AZZ Inc. — Fiscal Year 2027 Second Quarter Earnings Summary

Financial Performance

• Total sales reached $486.9 million, an increase of 16.7% compared to the prior year quarter.
• Metal Coatings segment sales were $233.5 million, up 22.9% year-over-year.
• Precoat Metals segment sales were $253.4 million, up 11.5% year-over-year.
• Operating income was $83.8 million, up 22.4% from the prior year.
• Net income was $58.5 million, a decrease of 34.6% from the prior year, primarily due to a reduction in equity earnings from the AVAIL joint venture following the sale of its Electrical Products Group.
• Adjusted net income was $60.1 million, up 28.1% year-over-year.
• GAAP diluted EPS was $1.94, down 34.2% year-over-year.
• Adjusted diluted EPS was $2.00, up 29.0% year-over-year.
• Consolidated Adjusted EBITDA was $110.9 million (22.8% of sales), compared to $88.7 million (21.3% of sales) in the prior year.
• Segment Adjusted EBITDA margins were 30.7% for Metal Coatings and 21.2% for Precoat Metals.
• Cash flow from operations for the quarter was $102.8 million, up 76.1% year-over-year.
• Net leverage ratio was 1.3x on a trailing twelve-month Adjusted EBITDA basis.

Guidance and Future Outlook

• Fiscal Year 2027 sales guidance was raised to $1.825 billion – $1.875 billion (previously $1.80 billion – $1.85 billion).
• Fiscal Year 2027 Adjusted EBITDA guidance was raised to $380 million – $420 million (previously $375 million – $415 million).
• Fiscal Year 2027 Adjusted Diluted EPS guidance was raised to $7.00 – $7.30 (previously $6.75 – $7.15).
• Guidance assumes an annualized effective tax rate of 25%, interest expense of $35 million – $45 million, and capital expenditures of $80 million – $100 million.
• Guidance excludes M&A activity beyond the Seattle Galvanizing acquisition and potential federal regulatory changes.
• Management expects the new Washington, Missouri plant to be accretive to earnings in FY2027.
• Management projects debt reduction in the range of $100 million – $140 million for the full fiscal year.

Business Segments and Product Lines

• Metal Coatings growth was driven by higher steel processing volumes in construction, industrial, infrastructure, and transportation end markets, alongside higher average selling prices.
• Precoat Metals growth was driven by higher coil-coating volume and average selling prices, including vendor price increases passed to customers, and higher sales from the Washington, Missouri facility.
• Precoat Metals volume was partially offset by lower volume in HVAC, appliances, transportation, and other end markets.
• The company completed the acquisition of Seattle Galvanizing in Arlington, Washington, for $57.5 million.
• The Washington, Missouri facility within the Precoat Metals segment continued its ramp-up during the quarter.

Market and Competitive Landscape

• The company operates as the leading independent provider of hot-dip galvanizing and coil coating solutions in North America.
• End markets include construction, industrial, infrastructure, transportation, HVAC, appliances, and container sectors.
• Management cited strong execution and the durability of the business model as key competitive advantages.
• Inflationary pressures contributed to higher average selling prices across both segments.

Risks and Challenges

• Forward-looking statements are subject to risks including changes in customer demand, particularly in construction and infrastructure markets.
• Potential inflationary increases in production costs, specifically for zinc, natural gas, and paint.
• Supply chain vendor delays and delays in additional acquisition opportunities.
• Risks related to debt leverage, variable interest rates, and economic volatility.
• Availability of experienced management and employees to implement growth strategy.
• Potential impacts from tariffs, acts of war, terrorism, or changes in political stability.

Management Commentary and Tone

• Tom Ferguson, President and CEO, described the quarter as having "record-setting performance" and expressed confidence in setting new sales and profitability records for fiscal year 2027.
• Management highlighted the combination of organic growth, strategic acquisitions, and operational excellence as drivers for long-term value creation.
• The tone emphasized strong balance sheet management, with a focus on disciplined working capital, capital expenditures, and debt reduction.
• Management thanked employees for their commitment to safety, service, and operational execution.

Other Key Points

• The company repurchased 136,303 shares of common stock for $20.0 million during the quarter at an average price of $146.71.
• A cash dividend of $0.24 per share was paid to common shareholders, representing a 20% increase from the prior year quarter.
• Total debt reduction for the first six months of fiscal year 2027 was $15.0 million.
• Operating cash generated for the first six months of fiscal year 2027 was $140.0 million.
• Capital expenditures for the first six months of fiscal year 2027 were $37.2 million.
• Total cash returned to shareholders in the first six months included $13.2 million in dividends and $20.0 million in stock repurchases.
• The AVAIL joint venture sale of the Electrical Products Group in the prior year significantly impacted prior year equity earnings, which is excluded from adjusted measures.