Following the presentation, there will be time for Q&A. Please utilize the Q&A icon to submit questions and I will present them to management. That said, Dave, thanks for being with us today. The floor is yours.
All right. Thank you, John, and thank you everyone for joining us today. Looking forward to reviewing our presentation with you. Kicking things off, for those of you that are not familiar with AZZ, as John mentioned, we are a metal coatings provider. We are the nation's largest independent provider of both hot-dip galvanizing post-fabrication, as well as coil coating, in North America. As you look at the business and when we unpack it during today's presentation, you will see that we have got a number one market share in both positions, and a really remarkable run, 39 consecutive years of profitability. If you look at the last fiscal year, $1.65 billion in sales and $4.6 billion market cap is all records for us. We are looking to continue to build on that momentum going forward. I will jump right in. Of course, typical disclaimer statement.
Moving past that, really want to kick off in why own AZZ and what makes us different. Really comes down to five structural reasons. Number one is the unrivaled footprint. We do have over 47 metal coatings locations in North America and 14 coil coating plants. Out of those 47, 43 are hot-dip galvanizing plants that I will refer to quite a bit during today's presentation. That unrivaled footprint really sets us up well because we have got about a two times size advantage over our nearest competitors.
When you think about growth, we have signaled to the market that you can look for two times GDP or higher from us. We are seeing growth rates that are double-digit growth rates in the business, driven by a strong end market demand as well as also the addition of the Washington, Missouri plant, which has been ramping, and is in production.
You will look at the margin profile of the business, 22.3% adjusted EBITDA margins, 31%, very consistent on the metal coating side, and 21%-22% margins on the Precoat Metals side. Really very durable businesses as we unpack the presentation today. The balance sheet has never been in better shape. We are sitting at 1.4x debt-to-EBITDA leverage at the end of our Q1. That quarter ended in May 31st, and we will be providing an update here in October on our Q2 results very shortly. Last but not least, we are a toll coater. If you are not familiar with that, what that means is that we do not own the metal that we are coating. Our customers own that metal, and then they bring it to us and we simply either galvanize it or we are roll coating steel or aluminum on the Precoat Metals side.
So don't have to worry about metal pricing. That completely insulates us from all the fluctuate.
Dave might seem to have frozen on us. Dave? Let's see what we can do about that. Everybody hold on, I'm going to reach out to management, see if they can reboot or something. Sorry, everybody. I'm still working on getting AZZ back online. Please bear with me. Let's see what else I can do. Sandy, can you reach out to Dave?
Yeah, that's what I'm doing right now as well.
Thank you. I appreciate you. Again, I apologize everybody. Well, looks like No, Eric.
Hey, John.
Hey, Eric. The feed from my company froze and now he's gone. We're working on trying to get him back.
Can you have them send you the presentation?
No, he was utilizing the presentation from his location.
I meant if he could send it to you, and then you could share it while he speaks, just so it's.
No, he froze. The whole thing froze.
Yeah, he's trying to log back in. He's definitely coming back in, so it's not a problem. He didn't understand what happened, but now he knows he's froze up.
All right, everybody. Again, I apologize. David, we got you back. We got a visual. Audio, no.
Yeah, you're on mute, Dave. If you can unmute, let's test it.
All right. How's that?
We got audio.
Great. How about video?
We've got video. We don't have presentation.
Okay. Hold on. Share. Okay. How about that?
Yep.
Okay.
Good, Dave.
We last saw you on slide seven. No. No, I take that back. It was the slide two. Slide three is the last we saw you.
Yep. I think right here.
Okay.
All right. We are back online. Sorry for the technology challenge there this morning. I will continue on. I was starting here just giving a quick overview of the size of the company. I am going to move forward, since we lost a few minutes on the technology challenge. Looking at the two segments in the business, again, a Metal Coatings segment, which is our hot-dip galvanizing business, and then, of course, the Precoat Metals business. The results that you see here are the results for the fiscal year, again, ended February of this year. You can see the results, very strong performance in our Metal Coatings business, up 14%, year-over-year, on a trailing 12, again, end in February. Precoat Metals, different story, was down 2.3%, year-over-year.
However, I think, as you look at the first quarter results, the business has improved and is up 1.5% in the first quarter. Again, as I mentioned, we are looking forward to giving everyone update on the Q2 progress of the collective business here in October. Looking at the quick footprint of the business, as you look at both Metal Coatings and Precoat Metals, we are North American focused, as I mentioned, very strong footprint, throughout U.S. and Canada. We do not have any operations outside of North America. Again, it leaves us as a very good industrial and infrastructure play if you are looking for something that is purely in North America. Again, I have got the locations on here, but also the share of both businesses, a 27% share, approximate basis for Metal Coatings, and 23% for Precoat Metals.
When you look at the end markets on slide seven, we are pretty diverse. Our largest end market is the construction end market. It consists of commercial, residential, and agriculture. We also roll up data centers underneath construction. We often get the question asked about how big data center business is for us. On a consolidated basis, data centers represent about 4% of our end market sales today. So not a big exposure to it. As you can see, we are very diversified. Infrastructure, which is 13%, is going to be bridge, highway, and electrical infrastructure. A lot of good projects there and a lot of end market secular tailwinds associated with infrastructure that I think are going to continue for a number of years.
And then again, you can see the rest of those markets, industrial, transportation, HVAC, and appliance, and container kind of represent the balance of the end markets. As you look at the business, well-positioned for growth. Again, I have already talked about the total sales and adjusted EBITDA for the fiscal year ended in February. We had a record EPS of $6.19, and a very strong operating cash flow, which included about $273 million from the AVAIL JV. As you look at it, going forward, and again, this just represents on the bottom the midpoint of the current guidance, but the midpoint of the guidance would suggest $1.825 billion in sales and $395 million. Adjusted EBITDA, and I will go over the overall guidance for the year later on in my presentation.
But what you see is a very good quality of earnings with net income and gross margin both being up, and an adjusted EBITDA over at Metal Coatings of greater than $235 million at 31%. So very, very strong performance. As you look at AZZ, we have really been compounding over time. As you look at the trend line here on slide number nine, you see a very aggressive pay-down that has moved leverage from 3.6 x debt to EBITDA back in 2022 fiscal year down to 1.4 x today. That has unlocked a lot of value that we have been able to reinvest back in the business as well as return to shareholders through increased dividends, and also reduction in the number of shares outstanding by buying in some shares to offset dilution.
So, we are really pleased with the business and the fact that we have been able to transform the business and then subsequently pay down that debt on the transformation because it has, as I mentioned, unlocked a lot of value and gives us a tremendous amount of optionality where we do not have to make trade-offs on the capital stack.
We can actually go do acquisitions as well as pay down debt, increase the dividend, and reduce the share count all simultaneously. When you look at the leadership team, we have been led by a number of years, it has been 14 years now that Tom Ferguson has been here as the CEO and really leading the strategic change in the business. Jason Crawford has about 16 years of experience collectively in the business, and about 14 of those years have been over at Precoat, and the balance has been since the acquisition of Precoat.
He is our CFO. Todd and Jeff are both COOs over the, or President, I should say, Metal Coatings and COO over Precoat Metals for the two segments. Then you can see the rest of the staff down below. But very disciplined, long-tenured staff, and again, performing very well when you look at us versus our peer set. Couple of things I will point out too, just when you look at investments. We have got a business where we can invest in technology, and we have been doing that across the platform, whether it is DGS on our metal coating side, CoilZone on Precoat, and then of course, making sure the business is future-ready with IT infrastructure and AI as well. Talking about demand drivers, there are several for us. On slide 12, I have listed those out here.
Of course, generational infrastructure projects, whether it has been structurally deficient bridges or load demand generation on the electrical side, or just the need to make the grid more resilient and interconnected. All of those types of things are driving a generational infrastructure expansion, along with the IIJA spend that has been happening for the number of years as well. Data center build-out is yet another one. Certainly, a lot of those projects still moving forward, still in the pipeline, and we have been, again, fortunate to galvanize a lot of steel for those, as well as provide some pre-painted steel. Reshoring of manufacturing has certainly been also another demand driver that continues to propel the business forward as manufacturers are looking to onshore more production here in the States. Then also a shift from plastics to aluminum in the container space.
We have seen a reluctance of the end consumer to have microplastics in the beverage space. As a result, manufacturers are making a shift. We are benefiting from that because we coat the tops and the tabs of a lot of aluminum cans that are used in the beverage market. Speaking of the beverage market, at Precoat, we have the Washington, Missouri plant that was a $125 million investment that we have completed. This plant is now online and operational, protected by a long-term take-or-pay contract with a customer for 75% of the capacity. That equates to about 45,000 - 50,000 tons per year and is going to be accretive to earnings in FY 2027, which we are in as we speak. I mentioned the balance sheet a little bit earlier. Again, a very strong discipline balance sheet.
When you look at AZZ, high ROIC organic growth, a very disciplined focus on M&A. We have consistently grown the dividend over the past couple of years, including a 20% increase in the dividend most recently. Then share repurchases, we did about $20 million last year to offset dilution. We have a $130 million authorization remaining as of the Q1 results and are looking to put that to use to repurchase shares, both to offset dilution and then also opportunistically. I want to close things out with a look at the guidance for the fiscal year and both sales, adjusted EBITDA, and adjusted diluted EPS.
We recently raised guidance after our Q1 results from $1.725 billion - $1.775 billion, up to $1.8 billion - $1.85 billion, and adjusted EBITDA from $360 million- $400 million up to $375 million - $415 million, and finally, adjusted diluted EPS from $6.50 - $7 to now $6.75 - $7.15. Again, all as reported on our Q1 earnings call. You can see some of the assumptions that go into the guidance there around both Washington, which we talked about, CapEx being about $80 million - $100 million, and some of the other assumptions associated with the guidance. I think as you evaluate AZZ as an investment choice, one of the things that you will see is that there is definitely been a re-rating that has been underway, and there is significant runway that remains. If you look at the EV to EBITDA multiple, it is around 11x right now.
Some of our peers are trading there and certainly higher. Consensus rating has been a buy. The consensus price target is $164. It certainly has pulled back a little bit, just based upon more macro noise, really nothing structurally with the business. Again, a very strong trajectory on adjusted diluted EPS. Last but not least, just talking about some key risks. You can see them here. I think what I would leave you is that, regardless of the risk, we have done a very good job of mitigating those risks, whether it's softness in the residential market that's being offset by the growth at Precoat on the aluminum side or input costs. Our toll model certainly allows us to pass through those costs and limits our commodity exposure. Then again, anything associated with tariffs or substrate availability, we, as I mentioned, do not purchase steel or aluminum.
Our customers do, and our customers really rely on AZZ to be able to turn their steel and aluminum very quickly, and that makes us a really supplier of choice for our customers. With that, again, just sort of summarizing the case for AZZ on this slide, and I'll turn it back over to John for if we've got any questions remaining in our brief time.
All right, Dave. If you have a question, please put it in the Q&A section and I will present it to management. Dave, I'd like to kick it off with your most recent acquisition of Seattle Galvanizing in the metal coatings side. That's your first presence in the Pacific Northwest. Can you talk a little bit about the competitive landscape in the region? Are you planning further bolt-on acquisitions to build out a cluster there? Maybe some thoughts around that acquisition.
Yeah, sure. Sure thing, John. So yeah, we're very pleased with the acquisition of the Seattle Galvanizing, which was back in July. To your point, really establishes us as having a footprint up in the Northwest, where that was a market that we typically did not serve. Historically, up until that point, our furthest West markets were Reno, where we have a galvanizing plant, and looking at Arizona, and then also Denver. So this really establishes us well in the Northwest. The plant that we acquired, Seattle Galvanizing, had the largest galvanizing capacity up in the Northwest. So I think that sets us up really well to serve those customers and expand our footprint.
As we look at where we go from there, I think that there has always been, and we've talked about opportunities to continue to fill in white space around the U.S., whether that continues to be out west in some pockets or along the other markets in the Midwest or East. Opportunistically, we'll continue to look at those areas and are hopeful that we can get more deals done this year and then certainly going forward.
Got it. Couple questions from the audience surrounding the Washington, Missouri facility. Maybe we can do a little bit of deeper dive, talk about some of the economics, capacity utilization, maybe the need to expand the facility. Maybe just give a little bit more color about why you went there, where you stand, and what maybe the future looks like.
Sure. Yep. When you look at the Washington, Missouri facility, we have an anchor customer, and that's really what was the big driving force of putting that plant in where it is. That anchor customer agreed to a take-or-pay contract for 75% of the committed or planned capacity at that facility. And that take-or-pay contract is for seven years and has escalators associated with it. So that really was the underpinning for that and drove the decision to build that plant where it was. The other 25% capacity certainly has a lot of optionality associated with it. We have been working with a few different customers to run some trials. But also the existing take-or-pay contract customer also has the ability to ramp and take 100% of that capacity. So we like where we stand today.
I think we've got optionality to fill in the remaining capacity for that plant. And at this point, no plans to increase its capacity or size or build another one. But we're very happy with where we sit today with Washington.
Got it. Question from the audience about the metal coatings growth. How much comes from data center and electrification projects? I do not know how you are going to quantify that exactly, but would a slowdown in the hyperscalers' CapEx spending, how would that impact AZZ?
Yeah. No, good question. I think we will have more color on that when we get to our October call. I will be a little careful on talking about the growth rates and breaking things out too much in detail. But what I would say is, again, on an aggregate basis data centers are about 4% of the business. We have seen growth come from a lot of other areas and end markets for our Metal Coatings segment. That is the beauty part of that business is that if one segment of the market is down, another one tends to be up. We saw that through COVID, we saw that through the recession in 2018, the financial crisis. That business grows through cycles and very, very resilient.
I think when you look at some of the other end markets, not only has data centers been performing well, but electrical utility infrastructure overall, which is driven by base load growth and demand, as well as the need for interconnectivity. Grids like ERCOT down here in Texas are making interconnections with other grids, even though they have been a standalone for a number of years. That is driving growth in transmission and distribution spending. I think that that is a setup regardless of data centers and just in terms of overall load growth as well as grid resiliency and grid redundancy.
Question from the audience about M&A. With net leverage of 1.4 x, what is the ideal acquisition look like, and what makes you walk away from the deal? I am going to add to that, any thoughts about acquisitions overseas?
Yeah. I'll take them in reverse order. Overseas acquisitions has been something that we have typically shied away from just because of our focus in North America, and there's been ample opportunities to invest in the business here in North America, as opposed to adding the complexity of going overseas. That's been the focus to date. I think going to the other portion of the question, as you look at what are we looking at ideally, we look at both segments. Anything that we can bolt on to both segments certainly goes past our first screen as being attractive, and then we dig in a little bit deeper on whether it's geographic or if it's certain end markets or there are certain capabilities that those businesses bring in to the fold. We look at both of those.
Certainly are going to look at the ROIC on those investments and make sure that it's meeting our hurdles on ROIC. Finally, I would say to the other part of the question, is there something that we would steer away from? Generally, it usually comes down to environmental issues, and we don't want to take on a lot of large environmental issues associated with sites if we've uncover those during due diligence.
We have two minutes left or so. Let's get this quick question in. Since the beginning of the year, there's been a switch in some of the commodity prices that you don't have control of. Zinc prices have gone up, aluminum prices have come down.
Yeah.
Interest rates have gone up. Collectively, have they had any positive and negative swing impact as far as customer demand?
Yeah. Really, I would say no change to customer demand on a high level. As you look at zinc prices, for instance, we have seen a gradual escalation in zinc prices for the past couple of years. That is very manageable for AZZ. We do not hedge, but we do have some buying power in the marketplace, given our size and scale. We put that to good use. Then again, zinc for us, we are buying it six months prior and using that today. So we know what the cost of zinc is running through our kettles. We use a FIFO accounting method, so we can plan for that as we look at pricing and make any changes on pricing to flow through any input commodity cost increases.
And the other part of that equation as far as aluminum and.
Yeah. For aluminum, again, we are not buying the aluminum that we are coating. Our customers are. I think that with aluminum pricing went up, now it is kind of coming back down, that certainly gives them some relief, and if anything, it might turn into some increased volumes for us down the road.
Good to hear. All right. Looks like we are out of time. David, I appreciate you taking the questions. If anybody wants to reach out to me, I can put you in touch with management. But thank you for presenting today at Sidoti have a great day.
All right. Thank you, John. Thanks, everyone.