AZZ(US:AZZ)2025-07-09 20:16Financial & Operational Highlights Q1 FY2026 Performance Overview AZZ reported record results for the first quarter of fiscal year 2026, with total sales increasing 2.1% to $422.0 million, achieving significant growth in profitability with Adjusted EBITDA rising to $106.4 million and Adjusted EPS up 21.9% to $1.78, while a substantial cash infusion from the AVAIL JV asset sale enabled a $285.4 million debt reduction, lowering the net leverage ratio to 1.7x, and following these strong results, the company raised its full-year guidance and increased its quarterly dividend | Financial Metric | Q1 FY2026 | Change (YoY) | | :--- | :--- | :--- | | Total Sales | $422.0 million | +2.1% | | Net Income | $170.9 million | +331.6% | | Adjusted Net Income | $53.8 million | +22.3% | | GAAP Diluted EPS | $5.66 | +510.1% | | Adjusted Diluted EPS | $1.78 | +21.9% | | Adjusted EBITDA | $106.4 million | +13.1% | - The company received $273.2 million in cash from its minority interest in AVAIL following the sale of the Electrical Products Group, with these proceeds being a primary driver for the $285.4 million debt reduction during the quarter56 - The net leverage ratio was reduced to 1.7x at the end of the quarter56 - Subsequent to the quarter, the company increased its quarterly cash dividend to common shareholders from $0.17 to $0.20 per share5 Segment Performance Metal Coatings Segment The Metal Coatings segment delivered strong growth, with sales increasing 6.0% to $187.2 million, driven by higher volumes from infrastructure-related projects, and profitability improved significantly, with Adjusted EBITDA margin expanding by 200 basis points to 32.9% due to increased volume and better zinc utilization | Metric | Q1 FY2026 | Q1 FY2025 | Change | | :--- | :--- | :--- | :--- | | Sales | $187.2M | $176.7M | +6.0% | | Adjusted EBITDA | $61.5M | $54.6M | +12.6% | | Adjusted EBITDA Margin | 32.9% | 30.9% | +200 bps | - Growth was primarily driven by increased volume supported by infrastructure spending in construction, industrial, and electrical transmission and distribution end markets7 Precoat Metals Segment The Precoat Metals segment experienced a slight sales decline of 0.8% to $234.7 million, attributed to decreased volumes in the construction, HVAC, and appliance markets, but despite lower sales, the segment's EBITDA margin improved by 50 basis points to 20.7%, reflecting a favorable product mix and operational efficiencies | Metric | Q1 FY2026 | Q1 FY2025 | Change | | :--- | :--- | :--- | :--- | | Sales | $234.7M | $236.6M | -0.8% | | EBITDA | $48.5M | $47.7M | +1.7% | | EBITDA Margin | 20.7% | 20.2% | +50 bps | - The sales decrease was due to lower volumes in certain end markets, including construction, HVAC, and appliance8 Financial Condition & Capital Allocation Balance Sheet, Liquidity and Capital Allocation The company significantly strengthened its balance sheet in Q1, generating $314.8 million in operating cash flow, which included a $273.2 million distribution from the AVAIL JV, enabling a debt paydown of $285.4 million, reducing net leverage to 1.7x, with capital allocation also including $5.1 million in dividends and $20.9 million in capital expenditures, and $53.2 million remaining under the current share repurchase authorization - Generated significant operating cash of $314.8 million, which included a $273.2 million distribution from the AVAIL JV9 | Capital Allocation & Liquidity | Amount | | :--- | :--- | | Debt Paid Down | $285.4 million | | Dividends Paid | $5.1 million | | Capital Expenditures | $20.9 million | | Remaining Share Repurchase Authorization | $53.2 million | - Net leverage was 1.7x trailing twelve months Adjusted EBITDA at the end of the quarter9 FY2026 Financial Outlook Updated Guidance Reflecting confidence from strong Q1 performance, AZZ has raised its full-year fiscal 2026 guidance, now projecting sales of $1.625 to $1.725 billion, Adjusted EBITDA of $360 to $400 million, and Adjusted Diluted EPS of $5.75 to $6.25, with this outlook assuming specific segment margin ranges and excluding any future M&A activity or earnings from the AVAIL joint venture | FY2026 Guidance | Range | | :--- | :--- | | Sales | $1.625 - $1.725 billion | | Adjusted EBITDA | $360 - $400 million | | Adjusted Diluted EPS | $5.75 - $6.25 | - Key guidance assumptions include: - Excludes future acquisitions and equity in earnings from the AVAIL JV - Assumes an annualized effective tax rate of 25% - Metal Coatings segment Adjusted EBITDA margin range of 27-32% - Precoat Metals segment Adjusted EBITDA margin range of 17-22%1012 Financial Statements (Unaudited) Condensed Consolidated Statements of Income For the first quarter ending May 31, 2025, sales grew to $422.0 million from $413.2 million year-over-year, and net income saw a dramatic increase to $170.9 million, compared to $39.6 million in the prior year, largely due to a $173.5 million contribution from 'Equity in earnings of unconsolidated subsidiaries', resulting in a diluted EPS of $5.66, a significant turnaround from a loss of ($1.38) per share in the same quarter last year | (in thousands, except per share) | Three Months Ended May 31, 2025 | Three Months Ended May 31, 2024 | | :--- | :--- | :--- | | Sales | $421,962 | $413,208 | | Operating income | $69,549 | $69,749 | | Equity in earnings of unconsolidated subsidiaries | $173,523 | $3,824 | | Net income | $170,908 | $39,602 | | Diluted earnings (loss) per common share | $5.66 | $(1.38) | Segment Reporting In Q1 FY2026, the Metal Coatings segment's sales rose to $187.2 million with an Adjusted EBITDA of $61.5 million, while the Precoat Metals segment's sales were slightly down at $234.7 million, but its Adjusted EBITDA increased to $48.5 million, leading to total Segment Adjusted EBITDA growing to $117.6 million from $106.1 million in the prior-year quarter | (in thousands) | Three Months Ended May 31, 2025 | Three Months Ended May 31, 2024 | | :--- | :--- | :--- | | Sales: | | | | Metal Coatings | $187,215 | $176,651 | | Precoat Metals | $234,747 | $236,557 | | Total Sales | $421,962 | $413,208 | | Adjusted EBITDA: | | | | Metal Coatings | $61,516 | $54,645 | | Precoat Metals | $48,477 | $47,687 | | Total Segment Adjusted EBITDA | $117,610 | $106,127 | Condensed Consolidated Balance Sheets As of May 31, 2025, the company's balance sheet shows total assets of $2.16 billion, with a significant change from the previous fiscal year-end being the reduction of long-term debt to $569.8 million from $852.4 million, while shareholders' equity increased from $1.05 billion to $1.21 billion | (in thousands) | As of May 31, 2025 | As of February 28, 2025 | | :--- | :--- | :--- | | Total Assets | $2,159,185 | $2,227,101 | | Long-term debt, net | $569,807 | $852,365 | | Shareholders' Equity | $1,214,298 | $1,045,495 | | Total Liabilities and Shareholders' equity | $2,159,185 | $2,227,101 | Condensed Consolidated Statements of Cash Flows For the first three months of FY2026, net cash provided by operating activities was $314.8 million, a substantial increase from $71.9 million in the prior year, primarily due to a $273.2 million distribution from AVAIL, and net cash used in financing activities was $295.5 million, reflecting significant debt repayment | (in thousands) | Three Months Ended May 31, 2025 | Three Months Ended May 31, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $314,782 | $71,944 | | Net cash used in investing activities | $(17,122) | $(27,379) | | Net cash used in financing activities | $(295,512) | $(38,542) | - Net cash from operating activities for the three months ended May 31, 2025, includes distributions from AVAIL of $273.2 million25 Non-GAAP Financial Measures & Reconciliations Reconciliation of Adjusted Net Income and EPS The company reconciles its GAAP Net Income of $170.9 million to a non-GAAP Adjusted Net Income of $53.8 million for Q1 FY2026, with the largest adjustment being the exclusion of a $165.8 million gain from the AVAIL JV distribution, and after accounting for this and other items like amortization and restructuring charges, the Adjusted Diluted EPS is calculated to be $1.78, compared to $1.46 in the prior-year quarter | (in thousands, except per share) | Three Months Ended May 31, 2025 | | :--- | :--- | | Net income available to common shareholders (GAAP) | $170,908 | | Total adjustments | $(117,101) | | Adjusted net income (non-GAAP) | $53,807 | | Diluted earnings per share (GAAP) | $5.66 | | Adjusted earnings per share (non-GAAP) | $1.78 | - Key adjustments to reconcile GAAP to non-GAAP net income include the exclusion of a $165.8 million gain from the AVAIL JV distribution, and additions for amortization ($5.7 million), restructuring charges ($3.8 million), and an executive incentive program expense ($2.2 million)3136 Reconciliation of Adjusted EBITDA Adjusted EBITDA for Q1 FY2026 was $106.4 million, an increase from $94.1 million in the prior-year period, with the calculation starting with GAAP Net Income and adjusting for interest, taxes, D&A, and other specific items, most notably excluding the $165.8 million gain from the AVAIL JV distribution | (in thousands) | Three Months Ended May 31, 2025 | Three Months Ended May 31, 2024 | | :--- | :--- | :--- | | Net income | $170,908 | $39,602 | | Interest expense | $18,563 | $22,774 | | Income tax expense | $54,928 | $11,401 | | Depreciation and amortization | $21,827 | $20,323 | | AVAIL JV excess distribution | $(165,826) | — | | Other adjustments | $6,012 | — | | Adjusted EBITDA (non-GAAP) | $106,412 | $94,100 | Debt Leverage Ratio Reconciliation The company's net leverage ratio improved significantly, decreasing to 1.7x as of May 31, 2025, from 2.5x at the end of the prior fiscal year, achieved through a reduction in consolidated indebtedness to $607.1 million and an increase in the trailing twelve months Adjusted EBITDA (per Credit Agreement) to $367.3 million | (in thousands) | As of May 31, 2025 | As of Feb 28, 2025 | | :--- | :--- | :--- | | Consolidated indebtedness | $607,107 | $894,227 | | Adjusted EBITDA per Credit Agreement (TTM) | $367,314 | $358,058 | | Net leverage ratio | 1.7x | 2.5x |