Q4 2025 AZZ Inc Earnings Call
[inaudible]
Good day and welcome to the AZZ Inc. Q4 FY 2025 Earnings Conference Call and Webcast.
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Please note, this event is being recorded.
Speaker Change: I would now like to turn the conference over to Sandy Martin of three part advisors, please
Speaker Change: and many others. Thank you for joining us. I'm your host, Sandra Martin.
Speaker Change: Thank you, operator. Good morning. Thank you for joining us today to review AZZ's financial results for the fourth quarter and full fiscal year that in February 28th, 2025.
Speaker Change: Joining the call today are Tom Ferguson, President and Chief Executive Officer, Jason Crawford, Chief Financial Officer, and David Nark, Chief Marketing Communications and Investor Relations
Speaker Change: After today's prepared remarks, we will open the call for questions. Please note that the live webcast for today's call can be found at www.azz.com-investor-events
Speaker Change: Before we begin, I want to remind everyone that our discussion today will include forward-looking statements made under the safe harbor provisions of the Private Security's litigation reform act of 1995.
Speaker Change: By their nature, forward-looking statements are uncertain and outside the company's control, except for actual results, AZZ comments containing forward-looking statements may involve risks.
Speaker Change: and uncertainties, some of which are detailed from Tom to Tom, in documents filed by AZZ with the Securities and Exchange Commission, including the annual report on Form 10K for the fiscal year ended February .
Speaker Change: These statements are not guarantees of future performance. Therefore, undue reliance should not be placed upon them. Actual results could differ materially from these expectations.
In addition, today's call will discuss non-GAAP financial measures.
Speaker Change: non-GAAP financial measures should be considered supplemental to, not as a substitute for GAAP financial measures We refer investors to the reconciliation from gap to non-GAAP measures in today's earnings press release. I would now like to turn the call over to Tom Ferguson.
Tom Ferguson: Good morning and thank you for joining us. Today we will discuss AZZ Fiscal 2025 financial results and achievements as well as our outlook for Fiscal 2026. Then we will open it up to call for questions.
Tom Ferguson: I am pleased to report that our coding segments delivered record sales and profitability for fiscal 2025, due to a combination of business momentum and disciplined execution of our growth initiatives.
Tom Ferguson: Metal coatings generated fiscal year 2025 sales of $665 million while pre-coat metals generated $912 million. Strong sales for the full year were largely based on increased volume, as we processed higher tonnage in both fabricated steel and coal coating.
Tom Ferguson: For the full year, our top-line results were primarily driven by infrastructure investments to support community growth, urban expansion and economic development.
Tom Ferguson: More specifically, AZZ's record-breaking performance was driven by growth in bridge and highway construction, including new projects and renovation projects across the U.S. The continued expansion and transmission and distribution, including solar projects, and general construction, which, for AZZ, includes data centers.
Tom Ferguson: Jason will cover our fourth quarter financial results in a moment, but as a reminder, the fourth quarter is typically our weakest season due to the winter holidays and inclement whether the pamper's construction activity.
Tom Ferguson: During our fourth quarter, which ended February 28th, 2025, the construction activity was impacted by significantly more inclement weather days than in a typical year.
Tom Ferguson: Collectively, we experienced over 200 days of loss production in the fourth quarter due to adverse weather conditions David will provide more color on this shortly
Tom Ferguson: In fiscal 2025, metal code is delivered in EBITDA margin of 30.9%, primarily due to better operating leverage on expanding volumes and improving zinc productivity.
Tom Ferguson: As discussed previously, we believe our new margin range for AMC of 27 to 32% is sustainable.
Tom Ferguson: Preco Meadows EBITDA margin of 19.6% exceeded its prior year comparable, demonstrating strength based on increased volume, a more profitable business mix, and improved operational performance.
Tom Ferguson: Our strong EBITDA generated in fiscal 2025 converted to cash from operations of $250 million. This robust cash generation allowed us to pay down $110 million of debt and fund our new Greenfield facility near St. Louis, Missouri, which is currently wrapping up commercial production as we speak.
Tom Ferguson: This year, we plan to continue to pay down debt and strengthen the balance sheet while prioritizing other capital allocation strategies, including paying poorly cash dividends.
Tom Ferguson: We also plan to invest in AZZ's enterprise-wide technologies by enhancing DGS, which is our digital galvanizing system in our galvanizing plants, and co-zone in the co-ocoding facilities.
Tom Ferguson: These customer-centric technologies continue to elevate service levels and enhance our unique value proposition, as well as provide effective business intelligence reporting for better decision making, particularly in relation to improving operating productivity and efficiency. Thank you.
Tom Ferguson: AZZ Pipeline, a back position targets continues to grow and we are carefully evaluating M&A in markets throughout the United States. We focus on synergistic targets that present attractive risk-adjusted returns for enhancing long-term shareholder value.
Tom Ferguson: We're disciplined in our approach and decided an acquisition based on timing, target evaluation, and appropriate balance sheet leverage.
Tom Ferguson: After subtly focusing on debt reduction, we anticipate closing the single-side bolt on galvanizing
Tom Ferguson: AZZ continues to differentiate with industry leading market share positions in both segments.
Tom Ferguson: We believe our geographic footprint and scale across the US and Canada, as well as technical expertise, reputation for customer service excellence, and longstanding customer relationships, create a durable competitive mode for AZZ.
Tom Ferguson: Our 3-5-year strategy is anchored on organic market share growth, as well as inorganic acquisition growth that we are pursuing for both segments So let's go ahead and see what we can do.
Tom Ferguson: Under the Trump administration's current tariff mandates, we expect demand for coding solutions of both steel and aluminum, produced domestically, to accelerate.
Tom Ferguson: Additionally, in the fiscal of 2026, we will continue to benefit from our tolling model, which insulates us from commodity risks since we do not take ownership of steel or aluminum process through our facilities.
Tom Ferguson: Currently, our Zinc and Paint Supplies have not been impacted by the tariffs. With that, I will turn it over to Jason.
Jason Crawford: Thank you, Tom, and good morning. Starting with the summary of the full year, we reported sales of $1.578 billion and increase of 2.6% from the prior year.
Jason Crawford: By segment, Pre-Cock Metals sales increased 3.5% and metal coating sales increased 1.4% within which the galvanising segment increased 2.6%.
Jason Crawford: Gross margins for the year were 24.3% and increase of 70 basis points compared to a year ago.
Jason Crawford: Now, income before the preferred stock dividend in Redemption Premium in fiscal year 2025 was $128.8 million, an increase of 26.8% compared to the prior year.
Jason Crawford: This was another record year for the company in terms of sales and net income, which speaks to the strength of the businesses and progress made on our strategic initiatives during the fiscal year.
Jason Crawford: Turning to the fourth quarter results, sales for the quarter worth $351.9 million, down 4% from the same quarter on the fiscal year 2024. As Tom mentioned,
Permanently due to operational improvements.
Jason Crawford: Up 30 basis points from the prior year quarter. And the fourth quarter, selling, general and administrative expenses were 38.3 million dollars or 10.9% of sales compared to 38.8 million dollars or 10.6% of sales in the prior year quarter.
Jason Crawford: Operate Lincoln was 40.4 million dollars or 11.5% of sales, compared to 42.3 million dollars even with last year in a percentage of sales basis.
Interest Expensive for the fourth quarter was $17.4 million [inaudible]
Jason Crawford: down 7.4 million from a year ago period. This is due to the law-weighted average debt outstanding and law interest rates on debt reprisings and Fed reductions that occurred in 2024.
Jason Crawford: In addition, on March 13th, after our fiscal year end, we announced a reprising of our $400 million senior secured revolving line of credit that will allow us to continue to lower our interest expenses going forward.
Jason Crawford: The performance and outlook for the business has allowed us to improve our capital structure and reduce interest costs and we fully anticipate this trend to continue into fiscal year 2026.
Jason Crawford: equity and earnings of unconsolidated subsidiaries for the fourth quarter with $3.7 million compared to $4.3 million for the same quarter last year. These equity and earnings are from our 40% minority ownership interests in their real joint venture.
Jason Crawford: The current quarter income tax expense was $6.1 million, reflecting an interim effective tax rate of 23.2% to support the final full year 2025 tax provision of 24.5%.
Jason Crawford: This was higher than the 2024 effective tax rate at 21.9%, primarily attributable to favorable adjustments in 2024, related to uncertain tax positions, partially offset by higher tax deductions for stock compensation in 2025.
Jason Crawford: Net income from the fourth quarter was $20.2 million compared to $14.3 million [inaudible]
Jason Crawford: for the prior years quarter. On an adjusted basis, Q4 adjusted net income was $29.6 million compared to $27.5 million and increases 7.9% from the prior year.
Jason Crawford: 4th quarter, adjusted Evida was $71.2 million or $20.2% of sales compared to $73.9 million in the prior year, 4% and a percentage of sales basis on lower volume.
Turning to a finitile position and balance sheet.
Jason Crawford: We generated significant cash flows from operations at $249.9 million in fiscal year 2025.
Jason Crawford: Ahead of last year's $244.5 million. After funding, the company's annual capital expenditures of $115.9 million, which included $52.8 million for a new coil-coating facility, or free cash flow over $134.4 million dollars.
Jason Crawford: As previously communicated, we have expanded our coiloquoting capabilities by constructing a new 25-acre aluminum coiloquoting facility in Washington, Missouri. This new facility, contained within a pre-court metal segment, is supported by a contract for approximately 75% of the plant's capacity.
Jason Crawford: So, during fiscal year 2025, our capital expenditures has previously stated, we are $52.8 million and the remaining and final balance of our approximately $8 million is scheduled to occur by the end of Q1 in fiscal year 2026.
Jason Crawford: This will bring the project online within our originally stated cost and timelines. Further, we're pleased to announce that the facility has started to shift commercial production as of a few weeks ago and will continue to ramp volumes through the fiscal year.
Jason Crawford: Aligned with our previously stated strategies are disciplined approach to capital allocation and coulds paying down debt investing for growth and returning value to our shareholders through dividends and share buybacks.
Jason Crawford: During the fourth quarter of fiscal year 2025, we reduced debt by $30 million and made debt repayments of $110 million for the full fiscal year.
Jason Crawford: Our debt to adjusted EBIDA ended the year at 2.5 times, which compares favorably to a leverage of 2.9 times at the end of fiscal year 2024.
Jason Crawford: with her investment in the new Washington Missouri facility largely behind us.
Jason Crawford: and our debt for Justice Deborder below 2.5 times. And overall improvements to our castle structure, we will start to transition a focused and more balanced capital allocation with greater emphasis on M&A and returning value to our shareholders.
Jason Crawford: Finally, subsequent to the end of the fiscal year, on March 10th, we announce that our JV partner has entered into a definitive agreement to sell the electric products group to the end-bent electric PLC for a purchase price of $975 million.
Jason Crawford: This transaction is expected to close in the first half of calendar year 2025
Jason Crawford: At which time we will receive a pro rata portion of the cash proceeds from the sale, which we estimate to be approximately $200 million, after accounting for debt repayments, deal costs and cash retained in the remaining businesses.
Speaker Change: Post-transaction, AZZ will continue to own 40% interest in a veil which will then consist of the industrial lightings and welding solution businesses and will represent approximately 30% of pre-transaction grip revenue. With that, I'll turn the call over to David Nark.
During fiscal 2025
David Nark: Customer Band in key industries drove annual sales growth, primarily in our largest category construction, and in meaningful end markets that include industrial and electrical sectors. Smaller categories at AZZ also experienced growth in fiscal 2025, and those were related to HVAC and container industries. [inaudible]
David Nark: As Tom and Jason mention, the demand environment for overall construction was weaker in the fourth quarter due to inclement weather [inaudible]
David Nark: To put this in perspective, for December , the number of wet days increased 13% versus the same
David Nark: In January , the number of warm days available for construction were down 29% year over year Finally in February , the number of wet days increased by 10% while the number of warm days available for construction were down 27% year over year 27% year over year
David Nark: For the full year, organic top line growth was 2.6% over the prior year.
David Nark: Looking into fiscal 2026, we expect a continuation of infrastructure spending related to the AIIJA program.
David Nark: We expect public and private investment to continue to remain resilient with infrastructure spending from planned projects and recent natural disasters.
David Nark: Also, as Tom mentioned, growing populations and urbanization will continue to support the need for infrastructure-related projects, especially bridge and highway transmission and distribution and airport construction.
Speaker Change: In addition, we know that pre-painted aluminum and steel will continue to play a critical role in many restoring projects and the conversion of plastics to aluminum and food and beverage industries will continue to be a longer term secular trend. With that, I'd now like to turn the call back over to Tom.
Thank you, David.
Speaker Change: To summarize our fiscal 2025, we posted record results for revenue, operating income, adjusted EBITDA, adjusted earnings per share, and adjusted net income. Our sales expansion, that degree to almost $1.6 billion, consisted of 100% organic volume growth.
Speaker Change: We improved our capital structure by eliminating the preferred equity, continuing to reduce debt, and improving our net leverage ratio to below 2.5 times.
Speaker Change: Looking ahead to fiscal 2026, we anticipate delivering above Mark Greuth, while getting some bolt on that position is done. Importantly, we will be sticking to the discipline approach to investments, capital allocation and growth that has made us so successful. [inaudible]
Speaker Change: Today, we are reiterating our fiscal year guidance for 2026 which reflects our confidence in the company's strategic execution, operational resilience, and market positioning.
Speaker Change: Starting with sales, our best estimates given market conditions and sentiment are 1.625 to 1.725 billion dollars, adjusted EBITDAQ of $360 to $400 million, and adjusted earnings per share of $5.50 to $6.10 million.
Speaker Change: The midpoints of these ranges demonstrate business expansion ahead of any future M&A activity.
Speaker Change: We look forward to avail completing its divestiture of the electrical platform so that we can utilize a cast to reduce debt and invest in growth. For this reason, we are leaving our EPS estimates unchanged. Also, capital expenditures for the fiscal year are expected to be 60 to 80 million.
In-depth paydowns are expected to exceed $165 million
Speaker Change: This amount excludes any additional debt reduction from the AIS sale proceeds as well as any capital used for acquisitions. Additionally, we are off to a good start in the first quarter and have not seen any significant impact from the tariffs, particularly in our metal coating segment.
Speaker Change: I am proud to recognize AZZ's 38th consecutive year of growth and profitability from continuing operations
Speaker Change: This accomplishment was due to the dedicated efforts of our employees. I sincerely thank them for their hard work and continuing commitment to excellence. Thank you very much.
Speaker Change: Finally, we are excited to announce that we will host an analyst day on August 14th.
Speaker Change: The event will be held in St. Louis, Missouri and will include management presentations from our pre-code headquarters in a tour of our new aluminum coatings plant. I encourage the analyst community to contact our investor relations team if you are interested in participating later this year.
Speaker Change: With that, operator, I would like to open up the call for questions.
Thank you.
We will now begin the question and answer session.
Speaker Change: To ask a question, you may press star then one on your telephone keypad [inaudible]
Speaker Change: If you are using a speakerphone, please pick up your handset before pressing the keys.
Speaker Change: If at any time your question has been addressed and you would like to withdraw your question, please press star then two.
Speaker Change: At this time we will pause momentarily to assemble our roster to assemble our roster.
Speaker Change: The first question comes from the line of Adam Thalhimer with Thompson Davis, please go ahead.
Adam Thalheimer: Hey, good morning guys. Tom, I was hoping to start off with – and you addressed this at the end of your prepared remarks, but what you're seeing in the May quarter and what kind of a bounce back you've seen from the bad winter weather.
Yeah, great question. Yeah, we...
Just in April alone, we've recovered the shortfall in…
Adam Thalheimer: from the fourth quarter for metal coatings, and probably exceeded that. So we're looking for a very strong first quarter.
Adam Thalheimer: on the metal coating side, and they're out of the gate really, really well. So...
March was great, April was solid and uh...
Adam Thalheimer: The outlook for me is good as well. On the pre-code side, you know, it's not the same that they were whether impacted, but somewhat differently, so instead of as much lost production days, it was more customers.
who, who, who?
Adam Thalheimer: We're closed and I didn't take delivery on some Finnish goods inventory. So, you know, we look for a solid first quarter for pre-code.
Jason Crawford: Jason will talk, he'll probably want to add something to my comments but...
Jason Crawford: You know, we have a lot going on on the first quarter for pre-count. We've got the new site, Ramping Up, which is a great news for us production in play.
and um...
Jason Crawford: You know, we do focus more on market share growth so if you just look at last year the markets generally were down
Jason Crawford: and yet we are able to grow in most segments, so Jason you may want to add a little bit, I'll pre-care.
Jason Crawford: The only other thing I would add in Preco is round about their inventory. The seasonality ramp that we would normally see with the good weather, coming out of January February with the impact of Q4 and we never seen that.
Jason Crawford: We carried a little bit more inventory from QC to Q4 and...
Jason Crawford: Essentially, a few years ago, how it impacted this was around about supply and price. So, you know, to be fair, our customers stopped up a little bit and we carried that. So that was probably the main impact to queue.
for, and then we'll see that, you know, getting back out the system as we go into Q1 here.
Jason Crawford: Okay, great color. And then Jason, what's in the guidance for the avail, Jay-Z?
Jason Crawford: If you look at the VLJV, obviously the guidance that Tom reiterated, there is no impact and the reason we have looked at no impact is there was $15 to $18 million in the guidance.
esperanto.com
I'll turn it over. Thanks, guys. All right. Thank you Thank you.
Thank you for watching!
Speaker Change: The next question is from the line of John Franzreb with Cedodian Company. Please go ahead.
Good morning guys and thanks for taking the questions.
Speaker Change: I guess I'd like to start with a little question about the tempo of the Order book. I know you've had some catch-up from weather, but have you seen any change in momentum based on the current macroeconomic environment, be it positive or negative?
Speaker Change: Yeah, interestingly enough, we spent a lot of time going through our weekly reports from the field.
and the optimism is positive. It's, uh, so...
Speaker Change: Projects are going forward, customers are confirming we've got capacity to be ready.
Speaker Change: And, you know, so I'd say generally while there's always concern, you know, further out in the year, the short-term outlook over first quarter and second quarter, more positive than I think we would have expected.
Speaker Change: So I think, like I said, mostly checking our capacity, making sure we've got shifts to run the infrastructure.
Speaker Change: Jason can probably comment on pre-code a little better. He already alluded to the fact of the finished goods inventory, but generally it's positive there too.
Speaker Change: But construction season was a little slow to get started, but now it's getting off well.
Speaker Change: John Neill, the other thing I'd like to add is, you know, if you look at the couple of industry forums that we've been to start of the year and
Speaker Change: The general sentiment in those forums and conferences is relatively upbeat. So, you know, at this point obviously there's a lot of turmoil outside, but within our four walls of our business then we're not necessarily seen at the moment.
Thank you for watching!
Speaker Change: Great, that's good to hear. I guess the second thing I wanted to touch on was Zinc.
Speaker Change: The US doesn't produce a lot of zinc, a lot of it comes from China and South America. I'm just curious how should we be thinking about the zinc in this current tyrant environment? Any kind of colleague could provide would actually be very helpful.
Yeah, John , this is Dave, I'll take that one. You know what, we look at Zinc
Speaker Change: One of the things I think the biggest thing to note is that it is listed on the Annex II list that came out from the administration as something that is exempt from the tariffs. So...
Speaker Change: While, to your point, the U.S. is a net importer of sink, the vast majority of ours comes from North American sources and again it's not an impact for us because it's on the exemplar list.
Speaker Change: Yeah, and I'm also talking to all of our suppliers. They don't have any concerns at this point, so supplies good. We'd actually taken on some inventory at the end of the year just as a cushion, but it doesn't look like we're going to need that extra inventory.
Thank you, I appreciate the clarity [inaudible]
Mark Reichman: The next question comes from Mark Reichman with no big capital markets. Please go ahead.
Mark Reichman: Thank you. You know, by my calculations, it seems like you would need to reduce debt about $300 million to offset the impact from the sale of the, of, you know, the
Mark Reichman: and the J.B. Transaction. I was just wondering what that $200 million is you're expected to receive. Could you just maybe elaborate on your debt reduction goals and how you might...
Mark Reichman: Look at that from a capital allocation standpoint. I know you still have about 50 million left on your repurchase authorization, so just some clarity regarding the debt reduction goals would be helpful.
Mark Reichman: The 2.5% that we ended the year. That's excluded from that calculation. As you look at the opportunities from a name and a point of view, you know, potentially returning shareholder value via
Speaker Change: increased dividends or shared buybacks, all on the table. And if we decide that there's no opportunities there, there will continue to be down there.
Speaker Change: The comfort zone is 2.5 and if we go slightly below that, then I think that would be our priorities there.
Okay, we're just a kind of... [inaudible]
just for a little more clarity. So, so...
Speaker Change: Basically, you'll go from an equity, you know, in earnings from Yugoslavia subsidiaries, you'll go from 15 to 18, down to 4.5 to 5.4.
Speaker Change: So to make that up, you're going to have to pay down some additional debt to reduce the interest expense
Speaker Change: and you've already said that you'll pay down more than $165 million, and I guess what I'm asking is $300 million is that unrealistic in terms of what to expect in terms of your debt repayment in fiscal year 2026?
Speaker Change: Oh, that's very realistic. Yeah, I don't think it's going to be a lesti, you know, I think that that's what I'm assuming. So I'm hopeful, I mean, the math is correct. Yeah, yeah, absolutely. And that still leaves this room for as we talked about
in addition to the doubtful action that you dispensate. [inaudible]
Speaker Change: You know, what's the split between metal coatings and pre-coat metals? I mean, we have a pretty good history for normalized run rate for metal coatings but maybe not so much for pre-coat metals, so just was kind of curious about, you know, the normalized spending budget for each of those segments.
Thank you.
Speaker Change: Yeah, and I would say it's roughly to be very close to within the pennies of a 50-50 split. I think you can look at the lore end of that as being a normal year.
Speaker Change: and then the upper end of that where maybe we're investing in some projects. I think we've highlighted historically that there's some projects that have sat in the sidelines as we've focused and pinned down there and you know, they start to comment the blog in terms of January and a return.
Speaker Change: Yeah, and I would just add to Jason's point, which, yeah, 30 million each for the two segments and then we did have, so in that 68 million, we had some carryover on the new Washington facility even.
Speaker Change: Just, you know, bills to pay carried into this year. So that's part of it. And then we to Jason's point we've got a couple of nice new investments in
Speaker Change: You know, blend cells and things like that that will give us new capabilities in certain facilities. So, you know, we'll always look at some increment for growth capital.
Okay, well that's very helpful. Thank you very much Thank you very much.
Thank you.
Speaker Change: The next question comes from Gunsham Punjabi with Baird. Please go ahead.
Ghanshyam Punjabi: Hey guys, good morning. You know, if you've covered it, I messed it, but what do you estimate the impact from weather was on your 4Q, fiscal year 25 quarter? And is that loss sales just add to the future backlogs and is that in effect what you're seeing in the first quarter thus far?
Virtually...
Ghanshyam Punjabi: Well, I'd say virtually all of it has now been recovered in March and April , on the metal coating side. On the pre-code side of the station talks about there was some weather impact, but also this finished good inventory build, but you know we've
Ghanshyam Punjabi: production days, and most of it hit from mid-January through February , so...
Ghanshyam Punjabi: and we couldn't make it up on weekends just because of, you know, storm's ice weather and also customers who weren't shipping stuff in so but we saw that ramp up hit quickly in March and worked a lot of weekends to take care of our customers.
Speaker Change: Hey, God, thank you. And then relative to when you initially gave, you know, your fiscal year 26 guidance back in February .
Speaker Change: I mean, obviously, there's more uncertainty as it relates to the macroeconomic backdrop, you know, tariffs, and also mixed indicators on construction, including from the home builders. You know, you're reiterating guidance for the year obviously. Are there any incremental positives for fiscal year 26 relative to, you know, your view back in February that's? [inaudible]
Speaker Change: Sort of underpinning your confidence and then also how should we think about sequencing of earnings for fiscal year 26?
Thank you for watching!
Speaker Change: Yeah, I'll answer the first part, and then Jason can answer the sequencing bit.
Speaker Change: Yeah, so a couple of things that have happened. One, we're off to a strong start in Q1, particularly in metal coatings, which with that weather and things like that, we just did have a little bit of concern, which is now gone.
to what we were looking at back in January . [inaudible]
Speaker Change: And then we have been been pushing price because you know while we're not impacted on the zinc and paint side [inaudible]
from a cosperspective [inaudible]
Speaker Change: You know, a lot of other things we have seen inflation on whether it's due to tariffs or just due to the EU.
Speaker Change: Supplier take an opportunity. So, you know, we are pushing prices, as I think most folks know we do in this case because we offer the value and want to make sure that we continue to deliver for our customers. So,
Speaker Change: So that's that's kind of optimism that I would at least that's my optimism as I'm looking forward this year and mostly what we're hearing from the field and and our sales resources and what our customers are telling us.
Speaker Change: In terms of the seasonality, I would say it's got to be a normal seasonality department that we've seen historically, other than three things and two of them we've touched on.
Speaker Change: In regards to the metal coatings division, we are going to see a little pop into one as we see the negative side in 2-4.
Speaker Change: which has been nice for the quarter. And then as Tom highlighted, if we execute on the acquisition, then QC24 should provide that additional little boost for that division. Thank you very much.
Speaker Change: From a pre-court point of view, business is normal from a seasonality other than bringing on the new facility. We highlighted that in Q1 we're starting to see commercial production. Obviously it's a brand new asset.
Speaker Change: So it's got a little bit of a drag, not materially so, but certainly it's got to be a drag before you really see that start to pop in the second half of the year. So other than those three factors, at this point we're not really seeing anything major in terms of seasonality for the calendar year, or for the fiscal year, sorry.
Speaker Change: Okay, great. And then just one final one, you know, your capital position, your balance sheet is already quite strong, and you know, clearly you're going to get more proceeds to post the JV asset sale. As it relates to acquisitions going forward, you know, should we sort of be thinking about...
Speaker Change: slightly larger deals than maybe originally envisioned, just given balance flexibility and just more holistically, what does the pipeline look like for acquisitions at this point?
Yeah, the pipeline is looking really good. I think we've got deals we could do. [inaudible]
Speaker Change: The one-off galvanizing, those are just slam dunk, that's kind of our history, what we do is normal routine. So we've got, you know, I think...
Speaker Change: Three active at the moment, one close to fruition, the two others that hopefully we can get done later this year. And then on the pre-code side, they're just generally going to be bigger. We're probably...
Speaker Change: I'd say there's active deal, there's things that we could act on, but we're taking a wait-and-see approach to see how the tariffs impact those businesses.
Speaker Change: You know, if we can get the right value for them and the timing is right and we prove out what happens to some of these businesses with tariffs because generally galvanizers are like our metal coatings has not been affected.
Speaker Change: to much because of their focus on infrastructure and construction span that's going to go forward but on the pre-cut side it's, you know, they are going to be bigger deals [inaudible]
Thanks for taking my questions.
Sir.
Thank you for watching!
Speaker Change: Our next question is from Nick Giles with B. Riley Securities. Please go ahead.
Nick Giles: Thank you very much operator and good morning everyone. Maybe just as a follow up to the last question there, as you think about other potential
How does end-market exposure come into the decision matrix?
Nick Giles: Yeah, I think it kind of back to you for for us on the
on the galvanizing side, specifically...
Nick Giles: Almost any geographies good, whether we've got plants in the area.
or not, we're still going to be interested in those.
You know, whether it's one site or...
Nick Giles: 5 or 6 or 7 sites. It's just our sweet spot. We've got a great playbook. We believe we can add value and improve margins with virtually anything that we acquire in that space. So if it's US or Canada, we're interested.
Nick Giles: We continue to have relationships with galvanizers outside of the US and Canada, but that's not on our short-term horizon. On the pre-code side, I think...
Nick Giles: Back to it's everything we have is US centered so probably US Canada is the geography geography.
Nick Giles: The end markets tend to be relatively of the things that we're aware about there that are potential. They tend to be in the same serve markets that we're in.
Nick Giles: You know, that would limit us from looking at it if it's in the US and Canada.
Nick Giles: Yeah, I agree. And in terms of the markets, both businesses, the number one player within the market.
Nick Giles: Cover All End Markets, and really all you would see via acquisition is a little bit more concentration and something bigger than what we have today. So there's not any new markets out there that we could take galvanising our coil coating to, it would just be a greater presence within those spaces.
Thank you for watching!
Thank you for watching!
Thanks guys, that's that's how Paul and
Nick Giles: Then, you know, working capital management was a key contributor to, you know, strong cash flow in 25. So, are there any working capital considerations you'd highlight as we think about cash flow in 2026 or, you know, could we see further improvement?
and our contract assets, it's called Navon Cheat.
Nick Giles: and certainly getting that to single digit as a very strategic goal for us. So, there is...
Nick Giles: You know, a little bit more movement, but certainly more I've got to see the blockbusters that we've seen maybe two years ago. Well, I would also add, because we are ramping up the new Washington co-coating facility.
Nick Giles: There'll be some working capital, new working capital to get attached to that, so I think that's why we're really looking at working capital being relatively flat overall this year but that includes absorbing a new location.
Nick Giles: Got it. No, it's helpful. And then one more if I could, you know, as we think about margin cadence over the year, you know, should we be thinking about margins that could be closer to the high end as far as pre-cocoses as Washington ramps? [inaudible]
Nick Giles: and then, above and beyond that, just a leverage of the fixed costs that were within that business unit, so...
Nick Giles: certainly wants to be ramped the Washington facility and get it fully capable and producing then we should see an overall bump to the pre-court margins that we've been operating up.
Thank you for watching!
Speaker Change: about it. Well, guys, I appreciate all the color and continue best of luck.
All right, thank you, thank you [inaudible]
Speaker Change: The next question comes from Timna Tanners with Wolf Research. Please go ahead.
Thank you for watching!
Tim Nataners: Hi, good morning. I had a few follow-ups that I could on tariffs broadly, so I just wanted to be planted on this, but on the last quarterly call you said that there could be some project delays due to tariff uncertainty. So in this time, there is no mention, so were there no project delays and are you not hearing anything about tariff uncertainty from your customers
Okay, I'm done.
Tim Nataners: Yeah, I think the, as we looked at it particularly, and I'll start with the metal coating side, but, yeah, there were concerns and it was, but I think what we saw was, steel has been available, metal has been available.
Tim Nataners: that available for construction. Those projects moved forward. They were under, you know, already agreed to price levels and things like that. So, you know, as we're looking out, and what we did see weather delays in the fourth quarter, and I just mentioned the first quarter started off strong. So...
There's there's this natural
Level of concern about...
Tim Nataners: You know, but I think it's less around construction material availability, more about do project cost spike if they spike does that make some of them less viable later on this year.
Tim Nataners: But, you know, so the general sentiment is still positive, but let's see how it goes as we get to the latter part of this year.
Speaker Change: Jason David, you may want to add but I think it's you know relatively the same construction was a little due to weather was a little later to get the season was later to get ramped up and it's ramping up fine at this point. I'm going to guess that.
Tim Nataners: You know, if we dug in the more details and you get beyond infrastructure [inaudible]
Tim Nataners: Region Highway, TND, Electrical Utilities, data centers, then I think the sentiment may be a little weaker as you get further out, only because of the unpredictability of the cost, estimates and due projects become less viable.
Tim Nataners: The only other thing I would add is, three months ago, it was all very new and...
Tim Nataners: You know, certainly we were in a little bit cautious and you know, maybe even speculating what could happen Versus, you know, three months later we've engaged with our customers as I mentioned we've been at the industry forums, etc. And we're not here in that same sentiment that you know, it's got to impact us.
Speaker Change: Okay, thank you. And then similarly along those same lines, you mentioned that paint with availability was not impacted by tariffs. We already talked about zinc. But are you and your, or your customers finding any materials needed for your business impacted by tariffs? And then along those same lines are you and of your customers benefiting from some of the downstream tariffs on steel and aluminum? I just don't, I'm trying to get my head around like how that could also maybe benefit you on the down stream.
Inside. Thanks.
Speaker Change: Yeah, I think it's hard to believe that there's any company out there that's not been in active at Tarriffs and certainly our biggest inputs are zinc and paint.
Speaker Change: and we have highlighted we have not seen any impact to them but you go to the great population of the goods that we are procuring.
Speaker Change: and some of them, you know, in terms of production supplies, etc, are being impacted. And, obviously we've been very customer conscious in terms of pushing back in those, but, you know, some of those are stacking.
Speaker Change: That's something that we continue to stay on top of. Obviously, it's the smaller part of our input cost but at the same extent, we just stay on top of that and continue to monitor it.
And that would be things like wire, attitudes, chemicals chemicals, chemicals.
Speaker Change: Assets, so those secondary supply items in both segments have been impacted, but like I said, we're...
Speaker Change: We're trying to push price and also negotiate and in a lot of cases we're still fairly large customers for certain of those items so it reasonably good position and I've not seen much negative impact at this point if any [inaudible]
Speaker Change: Okay, helpful. And on the opportunities on the downstream side is there much that
Speaker Change: You think you could pick up in terms of business on what might have otherwise. I don't think you compete a lot with imports but even some of the substrate that you buy may be being domestic is that, you know, are you able to see some volume improvement perhaps for more domestic production opportunities.
Speaker Change: Absolutely, Timna. What we are seeing, particularly on the metal coating side, we know that pre-painted imports in particular account for about 10% of the volume that comes in that equates about 800,000 tons annually.
Speaker Change: We do believe that a portion of that will be looking for domestic supply and obviously being a leading, you know, coil coder here in North America as they source domestically, it stands to reason that we'll pick up some tailwind from that this year.
Thank you for watching!
Okay, great, thanks again.
All right. Thank you.
Speaker Change: And now that the Washington has reached commercialization stage, and maybe a...
Speaker Change: along with the prior question and maybe some additional imports looking for domestic sources. Any reason to believe that Washington's ramp-up might go better than expected, and we might see some...
Speaker Change: Something more positive out of Washington here in this fiscal year.
Yeah, that's always a, you know, I think.
Speaker Change: The Hope. It's a big, complex project. It's been run well. The team has done a great job as well.
Speaker Change: You know, mitigating any issues with deliveries of equipment and getting things ramped up. So we're looking forward to to the analyst day there in August . But absolutely we've we've got
Speaker Change: They're working to a more aggressive plan than we've got embedded in our in our guidance and so if they hit that more aggressive plan which You know so far the team is shown they're they're able to do then we would have some nice upside this year, so
Speaker Change: I know some of the teams probably on this call just scratching their heads but yeah they signed up to, and it really hits as they hit the...
Speaker Change: Capacity mid-year, so as we get into that third quarter and especially
at that point.
Speaker Change: They're in full stride and we've heard from at least one customer that they're forecasting higher demand, which is good news, so we'll have the demand.
Speaker Change: The facility comes online well, which we continue to see signs it is. Then we're going to have a really good year there. Okay. If I'm correct, we're initially, the initial revenue expectation is around 40, 50 million.
So this year was that correct.
Speaker Change: I think it's a little lower than that. So the revenue for this year is not 50 or 60 million dollars. The revenue, once we get to ramp, we've basically stated is that that kind of 60 million dollar opportunity. That's obviously a variable number. There's actually three lines within that facility. There's a pre-slit line and a coating line and an overall slitting line. So there's a lot of variables in that equation in terms of the type of product.
metal coatings.
Speaker Change: Was the inclement, whether mostly impactful impact in your self-eastern locations or was it pretty much across the board?
Speaker Change: Yeah, we saw it pretty much across the board in the areas where we operate, you know, the south in particular was definitely impacted more than it was a year ago, as well as the upper Midwest Newton.
and some of the eastern origins as well.
Speaker Change: Yeah, Texas, we hadn't seen this since, what, 22, and even then, we didn't have this many down days. And so part of it was that natural gas got curtailed in North Texas.
Speaker Change: Obviously, with our big furnaces that we basically had everything on slow roll, so...
Speaker Change: So it really was, and these are big, you know, so it happened the impact where we had big facilities and now...
Speaker Change: But all of that is ramped back up in Q1. Okay, all right, thank you very much.
Thank you.
Thank you.
Speaker Change: This concludes our question and answer session. I would now like to turn the conference back over to Tom Ferguson for any closing remarks.
Thank you, operator.
Tom Ferguson: I want to thank everybody for joining us and as we've implied on this call we think the fundamentals of our business are outstanding.
Tom Ferguson: and pretty much unchanged in spite of a lot of the tariff uncertainty.
Tom Ferguson: We focus on providing outstanding value and which allows us to take market share. We've made great investments.
Tom Ferguson: in adding capacity, whether it's spin lines on the metal coating side, or whether it's slitting lines on the pre-cut side. So we have added other services that are flowing through into our revenue line. And look forward to continuing to do that, getting some deals done and announcing some additional positives as this quarter goes on.
Tom Ferguson: and then talking to y'all at the end of the first quarter. Thank you very much.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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