AZZ INC Q3 FY2025 earnings call

• Strong execution in both segments with sales growth driven by construction projects, highways, new bridge construction, infrastructure renovations, data centers, reshoring, manufacturing, and clean energy initiatives.
• Consolidated third quarter sales of $404 million, up 5.8% organically from the prior year.
• Metal Coatings delivered EBITDA margin of 31.5% and Precoat Metals 19.1%.
• Generated cash flow from operations of $186 million for the first 9 months, allowing $80 million in debt repayments.
• Finalizing construction of a new aluminum coatings facility in Washington, Missouri, expected to ramp up in Q1 2025.
• Disciplined capital allocation strategy including investing in growth, paying down debt, returning cash to shareholders, and evaluating acquisitions.

The Metal Coatings segment increased overall sales by 3.3%, with galvanizing growing at 5.2% compared to the prior year's third quarter. Its EBITDA margin was 31.5%, exceeding the prior year and the targeted range of 25% to 30%. The Precoat Metals segment grew sales by 7.6% and had an EBITDA margin of 19.1%, driven by higher volume, more profitable mix of business, and improved operational performance.

• Narrowed sales range to $1.55 billion to $1.6 billion, midpoint unchanged.
• Narrowed and raised adjusted EBITDA range to $340 million to $360 million and adjusted EPS guidance to $5 to $5.30.
• Capital expenditures expected to remain $100 million to $120 million.
• Equity and earnings from AVAIL JV expected in $15 million to $18 million range.
• Debt paydowns expected to exceed $100 million.

• Choppiness in project decision-making due to tariffs, steel availability, and interest rates affecting timing of projects.
• Potential delays in projects as they go through additional review cycles due to interest rate and tariff uncertainties.

Q: Talk about end market demand and market growth versus AZZ's growth angle.

A: Thomas Ferguson mentioned markets are choppy, but AZZ benefited from customer service and innovation, taking market share. David Nark added nearly all end markets were up vs prior year, with bright spots in construction, industrial, utilities, and transmission/distribution.

Q: What's fundamentally different this year in Metal Coatings margin profile compared to prior years?

A: Thomas Ferguson said it's due to scale, capabilities, customer service, quality, zinc efficiencies, and sustainable practices being applied across vast majority of sites, making the margin profile sustainable and potentially resetting guardrails.

Q: Thoughts on normalized growth rates for segments ex new builds and acquisitions?

A: Thomas Ferguson stated AZZ is a GDP level growth business, balancing margins with growth, and can exceed GDP due to infrastructure spend, green energy build-out, and reshoring tailwinds.