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

Thomson Reuters StreetEvents

Q2 2018 AZZ Inc Earnings Call

Fort Worth Oct 4, 2017 (Thomson StreetEvents) -- Edited Transcript of AZZ Inc earnings conference call or presentation Tuesday, October 3, 2017 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Joe Dorame

* Paul Wesley Fehlman

AZZ Inc. - CFO and SVP of Finance

* Thomas E. Ferguson

AZZ Inc. - CEO, President and Director

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Conference Call Participants

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* John Edward Franzreb

Sidoti & Company, LLC - Research Analyst

* Noelle C. Dilts

Stifel, Nicolaus & Company, Incorporated, Research Division - VP and Analyst

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Presentation

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Operator [1]

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Good morning, and welcome to the AZZ Inc. Second 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, [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 second quarter of fiscal year 2018 ended August 31, 2017. As Denise indicated, my name is Joe Dorame, I'm with Lytham Partners and we are the Investor Relations consulting firm for AZZ Inc.

On the call representing the company are Mr. Tom Ferguson, Chief Executive Officer; and Mr. Paul Fehlman, Chief Financial Officer. After the conclusion of today's prepared remarks, we will open the call for your question and answer -- I'm sorry, 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, we would like to remind everyone that 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 markets; 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 the company 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 said, I'd 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 second quarter earnings call of fiscal year 2018. While we entered the second quarter seeing signs of market improvement and some new opportunities, we were quickly impacted by the announcement of the VC Summer Nuclear Plant closure and the depth of the impact of the Westinghouse bankruptcy. We then closed out a tough quarter with the impact from Hurricane Harvey on 4 of our facilities in the Houston and Beaumont areas. But despite these disruptive events, I'm proud of our people and of our leadership teams that pulled together to assist those impacted by the hurricane and also supported the leadership changes we made during the quarter.

As we noted in our recent release on new guidance for fiscal year 2018, the hurricanes have significantly disrupted our outlook for turnarounds in the fall season, which is normally a strong period for our industrial platform. While we anticipate a strong spring season for fiscal year 2019, we did take the opportunity to complete a thorough evaluation of our businesses and realigned our industrial support functions to better reflect the demand for our domestic business over the next few quarters as well as continued sluggish activity in the nuclear sector. This platform was negatively impacted by both the Westinghouse bankruptcy and the VC Summer closure. But we are pleased to see continued commitment to the Vogtle nuclear project.

We strengthened our sales effort during the quarter to ensure executive-level coverage among our key customers and support the international opportunities we see on the horizon. We are confident our industrial platform is well positioned to realize significant growth opportunities for fiscal year 2019.

Our Metal Coatings margins showed a continued improvement in Q2 and we remain highly focused on driving volumes to improve operating margins. The Enhanced Powder Coating acquisition has been fully integrated, the business is performing well and should contribute nicely to the second half of this fiscal year. Our new powder coating facility recently opened in Crowley and the Reno facility we opened last year are also gaining traction. We are pleased with an increased level of activity from the solar market and see this as a real positive development for the balance in this fiscal year and into fiscal year 2019. Unfortunately, we have not seen the significant growth in petrochemical activity along the Gulf Coast, an area now impacted by the hurricanes. The rising cost of zinc has created both challenges and opportunities so we've added resources to improve our commodity procurement as well as support our operational improvement efforts.

Tim Pendley also made some changes to strengthen the senior leadership team during the quarter to ensure focused on both the core Galvanizing business and simultaneously pursuing the new alternative Metal Coatings as well as continuous galvanized rebar initiatives.

Our legacy Electrical platform, which has normally been a stable performer, has struggled to absorb the impact of the Westinghouse bankruptcy and VC Summer closure. The disruption impacted customer service on other projects and several projects that were scheduled for Q2 deliveries have now pushed out to the third quarter.

Additionally, we recently had other operation issues develop, so we made a leadership change and appointed Ken Lavelle as new President and General Manager of the Electrical platform. Ken was previously working for AZZ as a consultant for more than a year so he was able to move quickly to reinvigorate these businesses. Additionally, Ken made some other leadership changes that will ensure this platform quickly returns to their normal operating performance levels and with a stronger selling effort to ensure its customer focus and growth. The Electrical platform has a solid backlog and should benefit from the new switch gear products and market opportunities that the recent acquisition of Powergrid Systems (sic) [Powergrid Solutions] brings to the table. We are confident we will see a return to normal operating and contribution levels as we enter the 2019 fiscal year.

While we were disappointed with the results of the second quarter, we believe our leadership teams have reacted as quickly and effectively as possible to regain positive traction going into the second half of fiscal 2018.

The projects that pushed from Q2 into Q3, the newly acquired businesses and the impact of the new leaders will provide the momentum we need to finish the year on a positive note and, more importantly, position us for a strong fiscal year 2019. Furthermore, we will continue to focus on improving cash flow and pursuing a very active M&A pipeline.

With that, I'll turn it over to Paul, who'll 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 second quarter of fiscal year 2018, we reported net sales of $190.4 million, a $4.6 million decrease or 2.4% less than the second quarter of fiscal 2017. Net income for the second quarter of fiscal 2018 was $8.3 million, a decrease of $1.7 million or 16.9% less than the second quarter of the prior year. Reported diluted EPS fell 15.8% to $0.32 and our backlog finished at $331.2 million, down 6.1% versus the second quarter last year as our book-to-bill ratio finished at 1.0 compared to 0.99 in the second quarter last year. We expect to ship 42% of the backlog outside of the U.S. compared to 27% in the same quarter last year. And for comparative purposes, please remember that the second quarter last year included $8 million of realignment charges primarily in Metal Coating.

Gross margins rose to 21.8% from 21.5% in the second quarter year-over-year, primarily from the charges taken to cost of goods sold in the second quarter last year for realignment of $6.7 million.

SG&A finished at 13.9% of total sales compared to 13.8% in the second quarter of last year, which also included $1.3 million of realignment charges, driving a second quarter operating margin of 7.9% compared to 7.6% in the second quarter of fiscal 2017.

Our effective tax rate for the quarters -- for the quarter was 26.9% compared to the second quarter rate last year of 10.4%, which, of course, was effected by the charges taken for realignment last year, reducing our tax rate in the second quarter.

Cash flow from operations fell by $21.6 million in the second quarter of fiscal 2018 compared to the performance in the second quarter a year ago on lower net income and higher working capital.

As for our second quarter segment results, second quarter revenues in our Energy segment were down 6.4% to $91.4 million compared to the second quarter of the prior year, while operating income fell to 0 compared to $8.2 million in the second quarter last year as gross margins in the segment fell to 16.4% in the second quarter this year compared to 24.2% in the second quarter of the prior year. Operating margins for the second quarter were 0% compared to 8.4% in the prior year period.

In our AZZ Metal Coatings segment, formerly the Galvanizing Services segment, second quarter revenues rose 1.6% to $99 million compared to the second quarter last year, while operating income rose 55.7% to $23.4 million compared to the same period last year, primarily on the $7.3 million in realignment charges taken in the segment last year.

Operating margins finished at 23.6% for the quarter, up 820 basis points compared to Q2 in the prior year also on the effective charges taken within the last year.

On a sequential basis, revenue was up 7.6%, operating income was up 10.2% and operating margins improved 57 basis points, all compared to the first quarter of fiscal 2018.

Looking forward, although we have a challenging cash flow quarter in the second quarter and the first half of the year, we're taking the necessary actions for improvement in the coming quarters. As I stated in the last quarter's conference call, we have seen these seasonal swings in the past. We've overcome shortfalls in the operating cash flow by continuing to focus on working capital fundamentals. Our balance sheet remains strong and will continue to support growing our operating platform.

As announced last week, we adjusted our fiscal year 2018 guidance with EPS to be in the range of $1.80 to $2.30 per diluted share and annual revenue to be in the range of $825 million to $885 million.

Lastly, our Board of Directors approved a quarterly cash dividend in the amount of $0.17 per share. The dividend is payable on November 1, 2017, to shareholders of record as of the close of business on October 18, 2017.

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 driving operational excellence throughout the company. While our organic growth and operational excellence 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 in capital deployment more effectively and completing value-adding acquisitions 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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(Operator Instructions) And your first question will be from John Franzreb of Sidoti & Company.

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

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I guess I want to start with the revised guidance from last week. This is a litany of items that are impacting the P&L from the hurricanes to lowering nuke volume to turnaround activity to lower spending in Saudi Arabia utility market's project activity. Can you guys walk us through which ones are hurting you the most? And maybe a relative impact, give us a sense of magnitude here and the timing of when you expect these things to turn around, come back, if at all.

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Paul Wesley Fehlman, AZZ Inc. - CFO and SVP of Finance [3]

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Sure. Okay, John. Where to start? Let's go with the hurricane effects to the remainder of the year. First of all, as you know, we've had headwinds in the turnaround market, refinery turnarounds all year, and including some time prior to the year. Effectively, what happened with the hurricane coming through is that many of the refineries did shut-ins. They have opened back up and they're running flat-out to take advantage of the crack spreads, of the refinery spreads that they're getting. But also there was the effect that many of them sent many of their maintenance crews from plants in the north down to plants in the south to turn -- to get them up and running very quickly and do whatever repairs needed to be done. Effectively, what we're seeing is that big jobs that we had in backlog have pushed out into next year, which we referred to both in the earnings release and in the guidance last week. So that's got a profound effect not only on the industrial business for the second quarter at the end of the year but also into the remainder of the year. We do expect, and we've been working with many of the refiners on scheduling stuff into the first quarter of next year. We would expect that to be a good turnaround season in the first quarter of next year, our first quarter of the fiscal year next year. In terms of the effective Westinghouse, the cancellation of VC Summer, that will -- that's more of an issue of VC Summer. We did not expect to be canceled that quickly. We were waiting to hear, we were doing work and we had backlog in that -- on that particular job, that has now -- we've received our stop orders, so that has an effect on the outcome for the rest of the year as we will no longer be booking that work and we will be executing on the backlog in there. The rest of Westinghouse, the effect on the nuclear market and in our shop floor, is basically that it's had an effect on the nuclear market. So we've seen a lot of work, not only VC Summer but also related items in Vogtle and actually some other customers get delayed on the shop floor, so it helps tie up some of the shop floor. So work wasn't getting done on some other areas causing a little bit of inefficiency on the floor but also shortened up what we were expecting in terms of revenue in the second quarter and that has the effect into the back half of the year with VC Summer being gone. We spoke a little bit on the -- last week, about the stuff in the Middle East. Typically by this time of year, we would expect to see some emergency work being done in the Middle East, primarily in our leading voltage bus side or high-voltage bus side that didn't materialize this year, so that had a little bit of a drag versus what we were expecting. And then I think the last one to cover would be operational efficiencies. Again, part of that is part of the VC Summer job. But we also had a few things in our Electrical group where stuff wasn't shipping as quickly as we were hoping for. You see that we've actually made a change there and we've got Ken Lavelle in charge of Electrical going forward. Tom, anything to add to that?

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Thomas E. Ferguson, AZZ Inc. - CEO, President and Director [4]

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No, I think that about covers it. I -- if you kind of break it down, it's probably 1/3 related to Nuclear and things going on related to Nuclear and Westinghouse and VC Summer; about 1/3 related to refinery turnarounds being pushed out, which also affects some of our galvanizing opportunities in petrochemical due to the lack of craft labor to do a lot of the work; and then about 1/3 of just operational things that we've got to stay focused on and that mostly impacted us in Q2 but we'll see improvement as we go forward. So that's kind of the rough cut of -- at a high level.

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John Edward Franzreb, Sidoti & Company, LLC - Research Analyst [5]

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Okay. Now the change in management, bringing Ken to the top on Electrical. Could you just discuss what the problems you're having there? The kind of the impact they've had? And what you expect from that unit going forward?

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Thomas E. Ferguson, AZZ Inc. - CEO, President and Director [6]

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Yes, I think on the Electrical side, as you know, it's been a steady performer for us. We've committed to get it to 15% EBIT margins and be able to sustain that, drive cash flow. And we just didn't feel like we were getting the traction in either the operational side, the operational improvements, operational excellence, nor were we seeing the domestic sales organization particularly improve and take advantage of market opportunities. So we expect -- we were getting some of the international growth in terms of at least in China and -- but that's been very selective. So it's kind of an across the board, just not making the -- getting the traction that we had expected, particularly -- and it manifested itself this year when we also had some disruptions. And so getting a seasoned executive like Ken in place, he's fixed bigger businesses than this for me in the past. There's a comfort level that we'll make progress quickly. And quite frankly, we're already seeing the -- some improvement in their KPIs, key performance indicators, that would give us confidence that they're gaining the traction that we had expected.

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John Edward Franzreb, Sidoti & Company, LLC - Research Analyst [7]

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Okay. One last question and then I'll get back in the queue. Switching to Metal Coatings, can you quantify the downtime that the 3 facilities had on the quarter, how much that impacted EBIT for this segment? And will there be any spillover into Q3? Because outside -- I mean, look, the margin profile for the segment is pretty good even with the downtime.

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Thomas E. Ferguson, AZZ Inc. - CEO, President and Director [8]

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Yes, it didn't have much impact. I mean, even though it was 3 galvanizing sites, they were only down for a few days in the quarter. So there's a fairly minimal impact on Q2. All 3 sites are up and running now, all 3 galvanizing sites. And as you know, we've got a pretty extensive network of galvanizing sites throughout Texas and Louisiana. So any work that was there, we were able to move and still get it done. The problem we're facing going forward is that all the activity related to rebuilding after the hurricanes has sucked up a lot of the labor in the region. And so while we're seeing a little bit of positive impact, it's really not -- it's kind of inconsequential in the overall scheme of things on our second half. The -- at least in terms of Metal Coatings. But the impact in Q2, our lighting business was actually -- had a big backlog to ship in the last week of the quarter, so they were impacted probably for us more than the Metal Coatings impacted us. Fortunately, that backlog was -- that's what -- part of what we're talking about is shipping in Q3.

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Operator [9]

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(Operator Instructions) And your next question will be from Noelle Dilts of Stifel.

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Noelle C. Dilts, Stifel, Nicolaus & Company, Incorporated, Research Division - VP and Analyst [10]

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Just wanted to dig into your guidance a little bit more. Can you give us just some thoughts on the guidance range that you've provided and how you're sort of thinking about what would lead you to results to be more at the low end of the guidance versus coming in at the higher end?

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Paul Wesley Fehlman, AZZ Inc. - CFO and SVP of Finance [11]

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Well, okay. You -- I mean, you -- we've taken a pretty balanced look and a very wide look at everything that would take us down to that low end. I would say, Noelle, that it would probably have to do with more operational issues if we were delayed in getting stuff out that we're planning on getting out this year from our own work or for our own reasons, or if any of these jobs continue to slide out into the next year by a week, by a month, by a quarter or whatever. I'd say that the biggest risk would be that we have projects push out, not of our own making but also -- but primarily of our customers' making. You could also have the possibility of a downturn on the Metal Coatings side. We seem to be looking a lot more rosy on that -- the forward look there, though. So I don't think that's going to be a big risk. And then we're keeping a very close eye on everything going on inside Westinghouse, and we don't believe that we have a whole lot of downside there. But if something negative were to happen, if all of a sudden Vogtle would be canceled, that might have an effect on it because it would take us down, but I don't think that's very likely. Tom, anything to add to that on the downside?

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

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Yes, I guess, I'm probably looking at it a little bit differently than Paul. I still view the -- some of the receivables and things we've got related to the Westinghouse bankruptcy on the nuclear projects, that's how I factor my downside. I think the operational things, as Paul mentioned, it's true, they could slip. I think we've got a better handle on those projects, though. And while they move by a week, 2 weeks, a month, we're tracking those a lot closer in our monthly reviews. And I would agree, Metal Coatings, as you know, has no backlog. So while they're feeling more optimistic for the back half of the year, that's always the potential that they just don't find the volume or that it -- that things like solar suddenly dry up again. That's been factored in, but generally, I think our Metal Coatings folks are feeling fairly positive about the leadership changes that have been made and the traction they're seeing in some of their sites related to either infrastructure spend, or even though that's not huge, but there's still some positive in certain markets. And then I do think we'll see, as we get through the hurricane impact on the Gulf coast, there's still opportunities. So I'm kind of balanced in my view. But I'm looking at -- for me, the -- what we've really got to manage tightly is how we handle Vogtle and how we make sure we don't get too far out over our skis on receivables going forward with that and make sure we can collect. And then on the projects, we just got to manage them better than we have. And I think we've got the right focus now, so I'm more confident that we'll stay on that.

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Noelle C. Dilts, Stifel, Nicolaus & Company, Incorporated, Research Division - VP and Analyst [13]

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And then just reminding us, I guess, of your nuclear exposure, is it -- at this point, is it still more concentrated around NLI? Or is there -- I mean, should we think about it also as being a pretty substantial piece of what I think of as a legacy Electrical business?

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Thomas E. Ferguson, AZZ Inc. - CEO, President and Director [14]

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It's mostly NLI. And their -- and the -- it's our bus business, had quite a bit of furbish work for those 2 nuclear sites.

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Noelle C. Dilts, Stifel, Nicolaus & Company, Incorporated, Research Division - VP and Analyst [15]

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Okay. And then your seasonality, obviously, historically, the third quarter has normally been significantly stronger than the fourth quarter given strength of turnaround activity. With the pushouts that we're looking at now, are we kind of looking at a flatter trend for the remainder of the year? Maybe you can just give us some thoughts there?

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Paul Wesley Fehlman, AZZ Inc. - CFO and SVP of Finance [16]

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Well, yes. I mean, given that the seasonality strength typically comes from WSI, we -- I'm not sure we're going to go too much flatter because there's actually still -- we expect more in the third quarter than the fourth quarter even when things are pushing quite a bit. You should still see that seasonality in there. Maybe it's going to be a little bit depressed from where it was, but I'm not going to call too much there.

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Operator [17]

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(Operator Instructions) And we have follow-up questions from John Franzreb of Sidoti & Company.

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John Edward Franzreb, Sidoti & Company, LLC - Research Analyst [18]

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Yes, in the press release, if I recall, you mentioned something about a -- some restructuring you did at WSI in the quarter and also invested in the selling organization at WSI. Can you talk a little bit about those items and the whys and the targets there?

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

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Yes, I think in terms of, I'll call it back-office support, the support functions for WSI, one, we're -- we've done some things to streamline how they do business going forward, and they've made some steps last year in that direction. But they were still structured for -- in that 20% more volume than what we currently have. So we were kind of walking a fine line of wanting to take out some back-office headcount. And yet knowing we've got a big spring, or fairly confident at this point, we have a big spring coming because of the -- either the orders we've already booked or the things that -- the customer meetings on major projects we've been having. So we kind of walked that fine line. You're talking 20-ish kind of people. So decent amount in a business that has 200 and -- well, about 200 or 250 people. Yes, I think that's the -- and then in terms of -- what was the other part?

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Paul Wesley Fehlman, AZZ Inc. - CFO and SVP of Finance [20]

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In terms of sides of the realignment, it's fairly small. The other thing is the investing and selling.

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

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Yes, the selling organization, one of the things -- we've talked about this in the past. WSI, they've got a good solid sales force that we've built over the last 3 years. And we're pretty comfortable with -- when they're calling on corrosion engineers and maintenance engineers. But one of the things that -- given this cycle in refining where we used to benefit in my former life, was having those executive-level relationships where we can really demonstrate and sell our value. So in September, we brought in a very experienced couple of resources with a great track record. So not a huge shift, but definitely one that we're looking for helping us sell that value because we're not the low-price solution. And just in this kind of cost-sensitive nature of the refining market where its purchasing had a little more sway than engineering at this point. So -- but also going forward, it's just good for us to have those relationships. I think it helps us understand what the market is going forward, gives us better information -- market -- on what are the turnarounds, when are they going to shift, when are we going to get more of them. And because we've been somewhat uncomfortable that we haven't been able to forecast the level of turnaround activity that would impact our WSI business. So it was really related to that, but you're talking about a couple of resources.

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John Edward Franzreb, Sidoti & Company, LLC - Research Analyst [22]

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Okay. And I guess against those puts and takes, how should we be thinking about the SG&A line going forward or at least in the second half of the year relative to the first?

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Paul Wesley Fehlman, AZZ Inc. - CFO and SVP of Finance [23]

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Yes. So because of some of the work that was done there, that actually should have a positive effect on the SG&A line, all other things being equal in the second half versus the first half. So that's part of why if you do the math on the full year guidance, that's why we expect some improvement in the second half. One of the reasons.

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Thomas E. Ferguson, AZZ Inc. - CEO, President and Director [24]

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Yes, so I guess you call it -- some of these sales and leadership and you call it a reinvestment of some of what we took out.

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John Edward Franzreb, Sidoti & Company, LLC - Research Analyst [25]

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So yes. So is it net 0 or net positive? Just want to make sure I got it right here.

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Paul Wesley Fehlman, AZZ Inc. - CFO and SVP of Finance [26]

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Well, yes, it's net positive in that it's a reduction in SG&A.

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John Edward Franzreb, Sidoti & Company, LLC - Research Analyst [27]

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Okay, got it.

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Paul Wesley Fehlman, AZZ Inc. - CFO and SVP of Finance [28]

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Across -- everything that we've done across the platform or across the (inaudible).

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Operator [29]

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The next question will be follow-up from Noelle Dilts of Stifel.

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Noelle C. Dilts, Stifel, Nicolaus & Company, Incorporated, Research Division - VP and Analyst [30]

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So just going back to your comments on kind of struggling to forecast the refinery turnaround market, you certainly aren't alone. Can you talk a little bit more about how you're thinking about just how -- if you're -- you sound more certain on 2019, what's giving you some of that confidence? Why do you think we won't continue to see some of these turnarounds being pushed out? And just some thoughts on if you believe that the refiners are just figuring out ways to kind of run at acceptable levels without going through some of these larger, full-scale turnarounds?

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

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Yes, I think what gives me confidence is the opportunities we're chasing. We've got a couple of megaprojects that we're highly confident of. I'm not going to mention the customers' names, we don't want that kind of news public. But we're feeling real good about the opportunities that we're chasing, that we're having the typical premeetings. Because a lot of these, we've got to build mockups, we've got to start on our planning for these projects already to get them kicked off in, call it, March of next year, in the beginning of spring. So that's what gives us confidence and it's both domestic and international. I don't know -- so we're not counting on the general refinery turnaround trend changing, we're more looking at what opportunities are we confident of at this point in the cycle and what significant meetings are we having. And so we're looking more at just our own stuff. In terms of can they run longer? I think we're kind of seeing things fray a little bit that would indicate that bigger turnarounds have to start happening. For us it's really around the coker drums, the age of the coker drums, when do they start experience cracking. And given the nature of how important cokers are to sophisticated refining operations, we think that bodes well for us as we look into next year, not just in the spring but as you look into the fall. So for us, we're just seeing the signs that they got to start doing larger repairs in -- on their cokers and coker drums, which is where we look to.

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Noelle C. Dilts, Stifel, Nicolaus & Company, Incorporated, Research Division - VP and Analyst [32]

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All right. Second, I know you talked about some of the areas you're starting to see some improvement in the Galvanizing business as it relates to volume. But could you touch on the trends that you're seeing and expand on the trends you're seeing in the electric transmission business?

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Paul Wesley Fehlman, AZZ Inc. - CFO and SVP of Finance [33]

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Yes, we're seeing some strengthening. We've talked about this before is the switch gear is still a very healthy business. Transmission and distribution is still healthy. Enclosures is still a challenged area across the board. I think you can get plenty of read throughout the market on that. And bus duct, as far as for us, there's a lot of -- still a lot of international demand for the high-voltage bus duct. And we're looking to pick up more convenient voltage, although we have some opportunities there. But that's pretty much the rundown in our businesses. I can't stop but mention, our specialty lining business is continuing to show health and coming back. And I applaud the work that they're doing as well as our tubing business is plodding forward and they're really managing that business well. And so we're happy with what's going on there.

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Operator [34]

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And ladies and gentlemen, this will conclude our 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 [35]

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Thank you for participating in today's call. We look forward to talking to you again at the conclusion of what we hope is a better quarter in Q3. Again, thank you, and have a great day.

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Operator [36]

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