AZZ INC Q2 FY2025 earnings call

• Top line sales grew by 2.6% to $409 million in the second quarter. • Generated $119 million cash flow from operations in the first half of the fiscal year. • Metal Coatings and Precoat Metal segments saw organic sales growth driven by volume increases. • Construction-related markets represented 57% of combined coating sales. • Constructing a new aluminum coil coating facility in Washington, Missouri, expected to be operational in early fiscal year 2026. • Focus on driving revenue growth, improving profitability through operational efficiencies, and evaluating bolt-on acquisitions.

Metal Coatings sales increased by 1% to contribute to the overall sales, with an EBITDA margin of 31.7%, exceeding the prior year and the target margin range of 25% to 30%. Precoat Metal sales increased by 3.8%, with an EBITDA margin of 21.1% due to higher volume, improved operational performance, and better mix.

• Fiscal year sales guidance unchanged at $1.525 billion to $1.625 billion. • Narrowed adjusted EBITDA guidance to $320 million to $360 million. • Increased adjusted EPS guidance to $4.70 to $5.10. • Capital expenditures expected to remain $100 million to $120 million, including $63 million for the new greenfield plant. • Debt pay-down expected to exceed $100 million.

• Weather events like hurricanes can impact business. • Macro-economic events and changes can affect business. • Volatility in zinc prices can influence costs and pricing.

Q: On the M&A opportunity set, can you speak to appetite for acquisitions, bolt-on opportunities, and geography?

A: We're active in the pipeline, looking in galvanizing sectors like Northwest Rocky region and Southeast, and Precoat side has opportunities with customer conversions. No immediate closings anticipated.

Q: Thoughts on reconstruction following hurricanes and addressing lean construction?

A: Facilities in South Carolina, Virginia, Alabama, etc., can address needs, with a 3 to 6-month lag in ramp-up for rebuilding work.

Q: Thoughts on zinc price volatility and its impact on pricing environment?

A: Zinc costs have a lag, premiums adjust, and while volatility exists, it's watched carefully but not currently a great concern.

Q: Sustainability of margins at current levels given demand fluctuations?

A: Discipline in Metal Coatings and focus on volume in Precoat should help maintain margins, with slight drops in Q4 due to seasonal volume changes.

Q: Capital allocation, dividend, and potential buybacks?

A: Focus on paying down debt, dividend is an option but dependent on acquisition pipeline; prefer acquisitions over buybacks for now.