For FY20, the company continues to see EPS of $2.25-$2.75 and revenue of $950-$1.03 bln, which pencils out to yr/yr growth of 7% on a yr/yr basis.
Click here to access AZZ's earnings press release.
The upside report represents a major divergence from its recent performance. Prior to this quarter, AZZ had missed on the bottom line in nine of the past ten quarters.
A mix of rising commodity costs (zinc in particular), tight labor conditions, order push-outs, tariffs, and general operating inefficiencies plagued the company.
However, many of those headwinds turned into tailwinds this quarter.
For example, the escalating costs that were cutting into its margins have finally eased.
Additionally, AZZ implemented its "Digital Galvanizing System", which has resulted in the elimination of all paperwork throughout its plants, leading to better workforce productivity.
Also, AZZ has rationalized its galvanizing footprint by closing two plants in locations that can be served by other sites.
These actions pushed its operating margin to 10.7% from 9.0% in the year ago quarter.
On the demand side, revenue growth accelerated as the company executed on a substantial energy-related contract in China. AZZ's energy segment provides equipment used for industrial, nuclear, and electrical applications.
To rewind, AZZ's Q4 results were negatively impacted by the delay of the first phase of this large high-voltage bus duct order in China. The $12 mln in income associated with this delay was realized this quarter, providing a boost to Q1 results. But this contract isn't expected to only be a Q1 catalyst, as orders are anticipated to continue throughout this fiscal year.
AZZ's other business segment, Metal Coatings, grew revenue by 6%, driven by solid demand for its specialty welding services both domestically and abroad.
Acquisitions, including Tennessee Galvanizing and K2 Partners, have also bolstered growth in this segment.
Key Takeaways: AZZ was mired in a deep slump as a mix of cost pressures, operating inefficiencies, and geopolitical issues took their toll on the company. To combat these challenges, the company implemented new systems to improve productivity and consolidated its plants. Combined with an easing in zinc costs, these actions led to sharply improved margins and profitability.
While AZZ comfortably exceeded analysts' expectations this quarter, it chose to reaffirm its outlook for FY20 rather than bump its guidance higher. That's because management remains cautious due to uncertainty revolving around tariffs and the ongoing tight labor market in the U.S.