AZZ Incorporated (AZZ)

AZZ 
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Industry: Consumer Durables
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AZZ Incorporated (AZZ)

F3Q09 Earnings Call

January 9, 2009 11:00 am ET

Executives

Joe Dorame - Investor Relations, Lytham Partners

David H. Dingus - President and Chief Executive Officer

Dana L. Perry - Chief Financial Officer

Analysts

John Franzreb - Sidoti & Company

Ned Borland - Next Generation Equity Research

Larry Solow for Fred Buonocore - CJS Securities

Brent Thielman - D. A. Davidson & Company

Presentation

Operator

Welcome to the AZZ Incorporated year-to-date third quarter results of fiscal year 2009 conference call. (Operator Instructions) Mr. Dorame, you may begin your conference.

Joe Dorame

Good morning. Thanks for joining us today to review the financial results for AZZ Incorporated for the third quarter of fiscal year 2009, ended November 30, 2008. My name is Joe Dorame with Lytham Partners and we are the financial relations consulting firm for AZZ Incorporated. With us today on the call representing the company are Mr. David Dingus, President and Chief Executive Officer, and Mr. Dana Perry, Chief Financial Officer.

At the conclusion of today’s prepared remarks we’ll open the call for a Q&A session.

Before we begin I would like to remind everyone this conference call includes statements that 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 the company with the SEC. 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 electrical power generation markets, electrical transmission and distribution markets, the industrial markets, and hot dip galvanizing markets, prices in raw material costs, including zinc and natural gas, which are used in the hot dip galvanizing process, changes in the economic conditions of the various markets the company serves, foreign and domestic, customer-requested delays of shipments, acquisition opportunities, adequate financing, and availability of experienced management employees to implement the company’s growth strategies. The company can give no assurance that such forward-looking statements will prove to be correct. We undertake no obligation to affirm publicly, update, or revise any forward-looking statements whether as a result of information, future events, or otherwise.

With that having been said I’d like to turn the call over to David Dingus, President, and Chief Executive Officer of AZZ.

David H. Dingus

Thanks to each of you for taking the time to join us today for the conference call for our third quarter of fiscal 2009.

For the three months period ended November 30, 2008, the company reported another excellent quarter for incoming orders, revenues, net income, earnings per share, and backlog.

For the nine months ended November 30, 2008, when compared to the prior year, revenues increased 28%, net income is up 58%, earnings per share increased 57%, backlog is up 33% to another record level, and we are increasing our 2009 EPS guidance.

For the third quarter we continued to benefit from strong market conditions and expanded certain markets. International opportunities continued to play an important role in our growth.

Backlog at the end of the third quarter was up $195.3 million, another record. Total incoming orders for the quarter were $113.3 million, plus shipments for the quarter totaled a record-setting $108.9 million, resulting in a book to ship ratio of 104%.

For the first nine months orders totaled $359.2 million plus shipments totaled $312.1 million, resulting in the year-to-date book to ship ratio of 115%.

There were three significant international orders in the third quarter totaling approximately $24.0 million, essentially the same level as we achieved in the second quarter.

Total backlog was up 28% when compared to last year and 35% when compared to the February 29, 2008, backlog. Of our total backlog, 34% is expected to be shipped in the current fiscal year. Of the backlog of $195.3 million, 35% is to be delivered outside the U.S. At the end of the second quarter, 29% was to be delivered outside of the U.S.

During the third quarter quotation activity and project opportunities continued at a strong pace. While there is future potential for some order delays due to economic and credit conditions, we are encouraged that to date we have seen only isolated cases where delays have been implemented.

The timing of release of these orders has and will continue to create quarter-to-quarter lumpy backlog results that may appear to be market corrections rather than timing of order release.

The fourth quarter, which has historically been our low bookings quarter, will likely reoccur in the current fiscal year. We have and will continue to express to you when we believe it is a timing issue and when it is a change in market conditions. We believe this projected lower level of backlog is timing rather than a market correction.

Galvanizing demand remained strong during the third quarter and tonnage of steel process increased. Total Galvanizing revenues were up 38% for the third quarter when compared to last year. On a same store basis the tonnage is up 5% while price was down 2%, resulting in essentially being flat on a year-over-year basis. For the first nine months revenues increased 38% in total and 6% on a same store basis.

Operating margins for the Electrical/Industrial Products remained very strong with margins of 17%. We had a very balanced product mix in the third quarter.

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