Key Points
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AZZ raised its fiscal-year outlook, now targeting sales of $1.8 billion-$1.85 billion, adjusted EBITDA of $375 million-$415 million and adjusted EPS of $6.75-$7.15.
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Growth is being driven by demand for grid modernization, power infrastructure, data centers, reshoring and aluminum beverage packaging, with the Metal Coatings segment growing 14% year over year.
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AZZ has strengthened its balance sheet, reducing net leverage to 1.4 times debt to EBITDA, while investing in new capacity, including a $125 million Missouri coil-coating plant and expanded galvanizing operations.
AZZ (NYSE:AZZ) outlined its growth strategy, operating footprint and updated fiscal-year outlook at the IDEAS conference, highlighting demand tied to infrastructure, power transmission and distribution, data centers and aluminum beverage packaging.
David Nark, AZZ’s chief marketing, communications and investor relations officer, said the company is North America’s largest provider of hot-dip galvanizing and coil coating services. The company operates 61 locations across North America, including 47 Metal Coatings sites and 14 Precoat Metals locations with 16 coil-coating lines.
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AZZ operates as a toll coater, meaning its customers own the steel and aluminum that AZZ processes. Nark said the model limits the company’s direct exposure to steel and aluminum prices, while its primary input exposures are zinc, paint, natural gas, labor and freight.
Financial Performance and Outlook
For the fiscal year ended in February, AZZ reported $1.65 billion in sales, adjusted EBITDA of $368 million and adjusted diluted earnings per share of $6.19, according to Nark. The company’s consolidated adjusted EBITDA margin was 22%.
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The Metal Coatings segment generated $758 million in sales and $238 million in adjusted EBITDA, representing a 31% margin. The segment grew 14% year over year, which Nark attributed in part to investments in power infrastructure, transmission and distribution projects, utilities and data centers.
Precoat Metals reported $891 million in sales and adjusted EBITDA margins of nearly 20%. The segment was down slightly in the prior fiscal year due to residential-market exposure, including metal roofing, doors and garage doors, Nark said. However, he said Precoat Metals returned to year-over-year growth in the first quarter of the new fiscal year, which began in March.
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AZZ raised its guidance during the year. The company now expects:
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Sales of $1.8 billion to $1.85 billion, up from prior guidance of $1.725 billion to $1.775 billion.
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Adjusted EBITDA of $375 million to $415 million, compared with previous guidance of $360 million to $400 million.
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Adjusted diluted EPS of $6.75 to $7.15, compared with prior guidance of $6.50 to $7.00.
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Interest expense of approximately $35 million to $45 million.
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Further debt reduction of about $130 million to $170 million.
Nark said the outlook excludes the impact of recently completed M&A activity and potential additional income from the company’s Avail joint venture.
Balance Sheet, Investment and Acquisitions
Nark said AZZ has reduced net leverage to 1.4 times debt to EBITDA, from 3.6 times in fiscal 2022, following its acquisition of Precoat Metals. The company reduced debt by $385 million in the prior year, he said, while interest expense declined from more than $100 million at the time of the transaction to approximately $35 million to $45 million.
The company expects annual capital expenditures of $80 million to $100 million, with about 80% designated for maintenance and the remainder allocated to growth initiatives, Nark said.
Among those growth investments is a $125 million greenfield coil-coating plant in Washington, Missouri. The facility is operational following a two-year buildout and includes a 75% take-or-pay contract with one customer. Nark said the contract is expected to provide a seven-year volume ramp totaling approximately 45,000 to 50,000 tons annually from that customer and that the plant is expected to be accretive to earnings this fiscal year.
AZZ also expanded hot-dip galvanizing capacity at its Crowley, Texas, location by adding a second kettle, effectively doubling capacity there. The company recently acquired Seattle Galvanizing in Washington state, which Nark said was integrated on the first day after closing.
End-Market Drivers and Capital Allocation
Construction is AZZ’s largest end market, accounting for 59% of the business, according to Nark. Residential construction represents about one-third of that construction exposure, or approximately 15% to 18% of AZZ’s total business. Infrastructure is the company’s second-largest end market, including bridge, highway and electrical transmission and distribution projects.
Nark cited multiyear demand drivers including grid modernization, bridge and highway construction, data-center development, reshoring of manufacturing and the shift from plastic beverage packaging toward aluminum containers. AZZ’s container business currently represents 3% of its end markets but is growing, he said.
On capital allocation, Nark said AZZ plans to continue funding organic growth, pursuing disciplined acquisitions, increasing its dividend and repurchasing shares. The company most recently raised its dividend by 20% and repurchased $20 million of stock in the prior fiscal year. AZZ has $130 million remaining under its board-authorized share repurchase program, he said.
While AZZ does not report a significant backlog because of its typical three- to five-day turnaround time, Nark said the company monitors customers’ quoted backlogs and receives weekly sales forecasts from its customer base. He said AZZ expects high-single-digit growth over the next several years, targeting roughly twice GDP growth, while seeking to maintain or improve its consolidated adjusted EBITDA margin of 22%.
About AZZ (NYSE:AZZ)
AZZ Inc, incorporated in 1956 and headquartered in Fort Worth, Texas, is a leading provider of galvanizing and metal finishing solutions alongside electrical equipment and services. The company supports a diverse range of industriesāsuch as energy, infrastructure, heavy equipment and general industrial marketsāby delivering corrosion protection and high-performance electrical solutions designed for demanding environments.
AZZ operates two primary business segments. The Global Coatings & Services segment offers hot-dip galvanizing, metal finishing, painting, powder coating and related value-added services to steel fabricators and original equipment manufacturers.
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The article “AZZ Raises Outlook as Grid, Data Center Demand Powers Growth Strategy” was originally published by MarketBeat.