AZZ reiterates $1.625B-$1.725B sales guidance as infrastructure tailwinds drive Metal Coatings growth

Earnings Call Insights: AZZ Inc. (AZZ) Q2 2026

MANAGEMENT VIEW

* Thomas Ferguson, President and CEO, stated that "we delivered solid second quarter results. Total sales increased by 2%, adjusted earnings per share rose 13.1% and operating cash flow improved by 23%, underscoring our disciplined execution in a highly dynamic environment." Ferguson noted strong double-digit sales growth in Metal Coatings, driven by higher volumes and infrastructure projects, while also acknowledging margin pressure due to increased exposure to solar and transmission distribution markets.
* Ferguson highlighted that Precoat Metals encountered mixed market conditions due to tariffs and softer demand in building construction, HVAC, and appliances, but emphasized "Precoat benefited from the tariff impact on prepainted imported metal" and continues to achieve new customer wins and market share gains, especially in the aluminum container market.
* Ferguson discussed the ramp-up at the new Washington, Missouri facility, stating, "sales continued to increase, and operating leverage is improving as we ramp up production. We remain confident in achieving gross margin improvements as volumes grow at the new site through the second half of the year."
* Ferguson outlined continued investment in proprietary technology, including Oracle migration, AI exploration, and new galvanizing processes. He also detailed the integration of the Ohio facility with their digital systems.
* Jason Crawford, CFO, reported, "for the second quarter, we reported sales of $417.3 million, representing a 2% increase from $409 million in the prior year period." Crawford noted that Metal Coatings sales increased 10.8%, while Precoat Metals sales declined 4.3%. He stated, "second quarter gross profit was $101.3 million or 24.3% of sales compared to $103.5 million or 25.3% of sales in the same quarter of the prior year."
* Crawford added that interest expense for the quarter was $13.7 million, a reduction of $8.2 million from the prior year, attributing the improvement to debt paydown, debt repricing, and a new accounts receivable securitization facility. He also stated, "reported net income for the second quarter was $89.3 million."
* Crawford reported an adjusted net income of $46.9 million, or adjusted diluted EPS of $1.55, compared to $1.37 in the prior year, a 13.1% increase. Adjusted EBITDA was $88.7 million or 21.3% of sales.

OUTLOOK

* Ferguson reaffirmed, "for our 2026 fiscal year, we are reiterating guidance for total sales, EBITDA and adjusted EPS. We anticipate that our sales will be in a range of $1.625 billion to $1.725 billion. Adjusted EBITDA will be within the lower half of the range of $360 million to $400 million due to the lack of Avail equity income as they continue to transition without the Electrical Products businesses. Adjusted diluted earnings per share will be in a range of $5.75 to $6.25, which translates to an increase of between 10% to 20% over the fiscal 2025 adjusted earnings."
* Ferguson noted, "although markets may be choppy in the second half of our current fiscal year, which extends through February 2026, our numbers are supported by strength in projects and structural steel demand forecast."

FINANCIAL RESULTS

* Crawford reported that operating income for the quarter was $68.5 million or 16.4% of sales, compared to $67.6 million or 16.5% of sales in the prior year quarter.
* Cash flow from operations was $58.4 million, and capital expenditures totaled $19.3 million. Acquisition spending for the new Canton, Ohio galvanizing facility was $30.1 million. Dividend payments increased over the prior year.
* The net leverage ratio remained at 1.7x, reflecting ongoing debt reduction efforts.

Q&A

* Ghansham Panjabi, Baird, inquired about Precoat market share gains and the impact of tariffs. Ferguson responded that "we picked up share gain because the -- and we referenced it, the prepainted imports are because of the tariffs are down significantly. So that's been transitioning to domestic supply, and we're painting at least as much as our share. But if you take that, it's probably, David, what about 10% on imports. So we've been picking up our share of it. So we picked up 3% or 4% to offset the roughly 9%, 10% market decline."
* Panjabi further asked about Precoat segment volumes and offsets. Ferguson and Crawford cited sustained market share gains, ongoing ramp at Washington, and readiness to capitalize on any construction rebound.
* Nick Giles, B. Riley Securities, asked about guidance range drivers and Washington facility contribution. Ferguson pointed to the lack of Avail EBITDA as the main impact and anticipated interest savings, while Crawford detailed the Washington ramp, noting it was "very much in line with expectations."
* Timna Tanners, Wells Fargo, queried about the import opportunity's stage. Ferguson replied, "It's really early innings. I think probably a couple of months of that. So that should have a good tail to it."
* Adam Thalhimer, Thompson, Davis, asked about tariffs' dual impact on Precoat. David Nark, CMO, explained that while prepainted imports were down 23%, the bare Galvalume market was down about 50%, offsetting some gains.
* Mark Reichman, NOBLE Capital, asked about interest expense and SG&A expectations. Crawford stated improvement in interest expense would continue and "that 8% number is fairly representative" for SG&A through year-end.
* Jon Braatz, Kansas City Capital, inquired about Canton acquisition revenue, to which Ferguson answered, "revenues in the quarter, $2 million, yes, and a few hundred thousand of contribution margin."

SENTIMENT ANALYSIS

* Analysts' questions focused on segment-specific market share, tariff effects, guidance range, M&A prospects, and facility ramp-ups. The tone was neutral to slightly positive, with analysts acknowledging solid results while probing for clarity on guidance and market dynamics.
* Management maintained a confident and measured tone during both prepared remarks and Q&A, reiterating guidance and highlighting operational execution. Ferguson and Crawford provided detailed explanations, with Ferguson stating, "we remain confident in achieving gross margin improvements as volumes grow at the new site through the second half of the year."
* Compared to the previous quarter, sentiment remained steady, with a continued emphasis on disciplined execution and cautious optimism regarding market headwinds.

QUARTER-OVER-QUARTER COMPARISON

* Guidance for fiscal 2026 was reiterated, with no upward revision since Q1. Management continues to target sales of $1.625 billion to $1.725 billion, adjusted EBITDA in the lower half of $360 million to $400 million, and adjusted diluted EPS of $5.75 to $6.25.
* Metal Coatings continued to deliver double-digit sales growth, while Precoat faced ongoing mixed conditions but maintained margin discipline and gained share from reduced imports.
* Management's tone remained confident, highlighting operational strength and strategic positioning despite market challenges. Analysts' focus was consistent, with questions centered on tariffs, market share, and facility performance.
* Financial performance metrics, including EPS growth and margin profiles, showed resilience despite a slight decline in overall sales and margin mix compared to Q1. The net leverage ratio remained stable, reflecting disciplined capital allocation.

RISKS AND CONCERNS

* Management cited ongoing tariff impacts, customer hesitancy on non-infrastructure projects, and softness in construction, HVAC, and appliance end markets as continuing challenges.
* Strategies to mitigate these risks include maintaining cost discipline, pursuing market share gains, ramping new facility volumes, and targeting infrastructure-driven demand.
* Analysts expressed concerns about the potential for further losses from the Avail JV, but management forecasted zero equity earnings from unconsolidated subsidiaries for the remainder of the year.

FINAL TAKEAWAY

Management highlighted strong execution and disciplined capital allocation as key drivers for continued growth. With robust infrastructure demand fueling Metal Coatings, operational improvements, and ongoing ramp-up at the Washington facility, AZZ remains confident in its ability to achieve fiscal 2026 targets despite tariff-related and construction market headwinds. The company’s strategic focus on technology upgrades, organic investments, and bolt-on M&A positions it to sustain value creation for stakeholders.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/azz/earnings/transcripts]

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