Earnings call transcript Q1 2024

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Operator

Hello, and welcome to the AZZ Incorporated First Quarter 2024 Earnings Conference Call and Webcast. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Sandy Martin with Three Part Advisors. Please go ahead.

Sandy Martin

operator. you, Thank thank AZZ's and quarter joining today us May Good results you for review financial XXXX. first the to XX, morning, for fiscal ended XXXX

Executive Tom Joining today Senior Vice and Officer; Ferguson, Officer; Communications Nark, Philip Marketing, Relations. President and the David Schlom, are and Investor call President, Financial Chief Chief

can AZZ's After the questions. remarks, presentation note, Relations is there prepared today's Please Presentation the and for open Latest slide on will at conclusion we of be call under page azz.com. which a Investor today's for the found webcast Earnings call

remind Before forward-looking that we begin, pursuant provisions I would are Litigation that Private discussion like to include XXXX. to Reform will the Safe of Harbor everyone of today made the our statements Securities Act

are the their outside and by company's statements of Forward-looking nature control. uncertain

actual for XX-K the them. results, from Actual These therefore are from not which involve with upon placed the Form future Exchange containing statements be some undue could forward-looking Securities reliance on differ and of filed AZZ comments detailed guarantees the these uncertainties, results and our materially by performance annual report statements and risks not should are year. expectations. fiscal including Except may of time-to-time documents in for Commission,

nearest refer In We Non-GAAP detail. you addition, non-GAAP GAAP detail to and measure -- to for and future will reconciliation considered in GAAP discussion as investor supplement included press measures. financial release further a the measures non-GAAP of today's call include measures. a be today's for the presentation to should not financial earnings of substitute

SEC. been included on posted presentation submitted have press in to and release X-K earnings The QX website are and the Form the our

Ferguson. the to Tom to call I would Tom? like turn now over

Tom Ferguson

a morning, for Thank first everyone. review results. quarter Thank for you you, our fiscal Sandy. XXXX of us joining Good

are DGS, environment XXXX. the our a as we of this overview of discussion well as an Galvanizing seeing or what System, for in progress demand the our talk provide about quarter fiscal first and will of I then our outlook technology, made with performance, Digital Today, with year, rest

the kicked are off fiscal passion quarter pleased we service our having Precoat first drive this that comparisons outstanding due quarter, primarily quite continuing sequential and note customer employees on with and of two Please I'm focusing pride operating year by for provide weeks performance. last to to XXXX only year. as they of

to Turning X. Slide

attributable basis. strong We this primarily compared slightly start year disruptions to this sales record quarter, fiscal and declined was up total our are the delivered is repeat setting a million, a in sales last versus million, versus million, comparable with business I'm X.X% fourth of fiscal year's to reaction $XXX to Precoat anticipated supply a quarter sequentially sequential also inventory ramp to quarter Metals report XXXX. not pleased sales year. $XXX last up Metal to XX.X% the up off in This basis, XX.X% a year. on higher that up of sales Coatings to a first On $XXX record to delivered quarter. totaling Precoat chain

first year in quarter counts, share significantly earnings of Philip the per of against $X.XX the cover EPS which by in profitability delivering will on different prior minute. in our keeping improved We late are these $X.XX, -- adjusted mind, comparison share a

of adjusted the sales. over In year million, up addition, prior strong XX.X% $XX.X we of generated EBITDA XX.X% or

impact production of initiatives points by the seasonally over certain total to quarter EBITDA with improved previously. the leverage, fixed increased due drove sales that margin XXX Our improvement cost coupled basis fourth adjusted implemented sequentially higher our

Precoat points. XX.X%, first points, Metal by up Metals was Our margin basis Coatings basis was XXX our quarter EBITDA XXX up sequentially XX.X%, and EBITDA

remain achieved margins we we inventories most quarter, successfully our In at issues that customer-owned that year Precoat HVAC, we comfortably on the In see QX, in in excessive Precoat with by converting pre-painted but construction softer more discussed transportation plants. for full demand to the they environmentally-friendly and disruption fell Precoat solutions. some customers will the and first to projections be past focus quarters, the as intended two resolved markets within caused targets. confident continue did in these line

for Like Precoat will variable Coatings discussion outlook period. a when business, Metal few highly fluctuations structure has that do I them margins in volume more our to this moments. cover the a allows cost protect extended in occur any

current drive with demand market to supply pleased first strategic long-term annual blue solution our this and agreements However, team post-paint their through into we supply chip chain expansion will and built quarter strategies, the guidance, that customers. we was expectations. growth met Kurt environment, through are on conversions anticipated results continue which our focusing and

minutes, provide priorities. quarter details a first more our Philip few allocation of In speak will to capital current and results our year

pay a in ensure down the We to delever cost debt deployments and well continue high manage to investments company carefully we disciplined and that above our capital cash invest capital, return of way. in

year, For balance this as the reducing the we we taken acquisitions debt. have on off focus table of

debt ROI to investments drive shareholder value. incremental reduction, on and laser value projects to focused we creation initiatives and meaningful are addition In high-value and high

will technology. I Galvanizing now turn DGS, System, to Digital our or

months to XX side productivity, the consumption. state-of-the-art proprietary For energy seven integrated to important management we we the to customer digitizing system tool, important more system. customers. an Approximately customer have with our relationship years, built AZZ's our an of operations us pivot efficiencies our have This been allow to past internally away ago, enhanced full off-the-shelf ERP a enterprise-wide utilization relationship on improve to technology galvanizing and linking tool our CRM an Oracle from was

developed of as enhanced all on provide customer processes, servant-minded dramatically our similar customer improved -- in built and that service nearly technology quality operates and bench our the that hot and differentiated are primary also When productivity eliminated report to our we has excited combined which applications speed flow more paper shops leadership a and successfully management with intense interactions. business. has such AZZ deep this dip and engagement. focus team, believe continuous quality, them Precoat, sustainably galvanizing We has proprietary predominantly automated CoilZone outstanding

power are excited and very the transformed the AZZ. about we of broadly, More scale

We collaboratively shift exceptional EBITDA deliver experience. in processes customer by from coating solutions added services allow transformative that businesses. and the the working services of positions with our coatings over coatings our our than This coil customers $XXX last a both of majority coil of XX of more technology are Based people, metal segments acquisition and sale on the play command and and we the galvanizing coatings effectively pure actions industry-leading interest accompanied to to solutions incremental and and deliver have strategic months, between market portfolio million Precoat. annually in broad an us to AIS our

Philip. to With that, turn I'll it over

Philip Schlom

Tom. Thanks,

to Turning X. Slide

we the while sales quarter quarter May by the Sequentially, prior results results first reflects in increased reported million XX.X%, Metals XXXX the quarter. mentioned, include Tom seasonality both of total weeks year Precoat last typical moving which first for fiscal for sales XX.X% continuing acquisition only quarter first to Current on segments. quarter, operations reported from $XXX.X two fourth million year's the for XX. As include year the $XXX.X following above last entire or Precoat from

in quarter, years. million costs margins in profit from labor were Gross reflecting $XX.X first same and the million XX.X% primarily $XX between prior of period. the the increased to year impact Gross material

time. prior quarter $XX.X to compared were transaction first administration and that $XX.X million year are well the as expenses incremental Precoat the XXXX quarter. first first year of that this quarter we in as in acquisition over amortization SG&A closer related expenses fiscal in fiscal run year's assets number general year a in and in intangible $XX.X costs of rate XXXX. fluctuate million The million Selling, Recall can to recorded

prior first the This a EBITDA was quarter an reflects of $XX.X million. million the good increase exceeded in of quarter. million adjusted and EBITDA XX.X%. the of traction Adjusted to of business. through prior due year $XX.X year year's incremental flowed the of margin XX.X%, sales that of This XX.X%, the cost trailed Precoat $XX.X earnings First commodity labor which primarily and the earnings the impact pricing was the strong were by for which

tables, our segments sequential comparisons earnings If for margin you for improvements EBITDA reference release the quarter. reflect both

first compared earnings for prior EPS resulted in reflected diluted dilutive shares to adjusted to versus back full added weighted of earnings of entire outstanding share average million preferred with above prior year are year Adjusted $X.XX prior X, shares in $X.XX an first XX.X are Slide quarter. presented are weeks X.X% XX.X year's compared both the was which was for the dividends the preferred quarter. for this million. conversion $XX.X periods, convertible year's the debt convertible, Adjusted computation. The compensations Also, shares convertible of last XX.X%. the million two of EPS in up $XX.X adjusted net a share year million shares Since quarter, on preferred income per in the the the

We during as result to on performance. operating in We're on for to prudent Missouri. schedule and as million Slide on management is flow capital new our spending ahead of the million working result quarter, of This a and of $X.X with excellent the coil $XX.X slightly of almost newbuild Moving the weather facility $XX.X as the approximately year normal coating double was reported Also, spending, first with favorable incurred included in quarter gross X. and CapEx well expectations full our a activities capital $XX by Washington, net to provided and the compared build strong budget. million prior free the cash maintenance in amounts. safety, line of plan new and compared million and operational year the cash period expenditures were

taxes interest paid our few debt paid shareholders preferred quarter, common we to $X.X to $X.X and During paydown, and I the A a discuss shareholders. expense will million million dividends our moments. also Series in of

X. Turning Slide to

in productivity ROI meet high We strategic for invest organic projects. projects customer return continue partnerships, our high projects to and criteria growth, that

dividend that the the debt well as a paydown leadership cash remains returning through company. Tom mentioned, to on are for a focus capital as Our shareholders our priority. near-term quarterly continues acquisitions focus believe Board And and not a as

to X. Turning Slide

a what cash paid high quarter, first the million is of $XX seasonally quarter. During outflow we down debt in normally

leverage had plan XX to $XX we fiscal months million we near-term adjusted trailing $XXX last times this EBITDA. target to quarter, As down with a X of of year million of pay discussed a total debt

year as million due in as today. expense acquisition-related prior million interest for higher to in borrowings, quarter compared we environment well operate $X.X $XX.X recorded interest the the the rate to of We first

fixed cash of via our of variable we fall, This currently half roughly on approximately fixed a swap. debt and incur variable our X.X% we debt. Last rate a rate secured X.X%, hedge rate at -- this flow the remaining rate

maturities to delever. plan flow cash that we no XXXX, have know to generation our until our support continue strong We and will

year. tax effective $X.X tax Our current of an consistent was prior quarter interim expense which reflects with rate XX.X%, million,

year around full our effective year XXXX. tax expect remain rates for We to fiscal XX%

that, turn the like With Tom. call to back to I'd

Tom Ferguson

Thank you, Philip.

see can you are guidance we $X.XX As XXXX guidance of adjusted million billion; our $X.X $XXX to guidance $X.XX on maintaining full million; Slide adjusted EBITDA to and $XXX of billion fiscal EPS X, to $X.XX. of sales

of makes predicting income a as Avail plan possible. outlook venture balance well in believe don't because on ownership equity we still is minority an included as We they equity on specific is the the which the Our now. it and the accounting year income in and their consequently business are for guidance, not will provide amount progressing period, soon in purchasing reasonably AIS joint control price we difficult

citing many a from of Our with outlook first infrastructure Coatings backlogs Metal our on as good is the they quarter for benefit spending. increased second repeat financial quarter, customers the fabrication of

availability with to support, more normalized can of chain in improvements more inventories and predictable levels. we and paints are we labor our confident ink supply Additionally, adjust

growing post opportunities that Precoat continues such as enjoy market a activity customers markets construction and paint and broad to paint relate to convert in containers. range and roofing to from industries pre directly of diverse end sectors to

in we internal certain mentioned, softening from which transportation painting. remain and I supply As offerings, their including chain construction solution markets, we some is HVAC, own did expanding why our focused on see customers converting

to the in this after repeat our quarter We're We quarter a of also related complete. will projecting sales. of better first a is second view quarter second have

to have we actions allows I have customer As benefit to normalized which process improvements noted and due us efficiencies. from production the earlier, inventories taken,

further projects to allocating debt investment. the credit Our mitigation, corporate team metrics, for the on initiatives, customer continues governance and a method on to cost and reduction, greatest with capital disciplined return risk focus

filling with the progressing supports aluminum dedicated our that our capacity plant. plant to customer valuable are construction a with of We new this committed coatings greenfield majority in

progress. you track will Philip on we keep slightly project of As schedule updated are is continuing we and This an mentioned, ahead for and us within quarter to the each exciting budget.

are to and we for want to And quarter shareholders our for shareholder growing value. which strong our of and will thank want our to AZZ again and to Board our committed significant create thank Finally, flow targeted sales all I results. ranges, generate support. first driving cash I delivering their team margins

operator, that, up can With for open call questions? the you please

Operator

Of course. Thank you.

We Franzreb with Today's question-and-answer Instructions] session. question ahead. Sidoti Please go & from first Company. will [Operator the now begin John comes

John Franzreb

taking to of kind business. with sales and mentioned be historical QX morning, transportation, have differ you guys, that HVAC the to those headwinds of would seems start for like margins how sense versus called the Precoat. questions. in historic Good and in on just up would that and a QX? normal line Because I'd thanks on profile of how normal kind seasonality, out better curious a you get quarter that QX Tom, I'm it you similar QX. versus like the should basis,

Tom Ferguson

Yes.

spring usually, first summer strongest than we half to demand. weeks much that usually it's the of is QX, during and full QX XX that -- part of -- ramp traction, talked the whereas production, get and anticipate we've kind is think solid efficiencies months, much or the the I always that of pretty I'd some, we reason QX slightly is I the so that. XX year. mean, And as only say of a pretty weeks as couple there's gains stronger up,

we've Margin past. better but to target close. it in in that talked close XX% about the We're is probably QX, slightly that is pretty

that. So, the on margin we're at

good. is outlook the no, But

plants. almost Just the of productive. customer and toured that The warehouses which us of We've inventory more we fully control. gotten all under of excess is the rid excess efficient, now makes more some had

what typical hope very for looking for I a as quarter I'm forward. second becomes we Precoat So go

John Franzreb

interest in your And that order rates, it. businesses? any intake has had of impact Got the rising any on

Tom Ferguson

It's may hard we it that. attribute seen it. to to have think I some of directly

Coatings been I seen and canceled. Precoat, think have in some that we've projects necessarily probably sides, not both Metal deferred,

so out deferrals can really good. time busy just for are a some our little drag cases, And that things be that season, but bit, plants this in of

kind the I call maybe. So post point yes, that just that I less anything know so than -- other But businesses of side, vehicles, way RVs, it, I to Precoat recreational can don't COVID, in affordable guess on that's off. people let's for

regions a but a right softer, than commercial that, strong construction tend -- little and to it's is that geographies other But now. be -- bit construction is little we're in

you So here of visited throughout in. of quarter, saw lot ag, going cranes, Midwest of infrastructure the a new of in lot last construction, Texas, Southeast, of which or activity, the docks over is lot see lots I spring, so, the ballparks, we lots area month just activity, that

So, it's actually fairly normal.

hand, to we're that the on areas that softer, areas stronger. actually are there's So, alluding are other the when but we

So...

John Franzreb

a of what the talk Well, your downwards. in costs it's lastly, to little maybe that are talk just impacting about you looking how interesting. I on bit and company-wide And thoughts costs, bit zinc slide input like on Maybe continues specific we zinc noticed can input there? can a what about P&L? little

Tom Ferguson

Yes.

what job great as and you particularly for business, specifically look done but was really galvanizing as continuing bring table. kettles. quarter off first our year, we customers first -- zinc quarter just the little or was Coatings think EBITDA our the the margin, XX.X%, with margin at to a through versus amount, I it's flow And pricing value-added Metal our, bit we've it's higher a nice a to discipline, really, last our recognize

underlying imply costs -- pressure. to much pricing. some if So we're But to there soft our we -- price gets things pretty zinc -- but bit, with value-added disconnected not be has there little the been that's a

has available. become labor more Generally,

normal last more while that is So year, impact accessible. I'd also say it's had we inflationary more and now labor

fully hydration not us So summer. the important significant that us hot with don't this our overtime of during us our but keep helps that very staffed, is productivity, allow it crews season, for time -- and our keeping safety have to we and during does

the good on, down premiums significantly. goes now LME, were increased in So kettles down, continue year and in while it's year mind as for peaked keeping costs, they've right our this should we're the zinc feeling and that

year-over-year. So, you it look it's at not a when comparison one-to-one

John Franzreb

Got into get for Thank that, it. taking questions. With I'll back the you queue.

Operator

with Davis. The from next go comes question Adam Thompson Please Thalhimer ahead.

Adam Thalhimer

solid morning, to guys. a Hey, Congrats the on start good year.

Tom Ferguson

Good morning.

Adam Thalhimer

First you question on or Is DGS. something that with does solution? have can Precoat, Precoat already integrate similar a

Tom Ferguson

of at to dip side minute per process, we Yes. on versus batch up Precoat although with more the the looking plans. is running lines automated do some at feet one, our have hot spin automated more we're processes XXX

automation lot inventories and already that allows to customers. aluminum software and a have them controls got manage called place. also plants CoilZone, own steel their that of is them they've of in in proprietary something massive and which with amounts that generally, -- those going their So They through huge integrates their

structures, the productivity, software proprietary -- integration perspective. both different kind a efficiency So customer from businesses the accomplish and things both same of to but allow accomplish

Adam Thalhimer

you you some transportation alluded weakness stronger Can to that HVAC, elaborate end construction. in And this, and there you on those? offsetting but Okay. were said were markets

Tom Ferguson

Yes, solar strength we've had in particularly. market, the

So, that strong systems, there's -- and at last for bridge why mentioned been going everywhere. that's on going look activity few and highway, even And us to just continue. go infrastructure, work has It highway, that's construction looks bridge, I markets months. has at into our airport you been amount over the to of you like when some have the ag look water

and and to transmission and way. distribution, look are that Those general So I'll renewable it tied strong keep infrastructure. continue and solar, to highway including energy, bridge

Adam Thalhimer

us and going give you help modeling things any just expenses And then forward? Can corporate Great. D&A a of couple for purposes. with

Tom Ferguson

Phillip?

Philip Schlom

be should flat. expenses fairly Corporate

those be with the finished Precoat -- TSAs they QX. end the flat the to kind see the all first We similarly, where were purchase of year. acquisition to we are accounting at remain of and quarter of that then had, AIS first off then the end pretty we you'll after And D&A the just coming at the related

run fairly should these So rates. represent good

Adam Thalhimer

it. Got

guys. Thank Okay. you,

Tom Ferguson

right. All

Operator

Please next Gabelli Funds. The Kearney ahead. from question go comes with Brett

Brett Kearney

Anything Hi, guys. extent Precoat converting maybe question. expanding Good morning. to supply of they their year, as offering for some up some have my you recently you've Thanks taking freeze on incrementally own area this could the you in opportunities there? later serve particularly capacity some plants, mentioned in kind Precoat internally. that and maybe galvanizing side the the customers the who Tom, well also seeing are benefit opportunity toured run solutions their chain Curious, you cross-selling guys terms already folks and lines solutions from of some of

Tom Ferguson

encouraged. on -- early, ways of I geographies, a own together and I'm still making working in occasions in now from but their sales It's have sides teams are Yes, gotten think it's introductions. identifying some both our leads, couple

and -- But together So it's opportunities their and about are early making anything I look we lot going sheet specific it's that's it's point in our have a that know us. panels that and at mind and for to hesitate we're just to continue. and there's think don't that do trucking introductions. point. that we some any -- of And I they're opportunities. the significant well of those changes work teams said customers components more had we've fine this or But there, real customers a And whether metal use

Brett Kearney

or as with calendar on early online, contract you of extent fixed it's like the great a be to come facility agreement We comes new anchor bit allow to of does Precoat But ahead a even a days. for from hear know predict here. track, Yes, them allow your you the date -- the even customer the were can't weather there? the to is bit. it just I the then that have facility to excellent. And soon plant in more online, there volumes providing early, schedule

Tom Ferguson

has well. we his team be need building No, They're that. opportunities. and The I'd specifics. should I But something also probably to think there Kurt as probably there on customer check with That's will be capacity But opportunities. the existing anticipate demand.

have control and faster. it want just it be up run yes, keep -- to it'd we and under but great So it to

Brett Kearney

much. you Thank Excellent. so

Tom Ferguson

Sure.

Philip Schlom

Thanks.

Operator

This call Ferguson turn concludes to our to for like would question-and-answer Tom session. I closing the back remarks.

Tom Ferguson

Well, in even excited us. continuing look solutions and more Coatings, together, work as forward Precoat of to We we're our Metal the opportunities finding you to on front with customers. about heard, and opportunities our more path offer hopefully, to closely

about and to the this talking excited forward year Thank we're of look everybody second quarter. So, to after you. balance the

Operator

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

You may now disconnect.

AZZ (AZZ) 10 Jul 232024 Q1 Earnings call transcript