AZZ Inc. (AZZ) is trading modestly lower after reporting mixed
3Q19 (Nov) earnings results this morning. AZZ has two operating segments:
Energy and Metal Coatings.
Its Energy segment is a provider of equipment used for industrial, nuclear, and electrical applications. Its product offerings include custom switchgear, electrical enclosures, medium and high voltage bus ducts, explosion proof and hazardous duty lighting, nuclear safety-related equipment, and tubular products. It also provides services such as extension of life cycle for the power generation, refining and industrial infrastructure, through automated weld overlay services for corrosion and erosion mitigation.
Its Metal Coatings Segment provides hot dip galvanizing and other metal coating applications to the steel fabrication industry. Hot dip galvanizing is a metallurgical process in which molten zinc is applied to steel. The zinc alloying renders corrosion protection to fabricated steel for extended periods of up to 50 years.
In the NovQ results, EPS improved to $0.59 while revenue rose 15.0% yr/yr to $239.5 mln. While this was good growth in both metrics, these results were mixed relative to market expectations. With just one quarter left in the fiscal year, AZZ narrowed its FY19 EPS guidance to $1.95-2.20 from $1.90-2.25. Revenue guidance was narrowed to $940-960 mln, from $930-970 mln.
Overall, market demand has improved, particularly in the industrial sector as turnarounds and outages returned to more normal levels. Overall, consolidated bookings were up 17.5% for the quarter, growing to $211.3 mln.
Breaking it down by segment, Energy Segment revenue rose 23.4% yr/yr to $132.0 mln. Operating margin rose to 8.7% vs (11.3)% in the prior year period (however, this included unusual items). Metal Coatings segment revenue rose 6.3% yr/yr to a record $107.5 mln. However, segment operating margins dipped lower, driven by near-peak zinc costs flowing through AZZ"s kettles, higher labor costs and its Alternate Coatings and Continuous Galvanized Rebar businesses performed below expectations. Looking ahead, although zinc costs, sequentially, were down slightly from AugQ, AZZ expects a steeper reduction in FebQ.
Its Energy segment's Welding Solutions group had a strong quarter, executing on several domestic and overseas projects. Its industrial and electrical served markets improved somewhat compared to prior year, and AZZ is especially pleased with the demand for specialty welding both domestically and internationally.
This was sort of a mixed quarter for AZZ. The stock has been trending lower the past few months going from $55 in early September to around $42 now. Our sense is that AZZ's earnings tend to vary quite a bit from quarter to quarter. MayQ was very strong but AugQ and NovQ was more mixed. Hopefully, results in FebQ show improvement.
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