AZZ 2Q17 Earnings Call Notes

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AZZ’s (AZZ) CEO Tom Ferguson on Q2 2017 Results

Weak markets

“While I was disappointed the way our second quarter progressed due to the week markets I am ever more optimistic about the opportunity ahead of us and our ability to focus our business on higher growth markets and products. Since we don’t have backlog to buffer our results in galvanizing we have to be nimble when faced with slow market activity.”

Struggled to get good traction

“We starting fairly strongly in the first quarter, but struggled to get good traction in the second quarter. As we’ve cautioned previously we sense some softness in the regions impacted by low oil prices. And during the second quarter the galvanizing market along the Gulf Coast remain weaker than expected, particularly in West Texas and Oklahoma. The primary issue was volume and since galvanizing does not operate with much backlog the effects were felt quickly.”

Electrical platform performing well if not for oil price headwinds

” Quite frankly our electrical platform is performing well, if not for the oil price related headwinds. Our tubing business continued to suffer from lower oil pads activity and our lighting business finally began to feel the impact of low rig activities.”

Increase in transmission and distribution work

“The bright spot for electrical platform is the increase in transmission and distribution work as we are seeing numerous substation opportunities for our enclosure and switchgear business. Unfortunately our lighting and tubing businesses in spite of being a small portion of our portfolio are feeling the impact of the low rig activity in the oil patch.”

Seeing more substation work in T&D

“I think on the T&D side, we’re seeing more substation work and things like that. And that helps obviously our electrical businesses more than our galvanizing side. So we’re happy with that that’s replace some of the — for the electrical side it’s replace some of the pipeline activity that we’ve had the last few years and that it has been somewhat reduced. In terms of the solar, we’ve seen solar op as I mentioned in my comments. And so that’s usually a big piece of business for some of our plants and with that been off. And there hasn’t been other power generation construction at least not of any major significance. So we’ve seen that off.”

Solar business has been off

“While federal credits were approved and extended for solar power activity remain somewhat slow since companies now have some time to evaluate those projects. Our volumes have drifted lower as we are focused on maintaining price levels and since we see this activity continuing that’s why we chose to take out some of our capacity in the affected areas.”

“In terms of volume, Yes there was broader impacts on the volume that we talked about which is the lower than — significantly lower solar business. The fact that we’re still ramping up the new Reno plant. So you’ve got the investment there without — it’s doing just fine. We’ve anticipated it will hit its stride by the end of the fiscal year, which generally we still feel is true.”