AZZ Beats Expectations

AZZ Inc. (AZZ - Snapshot Report) reported fiscal 2010 second-quarter results on Friday. The company said GAAP net income fell marginally to $11.1 million from $11.3 million in the year-ago quarter. Earnings per share came in at 89 cents per share, beating the Zacks Consensus Estimate by 24 cents, or nearly 37%.

AZZ is an electrical equipment and components manufacturer, serving global markets of power generation, transmission and distribution as well as general industrial markets. The Fort Worth, TX-based company also offers hot dip galvanizing services to the steel fabrication market across the country.

The company’s quarterly revenue contracted 8% year over year to $95.2 million primarily due to a 23% decline in Galvanizing Services segment to $39.6 million partially offset by a 7% growth in Electrical and Industrial Products segment to $55.6 million. The sluggish Galvanizing Services performance was caused by a slump in demand, which led to a 17% year-over-year reduction in volume of steel produced and a 6% decline in average selling price.

The growth in Electrical and Industrial Products segment’s revenue was driven by higher shipments resulting from record backlog levels posted in fiscal 2009.

Operating income grew by 6% year over year to $19.2 million, while operating margin expanded 270 basis points (bps) to 20.2%. The growth was primarily the result of improved efficiencies and lower costs of commodities.

During the quarter, the company acquired substantially all of the assets related to Pilot Galvanizing Inc. based in Poca, WV and its affiliate Zinc Partners LLC based in Bristol, VA. AZZ expects the acquisition to be accretive to earnings per share in the first year of operation and add in the range of $6 million to $8 million in annualized revenues.

During the first-half of the current fiscal year, the company generated $36.9 million of cash from operations and deployed about $7.5 million towards capital expenditure and $7 million towards acquisitions. The company’s long-term debt at the end of the quarter stood at $100 million and its long-term debt-to-capitalization ratio was 32%.

Looking ahead, management now anticipates earnings per share for the year ending February 2010 to range between $3.00 and $3.10 on revenues of $370 million to $380 million. The revised guidance is in-line with the Zacks Consensus Estimate of $3.05 per share, which has moved up by 25 cents over the past week. AZZ earlier predicted earnings per share of $2.70 to $2.90 on revenues of $370 million to $390 million.

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