AZZ Raises Outlook as Infrastructure, Data Centers and Acquisitions Drive Growth

Key Points

• AZZ raised its fiscal-year outlook, now projecting sales of $1.8 billion–$1.85 billion, adjusted EBITDA of $375 million–$415 million and adjusted EPS of $6.75–$7.15.
• Growth is being supported by infrastructure and electrical-grid investment, data-center construction, reshoring and improving Precoat Metals demand. The company also acquired Seattle Galvanizing to expand its Pacific Northwest presence and will continue pursuing North American bolt-on acquisitions.
• Lower leverage, which fell to 1.4 times debt to EBITDA, is giving AZZ flexibility to invest, raise its dividend by 20%, repurchase shares and support its $125 million Washington, Missouri, facility, expected to contribute to earnings in fiscal 2027.

AZZ NYSE: AZZ outlined its growth strategy, updated financial outlook and acquisition priorities during a Sidoti investor presentation, highlighting demand from infrastructure, electrification, reshoring and selected data-center projects.

Dave Nark, AZZ’s chief marketing, communications and investor relations officer, said the company is North America’s largest independent provider of post-fabrication hot-dip galvanizing and coil coating. The company operates more than 47 metal-coatings locations, including 43 galvanizing plants, and 14 coil-coating facilities. Nark said AZZ has approximately 27% market share in Metal Coatings and 23% share in Precoat Metals.

The company’s operations are entirely concentrated in North America, which Nark said positions AZZ as an industrial and infrastructure-focused business. AZZ reported 39 consecutive years of profitability, with fiscal-year sales of $1.65 billion and a $4.6 billion market capitalization, both records for the company.

Business Segments and End Markets

AZZ operates through its Metal Coatings segment, centered on hot-dip galvanizing, and its Precoat Metals segment, which provides coil coating. For the fiscal year ended in February, Metal Coatings revenue rose 14% year over year on a trailing-12-month basis, while Precoat Metals revenue declined 2.3%.

However, Nark said Precoat Metals returned to growth in the first quarter, with revenue up 1.5%. He said the company expects to provide a further update on second-quarter performance in October.

Construction is AZZ’s largest end market and includes commercial, residential and agricultural activity, as well as data centers. Nark said data centers represent about 4% of the company’s consolidated end-market sales. Other markets include infrastructure, industrial, transportation, HVAC and appliance, and containers.

Infrastructure represented 13% of end-market sales, according to the presentation. Nark cited bridge, highway and electrical-infrastructure activity as sources of demand, along with grid resiliency, grid interconnection projects and load growth.

• Generational infrastructure investment and electrical-grid expansion
• Data-center construction and related steel and pre-painted steel demand
• Reshoring of manufacturing in the U.S.
• A shift from plastics to aluminum in beverage containers

Washington Facility and Capital Allocation

Nark discussed AZZ’s Washington, Missouri, facility, a $125 million investment that is now operational. The plant is protected by a seven-year take-or-pay agreement with an anchor customer that covers 75% of planned capacity, or roughly 45,000 to 50,000 tons annually, with contractual escalators.

The remaining 25% of capacity offers additional customer opportunities, he said, while the anchor customer also has the ability to increase its use to the facility’s full capacity. Nark said AZZ has no current plans to expand the Washington site or build another comparable facility. The company expects the site to be accretive to earnings in fiscal 2027.

AZZ’s adjusted EBITDA margin was 22.3% overall, with Metal Coatings generating a 31% margin and Precoat Metals producing margins in the 21% to 22% range, Nark said. The company’s leverage stood at 1.4 times debt to EBITDA at the end of the first quarter ended May 31, down from 3.6 times in fiscal 2022.

Nark said lower leverage has enabled AZZ to invest in the business, pursue acquisitions, increase its dividend and repurchase shares. The company recently raised its dividend by 20% and repurchased about $20 million in shares last year to offset dilution. It had $130 million remaining under its share-repurchase authorization as of first-quarter results.

Outlook and Acquisition Strategy

Following its first-quarter results, AZZ raised fiscal-year guidance. The company now expects:

• Sales of $1.8 billion to $1.85 billion, compared with prior guidance of $1.725 billion to $1.775 billion
• Adjusted EBITDA of $375 million to $415 million, compared with $360 million to $400 million previously
• Adjusted diluted earnings per share of $6.75 to $7.15, compared with prior guidance of $6.50 to $7.00
• Capital expenditures of about $80 million to $100 million

In July, AZZ acquired Seattle Galvanizing, establishing its first footprint in the Pacific Northwest. Nark said the acquired facility had the largest galvanizing capacity in that region and expands AZZ’s ability to serve customers there. He added that the company will continue to evaluate bolt-on acquisitions that fill geographic gaps, add capabilities or provide exposure to attractive end markets.

AZZ remains focused on North American acquisitions rather than overseas opportunities, Nark said, citing the available investment opportunities in its existing markets and the additional complexity of international operations. The company evaluates potential deals against return-on-invested-capital thresholds and generally avoids transactions involving significant environmental liabilities.

Nark also emphasized AZZ’s toll-coating model, under which customers own the steel or aluminum being coated. He said that structure limits direct commodity-price exposure. While AZZ purchases zinc for galvanizing, Nark said the company’s scale and advance purchasing provide visibility into costs and support pricing decisions.

About AZZ (NYSE:AZZ)

AZZ Inc NYSE: AZZ is a provider of metal coating and coil coating solutions serving industrial and infrastructure markets. The company's Metal Coatings segment offers hot-dip galvanizing, powder coating, anodizing and related finishing services designed to protect steel and other metal products from corrosion and extend their service life.

Through its Precoat Metals business, AZZ provides continuous coil coating services for flat-rolled steel and aluminum. Its coatings are used in products and applications including building materials, transportation equipment, appliances, consumer goods, packaging and other manufactured components.

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