AZZ (NYSE:AZZ) reported record third-quarter fiscal 2026 sales and said it is seeing continued demand tied to infrastructure modernization, the energy transition, and large-scale data center construction, while parts of its construction-exposed prepainted metals business remain softer.
Record quarterly sales and dividend milestone
President and CEO Tom Ferguson said the company delivered record third-quarter sales of $426 million, surpassing any quarter in its history. He also highlighted a record high trailing 12-month adjusted EBITDA of $358 million.
Segment performance: Metal Coatings strength offsets mixed Precoat backdrop
Ferguson said Metal Coatings “delivered an exceptional quarter,” with sales up 15.7% year over year, driven by higher volumes and strong demand from infrastructure projects. He noted segment EBITDA margins of 30.3% reflected an increased mix of larger projects in electrical, solar, and transmission and distribution work, which he described as more price competitive.
Precoat Metals posted sequential improvement versus the prior quarter, but sales were down 1.8% year over year. Management attributed the decline primarily to continued softness in construction, HVAC, and transportation markets. At the same time, leadership pointed to strength in food and beverage container demand, which “reached new record highs” due to new customer acquisitions and market share gains, aligning with a broader shift from plastics to aluminum and the ramp-up at the company’s Washington, Missouri facility.
On the question-and-answer portion of the call, Ferguson said Metal Coatings typically does not have meaningful backlog but has a “good forward look” from its sales organization. He said the segment has momentum and opportunities to finish the year well, barring severe weather like last year’s fourth quarter. For Precoat, he described conditions as “more of a mixed bag,” noting headwinds in residential and commercial construction, partial benefit from data center-related painted metal demand, and a “quicker turn” environment as customers carry less bare metal inventory than a year ago.
Financial results: improved operating income, lower interest expense, share repurchases
CFO Jason Crawford said third-quarter sales were $425.7 million, up 5.5% from $403.7 million in the prior-year period. Gross profit was $101.9 million, or 23.9% of sales, compared with $97.8 million, or 24.2% of sales, a year earlier.
Selling, general, and administrative expenses were $32.5 million, or 7.6% of sales, compared with $39.2 million, or 9.7% of sales, in the prior-year quarter, which included severance and one-time employee retirement costs. Operating income rose to $69.5 million, or 16.3% of sales, versus $58.5 million, or 14.5% of sales, last year.
AZZ reported a net loss in equity and earnings of $1.4 million, including a $0.6 million post-closing loss adjustment related to the previously announced divestiture of the electrical products business. Crawford said losses from the AZL joint venture were primarily due to excess overhead costs resulting from that divestiture. With the sale of WSI on Dec. 31, 2025, and resizing of overhead, the company forecast equity and earnings from unconsolidated subsidiaries will be zero in the fourth quarter.
Interest expense was $12.2 million, a $7 million improvement from the prior year, driven by debt paydown, debt repricing, and the introduction of an accounts receivable securitization facility. The quarter’s income tax expense was $14.5 million, reflecting an effective tax rate of 26.1% versus 26.5% a year earlier. Crawford said the “One Big Beautiful Bill Act” was not expected to have a material impact on income tax expense or the effective tax rate for the year, but would reduce cash taxes paid in 2026.
Reported net income was $41.1 million, up from $33.6 million a year earlier. Adjusted net income was $46.0 million, or adjusted diluted EPS of $1.52, compared with adjusted net income of $41.9 million and adjusted diluted EPS of $1.39 in the prior-year quarter.
Adjusted EBITDA was $91.2 million, or 21.4% of sales, compared with $90.7 million, or 22.5% of sales, last year.
On the balance sheet and capital allocation, Crawford said the company generated $79.7 million in operating cash flow during the quarter and spent $18.5 million on capital expenditures. AZZ repurchased $20 million of stock at an average price of $99.28 per share and paid down $35 million of debt. The company ended the quarter with net debt of $534.7 million and a credit agreement net leverage ratio of 1.6x, within its stated 1.5x to 2.5x target range.
End-market commentary: data centers, solar, and roofing trends
Chief Marketing, Communications, and Investor Relations Officer David Nark said the U.S. infrastructure investment cycle and investments in generative AI and machine learning are “in the early stages” of driving demand for high power density and advanced cooling systems, which require specialized coatings beyond structural steel. He added that major data center builds are often paired with co-located power generation and grid upgrades, which he expects to reinforce long-term trends benefiting both the Metal Coatings and Precoat Metals segments.
Nark said solar projects are expected to remain strong, citing customers with backlogs extending beyond the expiration of current tax credits. He also said non-residential construction remained subdued in the quarter amid interest rates and tariff-related uncertainty, while residential construction was also soft. However, he noted positive trends in residential metal reroofing, which he said is gradually taking share from asphalt roofing, helping to offset a slower storm season in which “no named hurricanes made landfall” in the continental U.S. during the year.
In Q&A, Nark said metal roofing represented just under 5% of new residential construction and about 14% of the replacement market, with stronger concentration in southern regions including Florida, Texas, Southern California, and Arizona.
Guidance update and outlook items
Ferguson said the company narrowed its fiscal 2026 guidance ranges, calling out expected fourth-quarter comparisons that may be easier due to last year’s unusually wet and cold weather. AZZ now expects:
- Sales: $1.625 billion to $1.7 billion
- Adjusted EBITDA: $360 million to $380 million
- Adjusted diluted EPS: $5.90 to $6.20
Management said it expects to release fiscal 2027 guidance in the “next few weeks” ahead of the new fiscal year starting March 1. Ferguson also said industry consolidation continues to create opportunities and that AZZ is evaluating “several strategic tuck-in acquisitions” in both Metal Coatings and Precoat Metals, emphasizing a disciplined approach. On dividends, leadership said it intends to evaluate the payout annually.
Separately, Ferguson noted that subsequent to quarter end, AZL completed the sale of a majority interest in its welding solutions business (WSI), which he said simplified the portfolio, with only Rigolite and a small portion of international WSI remaining to be divested.
About AZZ (NYSE:AZZ)
AZZ Inc, incorporated in 1956 and headquartered in Fort Worth, Texas, is a leading provider of galvanizing and metal finishing solutions alongside electrical equipment and services. The company supports a diverse range of industries—such as energy, infrastructure, heavy equipment and general industrial markets—by delivering corrosion protection and high-performance electrical solutions designed for demanding environments.
AZZ operates two primary business segments. The Global Coatings & Services segment offers hot-dip galvanizing, metal finishing, painting, powder coating and related value-added services to steel fabricators and original equipment manufacturers.
