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Electrical equipment manufacturer AZZ Inc. (AZZ - Snapshot Report) reported third-quarter fiscal 2014 adjusted earnings of 59 cents per share, missing the Zacks Consensus Estimate by 16.9%. The earnings decreased by 7.8% from the year-ago level primarily due to higher cost of sales and selling, general and administrative expenses, and an increase in share counts.

On a GAAP basis, the company’s earnings per share were 72 cents versus 60 cents in the prior-year quarter. The difference between GAAP and adjusted earnings was primarily due to the combined effect of a loss associated with the fire at AZZ Inc.’s Joliet facility, charges from acquisitions and gain from the property insurance proceeds related to the fire.

Revenues

In third-quarter fiscal 2014, AZZ Inc.’s revenues were $197.8 million, lagging the Zacks Consensus Estimate by 8.8%.

However, quarterly revenues climbed 32.1% year over year primarily due to a rise of 85.4% year over year at the Electrical and Industrial Products segment on the back of synergies from the acquisitions of Nuclear Logistics Inc. and AZZ WSI LLC. These positives were partially offset by a 4% year-over-year decline at the company’s Galvanizing Services segment primarily due to non-operating expenses resulting from the fire at the Joliet galvanizing facility.

Operating Highlights

In the quarter under review, cost of sales was $144.4 million, up 37.9% from the prior-year level of $104.7 million.

The company’s total costs and expenses were $169.8 million, up 35.3% from the year-ago level of $125.5 million, primarily due to higher selling, general and administrative expenses and an increase in interest expenses.

The increase in revenues was more than offset by higher total operating expenses, thereby bringing down the operating margin to 16.8% from the prior-year level of 22.3%.

At the end of the quarter, AZZ Inc.’s product backlog edged down 1.9% to $211.8 million from the year-ago level of $215.8 million.

In the quarter, incoming orders were $198.2 million, up 30.1% from the year-ago level of $152.4 million. The company’s book to ship ratio was 100%. Overseas orders constituted 24.6% of the backlog.

Interest expenses increased 43.8% year over year to $4.6 million due to utilization of credit facility to finance the Aquilex SRO acquisition.

Financial Highlights

Cash and cash equivalents as of Nov 30, 2013 were $50.9 million versus $49.5 million as of Nov 30, 2012.

Net cash provided by operating activities during the first nine months of fiscal 2014 was $94.6 million compared with $66.6 million in the prior-year comparable period.

As of Nov 30, 2013, the company’s long-term debt due after one year was $416.6 million versus $196.4 million as of Nov 30, 2012.

Guidance

Considering the impact of the AZZ WSI LLC acquisition, AZZ Inc. revised its earnings and revenue guidance for fiscal 2014. The company lowered its earnings guidance to the range of $2.30 - $2.40 per share from the previous estimate of $2.45 - $2.65 per share. In addition, the company decreased its revenue guidance to $760 - $770 million from the earlier projection of $780 - $810 million.

Other Company Release

EnerSys (ENS - Snapshot Report) is slated to release its third-quarter of fiscal 2014 earnings on Feb 5, 2014. The Zacks Consensus Estimate is $1.03.

Regal Beloit Corp. (RBC - Analyst Report) is slated to release its fourth-quarter 2013 earnings on Feb 10, 2014. The company expects fourth-quarter adjusted earnings to be in the range of 82 - 90 cents per share. The Zacks Consensus Estimate is 84 cents.

Zacks Rank

AZZ Inc. currently has a Zacks Rank #3 (Hold). However, a better-ranked stock in the same sector is Pioneer Power Solutions, Inc. (PPSI) with a Zacks Rank #1 (Strong Buy).

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