FORT WORTH, Texas, Oct. 13, 2020 /PRNewswire/ -- AZZ Inc. (NYSE:
AZZ), a global provider of metal coating solutions, welding
solutions, specialty electrical equipment and highly engineered
services today announced financial results for the second quarter
of fiscal year 2021, ended August 31,
2020.
Second Quarter Overview and Recent Highlights:
- Adjusted EPS of $0.49 and net
income of $13.0 million, excluding one-time pre-tax
restructuring charges of $18.7
million or $0.71 per share; as
reported EPS of $(0.07) or loss of
$(1.8) million.
- Completed refinancing through a private placement of
$150 million seven and twelve year
senior unsecured notes (maturity 2028 and 2032) at average coupon
of 2.98%, which will generate approximately $2.5 million of annual interest savings.
- Effectively managed debt; $393
million of available credit
- Sales of $203.4 million, down
13.9% versus the same quarter, prior year.
- Metal Coatings segment results versus same quarter, prior
year:
-
- Sales of $117.0 million, down
6.3%
- Adjusted operating income of $26.9
million, down 6.1%
- Adjusted operating margin of 23% for both periods
- Infrastructure Solutions (formerly Energy) segment results
versus same quarter, prior year:
-
- Sales of $86.3 million, down
22.5%
- Adjusted operating income of $3.1
million, down 27.9%
- Adjusted operating margin of 3.5% versus 3.8%
- Declared second quarter cash dividend in the amount of
$0.17 per common share.
- Fiscal year 2021 Q3 expected to show sequential improvement in
both revenue and earnings per share versus second quarter.
Management Discussion
Tom Ferguson, President and Chief
Executive Officer of AZZ, commented, "We continued to navigate the
protracted global business disruption resulting from COVID-19
during the second quarter, with sales of $203.4 million and adjusted net income of
$13.0 million, or $0.49 on a per share diluted basis. In the midst
of a difficult macroeconomic environment, I am particularly pleased
that our Metal Coatings segment continues to deliver solid
operating results with sales of $117
million, and adjusted operating margins of 23%, which are
consistent with the same quarter, in the prior year. Our digital
galvanizing system (DGS) continues to provide operational
efficiencies throughout our plants and contributes to the safety of
our employees and customers. Within our Infrastructure Solutions
segment, the ongoing impact of the pandemic caused travel
restrictions within certain geographical areas and key
international markets served by our teams, significantly reducing
refining turnaround work, as customers delay or defer maintenance
and lower order volume for electrical products. We are optimistic
for continued modest improvement in the second half of the year,
and are positioning our operations for a potentially strong fiscal
year 2022, including a robust spring refining turnaround season
following COVID-related maintenance delays. We are already seeing
signs of improvement including earlier and stronger quoting
activity for our welding solutions business.
Given shifting industry and customer dynamics, and continued
impact from the pandemic, we are taking the necessary steps to
restructure our portfolio of businesses to focus our future
investments into our core operations. We recorded one-time
impairment charges of $18.7 million
during the second quarter and expect to divest or consolidate
certain assets in both the Metal Coatings and Infrastructure
Solutions segments to improve each segment's operational and
financial performance. We believe restructuring our portfolio will
streamline our continued efforts to improve operational
efficiencies, increase margins and allow us to focus on organic
growth from the core businesses.
As part of this strategic process, we are renaming our Energy
segment to Infrastructure Solutions, which we believe better
reflects the businesses we consider core to our corporate strategy.
Additionally, we have announced the promotion of Gary Hill to Chief
Operating Officer of Infrastructure Solutions as part of our
overall strategic restructuring plan. Gary is a proven
results-driven leader and has been instrumental in overseeing the
strategic development of our Industrial platform. I am confident
that consolidating both the Electrical and Industrial operating
platforms under his leadership will result in rapid realization of
greater organizational efficiencies, and a more successful
Infrastructure Solutions segment in the future.
Again, I want to express my sincere gratitude to all our
employees for their hard work and dedication during this
unprecedented time. We remain committed to emerge from this year a
much stronger company well positioned to excel in the post-COVID
era."
Second Quarter Results
Sales for the second quarter of fiscal year 2021 were
$203.4 million compared to
$236.2 million for the comparable
period last year, a decrease of 13.9%. Reported net loss for
the quarter was $(1.8) million, or
$(0.07) on a diluted basis, down
$17.4 million from the prior year,
same quarter. Adjusted net income was $13.0
million, or $0.49 per share
for the quarter, down 16.9% compared to the comparable prior year
period on a diluted basis. Incoming orders for the
three-month period declined to $208.6
million, as compared to $238.0
million for the same quarter last year. The
book-to-sales ratio improved to 1.03, compared to 1.01 in last
year's comparable period. Backlog at the end of the quarter was
$210.6 million, a decrease of 30.2%
as compared to backlog at the end of the same quarter in the prior
year.
Metal Coatings Segment
For the second quarter of fiscal year 2021, Metal Coatings
segment sales decreased 6.3% to $117.0
million and adjusted operating income of $26.9 million was $1.7
million, or 6.1% lower than the comparable prior year
quarter. Adjusted operating margins were 23% of net sales,
which was comparable to prior year quarterly operating
margin. On a year-to-date basis, adjusted operating income of
$52 million was $6.1 million, or 10.4% lower than the comparable
prior year-to-date period.
Infrastructure Solutions Segment (formerly the Energy
Segment)
For the second quarter of fiscal year 2021, Infrastructure
Solutions segment sales decreased 22.5% to $86.3 million as compared to $111.3 million in the same quarter of the prior
year. Infrastructure Solutions operating income
of $3.1 million was $1.2 million, or 27.8% lower than the comparable
prior year quarter, on an adjusted basis. Adjusted operating
margin of 3.5% was 30 basis points lower than the comparable prior
year quarter operating margin of 3.8%. On a year-to-date
basis, adjusted operating income of $2.0
million was $14.8 million, or
88.0% lower than the comparable prior year-to-date period.
Year-to-date operating margin of 1.1% was 490 basis points lower
than the prior year. The decrease in net sales and
operating income was primarily attributable to several
COVID-related factors, including travel restrictions within certain
geographical areas served by our Infrastructure Solutions teams,
significant reductions in turnaround activity in both the U.S. and
international markets, and a marked slow-down of orders for our
electrical products as customers temporarily shuttered
facilities.
The following chart provides an overview of operating income for
both our Metal Coatings and Infrastructure Solutions segments, as
adjusted for the impairment charges recorded during the
quarter:
|
|
|
|
|
|
|
|
|
AZZ
Inc.
|
Segment
Reporting
|
(in
thousands)
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
August 31,
|
|
Six Months Ended
August 31,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
Metal
Coatings Segment
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
117,037
|
|
$
124,843
|
|
$
236,027
|
|
$
246,997
|
Segment operating
income (loss):
|
|
|
|
|
|
|
|
|
Metal Coatings, as
reported
|
|
$
15,600
|
|
$
28,673
|
|
$
40,684
|
|
$
58,065
|
Impact of impairment
|
|
11,324
|
|
-
|
|
11,324
|
|
-
|
Metal Coatings, as
adjusted
|
|
$
26,924
|
|
$
28,673
|
|
$
52,008
|
|
$
58,065
|
Operating Income
percent, as adjusted
|
|
23.0%
|
|
23.0%
|
|
22.0%
|
|
23.5%
|
|
|
|
|
|
|
|
|
|
Infrastructure Solutions
Segment
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
86,335
|
|
$
111,347
|
|
$
180,637
|
|
$
278,316
|
Segment operating
income (loss):
|
|
|
|
|
|
|
|
|
Infrastructure Solutions, as
reported
|
|
$
(4,310)
|
|
$
4,239
|
|
$
(5,358)
|
|
$
16,810
|
Impact of impairment
|
|
7,369
|
|
-
|
|
7,369
|
|
|
Infrastructure Solutions, as adjusted
|
|
$
3,059
|
|
$
4,239
|
|
$
2,011
|
|
$
16,810
|
Operating Income
percent, as adjusted
|
|
3.5%
|
|
3.8%
|
|
1.1%
|
|
6.0%
|
Impairment and Restructuring
In the second quarter of fiscal year 2021, management approved a
plan to sell certain operating facilities within the Infrastructure
Solutions segment and the Metal Coatings segment. These operating
facilities and the associated assets and liabilities met the
criteria for presentation as held for sale as of August 31, 2020. The Company expects to
sell these businesses within the next twelve months.
The Company recorded total impairment charges of $18.7 million reflecting the reduction in the
carrying value of various assets to fair value less the costs
attributable to the disposal of these assets. Within the Metal
Coatings segment, this includes a $1.2
million loss on sale related to the previously disclosed
divestiture of its Galvabar business, impairment charges of
$6.9 million related to plans to
consolidate underperforming plants, and $3.2
million of assets held for sale. Within the
Infrastructure Solutions segment, the Company has identified
$4.9 million of assets held for sale
and recorded an inventory impairment charge of $2.5 million for certain assets related to
serving the oil patch.
Subsequent Event - Refinancing
During the second quarter of fiscal year 2021, the Company
successfully executed a plan to refinance $125 million of existing 5.42% senior notes,
maturing January 2021, with much more
favorable terms. The new private placement offering increased
the current $125 million face value
to $150 million as the Company sought
to take advantage of the extremely favorable interest rate
environment. The Company executed on two tranches of 7-year
and 12-year borrowings of $70 million
and $80 million, respectively.
The average coupon rate associated with our new borrowings is
2.98%. The new private placement notes will reduce the annual
interest costs by more than $2.5
million, after funding in December
2020 and January 2021.
Fiscal Year 2021 Guidance
Mr. Ferguson added, "Given the continued disruption from
COVID-19 we will continue to suspend our guidance for fiscal 2021
at this time. Based upon the evaluation of information currently
available to management, we believe the third quarter will show
sequential improvement in both sales and earnings per share versus
the second quarter, and anticipate results will fall short of a
very strong third quarter of last year. We continue to
experience COVID-related travel restrictions within certain
geographical areas served by our Infrastructure Solutions teams,
particularly in some key international markets where we have
projects scheduled for completion during the quarter.
The strong cash flow generated by our operations will continue
to help the Company manage both debt and liquidity effectively
throughout the remainder of fiscal 2021 and well beyond. We
continue to be prudent with our cash by focusing capital
expenditures on core growth initiatives and safety-related
spending, reducing debt, and repurchasing shares to minimize
dilution. We will continue to carefully manage our workforce
to ensure a safe and healthy operating environment, while flexing
our capacity to better match our customer demands.
We are focused on executing the following opportunities:
fully integrating the Galvanizing and Powder Coating and Plating
platforms to drive market share growth and operating efficiencies;
building backlog in our Infrastructure Solutions segment; ensuring
our ability to deploy resources effectively during, what appears to
be, a modest fall turnaround season; completing M&A activities
in support of our strategic initiatives and continuing to manage
our liquidity to ensure we enter fiscal 2022 in a solid
position."
Conference Call Details
AZZ Inc. will conduct a conference call to discuss financial
results for the second quarter of fiscal year 2021 today,
Tuesday, October 13, 2020, at
11:00 A.M. ET. Interested parties can
access the conference call by dialing (844) 855-9499 or (412)
317-5497 (international). A webcast of the call will be available
on the Company's Investor Relations page at
http://www.azz.com/investor-relations.
A replay of the call will be available for three days at (877)
344-7529 or (412) 317-0088 (international), confirmation #
10148393, or for 30 days at
http://www.azz.com/investor-relations.
There will be a slide presentation accompanying today's call.
The Company's slide presentation for the call will be available on
the Investor Relations page at
http://www.azz.com/investor-relations.
About AZZ Inc.
AZZ Inc. is a global provider of metal coating solutions,
welding solutions, specialty electrical equipment and highly
engineered services to the markets of power generation,
transmission, distribution and industrial in protecting metal and
electrical systems used to build and enhance the world's
infrastructure. AZZ Metal Coatings is a leading provider of metal
finishing solutions for corrosion protection, including hot dip
galvanizing to the North American steel fabrication industry. AZZ
Infrastructure Solutions (formerly Energy) is dedicated to
delivering safe and reliable transmission of power from generation
sources to end customers, and automated weld overlay solutions for
corrosion and erosion mitigation to critical infrastructure in the
energy markets worldwide.
Safe Harbor Statement
Certain statements herein about our expectations of
future events or results constitute forward-looking statements for
purposes of the safe harbor provisions of The Private Securities
Litigation Reform Act of 1995. You can identify forward-looking
statements by terminology such as "may," "should," "expects,"
"plans," "anticipates," "believes," "estimates," "predicts,"
"potential," "continue," or the negative of these terms or other
comparable terminology. Such forward-looking statements are based
on currently available competitive, financial and economic data and
management's views and assumptions regarding future events. Such
forward-looking statements are inherently uncertain, and investors
must recognize that actual results may differ from those expressed
or implied in the forward-looking statements. Certain factors could
affect the outcome of the matters described herein. This press
release may contain forward-looking statements that involve risks
and uncertainties including, but not limited to, changes in
customer demand for our products and services, including demand by
the power generation markets, electrical transmission and
distribution markets, the industrial markets, and the metal
coatings markets. In addition, within each of the markets we
serve, our customers and our operations could potentially be
adversely impacted by the ongoing COVID-19 pandemic. We could
also experience fluctuations in prices and raw material cost,
including zinc and natural gas which are used in the hot dip
galvanizing process; supply-chain vendor delays; customer requested
delays of our products or services; delays in additional
acquisition opportunities; currency exchange rates; adequacy of
financing; availability of experienced management and employees to
implement AZZ's growth strategy; a downturn in market conditions in
any industry relating to the products we inventory or sell or the
services that we provide; economic volatility or changes in the
political stability in the United
States and other foreign markets in which we operate; acts
of war or terrorism inside the United
States or abroad; and other changes in economic and
financial conditions. AZZ has provided additional information
regarding risks associated with the business in AZZ's Annual Report
on Form 10-K for the fiscal year ended February 29, 2020 and other filings with the
Securities and Exchange Commission ("SEC"), available for viewing
on AZZ's website at www.azz.com and on the SEC's
website at www.sec.gov. You are urged to
consider these factors carefully in evaluating the forward-looking
statements herein and are cautioned not to place undue reliance on
such forward-looking statements, which are qualified in their
entirety by this cautionary statement. 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.
Company Contact:
David Nark,
Senior Vice President of Marketing and Investor Relations
AZZ Inc.
(817) 810-0095
www.azz.com
Investor Contact:
Joe
Dorame, Managing Partner
Lytham Partners
(602) 889-9700
www.lythampartners.com
---Financial tables on the following
page---
AZZ
Inc.
|
Condensed
Consolidated Statements of Income
|
(in thousands, except
per share data)
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
August 31,
|
|
Six Months Ended
August 31,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
203,372
|
|
$
236,190
|
|
$
416,664
|
|
$
525,313
|
Costs of
sales
|
|
157,278
|
|
183,504
|
|
328,363
|
|
406,520
|
Gross Margin
|
|
46,094
|
|
52,686
|
|
88,301
|
|
118,793
|
|
|
|
|
|
Selling, general and
administrative
|
|
26,749
|
|
30,479
|
|
54,639
|
|
65,612
|
Restructuring and
impairment charges
|
18,693
|
|
-
|
|
18,693
|
|
-
|
Operating income
|
|
652
|
|
22,207
|
|
14,969
|
|
53,181
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
2,470
|
|
3,548
|
|
5,104
|
|
7,132
|
Other (income)
expense, net
|
|
92
|
|
686
|
|
1,547
|
|
1,110
|
Income (loss) before income
taxes
|
(1,910)
|
|
17,973
|
|
8,318
|
|
44,939
|
Income tax expense
(benefit)
|
|
(120)
|
|
2,415
|
|
4,567
|
|
8,097
|
Net income
(loss)
|
|
$
(1,790)
|
|
$
15,558
|
|
$
3,751
|
|
$
36,842
|
Earnings (loss) per
common share
|
|
|
|
|
Basic
|
|
$
(0.07)
|
|
$
0.59
|
|
$
0.14
|
|
$
1.41
|
Diluted
|
|
$
(0.07)
|
|
$
0.59
|
|
$
0.14
|
|
$
1.40
|
|
|
|
|
|
|
|
|
|
Diluted average
shares outstanding
|
|
26,219
|
|
26,272
|
|
26,198
|
|
26,233
|
AZZ
Inc.
|
Condensed
Consolidated Balance Sheets
|
(in
thousands)
|
(unaudited)
|
|
|
|
|
|
|
|
|
August 31,
2020
|
|
February 29,
2020
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
Current assets (including
assets held for sale of $16,916)
|
|
$
310,933
|
|
$
354,562
|
|
Net property, plant and
equipment
|
|
200,420
|
|
213,104
|
|
Other assets, net
|
|
488,599
|
|
506,165
|
|
Total assets
|
|
$
999,952
|
|
$
1,073,831
|
|
|
|
|
|
|
|
Liabilities and
shareholders' equity:
|
|
|
|
|
|
Current Liabilities
(including liabilities held for sale of $6,097)
|
$
240,836
|
|
$
280,613
|
|
Long term debt due after one
year, net
|
|
46,945
|
|
77,878
|
|
Other liabilities
|
|
80,630
|
|
111,612
|
|
Shareholders'
equity
|
|
631,541
|
|
603,728
|
|
Total liabilities and
shareholders' equity
|
|
$
999,952
|
|
$
1,073,831
|
|
AZZ
Inc.
|
Condensed
Consolidated Statements of Cash Flows
|
(in
thousands)
|
(unaudited)
|
|
|
|
|
|
|
|
|
Six Months Ended
August 31,
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
Net cash provided by
operating activities
|
|
$
32,166
|
|
$
38,235
|
|
Net cash used in
investing activities
|
|
(10,531)
|
|
(56,088)
|
|
Net cash provided by
(used in) financing activities
|
|
(45,131)
|
|
7,196
|
|
Effect of exchange
rate changes on cash
|
|
837
|
|
235
|
|
Net decrease in cash
and cash equivalents
|
|
$
(22,659)
|
|
$
(10,422)
|
|
Cash and cash
equivalents at beginning of period
|
|
36,687
|
|
24,005
|
|
Cash and cash
equivalents at end of period
|
|
$
14,028
|
|
$
13,583
|
|
AZZ Inc.
Non-GAAP Disclosure
Adjusted Operating Income, Adjusted Earnings and Adjusted Earnings
Per Share
|
|
In addition to
reporting financial results in accordance with Generally Accepted
Accounting Principles in the United
States ("GAAP"), The Company has provided adjusted operating
income, earnings and adjusted earnings per share,
which are non-GAAP measures. Management believes that the
presentation of these measures provides investors
with a greater transparency comparison of operating results across
a broad spectrum of companies, which provides
a more complete understanding of the Company's financial
performance, competitive position and prospects for the
future. Management also believe that investors regularly rely
on non-GAAP financial measures, such as adjusted
operating income, adjusted earnings and adjusted earing per share,
to asses operating performance and that such
measures may highlight trends in the Company's business that may
not otherwise be apparent when relying on
financial measures calculated in accordance with GAAP.
|
|
The following tables
provide a reconciliation for the three- and six-months ended August
31, 2020 between the various
measures calculated in accordance with GAAP to those calculated on
a non-GAAP basis, which are shown net of tax
(in thousands, except per share data):
|
|
|
|
Three
Months
Ended
|
|
Six
Months
Ended
|
|
|
August 31,
2020
|
|
August 31,
2020
|
|
|
|
|
|
GAAP operating income
(loss)
|
|
$
652
|
|
$
22,207
|
Restructuring and impairment
charges
|
|
18,693
|
|
18,693
|
Non-GAAP operating
income
|
|
$
19,345
|
|
$
40,900
|
|
|
Three Months
Ended
August 31,
2020
|
|
Six Months
Ended
August 31,
2020
|
|
|
Amount
|
|
Per
Diluted
Share
|
|
Amount
|
|
Per
Diluted
Share
|
|
|
|
|
|
|
|
|
|
GAAP net income
(loss) and GAAP diluted earnings (loss) per share
|
|
$
(1,790)
|
|
$
(0.07)
|
|
$
3,751
|
|
$
0.14
|
|
|
|
|
|
|
|
|
|
Adjustments to
reconcile GAAP to non-GAAP financial measures
|
|
|
|
|
|
|
|
|
Restructuring and impairment
charges:
|
|
|
|
|
|
|
|
|
Metal Coatings
|
|
11,324
|
|
0.43
|
|
11,324
|
|
0.43
|
Infrastructure Solutions
|
|
7,369
|
|
0.28
|
|
7,369
|
|
0.28
|
Sub-total
|
|
18,693
|
|
0.71
|
|
18,693
|
|
0.71
|
Tax benefit related to
restructuring and
impairments
charges
|
|
(3,930)
|
|
(0.15)
|
|
(3,930)
|
|
(0.15)
|
|
|
|
|
|
|
|
|
|
Total non-GAAP
adjustments
|
|
14,763
|
|
0.56
|
|
14,763
|
|
0.56
|
|
|
|
|
|
|
|
|
|
Non-GAAP net income
and diluted earnings per share
|
$
12,973
|
|
$
0.49
|
|
$
18,514
|
|
$
0.71
|
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SOURCE AZZ Inc.