AZZ Inc.'s Q3 2026 Earnings Call: Contradictions Emerge in Market Share Gains, Capital Allocation, and M&A Strategy

Date of Call: November 30, 2025

Financials Results

• Revenue: $425.7M, up 5.5% YOY
• EPS: $1.52 adjusted diluted EPS, up 9.4% YOY
• Gross Margin: 23.9%, compared to 24.2% in the prior year
• Operating Margin: 16.3%, up 180 basis points YOY

Guidance:

• Sales forecast narrowed to $1.625B to $1.7B.
• Adjusted EBITDA forecast narrowed to $360M to $380M.
• Adjusted diluted EPS forecast narrowed to $5.90 to $6.20.
• Expects favorable weather to provide easier year-over-year comparisons in Q4.
• Evaluating strategic tuck-in acquisitions in Metal Coatings and Precoat Metals.

Business Commentary:

* Record Financial Performance: - AZZ reported record sales of $426 million in Q3, surpassing any quarter in the company's history and marking a 5.5% increase year-over-year. - The growth was driven by strong demand in the Metal Coatings segment, with sales rising 15.7% year-over-year, fueled by higher volumes and infrastructure projects.

• Segment Performance and Market Dynamics:
• The Metal Coatings segment delivered an exceptional quarter, with sales rising 15.7% year-over-year, driven by increased volumes and demand from infrastructure projects.

• This performance reflects a strategic focus on large projects in sectors like data centers, solar plants, and transmission and distribution.

• Precoat Metals and Market Challenges:

• Precoat Metals experienced a 1.8% decline in sales year-over-year, primarily due to softness in construction, HVAC, and transportation markets.

• Despite these challenges, the segment saw growth in food and beverage container demand, driven by new customer acquisitions and market share gains.

• Strategic Growth and Future Outlook:

• AZZ is optimistic about fiscal 2027, anticipating continued growth in infrastructure modernization, energy transition, and industrial reshoring.

• The company is evaluating strategic tuck-in acquisitions and is focused on expanding its market reach in Metal Coatings and Precoat Metals.

• Dividend and Shareholder Returns:

• AZZ maintained its cash dividend of $0.20 per share, marking 63 consecutive quarters of consistent capital returns to shareholders.
• The company is committed to evaluating its dividend policy annually, considering its improved financial position post-debt realignment.

Sentiment Analysis:

Overall Tone: Positive

• CEO stated: 'We achieved record sales of $426 million in the third quarter, surpassing any quarter in our company's history. And we had a record high trailing 12-month adjusted EBITDA of $358 million.' Also noted being 'pleased with our results for the Q3. Feeling good about the full year. And then it's early, but getting excited about fiscal 2027.'

Q&A:

• Question from Ghansham Panjabi (Baird): Can you give a sense of how order backlogs have shaped up and did the government shutdown have any material impact on either segment?
  Response: Metal Coatings has momentum with no backlog but strong forward visibility; government shutdown had no impact. Precoat is more challenged with residential construction but benefiting from data centers and metal roofing conversions, though bare metal levels are lower than last year.

• Question from Nick Giles (B. Riley Securities): What kind of M&A opportunities are you seeing today?
  Response: The M&A pipeline is active, focusing on bolt-on acquisitions (tuck-ins) that fit the integration playbook, with an expectation of closing a couple by next year.

• Question from Eric Boyes (Evercore): How impactful will the Washington, Missouri ramp be to Precoat segment margins, and when will we hear about remaining capacity allocation?
  Response: The Washington facility margins are complementary and will be a tailwind to Precoat margins. Capacity is solely focused on the partner ramp for now; additional customer capacity will be targeted in early to mid-next year.

• Question from Adam Thalhimer (Thompson Davis): Can you update on pricing in the Metal Coatings segment and how it might be impacting margins?
  Response: Pricing is controlled; larger projects (e.g., transmission, solar, data centers) attract more competition and have marginally lower margins, but the company is disciplined and sees this as beneficial for volume and capacity utilization.

• Question from Daniel Rizzo (Jefferies): Is there a particular region where metal reroofing is more prevalent?
  Response: Yes, metal roofing is more prevalent in southern climates like Florida, Texas, and Southern California due to corrosive environments and sun exposure.

• Question from Mark La Reichman (NOBLE Capital Markets): Could you get specific on large contracts driving Metal Coatings sales growth and expect margins to tick up in 2027?
  Response: Big projects like transmission poles and towers are temporary but supported by capacity investments. Margins are expected to improve with operational enhancements, though not necessarily double-digit growth going forward.

• Question from Gerard Sweeney (ROTH Capital): Can you bracket the headwind from surplus prepainted metal imports on Precoat?
  Response: Prepainted metal imports are down significantly (~35% this year), creating a market opportunity. AZZ is one of the few players that can serve this market, expecting benefits to filter through in the future.

Contradiction Point 1

Precoat Market Share Gains and Tariff Impact

This is a substantial contradiction regarding the primary driver of a key segment's market share gains. In Q2, tariff-induced import reduction was explicitly cited as the main driver, with sustainability explicitly tied to tariffs remaining. In Q3, the narrative shifts to market stabilization and other factors (new plant, secular shifts) as the basis for future share gains, with no mention of tariffs as a continuing driver. This change impacts the perceived sustainability and external dependency of a major competitive advantage.

Is the operating environment for Precoat worsening as we head into 2026, or has it bottomed? - Ghansham Panjabi (Baird)

20260108-2026 Q3: The Precoat markets are believed to have bottomed and are stabilizing. The company is focused on winning market share and capitalizing on opportunities... The shift from plastics to aluminum is a tailwind... - Thomas Ferguson(CEO)

What is the impact of Precoat's market share gains on AZZ? How should we assess the contribution from share gains despite declining volumes? - Ghansham Panjabi (Robert W. Baird & Co. Incorporated, Research Division)

2026Q2: Precoat gained share due to tariffs reducing imported prepainted metal, offsetting about 9-10% market decline. The company gained 3-4% share... Share gains are expected to sustain if tariffs remain. - Thomas Ferguson(CEO)

Contradiction Point 2

Precoat Import Market and Business Opportunity

This is a substantial contradiction concerning the characterization of a key market dynamic and its temporal benefit to the company. In Q2, the import surplus was framed as an early-stage "tailwind" opportunity with a "good tail through the year." In Q3, the same surplus is described as a completed, accelerating decline that has "largely filtered through the supply chain," with benefits now framed as a *future* replacement opportunity. This shifts the timing of a material tailwind from near-term to prospective, altering the investment thesis for the segment's recovery.

Can you quantify the impact of the pre-painted metal import surplus on Precoat and outline future expectations? - Gerard Sweeney (ROTH Capital)

20260108-2026 Q3: The pre-painted metal import market is about 10% of the U.S. market and is down around 35% this year, with the decline accelerating into Q3. This surplus has now largely filtered through the supply chain, and the company anticipates starting to benefit from the replacement of these imports going forward. - Thomas Ferguson(CEO)

Has the import opportunity been fully realized, or are we still in the early stage for potential share gains? - Timna Tanners (Wells Fargo Securities, LLC, Research Division)

2026Q2: It's early innings; the shift from imports will have a good tail through the year as domestic capacity ramps and project sourcing changes. AZZ is engaging with new customers, winning business with quick turnaround and customization... - Thomas Ferguson(CEO)

Contradiction Point 3

Washington, Missouri Facility Ramp and Margin Impact

This is a substantial contradiction regarding the operational and financial timeline of a major capital project. In Q2, the ramp was explicitly described as a margin *drag* in the first half, turning positive in the second half, with a clear ramp to ~50% capacity. In Q3, the narrative changes to the margins being complementary and a tailwind from the start, with a new focus on pursuing *additional* capacity in the early part of the next fiscal year. This suggests an earlier and more favorable contribution profile than previously guided, which is a material change to the investment case for the facility.

How will the expansion of the Washington, Missouri facility impact Precoat segment margins? When will remaining capacity allocation be announced? - Eric Boyes (Evercore)

20260108-2026 Q3: The margins from the Washington facility are expected to be complementary and add a tailwind to Precoat's overall margins. The facility is currently focused on ramping up capacity for its partner. Significant additional customer capacity will be pursued in the early to mid part of next fiscal year (2027). - Jason Crawford(CFO)

What factors could push EBITDA to the upper end of the range? How much of the contribution is due to end-market demand versus operational improvements, and what incremental EBITDA could Washington add as production volumes increase? - Nick Giles (B. Riley Securities, Inc., Research Division)

2026Q2: Washington facility is a margin drag in H1 (~$2M hit in Q2) and turns positive in H2, ramping to ~50% capacity in Q3/Q4, with EBITDA contribution aligned with original guidance. - Jason Crawford(CFO)

Contradiction Point 4

Capital Allocation Priority for JV Sale Proceeds

This is a substantial contradiction in corporate financial strategy regarding the deployment of a significant liquidity windfall. In Q4 2025, the stated priority for the $200 million JV sale proceeds was unambiguously debt reduction to maintain leverage below 2.5x, leaving room for buybacks. In Q3 2026, the messaging has shifted to the "luxury" of considering a dividend increase following debt refinancing, with the dividend evaluation process being "more regimented." This indicates a notable shift in capital allocation priority from debt paydown (a balance sheet focus) to shareholder returns via dividends (a shareholder return focus).

With debt reduction and share repurchases, what precedent exists for dividend increases? Is an annual increase expected? - Mark La Reichman (NOBLE Capital Markets)

20260108-2026 Q3: The company is committed to being more regimented about evaluating the dividend annually. Following the recent debt refinancing, the luxury exists to consider an increase, and the topic will be on the agenda for the next board cycle. - Jason Crawford(CFO) & Thomas Ferguson(CEO)

How will the $200 million from the JV sale impact debt reduction and capital allocation, including share repurchases? - Mark Reichman

2025Q4: The capital allocation for the $200 million is not yet decided. Options include M&A, shareholder returns (dividends, buybacks), or further debt paydown. The priority is to maintain leverage below 2.5x." and "Paying down ~$300 million in debt to offset the JV impact is realistic and leaves room to utilize the remaining share buyback authorization. - Jason Crawford(CFO) & Tom Ferguson(CEO)

Contradiction Point 5

M&A Pipeline Focus and Size

This is a substantive contradiction regarding corporate growth strategy. In Q4 2025, the M&A pipeline was described as strong and active, with a specific focus on larger deals in the Precoat segment (though a wait-and-see approach was noted). In Q3 2026, the CEO characterizes the pipeline as focused *exclusively* on "small, bolt-on acquisitions ("onesie-twosies")" in the company's sweet spot. This strategic pivot from pursuing larger deals (which can accelerate growth and market share) to a sole focus on small bolt-ons represents a meaningful change in capital deployment and growth ambition.

What M&A opportunities are you currently seeing, particularly regarding target segments and deal size? - Nick Giles (B. Riley Securities)

20260108-2026 Q3: The M&A pipeline is active and focused on small, bolt-on acquisitions ("onesie-twosies") in the company's sweet spot. - Thomas Ferguson(CEO)

With the strong balance sheet and JV sale proceeds, should we expect larger acquisitions than originally planned? What does the acquisition pipeline look like? - Ghansham Panjabi

2025Q4: The pipeline is strong. On the galvanizing side, there are active deals with a focus on single-site bolt-ons. On the Precoat side, larger deals are in the pipeline, but the company is taking a wait-and-see approach... - Tom Ferguson(CEO)