Data center growth battles steel shortages and inventory delays
- First quarter fiscal 2027 sales grew 13 percent year over year to $344 million.
- ASME water tanks for data center cooling hit $13 million in revenue during the first quarter.
- Protracted destocking of A2L refrigerant cylinders created an unexpected $7 million earnings headwind.
- Tight physical steel availability and extended lead times disrupted production and increased costs.
- The WAVE joint venture delivered record equity income of $35 million in the first quarter.
Data center tanks offer a bright spot amid operational snags
Worthington continued its top line growth into early fiscal 2027. First quarter sales reached $344 million, up 13 percent year over year. The standout performer was the Building Performance Solutions segment, where a surging business in ASME water tanks for data center liquid cooling matched its entire prior year revenue in just one quarter. Joint ventures also shined, as WAVE delivered a record $35 million in equity earnings.
Despite the strong headline numbers, the company faces mounting operational headwinds. The transition to A2L refrigerants previously pulled forward demand, and now extended inventory destocking in the channel is dragging on earnings. Furthermore, physical steel shortages and long lead times are disrupting production schedules for cooling systems and consumer balloons.
The bull case points to the massive addressable market in data centers and the company's successful string of acquisitions like Elgen and LSI. The bear case notes that retail demand remains sluggish and input costs are volatile. Investors need to watch whether the company can secure enough steel and push past the A2L inventory glut by the end of the year.
Brands, building parts, and strategic joint ventures
Worthington sells its products through two newly renamed segments. Trade and Specialty Solutions reaches retail shoppers with brands like Bernzomatic, Coleman, and Balloon Time. Building Performance Solutions supplies the construction market with water tanks, refrigerant cylinders, and commercial roofing accessories.
A huge piece of the profit puzzle comes from joint ventures. The WAVE partnership sells ceiling suspension systems and provides steady, high margin equity income. ClarkDietrich sells light gauge steel framing, tying its fortunes directly to commercial construction trends and steel pricing.
Growth is heavily driven by acquisitions. Worthington recently bought Elgen and LSI to bulk up its commercial building portfolio. Management prefers spending cash on strategic buyouts over massive share repurchases, hoping to add high margin businesses that complement their existing factories.
Customer concentration remains a key vulnerability. A single retail customer accounts for roughly 10 percent of total sales. If that buyer demands better pricing or shifts shelf space to competitors, the consumer segment will take an immediate hit.
What Worthington sells
Torches, fuel, and outdoor living
Brands such as Bernzomatic and Coleman sell hand torches, fuel cylinders, and camping gas. These products rely on retail demand, making them sensitive to inflation and cautious shoppers.
Balloon Time and celebrations
Balloon Time sells helium kits for parties and events. The product relies on discretionary consumer spending and shelf space at major retail chains.
Drywall and repair tools
Level5 and related tools serve repair and remodel work. This area weakens when higher interest rates and tight household budgets slow home renovation projects.
Refrigerant and LPG cylinders
These cylinders benefited from early A2L regulatory transitions. They are currently facing slower orders as distributors work through built up inventory.
Water tanks and data center cooling
Amtrol and ASME water tanks supply liquid cooling infrastructure for data centers. Management expects sequential growth from this multi-year tailwind.
Elgen and LSI building parts
Elgen adds commercial HVAC components, while LSI brings commercial metal roof clips. These acquisitions are central to the strategy in Building Performance Solutions.
WAVE and ClarkDietrich joint ventures
WAVE provides record earnings from ceiling suspension systems. ClarkDietrich remains highly cyclical and depends on nonresidential construction markets.
Fiscal 2026 sales mix
The mix uses full fiscal year 2026 consolidated net sales under the updated segment structure. Joint venture equity income is not shown as a sales segment.
What can go wrong
Steel shortages disrupt production
High impact · High oddsBeyond simple tariff costs, tight physical steel availability and extended lead times are actively disrupting operations. These delays cost the company several million dollars in a single quarter.
A2L inventory destocking drags on
Medium impact · High oddsThe load-in effect from the A2L refrigerant transition created an inventory glut in distributor channels. This normalization process is taking longer than expected, creating an immediate earnings headwind.
ClarkDietrich remains vulnerable
Medium impact · Medium oddsClarkDietrich equity earnings suffer when nonresidential construction slows or steel pricing falls. Because equity earnings are a large part of the profit mix, prolonged weakness here caps total earnings growth.
Consumer spending weakens retail brands
Medium impact · Medium oddsThe Trade and Specialty Solutions segment relies on everyday consumer purchases for torches and helium kits. If shoppers delay projects or pull back on parties, retail brands will lose momentum.
In one breath
What does Worthington Industries actually do?
Worthington makes branded consumer products and building products. Its goods include fuel cylinders, torches, helium kits, drywall tools, water tanks, and commercial HVAC parts.
How is Worthington tied to data centers?
Worthington makes ASME water tanks used in liquid cooling for data centers. This business generated $13 million in a single quarter, matching its entire prior year output.
Why is the company facing margin pressure?
Gross margins are being squeezed by tight physical steel availability, increased tariffs on imported metals, and delayed inventory ordering from cooling customers.
What is the biggest thing to watch next?
Watch whether the A2L inventory clears and if the company can secure enough raw steel. If these resolve, the data center growth story becomes much stronger.
Sources and research notes
This page combines Finn's company research with public filings and other cited materials. The thesis is reviewed when material company information changes; Finn Scores use the latest available scoring data.
- Thesis reviewed
- September 27, 2026
- Score data
- September 27, 2026
- Reviewed by
- Shivam Bharuka
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