Worthington Steel, Inc.

The following table presents a review of the results of operations for the periods presented:

Net sales totaled $871.9 million in the second quarter of fiscal 2026, up $132.9 million, or 18%, compared to the second quarter of fiscal 2025. The increase was driven primarily by higher direct volumes and, to a lesser extent, higher average direct selling prices. The increases were partially offset by lower toll volumes as well as slightly lower average toll selling prices due to product mix. Direct tons sold increased by 13%, of which the Sitem acquisition accounted for approximately 2% of the increase, and toll volumes decreased 24% in the second quarter of fiscal 2026 compared to the prior year quarter. The decrease in toll volumes was primarily related to lower toll volumes from WSCP due to the closure of the toll processing manufacturing facility in Cleveland, Ohio in May 2025, as well as lower demand from mill customers. Direct selling prices increased 7% and toll selling prices decreased 4% in the second quarter of fiscal 2026 compared to the prior year quarter. The mix of direct versus toll volumes was 65% to 35% in the second quarter of fiscal 2026 compared to 55% to 45% in the prior year quarter.

Gross Margin

Gross margin increased $13.2 million over the prior year quarter to $93.2 million, primarily due to higher direct spreads and higher direct volumes, partially offset by lower toll margins. Higher direct volumes favorably impacted gross margin by $16.5 million. Direct spreads, up $6.5 million, were impacted by a $6.2 million favorable change from an estimated $13.4 million inventory holding loss in the prior year quarter to an estimated $7.2 million inventory holding loss in the second quarter of fiscal 2026. Toll margins, down $10.5 million, were negatively impacted by $7.7 million due to lower volumes and by $2.7 million due to an unfavorable change in toll mix. Sitem Group contributed $1.6 million in gross margin.

Selling, General and Administrative Expense

SG&A increased $9.8 million over the prior year quarter primarily due to an increase in compensation expense of $6.9 million and professional fees of $2.4 million partially offset by lower bad debt expense of $2.0 million. Included in those reported expenses was Sitem Group, which reported $2.5 million of SG&A in the second quarter of fiscal 2026.

Other Operating Items

Impairment of assets in the second quarter of fiscal 2026 was due to a pre-tax impairment charge of $0.6 million on certain machinery at our manufacturing facility in Taylor, Michigan. Refer to “Note 1 – Description of Business and Basis of Presentation” for additional information.

Miscellaneous Income (Expense), Net

Miscellaneous income (expense), net decreased $3.9 million over the prior year quarter primarily due to the annuitization of a portion of the total projected benefit obligation of the inactive Tempel Steel Pension Plan in the second quarter of fiscal 2025, which resulted in a pre-tax, non-cash settlement gain of $2.7 million to accelerate a portion of deferred pension cost and recognition of a pre-tax gain of $1.5 million related to the sale of unused land in China. Additionally, in the second quarter of fiscal 2026, there were foreign currency remeasurement losses of $0.1 million versus foreign currency remeasurement losses of $0.7 million in the prior year quarter, primarily related to exchange rate movements in Mexico offset by exchange rate movements in Canada and Europe.

Interest Expense, Net

Interest expense, net increased $0.6 million from the prior year quarter primarily due to higher average debt levels as a result of debt assumed in the Sitem Group acquisition, higher debt levels on the BDC loan, and higher interest expense on the Credit Facility (higher average debt levels offset by lower average interest rates). These increases were offset by higher interest income. Refer to “Note 7 – Debt” for additional information.

Equity Income

Equity income at Serviacero Worthington increased $7.7 million from the prior year quarter, driven by higher direct spreads, including inventory holding gains, as well as favorable foreign currency exchange impacts.

Income Taxes

Income tax expense was $4.2 million in the second quarter of fiscal 2026 compared to $3.6 million in the prior year quarter. The increase in income tax expense was primarily driven by higher pre-tax earnings in the current quarter offset by items related to excess tax benefits related to share-based compensation recognized in the current quarter. The income tax expense in the current quarter resulted in an ETR of 18.2%, compared to 22.2% for the prior year quarter. For additional information regarding our income taxes, refer to “Note 10 – Income Taxes.”

Adjusted EBIT

We evaluate operating performance on the basis of earnings before interest and taxes (“EBIT”), as adjusted for certain items (“adjusted EBIT”). EBIT, a non-GAAP financial measure, is calculated by adding interest expense and income tax expense to net earnings attributable to controlling interest. Adjusted EBIT, a non-GAAP financial measure, excludes impairment and restructuring expense (income), net, but may also exclude other items, as described below, that management believes are not reflective of, and thus should not be included when evaluating the performance of our ongoing operations. Adjusted EBIT is used by management to evaluate operating performance and engage in financial and operational planning, because we believe that this financial measure provides additional perspective on the performance of our 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 our businesses and enable investors to evaluate operations and future prospects in the same manner as management.

The following table provides a reconciliation of net earnings attributable to controlling interest (the most comparable GAAP financial measure) to adjusted EBIT for the periods presented:

(1)

Impairment charges are excluded because they do not occur in the ordinary course of our ongoing business operations, are inherently unpredictable in timing and amount, and are non-cash, so their exclusion facilitates the comparison of historical, current and forecasted financial results. Non-cash impairment charge in the second quarter of fiscal 2026 was driven by a pre-tax impairment charge of $0.6 million on certain machinery at our manufacturing facility in Taylor, Michigan. Refer to “Note 1 – Description of Business and Basis of Presentation” for additional information.

(2)

Pension settlement gain reflects the pension lift-out transaction to transfer a portion of the total projected benefit obligation of the Tempel Employees Pension Plan to a third-party insurance company, which resulted in a pre-tax non-cash gain, is excluded as it is not part of our ongoing operations.

(3)

Gain on land sale reflects the sale of unused land on the campus of the Tempel China, which resulted in a pre-tax gain, is excluded as it is not part of our ongoing operations.

(4)

Other loss, net, reflects the following items reported in miscellaneous income (expense), net, which are excluded as they are not part of ongoing operations:

o

Net insured loss incurred for damage as a result of a small, quickly contained fire at Tempel Canada. We recognized a $0.5 million pre-tax loss equal to the amount of the insurance deductible.

o

Environmental reserve settlement pre-tax gain of $0.2 million recognized by Tempel Canada as the result of a prior indemnification with the former owners of the Canadian facility.

Adjusted EBIT in the second quarter of fiscal 2026 was up $12.3 million compared to the second quarter of fiscal 2025 primarily due to a $13.2 million increase in gross margin and higher equity income from Serviacero Worthington, partially offset by an increase in SG&A.