AZZ (AZZ) Q2 FY27 earnings call: guidance and Q&A

What specifically drove the Q2 upside, and why is the back half guidance relatively intact despite the strong Q2?

Q2 upside was driven by the Seattle Galvanizing acquisition performing well and strong operational performance in both segments due to volumes and demand. H2 outlook remains somewhat conservative due to uncertainty around winter weather in Q4, which is typically the softest period. Pricing and zinc surcharges provide protection.

“I think the uncertainty for us is always how does winter turn out in the fourth quarter. That tends to be our softest I'll call it, our softest opportunity if we get -- as we did a while back, we get hard freeze, difficult storms, we lose working days.”

asked by Ghansham Panjabi · answered by Thomas Ferguson

How are rising interest rates and public backlash against data centers affecting the company's outlook for the back half of FY27 and into FY28, given construction is ~60% of exposure?

While rising interest rates are not ideal for construction, customer backlogs provide confidence. No cancellations or delays have been observed. Data centers are still a small portion of the total business, and the company is more dependent on broader grid modernization, transmission/distribution build-out, and power generation.

“Data center is still a pretty small portion of our total business. So when we look at got to build out the fixed transmission distribution. We're still lots of rebuilding of the electrical grid going on and lots of power generation that still has to come in where people are moving to we look at it.”

asked by Ghansham Panjabi · answered by David Nark

Can you break out how much of the Metal Coatings segment growth came from the Seattle Galvanizing acquisition versus organic growth?

Very little growth came from the acquisition as it only contributed one month in the quarter. The overall growth was fundamental to the underlying business.

“Very level came from the acquisition. And if you think of the acquisition that really only contributed 1 month in the quarter. As you look at the overall growth, then it's all fundamental to the underlying business.”

asked by Richard Garcia · answered by Jason Crawford

Given tight steel markets and difficulty for large buyers to get steel, how does AZZ ensure sufficient substrate supply for its customers, and what is its strategy regarding imports?

AZZ does not buy substrate itself; it warehouses customer inventory. Its teams work with distributors, suppliers, service centers, and mills to help customers find available substrate. The market is tight, especially for galvanized sheet metal, with lead times around 9 weeks for over 7 months. Section 232 tariffs (50%) are not helping. AZZ's value-add includes connecting customers with supply.

“It's been a tight market. It's 1 of the tightest substrate markets since 2021. section 232 running 50% is not certainly helping things. It's taken out a lot of steel out of the market.”

asked by Timna Turners · answered by Thomas Ferguson

Can you elaborate on the Tulsa greenfield (or brownfield) and other greenfield galvanizing opportunities, and what underlying trend is driving them? What is the typical investment for such a plant?

The Tulsa project is a brownfield adjacent to an existing facility, driven by increased capacity needs for high infrastructure demand, partnering with large customers expanding their own capacity. Several other opportunities are being explored. Investment ranges from $35 million to $50 million, depending on plant type and real estate.

“It is -- yes, by far. It's $35 million to $50 million depending on whether it's going to go in for a large structure plant or whether it's more of a general use plant -- so you can use the $35 million to $50 million. It also depends on what the real estate values turn out to be.”

asked by Adam Thalhimer · answered by Thomas Ferguson

The debt reduction target was lowered from $130M-$170M to $100M-$140M. Is this due to cash used for acquisitions or preserving cash for other opportunities?

It is 100% due to the Seattle Galvanizing acquisition, which cost $57.5 million. This was partially offset by not having the cash flow from the Vale JV in the quarter, resulting in a net $40 million impact on the original prediction.

“It's 100% the former in relation to the acquisition that we just made -- if you look at that, it was $57.5 million and slightly to materially offset by -- we equally did not have our cash flow, the cash that we received from availing the quarter either. So net-net, there's $40 million that was not in our original prediction there.”

asked by Nick Giles · answered by Unknown Executive

Can you expand on where the Washington, Missouri facility sits today in terms of utilization and remind us of the remaining ramp timeline?

Q2 was solid for the Washington facility. The company is on track to reach 75% utilization with the anchor customer by year-end. Profitability continues to improve phenomenally. They are now actively working on commercializing the remaining 25% capacity, which could start in the second half. If it continues at this pace, it will likely be the fourth largest site in the fleet by year-end.

“As we spoke about previously, we're challenging ourselves to get to that 75% anchor customer get them ramped up. I would say, in the quarter, we are well within that path we will get there to the end of the year.”

asked by Eric Boyes · answered by Thomas Ferguson