AZZ Inc. Reports Fiscal Year 2024 Third Quarter Results

AZZ Delivers Growth in Sales, Profits, and Cash Flow Supporting Debt Pay Down
Narrowing Annual Guidance

FORT WORTH, Texas, Jan. 9, 2024 /PRNewswire/ -- AZZ Inc. (NYSE: AZZ), the leading independent provider of hot-dip galvanizing and coil coating solutions, today announced financial results for the third quarter ended November 30, 2023. 

Third Quarter Overview (results from continuing operations as compared to prior year⁽¹⁾):

• Total Sales $381.6 million, up 2.2%
  • Metal Coatings sales of $163.2 million, up 3.1%
  • Precoat Metals sales of $218.4 million, up 1.6%
• Diluted EPS of $0.92, up 55.9% versus prior year, Adjusted EPS of $1.19, up 52.6%
• Net Income of $26.9 million, up 45.8%
• Adjusted net income of $34.8 million, up 78.3%
• Adjusted EBITDA $86.4 million or 22.6% of sales, versus prior year of $68.9 million or 18.5% of sales
• Segment EBITDA margin of 30.0% for Metal Coatings and 18.4% for Precoat Metals
• Reduced debt by $25.0 million in the quarter, resulting in net leverage of 3.1x

Tom Ferguson, President, and Chief Executive Officer of AZZ, commented, "Both segments performed well in the third quarter, delivering organic sales growth of 3.1% for Metal Coatings and 1.6% for Precoat Metals.  Consolidated Adjusted EBITDA margin grew to 22.6%, driven by a favorable mix and a continuation of improvements in operational efficiencies over the prior year.  Metal Coatings benefited from strength in transmission and distribution, as well as bridge and highway markets spending, and delivered an EBITDA margin of 30.0%.  Precoat Metals' EBITDA margin of 18.4%, significantly improved over prior year, resulted from strong conversion-selling and value pricing to offset inflation, with a backdrop of certain end-market softness related to the construction, HVAC and transportation markets."

"With our strong cash flow generation and effective management of working capital, we have reduced our debt by $85 million year-to-date, including $25 million in the third quarter. Our greenfield plant construction in Washington, Missouri, is progressing, and we are continuing to track to our timeline and budget. This year's capital expenditures of approximately $119 million include about $70 million of spending related to the new plant.  Additionally, we recently repriced the terms of our Senior Secured Revolver Credit Agreement, resulting in lower interest costs moving forward. We are strengthening our balance sheet and remain committed to reducing our debt and leverage."

"While the fourth quarter typically represents a seasonally slower period for AZZ, we anticipate meaningfully improved profitability over prior year same quarter.  Secular tailwinds exist for non-building construction on infrastructure and renewables projects, reshoring of manufacturing, and continued migration to more environmentally friendly pre-painted steel and aluminum.  I want to thank our AZZ team for their dedicated performance in the third quarter of fiscal year 2024," Ferguson concluded.

Fiscal Year 2024 Third Quarter Segment Performance

AZZ Metal Coatings
Sales increased year-over-year by 3.1% to $163.2 million, due to the progression of infrastructure spending and value-pricing strategies.  Adjusted EBITDA of $49.0 million, or 30.0% of sales, reflects results within our 25-30% targeted Adjusted EBITDA range.  

AZZ Precoat Metals 
Sales of $218.4 million increased year-over-year by 1.6% despite lower volume in HVAC, transportation, and container end markets.  Average selling price increased 4% compared to the same quarter last year, driven by value-pricing initiatives and a shift in sales mix.  EBITDA of $40.3 million, or 18.4% of sales, increased 240 basis points  from the prior year quarter and within our targeted range of 17-22%. 

Balance Sheet, Liquidity and Capital Allocation
The Company generated significant operating cash of $180.9 million for the year's first nine months through improved earnings and disciplined working capital management.  At the end of the third quarter, net leverage was 3.1x TTM EBITDA.  During the year-to-date period ended November 30, 2023, the Company paid down debt of $85 million and returned cash to common shareholders through cash dividend payments totaling $12.8 million.  Capital expenditures were $66.9 million year-to-date, and full fiscal year capital expenditures are expected to be approximately $119 million.

Financial Outlook - Fiscal Year 2024 Guidance
Narrowing and revising upward fiscal year 2024 guidance to reflect AZZ's nine-month actual results and fourth quarter projections.  Guidance includes estimated interest expense benefits from the repricing of our Term Loan B and the December repricing of our Senior Secured Revolver, and the reduction of another $25 million in debt in the third quarter, as well as Equity in earnings of unconsolidated subsidiaries (40% AVAIL investment). These actions have helped offset the impact of the higher interest rate environment. The computation of Adjusted earnings per diluted share also reflects the impact of the Series A Preferred stock and an effective tax rate of approximately 24% for the year.

Conference Call Details
AZZ Inc. will conduct a live conference call with Tom Ferguson, Chief Executive Officer, Philip Schlom, Chief Financial Officer, and David Nark, Senior Vice President of Marketing, Communications, and Investor Relations to discuss financial results for the third quarter of the fiscal year 2024, Wednesday, January 10, 2024, at 11:00 A.M. ET. Interested parties can access the conference call by dialing (844) 855-9499 or (412) 317-5497 (international). A webcast of the call will be available on the Company's Investor Relations page at http://www.azz.com/investor-relations.  

A replay of the call will be available at (877) 344-7529 or (412) 317-0088 (international), replay access code: 8388037, through January 17, 2024, or by visiting http://www.azz.com/investor-relations for the next 12 months.

About AZZ Inc.

AZZ Inc. is the leading independent provider of hot-dip galvanizing and coil coating solutions to a broad range of end-markets. Collectively, our business segments provide sustainable, unmatched metal coating solutions that enhance the longevity and appearance of buildings, products and infrastructure that are essential to everyday life. 

Safe Harbor Statement

Certain statements herein about our expectations of future events or results constitute forward-looking statements for purposes of the safe harbor provisions of The Private Securities Litigation Reform Act of 1995. You can identify forward-looking statements by terminology such as "may," "could," "should," "expects," "plans," "will," "might," "would," "projects," "currently," "intends," "outlook," "forecasts," "targets," "anticipates," "believes," "estimates," "predicts," "potential," "continue," or the negative of these terms or other comparable terminology. Such forward-looking statements are based on currently available competitive, financial, and economic data and management's views and assumptions regarding future events. Such forward-looking statements are inherently uncertain, and investors must recognize that actual results may differ from those expressed or implied in the forward-looking statements. Forward-looking statements speak only as of the date they are made and are subject to risks that could cause them to differ materially from actual results. Certain factors could affect the outcome of the matters described herein. This press release may contain forward-looking statements that involve risks and uncertainties including, but not limited to, changes in customer demand for our products and services, including demand by the construction markets, the industrial markets, and the metal coatings markets. We could also experience additional increases in labor costs, components and raw materials including zinc and natural gas, which are used in our hot-dip galvanizing process; supply-chain vendor delays; customer requested delays of our products or services; delays in additional acquisition opportunities; an increase in our debt leverage and/or interest rates on our debt, of which a significant portion is tied to variable interest rates; availability of experienced management and employees to implement AZZ's growth strategy; a downturn in market conditions in any industry relating to the products we inventory or sell or the services that we provide; economic volatility, including a prolonged economic downturn or macroeconomic conditions such as inflation or changes in the political stability in the United States and other foreign markets in which we operate; acts of war or terrorism inside the United States or abroad; and other changes in economic and financial conditions. AZZ has provided additional information regarding risks associated with the business, including in Part I, Item 1A. Risk Factors, in AZZ's Annual Report on Form 10-K for the fiscal year ended February 28, 2023, and other filings with the SEC, available for viewing on AZZ's website at www.azz.com and on the SEC's website at www.sec.gov.  You are urged to consider these factors carefully when evaluating the forward-looking statements herein and are cautioned not to place undue reliance on such forward-looking statements, which are qualified in their entirety by this cautionary statement. These statements are based on information as of the date hereof and AZZ assumes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise.

Company Contact:
David Nark, Senior Vice President of Marketing, Communications, and Investor Relations
AZZ Inc.
(817) 810-0095
www.azz.com 

Investor Contact:
Sandy Martin / Phillip Kupper
Three Part Advisors
(214) 616-2207
www.threepa.com 

AZZ Inc.
Non-GAAP Disclosure
Adjusted Net Income, Adjusted Earnings Per Share and Adjusted EBITDA

In addition to reporting financial results in accordance with Generally Accepted Accounting Principles in the United States ("GAAP"), we provided adjusted net income and adjusted earnings per share, (collectively, the "Adjusted Earnings Measures"), which are non-GAAP measures. Management believes that the presentation of these measures provides investors with greater transparency when comparing operating results across a broad spectrum of companies, which provides a more complete understanding of our financial performance, competitive position and prospects for future capital investment and debt reduction. Management also believes that investors regularly rely on non-GAAP financial measures, such as adjusted net income and adjusted earnings per share, to assess operating performance and that such measures may highlight trends in our business that may not otherwise be apparent when relying on financial measures calculated in accordance with GAAP.

In calculating adjusted net income and adjusted earnings per share, management excludes intangible asset amortization, acquisition expenses, transaction related expenses and certain legal settlements and accruals.  Management also provides EBITDA and Adjusted EBITDA, which are non-GAAP measures. Management defines EBITDA as earnings excluding depreciation, amortization, interest, and provision for income taxes.  Adjusted EBITDA is defined as earnings excluding depreciation, amortization, interest, provision for income taxes, acquisition expenses, transaction related expenses and certain legal settlements and accruals. Management believes EBITDA and Adjusted EBITDA are used by investors to analyze operating performance and evaluate the Company's ability to incur and service debt and its capacity for making capital expenditures in the future. EBITDA and Adjusted EBITDA are also useful to investors to help assess the Company's estimated enterprise value. In addition, management believes that the adjustments shown below are useful to investors in order to allow them to compare the Company's financial results during the periods shown without the effect of each of these adjustments.

Management provides non-GAAP financial measures for informational purposes and to enhance understanding of the Company's GAAP consolidated financial statements. Readers should consider these measures in addition to, but not instead of or superior to, the Company's financial statements prepared in accordance with GAAP. These non-GAAP financial measures may be determined or calculated differently by other companies, limiting the usefulness of those measures for comparative purposes.

The following tables provides a reconciliation for the three and nine months ended November 30, 2023 and 2022 between the various measures calculated in accordance with GAAP to the Adjusted Earnings Measures (in thousands, except per share data):

SOURCE AZZ, Inc.