After the company’s fiscal year 2019 revenue guidance beat
market expectations at the midpoint, shares of metal work company AZZ (AZZ
50.20, +6.60, +15.14%) trade to better than six-month highs.
What’s more, AZZ also reported first quarter earnings and sales which beat market expectations. For the period, AZZ reported earnings of $0.60/share on revenue growth of 27.7% year/year to about $262.2 mln.
Gross margins for the first quarter were 22.4% compared to 23.1% a year ago while operating margins were 9.0% compared to 9.8% the first quarter of fiscal year 2018 as SG&A as a percentage of sales rose to 13.4% of sales compared to 13.3% of sales in the prior year.
Incoming orders for the quarter were $320.5 mln while shipments for the quarter totaled $262.2 mln, resulting in a book to ship ratio of 1.22. Incoming orders were $193.8 mln, resulting in a book to ship ratio of 0.94 and the backlog at the end of the first quarter was up 7.6% to $329.7 mln compared to $306.4 mln last year. About 43% of the current backlog is expected to be delivered outside the U.S., compared to 41% in the first quarter of fiscal year 2018.
Breaking down the first quarter beat a bit, the Energy segment saw revenue growth of 29.8% to $147.0 mln. Gross profit rose 29.9% to $29.6 mln compared to $22.8 mln for the same period last year, with flat gross margins of 20.1% in both periods.
Sales in the Metal Coatings segment were a record $115.3 mln, compared to the $92.1 mln for the same period of last year, an increase of 25.2%. Gross profit increased 18.4% to $29.2 mln from $24.6 mln in the same quarter last year, driving gross margins of 25.3% compared to 26.7% in the same quarter last year.
As to the guidance, AZZ reaffirmed its previously issued fiscal 2019 guidance of earnings per share in the range of $1.75-2.25 per diluted share and annual sales in the range of $900-960 mln. Management added the caveat that they are somewhat optimistic at this point and remain cautious due to the uncertainty related to tariffs and the Chinese trade situation as well as the tighter market for craft labor.
The strong first quarter performance and the reaffirmed guidance in the face of an uncertain Asian trade situation outweighed investor concern over waning margins. The stock has recovered nicely from multi-year lows, which it hit in mid-May. Shares are up nearly 30% since those lows, which were tied to the company's announcement of a delay to its filing of its 10-Q report.
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