AZZ Q4 2024 Earnings Call Transcript

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April 22, 2024

There are 9 speakers on the call.

Operator

Good day, and welcome to the AZZ Incorporated Quarter 4 and Year End Earnings Conference Call and Webcast. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Sandy Martin, 3 part advisors.

Operator

Please go ahead.

Speaker 1

Thank you, operator. Good morning and thank you for joining us today to review AZZ's financial results for the fiscal 2024 Q4 and full year, which ended February 29, 2024. Joining the call today are Tom Ferguson, President and Chief Financial Executive Philip Schlam, Chief Financial Officer and Dave Nark, Senior Vice President of Marketing, Communication and Investor Relations. After today's prepared remarks, we will open the call for questions. Please note the live webcast for today's call, which can be found at www.az.com/investors events.

Speaker 1

Before we begin, I want to remind everyone that our discussion will include forward looking statements made under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. By their nature, forward looking statements are uncertain and outside of the company's control. Except for actual results, our comments containing forward looking statements may involve risks and uncertainties, some of which are detailed from time to time in documents filed by AZZ with the Securities and Exchange Commission, including the annual report on Form 10 ks for the fiscal year. These statements are not guarantees of future performance. Therefore, undue reliance should not be placed upon them.

Speaker 1

Actual results could differ materially from these expectations. In addition, today's call will discuss non GAAP financial measures. Non GAAP financial measures should be considered supplement to, not a substitute I would now like to turn the call over to Tom Ferguson. I would now like to turn the call over to Tom Ferguson.

Speaker 2

Good morning and thank you for joining us today. Fiscal 2024 was an exciting and successful year for AZZ, including several important operational and financial achievements. We are proud of our team's hard work and exceptional accomplishments for the year. Today, I will discuss the Q4 and full year highlights, Philip will then cover the detailed financial results and Dave will cover industry updates. I will conclude by discussing our current outlook before opening the line for questions.

Speaker 2

Today, AZZ is a pure play metal coatings company. AZZ leads with North America's number one market position in each of our 2 business segments, which includes hot dip galvanizing and coil coating solutions. Our large scale strategic footprint serves a broad diversified customer base, including long term blue chip customers and the company also brings over 65 years of trusted expertise. We provide sustainable unrivaled coating solutions supported by proprietary customer centric technologies. Last year, our teams focused on critical operational and financial objectives and I am pleased to report that both segments performed exceptionally well, particularly in the Q4 and the full year.

Speaker 2

Our fiscal year results that ended February 2024 reflect the culmination of near and longer term strategic initiatives that generated sales growth, margin enhancements and significant working capital improvements. We're uniquely positioned to serve customers with an expanding competitive moat through extensive technical expertise and solutions based capabilities, a deep bench of talented leadership, proprietary technologies and strategically placed facilities across the U. S. And AZZ's balance sheet. Our relentless commitment to operational excellence continues to be the focus of our talented teams and our strong collaborative culture supports our future growth and success.

Speaker 2

Turning to our results for the fiscal year. We increased total sales by 16.2 percent to a record $1,540,000,000 Metal Coatings full year sales were $656,000,000 up 3% versus the prior year. And precoat metal sales were $881,000,000 up 28.4% compared to the prior year. Precoats fiscal 2024 included 52 weeks of sales versus 42 weeks for the prior year. Our full year adjusted EBITDA increased to 3 $34,000,000 and we generated cash provided by operations of $245,000,000 for the year.

Speaker 2

We will discuss the uses of cash in a few moments. Finally, adjusted earnings per share grew to $4.53 up almost 35% compared to the previous year's EPS. For the fiscal 2024 Q4, which is usually our weakest due to slower construction activity during the winter months, total sales of 3 $6,000,000 increased by 8.9 percent with metal coatings up 3.3% and precoat metals up 13.4% entirely from organic expansion. Also for the quarter, we increased adjusted earnings per share by 2 10 percent to $0.93 and grew adjusted EBITDA by 29 percent to $74,000,000 This led to strong cash flow from operations for the quarter of 64,000,000 dollars As a result, adjusted EBITDA margins were 28.6 percent for Metal Coatings and 17.8% for precoat metals within our targeted range for each segment. In short, our continued dedication to delivering best in class customer service and quality led to increased sales, improved profitability and significant cash flow for the Q4 full year.

Speaker 2

We also continue to invest in our operational technology platforms in fiscal 2024 as we seek to more deeply integrate our business with our customers. Our Metal Coating segment has a platform called Digital Galvanizing System or DGS. So we benefit from our improved productivity and efficiencies and customers are provided faster and more effective communication and better visibility into their projects from beginning to end. For Preco Metals, customers utilize Coil Zone, a proprietary platform which provides 20 fourseven access, 3 65 days a year to real time inventory, scheduling and other vital information customers utilize to help run their business on a daily basis across Precoats network of 13 facilities. These innovative platforms and passion for excellent service among our teams position AZZ as a highly differentiated metal coatings provider to customers throughout North America.

Speaker 2

Our strategic transformation over the past 2 years has been a catalyst for generating significantly higher run rate EBITDA and cash flow. As Philip will discuss more in a moment, we continue to strengthen AZZ's balance sheet and allocate capital prudently last year. We reduced our debt by $115,000,000 over the last year and repriced our term loan or revolver to lower interest costs. We also deployed significant funds to the Greenfield aluminum coil coating facility in Washington, Missouri as part of our organic growth This critical project remains on schedule. We are highly focused on creating long term value through our sustainable solutions.

Speaker 2

We believe that by continually investing in our people and relentlessly executing our strategy, we will accelerate AZZ's value creation. We plan to continue scaling our business through organic and inorganic growth and leveraging our highly differentiated value proposition to customers as we create long term value for our shareholders. With that, I'll turn it over to Philip. Thanks, Tom, and

Speaker 3

good morning, everybody. As Tom mentioned, we reported fiscal year 2024 Q4 sales of $367,000,000 compared to $337,000,000 in last year's Q4. Total sales increased 8.9% over the Q4 of last year, with Metal Coating sales up 3.3% and Pre Coat Metals up 13.4%. 4th quarter gross profit was $81,000,000 or 22.1 percent of sales compared with $61,300,000 or 18.2 percent of sales in the prior year 4th quarter. Gross margins improved by 3.90 basis points as a result of lower zinc costs in the Metal Coatings segment and lower overhead costs in the Precoat Metal segment as performance improved over a year ago period.

Speaker 3

Also gross profit benefited from reclassifying intangible asset amortization to our corporate center, partially offset by increased labor and other variable costs. Selling, general and administrative expenses were $38,800,000 in the 4th quarter compared with $25,100,000 in the prior year 4th quarter. The Q4 included $6,800,000 in legal accruals related to the resolution of long outstanding commercial disputes. Excluding the Q4 legal accruals, SG and A expenses for the fiscal Q4 would have been $32,000,000 8.7 percent of sales compared to 7.4% in the prior year Q4. Operating income was $42,300,000 or 11.5 percent of sales, an improvement of 16.8 percent and 70 basis points from last year's Q4 of 36,200,000 or 10.8 percent of sales.

Speaker 3

Interest expense for the Q4 was $24,700,000 compared to $27,100,000 in the prior year due to lower outstanding debt and repricing the company's Term Loan B and revolving credit facility late in the year. I will discuss our capital allocations efforts in a moment. Equity and earnings of unconsolidated subsidiaries for the 4th quarter increased to $4,300,000 compared to $1,600,000 for the same quarter last year. The increase is due to higher minority interest earnings from our 40% ownership in the Avail JV as they continue to perform to expectation. Current quarter income tax was $4,100,000 reflecting an effective tax rate of 18.7% in the quarter compared to 34.8% in the prior year Q4 where the rates were much higher due to the impact of the transformative M and A activities during the prior year.

Speaker 3

Reported net income for the Q4 was $17,900,000 compared to $7,400,000 for the Q4 of prior year. Adjusted net income for the Q4 was $27,500,000 compared to $7,600,000 in the prior year, up more than 2.5 times over the prior year. Our adjusted diluted earnings per share of $0.93 as Tom spoke about compared to $0.30 in the prior year Q4. Since the preferred convertible shares are dilutive in the current quarter to adjusted EPS, the preferred dividends are added back to earnings for the company's adjusted EPS computation. Under a full conversion assumption, the preferred convertible shares weighted average shares outstanding in the quarter are approximately 29,500,000 shares.

Speaker 3

4th quarter adjusted EBITDA was 73 point $9,000,000 or 20.2 percent of sales compared to $57,200,000 or 17% of sales in the last year, The 320 basis point improvement in adjusted EBITDA margin was primarily driven by improved operational efficiencies in our Precoat Metals segment and continued strong earnings by our Metal Coatings segment. For the full fiscal year ending in February, our sales were just over $1,500,000,000 up 16.2% over last year. The precoat results include 52 weeks of sales in the full fiscal year compared to only 42 weeks in the prior. Gross profit increased to $363,000,000 or 23.6 percent of sales from a year ago, improving 120 basis points over the year ago gross margin on the same operational efficiencies I just spoke about during the Q4. SG and A costs were $141,900,000 9.2 percent of sales on par with the SG and A as a percentage of sales from last year.

Speaker 3

Operating income was $221,600,000 or 14.4 percent of sales or 130 basis points improved when compared to operating income of 13.1 percent of sales in the prior year. Reported net income from continuing operations was 101 $600,000 for the year compared to $66,300,000 last year. Adjusted net income was $132,800,000 for the year or $4.53 per share compared to $95,200,000 or $3.36 per share last fiscal year, a solid 35% EPS improvement year over year. Adjusted EBITDA for the year was $333,600,000 or 21.7 percent of sales compared to $267,400,000 or 20.2 percent of sales in the prior fiscal year, which represents an increase in EBITDA dollars of 24.8% compared to the prior fiscal year. If I turn to our financial position and balance sheet now, we generated strong cash flow from operations of $244,500,000 and free cash flow of $149,300,000 as we executed on several working capital initiatives during the year.

Speaker 3

Our free cash flow is computed as cash flows from operating activities plus capital expenditures. Capital expenditures for the year were $95,100,000 including typical safety, maintenance and gross spending, as well as approximately $47,700,000 related to the new greenfield aluminum coating plant under construction in Washington, Missouri. Tom will cover the project in a few moments. In fiscal 2025, we expect capital expenditures to be approximately $100,000,000 to $120,000,000 including $50,000,000 to $60,000,000 related to the Washington facility as we complete construction and ready the site for production. We reduced debt during the year by $115,000,000 exceeding the $75,000,000 to $100,000,000 target we provided as part of our annual guidance.

Speaker 3

Additionally, with our focus on working capital and strong overall debt reduction, we exceeded our originally stated leverage goal back in May of 2022 by reaching debt leverage net leverage ratio of 2.9 times with a target of getting under 3. In addition, during the last year, we successfully repriced our Term Loan B twice and repriced our $400,000,000 revolving credit facility, repricing the Term Loan B in August 23 and again in March 24, each time reducing our margin by 50 basis points for a total 1 percentage point reduction. Additionally, we repriced our revolving credit facility in December 2023, which moved us from a SOFR fixed SOFR rate of SOFR plus 4.25 margin to a tiered pricing grid. At February 24, with our year end leverage ratio being below 3, we expect our go forward revolving credit rate to be margin of sulfur+275 or another 25 basis point reduction in margin. In addition, we are pleased to share that S and P Global upgraded our senior secured debt rating from BB-2B from B, a 2 notch increase and Fitch Ratings initiated coverage on the company with a very similar rating, acknowledging the progress we have made since the acquisition of PreCoke Metals in May of 2022.

Speaker 3

Our capital structure provides a strong foundation as we move forward and our liquidity remains strong with no debt maturities until 2027. We continue to be under a swap agreement that fixes more than half the variable rate debt. Finally, we paid cash dividends on common and preferred stock totaling $31,400,000 for the year. We made no share repurchases during the year since we focused on debt reduction. With that, I'd like to turn the call over to David Norek.

Speaker 4

Thank you, Philip. Good morning, everyone. Tom began today's discussion by describing AZZ's number one market position in 2 highly differentiated value added metal coating segments that provide scale, expertise and customer centric technology, uniquely positioned to serve the North American steel and aluminum markets. Our services provide sustainable, environmentally friendly solutions that extend the life of our customers' products through our specialized coating materials process. Our business is well positioned to benefit from secular growth drivers related to infrastructure and renewables investments, reshoring the U.

Speaker 4

S. And North American manufacturing, as well as important conversions from plastics to aluminum. Looking back at our fiscal Q4, which concluded in February, both segments benefited from unseasonably warmer weather that favorably impacted the construction industry. Regarding our end markets, metal coatings was supported by robust transmission and distribution activity and a continued ramp of interstate bridge and highway projects in the quarter. We continue to see beneficial tailwinds associated with critical infrastructure projects closely tied to the AIIJA and CHIPS Act, which positively impact our results.

Speaker 4

We are seeing signs of a ramp up in the cadence of federal funding as evidenced by the uptick in award announcements by the Departments of Energy, Commerce and Transportation. We believe infrastructure monies are flowing in 2024 and that DOT budgets are available in all 50 states. Going forward, we expect an elevated number of projects related to T and D, bridge and highway, data centers and chip plant work in our future quarters. Within T and D, we are encouraged by the U. S.

Speaker 4

Department of Energy's October announcement of up to 3,500,000,000 dollars in grid resilience and innovation partnership program investments for 58 projects across 44 states to strengthen electric grid resilience and reliability across America. 16 of these projects specifically relate to grid resilience, which is where hot dip galvanized steel is commonly used. Within Bridge and Highway, we are encouraged by the announcement this January of more than $4,900,000,000 in funding by the Department of Transportation for 37 different infrastructure projects. In the manufacturing sector, the administration announced up $8,500,000,000 in direct funding and $11,000,000,000 in loans to Intel for the construction of computer chip plants in Arizona, Ohio, New Mexico and Oregon. And as recently as last week, the administration announced up to $6,400,000,000 in direct funding for Samsung Electronics to develop computer chip manufacturing and a research cluster here in Texas.

Speaker 4

Samsung's Texas manufacturing cluster will include 2 factories as well as an R and D facility and packaging facility. The first facility is expected to be operational in 2026 with the second being operational in 2027. Both Intel and Samsung are projects that we either have or are currently actively providing hot dip galvanizing or coil coating solutions. Lastly, we continue to see a slight rebound from solar and renewables end markets with pockets of regional strength across the United States where nearly $17,000,000,000 in planned investments have been announced so far. The precoat metal segment continue to perform better than the market in the 4th quarter with growing volumes based on conversion selling and value pricing.

Speaker 4

Volume gains, a slight market rebound and favorable mix helped our Q4 performance especially in the construction and appliances categories. Preco continued to win captive paint lines and coil coating projects from companies that decided to outsource these services. Although smaller volumes, the container and transportation categories continue to be under some pressure in the quarter offset by the construction spending increases. Projections for calendar 2024 construction spending call for significant year over year improvements, which include public construction projects, private non residential spending and higher manufacturing construction compared to the last year. Non residential construction continues to perform well with building strength in manufacturing and agriculture.

Speaker 4

As you saw from our raised guidance, we remain optimistic about the long term expectations for manufacturing reshoring and the transition to pre painted steel and aluminum. We also see a steady movement from plastics to aluminum in the container category throughout North America. Our metal coatings and precoat metals teams continue to make solid progress with incremental market share gains with new customers in both our hot dip galvanizing and coil coating business. With that, I'd like to turn it back over to Tom.

Speaker 2

Thanks, Dave. Fiscal 2024 was a pivotal year for the company. Our AZZ teams continue to drive the strategy forward by focusing on serving customers well, improving our operations and prudently deploying cash on high return projects throughout fiscal 2024. I'm proud of our leaders who demonstrated both pride and passion as they drove organic growth and improved operational efficiencies to further enhance margins, while we collectively strengthen the company's financial position. The company generated significant cash from operations and paid down debt ahead of expectations.

Speaker 2

We ended the year with our net debt to trailing EBITDA at at 2.92x, which is a testament to our cash management discipline last year, as well as our ability to grow adjusted EBITDA by 25% to $334,000,000 We continue to build trust with our customers as we partner with them to provide superior quality and service levels. Our business segments provide important sustainable metal coated solutions that enhance the longevity and appearance of buildings, products and infrastructure essential to everyday life. We enjoy the fact that our solutions and services are synonymous with sustainability. As Dave mentioned, our business outlook is positive, particularly as we enter the spring and summer months when construction activity is at its strongest. Our teams are positioned to find new ways to grow market share and benefit from the expected ramp up of infrastructure spending.

Speaker 2

Given AZZ's strong market positions in both segments, our broad scale and our strategic footprint, we believe we are well positioned for however the economy shapes up this year. Labor and employee turnover continues to improve from a year ago. Since we are a tolling business, we will remain nimble and adjust inventories of paint and zinc if demand shifts whether due to our growth initiatives or other macroeconomic impacts. Our greenfield aluminum coating coil coating facility in Missouri is progressing well and tracking on schedule. Work has shifted to the inside of the building with the electrical installation underway and the installation of the coating line in process.

Speaker 2

Our focus is now turning to our staffing commissioning and qualification efforts. It's exciting to think that our hot testing of the coating line will begin in the Q3 just a few months from now. We raised our guidance a couple of weeks ago and are reiterating it today. Our fiscal 2025 guidance is for sales in the $1,525,000,000 to $1,625,000,000 range, adjusted EBITDA in the $310,000,000 to $360,000,000 range and adjusted EPS guidance of $4.50 to $5. Capital expenditures for the current fiscal year are expected to remain unchanged at $100,000,000 to $120,000,000 including $50,000,000 to $60,000,000 related to the new Washington, Missouri plant.

Speaker 2

The equity and earnings from our minority interest in the Avail joint venture is expected to be $15,000,000 to $18,000,000 this year and debt reduction is planned in the $60,000,000 to $90,000,000 range. While we will remain focused on paying down debt, we are seeing some small galvanizing acquisition opportunities beginning to enter the pipeline. Our dedicated teams are operating confidently as we begin the new fiscal year and I want to thank them for their hard work and accomplishments this past year. We are energized as we find ourselves already halfway through our Q1 and believe we are well positioned to deliver strong results, generate significant cash flow and maximize shareholder value in fiscal 2025. Now, would the operator please open up the call for questions?

Operator

The first question comes from Lucas Pipes with B. Riley Securities. Please go ahead.

Speaker 5

Thank you very much, operator. Good morning, everyone. Good morning, Chris. My first question is on the balance sheet. Good job there getting the leverage ratio at 2.9x.

Speaker 5

And I wondered with this, do you plan to maybe hold a little bit more cash on the balance sheet? And do you think about acquisitions? And if so, where do you see more opportunities on the precoat side or on the metal coating side? Thank you very much.

Speaker 3

I can start, Tom, with the balance sheet question. Typically what we've done is we operate pretty low cash balances and use excess cash to reduce the borrowings on the revolver. We have $400,000,000 revolver with about $355,000,000 in capacity at the end of the year. So the acquisitions Tom was speaking to, we should be able to fund smaller bolt on through the revolving credit facility. Tom?

Speaker 2

Yes, Lucas. I think right now what we're seeing is there's a couple of potential galvanizing opportunities that have popped up that the kind of bolt on one off sites that our team likes to look at. No idea how active those will be, but we would fund those off of the revolver. But naturally, we'd expect to have good EBITDA as above our multiple.

Speaker 5

Got it. And when you mentioned bolt on, up to what level would you consider EBITDA or volume would you consider bolt on? I'm just trying to get a sense for kind of order of magnitude.

Speaker 2

These are typically in the $10,000,000 to $20,000,000 revenue side. So usually they're going to have say $3,000,000 or $4,000,000 well, yes, probably $3,000,000 or $4,000,000 of EBITDA. We tend to pay roughly 6 times. So that's what we consider bolt on. And then our team, we anticipate good strong 1st year synergies often in the 500,000 to 1,000 basis point improvement range.

Speaker 5

Very helpful. And for this fiscal year here, how many of those do you think are realistic to tuck in?

Speaker 2

There hadn't been any last year. Of course, we've taken the flag down that we were out there in acquisition mode. So I think we've kind of let folks know that as we've gotten our debt under 3 times quicker than we'd anticipated, that while we're still going to be focused on paying down debt funding the facility in Washington and our normal CapEx needs. So we've just recently kind of let it out that we're interested again. These usually have 4 to 6 month cycle times from when they become active to when we're able to do due diligence and close.

Speaker 2

So maybe 1 or 2, that'd be about

Speaker 5

That's very helpful. And maybe just to round out the conversation on growth. Do you think about kind of organic growth? Where would that factor in visavis some of these bolt ons you mentioned? Thank you.

Speaker 2

Yes, I think we still our normal organic growth, particularly on the Metal Coatings side tends to run with GDP. So when we can get a couple of acquisitions, that's going to add another 5% or 6% on a full year run rate basis. On the precoat side, we've got 2 things going on. 1, we feel volumes are improving as we saw in the Q4. I believe we were up about 9% on volume.

Speaker 2

So we're seeing the volumes pick up on the pre cut side, which gives us nice organic growth. And then as we get into next year, finish out this year, get into next calendar year, that's when we'll start to have the Washington site coming online. So, let's provide some additional revenue and EBITDA growth.

Operator

Our next question comes from John Franzreb with Sidoti and Company. Please go ahead.

Speaker 6

Good morning, guys, and congratulations on another good quarter.

Speaker 2

Hi, Joe.

Speaker 6

I'd like to start with the revenue profile in the 4th quarter. You suggested there was unusually warmed on a seasonal basis. I'm wondering 2 things. Does that suggest, A, that business was pulled from the Q1 into the Q4? And B, if that was the case, does that suggest that maintaining guidance is actually more of a positive thing because you're able to backfill some of that revenue?

Speaker 2

That's a good point, John. I think on the Metal Coatings side, yes, getting an earlier start, it kind of depends on what yes, so we did see some of that pull in and stay active. Hopefully, there's some additional projects that come in the pipeline as the summer as we get into summer months and into fall. And then on the precoat side, that's the normal ordering cycle, so the construction ramp up. I would not sure a whole lot pulled in from Q1, but potentially a little bit in terms of inventory buildup among some of our customers.

Speaker 2

So yes, we feel like the guidance is solid and then traditionally we try to be conservative And then we'll continue to update that as the year goes on.

Speaker 6

Fair enough. And you also mentioned in the press release there was market share gains on the pre code side. Can you talk a little bit about the market share gains and where you're getting it from?

Speaker 4

Yes, John, this is Dave. I think as you look at it, there's a couple of areas in the end markets where we're seeing some improvement. We believe we're outperforming the market in the construction segment, also in the appliance market is another area where we're outperforming and seeing some conversions taking place. So those are the 2 main areas I'd point to.

Speaker 6

Okay. And one last question and I'll get back in queue. You talked about pricing initiatives on the Metal Coating side of the business benefited the quarter. Can you just just go a little bit deeper on that? Is that in response to zinc prices?

Speaker 6

What's going on in the pricing initiative front on MC?

Speaker 2

Yes, I think we've always tried to talk about how we have tried to differentiate our value pricing versus zinc, but it does help. Zinc has been trending up and so as zinc trends up, that tends to help support our price levels. I also think that we continue to add services and anywhere from adding more transportation, so that we're able to be more responsive, but that also adds basically just revenue and flow through income and increases our price per hundredweight, if you will. So I think all those things have they bode well. We also have improved.

Speaker 2

We added another spin line late last year. So we're getting the benefit of that and that tends to be at a higher price per 100weight, actually tends to be priced per piece. So those are all things that have benefited us and we hope to continue to benefit from as we go forward this year.

Speaker 6

Great, great. Thanks for the additional color. I'll get back into queue.

Speaker 2

Thanks.

Operator

The next question comes from Adam Thalhimer with Thompson Davis. Please go ahead.

Speaker 7

Hey, guys. Congrats on a strong quarter and Philip, congrats on your retirement.

Speaker 3

Thank you. Thanks, Zach.

Speaker 7

In Metal Coatings, so your gross margins were up 170 basis points in fiscal 'twenty four. Curious how that might trend in fiscal 'twenty 5, if there's room for more improvement?

Speaker 2

I think this we talk a lot about DGS and the leadership teams and our playbooks. We believe we are benefiting from that and that we should continue to benefit and hopefully hold those margin improvements and continue to benefit from the various tactics that we're using. So we feel pretty confident with the team and as long as volumes hold up, I believe we can drive those margins.

Speaker 7

Okay. And then at precoat, is this normal seasonality between November February or sounded like you also just had a really good quarter in precoat in February?

Speaker 2

We did. So part of this is, yes, it was a lighter winter than normal, but also I think just we had mentioned last Q4 where we were carrying a lot of customer inventory and we've cleaned that out as we got into the fiscal year. Good operating performance by the team in PreCoat. And then so this Q4, I think it was the benefit of kind of normal customer inventory sitting in our facilities, which allows us to drive productivity and efficiency. And then the volume just we start to get when volume flows through those margins tend to pop nicely.

Speaker 7

Okay. And then do you guys have a like an actual interest expense and tax rate forecast that's embedded in the guidance?

Speaker 3

We do. I mean, we look at the forward curve on our interest rates. So just like everybody else, we're expecting 4 to 6 cuts this year, then we got out there and we're able to reprice here in March 24, which wouldn't have been part of our original forecast.

Speaker 2

Well, we don't have cuts factored in.

Speaker 3

We have the Just the forward curve. Just the forward curve. Not any additional cuts. And then on the tax rate, we have a 21% stat rate and then we're primarily North America, so call it 3%, 3.5%, 3% to 4%. So that's kind of 23.5% to 24% tax rate is what we utilize.

Speaker 7

Okay. I'll turn it over. Thank you.

Speaker 5

All right. Thanks, guys.

Operator

Thanks, guys. Our next question comes from Jon Braatz with Kansas City Capital. Please go ahead.

Speaker 8

Good morning, everyone.

Speaker 3

Good morning, Jon.

Operator

Tom, can you talk a

Speaker 8

little bit about Washington, Missouri? As you ramp up, what can you say about maybe startup costs, costs you're absorbing prior to production and is there a little bit of a drag on margins for this fiscal year?

Speaker 2

No, there shouldn't be. I think we've got all that planned in our budgets for how we're going to ramp up. And naturally, we've got a little bit of contingency in there too. So we've got some decisions to make as the line gets tested out and comes online, whether we actually start producing at the end of the year or whether we just carry in and meet the normal customer demand that's been committed. So, but in either case, I don't look for that to be a drag.

Speaker 2

So there should be an opportunity.

Speaker 8

Okay. And how much of production is committed at this point?

Speaker 2

75% is contractually committed and that's kind of how we've what that is, how we've built the model and factored that in. So we've got 25% to go sell, although in this case, there's the customer that made that commitment actually would have liked to have had 100 percent of it. So we've got upside with this customer, which we hope to announce here in the next month or so. And then secondly, there's it does give us the opportunity to go chase some other business, which I always like having that ability to do that.

Speaker 8

At the most, what would you like to see committed by one customer? You're 75% now, I mean, would you be okay at 85%, 90%?

Speaker 2

Yes, I think so. I always hesitate to get that dependent on one customer, but in this case, because it's a 7 year contractual arrangement, I'm less concerned, so to speak. And obviously, with that much business, we do have another plant in St. Louis that does it's a smaller capability, but we do have another aluminum line, well, 2 actually. So we do have that opportunity to pick up business and make sure that we balance it between both plants.

Speaker 8

Sure.

Speaker 4

Okay. Thank you very much.

Speaker 6

Sure.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Tom Ferguson for any closing remarks.

Speaker 2

Thank you for your time today. As you can tell, we're excited about our future and I look forward to updating you on our Q1 results in just a few months.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now

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