AZZ - Earnings call transcript Q1 2022

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Operator

Good morning, and welcome to the AZZ Inc.

First Quarter Fiscal Year 2022 Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions]. After today’s presentation, there will be an opportunity to ask questions. Instructions]. [Operator event this being is note, recorded. Please now Joe Dorame would like to to over conference the with turn I Lytham Partners. Please go ahead, sir.

Joe Dorame

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

today's for note, are Please call Ferguson, IR. Executive a David President, is Communications and Officer; which Senior the for Nark, be presentation the Schlom, Chief release Relations AZZ's Joining slide Vice open will earnings we Tom questions. can call Philip the prepared there conclusion call, of After today at latest and Chief remarks, Financial Officer; page today's www.azz.com. under presentation found Investor on Marketing,

like electrical by conference statements Except Reform everyone natural Securities this material power I'd statements financing; of Before economic markets, within Act to forward-looking shipment; remind used the call company's serves, of products Private may XXXX. historical that team and this during domestic; we offered meaning AZZ by made requested the begin call and AZZ foreign constitute and prices various currency the adequate in Litigation of in of statements and certain prepared including of which the management the the services conference generation the with and of for fact, remarks, changes markets availability statements on galvanizing of fiscal the costs, involve XX, uncertainties hot management political Exchange the implement employees in opportunities; experienced rates, markets are time Those strategies. uncertainties, from delays and AZZ detailed metal and to to, limited to for that XX-K the but coatings annual stability include, growth demand risks some customer exchange February demand and risks to which filed in and the report acquisition markets; the including are of Securities time Commission, dip by zinc conditions with changes by year including response not and are the distribution and ended Form raw the industrial the and documents customer and forward-looking company, gas, markets, XXXX. contain transmission process;

otherwise. customers could impacted the a no to assumes forward-looking prove turn correct. over ongoing operations be can the AZZ's statements such information of AZZ me Executive update will obligation With and that, company Officer as addition, Ferguson, statements whether pandemic. These no Tom new statements, In and hereof, events call The its to adversely assurance on future date of by are potentially result AZZ. the any let COVID-XX give or to as information, based Tom? forward-looking that of be Chief

Tom Ferguson

our improved higher go adjusted joining it year year. thank better about Metal Coatings adjusted when Infrastructure served first divestitures. for XX% Thanks, $XXX at the call, up with did Joe, the excellent of million, will into up and of turned when details Solutions for fiscal performance to our I in us sales get last divestiture for to we up than XXXX activity over up earnings most to Overall, we million in strong first markets. quarter and versus and to we quarter SMS. this X.X% X.X% this that feeling quarter sales this this are you morning. another as say the Suffice and $XXX time resulted to welcome the improved $XXX along. million X.X% although The prior from operational a and XX.X% lot volumes of call

million We we strong quarter. year's versus while another shareholders. of XXX% the of generated strong also returning to $X.XX pleased prior over first quarter to both diluted representing continued $XX.X improvement of first generate and capital share, are quarter, during our per EPS performance to cash the and net We completed income have flow

realignment actions to to margins outstanding leverage year customers. businesses our Our providing taken and improve their last the quality operating service focus while on maintaining

rising also the quarter. operating for sales almost commitment Metal we up achieving we're in energy delivering our $X.X operating pricing we benefited while XX.X%, while XX.X% lower interest on million, pleased from In of Surface Technology $X.X strategic XX% incurring of to primarily income the most remain distributed and was to expense tax to made the over of year. driving the business, being demand. value labor return realizing previous due customers efficiencies from XXX,XXX beginning a resulting margin to margins We repurchased with in in $XXX an We and In million rate The and investments shares pre-COVID in see costs. dividends. line over levels while improvement Coatings, for to improved operating zinc, creation, face productivity posted to and of committed our million

perform team to Coatings deliver Metal and ability demonstrate their results. to continues Our great

resilience million up EPG XXXX. Infrastructure was while realignment Our its severely considering segment strong impact opportunities benefited of the The building year, a in improved benefited the when of its team over realignment pandemic are the X.X%, segment income by XX% demonstrated segment, COVID they to last segment strategic operating sales particularly or well year on WSI. synergistic are The as divestiture. its quarter benefited $XXX versus realignment year up dramatically selling its to impacted from first which fiscal Solutions between focused and and on the of positioned delivered million $X.X initiatives SMS They deliver prior year. or from from

execution growth, million COVID as uncertainty service $X.XX. are operating than spin strong labor including million year, sales operational and at our seeing continuing in to anticipate inflation $XXX to the on range to and the material cost galvanizing is in to to due be in XXXX, our expenses performance $XXX customer generate leveraging risk For $X.XX more our focus fiscal first guidance. sales and with some of balance raising opportunities sectors, EPS increasing. quarter are tightening to operations this continues certain We and Coatings of due at and year several sites, Metal the while to we

Solutions more some QX Infrastructure seen segment with Our and levels in enters momentum bookings normalized has activity. their business

benefit is rate and year. e-house and interest from sites. lower expanded delays Our good has operational the although focused We for switchgear COVID experience Poland facility, project outbreaks of and rates its business execution to on should the low business seen to experience continuing the results customer anticipate due intermittent globally tax a WSI businesses. remainder continues Platform at from to certain The Electrical the some growing

XXXX, execute our on objectives growth to to will drive shareholder fiscal AZZ strategic continue value. year For

to superior commitment Our unwavering. customer service is

costs, generate ensure discipline ability based collection is to cash and excellence, our operational Our strong within drive on operating that receivables initiatives pricing flow platforms. on emphasis manage

core so said, We sustaining working the I'll our are businesses confident are to Philip. improving to that over position infrastructure, we to to sustainable our actively with into profitability and remain turn long provide it businesses vital that And future.

Philip Schlom

than $XXX.X an for where Tom. of higher our the of for year sales the XXXX, of $XX.X the quarter the quarter generated million In first income Xx million, $X.X Net quarter $X.XX than income increase first earnings year. X.X% of $XX.X quarter company's year Thanks, in we with fiscal during compared first and quarter sales prior per XXXX. the net The fiscal million. had last $X.XX, reported $XXX.X of the first the share earned of we was improved million more was million,

to improvement a For our over first improvement Coatings normal continued more the was quarter first XXXX. by of were returning the Metal in quarter result XXX XX.X%, The businesses margins, impacted our a segment. they gross most and basis strength pandemic operations point the of

with income prior year. XXX.X% improved million $XX.X million First quarter or operating up of $XX.X the compared

as basis on million in was we notes million $XXX prior upsized XXX million. XX.X%, the first points Our we by of and year's last than Interest XX.X% recorded quarter expense realized operating interest savings was refinanced year senior $X.X $XX for better our that margin quarter. the X.X% lower

current quarter. XX.X% First rate improved the effective XX.X%. and effective was of million quarter law in impact tax the tax expense year, mainly rate tax XX%. in rate our full realized roughly year At our time, earnings consideration driven tax effective estimate be the potential $X.X current quarter of we tax of significantly will tax the this by over last income was changes, The of first rate improved quarter without

of within Metal results operations Infrastructure Coatings our the cover I'll and segments. Next,

segment business segment $XX.X The operating margins zinc, first the year. points basis increase Our XX.X% 'XX of labor, Metal first X.X% Coatings than consumable XX.X%, million, the year $X.X XXX Coatings the increased million million and Metal XXXX. in most managed energy generated first last Coatings XXXX. efficiencies, quarter basis fiscal other the or productivity quarter of has of reported XX were quarter a sales costs $XXX.X to improved first of operating quarter Metal income million rising points effectively higher $XXX was quarter fiscal first and over operating over thrive pricing. and of value improved and continues costs with of over

Acme from purchase is Wisconsin. the benefiting in business the segment XXXX integration full addition, January Galvanizing In and of

Our segment of last during Southern quarter million increase in related basis, increased Services our excluding over Solutions first of $XX.X million, Mechanical the sales platform, Infrastructure sales the our million $XXX.X Solutions year. XX.X%. sales from sales a of segment On Infrastructure generated Industrial to $X.X forma pro X.X% divestiture or year-over-year

locations. customer personnel improved year-over-year sales platform to access able are Industrial Our as now

continues this stricter market to their work locations customer services. to through traveling However, perform when requirements cross-border field to

'XX during XX.X% year fiscal year. reflected in Infrastructure the strong of of well continue to $XX.X The million as of increased 'XX the quarter well Solutions segment noncore basis. increase year, business the observed businesses management decisions earnings. year. compared as of company prior a $X.X operating certain due the will was by quarter This cash net pandemic million. different strong the believe no our quarter. year's personnel flows in $XX.X FY primarily a generated cash was during first million actions first X prior will income May quarter. above in benefit million now gross sheet making during operating in as result ended turn the early quarter segment last a and Gross increase cash XX first the compared as the million, million $XX.X Infrastructure liquidity. operating net for actions activities for the Net balance of and margins during $X.X platforms of which taken our I team We the in positive segment for profits the and to the last used remainder months is quarter to cyclicality of XX.X%, loss million first cash provided some to cash by in current of to to first the we $X.X The a divest over The for realized the in Solutions As generates operations on attributable stages typically last quarter to drives cash net were activities to by in decrease $X 'XX go-forward difficult the year. the provided first

compared the the prior However, of was current compared $X.X a the fiscal quarter first million capital in year. use the cash quarter million of the $X.X in million with quarter of invested quarter with prior represented spending year. first $XX.X during improvement first Capital

with expenditure the capital first years. million outstanding year. was is estimate at last quarter with of compared the the million of current end XX, past $XXX our at May outstanding At Our consistent debt couple $XX $XXX million

reduce to During debt. that to continued we generate flows cash the strong continue past us allowed quarter, to

shares repurchase under During repurchase the share XXXX quarter, continued we November $XXX our program. to million

million quarter, XXX,XXX declared During invested dividend. first and stock. pay shares of $X.X our We in common quarterly or a repurchasing the we will

a with credit we week X-year facility into new our bank this Lastly, group. entered

March expire to Our was previous in arrangement XXXX.

$XXX basis and our improved interest X.XX:X X:X. at full increased capacity. to million our of accordion with retain by line to the reduced by retained at from at million our fees. unused capacity facility from $XXX We leverage levels points We basis million ratio line coverage $XXX to $XXX remains million reduce credit highlights. unused costs million transaction Our $XXX points. to ratios fees We XX.X reduced and following pricing with We borrowing revolver associated our X.X

capital upon now our existing acquisition banks implement continue with look $XXX all strengthen shares utilization execute partnered over continue and opportunities, evaluate liquidity have excited of our our plans. of I'll back our and to within to boundaries we our comments. stock the we to remain continue and are existing program. facility million strategic debt to further buyback turn under we we'll with our credit for well closing as as it covenants and common We repurchase improving Tom We of With to structure our forward active we his our that, and with remain

Tom Ferguson

Philip. Thank you,

particular key attention that we are paying are to. indicators Here some

For material we carefully and construction and tracking Coatings inflation labor are the and segment's fabrication legislation. cost of business, Metal infrastructure Galvanizing progress activity,

Technologies focused primarily benefiting operational Surface the and customer we our performance. platform, improved from For are on expanding base

Solutions, Infrastructure a are a electrical to we the For returned from having be and COVID-related further with energy customers restrictions. growing spending and looking level to long impacted start utility turnaround decent benefiting and activity center The as fall season and are activity. off T&D by currently platform international battery more outage storage and to as is normal data good

we completed of infrastructure areas opportunity. pursuing specific of are solutions review have strategic now corporate, focused for the Finally, and on

remain Coatings and growth we steady as committed to Metal able operating galvanizing quite having noted improve anticipate have provide being and XX% to around detail We previously, our achieving margins, we to with in more Technologies. Surface continue we As we are performance October. meetings to the XX% strategy with regular being Board,

galvanizing. remain acquisitive, will We particularly in

to For in we will growth profitable Infrastructure core on Solutions, our businesses. continue focus

Our more open business units e-houses And segment's we'll for outage and that, seasons up and data it and solid should questions. market and transmission and switchgear. for benefit utility center, normal distribution turnaround a with from

Operator

Instructions]. & the with question first John come Sidoti And will from [Operator Franzreb Company.

John Franzreb

Yes. I'd Solutions. in with the potential like start divestiture to Infrastructure

us it. in the the to just likelihood some about that Any given if this initially provide as could November, give helpful. told more is? review X sold so can it on we've unit? being would had active I how You've you price been of be you color wonder market What's color

Tom Ferguson

Yes. if and but the to also but you portions, specifics Metal units can this going into not around acquiring as a we're Coatings I you particularly get half for point, side. we at dozen active mean, have imagine, business for any more galvanizing we will, divesting opportunities

we'll And an that. for meeting of don't upcoming all have the weeks. pursuing to we're as next want few the in speak So I Board

John Franzreb

help Any talk out? about a us to time line

Tom Ferguson

ready some noted, I we'll announcements. give make some by I be specifics As think to or October

John Franzreb

you Great. Great. had about the pricing. Metal mentioned How that And In can the does bit you out play comments, balance prepared that year? little for talk of a you increases in your Coatings. price

Tom Ferguson

now, zinc. right we're mostly Yes. all. just we're Usually, basically tracking But tracking

same All of our for expenses and our customers. are up

is fairly been as but we last reduction it's the push projected we've maintain soon. So we don't remain able point, stable anticipate line see relatively track any a at zinc we think be in with I those cost level costs. to in this to that LME and to should pricing And high at it anytime We to compared years. the couple of able

So we're confident pricing we've levels those can value we achieved. pretty that that holding the continue

John Franzreb

Help what we back Okay. backlog the How guess thoughts some like? switching look think just And about quarter? on on going or to business. in what's business It's I bookings environment Infrastructure should the sequentially. with for to flat there, us the the

Tom Ferguson

Yes.

good distribution in opportunities and the the seeing really enclosure China, sectors side, switchgear in on we're think the the we I in space. around backlog down utility winding that had electrical but we're the transmission,

like oilpatch that's we also talk So really the improved. pieces don't And while anymore, about we much that.

Infrastructure all units the much pretty profitable All cash generate doing are pieces So business Solutions the pretty are well. positive and flow. within

feeling good for This the about to about time fall we're is season. we So turnaround book business some the that. start

this point. all and feel at of business that we're So activity quoting pretty almost good elements good about seeing

Operator

from next the And with Stifel. question Dilts Noelle will be

Noelle Dilts

need a Obviously, that I throughout industrial that little that folks tough you is and beyond, bit find we're labor. expensive. labor the was becoming world the just to comment it's hoping and could just that more hearing you on

what that So front? to seeing any And wage seeing you're could you're on on extent just expand you inflation? what

Tom Ferguson

that. of sides both seeing we're Yes,

had slots -- to to activities fill we're and labor our we've get increase recruiting just in. So

big that to So it's plants there's metropolitan but between accomplish availability to we've specific differences had starting done that, also that pretty cost of the -- and we've increase of municipal labor because in labor areas. wages just

to our to our use just people successful. So to We're having increase We've more in have fairly we've facilities half I'd of be been backlog. about locations had starting wages able labor say, handle contract those to in. certain got, to attract

focus they've available. -- steady we readily and premiums, our wages. So that. quite we've tried attracting of have labor stream in and to States done becomes with away pretty that's But lead keep But labor a as unemployment often, more the just or times on seen starting maintaining higher quickly, higher slightly readily somewhat

Noelle Dilts

Okay. That's helpful.

then So just specifically to Coatings, shifting over questions here. couple of Metal with a

that give could rundown trends be in in OEM, like utility, expecting a extreme And fabrication increases then That First, you industrial, you're just activity? markets, end construction, that, bit et the solar? would you if how impact are are cetera, yet? the of us these seeing with prices, you on it a helpful. will seeing And steel including

Tom Ferguson

availability Sure. We're steel be of seeing because and other and some also construction delayed the cost projects materials. of

some While But whole some escalate. obviously, delays, we've these are of becoming continue to lot seen as the a projects we costs viable seeing less aren't of cancellations.

side, and back we're U.S., We've -- most there Metal the well projects So seen the of at we've of When activity it as to recreation even country and -- the customers. optimism a as of seeing to Metal Coatings on highway we've kind in the most seen the to, bridge Industrial markets, most been comes say, or be petrochemical I'd activity. solid. of among the ag, some side. seen lot seems activity of different Coatings has our for those fabricator and OEM move forward, it's least we're

distribution, we're The extremely it's piece very, up more activity. but to it seeing somewhat, bullish. of us transmission been a just probably So lot and generally, markets all than very surprises anything, are just are recreations comes some active. When

gets and seen reasonable electric continue the to been another has stuff I generation, that power as good When renovated. you want particularly to anticipated don't utilities, if, of to a I several to add spending continue anything spend looks know years way. see think think I the and grid there's David, solar we've that?

David Nark

main back markets. No, production markets. Yes. folks returning side. are we've of normal think mixed course, some too those drivers Metal the of the very on Surface And Coatings seen Galvanizing those a are I to Technology And and our

Noelle Dilts

Right.

Okay.

Just there. follow-up a

or seeing of whole delays it a not Or where kind where cancellations, and more? across markets? of of but there these most is that lot are I'm specific vertical seeing -- terms cancellations a again, you're consistent you In is sorry, of

Tom Ferguson

And it's of different fabrication -- of are I But year. most host It's things. markets, to remain a fairly customers generally in consistent. for whole our the the there have say, optimistic

So feeling the really at verticals. we're almost generally, outlook point about all good this the across

Noelle Dilts

Okay.

you're back obviously Okay. go first your And limited of might determined as the as viewing this? doesn't least and Infrastructure viewing look Solutions at looking to a that today, you're information, that That's Is then you're a I like presentation the you've sounds wanted to that that the divesting about the at entire question read review. right I But it It to the like to great. noncore that portion divest? portion core way about just division? John's way strategic you sound think there's in

David Nark

that’s of we're our opportunities. Board to at noted that and and had question. the comments continuing a in we've a Tom transactions completed kind good reviews initial as No, different had level, and continuing are of evaluate we number And his discussions

the you'll we see so next through proceed as And quarter.

Tom Ferguson

we I don't on All think are anything. options me jump preclude intended the table. in. let to But still

Operator

[Operator Instructions].

Funds. Gabelli with Kearney Brett from come will question Next

Brett Kearney

Sure.

the ask fairly of opportunities side, it potential on Coatings Just want like the is sounds Metal to robust. acquisition funnel

relationships share on also the of Just able to? guess, how And repurchase to, on balancing to be side to that I then you're like conduct diligence deploy relative your site you'd access further that authorization? to opportunities capital kind maybe those and curious

Tom Ferguson

Yes.

finding now to are easier get cases, I think are of in, more visitation. the some to open easier in travel to of we it's a lot and owners

the on we're the U.S., And so still And get particularly But teams where restrictions. part, for there's our the getting some for we're But capital I'm the as. as whole got the we senior able some I variant. us business let to we At we've There's cash it to the U.S., At outside with to the going acquisitions looking the on, we'll development within several comes speak either and happens of going the have the least end back allocation, and have people because accordion. as available made to us are now Philip goes including the capital the when deployment most Delta areas, anticipate you road. now, make visiting that's all access those the us need at. that what get of just time about to count gamut see credit of when right to easier day, $XXX others. to to and or visits activities, visiting revolver million notes you

that and -- is So relatively inexpensive debt now. right

to able the everything to we're you do that? look to Philip, at want add at But So moment. basically

Philip Schlom

at add as Yes. on No, just strong in got in And at a sheet the share time. repurchase I shareholders think in returning this balance I time. would value see point to Tom capital explained, program. We this really we've

that time. And into leverage at transaction, then buybacks sheet that repurchase to our on we share able continue stock enter to evaluate reevaluate as program the through so our we opportunities we're we Should will larger a acquisitions. balance

Operator

Hinman Walthausen next with from DeForest And will & Company. question be the

DeForest Hinman

the of above? Do last performance range, foresee you XX% current margin in Coatings. that First couple Metal being performance the at our off, maintained on for It's environment in long-term XX% the above quarters. or the this

Tom Ferguson

to We're our will there's because XX% things the a of this committed to on XX% of of couple balance that range year. sticking go

Technologies is our increase in side. share revenue galvanizing of our able cost hold the Metal good are offset margins in pretty through hopefully manage should Surface -- Coatings to and price and inflation. its our efficiencies will the shape. productivity I But We to think be

somewhat So margins. lower have -- and it does

to end manage stay of we hopeful inflationary pricing for balance XX% the the So team I'm continues XX% that to range versus at can value of cost. top the this year pretty the as

exceeded the X or XX% that about now, talked we so. yes, quarters for that we've the fact X So

DeForest Hinman

color we it -- question pressure optimistic between it these Okay. more more the work you with on just we vessels little on, terms to relates the extended turnaround maintenance are us number can That's a And spring bit on seeing these fall give us of second the does expanded on get relates season helpful. hours as to that in vessels. make as Are then well? higher And worked intervals. of we once there, scope, as some turnaround,

Tom Ferguson

what smaller been, exactly The the thing seeing emergent projects been we've that's jobs, -- the prior work seen has you of spring, than will, had Yes, we've seeing. that years. to. seen grow not if scopes. we've international interesting more us And in for we're have that we're we've have We used in continued the to mega did then big any

mostly facility. facility was well our U.S. new as shop projects work bit both quite of our well a this So as as in Poland expanded as smaller

me, to that some are seeing we're bodes and bigger So well, we what opportunities in bidding.

do. we and So those disrupted COVID year, more of are we the I probably expand maintenance so -- think seeing do scopes normally deferred and the because than

DeForest Hinman

this That's Okay. different way. analysts, by And but touched on helpful. other a I'll in of maybe the just the was question ask a couple

within strategic As no one incremental it to the businesses that the segment? some improved one segment? outcomes every -- the within that outlook almost segment, You for Infrastructure time divestitures relates could of of highlighting the potentially review of the spent is

Tom Ferguson

think to streamline. some there I things are we that need

we've businesses, internally viewed some as time So for noncore now.

some mentioned, of the do anything And for there's be precluded positive like I we although There's activity. going that say to EBITDAs those those us. most segment, not whole we haven't businesses, be think can as any to -- we I do don't I their so and -- divestitures. for So going would

so we've at things the there's but better couple and think least. of a to just -- very -- I got So focus action

DeForest Hinman

Okay. as And to comments capital the were deployment there some share repurchase. clarity, just then around for it relates

period can doing are during in buy can update program-based stock? Or we back you we potentially some that repurchase time? at we that are point in of everybody divestitures a precluded from buying terms of authorization of Just businesses,

Philip Schlom

Yes.

of there. couple think a I points

On the baskets with facility, large. new are our there's that first and point credit limitations pretty

from be. ratio, we're repurchasing for our So based on would limitations our limited announced except we've leverage not what shares

that I that. potential earlier, We And XXbX-X then to based deploying can we'll on and reevaluate so kind through that said open continue So divestitures, plan how cycles. acquisitions we'll do that we under a of over close like capital that manage and do time. we're any

Tom Ferguson

have we authorization have still the -- also, lots shares, room within continue too. of to current back buying But we

DeForest Hinman

it capital And on you but clear. side, make just want to relates as the Okay. deployment mentioned M&A we're I to I think this, sure

capacity we'd terms to capital In to the looking any at, the would at. type of that purchase in new revolver of be future, that available accordion enough the and for issue there's like anything to and need equity look deals and we're no

Tom Ferguson

No, good shape. we're in really

credit pipeline could active lines. really the a acquisition all existing our have we opportunities, of While we pretty fund much with entire pipeline

DeForest Hinman

are that think new on you Okay. perspective, at from us the one. old on the on a update revolver covenants debt-to-EBITDA And you're just I then the X.XX can

Philip Schlom

Yes, we're line with year. refinanced still at senior X.XX. We've last our in notes that retained we

ratio leverage X.XX:X. is our So

restrictive But room of go if speaking, X:X. we under bank is lots And to to have large we transactions covenant that credit new interest facility. into group enough notify generally have them. to some Our baskets are then acquisitions back the there did our we related

Operator

Ladies gentlemen, back and concludes remarks. to this our over any the conference I session. for would Tom Ferguson to turn question-and-answer closing like

Tom Ferguson

this look and positive another call. quarter joining completing to want outcome us everybody good second another having forward we and thank for and hopefully just morning, our to I

you questions. second end the talking And forward to look the to input So of and thank your for we quarter. at you

Operator

And The Thank thank concluded. conference sir. now you you, has for attending presentation. today's

may You disconnect. now

AZZ (AZZ) 9 Jul 212022 Q1 Earnings call transcript