Worthington Industries, Inc. Price & Performance (WOR)

Thank you, Sarah. Good morning, everyone, and thank you for joining us for Worthington Enterprises third quarter fiscal twenty twenty five earnings call. On our call today, we have Joe Hayek, Worthington's President and Chief Executive Officer and Colin Souza, Worthington's 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. In addition, our discussion today will include non GAAP financial measures. A reconciliation of these measures with the most appropriate comparable GAAP measure is included in the earnings press release is available on our Investor Relations website. Today's call is being recorded and a replay will be made available later our WorthingtonEnterprises.com website. This point, I will turn the call over to Joe for opening remarks. Thank you, Marcus, and good morning, everyone. Welcome to Worthington Enterprises fiscal twenty twenty five third quarter earnings call.

I'd like to start by thanking our entire team. We had a great quarter and set Q3 records in production and shipments, That does not happen without our teams working safely. Something we all commit to every single day. Also reflects the phenomenal work our teams have done in the past twelve months understanding and working with our customers to ensure that our solutions are the right solution delivered on time. We delivered year over year and sequential growth in both adjusted EBITDA and earnings per share. Adjusted EBITDA margin in the quarter was 24% versus 21% in a very strong Q3 a year ago. Net sales were down $12,000,000 or 4% from the prior year when SCS contributed $35,000,000 in sales But excluding the impact of SCS in both periods, our revenues grew by over 8%. In Q3. That growth was driven by the inclusion of Regasco, improved demand as we return to more seasonally normal trends across our value streams an improved mix, and continued share gains in many end markets. Our results in Q3 are the product of the great job our teams have continued to do as we optimize our current business and grow Worthington. We continue to leverage the Worthington business system and its three growth drivers, innovation, transformation and M and A to maximize both our near and long term success.

As I've said before, of the key areas where we excel is our ability to understand and solve our customers' challenges and partner with them to help drive their success through innovation, and by opening and expanding new markets. Me share a few examples. During Q3, our Building Products team launched our latest IoT enabled product, SureSense, a wireless propane level sensing technology. When it's inserted into a large format heating tank, it provides extremely accurate and reliable digital fill readings that are set directly to our customer. SureSense helps make these propane marketers more efficient and reduces costly customer run outs. Ultimately helping them be more successful. Just last week, our consumer products team launched the Balloon Time Mini Helium Tank which is now available at Target stores nationwide. The innovative design is easy to carry and store making it convenient for at home and on the go celebrations. Its relatively small size also creates more opportunities for distribution in grocery and convenience stores that haven't been able to carry our traditional tanks because of their size. Our Building and Consumer products teams are also increasingly working together to bring innovative product offerings and solutions to customers. A great example of this is Tractor Supply.

Where we leveraged our commercial relationships to gain share and expand the breadth of our products available in the largest rural lifestyle retailer in The U. S. Now you can find Worthington products suitable for home, commercial and agricultural applications in all Tractor Supply locations nationwide. We continue to invest in transformational change as well. Part of thinking like a start up is prioritizing speed and agility in our frontline manufacturing operations. We're investing in automations, and have substantially completed one of our facility modernization projects and are on track with the other. We're also embracing AI across our facilities and in our back office function and we're continuing to adopt new ways of thinking. For example, in early March, we launched an eightytwenty project in our Water business which we believe will enable us to better prioritize our products and align our manufacturing to optimize the growth and the margins of that business. Last year, we talked about some of the awards our Halo Griddles have won. We're pleased to share that later this year you'll be able to buy a Halo griddle at select Walmart stores. An example of our strategy of acquiring innovative products with emerging brands and leveraging our capabilities and relationships to broaden the reach of those brands.

And another example of adding value to our acquisitions Level five just launched Destination Drywall with Sherwin Williams, Our Level five drywall tools can now be found by contractors and DIYers in 3,500 Sherwin Williams locations nationwide. As evidenced by those two examples, M and A, enhanced by the Worthington Business System is an important growth driver for us. Our strong balance sheet and liquidity give us the financial flexibility to pursue additional growth through acquisitions we continue to focus on acquiring market leading businesses that we can add value to and that will be accretive to our margins, free cash flows and competitive position. As we head into the spring, our Q4 and ultimately into our fiscal twenty twenty six, we're very excited about the platform that we have built and the future that we have in front of us. We are confident that our market leading brands and outstanding value propositions anchored and supported by our unique and powerful people first performance based culture will enable us to accelerate the profitable growth of our business and create more long term value for shareholders. Will now turn it over to Colin, who will take you through some details related to financial performance in the quarter.

Thank you, Joe, and good morning, everyone. We delivered strong earnings growth in Q3 reporting GAAP earnings from continuing operations of $0.79 per share versus $0.44 in the prior year quarter. There were a few unique items that impacted our quarterly results including the following: The current quarter was negatively impacted by net pretax restructuring, and other charges of $5,000,000 or $0.12 per share, primarily due to an earn out associated with the Regasco acquisition. Results in the prior year quarter were negatively impacted by $36 per share due to several items, the largest relating to the separation of our former steel processing business along with a charge to annuitize a legacy defined benefit pension plan. Excluding these items, we generated adjusted earnings from continuing operations of $0.91 per share in the current quarter marking a strong quarter for us as Worthington Enterprises. This represents an increase from $0.80 per share Q3 of the prior year. Consolidated net sales for the quarter were $3.00 5,000,000 a 3.9% decrease from $317,000,000 in the prior year quarter This decline was primarily due to the deconsolidation of our former Sustainable Energy Solutions segment which contributed $35,000,000 in sales last year. However, this was partially offset by contributions from the Regasco acquisition and higher overall volumes.

Excluding SES in both periods, sales grew over 8%. Gross profit increased significantly to $89,000,000 up from $73,000,000 in the prior year quarter. Reflecting an expansion in gross margin of approximately six twenty basis points to 29.3%. Adjusted EBITDA for the quarter was $74,000,000 up from $67,000,000 in Q3 of last year and up sequentially from $56,000,000 in Q2. Our adjusted EBITDA margin in the quarter was over 24% compared to 21% last year, And on a trailing twelve month basis, adjusted EBITDA now stands at $242,000,000 with the TTM adjusted EBITDA margin of 21%. Turning to our cash flow and balance sheet. We continue to invest in our operations while maintaining a disciplined approach to capital allocation. During the quarter, we invested $13,000,000 in capital projects including $8,000,000 related to our ongoing facility modernization initiative. We also returned capital to shareholders paying $8,000,000 in dividends and repurchasing 150,000 shares of our common stock for $6,000,000 Our joint ventures remain strong contributors, generating $35,000,000 dividends during the quarter, a 110% cash conversion rate on that equity income. Cash flow from operations for the quarter was $57,000,000 and we generated $44,000,000 in free cash flow. On a trailing twelve month basis, free cash flow totaled $144,000,000 representing a 104% free cash flow conversion rate relative to our adjusted net earnings over the same period.

Turning to our balance sheet and liquidity We closed the quarter with $294,000,000 in long term funded debt carrying an average interest rate of 3.6%. Along with $223,000,000 in cash. Our leverage remains extremely low with ample liquidity supported by a $500,000,000 undrawn bank credit facility, positioning us well for future growth and flexibility. Net debt at quarter end was $71,000,000 resulting in a net debt to trailing EBITDA leverage ratio of approximately a quarter turn. Yesterday, our Board of Directors declared a quarterly dividend of $0.17 per share payable in June 2025. I'll now spend a few minutes on each of the businesses. In Consumer Products, Q3 net sales grew 5% year over year to $140,000,000 driven by higher volumes. Adjusted EBITDA was $29,000,000 with a 20.5% margin compared to $26,000,000 and 19.3% in Q3 last year. The quarter benefited from higher gross profit dollars and improved gross margin percent though these gains were partially offset by increased SG and A as we continue to invest in the business for future growth. Additionally, within SG and A, we recorded a $1,000,000 charge related to a customer that filed for bankruptcy during the quarter. Our consumer team continued to execute well in Q3 delivering solid results despite ongoing macroeconomic uncertainty.

While we recognize that broader uncertainty could impact consumer sentiment and future demand, remain optimistic heading into the spring and outdoor season. Our commitment to delivering essential products for outdoor living celebrations and tools combined with our diverse product portfolio strong brand positioning and deep retail relationships positions us well to navigate near term challenges while we continue to focus on long term growth opportunities. Building Products Q3 net sales grew 11% year over year to $165,000,000 up from $148,000,000 in the prior year quarter. This growth was primarily driven by the Regasco acquisition along with a more favorable product mix particularly on our large format heating business which has returned to seasonally normal levels following last year's destocking cycle. Adjusted EBITDA for the quarter was $53,000,000 with a 32% margin compared to $53,000,000 and 36% margin in the same quarter last year. Sequentially, the business continued to improve adjusted EBITDA and margin rising from $47,000,000 and 30% in Q2 The year over year increase in adjusted EBITDA was driven by strong performance within our heating, cooling and water businesses. However, this was largely offset by a lower equity earnings from our joint ventures, particularly ClarkDietrich, which declined $8,000,000 year over year, but still contributed a solid $9,000,000 in equity earnings for the quarter.

Clark Petriks results were negatively impacted by the decline in steel prices which led to margin compression. They also faced a slight headwind from unfavorable weather conditions, temporarily disrupted some customer job sites during the quarter. WAVE continued to execute exceptionally well in a flat market contributing $25,000,000 in equity earnings down slightly from $26,000,000 in the prior year quarter. The building products team continues to navigate the current environment well, demonstrating resilience and adaptability in serving our customers. Our products are critical to heating, cooling, construction and water infrastructure and we remain well positioned to meet customer needs and capture market share through new product innovations, reliable service and a strong commitment to execution. Our joint ventures continue to provide steady contributions in despite some current macroeconomic uncertainty, we are confident in the long term opportunities in commercial construction and repair and remodel activity. As market conditions improve, we are well positioned to drive long term growth while supporting our customers and strengthening our competitive position. At this point, we're happy to take any questions.

Please ensure you are not on speakerphone and that your phone is not on mute when call Your first question comes from Kathryn Thompson of Thompson Research Group. Your line is open. Hi, thank you for the color today you gave and prepared commentary. But one thing just wanted a couple of things I want to focus on. First, kind of the obvious in terms of tariffs had some commentary, but give more color in terms of how tariffs are being navigated in today's market? Versus the ones that were implemented in the first administration? And, is this an opportunity for you in terms of pricing? And are are you seeing any type of supply issues that are are disruptive at all to the business? Thank you.

Hey, good morning, Catherine. Thank you for the question. No, it's certainly the tariffs and trade related uncertainty are certainly on a lot of people's minds. We talked about this a little bit in December on our call. But one of the things that we said then it was just certainly still very true now is that we think we're pretty well positioned in any scenario. It's also as you know a pretty fluid environment right now So we'll tell you what we know and how we feel about it, but we understand as I know you do, that things will potentially change tomorrow or next week. But so we're primarily a domestic manufacturer and that is a competitive strength for us. We've got diversified sourcing capabilities that provide us some flexibility but we're also pretty focused on being good partners for our customers. And so we understand the potential impacts on us, various trade policies and what it means for our customers, And we also learned a lot in 2021 and 2022, to your question about kind of supply chain. From the supply chain related issues that happened post COVID. So where we do see increases in our cost prospectively, or currently, We've got a few options in our toolkit.

One, we can work with some of our suppliers to offset some or all of those increases. Two, we were always trying to find other efficiencies to mitigate some of those increases and three, I think which is what you asked about price increases. And we have announced pending price increases on many of our products. But we're pretty confident in our strategy and our ability to manage cost pressures that might come our way. And then since we are primarily a domestic manufacturer, we haven't yet seen a really material uptick in demand that we think directly related to tariffs.

But we have seen an increase in inquiries in some of our value streams where we compete against imports. And so generally speaking, we would be a net beneficiary from tariffs, although we do obviously have some things that we would need to continue to work through. And so the specifics are pretty fluid and they're subject to change with what's coming out of DC. But we did see this coming and we feel like our approach is the right one. We're also pretty confident that the administration is focused on creating a more level playing field for S. Manufacturers like us. But I think it's also true that they really want to avoid reigniting inflationary pressures, which is certainly a sentiment that we would agree with.

Okay. Perfect. Thanks very much for that. Also, to just any puts and takes in terms of the core products EBITDA margin, and the contributing factors for progress in that segment? And then as a follow on, just with your JVs, just kind of sequentially no, year over year comps year over year optics pretty tough, but sequentially flattish and also any type of outlook and what you're seeing with WAVE and CLARDIETRAVE.

Thanks very much.

Sure. Catherine, I'll let Colin talk through building products I think I think which is what you're asking about, and then I'll hit the JV's. Yes. Yeah.

Catherine, so, I think we were very pleased with on the building product side, in particular, the wholly owned business margin, so heating cooling, construction, water, Year over year, that business, if you exclude the JVs, is up from an EBITDA margin perspective. From 6% to 11%. So really good performance there. We're seeing a positive mix shift and return to seasonally normal demand levels in a number of our markets and products there. So that team continues to execute very well and has done a really good job to help offset the big headwind in the quarter, which was ClarkeDietrich's year over year results down pretty big from last year. They contributed $9,000,000 in quarter, but that was still an $8,000,000 headwind for us, which the heating, cooling, construction and water business helped overcome. So very pleased with the results there. And then with respect to Wave and Clark Dietrich, Wave had a pretty tough comp as to how some of the months laid out, but we think kind of a a flattish market for them, but very steady Their strategy is very sound. One of the big growth markets for them going forward is is data centers. They've been selling into data centers with their traditional products, but post the acquisition of DCR for them, they've really sort of trained their NPD sites on data center and have some pretty exciting things that they're working about working on.

And so we're pleased with that. And WAVE ultimately is always there for its customers. They have world class on time delivery. They have Six Sigma quality. And so they're going to be fine, I think, in any kind of a flat market. Clark Dietrich, we talked about a little bit of the headwinds there. They had had an amazing Q3 a year ago. We obviously knew that wasn't going to be the same. And so they're executing really well. And one of the things that we've seen is a little more increase in volatility in steel prices and that is an advantage for Clark Dietrich going forward. It hasn't been massive the way that it was a few years ago, but when when there are volatile steel prices markets out there, that that benefits ClarkDietrich because they are nationwide and very sophisticated. They're a proven supplier and partner to a lot of their customers. And so we see increases in volatility and slight upticks in steel prices as relatively speaking a good guide for them.

Okay, great. Thank you so much.

You're welcome.

The next question comes from Daniel Moore of CJS Securities. Your line is open.

You, Joe and Brian Marcus Good morning. Thanks for taking the questions.

I wanted to start with margins Gross margin, we talk a lot about consolidated, but spiked about 29%, clearly some favorable seasonality there. Just talk about the puts and takes, any unusual good guys in the quarter? And how do you how should we think about sort of Q4, more importantly, annualized range or run rate as we look into '26?

Yeah. Hey, Dan. Thanks for the question. Just some of the highlights. Obviously, we we did see six twenty basis points of gross margin expansion year over year, which is great. Last year consisted of we had our SES business unit contributing revenue and margin as well. So we deconsolidated that as we put that business unit into a joint venture. That led to roughly 300 basis points of the margin expansion. And then in the Building Products and Consumer Products business, we have some good positive mix shift there with some higher demand in some of the categories that we called out. And then more of a unique item in the building products business, we had a LCM adjustment last year that didn't repeat due to a product we sourced and brought in. So that helped expand some margins. Year over year from that perspective. So 29% gross margins, we feel, are pretty good. Q3 in Q4 are typically are seasonably strongest quarters of the year. And over time, I think our goal, as you know, is to try to sustain margins in the high [indiscernible] And we think we have a good good plan in place to try to execute that over time.

Very helpful. Appreciate it. Shifting gears, to consumer segment. Clearly, it's tough to know with precision, but any sense for how much of the volume growth in the quarter is restocking or stocking at new customers versus more true end market demand? Yeah. Hey, Dan. It's Joe. You know, q three for consumer last year was a really strong quarter. It was even stronger this year. One of the things that we worked really hard on was preparing our customers, our retailers for potential surge demand. It obviously happened a little bit in the fall with some of the and then in the winter with some of the cold weather and some of the storms that we saw. So it was really important to us to make sure that we didn't have a situation where people weren't prepared and so bought bought way ahead. Because last year what you then saw was that Q4 there was some destocking. And so we were helpful to our customers in that regard. And so what we saw towards the tail end of Q3 and into Q4 is that supply is fine. Orders are tracking. Kind of point of sale details. And so we feel like we were pretty successful there.

And I know that our retail partners and customers very much appreciated that We do think that there was probably a little bit of a positive impact from the storms and from the weather. It helped drive some demand in consumer. It helped drive a little bit of demand in our heating business within building products. But ultimately it actually was a little bit of a headwind for ClarkDietrich because their customers couldn't be on job sites for several days because of the cold. So we would probably estimate that as a good guide of about $05 a share. EPS wise. Great, Joe. Very helpful. And then last for is is just free cash flow conversion has been really strong on a trailing basis. You know, how should we kinda think about the sustainability of that and know, looking free cash flow conversion as we think about maybe fiscal twenty six versus what we've seen year to date here. And then, you know, bought back a hundred and 50,000 shares in the quarter. Would you expect to maintain similar cadence if shares remain at or near current levels? Thanks again.

Yes. Thanks, Dan. The maybe I'll hit the last question first with just capital allocation. We'll continue to be balanced. Across that with bias towards growth As you know, we've talked about that from time to time. So we will always monitor our shares and buyback at a minimum to offset dilution. But also more opportunistically if we see fit. Our bias towards growth, we're always monitoring from an M and A standpoint. That's a key part of our growth strategy. And we always have opportunities that we're looking at and assessing and assessing for fit and with our strategy and we'll we'll pull the trigger on those when it makes sense. And then from a CapEx standpoint, as you know, we're going through some facility modernization projects. We've completed one on the building product side. And on the consumer product side, that one's been ramping up over the past few quarters. We still have another six to eight quarters to go and $50,000,000 or so of spend on that project over the next six to eight quarters The bulk of that will be in fiscal year twenty twenty six. So from a free cash flow conversion perspective, I think we were pleased at $144,000,000 of free cash flow and a conversion over 100% I think we would try to target that and do better over time.

You know, notwithstanding some of the the CapEx I talked about earlier.

Very good. Thank you again for the color.

Yep.

Thank you, Dan.

The next question comes from Susan Maklari with Goldman Sachs. Your line is open.

Good morning. This is actually Charles Perron in for Susan this morning. Thanks for taking my question. Sure, Charles. Good morning. Morning. First, I want to go back on the revenue and the volume initiatives for consumer building products. You highlighted several initiatives around product launches in your prepared remarks to drive organic growth over time.

Can you maybe unpack how much these initiatives contributed to the growth this quarter?

And how much they can allow you maybe to outperform the underlying market growth when you think about calendar twenty twenty five?

Yes. It's a good question. [indiscernible] launches and the things that I specifically mentioned actually contributed next to nothing in the quarter because they're all happening right now. Now we have initiatives all over the place all the time, right? And so some of those are in fact kind of contributing to revenue growth. And margin uplift etcetera. Charles. But ultimately when we think about kind of where we are in a lot of our businesses we have a lot of our value streams we have pretty good market share. And so we're going to grow and hopefully out grow our our markets there. But in a lot of our other value streams, I'll give you an example on the Tools business, and on the Grills business, we're a little newer there. And so we've got great brands and we've got great products, but as we work and leverage our relationship and leverage really the Worthington business system, those products and those value streams have significant growth potential over time because they're ultimately taking share in the markets that they're in where in some of our other markets, what I'll call more of our legacy markets, we already have that.

Share.

And so we're focused in those markets on new products and things that we think are where the market should be going as opposed to entering those markets. So net net answer to your question is not a lot in the current quarter from those new products I mentioned. But should be contributing both margin and revenues as we go forward.

That's helpful color Joe. Next, I want to circle back on the margin performance this quarter, dig a little deeper. Can you talk a little bit more about the drivers between the volume leverage that you got across the core building products and consumer products? And the success of operating initiatives. And, you know, how do those inform your ability to expand margins in the coming quarter even if the end market were on end market demand were to moderate across those verticals?

So sure. Pretty pretty solid. Think Colin talked to a lot of this, but you know, 29.3% you know, SG and A was I think a little less than 21%, 20.7%. In the quarter. We like where our trends are going. We're not sort of content and satisfied with that. Our Our goal, right, our algorithm ultimately is to continue to drive gross margin higher Certainly, volumes and high revenue helps there because you were utilization goes up and our conversion costs go down. But SG and A as a percentage of sales our SG and A is kind of flattish in the mid-60s in a quarter. But we got lots of things that we're doing to try and make sure we're as tight as we possibly can be on that front. But then we're in a flat market and if we take share and we take care of our customers and we certainly take care of each other by working safely, growth returns and revenue goes up. Those things accelerate. We'd love to over the course of time certainly our goal over the next couple of years to get gross margins kind of to 30% or above and to have SG and A be 20% or no more of SG and A. And then certainly, lap on D and A and then the contribution that we think will continue to get from our world class JVs and that makes us feel pretty good about what's possible.

Okay. Okay. No. That's helpful. And maybe last, can you provide an update on the M and A pipeline and your willingness to do deals despite the ongoing macro uncertainty?

Yep. Charles, thanks for the question. The M and A pipeline, as part of our process, we're constantly looking at opportunities both from a proprietary standpoint and from a market market process standpoint. So we continue to assess opportunities I think our pipeline is pretty good at this point. And the M and A markets are obviously a little slower. And there's some uncertainty in the outlook. However, that doesn't really change our perspective. We're long term holders of businesses We're assessing opportunities that we think are a good fit and that we can add value to over the long term. So as I said, I think our pipeline is pretty healthy and we continue to to monitor and assess opportunities on a regular basis.

Okay. Thanks, Colin. Good luck for everything, Thanks, Charles. Thanks.

Your next question comes from Brian McNamara of Canaccord Genuity. Your line is open.

Good morning, guys. Thanks for taking the questions. Good thing, Brian. Good morning.

I was hoping you guys could quantify organic sales in Q3. I think you mentioned ex SCS, but I don't think you quantified the Regasco contribution.

Excluding Regasco and SCS, was 4%.

Okay. And then any color on kind of what we're seeing quarter to date here just given the we'll call it, uncertain consumer macro?

Yeah. I we're you know, three weeks into our q '4, Brian. We would say without any kind of visibility Things haven't dropped off a cliff or anything.

Okay.

And I know Dan touched on this point, but, gross margin is a pretty difficult line item to model. For you guys. And I guess the the the point of my question is, are they kinda structurally higher here now? I know last year you had, you know, large heating tanks that are typically higher margin. They weren't doing great. Assuming they're doing better. Anything else we should be considering there? I think Regasco has also been additive to margin there. Consumer products doing better. I think they're higher margin. Anything else investors should be thinking about on that line item?

I think it's just Brian, it's I mentioned it earlier. We felt pretty good about our our execution this quarter and have had some good positive mix shift. It's a lot of initiatives playing out as we hope over time in a lot of our process improvements and cost savings initiatives I think in the if we can sustain levels in the high 20s, that's what our target is over time as Joe mentioned. And then you just got to keep in mind Q3 and Q4 are typically our seasonally stronger quarters. And that's how to think about from our perspective.

Yes. And Brian, your question is well taken. I think we were at 27% in Q2 We were at 29%. And so structurally, obviously, with the deconsolidation of SCS, our margin profile has improved. That is certainly sustainable and mix is important. You called it exactly right when those larger heating tanks were really in their destocking phase. It was penalizing for us from a margin perspective. We're through that. And then as Colin said, we've got a number of of initiatives. You know, eightytwenty comes to mind, right, in in our water business. That's That's an initiative or a disciplined that's going to let us sort of refocus kind of our offerings and the way that we manufacture. And so there are a number of things that that we continue to do. I mean, we wish our gross margins were 100%, right? That's obviously not very possible or likely, but we've got a lot of things going on that we think will continue to help us offset any softness and hopefully grow those margins.

Got it. And then on the SG and A front, you guys separated from a $5,000,000,000 company. So I think there was I guess there is part just kinda getting used to being a public company, maybe getting a little more efficient with spend there. Kinda where are we? What inning are we there in terms of kinda truing up that line item? So yeah, Brian, just from an SG and A perspective, mean, Joe touched on it a little bit earlier. You know, we're we were 20.7% of sales over the past quarter this quarter and in Q2, I would point out SG and A was a little elevated due to the bad debt, some bankruptcies that we had in both those quarters. But we're going to be in the mid 60s. And as consistent with the the prior question, we're constantly working on initiatives to improve and become more efficient and and look for opportunities to save costs along the way as well so that we can really drive our gross margins higher without increasing our SG and A. Yes. And Brian, I call it the unconsolidated piece, right? That isn't in consumer products or building products. We still think that is ought to be between 25,000,000 and $30,000,000 this quarter [indiscernible] is embedded in that as well and we had about $1,000,000 of equity income SCS business and and about $1,000,000 on for our engineered cabs JV.

So those are blended together, but the core SG and A piece of that, you it's it ought to be between 25 and 30.

Great. And then finally, I'm just curious what are you seeing on the M and A front? I'm assuming a good number of targets in consumer, for example, have some decent production in China and things like that. Is that helping deals get to the finish line or more likely hurting them? [indiscernible] you asked a really good question. And and I think anybody right now that is importing a substantial amount of their product If they are also trying to explore their strategic alternatives. It's there are questions, right? Mostly uncertainty. And so hard to say whether they help or hurt those specific companies that might be doing that. But I think from our perspective with M and A generally, uncertainty is never good in M and A, but if you take a long term view, I think when you're thinking about things that have a good track record historically, and you can get comfortable with what you think over time. Is possible. I think that makes potential acquirers feel better. Now you still have to, you know, agree with a seller, right, on valuation on terms, etcetera. But yeah, uncertainty is not good, but I don't think it's it's completely chilled the market Great.

Thanks a lot for the color guys. Appreciate it. Best of luck.

Sure. Thanks. The next question comes from Walt Liptak with Seaport. Your line is open.

Hi, good morning guys. Thanks for the quarter. Hey. So yes, that's been talked about. I'll start with maybe a I don't know. Maybe it'll be a tough one. But, you know, I was really impressed with, Joe's comments about solving customers' problems, and then he had, you know, those you know, four, five, six, things that you called out. Including, like, the party time tanks and things. Is it possible for you to you know, kind of quantify that for us in a way like in addition to growth rate or, you know, how much the TAM is on all those projects added up or what the profit improvement could be you know, just to give us an idea because some of them sounded very impressive.

Gosh. I'll give it a shot. Well, you know, again, nothing nothing nothing really material in in the quarter. But we talk a lot about really championing being in kind of niche markets where we have a reasonable share market share wise. Where that really helps is that our Worthington business system, the WPS, is really tailor made for markets like that. Specifically with transformation continuous improvement, trying to be lean But on the innovation side, us having good market share is really helpful because we have ongoing dialogues with our customers, and they're willing to share things with us and partner with us And so I mentioned, you know, the SureSense. That that was in partnership with our customers. I mentioned the Balloon Time Mini 100% in kind of collaboration with our partners, a lot of whom have always wanted to carry that product, but they don't have the shelf space. And so there's a lot of real discipline that's been institutionalized through the WBS over the years at Worthington. And so we think that those initiatives will obviously be incremental. To us. We also realize that there are headwinds, right, that we face. And so sometimes I think that the things that I talked about today are going to double the revenues of the business.

They're incremental and a lot of times they're in markets where we don't have the high share that we do in some of our other markets, but they're absolutely going to help us further penetrate those markets And ultimately, it's just a great reflection of the work that our teams do on the innovation side, on the transformation side. And certainly, as we think about M and A because there are a couple of those examples that were companies that we bought. And that we've helped ex you know, expand and extend the reach of the brands that we acquired.

So it all sort of dovetails nicely, but it's really centered around that Worthington business system. And it's part of our philosophy, right, to do those things. So it it doesn't always work as well as we'd like it to. It's it's nice when it does.

Okay. Yeah. That sounds great. Yeah. You know, I think everyone start for growth. In The U. But it sounds like you've got some things that could really happen you know, including, like, the BalloonTime Mini. You know, short term and other things that'll help your growth.

And offset those headwinds. Got it. Wanted to ask about, you know, the the consumer with better than I was expecting. I wonder and you kind of talked about that already, but what's the next positive thing that could happen with the large change? Is it sell through that you'll be looking for as like a key metric or you know, given the headwinds that are out there, you know, what's what's next? And, you know, you guys are US based manufacturer, which, you know, in a lot of ways makes you unique. What are the conversations like with the large chains?

Yes. It's a good question. And we try to constantly I mean, talked about it earlier. We're constantly in communication. Working with those retail partners on inventory levels, and being proactive where we can in our supply chain to make sure can get the right product, the right stores at the right time, in areas of whether a heightened demand or softer demand. So the consumer is definitely uncertain, and we'll see how that plays out and navigate that as we move forward. But demand is healthy for us. And from a year over year perspective. We saw good improvement in volumes on the consumer side and our retail partners have a healthy amount of inventory that's we're not seeing any destocking like we did last year. So all we can say is we're going to we feel good about what we can control and our teams are executing well against our playbooks to that end.

Yes. And I would add two quick things because Colin is spot on. [indiscernible] first of all, Brett, seasonally speaking, in our consumer business and to an extent in our building products business, Our products are used and are pretty essential for emergency heat right? And so when people lose power and it's very cold and there are storms, they need those products. And so that's why you see certainly for consumer that's the seasonally strongest piece for that part of the business. The Colin's right, point of sale is tracking where it should be relative to shipments The other piece, and Colin mentioned, Party City, was a customer and that was $1,000,000 headwind for us because of the bankruptcy. But one of the things that Party City did a lot of is fill balloons in the front of their store that never took advantage of our products. And so customers that were looking for things like that can no longer find it there It's actually had more of them migrating to retailers that don't have that front of store fill, but do carry our products. And so we think that's a little bit more of a kind of a sustainable change in that market.

That's great. Yes, thanks for that insight.

Okay. The last one for me is, you know, it sounds like your early days with your eighty twenty work. And so I just wanted to ask, how are you feeling about you know, the the work that you're doing there? And, yeah, I guess, just how are you feeling about it?

So we're we're excited on eighty twenty. It's As you know, it's it's an important tool and our tool kit from a transformation perspective. And we just kicked it off in in q three. We're excited about progress and updates along the way. Like Joe mentioned, it's started in our water business. And we're anticipating some good improvement there and that we would like to roll out over time and replicate in other areas. But early days, as you said, excited to see, what comes.

Yeah. And and, Walt, we we just kicked it off couple of weeks ago, so it was actually in Q4 when we kicked it off. And as you know, they're not some of our businesses and our value streams don't lend themselves to something like eightytwenty because we only make one or two products and we only have a handful of customers. But for the businesses that we have that are really likely beneficiaries of that discipline. We're very excited about it.

Okay. Sounds great. Okay. Thanks, Thank you.

This concludes the question and answer session. I'll turn the call to Joe Hayek for closing remarks.

Sarah, thank you very much, and thanks, everybody, for joining us this morning. We look forward to speaking to everybody again soon. Have a wonderful rest of your This concludes today's conference call. You for joining. You may now disconnect.