AZZ (AZZ) Q2 2026 Earnings Call Transcript

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Date

Oct. 9, 2025, 11 a.m. ET

Call participants

President and Chief Executive Officer — Tom Ferguson

Chief Financial Officer — Jason Crawford

Senior Vice President, Marketing, Communications, and Investor Relations — David Nark

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Takeaways

Sales -- $417.3 million in sales for fiscal second quarter ended Aug. 31, 2025, up 2%, driven by a 10.8% increase in the Metal Coatings segment and offset by a 4.3% decline in Precoat Metals sales.

Adjusted earnings per share -- Adjusted diluted EPS was $1.55 in fiscal Q2 2026. Adjusted earnings per share increased 13.1% compared to the same period in the prior year.

Operating cash flow -- Operating cash flow of $58.4 million was generated in the second quarter.

Consolidated adjusted EBITDA -- Consolidated adjusted EBITDA for the second quarter was $88.7 million, with a margin of 21.3%. Excluding equity and earnings impact, adjusted EBITDA was $91 million, or 21.8%.

Metal Coatings segment margin -- 30.8%, slightly down, with segment margins ranging from 30% to 32% based on current performance and product mix for the current fiscal year.

Precoat Metals segment dynamics -- Sales fell 4.3% due to lower end-market volumes in building construction, HVAC, and appliances, but market share increased by 3%-4% due to tariffs reducing pre-painted imports.

Interest expense -- $13.7 million, a decrease of $8.2 million versus the prior year, driven by debt paydown and an accounts receivable securitization facility.

Net income -- $89.3 million in reported net income for fiscal Q2 2026; adjusted net income was $46.9 million after excluding a $61.6 million gain from Avail divestiture impacts.

Effective tax rate -- 21.9%, down from 25.6% due to an increase in R&D tax credits related to tech investments at the Washington, Missouri facility.

Operating income -- $68.5 million, or 16.4% of sales, compared to $67.6 million, or 16.5% in the prior year quarter.

SG&A expenses -- $32.8 million (7.9% of sales), down from $35.9 million (8.8%) in the prior year quarter.

Adjusted equity earnings -- Loss of $2.3 million (adjusted) due to Avail divestiture overhead costs and seasonal Beale's Welding Solution weakness; forecasting zero equity earnings from Avail-related businesses for the remainder of the current fiscal year.

Net leverage ratio -- Net leverage ratio was 1.7x compared to 2.7x in the prior year, reflecting consistent capital allocation and debt reduction.

Washington, Missouri facility -- Ramp-up produced a $2 million margin hit, but volume and operating leverage are improving, with capacity expected to reach around 50% by fiscal Q4 2026.

Guidance -- Fiscal year 2026 sales expected between $1.625 billion and $1.725 billion, adjusted EBITDA to the lower half of the $360 million to $400 million range for fiscal 2026, and adjusted diluted EPS of $5.75 to $6.25 for fiscal 2026, translating to a 10%-20% increase over fiscal 2025.

Acquisition activity -- Acquired the Canton, Ohio galvanizing facility for $30.1 million, contributing partial quarter revenue and integration to Oracle and DGS systems.

Share repurchases -- $20 million 10b5-1 plan active, anticipated to complete within a few weeks to a couple of months.

Tariff impacts -- Pre-painted steel imports are down 23% this year, providing a tailwind for Precoat, resulting in mixed segment results.

Infrastructure market strength -- Utilities sales were up 19% in fiscal Q2 2026 and consumer sales were up 7.6% compared to the same quarter last year; construction market sales were up less than 1% compared to the same quarter last year.

Summary

AZZ (NYSE:AZZ) maintained top-line growth and achieved double-digit adjusted EPS growth in fiscal Q2 2026, primarily through performance in the Metal Coatings segment. A disciplined capital allocation approach allowed for continued debt reduction, strategic acquisitions, and ongoing share repurchases in line with management’s stated objectives. Precoat Metals increased market share despite overall volume declines, benefiting from tariffs that reduced imports, but segment growth was constrained by softness in construction, HVAC, and appliance end markets. The Washington, Missouri expansion advanced capacity ramping as projected, and management identified sustained infrastructure spending, especially within utilities and energy-related markets, as key multiyear tailwinds.

Ferguson stated, "we are reiterating guidance for total sales, EBITDA and adjusted EPS," highlighting leadership's confidence in fiscal 2026 outlook despite ongoing market volatility.

Management underscored that "end market sales for AZZ were up including utilities up 19%, consumer up 7.6%," pointing to infrastructure-led demand as the principal growth driver this quarter.

Tariff-related customer hesitation was explicitly identified for non-infrastructure-related Precoat projects, which Tom Ferguson described as contributing to a "mixed" demand outlook for the segment.

The shift from plastic to aluminum packaging continued to create highs in the container and beverage vertical, with operational momentum supported by investments at the Washington, Missouri plant.

Industry glossary

DGS (Digital Galvanizing System): AZZ's proprietary digital platform for managing and controlling galvanizing process operations across facilities.

Precoat Metals: Business segment within AZZ specializing in coil coating and related metal finishing solutions, distinct from the core Metal Coatings segment.

Avail: Name of the joint venture (formerly Electrical Products Group) in which AZZ holds a minority interest following divestiture of electrical products businesses.

WSI (Welding Services Inc.): Largest remaining operating company within Avail, providing turnaround and outage services to refineries and related energy customers.

Galvalume: Coated steel product comprised of aluminum and zinc, widely used in building construction and cited as impacted by market tariffs.

10b5-1 plan: Pre-arranged trading plan enabling share repurchases at specified criteria, facilitating AZZ's active buyback program.

Full Conference Call Transcript

Tom Ferguson: Thank you, Sandy. Good morning, thank you for joining us to review AZZ's financial results today. Delivered solid second quarter results. Total sales increased by 2%, adjusted earnings per share rose 13.1%, operating cash flow improved by 23%. Underscoring our disciplined execution in a highly dynamic environment. Metal Coatings achieved a strong double-digit sales growth supported by higher volumes and sustained momentum related to robust infrastructure project activity. Metal cutting margins of 30.8% were down slightly as our mix of solar and transmission distribution increased. And these tend to be slightly lower margin markets.

We remain confident in the strength of our core markets and the growth potential ahead for galvanized steel in construction, industrial and electrical utility projects this year. Similar to others in the industry this quarter, Precoat Metals faced some mixed market conditions, particularly in relation to tariffs. But focused on protecting margins while pursuing market share opportunities. While Precoat benefited from the tariff impact on pre-painted imported metal, they faced headwinds due to softer building construction that extended to HVAC and appliance end markets. Looking ahead, we are encouraged by Precoat's new customer wins which are generating market share gains. This is primarily due to a strong focus on key markets impacted by reduced access to imported pre-painted metal.

Including the aluminum container market. Our container and beverage results continue to reach new highs during the quarter. Indicating that the shift from plastic to aluminum is gaining momentum as we ramp production at the new facility in Washington, Missouri. However, the overall demand outlook remains mixed for Precoat end markets. So we are maintaining a cautious outlook. As ongoing tariffs have contributed to customer hesitation on non-infrastructure related projects. Dave will provide more details on industry trends and AZZ's end markets shortly. Consolidated adjusted EBITDA for the quarter was $88.7 million reflecting a margin of 21.3%. The divestiture of the Electrical Products Group through the AVAIL joint venture created a modest EBITDA headwind in the quarter.

Which Jason will address shortly. At our new Washington, Missouri facility, sales continue to increase and operating leverage is improving as we ramp up production. We remain confident achieving gross margin improvements as volumes grow at the new site through the second half of the year. AZZ's proprietary technology continues to set us apart. We continue to pursue technology upgrades ranging from updating system applications continuing to migrate data systems to Oracle, exploring AI opportunities, and developing new galvanizing and coding processes to drive operational efficiencies across our broad network of facilities. As is normal for our Metal Coatings team, they quickly integrated the newly acquired Ohio facility onto Oracle and DGS which is our proprietary digital galvanizing system.

With that, I will turn it over to Jason.

Jason Crawford: Thank you, Tom. For the second quarter, we reported sales of $417.3 million representing a 2% increase from $409 million the prior year period. Growth was led by our Metal Coatings segment, where sales increased 10.8% over the prior year's quarter. Driven by higher volumes and supported by infrastructure-related spending across our largest verticals. In contrast, Precoat Metals sales declined 4.3% due to a weaker end market environment reflecting lower volumes in building construction, HVAC, and appliance end markets. As Tom mentioned, Precoat continues to win market share in a competitive and dynamic marketplace.

The second quarter gross profit was $101.3 million or 24.3% of sales compared to $103.5 million or 25.3% of sales in the same quarter of the prior year. The Precoat Metals segment margins were impacted by customer buying patterns, and the introduction of our new aluminum coil coating facility. Which when combined contributed to have a small drag in margins. Whereas in the Metal Coatings segment, product mix was slightly unfavorable comparison to the prior year quarter. Selling, general and administrative expenses totaled $32.8 million in the second quarter, 7.9% of sales. Compares favorably to last year's second quarter was $35.9 million or 8.8% of sales.

Operating income for the quarter was $68.5 million or 16.4% of sales, compared with $67.6 million or 16.5% of sales in the prior year second quarter. Reflecting the strength and operational execution on lower volumes. As noted last quarter, Fernway our 60% joint venture partner in Avail, divested the majority of its electrical products business in the quarter. For the second quarter, this transaction resulted in accounting adjustments to record an additional gain on the sale. Combined with other adjustments and operating performance of the remaining businesses, reported equity and earnings of $59.3 million in the quarter. On an adjusted basis, our quarterly equity and earnings reflected a loss of $2.3 million from continuing operations.

The loss in the quarter is primarily due to the excess overhead costs resulting from the divestiture of the electrical products business and the traditionally weaker summer season from our Beale's Welding Solution business. Looking ahead, regarding our 40% ownership interest in the remaining Avail business, which now consists of welding services, lighting and some international joint ventures we are forecasting equity and earnings from unconsolidated subsidiaries to be zero for the remainder of the year. Interest expense for the second quarter was $13.7 million representing a significant improvement of $8.2 million from the prior year due to a combination of debt pay down debt repricing and accounts receivable securitization facility introduced in the quarter.

The accounts receivable facility has a borrowings limit of $150 million and is accounted for secured borrowings with an interest rate of one month so far plus 95 basis points. Create an expected annual interest savings of $1.4 million versus current borrowings on the term loan. During the quarter, 100% of the proceeds received from this facility were used to pay down existing debt. The current quarter's income tax expense was $25 million reflecting an effective tax rate of 21.9%. Compared to 25.6% tax rate in the prior year's quarter. The tax rate reduction in the quarter is due to an increase in R and D tax credits attributable to technology spend on our new build Washington, Missouri facility.

Reported net income for the second quarter was $89.3 million compared to $35.4 million for the prior year quarter. Since our non-GAAP measure for adjusted net income excludes amongst other items, equity and earnings from the Avail divestiture, of $61.6 million AZZ reported adjusted net income of $46.9 million on adjusted diluted EPS of 1.55 This compares favorably to the prior year's adjusted net income $41.3 million adjusted diluted EPS of $1.37 increase of 13.1% compared to the same period of the prior year. Second quarter adjusted EBITDA was $88.7 million or 21.3% of sales, compared to $91.9 million or 22.5% of sales in the prior year.

Excluding the impact of equity and earnings, our adjusted EBITDA for the second quarter would have been $91 million or 21.8% compared to $90.4 million or 22.1% in the same quarter last year. Turning into our financial position and balance sheet. For the second quarter, we generated cash flow from operations of $58.4 million Consistent with our capital allocation strategy, in the quarter we invested $19.3 million in expenditures for the businesses invested a further $30.1 million in the acquisition of our new galvanizing facility Canton, Ohio and increased our dividend payments to shareholders over prior year.

With a slight pay down of debt in Q2, combined with our continued financial performance, our credit agreement net leverage ratio remained at 1.7 times. Compared to 2.7x in Q2 of last year. As communicated, we continue to maintain a disciplined approach to our capital allocation strategy transitioning our focus to investments in organic growth and strategic M and A, while returning value to our shareholders through cash dividends and share buybacks, and maintaining our debt leverage in the target range of 1.5 to 2.5 times. With that, I'll turn the call over to David.

David Nark: Thank you, Jason. Let me begin with an update on the Infrastructure Investment and Jobs Act. As of August, the Department of Transportation reported that 73% of IIJA program funds totaling $319 billion had been committed to specific projects. With approximately $177 billion already outlaid. Similarly, according to the Department of Energy website, 77% or $74.9 billion had been obligated to certain projects. Both agencies are expected to continue to announce awards or initiatives throughout the balance of this year.

We believe that because the current legislation is scheduled to expire in 2026 and requires projects such as utility-grade solar to be completed by the end of next year IIJA related spending is having a positive effect on demand for our Metal Coatings segment. We expect multiyear tailwinds associated with IIJA spending and we'll continue to monitor discussions regarding potential reauthorization beyond 2026 once the government reopens. During AZZ's second quarter, we continued to see infrastructure, non-building and civil works projects as a bright spot. Offset by softness in nonresidential and residential building construction.

Reported end market sales for AZZ were up including utilities up 19%, consumer up 7.6% while construction sales were up by less than 1% as compared to the same quarter last year. As noted today and in prior quarters, end market growth in utilities is elevated due to IIJA related project spending, particularly solar, transmission and distribution and data center projects. As Tom mentioned, the transition to aluminum packaging in both the food and beverage sectors remains a significant growth driver for AZZ. Our container end market has sustained strong momentum this year supported by continued ramp up of the production at our new Greenfield facility in Washington, Missouri, and recent share gain activity.

While we have seen increased opportunities from tariffs associated with imported pre-painted aluminum steel, weakness in both nonresidential building, particularly commercial office and retail construction as well as residential building has created some divergence in our construction end market sales. However, our teams remain well positioned to execute through the balance of the fiscal year and we are approaching calendar year 2026 with measured optimism. With that, I will now turn the call back over to Tom.

Tom Ferguson: Thanks, Dave. We continue to see a strong pipeline of project-related activity driven by megatrends such as energy transition and the growing demand for electricity generation to support the rapid growth of data modernization, transmission line expansion and the integration of multiple energy sources will fuel further demand at our plants. As the country continues its journey to re-industrialize the AI boom and cloud expansion are driving massive data center projects and infrastructure development. With higher interest rates lasting longer than anticipated, new housing development and related supporting projects remain muted. Public infrastructure spending tends to be less sensitive to interest rate fluctuations as is often funded through grants, bonds or supported by subsidies.

Overall, we anticipate and have planned for a multi-year tailwind in infrastructure spending. Particularly in energy and power generation capacity despite the potential for continued pressure on residential construction. For our 2026 fiscal year, we are reiterating guidance for total sales, EBITDA and adjusted EPS. We anticipate that our sales will be in a range of $1.625 billion to $1.725 billion Adjusted EBITDA will be within the lower half of the range $360 million to $400 million due to the lack of avail equity income as they continue to transition without the electric products businesses.

Adjusted diluted earnings per share will be in a range of $5.75 to $6.25 which translates to an increase of between 10% to 20% over the fiscal 2025 adjusted earnings. Although markets may be choppy in the second half of our current fiscal year, which extends through February 2026, our numbers are supported by strengthened projects and structural steel demand forecasts. We continue to strengthen our operational performance and maintain disciplined execution at each of our facilities. Our liquidity position and balance sheet are strong and flexible. With a low debt to EBITDA ratio. Especially given our cash generation capabilities. We remain well positioned to pursue strategic growth opportunities, including our other capital allocation strategies as we have already discussed.

Finally, industry consolidation presents ongoing opportunities for our company. And we are actively evaluating bolt-on acquisitions that are strategically aligned fit our integration playbook, and extend our market leadership in Metal Coatings. Our M and A pipeline is healthy and we plan to remain disciplined in pursuing only high-quality opportunities create long-term accretive value for our shareholders. As always, I would like to express my gratitude to our hardworking and highly talented team for executing AZZ's shared vision of growth, profitability and operational excellence. Our mission is to create superior value within a culture where our people can grow and traits matter. Our culture is built on providing outstanding quality and service as directed within our servant leader mindset.

These principles continue to shape our path forward and underpin our success. I am proud of our team's execution of the fiscal 2026 plan so far this year and remain confident we are positioned for continued growth and success. We are committed to driving top-line growth, enhancing profitability and generating robust cash flow. All of which are supported by a disciplined capital allocation philosophy. Through the successful execution of our strategic priorities, we believe we will continue to deliver sustainable value for all of our stakeholders. Now operator, we would like to open up the call for questions.

Operator: We will now begin the question and answer session. You would like to withdraw your question, Our first question comes from Ghansham Panjabi with Baird. Please go ahead.

Ghansham Panjabi: Hey guys, good morning. I guess, first off on the Precoat market share gains that you called out, Tom, can you just give us a bit more color on that dynamic and maybe dimensionalize the boost for AZZ? And I'm just asking because obviously volumes were down in the quarter, you cited some of the obvious in terms of construction and, you know, so on and so forth. How should we think about the contribution from the share gain piece?

Tom Ferguson: Yes. I think to a couple of things there. One, we picked up share gain because the and we'd referenced it. The pre-painted imports are because of the tariffs are down significantly. So that's been transitioning to domestic supply and we're painting you know, least as much as our share. If you take that, it's probably, David, what? It's about 10% on imports. So we've picking up our share of it. So we've picked up 3% or 4%. To offset the roughly 9%, 10% market decline. So it's just offsetting but it's also positioning us depending on what happens with tariffs. Hopefully, to sustain that market share and be able to take advantage of it as we go forward.

As we're picking up new customers, new applications, converting that, And that's pretty much at our normal margin profile. So it's not like we've had to go aggressively discount to take that share. Is why I'm also confident that those margins will continue to flow through going forward post market softness, if you will.

Ghansham Panjabi: Sure. Sticking with Precoat, so some of the challenges that you called out, you know, building construction, HVAC, appliances, they all seem sort of you know, aligned towards the same theme. It doesn't seem like there's any short-term catalyst for those end markets in terms of reversing that weakness. Would it just be the share gains and then you know, the Washington, Missouri facility that are positive offset And how do you think that nets out for segment volumes as we think about the back half of the year? For Precoat?

Tom Ferguson: Yes, I'll start and then Jason can probably add some additional color. Yeah, I think you pretty much summed it up. So we're going to continue to assuming the tariffs stay in place, which looks like they will, then we should be able to sustain that market those market share gains from picking up the past imported, prepainted metal. Two, we are do we have the Washamos site? It's, you know, it's still I think we're saying it's running about 20% of its capacity or some number thereabouts. So it's still got to ramp to it as the next six months go on and pretty significantly. So that's opportunity and that is where there's strong demand.

In that aluminum container market. That's our sister facility to Washmo, which is the Saint Louis which has two lines, is doing really well because of the high demand in that market. As I look at it, I think well, and then the third piece is we're also aggressively going after other conversions and chasing things. So any kind of rebound in construction. And I think we're seeing some signs of that. We had a big customer well, we had a lot of customers at our annual golf tournament. And, and they generally feel like things have bottomed and starting to come back up in certain areas of the country, particularly.

So we feel good about, what we're doing, and I'd also commend the Precoat team. They've adjusted it. They're operating and shifts and times and capacity. You know, we're retaining capacity for the upturn that we hope to have as the year goes on. But also as we talk about our variable cost structure, they've been able to adjust that pretty quickly And I know this is about pre COVID, but I'd say the metal coatings side has done that outstandingly well during that same time period.

Ghansham Panjabi: Okay. Very good. Thank you.

Tom Ferguson: Jason, did you want to add any? No, think the only other thing you could potentially add there is that, you know, when you think about the construction, it certainly has enough impact on the HVAC and appliance, but very minimally so, if you look at those two, businesses, they're doing reasonably well. And quarter to quarter, there's an impact in terms of inventory levels and model changes, etcetera. So don't see them as being much of a drag in comparison to the construction market. And I'll also add in, we had a good solid September, so we feel good as we've kicked off the third quarter.

So kind of in line with the fact that a lot of the Precoat customers are feeling like things are starting the corner is starting to turn.

Ghansham Panjabi: Fantastic. Thank you so much.

Operator: The next question comes from Nick Giles with B. Riley Securities. Please go ahead.

Nick Giles: Yes. Thank you, operator. Good morning, everyone. Guys, still a very solid quarter here and wanted to just turn it on the guidance for a second. So you've reiterated your adjusted EBITDA guidance And just curious really what would take you to the higher low end of the range at this point? I mean, how much is end market driven versus operational? And then how much EBITDA could Washington incrementally contribute as volumes continue to ramp? Thank you.

Tom Ferguson: I'll answer the first part of that and then Jason can opine on Washington. I feel like when it comes to I don't know if this has got missed or not. We've talked about it a few times. But you look at the $14 million to $15 million of avail EBITDA impact from last year versus we've signaled zero Q2, Q3 and Q4 for AVAIL. And so that's the biggest impact in terms of our EBITDA guidance. And I'd say that was, you know, harder for us to predict until now you can we can see with primarily WSI as the main asset left in Avail.

And they had just gone through this summer is obviously weak because there's just not turnarounds and outages during the summer. So we've felt that. And going forward, though, they do come back into you know, so in terms of the upside. Hopefully they do have a strong fall season, which is you know, back to how turnarounds and outages run. I think interest savings is, is gonna continue. We've paid down the debt. We continue even after acquiring Canton, paid down some debt. So and interest rates have finally moved a little lower. And we've done that through our own actions in terms of repricing and the securitization. So, you know, we feel good about that.

It's mostly embedded in our outlook, but you know, there's upsides to that. And then hopefully, get a deal or two done on the particularly on the galvanizing side that before the end of the year and have some impact there and because, obviously, the assets we're buying are gonna be good galvanizing assets that we hope to improve as well. I think those are all the kind of pieces. Precoat's performing well. I think they're driving know, to sustain those margins over 20%. And given the volume fall off, so as volumes pick up at all, that's that can also be upside to us.

And then do believe the metal coatings folks are driving hard to sustain that 30%, 31% margin profile while taking advantage of the higher than expected growth, driven partly by regulatory changes and the threat that solar is gonna go away. So we're seeing lots of solar and pole transmission distribution kind of activity, which is we signal maybe slightly lower margin than on balance, but it's really, really good volumes. So we like that stuff a lot. And then Jason on Washington.

Jason Crawford: Yeah. Certainly, Washington, you know, as we previously communicated, would be a drag in margins in the first half of the year and then start to turn positive in the second half of the year. And we're very much in line with around about $2 million of a hit to margins in the first in Q2 essentially. From a contribution margin point of view, the businesses contribute with the volume that's flowing through there. We know that's ramp up volume. But obviously, you've got the fixed costs associated with that facility and largely the fixed costs are driven by depreciation of the $125 million So it's very much in line with expectations.

As you start to look at the second half of the year, then Q3, Q4, it starts to ramp. And, you know, we were very much in line with the expectation of that ramp profile. We'll start to hit capacity towards the 50% arena Q3 going into Q4, and then really see that start to pop in Q4. So very much aligned with the and very much built into original guidance and where we sit here today.

Nick Giles: Tom, Jason, I really appreciate all that detail. Maybe just back on the coiled coating side. I mean, you've obviously deployed meaningful growth capital to expand capacity with Washington. But in the past, I think you have spoken about there could be some margin expansion on the coil coating side that could require some capital Can you just remind us how you're thinking about that opportunity today? What would be the timing around kind of a project like that? And how many quarters would something like that undertake? Thank you.

Jason Crawford: Yes. And to be fair, I don't think there's any one big silver bullet out there. I think there's multiple projects that we've started to kick coming through the summer program that we'll start to incrementally see some benefits and, you know, we're seeing them start to kick in. And, you know, to be fair, that's applicable to both sides of the business. There's, you know, as we've highlighted our group our capital allocation is looking at outside and inside and some of the projects that sat in the sidelines, are now getting turned into execution. So you know, again, I don't think there's gonna be a big boost in terms of a step function.

But we're going to continue to drive the opportunities that we see in front of ourselves.

Nick Giles: Guys, thanks again. Keep up the good work.

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

Tom Ferguson: Hey, Adam, we can't hear you. You might be on mute.

Operator: Pardon me. We have Timna Tanners with Wells Fargo.

Timna Tanners: Hey, Timna. Import opportunity, is that fully played out? Or are we still in somewhat early innings? I know that imports only really started to drop off more recently. So I'm just wondering if we could see a bit more share gains still to come.

Tom Ferguson: Yeah. It's really early innings. I think probably a, you know, a couple of months of that. So that should have a good tail to it. It just takes time to ramp up the domestic capacity, change projects we're seeing and things like that. So we feel good about that the balance of the year. I'm not sure it's fully embedded in our forecast. Jason would probably disagree with me. Probably, it is fully embedded. But I'm probably more of the optimist.

And so I yeah, I look forward to that because it's we're engaging with some new customers and able to demonstrate our value add capabilities in terms of quality service and particularly responsiveness and it does impact our I would say it does have a slight negative impact on our margin profile because we're, you know, a lot of these are smaller orders. And we're winning them because we can turn them quickly and give them whatever kind of color combination that they want. So we really look forward to that continuing to grow and be able to sustain it regardless of whether the imports come back up or not.

Timna Tanners: Got you. Okay. Thank you. On the Washington ramp up, are you seeing any impact of reduced substrate because of the Oswego fire?

Jason Crawford: No, no. I mean, certainly not from that point of view. At this point. Obviously, there's one customer supports that facility quite frankly, our you know, our production ramp is ahead of plan. Yeah. And, you know, we're executing with the material and, you know, we're out at the facility a couple of weeks ago and, you know, it's really starting to look like a coil coating facility versus a showpiece that, you know, a lot of the analysts that saw a couple of I guess, six weeks ago or so. So I think we're in very good shape from that execute through the end of the year.

Tom Ferguson: There's a lot of aluminum sitting in that on that floor now.

Timna Tanners: Gotcha. Okay. Alright. And then final one for me if I could. Wanted to just probe a little bit more the M and A pipeline, any updated thoughts on the economy having any impact on more or less to sell to you at this juncture? Thanks.

Tom Ferguson: Yeah. I think there's you know, we're working a couple of the typical bolt-ons for galvanizing and it's one of them is actually a process, so we know that one will go forward. We can never quite predict. We tend to believe we're always gonna be a strong contender for those, and then we've got a good game plan once we do acquire them as we just did with Canton. Almost immediately ramping it up to our margin profile. So I look forward to that, and we're gonna be as aggressive as we need to be. Not seeing a whole lot shake loose because of it, which actually a little surprising.

We were hoping to see maybe one of these multisite galvanizers decide to go on the market, but we haven't gotten any indication of that at this point. And then on the Precoat side, there's a couple of things out there. I think it's probably as much in our control as they can be. But once again, there the market hasn't seemed to cause them to wanna move any faster than they were before. So but it's a good pipeline. I think we've got nine good opportunities that are in various stages, not to mention a long list of other ones that we remain in contact with. So I'm hopeful we get something done before the end of the year.

And maybe more than one.

Timna Tanners: Okay. Thanks again.

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

Adam Thalhimer: Good morning, guys. Can you hear me now?

Tom Ferguson: We can. We can.

Adam Thalhimer: Great. First one, within Precoat, I think there's also a negative impact from tariffs that possibly offsets the positive impact. I was just curious if you could walk through that, Tom.

Tom Ferguson: I'll let David do it. Yes. I think as you're right. As you look at the overall market, for imported steel, Adam, We know that the pre-painted imports are down 23% this year. That has been, you know, a bright spot or a tailwind for Precoat. Because that means there's less competitive prepainted steel coming in. But offsetting that, Bayer Galvalume market has been down about 50% due to the tariff impacts. So that's really the difference in the numbers and why, you know, PreCut was having some headwinds this year because normally that imported bear is volume that they would be the natural source to be selected to quote and quote that product.

So, but as Tom mentioned, we think that our customers are telling us things have bottomed out. They did buy ahead and placed orders ahead of the tariffs and have been working through the inventory that they've had on the shelf. And we look forward to, to things turning around later on. Yes. And I'd add that the tariff impact is really driven, as Dave mentioned, it's just the uncertainty. So you've got projects being deferred, delayed. I'd say it's a combination of tariffs as well as the lower interest expectations as we had noted.

Interest rates have stayed higher from the Fed longer than I think a lot of people And now with the government shutdown, who knows what the next step is. So I think that's just created hesitancy on non-infrastructure projects. Versus what you see on the metal coating side where infrastructure projects are going forward. And if anything on the solar stuff, it's accelerated. So on one segment, it's a positive. On the other segment, it's mixed, as you said, and probably more negative than positive in the aggregate for Precoat.

Adam Thalhimer: Okay. That makes sense. And then second question for me, I was curious on your confidence in no further losses from Avail. I'm just curious if just to be conservative, if we should model a slight loss in Q3 and then where they are in the process of monetizing the remaining businesses.

Tom Ferguson: Yeah. And I we very much aligned that now you got to subscale piece of business, which is really three pieces. WSI forming by far the largest in terms of sales. But not in terms of, contribution margin. Then you got a lighting business, which is a nice little business that I think they'll get that transacted you know, hopefully this year. And then there's a Chinese. It's a Chinese joint venture, high voltage bus business that once again, I'd hope that they could get that transacted, this year. WSI is a tougher one because it's a little more impacted, in from a market perspective in terms of, refinery turns around. Turnarounds and things like that.

So that's probably a prefer not, but it's probably a longer-term piece. In terms of the Q3, you know, you could I'd say it's hard for us to predict because Q3 should be typically is the fall season and tends to be a stronger one for WSI. On the other hand, as Jason alluded to, they are carrying more over that they can't get at while the TSAs with InVent are running. So, you know, on balance, I think we're pegging it at zero. And I'd say it's more likely slightly negative in Q3. The risk is probably more negative in Q3 than the upside.

And then Q4, they go into the winter, but hopefully, some of these other things transact.

Jason Crawford: And the only thing, I would talk about, Adam, is they've started to digest the TSA and started to accommodate the infrastructure that they need to support that. So we are starting to see some moves in terms of, you know, realigning their core overhead costs. So you should get that pickup going into the second half and then, you know, as Tom mentioned, the seasonality impact of the WSI business.

Adam Thalhimer: Good color. Thanks, guys.

Operator: Our next question comes from Mark Reichman with Noble Capital Markets. Please go ahead.

Mark Reichman: Thank you. Just a couple of questions. On interest expense, when we published at the September, we took our interest expense numbers down I think we were kind of landing around $49 million to $50 million for the year. And of course, the second quarter came in a little higher than our revised estimate I was just kind of curious, your guidance hasn't changed But in the past, your guidance had included $55 million to $65 million of interest expense. What would your expectations be for interest expense for the full year of 2026 for the fiscal year 2026?

Jason Crawford: Yes. I mean, I think the part in terms of the interest and the picking up some favorability given that we've reduced our total debt through the Avail transaction. As you look at our interest expense in the quarter, then, you know, we certainly picked up some favorability, but it was more towards the back end of the year oh, sorry. The back end of the quarter. Given the repricing, the term loan and introduction of the securitization. So obviously, as you look at our quarter in Q2, that's what we improved in Q3 and Q4, obviously, through cost of debt.

And then, you know, we will continue to pay down debt through the same half of the year, excluding any impact from m and a or any share repurchases.

Mark Reichman: And the second question is SG and A, 2020, '25 ran about 9%. Of sales. It was 8.2%, I think, in the May, but dipped down to 7.9% this quarter. Are your kind of your expectations for the well, I guess, as a percentage of sales the right way to look at it? Or what would you kind of your expectations be for the remainder of the year and maybe kind of an ongoing you know, percentage?

Jason Crawford: Yes. I mean, I think that 8% number is fairly representative. Obviously seasonality kicks in the back half of the year. So certainly in Q4, we're SG and A is little bit more of a fixed cost. So the number that you're seeing in Q2, there really isn't any great pluses or minuses away from that through the end of the year. So it's gotta be more of a fixed number versus a percentage as you look at Q3 and Q4.

Mark Reichman: Okay. And just one follow-up to Adam's question. On the equity and earnings of unconsolidated subsidiaries. So we originally had like $1.4 million in the third quarter and I think $774,000 in the February. So what I heard from you is based basically zero in the third quarter, and kind of maybe modestly positive or close to neutral in the fourth quarter for that? And that would be a veil obviously.

Jason Crawford: Yes, yes. I mean, guidance is zero for both And I think some of the discussions that we've been having is there's certainly a sensitivity around about that, but we're going get it wrong. We're going get it slightly wrong in the upside or the downside. I would say in Q3, it's probably you know, if anything, it's slightly wrong in the upside and then slightly wrong in the downside, you know, the seasonality the WSI business has got kicked in the Q4. So you know, the determining factor in Q4 is gonna be how quickly they can ramp the overhead cost to, you know, be aligned to the current business.

But really, as you look at the numbers then, you know, in CD and Q3 and Q4, it should be, you know, a very minimal plus or minus roundabout zero.

Mark Reichman: Okay. That's very helpful. Thank you very much.

Operator: The next question comes from John Franzreb with Sidoti and Company. Please go ahead.

John Franzreb: Good morning, guys and thanks for taking the questions. Actually want to go back to one of your responses to an earlier question about, Precoat doing better in September. Do you have any idea or can you give us any color as to what's driving maybe recovery in precoating during that month?

Jason Crawford: The only thing I would add is, there's certainly fluctuations month to month and, you know, inventory buying patterns plays a part into that. And obviously, they're still coming through our strong construction season. So shipments versus sorry, building inventory versus depleting inventory. You're into that time period where, you know, you're starting to look at the end of the season and accommodate your inventory for that. And again, quite frankly, in September, we've seen a lot of our strength So our customers, you know, if you take that one single data point, our customers are looking for a healthy end to the season. Would be my takeaway.

John Franzreb: Okay. Great. And also it also sounded like that maybe demand in the Washington facilities is maybe a little bit better than you expected. Can you kind of remind us or update us as to what the revenue contribution is in Washington that's embedded in your, full year revenue guidance?

Jason Crawford: Yes. To be fair, we've not went into that level of detail. And there's still a lot of variations to take place. And quite frankly, we've got a sister facility in the simplest area and, you know, we'll use some of the volume from that to help ramp it So it's not a black and white just looking at that single facility and how it's quite playing to do it, the overall results. There's still a lot to play out here. You know, we are we started the production in April, and we're certainly progressing very, very well. But equally, we're cautious just terms of what could be around the corner.

So really don't like if it's specific numbers round about it, but, you know, what we have built into the guidance, we're certainly very comfortable with those numbers.

John Franzreb: Okay. Fair enough. And one last question, if I may. The zinc prices have rebounded sharply from their bottoms early in the spring. Just maybe some thoughts or commentary on what you're seeing in the zinc market that might be helpful for us?

Tom Ferguson: Sure. Yes, first thing is, yes, we have seen that. Which usually makes, you know, opportunities for not that we base our price off of costs, were very value pricing oriented. But usually when zinc going up on the LME customers understand that's gonna start to affect prices, so that creates some opportunities.

Two, we've got six to eight months of inventory in our kettles, so it doesn't have much impact on our margin profile the balance of the year, our costs of zinc the balance of the year, But clearly, that will start to color how we look at next year and as we're entering the process to put our plans and budgets together for, for the next fiscal year. But generally, I think it's going to continue in but I'm not sure, yeah, I'm not sure we're gonna usually, when things start to change, when you when you see some spikes, and this has been more of a gradual increase in and generally, that's very manageable for us.

So yeah, minor impact on our outlook in metal coatings for this year. Clearly, as we start to put our plans together, it will be a talking point as we talk about however we end up guiding for the next fiscal year.

John Franzreb: Great. Makes sense. Thanks for taking my questions. Appreciate it.

Tom Ferguson: Sure thing. Thanks, John.

Operator: The next question comes from Jon Braatz with Kansas City Capital. Please go ahead.

Jon Braatz: Good morning, everyone. Morning, John. Tom, a couple of questions. On the metal coating business, you completed the Canton acquisition, I think July 1. How much of a contribution did Canton have in terms of revenues in the quarter?

Tom Ferguson: It's revenues in the quarter million. Yes, and few 100,000 of yes, contribution margin.

Jon Braatz: Okay. Okay, good. And it was like two months in the quarter, so we'll see a full quarter not yet going forward. That's right. Okay. And secondly, on the margin profile for the Metal Coating business, it's been very, very good over the last couple of years. And absent any significant change in zinc prices or the economy and so on, Is that range that you provided in terms of adjusted margin adjusted EBITDA margin for that segment. Is that 20 that low 20 that lower end of the range, is that is that still relevant?

Is there a point where maybe you feel comfortable raising that lower end and know, getting closer to the, you know, 30 to 32%, something like that? Absent again, absent any significant economic changes.

Tom Ferguson: Yeah. We tend to yeah. We haven't seen that 20 the low end of that, or even very much think one quarter, we were below 30%, which, was last winter. We had a rougher than normal Q4 last year. So you know, that was probably the only time in a while we've seen below 30% But yeah. Like, I think we're pretty confident in this, where we're at is 30% to 32%. We'll look at that as we go into the planning process. We just completed our strategic plan and we'll be you know, rolling out some communication on that as we go forward.

But yeah, we're pretty comfortable with their margin profile at Holden in the 30 plus percent range. Balance of this year. So yeah, we might get comfortable to guide to a tighter range on that. So Okay.

Jon Braatz: Alright. Thank you very much.

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

Tom Ferguson: Yes. Just a couple of things. I don't think we got any on share buybacks. Jason alluded to it. But we had kind of guided that we'd be buying that we what we issued 10b5-one that for $20 million at a couple of price points. Depending I think we're going to I'm confident we will get $20 million of our shares bought in over the next perhaps few weeks to a couple of months. And look forward to doing that and because we think we're still a great high value stock and business with, with an outstanding outlook, particularly as we kind of finish out the choppiness of this year and look forward to next year.

So thank you for joining us. We look forward to talking to you after our third quarter results.

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

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