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AZZ INC (AZZ) Q3 2025 Earnings Summary

Executive Summary

  • Q3 FY2025 delivered organic growth with sales of $403.7M (+5.8% YoY), Adjusted EPS $1.39 (+16.8% YoY), and Adjusted EBITDA $90.7M (22.5% margin), while GAAP diluted EPS was $1.12 (+21.7% YoY) .
  • Sequentially, revenue and GAAP EPS moderated versus Q2 FY2025 ($409.0M, $1.18), as winter seasonality and project timing headwinds emerged; EBITDA margin held steady at 22.5% (Q2: 22.5%) .
  • Guidance was narrowed and raised at midpoints: FY2025 sales held at $1.55–$1.60B, Adjusted EBITDA lifted to $340–$360M, and Adjusted EPS raised to $5.00–$5.30; capex unchanged at $100–$120M .
  • Deleveraging accelerated: Q3 debt reduction of $35M (YTD $80M) and net leverage down to 2.6x TTM EBITDA; Term Loan B repriced to SOFR+2.50% lowering interest costs and supporting FY2025 outlook .
  • Near-term stock reaction catalyst: confidence from raised EPS/EBITDA guidance, sustained segment margins, and debt paydown, partially offset by commentary on tariffs/steel availability creating Q4 revenue timing “choppiness” .

What Went Well and What Went Wrong

What Went Well

  • Metal Coatings margin performance: Segment Adjusted EBITDA margin at 31.5% (+150 bps YoY) aided by higher volume, lower zinc costs, and improved zinc utilization; galvanizing sales +5.2% . “Metal Coatings benefited from lower zinc costs and improved zinc utilization” — CEO Tom Ferguson .
  • Precoat Metals execution: Sales +7.6% YoY with Adjusted EBITDA margin at 19.1% (+70 bps YoY) on sales growth, favorable mix, and operational performance .
  • Balance sheet strengthening: YTD operating cash flow $185.6M, YTD debt reduction $80M, net leverage 2.6x; Q3 debt paydown $35M; Term Loan B repriced to SOFR+2.50% .

What Went Wrong

  • Sequential moderation: Q3 revenue ($403.7M) and GAAP EPS ($1.12) were below Q2 ($409.0M, $1.18) due to seasonality and project timing, despite steady EBITDA margin .
  • Legal/severance items: Q3 included non-GAAP adjustments (legal settlement/accrual $3.483M; severance $1.666M), impacting reported results; adjusted net income $41.9M .
  • Tariffs/steel availability and interest-rate uncertainty: management flagged “choppiness” in decision-making for some projects and potential Q4 revenue timing impacts (not demand loss), though profitability is less affected due to variable cost flex .

Financial Results

Quarterly progression (FY2025)

MetricQ1 FY2025 (May 31, 2024)Q2 FY2025 (Aug 31, 2024)Q3 FY2025 (Nov 30, 2024)
Revenue ($USD Millions)$413.2 $409.0 $403.7
GAAP Diluted EPS ($USD)($1.38) $1.18 $1.12
Adjusted Diluted EPS ($USD)$1.46 $1.37 $1.39
Gross Margin %24.9% (102.67/413.21) 25.3% (103.51/409.01) 24.2%
Operating Margin % (EBIT Margin)16.9% (69.75/413.21) 16.5% (67.65/409.01) 14.5%
Adjusted EBITDA ($USD Millions)$94.1 (EBITDA) $91.9 $90.7
Adjusted EBITDA Margin %22.8% 22.5% 22.5%

Note: Q1 figure represents EBITDA (non-GAAP) as reported; Q2 and Q3 represent Adjusted EBITDA (non-GAAP) .

Year-over-year comparison (Q3 FY2024 vs Q3 FY2025)

MetricQ3 FY2024Q3 FY2025
Revenue ($USD Millions)$381.6 $403.7
GAAP Diluted EPS ($USD)$0.92 $1.12
Adjusted Diluted EPS ($USD)$1.19 $1.39
Gross Margin %23.1% (88.15/381.61) 24.2%
Operating Margin % (EBIT Margin)13.8% (52.82/381.61) 14.5%
Adjusted EBITDA ($USD Millions)$86.4 $90.7
Adjusted EBITDA Margin %22.6% 22.5%

Segment performance

Segment MetricQ3 FY2024Q2 FY2025Q3 FY2025
Metal Coatings Sales ($USD Millions)$163.186 $171.500 $168.599
Metal Coatings Adjusted EBITDA ($USD Millions)$48.991 $54.366 $53.103
Metal Coatings EBITDA Margin %30.0% (48.991/163.186) 31.7% 31.5%
Precoat Metals Sales ($USD Millions)$218.419 $237.507 $235.055
Precoat Metals Adjusted EBITDA ($USD Millions)$40.253 $50.169 $44.983
Precoat Metals EBITDA Margin %18.4% (40.253/218.419) 21.1% 19.1%

KPIs

KPIQ3 FY2025
Operating Cash Flow (YTD)$185.6M
Debt Reduction$35M in Q3; $80M YTD
Net Leverage Ratio (TTM)2.6x
Capex$26.4M in Q3; $85.9M YTD; FY guide $100–$120M
Dividend$0.17 per share (authorized/paying in Q4 timing)
Term Loan BRepriced to SOFR+2.50%
Equity in Earnings (JV)$7.168M in Q3
Interest Expense$19.223M in Q3, lower YoY

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
SalesFY2025$1.525–$1.625B $1.550–$1.600B Narrowed range; midpoint unchanged; raised lower bound
Adjusted EBITDAFY2025$320–$360M $340–$360M Raised lower bound; narrowed range upward
Adjusted Diluted EPSFY2025$4.70–$5.10 $5.00–$5.30 Raised range by $0.30 at both ends
Equity in earnings (JV) assumptionFY2025~$15–$18M ~$15–$18M Maintained
CapexFY2025$100–$120M $100–$120M Maintained
Debt reduction expectationFY2025At least $100M (raised from $60–$90M in Q1) Exceed $100M Raised/confirmed higher target

Earnings Call Themes & Trends

TopicQ1 FY2025 (Jul)Q2 FY2025 (Oct)Q3 FY2025 (Jan)Trend
Infrastructure/data centers tailwindsEmphasized secular tailwinds (non-building construction, renewables, T&D, reshoring) Continued infrastructure strength, debt reduction plan; margin expansion Volume-driven growth; bridges/highways/data centers; bullish multi-year infrastructure outlook Increasing confidence, multi-year tailwinds
Zinc costs/productivityEBITDA margin strength, zinc productivity improvement Improved zinc utilization supports MC margins Lower zinc costs and improved utilization sustained margins Sustained margin tailwind
Tariffs/steel availabilityNot highlightedMentioned term loan repricing; macro monitored Tariffs/steel availability causing project timing “choppiness” into Q4 Macro uncertainty impacting timing, not demand
Washington, MO plant (aluminum coating)On budget/schedule; significant capex Spend continuing; repricing supports balance sheet Certifications/testing underway; ramp in Q1 FY2026, full run-rate back half FY2026 On track; contribution ramps in FY2026
Capital structure/deleveragingSecondary offering; redeem Series A preferred Repriced Term Loan B; leverage ~2.7x Leverage 2.6x; expect >$100M debt paydown FY25 Deleveraging progressing
AVAIL JV equity income/backlogEquity income noted Seasonality; equity income present Q3 equity income $7.2M; strong electrical backlog; possible transaction in 12–15 months Stable; optionality discussed
Competition/market shareNot highlightedMargin expansion; share gains implied Market share gains; paint lines added by mills; capacity aligns with tariffs dynamics Competitive positioning solid

Management Commentary

  • “Third quarter results exceeded expectations… Adjusted EPS of $1.39… Consolidated Adjusted EBITDA… driven by higher volume… Metal Coatings benefited from lower zinc costs and improved zinc utilization” — Tom Ferguson, CEO .
  • “Our fiscal year-to-date cash from operations of $185.6 million allowed us to reduce debt by $80.0 million… net leverage ratio to 2.6x… Capital expenditures for the third quarter totaled $26.4 million” — Tom Ferguson .
  • “Gross profit was $97.8 million or 24.2% of sales… Operating income improved to $58.5 million or 14.5% of sales… Interest expense… decreased due to debt paydown and lower rates” — Jason Crawford, CFO .
  • “We narrowed our sales range to $1.55B–$1.60B… narrowed and raised our midpoint for EBITDA and EPS… Adjusted EBITDA $340M–$360M; Adjusted EPS $5.00–$5.30” — Tom Ferguson .
  • “We expect to ramp up the new [Washington, MO] facility during the first quarter [beginning March 2025]… slow ramp in first half of [FY2026] and full production in the back half” — Tom Ferguson .

Q&A Highlights

  • Demand and growth drivers: Broad-based end-market strength (construction, industrial, utilities/T&D); AZZ grew faster than markets via service and conversion wins; project timing choppiness noted (tariffs, steel availability) .
  • Sequential acceleration vs Q2 and one-offs: Minimal Q3 one-offs; hurricane impact modest overall; performance driven by “blocking and tackling” and customer service .
  • FY2026 outlook: Expect acquisitions to resume as leverage trends toward ~2x; interest savings annualized; capex normalizing post-Washington build; Washington plant ramp weighted to back half FY2026 .
  • Metal Coatings margin sustainability: Considering resetting margin guardrails given zinc productivity and digital galvanizing practices; view as sustainable across majority of sites .
  • AVAIL JV: Electrical backlog strong; seasonality exists; management sees potential transaction optionality in 12–15 months .
  • Macro sensitivities: Interest rates have minor timing effects; tariffs/steel costs availability more impactful to project timing; LNG permitting could be a positive for galvanizing in Southeast/Texas corridor .

Estimates Context

  • S&P Global/Capital IQ consensus estimates were unavailable due to an API rate limit; therefore, explicit “vs. estimates” comparisons cannot be shown for Q3 FY2025 at this time (SPGI request limit exceeded) [GetEstimates error].
  • Analyst tone on the call referenced a “Q3 beat,” but no quantitative consensus figures were disclosed in company materials; without SPGI data, formal beat/miss calculation is not included .

Key Takeaways for Investors

  • Sustained margin profile: Metal Coatings at ~31.5% and Precoat near ~19% demonstrate durable process improvements (zinc productivity, mix) supporting earnings quality through seasonality .
  • Cash generation and deleveraging: $185.6M YTD operating cash, leverage down to 2.6x, and Term Loan B repricing to SOFR+2.50% reduce interest burden and enhance equity value; FY debt reduction expected to exceed $100M .
  • Guidance confidence: Raised EPS/EBITDA ranges at midpoints into seasonally softer Q4 signals operational resilience; watch for FY2026 guidance near-term .
  • Project timing watchlist: Tariff/steel availability may push revenue recognition across quarters, but management expects profitability less impacted due to flexible variable costs .
  • Washington, MO facility optionality: Ramp in FY2026 with anchor customer; potential incremental capacity via St. Louis optimization; secular tailwind from plastic-to-aluminum conversion in beverages .
  • AVAIL JV optionality: Strong electrical backlog and possible transaction considerations create strategic flexibility and capital recycling potential .
  • M&A re-engagement: As leverage approaches ~2x, bolt-on deals in galvanizing and selective Precoat opportunities may resume, reinforcing share gains and margin playbook .

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