AZZ Inc.

AZZ Inc. (AZZ - Snapshot Report) saw record revenues and backlog in the second quarter as power generation and galvanizing services remained strong worldwide. In September, AZZ raised fiscal 2009 guidance. It has surprised on earnings 3 out of the last 4 quarters on average of 30.46%. AZZ has a forward P/E of 7.97.

Company Description

AZZ Inc. manufactures electrical equipment for the industrial customers, power generation, transmission and distributions, as well as a leading provider of hot dip galvanizing services to the steel fabrication market nationwide.

AZZ, a Zacks #1 Rank (strong buy), has two segments: Electrical/Industrial and Galvanizing.

The Electrical/Industrial division manufactures products which transmit medium and high-voltage electricity and provides protection for the distribution of power to the end-user.

The Aztec Galvanizing segment operates 20 facilities across the southern U.S. that provide maintenance-free environmental corrosion protection to steel products. Customers operate in the electrical, telecommunications, transportation, petrochemical and the agricultural markets.

Revenues, EPS and Backlog Hit Record Highs in the Second Quarter

On Sep 26, AZZ reported second-quarter 2009 earnings that beat Wall Street estimates by 15%, or 12 cents per share. Net income surged 39% to $11.3 million, or 92 cents per share, compared to $8.1 million, or 66 cents per share, in the year ago period. Analysts expected only 80 cents.

Revenues rose 27% to a record $103.3 million from $81.6 million a year ago. Both segments saw double digit growth.

The Electrical/Industrial segment increased revenues by 15% with strong demand from both domestic and international markets. The power generation, transmission and distribution markets continued to expand.

The Galvanizing segment grew revenues 41% as demand for galvanizing services remained high. The company does not anticipate significant pricing pressures as long as the demand remains strong.

Backlog also hit a record of $190.8 million as of Aug 31, 2008 compared to $149.2 million at the end of August 2007. The company said that based on current customer requested delivery dates and the production schedule, 60% of the backlog would ship in the current year, with 29% to be delivered outside of the U.S.

Fiscal 2009 Guidance Raised

Given the record backlog, AZZ is bullish about fiscal 2009. The company raised full year guidance to the range of $3.25 to $3.35 from $2.95 to $3.05, which was forecast in June. Revenues are expected in the range of $420 to $430 million up from the prior forecast of $410 to $425 million.

The forecast assumes no significant change in galvanizing demand, pricing or adverse weather conditions.

Consensus Estimates Rise

Given the bullish full year guidance forecast, covering analysts have been raising estimates for the third quarter and fiscal 2009. Third quarter estimates are up 2 cents to 85 cents in the last month.

Full year estimates moved in-line with the company's guidance, jumping to $3.30 from $3.00 in the past 3 months.

Value Fundamentals

AZZ is an attractive value stock. It is trading at 7.9x forward earnings. Its price-to-book is 1.98. The company has a solid 5-year average return on equity (ROE) of 13.54%.