Worthington Steel Inc

NYSE:WS

Earnings Call Analysis

Steady Growth and Strategic Investments

The company reported a strong third-quarter performance with net earnings of $49 million, a significant increase from $5.4 million in the prior year. Adjusted EBIT rose by $56.2 million from last year, driven by pretax inventory holding gains and reduced separation expenses. Despite a slight 4% decrease in automotive market sales volume and an increased operating working capital, the company is on track for capital expenditures around $100 million. They are uniquely positioned in North America with an exclusive product, expecting projects in Canada and Mexico to generate over $100 million each annually once fully ramped up.

Introduction to a New Chapter

Worthington Steel embarked on its maiden voyage as an independent entity, setting the stage for a fresh period of scrutiny and exciting possibilities. It's a transformational era for this steel industry veteran, as its leadership stands confident in their strategic plan and their team's ability to surge ahead.

A Solid Financial Foundation

A robust financial swell reflected in the third quarter earnings, marking substantially higher earnings per share year-over-year, from $0.11 to $0.98, showcases the company’s profitability leap. This upward trend comes even after accounting for expenses tied to the corporate separation, hinting at an underlying operational strength and improved market conditions.

Navigating the Market’s Ebbs and Flows

Steel prices continue their waltz of volatility, which has painted the third quarter with inventory holding gains, although this is expected to reverse into holding losses in the fourth quarter. In spite of these fluctuations, the company's net sales bumped up by 3%, and its shipment volume grew by 4% compared to the previous year, with notable growth in construction and energy sectors, partially offset by a slight decline in the automotive sector owing to end-of-life programs and launch delays.

Cash Reserves and Debt Dynamics

Cash balance dipped primarily due to a hefty $150 million dividend paid amid separation, yet the reduction in ABL debt underlines sound debt management. Expectations are set for quarterly results as a reliable gauge for future cost structures, where SG&A expenses may rise slightly over the third quarter.

The Investment Journey Ahead

The horizon is dotted with significant capital expenditures, as the company propels its growth with multiple projects including the ablation project and the implementation of an enterprise resource planning system at Tempel. This is in keeping with a projected investment of $100 million each for the years '24, '25, and '26, with a confident expectation of meeting these investment goals.

Strategic Expansions: Unlocking Potential

Major boosts to output and revenue are anticipated from expansions in Canada, Mexico, and Germany, laying down a promising revenue stream of over $100 million annually at full capacity. The focus remains firmly planted in markets promising higher than GDP growth in the next 7-10 years, such as the transformative transformer market in Canada.

Innovation at the Core

Worthington’s strategic edge is crystallized in niche, high-value-added segments like electrical steel laminations and tailor-welded blanks, both carrying hefty margins. Despite venturing into competitive arenas with operations like galvanizing, its differentiation comes from unmatched service, responsiveness, quality, and flexibility – the pillars upon which it withholds the loyalty of its clientele.

Capitalizing on Industry Transitions

With a pragmatic eye on the automotive industry's shift from internal combustion engines (ICE) to hybrids and battery electric vehicles (BEVs), the company is poised to benefit regardless of the chosen vehicle technology, thanks to its product offerings such as cold-rolled strip and electrical steel laminations.

A Glimpse into Future Financial Strategies

Shareholder returns may see a new dawn with discussions of initiating buybacks as an accompaniment to dividends. Meanwhile, the M&A landscape is actively explored with a discerning approach for high value-added acquisitions that echo the company’s culture and niche market strategy.

Earnings Call Transcript 2024-Q3

[Operator]

Good morning, ladies and gentlemen. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the Worthington Steel Third Quarter 2024 Earnings Conference Call. Today's conference is being recorded. [Operator Instructions]

And I will now turn the conference over to Melissa Dykstra, Vice President of Corporate Communications and Investor Relations. You may begin.

[Melissa Dykstra, executive]

Thank you, operator. Good morning, and welcome to Worthington Steel's Third Quarter Fiscal 2024 Earnings Call. On our call today, we have Geoff Gilmore, Worthington's 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 remind everyone 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 standalone 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. At this time, I will turn the call over to Geoff Gilmore.

[Geoffrey Gilmore, executive]

Thanks, Melissa. Good morning, everyone, and welcome. I'd like to start the call today by thanking our 4,600 Worthington Steel employees for the work they do every day to support our customers, shareholders, community and each other. Their hard work and dedication led to a great third quarter for Worthington Steel.

Over the quarter, I had the opportunity to visit several of our facilities, where I experienced our focus on safety and saw a transformation in action, Transformation, our system of continuous improvement to increase margins, reduce working capital and add capacity is integral to our strategy. Our teams clearly recognize this and incorporate it daily into their work.

I've talked with dozens of employees around the company. I am energized by the pride each of them takes and their work and the role in our company. We have a team that is focused and intent on creating value for our shareholders. Together, we continue to help our customers ensure the product [indiscernible] uses every day are stronger, better performing and more durable.

In our first quarter as a stand-alone company, our teams executed on our strategy and continue to make progress on our safety, quality, productivity and sales goals. We are off to a great start, but we have much more to accomplish. I am confident in our team and our strategy and look forward to sharing updates in the future on how we perform. Now I'll turn it over to COO, Jeff Klingler, for a look at some of the highlights of the quarter.

[Jeffrey Klingler, executive]

Thanks, Geoff. I'd like to begin my remarks by thanking our employees for their continued commitment to safety. As Geoff said, we continue to see positive trends in our safety metrics, supported by our Safeworks program. We use data analytics, ergonomic measurement tools, best practice sharing and daily involvement from our entire team to continuously improve our performance.

The same kind of commitment and focus on metrics helps us improve our quality as well, ensuring our customers receive the best possible product and service with every interaction. An example of that, in January, Tempel received the 0 PPM award from Mahle Electric Drives India, recognizing our commitment to manufacturing excellence and quality assurance.

Tempel provides electrical steel laminations to Mahle for use in the electrical motors they supply to Ather Energy's EV 2-wheelers. Congratulations to our Tempel team for this achievement. Our integration at Nagel, Germany is going well, and we're making great progress in many areas.

Along those lines, we are already seeing commitments from our customers for one of our recently announced expansions in Canada and Mexico come online. We kicked off a multiyear ERP implementation at Tempel moving to a solution that's consistent across all divisions. Similar to what we've seen with the rest of our business, we believe this move will help us reduce risk, improve processes and better drive decision-making with more real-time effective operational and financial data.

This is another example of our long-term commitment to transformation. On the technology front, TWB has signed a licensing agreement with ArcelorMittal tailored blanks for the use of its patented ablation technology and the production of Hotform tailored blanks.

We will install a fully automated ablation line at the TWB facility in Monroe Michigan, making Worthington Steel one of the only 2 companies in North America to offer this technology to our customers. Congratulations to all our teams on these impressive achievements. Now I'll turn it over to Tim Adams.

[Timothy Adams, executive]

Thanks, Jeff, and good morning, everyone. I would also like to thank our employees for staying focused on safety as well as serving our customers during the third quarter, our first as an independent public company. As a reminder, with this being our first quarter reporting results as a stand-alone company, our consolidated results for the third quarter are compared with the prior year data, which were prepared on a carve-out basis.

For our third quarter, we reported net earnings of $49 million or $0.98 per share as compared with $5.4 million or $0.11 per share in the prior year quarter. Our third quarter results included pretax separation expenses of $1 million or $0.01 per share as compared with $4 million or $0.06 per share in the prior year quarter.

I expect this will be the last quarter we recognized expense associated with the separation. Excluding these items, we generated earnings of $0.99 per share in the third quarter compared to $0.17 per share in the prior year quarter. In addition, in the third quarter, we had estimated pretax inventory holding gains of $19.3 million or $0.29 per share compared to estimated pretax inventory holding losses of $26.6 million or $0.40 per share in the prior year quarter, a favorable pretax swing of $45.9 million or $0.69 per share.

In the third quarter, we reported adjusted EBIT of $66.9 million, which was up $56.2 million from the prior year quarter of $10.7 million. This increase is primarily due to higher gross margin, which benefited from increased material spreads, including the impact of estimated pretax inventory holding gains.

Our SG&A was up $3.1 million from the prior year, primarily due to incremental costs associated with being a stand-alone company. Next, I'll provide some content on the market and our shipments. Similar to what we experienced over recent history, steel market pricing was volatile over the quarter.

Steel prices increased from $700 per ton in October to $1,100 per ton in January, then decreased sharply throughout March. The current price for hot-rolled steel is approximately $750 per ton. We expect estimated inventory holding gains in the third quarter will flip to inventory holding losses in the fourth quarter, and we estimate those losses could be approximately $5 million to $10 million on a pretax basis.

Net sales in the third quarter were $806 million, up 3% from the prior year quarter, primarily due to slightly higher direct pricing combined with increased volumes in both direct and toll. We shipped 986,000 tons during the third quarter, which was up 4% compared with the prior year quarter.

Direct sales tons were up 1% over the prior year quarter. Volumes were up in construction and energy, primarily due to spot orders and continued ramp-up of certain business. Direct sales volume to the automotive market was down 4% compared to the prior year quarter. The decrease was primarily due to several programs reaching their end of life, combined with the replacement platforms experiencing launch delays.

Our automotive book of business continues to be healthy. Our technical and commercial teams work closely with our customers to help them overcome challenges and provide solutions that meet their needs, resulting in increased collaboration and a strong partnership. We expect to continue growing our leadership position within the automotive industry.

Total tons were up 9% year-over-year, primarily due to increased tolling with the mills as well as several new automotive programs. Direct sales tons made up 55% of our mix in the third quarter compared with 56% in the prior year quarter.

Turning to cash flows and the balance sheet. Cash flow from operations was $44.7 million and free cash flow was $22.3 million. During the third quarter, we spent $22.4 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 have generated $175 million of free cash flow. Thursday, we announced a quarterly dividend of $0.16 per share payable on June 28, 2024. In regards to our balance sheet, operating working capital increased $41.5 million during the third quarter as receivables and inventory increased as a result of higher steel prices, partially offset by an increase in accounts payable.

We ended the quarter with $60.8 million of cash, which is down from the second quarter due to the $150 million dividend we paid to our former tenant in connection with the separation. Our ABL debt at February 29 was $147 million, down $28 million from the second quarter.

In summary, Worthington Steel had an excellent third quarter, and all our teams performed well. Everyone at Worthington Steel continues to be focused on driving stakeholder value 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. Thank you.

[Operator]

[Operator Instructions] And we'll take our first question from Phil Gibbs with KeyBanc Capital Markets.

[Timothy Adams, executive]

What's the typical volume seasonality for the May quarter? I know it's usually your strongest from a volume perspective given the timing of your customer buying patterns.

[Geoffrey Gilmore, executive]

Yes. I think you kind of answered your own question. You're right. It tends to be higher. It's usually our strongest quarter from a volume perspective. Q3 tends to be on the lower side because you got automotive shutdowns in December and Q4 tends to be on the higher side.

[Philip Gibbs, analyst]

More so just curious on the historical magnitude. Is it plus or minus high single digits, low double digits in terms of what you expect from a volume pickup?

[Timothy Adams, executive]

I would say it's low single digits. It's not huge.

[Philip Gibbs, analyst]

And then from the spin, as your commentary effectively pointed the fact that we should use 3Q as a good baseline for the adjustments and your go-forward cost structure.

[Timothy Adams, executive]

Yes. I think what you see in there is SG&A is probably a little light. Q3 tends to be a little light because you've got that December month in there. So travel is down, vacations in there. So Q3 from an SG&A perspective is usually down a little bit, plus we had some things that hadn't quite ramped up fully from an SG&A standpoint.

So you look at a go-forward basis, probably a little bit higher than what it was in Q3.

[Philip Gibbs, analyst]

And then as we think about net working capital in the fourth quarter, is that expected to be a use or a source of cash? And then just update us on the CapEx outlook maybe for the fourth quarter and the year?

[Timothy Adams, executive]

Yes. Typically, what happens when you have inventory holding gains, you're going to build working capital. And when you have inventory holding losses, you're going to release. So we would expect to release some working capital in Q4.

[Philip Gibbs, analyst]

And then on the CapEx side for the fourth quarter and then maybe for 2025 as we think about some of these growth projects that you're working on and ultimately...

[Timothy Adams, executive]

Yes. So what we've been signaling is $100 million for '24, '25 and '26. We've run about $60 million to date in 2024. Depending on how the projects come in, in Q4, I think we're actually going to get pretty close to that $100 million number.

We've got some additional CapEx. We've got the ablation project that we announced last week. We've got an ERP project that we're doing at Tempel. It's probably going to add another $10 million to the $100 million estimate we had in 2025 as well as another $10 million to the $100 million estimate we had for 2026.

[Philip Gibbs, analyst]

That's really helpful. And then on the ablation business win and the operational piece in Monroe, what could it mean for you all in terms of the investment in timing? It sounds like it's sliced a bit into this $20 million pickup in CapEx along with the ERP over the next 2 years following this one.

But what does it mean for you financially? And how big of a differentiator is just trying to figure out what this possibly means from a mix or a profitability standpoint as you guys put it in play?

[Jeffrey Klingler, executive]

Phil, this is Jeff Klingler. We're obviously very excited about this project. We are only 1 of 2 companies now that are able to offer this product in North America. We do believe that this market opens up new products and new opportunities by about 30% to our existing welded blank market.

So again, very excited about this technology and this project. It's going to take from a timing standpoint, by the time you install the equipment and win an award, it's a typical automotive type award cycle that takes about 24 months to get to full production. So it's a little bit out there, but it's -- we're pretty excited about all the activity that's happening right now and pretty confident we'll fill that line. And in years 3 and 4, we expect to feel the full benefit.

[Operator]

[Operator Instructions] And we will take our next question from John Tumazos with John Tumazos Varian Independent Research.

[John Tumazos, analyst]

Just for explanation, could you explain what is ablation and what ERP stands for?

[Jeffrey Klingler, executive]

Good morning John, Jeff Klingler again. I'll take those very quickly. I'm not going to fully explain ablation, but I will tell you it is a patented process that uses lasers to remove the silicon coating prior to welding the press hardened steels so that the weld remains intact.

[John Tumazos, analyst]

That's for electrical steel.

[Jeffrey Klingler, executive]

No, no. That is for tailor-welded blanks for press hard and steel for automotive parts. ERP simply stands for enterprise resource planning system. So it's our computer system.

[John Tumazos, analyst]

How big of a hit is a computer system?

[Timothy Adams, executive]

I think in total, those 2 projects, I'm just going to lump them both together. They're probably $15 million to $20 million in total. I don't have the breakout for each. But we were using -- when I was given the CapEx numbers going forward, John, that's basically adding $10 million to the next 2 years to cover both those projects.

[John Tumazos, analyst]

Is ablation part of what you're licensing from Arcelor middle? Or is it a separate item?

[Jeffrey Klingler, executive]

It is exactly what we are licensing from -- it's their process. We are licensing the ablation process, the patented process for the removal of the aluminum silicon coating.

[John Tumazos, analyst]

You made reference to 4 good projects, hopefully, to add revenue and profits. Germany expansions, Canada and Mexico and [ TWB ] license for ablation, if I'm saying it correctly.

[Jeffrey Klingler, executive]

Yes.

[John Tumazos, analyst]

Real roughly in terms of a range, how much are the revenue impacts of these items? We as listeners might not comprehend whether they're $10 million in annual sales or $50 million in annual sales or $100 million. I'd love to get excited and think that they're going to double the company, but I probably need a cold shower.

[Timothy Adams, executive]

No. No, I understand. It's a good question. I think at the end of the day, as we ramp these things up, it's going to take a few years to ramp all of them up. It's going to be more than $100 million a year in revenue for us once they are full ramped up. So...

[John Tumazos, analyst]

In terms of the each one individually, so we can get an idea of what is about singles versus the big ones.

[Timothy Adams, executive]

Yes, I'm talking about in terms of overall. I would say that the Tempel projects are the 2 big ones. The ablation is going to be a little bit smaller. We're going to start small there and ramp up. I mean the ablation line is going to be under $10 million whereas you've got those other 2 projects in Canada and Mexico are $80 million plus each.

So right now, we're comfortable saying more than $100 million a year when they're fully ramped up.

[John Tumazos, analyst]

So, the Tempel projects of Canada and Mexico. In Germany, how much is the revenue impact of that expansion?

[Timothy Adams, executive]

That's relatively small. That's probably around -- do you have that number? $40 million per year. And then what we're going to do with that Nagel facility in Germany as we're also going to put growth plans in place there as well. We don't have those plans done yet, but we didn't buy it just to buy it for what it was. It was also to grow our presence in Europe and Electrical Steel.

I would just add that the customer activity and excitement around our acquisition in Germany has exceeded our expectations after just over a few months. So we're pretty optimistic, we're going to do some good things there.

[John Tumazos, analyst]

They're very green there. They've all got [indiscernible]...

[Timothy Adams, executive]

It's certainly are.

[John Tumazos, analyst]

They got rid of nuclear and coal faster than anybody and jumped right into Putin's arms. In terms of the specific machinery, could you just give us a flavor of what kind of machines you're putting in place in Germany, Canada and Mexico to better understand and nuts and bolts?

[Geoffrey Gilmore, executive]

Jeff, why don't you answer that?

[Jeffrey Klingler, executive]

Sure. I'll start with Germany. Germany will be lamination presses. So to stamp electrical steel laminations for traction motors for hybrids and battery electric vehicles.

in Mexico, it is more of that same. And then, of course, all the automation equipment that comes along with that as we're making rotors and stator stacks that requires some downstream equipment. But the primary addition in Mexico will be the EV presses. These are very high end, very technical, very specific pieces of equipment.

And then in Canada, it's a little more of a range. We've got furnaces, we've got a slitter that is specifically designed for grain orientated steel to process grain orientated steel, but slitter, furnaces, TRANCO machines, things that support the production of distributed Gap cores and wide miter cut lines for large miter transformer cores as well.

[Geoffrey Gilmore, executive]

And John, I just want to add and you're probably already familiar with this. This is machinery and equipment, we're already very familiar with. It is part of our core competency and we are making these expansions just due to increased demand. So we have the know-how.

[John Tumazos, analyst]

Worthington has come a long way from 1955 and buying a sitter machine. Which of the 10 or more processes that Worthington does are most competitive? And which of them are highest value-add better process?

[Geoffrey Gilmore, executive]

Well, in terms of -- first of all, I'm glad you recognize we truly are a niche value-add producer. So if we're looking at what's most value add, I think definitely Tempel and electrical steel laminations, certainly very high value add, a lot of engineering expertise needed to implement that equipment and run it, hence, higher margins.

I think tailor-welded blanks and lightweighting solutions. That's also a very unique niche type high-value-add market, very similar to Tempel, again, hence, the higher margins.

And then certainly, John, there's galvanizing that you're familiar with. Ours is a bit different, and it's hot-rolled substrate. That's a differentiator. Cold-rolled strip is also very high value add.

And why these are all niche type markets that we play in and a big part of our strategy. And then, of course, you're very familiar with our pickling operations and slitting operations. And obviously, those would be markets that would be a bit more competitive. But what we're proud of, your comment on 1955 is, we really think we have a great story on innovation, and it's often not recognized. But we've continued to march up the value-add chain over the years, and it's why the company has performed so strongly and why we will well into the future.

[John Tumazos, analyst]

I could understand a mill or an auto company was a very large volume tolling, utilizing a particular process like a pickler where they might have a bottleneck or need. For something like galvanizing, your customers or end customers, why would they buy from Worthington rather than buying from New Core Steel Dynamics, Clips, U.S. Steel or independents, a few small independent galvanizers?

I guess you're going right to HVAC companies and other galvanized usage for those sales.

[Geoffrey Gilmore, executive]

So why would they buy from us specifically? Of course, we're going to be cost competitive with the mills. But why would they buy specifically from us? I'm going to tell you what we hear from the customers. And what we would hear from the customers, it's our service. We're very responsive. We're able to be probably a bit more flexible with scheduling and help.

Clearly, we have premier quality or we wouldn't continue to see the orders. But I really do think it's our speed, it's our service and it's our flexibility. And John, that's -- I'm just telling you what I hear from the customers.

[John Tumazos, analyst]

And forgive me if I'm asking too many questions and there's 30 people after me in the queue. I don't want to hog mate. But, would your galvanized customers tend to be in a relatively close radius to your facility and maybe those big mills would have national customers scattered all over the place, that would better lend itself to service and relationships with their neighbors.

[Geoffrey Gilmore, executive]

The answer to that is really no. We do tend to sell locally, of course, that makes a lot of sense. But more specifically, with our galvanized products, we do ship that product all over the country.

[John Tumazos, analyst]

I should stop and give other people a chance.

[Geoffrey Gilmore, executive]

John, thanks for your support.

[Operator]

And we will take our next question from Martin Englert with Seaport Research Partners.

[Martin Englert, analyst]

A couple of questions on the expansion for electrical steel amination in Canada and Mexico. If you could just provide an update on any pending equipment deliveries and whether those are on time and how the environment is for staffing up headcount once you start to ramp things in the respective locations?

[Jeffrey Klingler, executive]

Sure. Good morning, this is Jeff Klingler. I'll be happy to take that. Just maybe from an overall quick general update. In Mexico, that project is on time and on budget. To date, we've spent about $17 million. The building expansion really should be complete here by late spring, early summer.

And we'll be installing the first presses here in just the next couple of months. We've seen -- and this is really true around all of our expansions. We've seen very positive staffing ability to staff up and a lot of excitement around these projects internally. So that's a lot. We don't see any problems there.

In Canada, we -- this expansion, similar thing on time, on budget, maybe a little bit delayed due to some land, but we think we're going to be able to catch up. We're talking a month or two. And then to date, we've spent about $5 million, but the ramping is going to start to -- the spending is going to start to ramp up here through the next few quarters.

We're not going to see production at that facility until towards the end of next calendar year. But again, there's an awful lot of excitement about the project internally and in the community. So we don't foresee any problems at this point with being able to staff up appropriately.

[Martin Englert, analyst]

Of the remainder of the cap -- sorry, was there more to add there?

[Geoffrey Gilmore, executive]

No, go ahead, Martin, it's fine.

[Martin Englert, analyst]

Okay. Sorry about that. Of the remainder of the CapEx spend for the respective projects, how much of that is fixed pricing versus is there any component that whether it would be incremental equipment buys, all within the scope of what's planned that might still have some variability or inflation risk to the price.

[Timothy Adams, executive]

I think -- this is Tim Martin. I think most everything is locked in terms of price, right? We negotiated the price and we lock those things in. So I don't think there's much variability there.

[Martin Englert, analyst]

Okay. Any comments or updates on the backlog for transformers in Canada and how that's looking?

[Geoffrey Gilmore, executive]

Martin, Geoff Gilmore, it continues to be 2 years or greater backlog for transformers. So we're still quite bullish on that market. Again, you've heard me say, it's a market we feel will grow much faster than GDP out the next 7 to 10 years and a big driver of why we're making that expansion in Canada. So nothing is slowing down on that front.

[Martin Englert, analyst]

Okay. Anything when you think about the pure EVs or the hybrids, as far as what you're seeing with activity and demand, just reviewing some of the headlines in recent history? It seems like there's a little bit of a pause, but I know you have a diverse mix on legacy platforms as well as hybrid Navy, but still curious what you're seeing.

[Geoffrey Gilmore, executive]

Yes, great question. And you're spot on. I mean there's a lot of headlines and certainly, if these things get a bit politicized, especially in an election year, but we still are bullish that the market is going to move away from ICE to hybrid and BEVs.

And Martin, you hit the nail on the head. There's just not a lot of talk about how much momentum hybrids are giving. We didn't enter this business thinking there was going to be a straight-line growth curve from ICE to BEV. We figured there'd be a growth slope. It was going to be bumpy at times because it's a significant innovation. It's a supply chain that needs to be built out, but that's going to happen and costs will come down.

But there is a lot more attention and a lot of automotive companies that are feeling that hybrid needs to be a bigger piece of that portfolio. And more importantly, if it's internal combustion engine, we produce cold-rolled strip. It's great. If it's hybrid, you need cold-rolled strip for clutch plates. You need electrical steel lamination for electrification. If it's BEV, you need electrical steel laminations.

My point in sharing that is, I don't know that there's anybody else globally that's better positioned to take advantage of that.

[Martin Englert, analyst]

How -- when you're looking at a hybrid vehicle versus battery EV, how does the electrical steel intensity change from a typical platform? Is it some multiple, one versus the other? Or is it not markedly different?

[Jeffrey Klingler, executive]

Martin, this is Jeff Klingler. That's a tough one to add. It does get marginally more electrical steel intensive as you go to a full electric vehicle. But we have some data. It definitely varies by program, and it's going to evolve. But any number of traction motors is a good thing for us in the transition.

[Operator]

We will take follow-up questions from Phil Gibbs with KeyBanc Capital Markets.

[Philip Gibbs, analyst]

For the payments to the parent company done following this quarter, is there any residual moving ahead?

[Timothy Adams, executive]

We paid the $150 million dividend on December 1. There's nothing else that we have to do. I mean we've got some TSAs and some long-term agreements, right, we share a campus, and we've got some of those types of things. But if you're talking about the dividend specifically, that is done, it's paid and we moved on.

[Philip Gibbs, analyst]

And following all the -- following the payments in the quarter, can you just remind us what your current liquidity is?

[Timothy Adams, executive]

Yes. We've got ample liquidity, and I think you noted it in your note, our leverage is pretty low, and we've got ample liquidity to pursue any of these growth projects from the ABL we put in place.

[Philip Gibbs, analyst]

And what's the size of the ABL, just remind us of that?

[Timothy Adams, executive]

$550 million ABL.

[Philip Gibbs, analyst]

And what's the rate on that right now, just given all the volatility and interest rates?

[Timothy Adams, executive]

Just under 7%. It's an [indiscernible] type arrangement.

[Philip Gibbs, analyst]

And last one for me is just kind of a broad question. I know you're just getting your [indiscernible] as a stand-alone company, but given the historical consistency of free cash flow and operating cash flow, is there any thoughts over the midterm to put in a buyback or remain active in the M&A channel or both under consideration.

[Timothy Adams, executive]

Buybacks, we talked a little bit about during Investor Day. It's going to be a way that we return capital to shareholders along with dividends. We have not put anything formal in place. We are still discussing that. So at some point, we would expect to have a buyback program in place. And we are continuing to look at M&A opportunities. We haven't really stopped.

We've got these big growth CapEx projects. But as we talk about, I mean, we're pretty selective in who we want to buy, right? We're looking for high value-added companies that we can bolt on and complement what we have or enter new niches. So we're not out of M&A. We've just paused a little bit to get through the spin and we'll crank that effort up and continue to look for companies that match us from a culture standpoint and match us from a high value-add standpoint.

[Philip Gibbs, analyst]

I did actually have one more. You've mentioned in your release that the tolling pricing was up quite nicely year-over-year. Is that a good baseline to use moving forward? Or was that just a mix and timing thing?

[Timothy Adams, executive]

It's a mixed thing. I mean it's -- and you got to think about this in 2 ways. So if you do a straight high value-added process like galvanizing, it's going to command a higher price per ton and say, a slit. But then we report ship tons for tolling. So if you do multiple processes to a coil of steel, so you pickle, you galve, then you slit it, that's going to show up as a high invoice or a high-priced item, right? So it really is a mix situation for us.

So I want to circle back on your question about Q4 and automotive. Our automotive or our volume typically is up in the high single digits -- I said low single digits. It's probably closer to high single digits.

[Operator]

And ladies and gentlemen, that is all of the time we have for questions today. So I will now turn the call back to Mr. Geoff Gilmore for closing remarks.

[Geoffrey Gilmore, executive]

Thank you, everybody. I appreciate the participation and the interest in Worthington Steel. Again, very proud of our employees, excited about the progress this quarter and even more excited about what's to come, and we'll look forward to our next call and sharing our progress on our strategy. Have a great weekend, everybody. Thank you.

[Operator]

Ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.