Mixed Results Sends AZZ, Inc Lower

Demand For Performance Metals Products Drives AZZ, Inc 

Demand for metals, metal products, and metal-related services is high throughout the supply chain so we are not surprised to see AZZ, Inc NYSE: AZZ performing well. We are surprised, dismayed rather, to see those same forces driving the business hindering the results as well. If not for material, labor, and freight shortages the company’s results would have been better. The takeaway, as with the rest of the industry, the demand isn’t going away to the missed revenue will be recouped the only question is when?

AZZ, Inc Shines On The Bottom Line

AZZ, Inc reported mixed results for the quarter but there are two takeaways we are focused on. The first is that revenue shortfalls are due to external factors that will be overcome. The second is that margins are improving but we’ll get to that in a bit. The company reported $231.7 million in net revenue for a gain of 2.3% over last year. That is OK at face value but looks less good when compared to the consensus and the 2019 results. The revenue missed the consensus by 550 basis points and falls short of 2019 by a much larger margin. Internally, sales were driven by a 15.4% increase in the Construction Group offset by an 11.4% decline in Infrastructure. The infrastructure segment was, notably, hurt most by disruptions. 

"During the third quarter, our Infrastructure Solutions segment generated sales of $98.4 million, up $11.5 million sequentially but down $12.6 million or 11.4% compared to the same period last year.  Several business units were affected by material delivery delays, including customer supplied components, and labor shortages …” says CEO Tom Ferguson. 

Moving down the report is where the details get really interesting. The company reported a 140 basis point improvement in the operating margin that brings the YTD total to up 780 basis points. That drove GAAP earnings of $0.85 or up 11.8% over last year and $0.03 better than the Marketbeat.com consensus estimate and the gains are expected to stick, at least while prices for metals products remain strong. 

The guidance, however, is mixed in relation to the consensus. The company reaffirmed its guidance for revenue to a range of $865 to $925 million compared to the consensus of $913 million while raising the low end of the EPS range. The company is expecting EPS of $3.00 to $3.20 versus $2.90 to $3.20 and the Marketbeat.com consensus of $3.14. Nothing for the market to get excited about. 

Expect Dividends And Share Repurchases From AZZ, Inc In F22

AZZ, Inc isn’t a high-yielding stock but it is a reliable payer with a 1.27% yield. The company has only ever increased its payout and has been paying a steady amount since the last increase n 2016. The payout ratio is a low 20% compared to the consensus EPS estimate for the year and we see upside risk in the guidance. The balance sheet and cash flow are also strong so there should be no issue with dividend payments or share repurchases. The company repurchased $7.6 million in shares during the quarter and we see no reason repurchases will end this year. 

The Technical Outlook: AZZ, Inc Pulls Back To Support 

Shares of AZZ, Inc have been in consolidation for the last year or so and are still consolidating. The post-earnings action has share prices moving lower within the range but still above key support. Key support is near the $50 level so there is a possibility share prices will continue to fall in the near term. Longer-term, we expect to see investors begin picking this stock up soon and push it higher by mid-year.