AZZ Inc. (AZZ) Q2 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
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.
Key Financial Performance
Total Sales $417.3 million, representing a 2% increase from $409 million in the prior year period. Growth was led by the Metal Coatings segment, where sales increased 10.8% over the prior year's quarter, driven by higher volumes and supported by infrastructure-related spending across our largest verticals.
Adjusted Earnings Per Share (EPS) $1.55, an increase of 13.1% compared to the prior year's adjusted EPS of $1.37. This improvement was attributed to operational execution and market share gains.
Operating Cash Flow $58.4 million, a 23% improvement year-over-year, reflecting disciplined execution in a dynamic environment.
Metal Coatings Margins 30.8%, slightly down due to an increased mix of solar and transmission distribution projects, which are lower-margin markets.
Precoat Metals Sales Declined 4.3% year-over-year due to weaker end market conditions, including lower volumes in building construction, HVAC, and appliance end markets. However, market share gains were achieved due to tariffs on imported prepainted metal.
Gross Profit $101.3 million or 24.3% of sales, compared to $103.5 million or 25.3% of sales in the prior year. The decline was due to customer buying patterns and the introduction of a new aluminum coil coating facility.
Selling, General and Administrative Expenses $32.8 million or 7.9% of sales, compared to $35.9 million or 8.8% of sales in the prior year, reflecting improved cost management.
Operating Income $68.5 million or 16.4% of sales, compared to $67.6 million or 16.5% of sales in the prior year, reflecting strong operational execution despite lower volumes.
Interest Expense $13.7 million, a significant improvement of $8.2 million from the prior year due to debt paydown, debt repricing, and the introduction of an accounts receivable securitization facility.
Income Tax Expense $25 million, reflecting an effective tax rate of 21.9% compared to 25.6% in the prior year. The reduction was due to increased R&D tax credits related to technology spending.
Net Income $89.3 million, compared to $35.4 million in the prior year. Adjusted net income was $46.9 million, up from $41.3 million in the prior year.
Adjusted EBITDA $88.7 million or 21.3% of sales, compared to $91.9 million or 22.5% of sales in the prior year. The decline was attributed to the divestiture of the Electrical Products Group.
Capital Expenditures $19.3 million, reflecting investments in business growth and operational improvements.
Acquisition Spending $30.1 million for a new galvanizing facility in Canton, Ohio, supporting strategic growth.
Net Leverage Ratio 1.7x, compared to 2.7x in the prior year, reflecting disciplined financial management and debt reduction.
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Operating Highlights
New aluminum coil coating facility: Introduced a new aluminum coil coating facility, which contributed to a small drag in margins but is expected to ramp up production and improve operating leverage.
Proprietary technology: Continued development of new galvanizing and coating processes, technology upgrades, and migration to Oracle systems to enhance operational efficiencies.
Infrastructure Investment and Jobs Act (IIJA): IIJA-related spending positively impacted demand for Metal Coatings, particularly in solar, transmission, and distribution projects. Multiyear tailwinds are expected.
Aluminum packaging: Growth in aluminum packaging for food and beverage sectors driven by the shift from plastic to aluminum, supported by the new facility in Washington, Missouri.
Operational efficiencies: Improved operating cash flow by 23%, disciplined execution, and integration of the newly acquired Ohio facility onto Oracle and DGS systems.
Debt management: Reduced interest expense by $8.2 million through debt paydown, repricing, and a new accounts receivable securitization facility, saving $1.4 million annually.
M&A strategy: Actively evaluating bolt-on acquisitions to extend market leadership in Metal Coatings, with a disciplined approach to pursuing high-quality opportunities.
Divestiture impact: Divested the majority of the Electrical Products business through the Avail joint venture, resulting in a modest EBITDA headwind but aligning with strategic priorities.
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Risk or Challenges
Metal Coatings Margins: Margins decreased slightly to 30.8% due to a mix of solar and transmission distribution markets, which are lower-margin markets.
Precoat Metals Market Conditions: Faced mixed market conditions, including tariffs and softer building construction markets, leading to headwinds in HVAC and appliance end markets.
Tariff Impact: Ongoing tariffs have caused customer hesitation on non-infrastructure-related projects, impacting demand.
Avail Joint Venture Divestiture: The divestiture of the Electrical Products Group created a modest EBITDA headwind and excess overhead costs.
Precoat Metals Margins: Margins were impacted by customer buying patterns and the introduction of a new aluminum coil coating facility, causing a small drag in margins.
Interest Rate Environment: Higher interest rates have muted new housing development and related supporting projects.
Construction Market Weakness: Weakness in non-residential and residential building construction, particularly in commercial office and retail sectors, has created divergence in construction end market sales.
Avail Business Transition: The remaining Avail business, consisting of welding services and lighting, is forecasted to generate zero equity earnings for the remainder of the year.
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Guidance & Outlook
Revenue Expectations: For fiscal year 2026, AZZ anticipates total sales to be in the range of $1.625 billion to $1.725 billion.
EBITDA Projections: Adjusted EBITDA is expected to be within the lower half of the range of $360 million to $400 million due to the lack of Avail equity income.
Earnings Per Share (EPS) Guidance: Adjusted diluted earnings per share is projected to be in the range of $5.75 to $6.25, representing an increase of 10% to 20% over fiscal 2025 adjusted earnings.
Market Trends and Tailwinds: AZZ expects multiyear tailwinds from infrastructure spending, particularly in energy and power generation capacity, driven by megatrends such as energy transition, grid modernization, and data center expansion. Public infrastructure spending is anticipated to remain robust despite higher interest rates.
Segment Performance: Metal Coatings segment is expected to benefit from infrastructure-related spending, including solar, transmission, and distribution projects. Precoat Metals segment anticipates mixed demand, with growth in aluminum packaging offset by softness in non-residential and residential construction.
Capital Allocation and M&A: AZZ plans to pursue strategic growth opportunities, including bolt-on acquisitions that align with its integration playbook and extend market leadership in Metal Coatings. The M&A pipeline is described as healthy.
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Shareholder Return Plan
Dividend Payments: Increased dividend payments to shareholders over the prior year.
Share Buybacks: Returning value to shareholders through share buybacks as part of the capital allocation strategy.
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Key Q&A
Q:Can you provide more details on the Precoat market share gains and their impact on AZZ?
A:AZZ gained market share due to a significant reduction in prepainted imports caused by tariffs. This transition to domestic supply allowed AZZ to offset a 9-10% market decline with a 3-4% share gain. The company maintained its normal margin profile without aggressive discounting, positioning itself for sustained market share and future growth.
Q:What are the positive offsets for Precoat's challenges in building construction, HVAC, and appliances?
A:The positive offsets include sustained market share gains due to tariffs, the ramp-up of the Washington, Missouri facility (currently at 20% capacity), and strong demand in the aluminum container market. Additionally, the company is pursuing new customer conversions and seeing signs of recovery in certain construction areas.
Q:What factors could influence AZZ's adjusted EBITDA guidance and Washington facility's contribution?
A:Factors include the $14-15 million Avail EBITDA impact from last year, interest savings from debt reduction, potential M&A deals, and Precoat's sustained margins over 20%. The Washington facility is expected to ramp up to 50% capacity in Q3 and Q4, contributing positively to margins.
Q:Are there margin expansion opportunities in the coil coating side?
A:There are multiple incremental projects underway, but no single large project. These projects are expected to provide gradual benefits over time.
Q:Is the import opportunity for Precoat fully realized?
A:No, it is still in the early stages. The reduction in imports has a tail to it, and AZZ is engaging with new customers and demonstrating its value-add capabilities. However, smaller orders with quick turnarounds slightly impact the margin profile.
Q:Is the Washington facility affected by the Oswego fire?
A:No, the Washington facility is not impacted by the Oswego fire. Production ramp is ahead of plan, and the facility is executing well with available materials.
Q:What is the status of the M&A pipeline?
A:AZZ is working on several bolt-on acquisitions for galvanizing and Precoat. The pipeline includes nine good opportunities in various stages, with hopes to complete one or more deals by year-end.
Q:What are the impacts of tariffs on Precoat?
A:Tariffs have reduced prepainted imports by 23%, benefiting Precoat. However, the bare Galvalume market is down 50%, creating headwinds. Customers are working through inventory, and the company expects a turnaround later.
Q:What is the confidence level in no further losses from Avail?
A:AZZ is aligned on a 0 EBITDA impact for Avail in Q3 and Q4, but there is a slight risk of negative impact in Q3. The company is working on realigning overhead costs and monetizing remaining businesses.
Q:What are the expectations for interest expense and SG&A for the fiscal year?
A:Interest expense is expected to improve in Q3 and Q4 due to debt reduction and repricing. SG&A is expected to remain around 8% of sales, with minimal fluctuations.
Q:What is driving the recovery in Precoat during September?
A:The recovery is attributed to fluctuations in inventory buying patterns, strong construction season, and customer expectations for a healthy end to the season.
Q:What is the revenue contribution of the Washington facility?
A:Specific revenue contributions are not disclosed, but the facility's ramp-up is progressing well and is included in the full-year guidance.
Q:What are the impacts of zinc price changes on Metal Coatings?
A:Zinc price increases create pricing opportunities but have minimal impact on margins for the current year due to existing inventory. Future plans and budgets will consider zinc price trends.
Q:What is the contribution of the Canton acquisition to Metal Coatings?
A:The Canton acquisition contributed $2 million in revenue and a few hundred thousand in contribution margin for the quarter.
Q:Is the margin profile for Metal Coatings sustainable?
A:Yes, the margin profile of 30-32% is sustainable, with confidence in maintaining this range barring significant economic changes.
Q:Review of Unclear Management Responses
A:Management avoided providing specific revenue contributions for the Washington facility and did not disclose detailed M&A pipeline timelines or specific impacts of potential acquisitions. Additionally, they used cautious language regarding Avail's future performance and the impact of tariffs, reflecting uncertainty.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI opportunity
AZZ Conference
AZZ container
AZZ infrastructure
AZZ today
AZZ utility
Act Department
Advisors discussion
Coatings Ohio
Coatings digit
Coatings mix
Crawford Chief
Department Energy
Department Transportation
Electrical Products
Energy website
Ferguson AZZ
HVAC appliance
IIJA spending
Oracle
account
adjustment
appliance end
borrowing
building construction
construction HVAC
construction end
divestiture Electrical
environment
headwind
increase period
loss
market sale
opportunity tariff
paydown debt
share gain
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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