:

The following provides a reconciliation to the non-GAAP financial measures adjusted operating income, adjusted earnings before income taxes, adjusted income tax expense, adjusted net earnings attributable to controlling interest and adjusted net earnings per diluted share attributable to controlling interest from the most comparable GAAP measures for the three- and twelve-month periods ended May 31, 2024 and May 31, 2023.

To further assist in the analysis of results for the periods presented, the following volume and net sales information for three- and twelve-month periods ended May 31, 2024 and May 31, 2023, has been provided along with a reconciliation of the non-GAAP financial measures adjusted EBIT and adjusted EBITDA to the most comparable GAAP measure, which is net earnings attributable to controlling interests. Net earnings margin is calculated by dividing net earnings attributable to controlling interest by net sales. Adjusted EBIT margin is calculated by dividing adjusted EBIT by net sales. Adjusted EBITDA margin is calculated by dividing adjusted EBITDA by net sales.

The table below provides a reconciliation from net earnings (loss) attributable to controlling interest (the most comparable GAAP financial measure) to the non-GAAP financial measures, EBITDA and adjusted EBITDA, for each of the past five fiscal quarters and the twelve months ended May 31, 2024, and the twelve months ended February 29, 2024.

The following provides a reconciliation of net cash provided by (used in) operating activities (the most comparable GAAP financial measure) to free cash flow for each of the past five fiscal quarters and the twelve months ended May 31, 2024. Free cash flow is a non-GAAP financial measure that management believes measures the Company’s ability to generate cash beyond what is required for its business operations and capital expenditures.

The following provides a reconciliation total debt (the most comparable GAAP financial measure) to the non-GAAP financial measure net debt. Net debt is calculated by subtracting cash and cash equivalents from total debt (defined as the aggregate of short-term borrowings, current maturities of long-term debt, and long-term debt). As of May 31, 2024, the Company has no long-term debt borrowings. The calculation of net debt as of May 31, 2024 and February 29, 2024 is outlined below.

To further assist in the analysis of results for the periods presented, the following information for the three- and twelve-month periods ended May 31, 2024 and May 31, 2023, has been provided along with a reconciliation of net earnings attributable to controlling interest (the most comparable GAAP financial measure) to pro forma adjusted EBIT. Pro forma adjusted EBIT is a non-GAAP financial measure that management believes includes incremental and on-going impacts to the Company’s operating results as a stand-alone public company resulting from the Separation from Former Parent. The pro forma financial information assumes the Separation occurred on June 1, 2022, the first day of the Company’s 2023 fiscal year.

The pro forma financial information has been prepared based upon the best available information and management estimates and is subject to assumptions and adjustments described in the accompanying footnotes. It is not intended to be a complete presentation of the Company’s financial position or results of operations had the Separation occurred as of and for the periods indicated. In addition, the pro forma financial information is being provided for informational purposes only, and is not necessarily indicative of the Company’s future results of operations or financial condition had the Separation and related transactions been completed on the dates assumed. Management believes these assumptions and estimates are reasonable, given the information available on the date of this release.

There were no incremental pro forma adjustments made for the three months ended May 31, 2024, given this period included the actual results of operating as a stand-alone public company. For the twelve months ended May 31, 2024, the adjustments included in the information below represent only the adjustments for the period prior to the Separation.

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Worthington Steel, Inc.

NYSE:WS

Earnings Call

Thursday, June 27, 2024 1:30 PM GMT

CALL PARTICIPANTS 2

PRESENTATION 3

QUESTION AND ANSWER 8

Call Participants

....................................................................................................................................................................

EXECUTIVES

Geoffrey G. Gilmore

President, CEO & Director

Jeffrey R. Klingler

Executive VP & COO

Timothy A. Adams

VP & CFO

Melissa Dykstra

Vice President of Corporate Communication & Investor Relations

ANALYSTS

Martin John Englert

Seaport Research Partners

Philip Ross Gibbs

KeyBanc Capital Markets Inc., Research Division

John Charles Tumazos

John Tumazos Very Independent Research, LLC

Presentation

....................................................................................................................................................................

Operator

Thank you for standing by. My name is Krista, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Worthington Steel's Fourth Quarter 2024 Earnings Conference Call.

[Operator Instructions] I will now like to turn the conference over to Melissa Dykstra, Vice President of Communications and Investor Relations. Melissa, you may begin.

Melissa Dykstra

Vice President of Corporate Communication & Investor Relations

Thank you, operator. Good morning, and welcome to Worthington Steel's Fourth Quarter Fiscal Year 2024 Earnings Call. On our call today, we have Geoff Gilmore, Worthington Steel's President and Chief Executive Officer; Jeff Klingler, Executive Vice President and Chief Operating Officer; and Tim Adams, Vice President and Chief Financial Officer.

Before we get started, I'd like to note that certain statements made today are forward-looking within the meaning of the 1995 Private Securities Litigation Reform Act. These statements are subject to risks and uncertainties that could cause actual results to differ from those suggested.

We issued our earnings release yesterday after the market closed. Please refer to it for more detail on those factors that could cause actual results to differ materially.

Unless noted, as reported, today's discussion will reference non-GAAP financial measures, which adjust for certain items included in our GAAP results and which are presented on a stand-alone basis. You can find definitions of each non-GAAP measure and GAAP to non-GAAP reconciliations within our earnings release.

Today's call is being recorded, and a replay will be made available later today on worthingtonsteel.com. Now I'd like to turn the call over to Geoff Gilmore.

Geoffrey G. Gilmore

President, CEO & Director

Thanks, Melissa, and thanks to everyone who is joining today's call. It is a good morning here at Worthington Steel. We saw solid results in Q4 and finished fiscal year 2024 strong. Our performance and our people continue to demonstrate that Worthington Steel is a unique steel processor poised for significant growth.

Our ability to deliver value-added solutions to our customers and flat-rolled steel processing, electrical steel laminations and tailor welded products is unique to our industry. Our goal is to continue our distinctive positioning by offering processes that are truly differentiating, positioning us to maintain and gain leadership in the areas we serve.

As we enter fiscal year 2025, our first full year as a stand-alone company, we remain focused on executing our strategy and driving shareholder value through organic growth and strategic M&A. We believe our strategy and differentiation help ensure we are well positioned to grow and deliver strong returns for our shareholders. We have achieved a great deal in just 6 months as Worthington Steel, but we know we have much to accomplish.

With the Worthington business system embedded in everything we do, we will work to execute our strategy of focused investments in the rapidly growing electrical steel market, which is growing faster than GDP, margin accretive growth through disciplined CapEx and selective acquisitions and transformation, our system of continuous improvement to increase margins, reduce working capital and add capacity.

Our enhanced leadership focus, created by the separation, is driving accountability and organizational alignment around our vision and status as one of the most trusted, most innovative and most value-added metals processing partners in North America and beyond.

Essential to continuing as a market leader is our strong culture. Earlier this month, we celebrated Founder's Day, marking John H. McConnell's first order of steel. As we look to our 70th year in 2025, the philosophy Mr. Mac voiced and embodied is alive and well here at Worthington Steel. We continue to treat our customers, employees, investors and suppliers as we would like to be treated.

Examples of our award-winning culture and our philosophy in action are evident in several milestones we achieved this quarter. We were named a top workplace in our headquarter city of Columbus, Ohio for the 12th year in a row. This is an award based on feedback from our employees, so that makes winning even more special to me.

Our Worthington Samuel Coil Processing joint venture was named Company of the Year for 2023 by the Cleveland Chapter of the Association of Women in the Metals Industries for supporting growth and advancement of women in the Cleveland metals industry.

In April, we were named a John Deere Partner-level supplier for the 12th consecutive year. That same month, we were recognized as a 2023 Supplier of the Year by General Motors. This is the third time in the last 4 years we've earned this distinction. Both of these honors are from longtime customers who value Worthington Steel's proactive, solution-focused way of doing business.

Our dedication to helping our customers create value, every single day continues to pay off. I'd like to recognize and thank Worthington Steel's 4,600 employees who support our customers, live our philosophy and help us achieve our Vision.

I am excited about the progress we've made and the opportunities in front of us. We continue to deliver on our commitment to advance our industry through partnership with our customers and suppliers. We have the right team and the best culture to help us continue generating a return for our shareholders. It is a great time to be in steel processing. As customer needs grow ever more unique, the demand for the products and services we offer will continue to expand.

I'll now turn things over to Jeff Klingler to comment on our operations.

Jeffrey R. Klingler

Executive VP & COO

Thanks, Geoff, and good morning, everyone. As Geoff mentioned, we had a good quarter, highlighted by public accolades from multiple groups. Our ability to serve our customers has a direct correlation to our focus on safety.

I'd like to start off by congratulating our employees on the improvements we saw in fiscal year 2024. While our ultimate goal is zero incidents, we saw a 25% reduction in recordable injuries in fiscal year 2024, and I'm proud of what the team has accomplished. Our best-in-class safety record and programs that drive that record are a clear reflection of our People First philosophy.

As we look at the operational overview for the quarter, let's start with a look at what we saw in our 2 largest end markets.

Sales to the automotive market made up 52% of fourth quarter fiscal year 2024 sales, the same as the fourth quarter of fiscal year 2023. The automotive market remains solid for us, and we believe North American light vehicle production could return to pre-COVID levels of more than 16 million units as early as next calendar year.

Our OEM customers anticipate more growth in the EV and plug-in hybrid market as adoption continues to grow. Our capital investments in our Mexico electrical steel facility will allow us to capitalize on this opportunity.

The construction industry remains the second largest market we serve. In the fourth quarter of fiscal year 2024, the construction market made up 14% of our sales, reflecting a modest increase over the fourth quarter of fiscal year 2023 when construction was only 12% of sales. The construction market is a large and diverse market. In the submarkets where we participate, we experienced strength in the fencing, metal building and culvert markets.

Turning to operational highlights for the quarter, our large capital projects related to electrical steel continue to be on track and on budget. 3 of the 5 new presses arrived at our electrical steel facility in Mexico during Q4. We are finalizing the installation of the first press, and we'll turn our attention to the second and third presses in the near future.

We are also making good progress with respect to our commercial efforts to win new business for electrical vehicle programs. We have secured enough orders to fill 3 of the initial 5 presses when the OEM programs are running at full production. Once the presses are installed, we will move to the next phase, where we will produce trial orders for our customers and prepare for production-level volumes expected in the fall of 2025.

Our Canada electrical steel expansion project is also progressing well from a commercial standpoint. We have been awarded enough new business to fill 50% of the new capacity as customers look to close the backlog in their transformer order book. Our Canada expansion remains on track, and we expect the facility to be operational by the end of calendar year 2025.

Last quarter, I talked about our newly licensed ablation technology for our tailor-welded blanks business. This will allow us to process many more automotive applications, including pillars, rails, cross car beams and door rings. In fact, we believe it opens up new products and opportunities for us in the existing welded blank market by about 30%. I'm pleased to share we are already receiving customer interest and orders.

We continue to be pleased with the reception from our customers as it relates to our large projects, as well as our newest electrical steel facility in Nagold, Germany. Our customers are enthusiastic about all 3 projects, and our list of potential commercial opportunities continues to grow.

Alongside this, we continue to use Transformation, our system of continuous improvement. We apply the transformation systematically in our plants as we look to improve safety, reduce inventory and scrap and enhance our overall productivity and performance. Our facilities are working on multiple transformation projects each year to optimize our processes and improve efficiencies.

In a recent example, our teams found a way to streamline material flow from the supplier to the customer. At one of our largest facilities, this transformation work has reduced work in process, improved process cycle times by 4 days and improved finished goods cycle times by 2 days.

This creates a more organized workflow and a safer environment for our employees. We expect it will also reduce working capital, allow us to respond more quickly to customers and make us even easier to do business with.

We are using those same tools and principles to apply the transformation to our corporate functions. We believe we will find efficiencies in these areas that will make us better partners and improve our bottom line. It's been an exceptional quarter, and our teams continue to perform and innovate, always with an eye towards safety.

I'll close my comments with a sincere thank you to everyone at Worthington Steel and turn the call over to Tim Adams.

Timothy A. Adams

VP & CFO

Thank you, Jeff, and good morning, everyone. Before I provide some color on the quarter, I would like to remind everyone that the current year fourth quarter consolidated results on a stand-alone basis are compared with a prior-year quarter, which was prepared on a carve-out basis.

We finished our fiscal year with a strong quarter, reporting fourth quarter earnings of $53.2 million or

$1.06 per share as compared with the prior-year quarter earnings of $67.3 million or $1.37 per share.

The prior-year quarter included several unique items, including pretax separation expense of $5.5 million or $0.07 per share and a pretax impairment charge of $1.8 million or $0.03 per share related to idled equipment. Excluding these items, we generated earnings of $1.06 per share in the current quarter compared with $1.47 per share in the prior-year quarter.

In addition, in the fourth quarter, we had estimated pretax inventory holding losses of $3.4 million or

$0.05 per share compared to estimated pretax inventory holding gains of $32.6 million or $0.50 per share in the prior-year quarter and unfavorable pretax swing of $36 million or $0.55 per share.

In the fourth quarter, we reported adjusted EBIT of $70.4 million, which was down $28 million from the adjusted EBIT of $98.4 million in the prior-year quarter. This decrease was primarily due to lower gross margin, which was impacted by lower direct material spreads, including the impact of the estimated pretax inventory holding losses. Lower direct spreads were partially offset by higher toll spreads due to an improved mix within toll processing.

Additionally, SG&A was up $10.6 million from the prior year, primarily due to incremental costs associated with being a stand-alone company, higher incentive compensation and benefits cost and a $3.7 million swing in bad debt expense. In the prior-year quarter, we recognized income of $2 million associated with bad debt compared with $1.7 million of expense in the current-year quarter. We believe the bad debt expense variance is an isolated matter that is not expected to reoccur.

Fourth quarter results also included recognition of the final unfavorable tax court ruling related to a preacquisition Tempel matter, for which we were indemnified by the former owners of Tempel. The net impact on earnings is zero. However, we recognized $2.8 million of miscellaneous income related to the indemnity receivable and an additional $2.8 million of tax expense.

Next, I will provide some commentary on the market and our shipments. Similar to what we experienced over the past year, steel market pricing was volatile over the quarter.

Since hot rolled prices peaked in mid-January at $1,100 per ton, the market price for steel has been unsettled. Hot rolled prices fell to $750 per ton in March, increased in April, then fell back to $750 per ton in May. The hot rolled market recently decreased further with pricing in the range of $675 per ton.

With the decreases in market pricing, we expect estimated inventory holding losses in the first quarter of fiscal 2025 will be higher than the $3.4 million of estimated inventory holding losses in the fourth quarter. We estimate those losses could be approximately $15 million to $20 million on a pretax basis.

Net sales in the fourth quarter was $911 million, up 3% from the prior-year quarter, primarily due to slightly higher direct pricing and a favorable mix within toll processing, which included more high value- added processing. We shipped just over 1 million tons during the fourth quarter, which was down 2% compared with the prior-year quarter. Direct sales volume made up 58% of our mix in the fourth quarter compared with 57% in the prior-year quarter.

Direct sales volumes were down 1% over the prior-year quarter, with an increase in construction- related volume that was more than offset by softness in most other markets. Specifically as it relates to

construction, we utilized some open capacity to take on some spot in shorter-term construction business.

Direct sales volume to the automotive market was down 1% compared to the prior-year quarter. The decrease was primarily due to several programs reaching their end of life, while the replacement platforms experienced launch delays.

Our automotive book of business continues to be healthy, making up 52% of our sales in the fourth quarter. Our technical and commercial teams worked closely with our customers to provide solutions that help customers meet their challenges. The recent Supplier of the Year award from General Motors that Geoff Gilmore mentioned, is a result of our dedication to helping customers succeed.

Toll tons were down 3% year-over-year, primarily due to decreased toll pickling with the mills. However, the mix of toll volume was more heavily weighted towards higher value-added products, including galvanizing and tailor-welded blanking. We're cautiously optimistic about the next few quarters.

Our fourth quarter tends to be our strongest quarter from a volume standpoint, so we would expect the normal seasonal drop-off in volume during the summer months related to the automotive market. In addition, our fourth quarter benefited from a higher mix of galvanized in both our direct and total order books.

Turning to cash flows and the balance sheet. Cash flow from operations was $35.6 million, and free cash flow was an outflow of $9.2 million. During the fourth quarter, we spent $44.8 million on capital expenditures related to a variety of projects, including the previously announced electrical steel expansions in Mexico and Canada. On a trailing 12-month basis, we generated $96 million of free cash flow.

Yesterday, we announced a quarterly dividend of $0.16 per share payable on September 27, 2024. In regard to our balance sheet, operating working capital increased $25.1 million during the fourth quarter, primarily due to a reduction in payables.

We ended the quarter with $40.2 million of cash, which is down $20.6 million from the third quarter due to spending on various strategic capital projects. Our ABL debt on May 31 was $148 million, resulting in net debt of $107.8 million.

In summary, Worthington Steel had an excellent fourth quarter, and all of our teams performed very well. Everyone at Worthington Steel continues to be focused on driving value for our stakeholders on both a near-term and long-term basis. I'm proud of our teams for their dedication and for their continued commitment to safety.

At this point, we would be happy to take your questions.

Question and Answer

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Operator

[Operator Instructions] Your first question comes from Martin Englert with Seaport Research Partners.

Martin John Englert

Seaport Research Partners

Wanted to circle back and discuss just the overall profitability within steel EBITDA per ton, and some of this you alluded to in the discussion, but excluding the holding losses for the quarter, which were fairly minimal, I mean the underlying EBITDA seemed like it might have been a high watermark versus history. I understand it's not exact apples-to-apples, given the separation.

And so you called out higher mix of galv(anizing) and a favorable mix in tolling as maybe some of the drivers, but what I'm getting at is the sustainability of that type of underlying EBITDA. Or is this more of a, it was a good quarter and we had a favorable mix, higher galv(anizing), good margins on toll processing, and this is maybe a little bit of an anomaly relative to history?

Timothy A. Adams

VP & CFO

Yes, Martin, this is Tim. I think you answered your own question. I think it was -- overall, we had a very good mix this quarter. And within toll, we had some, galvanizing -- additional galvanizing tons as well as tailor-welded blanks tons. And then within direct, it was a lot more galv(anizing) as well.

We also picked up some spot business in there. You didn't mention that, but we picked up the spot business there in the construction market, and that was higher margins as well. So those were the big drivers for that.

Martin John Englert

Seaport Research Partners

Okay. That's helpful. I appreciate that. Can you discuss what you're seeing -- and again, you alluded to this when you talked about seasonality, but maybe a little bit more specific in July and overall automotive planned downtime. How is that looking maintenance schedules versus last year and versus history? And any comment as far as inventories in the auto supply chain that you're seeing?

Timothy A. Adams

VP & CFO

This is Tim again. Let me start just to talk about seasonality in general for us, and then I'll hand it over to Jeff Klingler to talk a little bit about what he's seeing in automotive.

So we went back and we looked at our seasonality quarter-by-quarter. So if you take our direct tons and divide it by 4 quarters, what you typically see for us is Q1 is what I would call the average quarter. When you look at Q2 and Q3, those tend to be down from a direct volume standpoint, 3% or 4%. And then when you look at Q4, that tends to be up 6% or 8%.

So Q1 perspective, it's an average quarter for us. So overall, what I'm trying to say is Q4 is our strongest, and Q1 tends to be the second strongest. Jeff, do you want comment on automotive?

Martin John Englert

Seaport Research Partners

I apologize for interrupting, but just to clarify, you're discussing negative 3% to 4% and up 6% to 8% versus the quarterly average for any given year. Is that seasonality?

Timothy A. Adams

VP & CFO

Yes, versus the simple average.

Martin John Englert

Seaport Research Partners