AZZ Misses Q2 Earnings & Sales

Electrical equipment manufacturer AZZ Inc. (AZZ) posted second quarter fiscal 2014 pro forma earnings of 57 cents per share, missing the Zacks Consensus Estimate as well as the year-ago figure by 8 cents.

On a GAAP basis, the company’s earnings were 64 cents versus 62 cents a year ago. The difference between GAAP and pro forma earnings was primarily due to the combined effect of a loss associated with the fire at AZZ Inc.’s Joliet facility, charges for acquisitions, and gains from the disruption of businesses and property insurance proceeds related to the fire.

Revenues

AZZ Inc.’s second-quarter revenues were $189.8 million, missing the Zacks Consensus Estimate by $13.2 million.

However, quarterly revenues increased 24% year over year primarily due to a 56.5% year-over-year rise at the Electrical and Industrial Products segment on the back of synergies from the acquisitions of Nuclear Logistics Inc. and WSI. The positive results were partially offset by a 1.5% year-over-year decline at the company’s Galvanizing Services segment.

Operating Highlights

Cost of sales was $133.9 million, up 21.6% from the year-ago level of $110.1 million.

Total operating income grew 12.1% year over year to $37 million primarily due to higher contribution from the Electrical and Industrial Products and Galvanizing Services segments.

At the end of the quarter, the backlog at AZZ Inc.’s Electrical and Industrial Products segment was $211.4 million, compared with $213.1 million a year ago.

In the quarter, incoming orders were $180.7 million, up 19% from the year-ago level of $151.8 million. Overseas orders constituted 35% of the backlog.

Interest expenses increased to $4.7 million from $3.2 million, indicating an increase in the debt level.

Financial Highlights

Cash and cash equivalents as of Aug 31, 2013 were $42 million versus $68.7 million as of Aug 31, 2012.

Net cash provided by operating activities during the first six months of fiscal 2014 was $55.2 million compared with $30.1 million in the prior-year comparable period.

As of Aug 31, 2013, the company’s long-term debt due after one year was $434.5 million versus $196.4 million as of Feb 28, 2013.

Dividend Update

During the earnings call, the Board of Directors announced that AZZ Inc. will pay a quarterly cash dividend of 14 cents per share on the company’s common stock outstanding. The dividend will be paid on Oct 25, 2013 to shareholders of record as of Oct 11, 2013.

Guidance

AZZ Inc. provided its earnings and revenues guidance for third-quarter fiscal 2014. Earnings and revenues are expected to be in the range of 65 cents to 75 cents per diluted share and $210 million to $230 million, respectively.

AZZ Inc. decreased its fiscal 2014 earnings guidance to the range of $2.45 - $2.65 per diluted share from the previous expectation of $2.65 - $2.95 per diluted share. In addition, the company lowered its revenue guidance for fiscal 2014 to $780 - $810 million from the earlier projection of $825 - $900 million.

The downward revision in fiscal 2014 guidance was primarily due to the delay in the development of new domestic and international nuclear power projects and delay in the commencement of a project in the Gulf Coast.

Other Company Release

Mistras Group Inc. (MG) reported fourth quarter fiscal 2013 earnings of 16 cents per share, missing the Zacks Consensus Estimate by a penny and the year-ago figure by 36%.

Our Take

We believe strong order booking will help AZZ Inc. to report better results in the forthcoming quarters. A steady flow of international orders, primarily from the Middle East and China for higher power generation, will offset the delay in completion of four important projects and weak domestic demand. In addition, strategic acquisitions will provide synergies to AZZ Inc.’s performance going forward.

AZZ Inc. currently has a Zacks Rank #3 (Hold). However, other stocks from the industry that are worth considering include Rexnord Corporation (RXN) with a Zacks Rank #1 (Strong Buy), and Franklin Electric Co., Inc. (FELE) with a Zacks Rank #2 (Buy).

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