• Consolidated Sales: $404 million, a 5.8% increase from the prior year's quarter.
• Metal Coating Sales: Increased by 3.3%, with galvanizing up 5.2%.
• Pre-Coat Metal Segment Sales: Increased by 7.6%.
• Metal Coatings EBITDA Margin: 31.5%, exceeding the prior year and targeted range of 25% to 30%.
• Pre-Coat Metals EBITDA Margin: 19.1%, exceeding the prior year.
• Cash Flow from Operations: $186 million for the first nine months.
• Debt Repayments: $80 million in substantial debt repayments.
• Gross Profit: $97.8 million or 24.2% of sales, up 110 basis points from the prior year.
• SG&A Expenses: $39.2 million or 9.7% of sales, up from $35.3 million or 9.3% of sales in the prior year.
• Operational Income: $58.5 million or 14.5% of sales, compared to $52.8 million or 13.8% of sales last year.
• Interest Expense: $19.2 million, down from $25.9 million in the prior year.
• Net Income: $33.6 million, compared to $26.9 million for the prior year quarter.
• Adjusted Net Income: $41.9 million, a 20.5% increase from the prior year.
• Adjusted EBITDA: $90.7 million or 22.5% of sales, compared to $86.4 million or 22.6% of sales in the prior year.
• Free Cash Flow: $99.7 million year-to-date.
• Debt to Adjusted EBITDA: 2.6 times, improved from 3.1 times in the prior year.
• Cash Dividends: $5.1 million paid to common shareholders in the third quarter.
• Annual Sales Guidance: Narrowed to $1.55 billion to $1.6 billion.
• Adjusted EBITDA Guidance: Narrowed to $340 million to $360 million.
• Adjusted EPS Guidance: Increased to $5 to $5.30.
• Capital Expenditures: Expected to remain at $100 million to $120 million for the fiscal year.

• Warning! GuruFocus has detected 3 Warning Sign with AZZ.

Release Date: January 08, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• AZZ Inc (NYSE:AZZ) reported a 5.8% increase in consolidated third-quarter sales, driven entirely by organic growth.
• The metal coating segment achieved a 31.5% EBITDA margin, exceeding the prior year and targeted range due to higher volume and improved zinc productivity.
• Strong cash flow from operations allowed AZZ Inc (NYSE:AZZ) to make substantial debt repayments of $80 million in the first nine months of the fiscal year.
• The company maintains a strong competitive position in galvanized metal coatings and coil coating segments, supported by economies of scale and innovative technology solutions.
• AZZ Inc (NYSE:AZZ) is committed to both organic growth and strategic bolt-on acquisitions, with a focus on maintaining and growing leadership positions.

Negative Points

• Selling, general, and administrative expenses increased to $39.2 million due to one-off employee retirement costs, severance expenses, and legal accruals.
• Interest expense for the third quarter was $19.2 million, although reduced from the prior year, it remains a significant cost.
• Equity and earnings from unconsolidated subsidiaries decreased to $7.2 million from $8.7 million in the same quarter last year.
• The effective tax rate increased to 26.5% from 24.6% in the prior year quarter, primarily due to higher non-deductible items.
• There is some uncertainty in the market due to potential impacts from tariffs and steel availability, which could affect project timelines and revenue.

Q & A Highlights

Q: Can you discuss the overall market demand and how AZZ's growth compares to market growth? A: Thomas Ferguson, President and CEO, noted that while markets have been choppy, AZZ has benefited from a diverse market presence and a focus on customer service and innovation, allowing them to outperform the market. David Nark, SVP of Marketing, added that nearly all end markets reported growth, with significant opportunities in construction, industrial, and utilities, particularly in transmission and distribution.

Q: Were there any unique factors contributing to the third quarter's growth, and how should we model for the fourth quarter and beyond? A: Thomas Ferguson explained that the third quarter's growth was primarily due to strong execution and customer service, with minimal impact from external factors like weather. He noted that while the fourth quarter is typically slower due to winter conditions, the company expects continued strong performance.

Q: What are the expectations for fiscal 2026 compared to fiscal 2025, particularly regarding volume, interest expense, and the new Missouri plant? A: Thomas Ferguson mentioned plans for potential acquisitions and a focus on reducing leverage. Jason Crawford, CFO, highlighted that interest rate impacts have been largely addressed this fiscal year, with no major changes expected next year. The Missouri plant is expected to ramp up slowly, with significant contributions anticipated in the latter half of fiscal 2026.

Q: Can you elaborate on the strong margin performance in the metal coatings segment and whether this is sustainable? A: Thomas Ferguson attributed the strong margins to disciplined execution, customer service, and zinc productivity improvements. He believes these factors are sustainable and that the company is close to reaching peak performance across its sites.

Q: How do interest rates and tariffs impact AZZ's business, and what are the expectations for the fourth quarter? A: Thomas Ferguson noted that while interest rates have a minor effect, tariffs could create more uncertainty due to their impact on steel costs. He expressed concern about potential delays in project decisions, which could affect revenue timing but not overall market activity.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.