Q1 2021 AZZ Inc Earnings Call
Welcome to seize <unk> first quarter fiscal year 2021 financial results conference call.
Participants will be in listen only.
But you need assistance, please technological specialist.
Dark equally by Sarah.
After todays presentation, there will be an opportunity to ask question.
It's not supposed to be.
I'd now like to turn the conference over to Joe Dorame. Please go ahead.
Thanks, Sarah good morning, and thanks for joining us today to review the financial results of AIDS easy Inc. for the first quarter fiscal year 2021, and it may 1st 2020.
Joining the call today are taught Ferguson, Chief Executive Officer, and Philip <unk> interim Chief Financial Officer.
At the conclusion of today's prepared remarks, well open the call for question and answer session.
Please note there was a slide presentation for today's call, which can be found on easy These investor relations page under financial information at Www Dot easy Dot com.
Before we begin with prepared remarks, I'd like to remind everyone. Certain statements made by the management team of A's easy. During this conference call constitute forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, except for the statements of historical fact this conference call. It may contain forward looking statements.
That involve risks and uncertainties, some which are detailed from time to time in documents filed by easy with the Securities and Exchange Commission, including the annual report on form 10-K for the fiscal year ended February 29 2020.
Those risks and uncertainties include but are not limited to changes in customer demand and were spots of products and services offered by the company, including demand by the power generation markets electrical transmission and distribution markets, the industrial markets and the metal coatings markets prices, a raw material costs, including thinking.
That's where gas which are used in the hot dip galvanizing process changes in political stability, an economic conditions are the various markets that easy serves foreign and domestic customer requested delays a shipments acquisition opportunities currency exchange rates adequate financing and availability of experience.
Its management and employees to implement the company's growth strategies. In addition, easy these customers and its operations could potentially be adversely impacted by the ongoing covert 19 pandemic.
The company can give no assurance that such forward looking statements will prove to be correct. These statements are based on information as of the date hereof and easy assumes no obligation to update any forward looking statements, whether as result of new information future events or otherwise with that let me turn the call over to Tom Ferguson, Chief Executive Officer.
After of A's easy Tom.
Thanks, Joe.
Welcome to our first quarter.
Fiscal 2021 earnings call. Thank you for joining us this morning.
Let me first start by saying that covered 19 is still very much front and center for all of us.
And was the single largest a bit affecting our Q1 results.
Our top priorities at age easy continued to be ensuring employee health and safety, while supporting our customers. During these unprecedented times as an essential infrastructure manufacturing company all of our facilities were allowed to remain open ended so.
I'm extremely proud of the way our folks manage through this crisis during our first quarter. It took care of each other and our customers during this pandemic.
We're truly grateful for everyone's efforts that allowed us to continue safe operation of all of our plants worldwide.
For the first quarter fiscal 2021 total revenues can track to 26.2% versus the same quarter prior year totaling 213 million with metal coatings revenue declining slightly 2.6% to 119 million in energy revenue declining four.
The 3.5% to 94 million.
Well get into the details behind each segment's performance as we go along.
We entered Q1 back in March with Great enthusiasm.
Just as the pandemic was beginning to reach our shores here in the U.S.
Hi April when we announced record sales and strong adjusted earnings for fiscal 22020, we made the decision to suspend fiscal 2021 guidance and cited the uncertainty coven was created on both segments metal coatings and energy.
In particular, we pointed out uncertainty in the spring refining turnaround season business disruption associated with our high voltage bus orders in China.
Overall weaker demand as customers implemented capital spending and social distancing guidelines.
Normally a strong quarter for us our first quarter ended up being as or perhaps even more challenging than we had imagined.
Refiner shut down production delayed both capex and maintenance spend and essentially took a pass on the spring turnaround season.
International travel was restricted and businesses significantly slash capital spending as a result, our revenue declined 26% in the quarter well net income slid to 5.5 million or 21 cents per diluted share.
I wouldn't normally call it 2.6% reduction in or middle Toadies business, a bright spot. However.
With the backdrop of this challenging market I'd say, we perform much better than many probably expected.
Sales totaling 119 million for the quarter as compared to 122 million the same quarter a year ago. Our galvanizing team in particular was able to benefit from lower zinc cost, while maintaining an above average industry pricing by offering outstanding quality and outstanding customer service, while overall margins in the second.
<unk> declined 300 basis points to 21.1% galvanizing actually finished above but 23% pretty close to where they finished last year.
The overall decline or metal Terry's margins was due primarily to lost operational efficiencies within our surface technologies plants as some had to shut down due to a temporary loss of volume from customers. We remain committed to our strategic growth plan for the surface technologies business and driving meaningful margin improvement post cobot 19 crisis.
And our also seen improving market conditions as most customers have now reopened.
Our energy segment first quarter fiscal 21 revenue decreased 43.5% to 94 million, resulting in an operating loss of 1 million as compared to 12.6 million.
Causative in the same quarter a year ago.
As I mentioned previously the decline in revenue was the result of a lack of spring refinery turnaround season delays in both shipments and service work, resulting from coven related international business restrictions.
And overall weaker demand for electrical products.
While our industrial platform shops were opened and working very few crews were deployed during the normally busy spring season in some cases, we had to get our crews home from international projects in countries that went on locked down after crews had already been deployed which caused additional expense and disruption.
[noise] due to the prolonged uncertainty associated with the recent Kobin 19 pandemic on many of our end markets. We cannot actually provide an update at this time to our previously suspended fiscal 21 earnings guidance range of $2, a 65 cents to $3.15.
Sales get has ranged from 970 million to 1.060 billion.
Neither the duration or death of this disruption can be accurately estimated at this time.
We have adjusted capital spending plans operating plans and head count and have taken other mitigating actions in response to the crisis, our low debt level combined with our consistent ability to generate cash gives us confidence that we can manage both debt and liquidity satisfactorily throughout fiscal year 21 and beyond.
We hope to be able to reestablish our financial guidance as we get to the back half of this fiscal year in the interim we will work to provide as much context or outlook as possible.
So in that regard the summer isn't normally slow season for our industrial platform.
And shipments remains lower than normal for electrical as many customers about return to normal operations yet.
Our metal coatings business is operating at a fairly normal level, although there are restrictions and some of the states. We operate in we're also experiencing additional expenses, we work to keep our facilities clean and safe store employees remain healthy and productive.
We're confident that our businesses remain vital to improving in sustaining infrastructure. So we will use this time of global pandemic to position, our core businesses to emerge stronger and better equipped to provide sustainable profitability long into the future with that said I'll turn it over to Phil.
Thanks, Tom.
I'd like to begin by also thinking our employees for supporting the business as we remain fully operational throughout the first quarter and initial peak period of the cold and 19 pandemic.
I'll start by discussing the first quarter fiscal year 2021 financial results and then we'll provide an update on our liquidity given the importance of maintaining a strong balance sheet in this environment.
For the first quarter of fiscal year, 2021 reported revenues of 213.3 million or 26.2% below the prior year first quarter revenues of two to 289.1 million.
We believe the decrease was attributable to the multifaceted impact of code to 19.
Got it had on our business our customers on our suppliers.
Net income for the first quarter fiscal 2021 was 5.5 million a decrease of 15.8 billion EUR, 74.2% below prior years comparable first quarter.
Reported diluted earnings per share of 21 cents was 60 cents lower than 81 cents achieved in a strong prior year first quarter.
Q1 fiscal 2021 gross margin was 19.8% 310 basis points lower than the 22.9% and the first quarter of 2020.
Q1 fiscal 2021 operating income of 14.3 million was 16.7 or 53.8% lower than the prior year first quarter, our operating margin for the first quarter was 6.7%.
400 basis points lower than the 10.7% in the prior first quarter.
On reduced pre tax earnings income tax expense of 4.7 million was 1 million lower than the 5.7 million recognized in the first quarter of the comparable prior.
However, our effective tax rate for the quarter increased to 45.8% compared to 21.1% in the prior year first quarter. The increase in our effective tax rate associated with the establishment of reserves for uncertain tax positions related to research and development tax credits as well as incurring operating losses in foreign jurisdictions.
And once we were not able to recognize the benefit for us tax purposes at this time.
I'll now turn to the results of operations within our mellow coatings and energy segments and our melting segment comprised primarily of our galvanizing solutions surface technologies and Galvabar businesses. We generated first quarter 2021 reported revenues of 119 million, which were 3.2 million below the 120.
2.2 million and revenues recorded for the first quarter last year.
Metal cutting segment operating income of 25.1 million was 4.3 million or 14.7% lower than the 29.4 million achieved in the same quarter last year.
Segment operating margins were 21.1% down 300 basis points as compared to 24.1% in prior year first quarter.
The galvanizing solutions gross margins exceeded 23% the overall reduction in operating margins. In this segment was due to lower productivity and higher cash remaining open during the pandemic and the surface technologies business, which is more significantly affected by temporary closures or significant slowdowns due to the pandemic.
Partially offsetting these higher costs was a favorable impact of lower zinc cost flowing through our cattle and the galvanizing solutions business.
In our energy segment.
Pardon revenues of 94.3 million were 72.7 or 43.5% lower when compared to the 167 million generated in the prior for score.
As Tom mentioned, our industrial solutions platform was impacted significantly as domestic and international customers shut in operations and several countries restricted travel.
Energy electrical group was impacted by lower incoming bookings and worked down backlogs wall customers adapted to the time dynamic.
As a result of the unprecedented market conditions, the energy segment incurred an operating loss for the first quarter 1 million.
Compared with operating income of 12.6 million in the prior first quarter.
Energy segment gross profit of 12.6 million was 20 million below the prior year first quarter.
Gross margin was 13.3% compared with 19.5% in the prior year.
As a result of the coven related disruption in the segment segment operating margins in the first quarter were negative 1.1% compared to 7.5% in the same quarter last year and was mostly attributable to the loss of the spring turnarounds within our industrial solutions platform.
This is a cyclical business, where they typically strong first quarter that carries into Julianna Beecher and then again peaks in our third quarter.
I'll now turn to our balance sheet and liquidity discussion the company typically experiences negative cash flows during the first quarter. This year was no different.
However, net cash used in operating activities during the first quarter improved 6.7 million from a use of cash in the current quarter of 11.2 million.
Compared with our use of cash of 17.9 million in the prior period.
Capital spending in the first quarter was 10.8 million compared to 4.7 million last year.
The company continues to fund growth initiatives ongoing safety and maintenance related capital spend.
Our net debt position at the end of the first quarter was 219 million 78 million or 20%, 26% lower than the 297 million at the end of the prior year first quarter as we continue to generate strong cash flows from operations in light of Cobot 19, we assessed our liquidity position and whatnot.
All inclusive we've taken the following actions.
We did not drawn down on our revolver to place cash on our balance sheet.
We did temporarily suspend payments on our revolver, we elected to accumulate cash in the quarter, which we are now utilizing to repay borrowings.
We did not repurchase shares in the quarter. However, we intend to again evaluate share purchases inquiry to under our current share repurchase program.
We continued to pay dividends to our shareholders and we remain diligence around the customer credit and collections.
As a result of our diligence we have been able to navigate through our traditional negative cash position in the first quarter and cobot 19, without any significant deterioration to our strong balance sheet.
Meanwhile, within all boundaries on our existing debt covenants and continue to reduce uncertainties within our balance sheet and evaluate our capital structure.
I'll now turn it back to Tom for his closing comments Tom.
Phil.
Just as I did on or previous earnings call I want to share with you. Some key indicators that we're paying particular attention too for the metal coating segment fabrication activity remained solid in Q2, but we are seeing some reports of steel shortages.
Within our galvanizing business, we are carefully tracking steel fabrication and construction activity zinc cost remain low and the cost of Lincoln or kettles continues to drop for surface technologies, we're primarily focused on getting back to normal production levels with both existing and new customers by the end of Q2 fiscal 21.
Within the energy segments industrial platform, we're seeing the fall turnaround season, beginning to fill in particularly in international markets.
We're carefully monitoring the cobot situation in the states with large refining capacities domestically.
Currently we are in the normal seasonally slow summer months and still have traveled research restrictions in some countries.
For the electrical group, we're carefully tracking proposal activity and expect bookings to increase in the second quarter and beyond.
Which should provide sufficient backlog for many of our business units in the back half of the year bitumen in lighting, which make up a small portion of our electrical group. We're looking for signs life in rig activity, but have already taken significant berlow actions.
Finally for corporate we have very good cash management processes and a further tightened our oversight on cash flow indicators and customer credit currently we're not seeing any slowdown in customer payments.
Most of it 19 crisis, we remain committed to our growth strategy around metal coatings in achieving 21, 23% operating margins, including a growing contribution from surface technologies. We believe galvanizing would tend to run to the high end if not above the 23% while surface technology should be able to consistently generate 15% to 20%.
We were initially operating surface technologies somewhat separate from galvanizing to ensure that new facilities could be incubated without distracting the galvanizing team.
They are now operating fully on Oracle, which allows full integration with the galvanizing plants fairly easy.
We believe the integration will now allow the outstanding Galvanizer resources to be brought to bear to increase sales penetration drive operational efficiencies and leverage the season business development resources that they have.
For energy, we will continue to focus on our core businesses and seek to divest things that are not core to our future strategic interests. Most of our energy energy business units are experiencing a relatively modest level of disruption due to the cobot crisis, and we're taking the opportunity to rightsize operations and align them with expected demand post crisis we.
I've run numerous models around downside and even severe downside scenarios and do not currently see anywhere whereby we do not maintain a reasonable level of liquidity throughout the year.
The diversity of our customer base and scale of our galvanizing operations are providing a very sustainable level of income and cash flow.
Our electrical businesses for the most part had fairly good backlogs to work with but customers are delayed deliveries to some extent.
While our industrial platform carries a certain amount of fixed cost the majority of their craft labor pool is variable.
And finally, our cash management disciplined credit line with first year banks low debt levels and ability to react quickly to the changing market dynamics positions us well during these uncertain times.
We will remain active in the area of M&A with activities that support our strategic growth initiatives, particularly in metal coatings, while pandemic.
While pandemic related deal travel was restricted in Q1, we do see improving conditions and have an active portfolio of opportunities to pursue with that we'll open it up for questions.
Thank you we will now begin the question answer session.
A question you make press Star then one on your touched on.
If you're using a speakerphone please pick up your hands.
No.
To withdraw your question. Please press Star then.
At this time will cause momentarily to assemble over there.
My first question will come from John Franzreb with Sidoti and company. Please go ahead.
Good morning, everybody.
Yes.
I'd like to start with the energy segment last quarter, you indicated that there would jobs that were being deferred into the second quarter and actually also wanted to a third I'm wondering if you give us an update on those jobs that were deferred from Q1 into Q2 are they still happening.
Also.
Our expectations that with those jobs being pushed to the right that energy revenues would be kind of flattish sequentially.
And if so have you taken of course, south to keep the business and the black.
Yeah, I get a couple of things there John one week, we did have on the industrial side.
There is only a few active projects going on right now because the continue.
Traveled corrections and a lot of various.
Places like India haven't really we're hoping to by the end of the summer they opened up there so.
Activity, there that we would hope to be able to deploy too.
So it has pushed to the right is kind of push into the end of.
Q2 and.
And as I've mentioned for Q3 for the for the fall season. It is starting to feel particularly internationally.
Basically with the rise in Koby cases were watching carefully to see what refineries decide to do for the fall.
So so we don't have any really good indication of which way that's going to go.
Best equate that but the good news on the international front on the electrical side. They they've had orders push it's in terms of deliveries because customers are deploying inspectors. They are.
Making customers aren't making decisions on final except the final deliveries things like that so that it continues to push so I think.
I haven't side I should have is maybe Filipinos but sequentially.
For energy I think we'll do a little better than Q1.
But versus prior year.
But probably a little lower.
Pardon.
Sorry.
And we have we're still looking at cost and we're still.
Realigning things, we've we've taken quite a bit of action, 10% to 15% on head count side is in the energy piece.
Walmart.
On the surface technology, mostly furloughs, while we wait for.
Some of the large customers to to reopen implants, and which is which is starting to happen. So.
So we feel fairly good it on the metal coating side, particularly surface technologies by the end of quarter thankful things have been fairly normalized again, that's that's the indication we're getting from customers that are starting to ramp their production back up.
It's a key is though.
And we will continue to look at the cost side, if we don't see the backlogs at free so we're committed to do that.
Okay Fair enough and you mentioned that kick the metal coatings is operating it I think it's a normal close to normal levels, what's driving that can you just provide some color and what's what's what's good and metal coatings.
You know its a.
I think on the.
Yeah, the galvanizing side.
It said diversity of locations and customer base, you know over 3000 customers that we deal with so so it's kind of a normal season, we've got areas that are better slow and other areas that are really really active and here's the good news the fabricators right now or.
Pretty busy and continuing on with projects I noted their biggest concern is access you know steady access to to steel supply.
On the solar side, we've seen really really good activity. There. That's a those projects are continuing and we've got a good good position there and then we've seen good activity in the in the transmission poll market. So.
[noise], where where it's fallen off is.
You know things that we though I mean, there a decent part of our business, but stadium construction and.
That kind of thing.
Walk walkway rails, and that's that's a little often and.
So it real mix bag, but overall, we feel pretty good. It then.
And the customers are saying as long as they can get steal their projects are going to continue.
Solar is going to continue.
So a highway bridge at least in most parts of the south as continuing so and you know that that's our concentration of galvanizing plants is sorta.
Somewhat to the east, but mostly in the Midwest upper Midwest over into the Rockies out to Nevada, and Arizona the down through the South Eastern Texas. So you know, we're we're just position pretty well, where most of those states, even though they're seeing like here in Texas a rise in cobot cases, the you still see.
Tons of wrote crews out there and.
Most cities in the states or repair and stuff and continuing on with projects, while they're still not tremendous activity a lot of cars on the road. So.
So those things that's why why were fairly.
Normal I guess you'd call it.
Tom just to follow up on that last telecom.
Based in New York City, No I don't have a good sense, what's going on down there.
Rising koby cases is there any discussion or thoughts about potential business disruptions or is it more likely that.
It seems like you when your customers got push on through this.
Yeah, I think we're seeing it we're going to push on through the one concern would be if.
If we see in the in what's normally the busy driving vacation summer months.
The refineries aren't seeing that demand.
For gasoline grow.
Do they pull their turnarounds that that's really our only concern the rest of it.
Businesses are our focus there moving forward constructions going on you see crews everywhere.
So we feel pretty good about that were in the states were located in so it's maybe kind of peculiar to us, but but it's it's our LOE is our geographic positioning for galvanizing that makes us feel fit.
Okay, guys I'll get back into queue. Thank you.
[music].
Our next question comes from Noel dealt with Stifel. Please go ahead.
Hi, good morning.
And well good morning.
So I just had a few questions on kind of more focus on medical coding.
No danger.
Got you noted that the pricing was pretty strong in the quarter. So.
But certainly it's a kind of parse out well you know what volume look like versus hi, just trying to get a sense.
That's how that trended and then secondly, just given the different margin profile galvanizing.
He if you could kind of hurt you.
You know, how the positive but through that.
Yeah, I think when you look at our volumes they were pretty good and price was off just slightly and that's partly just given the.
Continued low level of zinc cost and so we've adapted that a little bit in a few areas we have some.
Pricing agreements that are tied to the yell at me. So so that's where we had some price reduction.
You know we're talking.
I think 10 or 20 basis points. It just wasn't that much. So we feel like prices held very nicely and the majority of our business.
Volumes off just slightly you know.
Most of volume was often surface technologies, but but I've got to be careful there because we just acquired sort of those sites. So.
At the beginning of last year, but but even the sites that we already own that's where we did have a fairly significant reduction in business.
And that's mostly.
The kind of things that.
Aircraft interior parts that we patter code.
Truck and trailer components that we powder code.
Bed frames and things like that that those that's where things were off that's where the volume was off it. So it was more on the powder coating plating side.
We see that picking back up now and as those customers have gone back into production not at the same levels they were pretty coated.
Obviously with kind of the lower demand for.
Eric aircraft interior parts and stuff like that.
And truck and trailer was already off anyways and so.
So that that's where we've been off everywhere else is.
It's pretty normal demand on galvanizing and then on the surface technologies. It just represents a bigger piece of that business, but it's still.
5% of 5% to 7% of the overall metal coatings volume is surface technologies.
That helps.
No just kind of.
Medical meetings on the margin profile on margin coming a little bit more often.
Hi, Jonathan will drop off I mean heading into the second quarter given.
Over the coming through volume coming back a little bolt on occasion.
Yeah.
That's a great question, because I am I'm, so pleased with what the that team's done I wanted to get big has but.
Using the digital galvanizing system Dgs, we've gone to kind of touchless receiving in most of our plant. So we don't have to.
Be face to face contact with the drivers and delivery people and suppliers.
So that's it's interesting that made us more efficient because you don't have all that interaction going on.
But more importantly, we had.
Record zinc productivity through our kettles, which I attribute to the focus of our teams.
It's interesting is even though they're trying to operate very safely and maintained or distance as much as possible.
For coated reasons, it's made them very very it's made a safer.
Which is beneficial.
And it's also we've had access to in some cases better quality of labor, which has helped us whereas you know a few months ago, we were scrambling to hire anybody that.
There could sign an application quite frankly, so so the our labor is improving.
The quality of our labor is improving and and then Dgs is give it is that information set that allows us to react quicker to.
Kompas chemical composition and inside the kettles in a in the asset tanks and things like that so I think we can sustain these margins it's.
You know I, yeah, our focus will be on on maintaining price by providing outstanding service and which Dgs is helping us do our re rebuild salesforce that that we put in place a couple of years ago under this this management team.
Is doing a great job they can't get face to face with customers, but they are in constant contact and.
So I feel good about it I you know I would hope that as we get through the second quarter. We may may even be able to drive those efficiencies and productivity is even a little bit better as a as the cost of zinc keeps coming down in or kettles as well.
Okay, Great that's helpful.
Two questions first.
Your thoughts we've been talking about infrastructure stimulus.
Can focus with the election.
Could you just remind us where ill tell you up in most exposure to potential infrastructure, though.
Yeah, I think when you look at our plants.
In the upper Midwest so up in.
Yes.
And Indiana, Illinois.
[noise], Minnesota, Wisconsin, those those states, there's some good opportunities just the.
Bridge and highway, but but also almost throughout where we operate.
Bridget highways like here in Texas need a lot of work there they're getting attention.
But we've got ancient bridges out there in a lot of areas. So.
Any kind of held from an infrastructure build it focuses on.
On bridge Highway roads.
Not sure Eric airports would be great because they tend to use a lot of galvanized steel but.
Not sure that where that might play and.
And then in a lot of the water system stuff.
Not tremendous activity, there, but but somewhat.
So I'm thinking that well in transmission distribution lets say you know our grid is still needs a lot of work.
Particularly in and then the other place is.
You know getting Wi Fi and to a lot of these remote areas. So that the polls that go into that and is all good activity and that also helps our electrical side, because you get some datacenter work out of that as well so.
That's where we'd be looking for a bridge highway.
He Andy.
In terms of the grid and in terms of building out that Internet Wi Fi.
Network.
That's great that's very helpful. Thank you.
Okay, and if you'd like to ask your question. Please press Star then one on your touched on.
Our next question will come from the fourth to men with Walthausen <unk> Company. Please go ahead.
Hi, Thanks for taking my questions you talked a little bit about the turnaround activity equals calling up some of the accrues getting a [noise].
Booked internationally.
Can you just give a little bit more color in terms of what that means I know code that it's still a concern of everyone.
Did the refiners are projects become and.
A necessity in terms of them being done it gets a critical thing.
So that work can be done as a social.
Great.
Certain amount of protective equipment.
In place and.
A scheduled turnaround is in fact.
Hi, probability of becoming revenue or is it still open here in terms of.
You can get those crews on the ground and do the work.
Yes, I think a couple of things there one.
They do have the things we work on Coker drums reactor vessels, that's where are critical to serve as value add is really.
Where our technology comes into play in a big way.
These are huge investments for refiners and oil companies and so they are going to maintain them. They also can become safety hazards at a certain point.
So, they're definitely going going to maintain them and.
The question is and quite frankly, they a lot of them had been pushing their turnarounds on some of these components for awhile already so.
I think we're in a situation. It's only it's only a matter of are they going to pull them down.
In the fall or are they going to wait till this spring.
It's going to it in I think in most cases, it's one where the other.
There's one school of thought that says well why not pulling down demand low so they don't need the production so pulling down maintain on their good for you know threed eight years.
After that so why not do it on the other hand, it's like well.
But if your.
Margin constrained anyways, why not why not wait.
In.
Save the the maintenance costs. So you know those are the two schools of thought I think every year every.
Well companies, probably making those decisions around their particular set of conditions.
Internationally are only concern is where we do a lot of work is up in Canada down in India for instance over in Southeast Asia is just a question of whether.
They allow the travel it's.
The one difficulty is one on some of these sites, where they're not in highly populated areas. They have to have workouts and so.
Obviously with work camps, you you get concerned about the social distancing and the number of people in.
In a in effect to quantify that so.
[music].
Hi, It's just it's just tough were were a I wish we could could give you give more color on it we're seeing good quoting activity we're seeing.
You know lots of the the upfront work that usually goes on.
That would preclude.
A good fall but.
That's just kind of where we're at.
I think that's about as much color as I can give you were we should know usually these things if they're going to go in the fall we'll know by the end of July Middle of August.
When they start doing the engineering work and.
And getting us to it lot of these jobs takes two to four weeks to to do the prep work to get to the equipment ready and all that so.
So we anticipate within a rail it you know over the next four weeks or so we're going to have a much better idea how that falls second.
And to some extent does that give you more confidence if that does hurt them up with the.
Do you believe Oh, absolutely absolutely, we we already feel fairly good about the international piece of the fall for the fall. We're really just monitor in this the domestic piece, because that's where we have a lot of resources and assets to to get deployed.
I think just add something on their time to Tom spoke about our or careful around furloughs and risk. So we had had taken personnel actions.
To put some people on the sidelines, turning coded and we pull some of those employees back.
That's a quoting activities come up.
Okay. All right answer this question, but just so are clear on.
The metal coating piece it sounds like.
Zinc side really good towards the higher end of the margins.
Surface technology was not running some of the facility and the first quarter.
Activity is ramping up and now they're running.
Cost hauling should should we be thinking that margins are going to be even better sequentially in the second quarter.
That's a tough when to caucus you got a lot of moving pieces volume can move pretty easily honest and.
And even though we can take out.
We ended we can adjust our direct labor the the fixed costs are still there site.
If we stay pretty.
Sequentially flattish I'd, probably feel pretty good.
With.
Zinc cost continued to go down productivity continuing to improve but but probably can you know run into some price pressure. It's just.
You know, we got a lot of customers out there that we want to take great care up Mitch make sure we help them survive so.
So I'd anticipate a little more price pressure going going forward, but.
We will continue to drive productivity.
Right.
Our next question is a follow up from John from grab that.
Please go ahead.
Hey, John.
Just firstly on the tax rate can you talk a little bit about what we should expect in the in the current quarter into the balance of the or.
So the current Jorge saw in my remarks that the tax rate was significant.
Because of the reserves, we took further research and development tax credits.
You look at the whole year, we should be pretty close to our statutory rates 21%.
All federal and all 3% and Nash.
Let's take rate so somewhere in that 24% range is our best estimate at this point.
Okay.
All right and.
We think about.
The balance sheet.
Talk a little bit about what your thoughts ours as far as far as the revolver.
Continuing the dividend.
In capital spending for the balance of the or just some more balance sheet discussion.
Yes, let me take that backwards on capital spending.
Several large growth initiatives projects that we've been funding so we're going to be in the same neighborhood Oh.
As we have then maybe slightly higher this year capital in the low to mid Thirtys as far as capital spending.
When you look at our revolver, we continue to to pay down our debt we have our senior notes coming due in January.
Next year, and we said on loading life or right now so we're borrowing somewhere in the 1.4% to 1.6%.
Right on our revolving credit facility.
Our looking at that mix between fixed and variables. We as we look forward. So we're evaluating our capital structure right now.
And it's likely we'll it's likely we'll we'll replace the the bonds the come due in January with a fixed fees. So.
Okay, and the dividend and you feel that secure.
Yeah, we like paying the dividend if you cannot go through it we're funding our.
Our own its infrastructure to continue to improve our competitiveness.
Paying a dividend is very important to us.
Then we can pay downs of dead and and we are going to look at.
Reducing dilution by buying some stock based on offsetting our.
Art employee.
Stock programs.
So.
That's that's kind of our priorities, that's all I'm, saying okay.
Okay. Thank you very much.
Hi, Thanks.
Our next question as a follow up from Noel dealt with Stifel. Please go ahead.
Hi, Thanks, just a housekeeping question first I was curious how you're thinking about capex for the remainder of here as well as the tax rate.
Yeah, the Capex we.
We're going to run kind of mid 30 ish.
It's about 24 million normal maintenance and safety capital in about 10 to 12 million of growth capital on things that we'd invested in our committed to invest in coming into the year. So those were already underway when cobot hit we still feel good about those investments its uh huh.
Spinner plant in a in Houston, which is just great Hot dip were I mean, great galvanized workforce and then we had we have to move our facility to expand it which is good news over in Poland.
To how's our resources and and upgrade our technology, while we're doing it. So those two were growth projects that were already underway coming into the year.
And then we're we're expanding.
Kettle capacity and in a couple of plants that.
That have more opportunities than they've got capacity right now so so thats kind of how that's it.
Philip on the tax rate.
Tax rate.
[music].
I guess I just explained it's John but I think we're gonna.
Oh.
We're looking at full year.
Similar to your recent estimate at 23, 24%.
As we go through the rest of year all the impact we had this year this quarter, yeah from our tax items.
So of course, there right.
One one quarter adjustment catch up.
Great. Thank <unk>.
No problem.
Our next question comes from Sam Rebotsky with.
All right.
Yes.
Good morning, Tom.
Yeah, I been a shareholder of the hazy since it was as tech so.
Seen a lot going on.
Your backlog, which is reduced.
31.6.
It is do what about how much are you bidding poor out out there and it is the end the competition on the prices lower.
On the bids from your backlog currently.
Yes, a couple of good couple of good questions there.
Would bidding activity is pretty good what what what on the electrical side, which is where we would look to rebuild backlog.
And it's pretty good what we're not seeing as projects close because a lot of these engineering firms are still working remotely and some of these big projects My perception is they.
Eventually they got to get the team in a room to make.
Multi site.
Million dollar decision not just about by at our equipment, but about moving some of these projects forward. So quoting activity is good and.
Particularly on a year over year basis, we are not.
And part of what's coming down in the backlog is that China stuff that shipping and we'll continue to ship.
Which quite frankly is relatively low margin so.
We're hoping to read so actually on the pricing side, we're hoping to replace that work with higher margin backlog as some of these electrical jobs finally.
Book, We're we're not losing that that many were not kind of when it on normal share we just aren't seeing enough close.
Orders placed so.
But the activities there so feel pretty good about it.
So, but but the prices venture bidding are not lower than the other your competitors because you you can bid.
What are the <unk> to be profitable and you you're you're not matching any lower costs.
Okay Fair assumption.
It's it's somewhat fair.
You know we've got these several different business units and so on the oil patch side, we are absolutely trend to bid to to a lower market price because of the lower demand.
That's a relatively small piece of our business, but but it was relatively high margins. So so it has an effect.
On the electrical side, if you look at it closures and switch gear.
Generally the price levels are holding.
Partly because the underlying.
Raw material costs are have remain.
Pretty pretty stable so.
So generally I'd say, our prices, where we're bidding are holding up.
Reasonably well, we do adjust our price if.
You know on projects that are attractive to us and this is where I'm headed a little bit because.
Some of our business units, what we'll bid a little lower to get load.
If they look out in the fall and say, we just don't have enough demand, we don't have enough load to fill our capacity they will on a project base bases that fits their need.
They will drop drop the price to try to make sure they with that so.
So we're battling this out and about a dozen different business units. That's why when I talk about price has been fairly stable I'm talking about the aggregate.
But we got a dozen different battles going on everyday right now so.
So we do allow some flexibility to try to fill in gaps in there.
In their demand and and to ensure that they take some strategic projects with customers that.
We either what a break back into or that we've had long term.
Strong relationships with so.
So in the aggregate were good but.
But we're battling where we need to the with the price levels, we have to matched.
Okay now as far as the number of employees that compression time. We're in July had that has that increased from may 31st and where do we weeks and I guess, it's all dependent isn't dependent on coal would.
Kobe, <unk> or or or getting contracts. So could you sort of compare the number of employees that you have that that are not furloughed as of.
Today compared to the May 31 period.
I'm I'm not sure I I'll give you a gen sets because we were taken actions during Q1 and so I.
I'm just struggling to compare that number but we.
We probably 70% of the people were furloughed.
So so available will be called back in August.
As we see demand filled and projects fill in and we have been calling some of those back early.
Where you know where plants needed up and business as needed.
We maintained our core group on the industrial side, because that's engineers project managers quality people very seasoned folks and so.
We need them to be be involved in the quoting process to ensure that fall feels it.
So we're down.
Including furloughs were down about 10%.
But we had we would anticipate up to.
200 to 300 to those hopefully you know being called back in surface technologies electrical and.
And industrial.
As we see that the third quarter start to fill in with backlog in demand and hopefully earlier so.
Appreciate it Sam.
This concludes our question and answer session.
I would like to turn the conference back over to Mr., Tom sorry for any closing remarks.
Alright, Thank you everybody for joining us this morning.
We.
We will attempt to provide more color, perhaps on a more regular basis as we go forward between now and in the next earnings call as well as.
Talk more about.
Some of our strategic activity so.
So I'm I'm, hoping that you will hear from us whether press release or.
Setting up an interim call if we have the opportunity.
Before we talk to you at the end of the second quarter with that I appreciate your support and listening.
Have a good day.
Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.