AZZ Inc. (AZZ) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary and Q&A indicate strong financial performance, with record sales and improved margins. Debt reduction efforts, combined with the AVAIL divestiture cash flow, have strengthened financial health. The cautious approach to EBITDA guidance is offset by optimistic EPS guidance, indicating confidence in future profitability. The potential for increased share repurchases and the ramp-up of new facilities further support a positive outlook. While management avoided specific volume details, the overall sentiment remains positive, with expected growth in the solar segment and Precoat Metals.
Key Financial Performance
Sales $422 million, compared to $413.2 million for the same quarter in the prior year, representing a 2.1% increase. Growth was driven by the Metal Coatings segment, where sales rose 6% in Q1 due to higher steel volume processed, offset slightly by lower mix-related selling price.
Precoat Metals Sales Declined 0.8% year-over-year due to customers navigating inventory challenges associated with tariff concerns, partially offset by an increase in the average selling price.
Gross Profit $104.1 million or 24.7% of sales, compared to $102.7 million or 24.9% of sales in the prior year quarter. The slight decline in gross margin percentage was due to restructuring charges and the ramp-up of a new facility.
Adjusted EBITDA $106.4 million or 25.2% of sales, compared to $94.1 million or 22.8% of sales in the prior year, representing a 240 basis point improvement driven by increased volume, productivity improvements, and performance from the AVAIL JV.
Net Income $170.9 million, compared to $39.6 million for the prior year quarter. Adjusted net income was $53.8 million, up from $44 million in the prior year, representing a 22.2% increase. The increase was driven by equity and earnings from the AVAIL divestiture and operational improvements.
Cash Flow from Operations $314.8 million, which included $273.2 million from the AVAIL divestiture. This significant increase was due to the cash distribution from the divestiture.
Capital Spending $20.9 million, with $3.2 million related to the new Washington, Missouri facility. This reflects ongoing investments in growth initiatives.
Debt Paydown $285.4 million in the quarter, supported by proceeds from the AVAIL divestiture and free cash flow generation, improving the net leverage ratio to 1.7x from 2.8x in the prior year.
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Operating Highlights
New Aluminum Coating Facility: AZZ commissioned a new aluminum coating facility in Washington, Missouri, which shipped its first qualification orders during the quarter. The facility is expected to improve operating leverage and gross margins in the second half of the year.
Digital Galvanizing System (DGS): AZZ continues to invest in its proprietary DGS platform, which enhances production efficiencies and provides real-time updates for customers.
Acquisition of Canton Galvanizing: AZZ acquired Canton Galvanizing in Ohio, expanding its galvanizing business and customer base. The acquisition is expected to deliver predictable synergies and scale the business.
Infrastructure-Related Demand: AZZ benefited from strong demand in construction, industrial, and electrical transmission and distribution markets, driven by infrastructure-related projects.
Restructuring of Metal Coatings: AZZ restructured its Metal Coatings surface technologies platform by closing a powder coating facility and divesting a plating facility to achieve greater than 20% EBITDA margins.
Debt Reduction: AZZ paid down $285.4 million of debt in the quarter, improving its net leverage ratio to 1.7x from 2.8x in the prior year.
Monetization of Electrical Products Businesses: AZZ monetized nearly all of its Electrical Products businesses within the AVAIL joint venture, receiving $273 million in cash. This aligns with its strategy to focus on metal coatings.
Shift to Pure-Play Metal Coatings: AZZ has transformed into a pure-play metal coatings company through strategic acquisitions and divestitures, including the acquisition of Precoat Metals in 2022.
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Risk or Challenges
Market Demand Variability: Lower demand in industrial end markets, including agriculture, transportation, appliance, and HVAC, could adversely impact revenue streams.
Inventory Challenges: Precoat Metals faced inventory challenges associated with tariff concerns, which could disrupt supply chain efficiency and customer satisfaction.
Restructuring Costs: Metal Coatings incurred a $3.8 million restructuring charge related to the disposition of a small powder coating facility and a small plating facility, which could strain short-term financials.
New Facility Ramp-Up: The new Washington, Missouri coil coating facility created a slight drag on margins during its initial production phase, potentially impacting profitability in the short term.
Debt Management: Although debt was reduced, interest expense remains significant at $18.6 million for the quarter, which could limit financial flexibility.
Economic and Regulatory Risks: Dependence on reshoring activities and tariffs under the current administration introduces exposure to changes in economic policies and regulatory environments.
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Guidance & Outlook
Fiscal 2026 Sales Guidance: AZZ expects fiscal 2026 sales to be in the range of $1.625 billion to $1.725 billion.
Adjusted EBITDA Guidance: Adjusted EBITDA is projected to be in the range of $360 million to $400 million, with the midpoint representing the best estimate.
Adjusted Diluted EPS Guidance: Adjusted diluted EPS is forecasted to be between $5.75 and $6.25, reflecting an increase of 10% to 20% over fiscal 2025 adjusted earnings.
New Aluminum Coating Facility: The newly commissioned aluminum coating facility in Washington, Missouri, is expected to improve operating leverage and turn gross margins positive in the second half of the year as sales ramp up.
Market Trends and Growth Drivers: Demand from infrastructure-related project spending is expected to benefit AZZ across multiple end markets, including construction, electrical transmission and distribution, and solar power generation. Growth is also anticipated in the aluminum transition in food and beverage packaging and reshoring activities accelerated by Invest in America initiatives and tariffs.
Capital Allocation Strategy: The company plans to focus on debt paydown, investments in organic growth, strategic M&A, and opportunistic share repurchases under the current 10b5-1 buyback plan.
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Shareholder Return Plan
Quarterly Cash Dividend Increase: The Board approved an increase to the quarterly cash dividend from $0.17 per share to $0.20 per share, representing a 17.6% increase.
Share Repurchase Plan: The company plans to pursue regular and opportunistic share repurchases under its current 10b5-1 buyback plan in the current fiscal year.
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Key Q&A
Q:Did 1Q benefit from any sort of normalization in volumes after being impacted by weather and tariff uncertainty in 4Q?
A:Yes, there was some normalization. About half of the improvement was recovery from Q4, and the other half was pure organic growth, particularly in the Metal Coatings segment.
Q:What drove the improved zinc utilization for Metal Coatings during the first quarter?
A:The improvement was driven by factors such as the digital galvanizing system, leadership development, playbooks, training, technical capabilities, and engineering. These efforts have brought operations close to theoretical zinc efficiency levels. However, management did not provide specific volume numbers for the segment.
Q:What is the outlook for Precoat Metals, considering customer inventory levels and tariffs on imported pre-painted steel?
A:Customer inventories ramped up towards the end of the year, and customers have been pulling inventory down, indicating demand. Imported pre-painted steel fell significantly (38% in May and 50% in April year-over-year), aligning with tariff expectations. This is expected to provide a tailwind as customers source steel locally.
Q:What happened to the volumes from the two small facilities disposed of during the quarter?
A:One facility in Tampa had no nearby facilities to shift volumes to, while the other facility's volumes were partially retained by nearby facilities. These facilities were not profitable, and their closure allowed for cost reductions and improved profitability.
Q:Could share repurchases increase in future quarters given the significant debt reduction?
A:Yes, share repurchases could increase. The company has an approved $100 million buyback facility with about half remaining. Management is also focused on bolt-on acquisitions, debt reduction, and dividend increases.
Q:What is the impact of the copper tariff announcement on customer projects?
A:Management has not observed significant impacts yet but plans to monitor customer feedback. They believe the copper tariff may not significantly affect their projects.
Q:Why was EBITDA guidance not raised despite raising EPS guidance?
A:Management remains cautious due to tariff uncertainty and the lack of backlogs. Additionally, the AVAIL transaction impacts EBITDA negatively but provides interest savings that benefit EPS.
Q:What are the expectations for margin improvement going forward?
A:Margin improvement is expected from better throughput, operational excellence, and ramping up the new Precoat facility. Management also anticipates benefits from bolt-on acquisitions and organic growth.
Q:Are there opportunities for larger acquisitions, or will M&A activity focus on smaller bolt-ons?
A:Current M&A activity focuses on smaller bolt-ons, but there are multi-site opportunities that could take longer to materialize. Management is optimistic about their pipeline of opportunities.
Q:What is the profile of the Canton Galvanizing acquisition, and are there opportunities for improvement?
A:Canton Galvanizing fits within the $10-$20 million revenue range and was already profitable. Management sees opportunities to drive margin improvement and grow the business using their digital galvanizing system and sales team.
Q:What are the expectations for Precoat Metals sales growth and margins?
A:Precoat Metals has been affected by tariffs and imported pre-painted metal. However, margins have improved due to cost structure variability. The new facility is expected to ramp up in the second half of the year, contributing to sales and margin growth.
Q:What is the outlook for the solar segment of the Metal Coatings business?
A:Solar projects are expected to be pulled forward due to legislative changes, providing a short-term tailwind. Management also anticipates continued electricity demand growth from data centers and other infrastructure projects.
Q:Review of Unclear Management Responses
A:Management avoided providing specific volume numbers for the Metal Coatings segment despite being asked. Additionally, they did not provide detailed insights into the potential impact of the copper tariff announcement, citing its recent nature.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Central Texas
Coil
Inc Research
JV
LLC Research
Martin Advisors
Metal Coatings
Metals
Research Division
SGA
Unidentified
acquisition
business
cash flow
charge
coating facility
construction
debt paydown
distribution
divestiture cash
equity period
expense
facility North
family
income
market
measure
paydown debt
period equity
platform
play metal
segment
tax
AZZ Transcript
AZZ Inc. (AZZ) Q3 2026 Earnings Call Transcript
Positive1-8
The earnings call summary and Q&A highlight strong market trends, strategic growth plans, and optimistic guidance, particularly in Metal Coatings and Precoat segments. Management's focus on M&A and data centers, along with improved margins and weather conditions, supports a positive outlook. Despite some uncertainties in guidance and pricing strategies, the overall sentiment is positive, suggesting a likely stock price increase.
AZZ Inc. (AZZ) Q2 2026 Earnings Call Transcript
Positive10-9
The earnings call summary and Q&A indicate a positive outlook for AZZ. The company has shown strong financial management with a reduced net leverage ratio and strategic acquisitions. Market share gains in Precoat due to tariffs, along with the ramp-up of the Washington facility, bolster growth prospects. Despite some uncertainties, such as Avail's future performance, the overall guidance is optimistic, with sustained margins and potential M&A opportunities. Given the company's market cap, these factors are likely to result in a positive stock price movement of 2% to 8% over the next two weeks.
AZZ Inc. (AZZ) Q1 2026 Earnings Call Transcript
Positive7-10
The earnings call summary and Q&A indicate strong financial performance, with record sales and improved margins. Debt reduction efforts, combined with the AVAIL divestiture cash flow, have strengthened financial health. The cautious approach to EBITDA guidance is offset by optimistic EPS guidance, indicating confidence in future profitability. The potential for increased share repurchases and the ramp-up of new facilities further support a positive outlook. While management avoided specific volume details, the overall sentiment remains positive, with expected growth in the solar segment and Precoat Metals.
AZZ Inc. (NYSE:AZZ) Q4 2025 Earnings Call Transcript
Positive4-23
The earnings call summary shows solid financial performance with increased income and reduced debt. Despite a slight sales decline, margins improved, and the company recovered from weather impacts. The Q&A reveals positive sentiment, with strong short-term outlooks and successful recovery from previous setbacks. Management's commitment to debt reduction and acquisitions, along with optimistic guidance, supports a positive sentiment. The market cap suggests moderate volatility, aligning with a 'Positive' prediction of 2% to 8% stock price increase.
AZZ Report
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