AZZ - Earnings call transcript Q2 2020

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Operator

Good morning, and welcome to the AZZ, Inc.

Second Quarter Financial Year 2020 Financial Results Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, today’s event is being recorded.

to conference like Dorame. to now would turn over the Joe I go Please ahead.

Joe Dorame

morning for for thank to Dan. ended and Thanks Good XXXX. you of year financial of August XX, quarter review results joining AZZ second Inc. the fiscal XXXX the today us

representing note, are, open today’s of Please the page question-and-answer is and we Ferguson, www.azz.com. will Officer; at call presentation call, Mr. prepared Chief for for session. conclusion call Financial under found which On Paul After Fehlman, the Tom a slide can Executive the Information a Relations Mr. on there Chief the Company Financial Officer. today’s Investor AZZ’s remarks, be

and AZZ within Reform Act like the we remind statements the forward-looking statements AZZ this Litigation of with everyone, during conference with the Private by XX-K XXXX. including contain and detailed fact, call may the Securities Except certain filed year which the call XXXX. involve of of by this Securities statements fiscal forward-looking on February constitute Exchange ended uncertainties, meaning historical time-to-time documents for remarks, Before conference begin of statements Form Report are I’d XX, the Commission, for some from to in made of team Annual risks the that prepared management

natural requested to and process, growth serves, rates; employees adequate economic the stability various of which exchange generation prices products markets and strategies. availability experienced including shipments; power uncertainties and that currency metal coatings services customer implement the are offered opportunities; the conditions are risks galvanizing material foreign in Company changes and the the of in political used electrical delays acquisition not and to demand industrial but raw costs and distribution include, markets, gas, the by response and and Those financing and in customer by the and management limited transmission markets; to, zinc demand AZZ domestic, markets, changes including and of the hot-dip markets, Company’s

prove The Company as correct. new can AZZ give These statements a no statements assurance of of events will information, any based assumes hereof no information or future update that are the otherwise. as date result whether and forward-looking to be statements to obligation forward-looking such on

With turn call Ferguson, Chief Officer to that Mr. over said, AZZ. let me the Tom? Tom Executive of

Tom Ferguson

and Joe. Thanks, you call for second our year us earnings I this joining Welcome fiscal XXXX to quarter morning. thank

are in growth overall in Operating year. pleased margins continued net X% prior million groups impact spite X.X% XXXX. project Chinese of the versus about revenue fiscal growth We the We to the shipments improved performance and on with quarter. of of and strong generated business our during XX% year income FX tariff X

ahead our our plans, of is fiscal Year-to-date, business tracking well full which year. the for nicely bodes

shipped bus experienced another season, slow segment orders, in regained Energy traction operational summer Chinese of normally high-voltage the a and Our portion most businesses.

bookings a in versus expected. related X% the Energy were last down we Chinese non-China second quarter our the were While bookings of one quarter we where large so are we booked range orders, year, lapping

and petrochemical solar of and is our which The continues in to acquisitions team DGS earlier year. System efficiencies segment plants. The completed galvanizing markets grow operational this the usage Metal Coatings Digital the from increased experienced improved Coatings as contributions in Galvanizing demand the our Metal

includes improved Technologies, and eight experienced powder now which plants. from Surface also We coating contribution plating

million. costs drive able income on costs labor Overall, had to market labor our to lower value zinc through over last XX% continue emphasis the while were our flowing continued pricing we remains versus net to craft as rise kettles also year up tight. second We we quarter $XX.X

our back half a in solid stage on This in more strong year, performance sets the segment Energy for build momentum of to the while continue million. the backlog We the than continues business with the program. gain revenue positive of $XXX both of The our X.X% Coatings Metal Coatings organically aggressive from year. initiatives an segment quarter from to increased acquisition drive to and key second traction through growth, last Metal the

to year to in lower XX% XXXX. pricing the on quarter XX% margins was Operating kettles, flowing due fiscal and contribution improvement of from second This to zinc our improvement. through the operational our increased emphasis compared value costs

have Digital productivity, and customer steps improve drive to We and our improving System operational are in taken also service. efficiency labor seeing productivity while Galvanizing greater

leader North industry America in the XX remain plants. with galvanizing We

yield surface in will meaningful that businesses, the confidence traction investments and to include gaining which financial our are coating, rebar us pleased We in years galvanized business. performance new the plating growing powder technology to positive gives be our This come.

platform Our and focus operational Energy customer to continues on improving execution electrical segment's service.

prior their While reduced year, to seeing the Chinese negatively oil are our impacted somewhat bus the markets tariffs, of are shipments. businesses electrical Profitability on compared demand. by improving high-voltage was patch some

on Canada the specialty dependence solutions, particularly We Europe, and and for and are situation especially welding as our Chinese opportunities as the and well have the in in these many U.S. to demand locations. the U.S. us reduced in remain somewhat positioned trade as to with pleased the participate market. Brazil market both cautious tighter nuclear to tariffs our of related due investments We labor our domestically uncertainty internationally, for

per in previously annual $X,XXX,XXX,XXX. range to range our diluted per sales guidance Looking the $X.XX forward, the XXXX we $X.XX in $X,XXX,XXX,XXX of fiscal of earnings are share issued to and share, raising of

completed strong our quarter have We turnaround experienced and season third very internationally. a

Surface to to also continued more acquisitions, ship our recent our electrical, in We the Chinese benefit galvanizing and business. have traction have in backlog gain Technologies of

So with over to turn that, it Paul? I'll Fehlman. Paul

Paul Fehlman

Thanks, Tom.

an $X.XX XX.X% prior to second million, X% reported than fiscal year quarter net the $X.X second of fiscal quarter year increase the greater XXXX. for million quarter. the quarter. or XX.X% a was income second rose quarter $XX.X Net million, year $XX.X Reported the compared than the fiscal For or XXXX increase second the we $XXX.X greater diluted prior to in revenue $X.XX, second EPS million year XXXX,

a Coatings segment. QX XX.X% Metal year, in the for performance gross profit $XX.X million XXXX QX strong from prior year grew improved million to Operating margins the year-over-year on $XX.X margin XXXX, primarily fiscal fiscal in from margins in current XX.X% on XX.X% to points XXXX million basis, second of X.X% year. a in fiscal the to Operating to the representing increased XXX compared increase prior year to fiscal compared XX.X% of quarter increase. QX year basis $XX.X EBITDA for X.X% the XXXX.

for the practices. In was an The that AZZ's we result results delaying extensive XX-Q. we call of announced the conference financial form of rescheduling early October, were delay the of tax fiscal and second our XXXX accounting review quarter filing deferred historical our

was years calendar going December, spanned accounting year adjustments several back that's review early requiring As which we XXXX. income tax the to part concluded in of identified issues, several

correcting in determined Earnings have second areas tax to XXXX, not areas the in which was period resulted per benefit this financial one-time of Accordingly, share current period $X.X any we share corrected statements the diluted fully of quarter were diluted these $X.XX in tax However, errors these been tax fiscal $X.XX of accounting that that per would effect we the or without a million the effects fully not of deferred and cumulative share. per benefit. material. material cumulative these prior

XXXX the of revenue X.X% quarter of our or than of increase fiscal year-to-date XX.X% or of the XXXX, half half $X.X reported million, year-to-date greater year $XX.X $XXX.X for fiscal greater income fiscal a XXXX. XXXX. million second the the through was of quarter $XX.X net increase for first As year-to-date first fiscal an Net than we results, ended second million million, of

XX.X% was the EPS $X.XX first alluded to fiscal XXXX. Reported compared to $X.XX, in half of

XXXX a increase. XX.X% margins XXXX, For year compared $XX.X to first fiscal first of on XXX current increased from grew in the for to profit from year. XX.X% fiscal million the improved XX.X% the margins gross year the year-over-year X.X% prior million of basis XX.X% a in Operating to points in $XX.X representing the while operating our basis, year, prior half

operations cash grew to half XXXX of of in as $XX.X higher year-over-year. and prior the performance income by fiscal year, working the For compared capital the result million first a from year net flow

free prior higher of net to compared cash also is flow ratio income to year. Our

acquisition invest segment be announced the second the year. this one of additional with to both third part and first as to in segment continue operating the We have to one Coatings in both month with the now the quarter the quarter, business accretive of in expected acquisition Metal

our We seek like to to grow these profitably continue opportunities offerings. Coatings will Metal more continue to

season in you for still year quarter did duct giving first a As also We the risks we we to America can back for described capital the high-voltage earnings did indeed not see are and has half tariffs as but indeed whole, see, are China, related we year but capital for Metal shareholders. margins materialize part as second also of and turnaround spend bus organic in last to for the ship call of year-over-year. fall in the the XXXX the fiscal Most that increased did the still exist firmed. most North the Coatings deploying to

I'll that, it With Tom? Tom. over turn to back

Tom Ferguson

Paul. Thanks,

We markets. to served Energy the operating are XX%. and Coatings to continuing We committed and improving margins our XX% and Company, our market XX% to the focused products remain efficiency our generating to for new on adapt innovative to throughout above developing Metal getting margins solutions productivity range opportunities, in

acquisitions than XX% to in margins the arena EBITDAs. operating looking are for Technologies greater We XX% will Surface generate and XX% that

finishing with vetting built a we now team We leadership for disciplined the in have that space. surface have opportunities core process very a experience deep

outlook our fiscal quarter The XXXX. for continues confidence year in build performance second to

we our acquisition, Additionally, we growth have necessary more the in to talent ensure have talent retention, training sustain to development heavily invested and plans.

focus our program. U.S. opportunities exposure on and is while maintaining In acquisition organically market, our enclosure focus aggressive electrical to Coatings Metal the our businesses. to domestic reducing on will emphasis on on growing the switchgear Energy, and in we Strategically, nuclear continue executing

open for it we up now, And questions. will

Operator

you. Thank

question-and-answer Dilts the Instructions] with begin Stifel. now Noelle Our will [Operator from question We comes session. first

Noelle Dilts

the more little acquisitions completed Metal that and expected I know revenue us I you helpful. give was operations you've contribution? you detail first, bit just So on would be what those the a a the that Coatings, hoping more could said accretive, they'd expected bit be do, detail but little within

Tom Ferguson

-- were the Tennessee Yes, two Galv. think we traditional did I in one quarter, galvanizing, first which galv

facilities. Cimcon put million Partners way the the is something which had it were two did targeting traditionally in -- range. I $XX And guess revenue also galvanizing. I'd the or We what, KX We

coating Surface On they're powder side, smaller. Technologies the

million view much in too facilities, talked facility, aren't about as we for because call So, we looking about going and deals revenue typically a to at, scope. much the in so just We million $X you'd in pricing to smaller it but individual our just probably $X eight talk be proprietary.

but talking in that that terms what about of you gives some hopefully scope. -- we're idea So

Noelle Dilts

guys you bit maybe and next cost some was you've trends how significant So shift the of a pretty we then It you previous galvanizing, you're just kind little about somewhat does seem over those dynamics. more with of like favorable in about obviously thinking thinking now hoping taking to zinc -- just, should benefit of dynamics see price talked just speak could the to I more here goals you're over that to quarters. few some relative margins how with about? Could and

Tom Ferguson

like we at galvanizing about I I Yes, -- XX%. think,

one working in decrease days. see quarter but have We the now the think don't of we lowers zinc absorption generate, going over I fourth that of our the some I'll on reasons. that whole by level flown those give continuing Offset bit level number given can for the of holidays, kettles, down tend just a of to to hours through impact margins what's extent little galvanizing there. cautionary to lot. actual to the of reduced negative a for note a kind number is, through I a we're costs of

been been have recently. higher, but costs Labor they've stable

in few we terms quite last we facilities. our adjustments in made able attract a this were level be of we've to year year talent and that late the paying So, wages, of to need early

reason powder So, XX% going lower that on galvanizing plating are technologies coating than the the but remain surface I and that. to to side, run committed stated I

our XX% As will metal bigger those number of and pressure little that a total they across piece. a the downside provide piece to become business, coatings of bit

We XX% are XX% average. to targeting on

Some do better.

the couple amount them building usually Whereas a the a on coating capability and fully little coating do side. to have it's on the integrated just it's almost It immediate in bit us scale, while galvanizing on it powder we plating side. still we're worse. side, quarters of the operating of get the galvanizing, power difference takes Some in

Noelle Dilts

the the those question, I'll of nice then galvanizing. to a queue in there you verticals Could you're more versus be in just little And one you on where get speak that -- more Okay. Could may back bit seeing volume quarter. challenged? strength some

Tom Ferguson

slightly has has which been well say which strengthened, I'd solar, And Yes, extremely in we've active. is done petrochemical news. good

of particularly Texas you locations are kind a our at and the in of when kind Gulf where look So in lot Coast. Texas of of Southeast map a

strong infrastructure, industrial, still construction. roads tends that Texas, terms So you highways, tremendous we for seen to but lots in done us. general then see under haven't go of in you although well, as just be we've And and around investment in of them here

of So, And after being them. a some haven't as we're we emphasis we going in how innovative positive with it's also and verticals, creative that I'd heavy doing, been what any. a better much general, And job and impact solar I business customers these of new done with for more having with customers if on and say work but impact, of view lot petrochemical us.

comes it think to and I things there -- play solar petrochemical. when several there So, is are at

Operator

Braatz ahead. Capital. from City with Instructions] Jon Kansas next [Operator question go Our Please comes

Jon Braatz

on question. sales Was up organic in in Metal previous Just up following Coatings? quarter the the

Tom Ferguson

was. Yes, it

Paul Fehlman

Yes, the in deck. call actually it out we

Tom Ferguson

That's Yes. right.

Jon Braatz

I'm sorry, what?

Paul Fehlman

the actually where out in it coating, says It's -- deck. called Where X%.

Jon Braatz

where Tom, a business Specialty Okay. the you serving me business? market. you the sort called end of the What speak growth nuclear you out exactly U.S. the going? tell is Welding that opportunities elsewhere Can Welding and And little, upon and couple you're markets Specialty in your times reducing could and beyond dependence of a

Tom Ferguson

mentioned Canada. years we invested Brazil three Yes, great or in We've that's four before it ago question. a probably in

Polish to in continue Europe. We our expand over facility

have refinery as Europe in so, there. we opportunities picking up a well And over presence and both we're as waste-to-energy strong

into downstream some traditional refining, come our down in into Brazil, more and Brazil. FPSO work we're you Canada When

things. their it's are mostly things provider for of of premier So, large solutions particularly coker drums, related and automated, reactor refinery we petroleum those high-end like vessels kinds

done well and in on We've in we we've well in good Europe going So, done Brazil. about feel Canada. what's

expanded We over and recently we've very in also China. well India do into

So, gas petroleum oil it's and all almost downstream.

Jon Braatz

compared you -- think Welding and be you might like in What segment, could of there is landscape and to the that at how years? Specialty margins that competitive in the when look currently couple a where

Tom Ferguson

using which boy, Oh, We're issue. everybody union the that's rates contract their what part of are. labor, knows

you modifying we it you side, common when welding taken like know link they realization, automation, refinery, equipment costs which and what go and are. of So on more to if then will, improve so able price things the and labor are to our miller that. your controls, equipment a is is specialty Where equipment, the were the mostly heavily with

can margins. So, jobs, and more labors, tends get that's as we on equipment pipe these labor particularly craft welders. jobs on But a where, large that international to fitters our season improve it's

the And so kind that's market. just that of nature of

Operator

question Franzreb with & Sidoti Company. next from comes John Our

John Franzreb

going next calls, you guys. should what between I've in only I but morning, Good regarding about but this year if addressed bouncing rate, current the these, tax been conference think rate not we apologize tax into forward, the year?

Paul Fehlman

thinking should up blip of Well, what in but bit may probably full and this same. of the depends you what little this to be the of year full year, the about a come was next It the probably for XX-ish. think next itself terms about makes opportunities. jump year XX, sort year available issues I quarter, in up obviously, one second And

John Franzreb

the regarding shaping order up is you spring turnaround at And the point? what season, this about that how book incoming tell

Tom Ferguson

to puts us We've the we had There is terms of sitting in in is, customers for fall says that's really and bodes some the equipment fall. do to well. the situation, look the It but to spring sign always Yes, had sign It good turnaround interesting for is well they'll up ready nicely. which work here of we we how the lot when they're our and of strong. -- performed do season. did up of some spring knowing repeat shaping That in going for a in are me portions projects carryover additional refineries, activity. next an in a

I'd into are seeing finally to come for being say we looks and maintenance, spring So, strong well, us. the looks of deferred that look some

John Franzreb

reduce your actively mentioned something is I doing other comments, prepared think in your are an that nuclear the just Are reduce that you assuming growing to business I the mentioned you market. you diminishes? your effort that And Or in exposure? exposure business to

Tom Ferguson

pieces Yes, we Inc to Logistics two now business. that are away have seeking we've business. to also Nuclear trying that three so well, the grow just not speak. We're not to we're exposed two there it. that say customers, But got -- is from I'd nuclear. much were any We're pull pretty are that maintaining One to

are we're So And in Specialty growing just the focused then on Welding maintaining. we the side, on non-nuclear. actively

but walking say and we nuclear. don't taking are we're favor in stuff, refinery I above over I'd that away from So, know definitely projects

John Franzreb

Okay.

its allocations So, got and as the leaving it, side asset is. just welding Got NLI in that's it.

you thank Okay, question. taking for my

Tom Ferguson

right, All thanks.

Operator

with comes question from next Securities. Anthony Baldwin Bill Baldwin Our

Bill Baldwin

on year? the enclosure this Can point longer-term thinking you what like and offer us is out you coming the are you're in some looking outlook kind to in seeing about the color domestic switchgear time, markets of I at

Tom Ferguson

I some kind some of good smaller think switchgears and it's stuff the the activity in of mixed stuff, seeing so. less Yes, the of in we're larger

Wisconsin. Our on like still Missouri and outlook in in facilities two Oshkosh, up Fulton, focused is positive. We've markets. those got it We

able so positions we those as leverage their well for facilities, And that. capabilities two feel being to

probably it's more the kind of positive outlook are right we the think I into go year, So than as next we're moment. at we

e-houses really of the, in speak, things terms last the the is so electrical three we market of so. a There data good strong. enclosures, that. with over or years the and that about That's consolidated, of doing like the or we've the has the activity XG. to participated acquisitions feel couple The centers, in And in capacity a lot

and positioned. Maryland, on bullish and well Tennessee feel We're in Kansas. we're that So, we

into into get not and much electrical the on pipeline gas oil so the the utility Coast, focused we the too So, and space. much activity. We're Gulf too really mostly don't datacenters

Bill Baldwin

the good. these insight business days, Tom? And there. Very Good voltage going on in bus what's medium

Tom Ferguson

had the they a of plants, quite nuclear decided bit the forward. the a, That's go not plant that exposed one They to of stuff that were activity. some to

if capacity it's moving more into that facility great transmission been a looking It's and just, we've workforce. not the facility, so, utility It's market. And big will. a okay. traditional but more opportunities, nice It's We're for not a in side. a distribution good really you

it, lemonade it's way robust. but opportunities, make So, guess we're the to and of we're to, for not put we're -- lemons, I looking new trying trying to best but out

Bill Baldwin

And give insight your to looking high-voltage can like? you business, that markets is, some us there what

Tom Ferguson

Yes, we in still China The that we of more business probably also flying opportunities. back have a China. backlog But of this lot to weekend. up would have picked President domestic be

for are We participating in, the and the now good activity. in business. got we so very that Massachusetts. And in. the opportunities up So, we've it's domestic And, facility that well nice right we've that like ones positioned seeing there out see about activity. and facility that we we feel And a been

So, in situation much medium the voltage that's than better a that's side. in little an --

Bill Baldwin

international the Tom? that And now Chinese voltage, business, your high most is right of business on

Tom Ferguson

it. much Saudi venture. got a We've but joint pretty a it's there's that's Yes, the joint -- activity venture in Arabia,

voltage international but -- is So China. of the backlog bus majority in our high

Bill Baldwin

grow much there's Is to in or… that a opportunity Europe business

Tom Ferguson

compete but a in Europe market we -- international opportunities, just bus of there. voltage different to providers us in European lot high we don't some see a these go with other It's in opportunity of the for not and

Operator

Please from Noelle go ahead. Dilts from Stifel. Our next question comes

Tom Ferguson

her? we Did lose

Operator

I might Instructions] have think lost her. we [Operator

Tom Ferguson

have jumped other may the call. She on

right. all Okay,

Operator

closing end that'll Ferguson remarks. it over turn I'd to question back to Mr. queue. for Okay, like the And

Tom Ferguson

you. Thank

of a couple a questions. of we before off, Just answered signing comments lot good

acquisitive surface Metal to achieving XX% Coating particularly the operating for very while in So, we're well, committed the space. to margins as we technology XX% be to segment, going our remain

of will our success review to is probable. non-core. divestiture as based core announce AZZ's versus and any continuing we're actions businesses become on likely Additionally, what portfolio long-term they

update a Thank weeks. So QX to call. look few in in just on today's you thank participating you an We you. provide forward for

Operator

presentation. The conference attending today's Thank you is now for concluded.

disconnect. now may You

AZZ (AZZ) 5 Dec 192020 Q2 Earnings call transcript