AZZ's Q2 2026: Contradictions Emerge on Precoat Market Share, AVAIL Segment, and Zinc Pricing Impact

The above is the analysis of the conflicting points in this earnings call

Date of Call: None provided

Financials Results

• Revenue: $417.3M, up 2% YOY (vs $409.0M prior year)
• EPS: $1.55 adjusted diluted EPS, up 13.1% YOY
• Gross Margin: 24.3%, compared to 25.3% in the prior year
• Operating Margin: 16.4%, compared to 16.5% in the prior year

Guidance:

• FY26 revenue expected at $1.625B–$1.725B.
• Adjusted EBITDA to land in the lower half of $360M–$400M, reflecting no AVAIL equity income.
• Adjusted diluted EPS guided to $5.75–$6.25 (+10% to +20% vs FY25).
• Equity in earnings from unconsolidated subsidiaries forecast at ~0 for the remainder of FY26.
• Washington, MO aluminum coil coating facility to ramp toward ~50% capacity in Q3 into Q4 and turn positive in H2.

Business Commentary:

* Strong Financial Performance: - AZZ's second quarter fiscal 2026 results showed a 2% increase in total sales to $417.3 million and a 13.1% increase in adjusted earnings per share. - The growth was driven by solid execution in a highly dynamic environment and disciplined operational execution.

• Metal Coatings Segment Growth:
• The Metal Coatings segment saw a 10.88% increase in sales over the prior year's quarter.

• This growth was supported by higher volumes and sustained momentum from robust infrastructure project activity, particularly in solar and transmission distribution markets.

• Precoat Metals Segment Challenges:

• Precoat Metals sales declined by 4.3% due to softer end-market conditions, especially in building construction, HVAC, and appliance markets.

• However, the segment benefited from reduced access to imported pre-painted metal due to tariffs, leading to market share gains.

• Infrastructure Investment and Jobs Act Impact:

• AZZ's Metal Coatings benefited from the Infrastructure Investment and Jobs Act, with 73% of the program funds committed to specific projects.
• The related spending positively affected demand for AZZ's Metal Coatings segment, especially in solar and transmission distribution projects.

Sentiment Analysis:

• Management delivered sales up 2% and adjusted EPS up 13.1% YOY, while reaffirming FY26 guidance. Metal Coatings posted double-digit sales growth and aims to sustain ~30–31% margins. Although Precoat faces mixed end markets due to tariffs and construction softness, share gains and the Washington, MO ramp support H2. Interest expense declined meaningfully with further improvement expected.

Q&A:

• Question from Ghansham Panjabi (B. Riley Securities): Can you elaborate on Precoat market share gains and quantify the contribution given volumes were down?
  Response: Tariff-driven decline in pre-painted imports shifted volume domestically; AZZ captured ~3–4% share to offset a ~9–10% market decline without discounting, preserving normal margin profile.

• Question from Ghansham Panjabi (B. Riley Securities): How should we think about Precoat volumes in the back half—are share gains and the Washington facility the main offsets?
  Response: Assuming tariffs persist, share gains should hold; Washington is ~20% utilized and will ramp significantly over six months, with aluminum container demand strong; signs of construction bottoming and cost/shift adjustments support H2.

• Question from Nicholas Giles (B. Riley Securities): What drives hitting the higher end of EBITDA guidance, and how much could Washington add as it ramps?
  Response: Largest headwind is absence of AVAIL EBITDA; upside from interest savings, potential M&A, Precoat volumes/margins, and strong Metal Coatings volumes; Washington was a ~$2M margin drag in H1 but ramps toward 50% in Q3–Q4 and strengthens in Q4.

• Question from Nicholas Giles (B. Riley Securities): Any margin expansion projects on coatings that require capital and timing?
  Response: No single step-change project; multiple incremental initiatives underway across both segments that should steadily improve margins over coming quarters.

• Question from Timna Tanners (Wells Fargo): Is the import substitution opportunity largely realized or still early?
  Response: Still early; domestic ramp and new customer wins should continue through year; mix of smaller, quick-turn orders slightly weighs on margin but supports growth.

• Question from Timna Tanners (Wells Fargo): Any impact to Washington’s ramp from reduced substrate supply (Oswego fire)?
  Response: No; ramp is ahead of plan with adequate aluminum on hand and production progressing as expected.

• Question from Timna Tanners (Wells Fargo): Update on M&A pipeline and seller appetite?
  Response: Active pipeline with ~9 opportunities, including galvanizing bolt-ons (one in process) and Precoat assets; expect potential closings by year-end though broader market hasn’t prompted more sellers.

• Question from Adam Thalhimer (Thompson Davis & Company): How do tariffs both help and hurt Precoat?
  Response: Pre-painted imports down ~23% benefit share, but bare galvalume imports down ~50% reduce volumes; tariffs and higher-for-longer rates delay non-infrastructure projects, netting a headwind for Precoat while infrastructure supports Metal Coatings.

• Question from Adam Thalhimer (Thompson Davis & Company): Confidence in no further AVAIL losses and status of monetizing remaining assets?
  Response: Guiding equity earnings to ~0; Q3 likely slightly negative given overhead and seasonality, Q4 around breakeven; lighting and China JV may transact this year; WSI is longer dated with overhead realignment underway.

• Question from Mark La France Reichman (NOBLE Capital Markets): Outlook for interest expense and SG&A levels?
  Response: Interest expense should improve in Q3/Q4 from repricing and securitization with continued debt paydown; SG&A around ~8% of sales, trending more as a fixed dollar amount into H2.

• Question from Jonathan Paul Braatz (Kansas City Capital Associates): What drove better September at Precoat?
  Response: Month-to-month fluctuations and inventory patterns; customers signaling a healthy end to construction season.

• Question from Jonathan Paul Braatz (Kansas City Capital Associates): Contribution from Washington and zinc price impact?
  Response: No specific Washington revenue disclosed; ramp progressing with support from sister facility; zinc’s rise creates pricing opportunities but limited FY impact due to 6–8 months kettle inventory.

• Question from Jonathan Paul Braatz (Kansas City Capital Associates): What was the Canton (OH) acquisition contribution and Metal Coatings margin outlook?
  Response: Canton added ~$2M revenue and a few hundred thousand of contribution (two months); Metal Coatings margins expected to hold ~30–32% absent significant changes.