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Edited Transcript of AZZ earnings conference call or presentation 6-Jul-17 3:00pm GMT

Thomson Reuters StreetEvents

Q1 2018 AZZ Inc Earnings Call

Fort Worth Aug 13, 2017 (Thomson StreetEvents) -- Edited Transcript of AZZ Inc earnings conference call or presentation Thursday, July 6, 2017 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Joe Dorame

Lytham Partners, LLC - Managing Partner

* Paul Wesley Fehlman

AZZ Inc. - CFO and SVP of Finance

* Thomas E. Ferguson

AZZ Inc. - CEO, President and Director

* Timothy E. Pendley

AZZ Inc. - COO of Galvanizing and SVP of Galvanizing Services Segment

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Conference Call Participants

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* John Edward Franzreb

Sidoti & Company, LLC - Research Analyst

* Marissa Macri Sangimino

Stifel, Nicolaus & Company, Incorporated, Research Division - Associate

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Presentation

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Operator [1]

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Good morning, and welcome to the AZZ Inc. First Quarter of Fiscal Year 2018 Financial Results Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Joe Dorame of Lytham Partners. Please go ahead, sir.

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Joe Dorame, Lytham Partners, LLC - Managing Partner [2]

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Thank you, Denise. Good morning and thank you for joining us today to review the financial results of AZZ Inc. for the first quarter of fiscal year 2018, ended May 31, 2017.

As Denise indicated, my name is Joe Dorame, I am with Lytham Partners and we are the Investor Relations consulting firm for AZZ Inc. With us representing the company today is Mr. Tom Ferguson, Chief Executive Officer; and Paul Fehlman, Chief Financial Officer. At the conclusion of today's prepared remarks, we'll open the call for a question-and-answer session. If anyone participating on today's call does not have a full-text copy of the press release, you can retrieve it from the company's website at azz.com or numerous other financial websites.

Before we begin with prepared remarks, I would like to remind everyone, certain statements made by the management team of AZZ during this conference call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Except for the statements of historical fact, this conference call may contain forward-looking statements that involve risks and uncertainties, some of which are detailed from time to time in documents filed by AZZ with the United States Securities and Exchange Commission, including the annual report on Form 10-K for the fiscal year ended February 28, 2017.

Those risks and uncertainties include but are not limited to changes in customer demand and response to products and services offered by the company, including demand by the power generation markets; electrical transmission and distribution markets; the industrial markets and the hot-dip galvanizing market; prices and raw material costs, including zinc and natural gas, which are used in the hot-dip galvanizing process; changes in the political stability and economic conditions of the various markets that AZZ serves, foreign and domestic; customer requested delays of shipments; acquisition opportunities; currency exchange rates; adequate financing and availability of experienced management and employees to implement the company's growth strategies. The company can give no assurance that such forward-looking statements will prove to be correct. These statements are based on information as of the date hereof and AZZ assumes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

With that, I would like to turn the call over to Mr. Tom Ferguson, Chief Executive Officer of AZZ. Tom?

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Thomas E. Ferguson, AZZ Inc. - CEO, President and Director [3]

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Thanks, Joe. Good morning, and welcome to our fiscal year 2018 First Quarter Earnings Call. As I'd indicated on the last earnings call, we had a very strong comparison in last year's first quarter and we do not see similar strength coming into the first quarter of fiscal 2018. On the positive side, we opened a new powder coating facility in Crowley, Texas during the quarter and last week completed the acquisition of Enhanced Powder Coating, which will expand our metal coatings portfolio.

Consequently, we have renamed over Galvanizing Services segment to AZZ Metal Coatings segment. This segment is gaining earnings traction in spite of continued pricing pressure in the market. Their operational improvement programs are beginning to show results and should assist them in returning to their traditional industry-leading operating margins, despite higher zinc costs. We believe that the metal coatings segment is positioned to have a stronger back half of the year due to signs of improvement in solar activity, strengthening transmission distribution markets and expanded margins driven by operational improvement activities and the impact of new growth initiatives in powder coating and the newly opened continuous galvanized rebar plant in Catoosa, Oklahoma.

We remain committed to implementing a digital environment in our galvanizing plants. However, we have delayed this program to ensure our focus remains on customer satisfaction, margin improvement and executing on the growth initiatives. We see benefit in the digit -- digitization initiative and plan to reinvigorate this important initiative later this year.

Our legacy Electrical platform struggled more than anticipated during the quarter. We are taking the necessary actions to improve operating performance, including focusing our outside consulting resources more towards these businesses. The Bus Systems business unit is still facing uncertainty from the Westinghouse bankruptcy, so their weaker than normal result were expected. The Lighting and Tubular businesses that are exposed to the oil patch activity have both stabilized and are profitable, but they have a small impact on our Energy results.

Our remaining Electrical BUs, however, struggled to perform efficiently on their backlogs and by and large generated significantly lower margins than they did last year. It's important to note that we have only scratched the surface on our planned operational improvements for the year. So we will be spending the required time with this platform and their business units to drive these initiatives and ensure they attain their cost savings targets.

Our industrial platform also struggled through the quarter and encountered continued low-refinery turnaround activity, continued uncertainty in much of their nuclear market and saw the normally high-profit international jobs push out in the future quarters. This business typically wins at least one large project during a quarter and that did not happen in Q1. We had 3 of these large projects identified going into the quarter but we lost 1, had 1 pushed into spring of next year and another delayed for at least a year.

As a result, this left the industrial platform with significantly lower revenue than first quarter of last year. The bright spot was NLI, as they had a very solid operating quarter versus prior year. They achieved their forecast and set themselves up for a good year, depending on what happens with their Westinghouse business.

The segments also completed the integration with the nuclear sales team of both WSI and NLI. We believe we have appropriately sized NLI, for a $40 million to $50 million revenue run rate and that it will be a sustainably profitable business in the current nuclear market environment.

Regarding M&A, we did not complete either of the 2 acquisition deals we expected to close within the first quarter, but have now closed 1 last week and should close 1 or 2 more very soon. Looking forward, we have reaffirmed our fiscal 2018 guidance of EPS in the range of $2.60 to $3.10, and our revenue in the range of $880 million to $950 million. We see the pieces falling into place that gives me confidence for a stronger second half of our fiscal year.

Additionally, our operational improvement initiatives are gaining momentum. Our new growth initiatives in metal coatings are taking root. And we're seeing improved activity in our core galvanizing markets, despite pricing pressure from normally disciplined competitors. Consequently, we believe metal coatings will finish fiscal year 2018 well ahead of last year.

While the legacy Electrical platform struggled in the first quarter, we believe they have the backlog and improvements in place to perform as well as they did last year. Our expectation is that the industrial platform should outperform the prior year due to an improved level of international activity.

The risks for this year center around the uncertainty related to the Westinghouse bankruptcy and the future of the [Baldwin and Sumner] nuclear sites, our ability to drive operational improvements in the electrical platform to offset backlog weakness in the enclosure businesses for the second half and a somewhat improved level of refining turnarounds in the fall versus last fall, as well as the ability of our Metal Coatings segment to continue its self-help improvement programs to regain margins and take back lost market share.

With that, I'll turn it over to Paul, to talk about our financials.

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Paul Wesley Fehlman, AZZ Inc. - CFO and SVP of Finance [4]

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Thanks, Tom.

For the first quarter of fiscal year 2018, we reported net sales of $208.6 million, a $34.1 million decrease or 14.1% less than the first quarter of fiscal 2017. Net income for the first quarter of fiscal 2018 was $13.2 million, a decrease of $7.8 million or 37.1% less than the first quarter of the prior year. Reported diluted EPS fell 37.4% to $0.51 and our backlog finished at $331.6 million, down 6.4% versus the first quarter last year as our book-to-bill ratio finished at 0.93 compared to 1.03 in the first quarter last year. We expect to ship 41% of the backlog outside of the U.S., compared to 25% in the same quarter last year.

Gross margins fell to 23.6% from 26.1%, in the first quarter year-over-year. And SG&A, despite lower spend, finished at 13.1% of total sales compared to 11.9% in first quarter last year, driving a first quarter operating margin of 10.5% compared to 14.2% in the first quarter of fiscal 2017. Our effective tax rate improved to 29.3%, compared to the first quarter rate last year of 31.6%. Cash flow from operations fell by $25.7 million in the first quarter of fiscal 2018 compared to the performance the first quarter a year ago on lower net income and higher working capital.

As for our first quarter segment results, which Tom mentioned in his prepared remarks, first quarter revenues in our Energy segment were down 15.7% to $116.5 million compared to the first quarter of the prior year, while operating income fell 54.2% to $8.6 million compared to prior year first quarter as gross margins in the segment fell to 21.2% in the first quarter compared to 26.1% in Q1 of the prior year.

Operating margins for the first quarter were 7.4%, compared to 13.6% in the prior-year period.

In our AZZ Metal Coatings segment, formerly the Galvanizing Services segment, first quarter revenues fell 11.9% to $92.1 million compared to the first quarter last year, while operating income fell 12.6% to $21.2 million compared with the same period last year. Operating margins finished at 21% -- I'm sorry, 23.1% for the quarter, down just 10 basis points compared to Q1 in the prior year. On a sequential basis, however, revenue was up 12.8%, operating was up -- operating income was up 15.7%, and operating margins improved 58 basis points compared to the fourth quarter of fiscal 2017.

Looking forward, although, we had a challenging cash flow quarter in Q1, we are taking the necessary actions for improvement in the coming quarters. We have seen these seasonal swings in the past and have overcome periodic shortfalls in operating cash flow by continuing to focus on working capital fundamentals, namely, collections and inventory management.

Our balance sheet remains strong and we'll continue to support growing our operating platform as evidenced by the recent acquisition of Enhanced Powder Coating, Ltd., our continued investment in organic growth and several operational excellence initiatives.

With that, I'll turn it back to Tom for concluding remarks. Tom?

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Thomas E. Ferguson, AZZ Inc. - CEO, President and Director [5]

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Thanks, Paul.

To reiterate, we remain committed to our guidance. While our organic growth initiatives have taken longer than anticipated to develop, we believe we are becoming even better positioned for the next few years as industrial markets rebound and both our growth and cost improvement initiatives are fully executed. We are focused on improving our cash flow, driving our initiatives and capital deployment more effectively and completing value-adding acquisition more aggressively.

Thank you. And now we'll open it up for your questions.

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Questions and Answers

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Operator [1]

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Thank you, Mr. Ferguson. (Operator Instructions) And your first question will come from John Franzreb of Sidoti & Company.

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John Edward Franzreb, Sidoti & Company, LLC - Research Analyst [2]

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Good morning, Tom and Paul. My first question is, it seems like 3 large projects you expected to hit last quarter didn't book and 1 is lost and 2 are delayed for quite some time. The backlog is down, yet you maintain the guidance going forward. Why did you do that? What do you expect to accelerate in the coming quarters?

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Thomas E. Ferguson, AZZ Inc. - CEO, President and Director [3]

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Yes, John. I think the big thing was, we just fell way short in the Electrical platform of our operational improvement initiatives. We have traction, we've had a couple of great folks working as full-time consultants for us that helped me fix the old pump division in Flowserve days, so very confident in their abilities. So we've targeted $7.5 million of savings in that group. We generated $0.5 million and yet we've got solid line of sight to how to get that $7.5 million. So we expect a lot more momentum on that as the months roll on and we expect to get that full $7.5 million.

Additionally, the Galvanizing -- and we have a quarterly meeting at the end of every quarter. And this is the first time I've seen our Galvanizing/Metal coatings folks optimistic for basically the first time in a year. They're seeing activity out there, industrial spend. Sometimes we kind of like to see zinc costs increase, if we think we can push through price and hold that. So really looking at those things as our positives. The big unknown is really around Westinghouse. But for the most part, the signs have been positive there recently.

And then on the industrial side, we've been quoting a lot of large international jobs which tend to be more profitable and we're quoting at an unusually high rate. So we think that positions us well to make our guidance this year.

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John Edward Franzreb, Sidoti & Company, LLC - Research Analyst [4]

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Okay. I guess, 2 follow-ups. One, on the Electrical side of the business, it's 16% down year-over-year. You kind of mentioned several items; can you kind of quantify what impacted you most in the quarter itself on a year-over-year basis?

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Paul Wesley Fehlman, AZZ Inc. - CFO and SVP of Finance [5]

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Can you be a little more specific -- restate the question. I want to make sure I fully understand what you're saying?

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John Edward Franzreb, Sidoti & Company, LLC - Research Analyst [6]

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Yes. You were down roughly 16% year-over-year. Can you kind of talk about how much impacted the segment the most, the pieces that hurt you most on a year-over-year basis?

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Paul Wesley Fehlman, AZZ Inc. - CFO and SVP of Finance [7]

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Actually, it was kind of across the board. There was -- Tom had mentioned, the one big piece that didn't come through. And then there were just a few other pieces throughout -- spread out amongst the different parts. We're still talking Energy, right?

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John Edward Franzreb, Sidoti & Company, LLC - Research Analyst [8]

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Right. Just the Energy segment as a standalone. Yes.

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Paul Wesley Fehlman, AZZ Inc. - CFO and SVP of Finance [9]

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Right. Again, as you said, the good news was NLI was in good shape and that's in the press release. And we also saw that some of the smaller businesses did well. So it's going to be on the bus side enclosures.

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Thomas E. Ferguson, AZZ Inc. - CEO, President and Director [10]

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No, I think the big issue on -- was Industrial. If you look at first quarter last year, it was a huge quarter for them that we haven't seen that kind of quarter in WSI for years. So they had a boomer of a first quarter, which made it a tough compare and then they had a relatively weak spring outage season this year. So it's just simply the differential between a boomer of a quarter and a moderately okay quarter, that's the big thing. When you look at the other Electrical pieces, it was a mix. This is -- we said medium-voltage bus missed, which we understood. But a couple of the other business units, it was just purely more focus on the operational side. And so we've aggressively reengaged to get them shipping stuff at the margins that they bid it at.

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John Edward Franzreb, Sidoti & Company, LLC - Research Analyst [11]

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And you mentioned zinc earlier. Zinc prices have been volatile throughout first half of the year. If I remember correctly last quarter, you were talking about trying to push pricing up. Can you talk a little bit about the impact of zinc right now on your pricing and margin profiles in Metal Coatings?

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Thomas E. Ferguson, AZZ Inc. - CEO, President and Director [12]

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Yes, John. Tim Pendley is sitting here, so we'll let him answer that.

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Timothy E. Pendley, AZZ Inc. - COO of Galvanizing and SVP of Galvanizing Services Segment [13]

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John, what -- zinc right now is running at $1.26, $1.27, up from the low of $1.11 earlier in the year. The overall demand should keep this in that $1.26 to $1.35 range. And the impact is with that, we do believe we can continue to push pricing up to cover the cost -- added cost of that zinc.

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John Edward Franzreb, Sidoti & Company, LLC - Research Analyst [14]

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And I guess, in that kind of pricing environment, can you reclaim the margin profile of metal coatings in the 25% range that you used to be able to do? Or is it still pressured by the volume and you can't there?

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Timothy E. Pendley, AZZ Inc. - COO of Galvanizing and SVP of Galvanizing Services Segment [15]

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No, we believe we'll still get to that 25%. A combination of improved pricing, the initiatives we have going on for continuous improvement should all help drive to that 25%.

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Operator [16]

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(Operator Instructions) The next question will come from Missa Sangimino of Stifel.

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Marissa Macri Sangimino, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [17]

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This is Missa, on for Noelle Dilts. So first, just a quick question on the Galvanizing side. So you've talked about expectations of accelerating infrastructure spending sort of in the back half of the year. So I guess where are you expecting this growth to come from? And is it at all dependent on the passage of a federal infrastructure stimulus bill? And I guess, just what are you sort of longer-term expectations for infrastructure into fiscal '18 and into '19?

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Timothy E. Pendley, AZZ Inc. - COO of Galvanizing and SVP of Galvanizing Services Segment [18]

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When we talk about -- once again, this is Tim. When we talk about the improvements, we're seeing -- on infrastructure, we're seeing improvements not just in highway but also in transmission and distribution. In addition to that, we are starting to see a little solar pick up here and there. And so overall, we're kind of pushing in those directions.

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Thomas E. Ferguson, AZZ Inc. - CEO, President and Director [19]

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And Missa, I also -- you know non-res construction spend is actually already up and trending up. So unfortunately for us, we've got a cluster of sites that are in the somewhat depressed areas of Louisiana, South Texas, and Oklahoma, due to the oil patch activity. But overall, in other parts of the country, we're seeing good pickup in that non-res construction that's driving steel to be galvanized. So that's why we're feeling better about the outlook.

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Marissa Macri Sangimino, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [20]

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Okay, got it. So it's essentially just a pickup in non-res but not necessarily dependent on anything coming from, say, like a larger public spending bill coming through?

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Thomas E. Ferguson, AZZ Inc. - CEO, President and Director [21]

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No, we still hope for that for the longer-term. But we're not counting that as part of our guidance for this year.

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Marissa Macri Sangimino, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [22]

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Got it, thanks. And can you just give us -- you mentioned electrical transmission and distribution, can you give us an update on what you saw during the quarter and sort of how you think this will trend throughout the year?

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Thomas E. Ferguson, AZZ Inc. - CEO, President and Director [23]

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We saw increased spend and I think that's going to continue for the balance of this year. It's particularly affected our switchgear business, where we've got good backlog. It's affected our galvanizing or metal coatings business. And we're seeing that continuing probably throughout next year from what we're hearing from utilities and that just bodes well for us. And of course, when we see some solar pickup, as Tim referred to, that's got a lot of hot-dip galvanizing to it, so, well, we like that. But transmission distribution, you pick up -- it's affected our electrical and that's why we've got to perform on the backlog and our switchgear and our bus businesses because they've seen that pickup but we haven't driven the margins on it. So that's -- we anticipate that will continue for us.

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Marissa Macri Sangimino, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [24]

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All right, thanks. And then just on the Energy side, you've talked about expectations for some of your other energy markets improving. Can you just provide us with more detail here -- well actually, I guess, you've sort of already answered that. So actually, returning...

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Thomas E. Ferguson, AZZ Inc. - CEO, President and Director [25]

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I can expand on that.

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Marissa Macri Sangimino, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [26]

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Yes, that would be great.

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Thomas E. Ferguson, AZZ Inc. - CEO, President and Director [27]

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What we haven't gotten in that Electrical segment particularly -- or Electrical platform particularly, is any of the Middle East emergency type work, even the normal work, which usually helps our high-voltage and our medium-voltage bus businesses. We see some movement in Saudi Arabia, which should bode well for us. We have our one joint venture facility under construction, which we could open up this calendar year. So we see that as some of the movement and that's been some of the shortfall in our backlog in a couple of the businesses.

On the enclosure side, we're -- there's too much capacity in enclosures right now and not enough demand. So we're -- but we don't have huge amounts of capacity in that area and we're positioned pretty well. So we still like that business. There are enclosures, still very profitable. But that is where we're chasing opportunities and we're having to get into new types of enclosures and new initiatives to try to rebuild some of that backlog.

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Marissa Macri Sangimino, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [28]

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Great, thanks. And then just one more question on the M&A side. So obviously, you completed the acquisition on the powder coating facility just a few days ago. So I guess first, can you give us a sense sort of what this is adding to the full year guidance? And then two, you've sort of talked in the past about adding some additional maybe more traditional Electrical deals that are currently in the pipeline. So I guess, can you kind of give us a sense of where your appetite for M&A is sort of directed? And anything you can give us sort of around, I guess, just anything around timing or any additional color there would be helpful.

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Thomas E. Ferguson, AZZ Inc. - CEO, President and Director [29]

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Yes, I think, you know on EPC, we usually don't talk too much about the details because we are in a competitive situation. But we look for that to add maybe $0.03 or $0.04 to what we were projecting, which, given the wide range of our guidance, doesn't really move it a whole lot on the EPC side.

We're continuing to pursue a couple of other bolt-on type galvanizing, powder coating acquisitions that we would hope to close 1 or 2 of those during this second quarter, if not shortly outside of it. And then we are looking at a couple of the Electrical type businesses. And I don't want to specify anything just because they're -- we just don't want to signal what we're interested in right now. But we've got a couple -- chances are we won't close both of them, we'll probably close 1, given our normal hit rate. So we'll be able to talk more about those, hopefully, by the end of this quarter on the next earnings call.

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Paul Wesley Fehlman, AZZ Inc. - CFO and SVP of Finance [30]

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But we're takingcore stuff.

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Thomas E. Ferguson, AZZ Inc. - CEO, President and Director [31]

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We're not getting outside of our core markets of electrical or galvanizers or metal coatings.

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Operator [32]

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And the next question will be follow-up from John Franzreb of Sidoti & Company.

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John Edward Franzreb, Sidoti & Company, LLC - Research Analyst [33]

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Actually, let's stick with the EPC acquisition. Tom, can you just kind of talk me through its customer base, why would somebody maybe send something or outsource something to an individual facility versus doing it in-house?

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Thomas E. Ferguson, AZZ Inc. - CEO, President and Director [34]

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EPC has a lot of certifications in the aerospace type field. They're one of the few that has those certifications. So they pick up quite a bit of the airline components, if you will, because of those standards that they can meet that others can't. And then they also have -- they do other powder coating of a very high-quality specification type level. So it's not your normal mom-and-pop sitting out there with a sprayer. And those are the kinds of things we're looking at. That powder coating facility we opened in Crowley is doing ground-line coatings to do bigger things that the normal powder coaters can't do.

So to me it's not so much the technology, it's the quality programs, the certifications that we meet, the standards we can comply with or the size of things that we can do that quite often others can't do. So those are the areas that we've pursued in both internally as well as looking for acquisitions. And Tim's sitting here, if he wants to add to it...

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Timothy E. Pendley, AZZ Inc. - COO of Galvanizing and SVP of Galvanizing Services Segment [35]

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Yes, John. I think overall, the reason why we're getting into this is it helps spread out our platform. Right now, powder coating, by far, carries a much bigger market share than galvanizing does, in the overall market. So this helps us increase that footprint and it also -- galvanizing with powder coating is a very superior project -- product and this gives us that capability.

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John Edward Franzreb, Sidoti & Company, LLC - Research Analyst [36]

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Does it offer a higher margin profile than your traditional galvanizing business?

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Thomas E. Ferguson, AZZ Inc. - CEO, President and Director [37]

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No, it's in the same range and probably better than some of the other powder coating. And that's part of our difficulty as we go look at powder coating acquisitions as a mainstay of our portfolio is a lot of them don't come anywhere close to our margin profile. So that limits the field, if you will. And those are the kind of things we're looking forward, we've committed to not damaging that margin profile for our metal coatings business and we're committed to that.

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John Edward Franzreb, Sidoti & Company, LLC - Research Analyst [38]

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Good, that's helpful. And the $7.5 million in savings that, I think, you said you were going to achieve by year-end. Is that entirely in the Energy segment or was that spread across both segments?

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Thomas E. Ferguson, AZZ Inc. - CEO, President and Director [39]

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That's just the Energy segment piece. Tim's got his own operational improvement activities. He's got an executive focused on that and they're driving on that hard as well. But theirs is more around ensuring we can remain price competitive and yet still generate the 25% margins that we've targeted in that business. So his is around ensuring he can compete at 25% levels. And on the Electrical side, primarily, it's around driving out operational inefficiencies, de-bottlenecking processes, buying things better, leveraging our spend across the platform and then driving efficiency and productivity into -- through those business units by leveraging their back office. And it's a plethora of things, and yet it focuses on really just on driving the cost savings and then if we can get any volume, those efficiencies will drive through and do improve margins overall for the Energy sector.

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Operator [40]

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The next question will be a follow-up from Missa Sangimino of Stifel.

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Marissa Macri Sangimino, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [41]

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So just a quick follow-up. So you talked last quarter about petrochemical activity picking up. I was hoping you could give us an update sort of on how this impacted the quarter? What levels of activity you're seeing today? And just sort of how this is impacting capacity and pricing in the market, in general?

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Thomas E. Ferguson, AZZ Inc. - CEO, President and Director [42]

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Yes. We've seen an increase in that activity, but along the Gulf coast, Louisiana, the Gulf coast of Texas. There's still quite a bit of galvanizing capacity throughout there. So there hasn't been -- while the activity is up, it hasn't been enough to kind of suck up all of the capacity in the area. So we're still competing to fill our plants in Louisiana, Mississippi, Texas. But it's better than it was.

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Marissa Macri Sangimino, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [43]

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And then, I guess, just given that we're sort of halfway through the first year of sort of a new administration, just kind of update on sort of where you think solar could go and, I guess, just what you have in terms of your expectations for that market?

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Thomas E. Ferguson, AZZ Inc. - CEO, President and Director [44]

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Well, on solar, the subsidies are still in place. They had been put in place, I think, about a year ago. There was a lull where some of the developers were looking at is there enough customer base. And of course gas -- natural gas-fired power plants can be thrown up quickly. And as long as there is pipeline access, they're very effective and very efficient plants.

So now what we're seeing, though, is the reengagement of some of these solar projects that had kind of gone on hold and they're coming off hold. I don't know that -- given the fact, the subsidies are in place for 5 years, so they've still got 4 -- I think, 4 years to run approximately. There's not a lot that's going to change that. So in your sunny areas of Arizona and West Texas and places like that, it's a good alternative. The technology has become more cost-effective on a cost per kilowatt hour basis. In terms of the long-term portion of the power generation base, it's -- I'd hesitate to make a forecast on that. Right now, we're just looking at how it's looking for this year and, for this year, it's looking fine.

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Operator [45]

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(Operator Instructions) And at this time, I show no additional questions. We will conclude the question-and-answer session. I would like to hand the conference back to Tom Ferguson, for his closing remarks.

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Thomas E. Ferguson, AZZ Inc. - CEO, President and Director [46]

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Very good. Thank you for participating in today's call and we look forward to talking to you again at the conclusion of the current quarter. Again, thank you, and have a great day.

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Operator [47]

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Thank you, sir. Ladies and gentlemen, the conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.