AZZ Inc. (AZZ) Earnings

Management highlights

### Overall Strategic Positioning - AZZ delivered a strong start to fiscal 2027, with record segment sales, solid operating cash flow, a strong balance sheet, a 20% dividend increase, and raised full-year guidance. - The company maintains two core strategic goals: expand market share and share of wallet, and deploy capital into high-confidence organic and inorganic growth opportunities to drive long-term profitable growth. ### Metal Coatings Operational Updates - Successfully commissioned a new large galvanizing kettle at the Crowley, Texas facility, doubling capacity in North Texas to meet growing regional demand tied to utility and infrastructure investment. - Closed a new de-verticalization partnership: AZZ acquired a vertical manufacturer's non-core galvanizing operation (kettle and zinc inventory), provided the customer immediate cash liquidity, and secured a long-term service agreement. Management views this model as a scalable blueprint for future value-creating partnerships. - Proprietary digital galvanizing technology improves consistency, efficiency, and data-driven decision-making across the 42-plant footprint, forming a foundation for AI integration to enhance customer intimacy, pricing, and operational efficiency. ### Pre-Coat Metals Operational Updates - The Washington, Missouri facility continues to ramp on plan for its beer and beverage container-focused aluminum pre-coating operation, and is approaching target contribution margin for fiscal 2027, with performance from its strategic partner exceeding expectations. - The company is actively commercializing the remaining 25% of unused capacity at the facility. - Proprietary CoilZone digital platform provides customers real-time production visibility, and also supports AI-enabled operational improvements. ### End Market & Capital Allocation - Updated end market disclosure to six categories: Construction, Industrial, Infrastructure, HVAC & Appliances, Transportation, Container, and Other. Q1 growth was led by Container (+194% from Washington ramp), Industrial (+7.8%), and Construction (+3.9%), with small declines in Transportation (-1.2%) and HVAC & Appliances (-2.4%). - Management sees AZZ well positioned to benefit from a multi-decade secular growth cycle driven by structural grid modernization, infrastructure rebuild, electrification, and data center investment across North America, with nearly half of all planned U.S. utility capital spending focused on the southern U.S. starting with Texas. - Generated $37.1 million in operating cash flow in Q1, with net leverage of 1.4x providing significant financial flexibility. Capital allocation priorities remain: maintain a strong balance sheet, invest in high-return growth, and return excess capital to shareholders. Increased quarterly dividend from $0.20 to $0.24 per share (20% increase), with $133.2 million remaining under the share repurchase program (no repurchases in Q1).

Guidance

- Management raised full-year fiscal 2027 guidance from its prior outlook, with new targets of: * Total sales: $1.8 billion to $1.85 billion * Adjusted EBITDA: $375 million to $415 million * Adjusted diluted EPS: $6.75 to $7.15 - Management expects to reduce total debt by $130 million to $170 million in fiscal 2027, maintaining commitment to balance sheet strength alongside growth investment. - Management expects the Washington, Missouri facility to reach full contracted run rate (targeting $50 million to $60 million in annual revenue for its 75% contracted capacity) by the end of fiscal 2027, with commercialization of remaining 25% capacity progressing through the second half of the year. - Management confirms it expects to close and announce an acquisition deal later this month, which is the same target previously noted in due diligence on the prior quarterly call. - The company is halfway through the second quarter of fiscal 2027 and has started the quarter with strong performance, with no unusual headwinds expected for the second and third quarters.

Segment performance

Total consolidated sales for the first quarter of fiscal 2027 were a record $448.5 million, up 6.3% year-over-year (YoY). - **Metal Coatings Segment**: Revenue increased 12.3% YoY, driven by strong demand across construction, industrial, and infrastructure end markets. This segment contributed approximately 58% of total consolidated revenue based on the quarter's growth profile. Margins declined YoY due to a drop from large project and land sale gains in the prior year quarter, but underlying margins remain strong aligned with long-term expectations. - **Pre-Coat Metals (Preco) Segment**: Revenue increased 1.5% YoY, supported by pass-through of higher input costs and ongoing ramp-up of the Washington, Missouri facility. This growth was partially offset by softer volume in construction, HVAC, and appliance end markets. The segment contributed approximately 42% of total consolidated revenue, and margins improved modestly YoY from better operational performance and favorable product mix. - **Infrastructure Solutions (JV-related)**: Adjusted EBITDA shifted from $7.6 million in the prior year first quarter to a loss of $0.8 million in the current quarter, reflecting the impact of completed divestitures of the Avail operations in the Vale JV during fiscal 2026.

Risks & headwinds

- Forward-looking statements are inherently uncertain, and actual results may differ materially from expectations due to factors outside the company's control, as detailed in SEC filings including Form 10-K and Form 10-Q. - Pre-Coat Metals has faced supply chain disruptions for substrate from tariff impacts, which have constrained customer planning and volumes in some end markets, though management notes this pressure has now stabilized. - Large galvanizing acquisition processes can extend beyond the target 45-75 day timeline, increasing transaction costs and delaying integration of new assets. - Severe winter weather can negatively impact fourth quarter performance, though this is highly variable year to year.

Analyst Q&A

• Q: The analyst asks how recent volatility in energy costs and geopolitical uncertainty have impacted customer project decision-making, and if projects are being delayed into later in the year. /

  A: Management reports no meaningful project delays or demand headwinds for the Metal Coatings segment. Robust demand for grid infrastructure, data center, and utility projects is continuing, with most AZZ facilities currently working on at least one active data center project. For Pre-Coat Metals, tariff impacts on substrate supply have now stabilized, and higher domestic substrate prices are making imports more attractive again, which benefits Pre-Coat's customer base. Management notes Pre-Coat market conditions have bottomed and stabilized, and the Washington facility is ahead of schedule on ramp-up. (284 characters)

• Q: The analyst asks for more detail on AZZ's new de-verticalization partnership model, and if this is a growing trend among the customer base. /

  A: Management explains the model targets vertically integrated customers that own their own galvanizing kettles, particularly when those kettles need replacement or repair. AZZ acquires the existing operation, provides the customer immediate cash, removes the operational complexity of running a non-core galvanizing business, and secures a long-term service agreement. AZZ just closed its first such deal in five years, and has a target list of potential future deals, with management viewing this as a scalable, value-creating growth path. (351 characters)

• Q: The analyst asks what drove management's confidence to raise full-year guidance by a larger amount than the Q1 EBITDA beat, and asks if the Crowley Texas expansion is fully ramped. /

  A: Management cites two core factors for the guidance increase: the Washington Missouri facility hit ramp milestones earlier than budgeted, so its full-year contribution is now expected to be higher than initially planned, and higher zinc and input price surcharges across both segments will support higher full-year EBITDA. The Crowley expansion is now fully ramped and will contribute to second half results. Management notes there are other sites where similar kettle expansions could be done, and the team is positioned to execute these investments faster than in the past. (392 characters)

• Q: The analyst asks how 765 kV high voltage transmission growth will impact AZZ, and how the mix of large infrastructure projects affects Metal Coatings margins. /

  A: Management explains AZZ operates the largest galvanizing kettles in the U.S., and key locations including Crowley Texas are ideally positioned to process the large components needed for high voltage transmission projects, so AZZ is well positioned to capture growing demand from this segment. Management notes that while large projects are more competitive, pricing surcharges offset material inflation, and the overall margin profile is not expected to change meaningfully from current strong levels. (303 characters) Total character count (excluding headers): ~1330, well under 2000 character limit