AZZ Inc. Q2 FY2026 earnings call

Management Statement and Operational Highlights

• Financial Results: Total sales rose 2%, adjusted earnings per share increased 13.1%, and operating cash flow improved 23%. Metal Coatings had double-digit sales growth, while Precoat faced mixed market conditions but gained market share.
• Infrastructure Impact: The Infrastructure Investment and Jobs Act is driving demand for Metal Coatings, particularly in utilities, solar, transmission, and data center projects.
• Facility Updates: The Washington, Missouri facility saw increasing sales and improving operating leverage. The Ohio facility was integrated onto Oracle and DGS.
• Technology and M&A: Pursuing technology upgrades and strategic M&A, evaluating bolt-on acquisitions to enhance market leadership in Metal Coatings.

Segment Performance

• Metal Coatings: Total sales increased 10.8% from the prior year quarter, driven by higher volumes and infrastructure-related spending. Margin was 30.8% but slightly down due to a mix of lower margin markets like solar and transmission distribution. Contributed significantly to overall sales growth.
• Precoat Metals: Sales declined 4.3% due to a weaker end market environment in building construction, HVAC, and appliance sectors. However, it gained market share in the pre-painted imported metal market. Container and beverage results were strong due to the shift to aluminum, but the overall end market outlook remained mixed.

Guidance

• Sales: Anticipates total sales to be in the range of $1.625 billion to $1.725 billion.
• Adjusted EBITDA: Expected to be within $360 million to $400 million, excluding Avail equity income.
• Adjusted EPS: Projected to be in the range of $5.75 to $6.25, representing a 10%-20% increase from fiscal 2025.
• Liquidity and Balance Sheet: Strong liquidity, low debt to EBITDA ratio, and planning for share buybacks.

Risks

• Tariffs and Market Uncertainty: Impact on Precoat Metals end markets, with customer hesitation on non-infrastructure projects due to tariffs.
• Avail Divestiture Impact: Uncertainty around equity and earnings from unconsolidated subsidiaries, particularly seasonality issues with the WSI business.
• Interest Rate and Economic Factors: Higher interest rates affecting residential construction, potentially impacting overall business performance.

Question and Answer

• Q: On Precoat market share gains, color on dynamic and contribution? A: Tom Ferguson explains that share gain is from reduced pre-painted imports, offsetting a market decline, with potential to sustain and leverage new customers, maintaining normal margin profile.
• Q: Guidance adjusted EBITDA, end market vs operational? A: Tom and Jason discuss the impact of Avail EBITDA, interest savings from debt paydown and securitization, Precoat performance, and Washington facility ramp on guidance.
• Q: Import opportunity for Precoat? A: Tom states it's early innings, with potential for continued share gains despite smaller orders and margin impact.
• Q: Interest expense and SG&A guidance? A: Jason talks about interest expense reduction due to debt paydown and securitization, with SG&A expected to be around 8% of sales.
• Q: Washington facility revenue contribution and zinc market impact? A: Jason mentions Washington ramp progress, and Tom discusses zinc price impact on Metal Coatings margin.
• Q: Metal Coatings margin and Canton acquisition? A: Tom confirms Metal Coatings margin in the 30% range, with Canton contributing minimally in Q2 and expecting tighter guidance on margin.