AZZ Incorporated (AZZ)

AZZ 
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AZZ Incorporated (AZZ)

F1Q09 Earnings Call

June 27, 2008 11:00 am ET

Executives

David Dingus – President and Chief Executive Officer

Dana Perry – Chief Financial Officer

Robert Blum – Lytham Partners

Analysts

Ned Borland - Next Generation Equity Research

Brent Thielman – D.A. Davidson

John Franzreb - Sidoti and Co.

Fred Buonocore – CJS Securities

Noah Steinberg – Intrepid Capital

JD Paget – The Boston Company

Jim Schwartz – Harvey Partners

Presentation

Operator

Good morning. My name is Michael and I will be your conference operator today. At this time I would like to welcome everyone to the first quarter 2009 financial results conference call. All lines have been placed on mute to prevent any background noise.

After the speaker’s remarks there will be a question-and-answer session.

(Operator Instructions)

I would now like to turn the call over to Mr. Joe Dorame.

Joe Dorame

Good morning. Thank you for joining us today to review the financial results for AZZ Incorporated for the first quarter of fiscal year 2009 ended May 31, 2008.

As Michael indicated 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 will open the call for a question-and-answer session.

Before we begin, I would like to remind everyone this conference call contains 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 form 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 market, electrical transmission and distribution markets, the industrial markets and the hot dip galvanizing markets, pricing and 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, adequacy of 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 obligations 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 Mr. David Dingus, President and Chief Executive Officer of AZZ.

David?

David Dingus

Thank you, Joe and thanks to each of you for taking the time to join us today for the conference call for the first quarter and our fiscal year 2009.

For the three month period ended May 31 when compared to the prior year, revenues increased 33%. Net income is up 144%. Earnings per share increased 141%.

We continue to benefit from strong market conditions, favorable product mix and expanded served markets. International opportunities continue to play an important role in our growth potential.

Total incoming orders for the quarter were a record setting $106.9 million while shipments for the quarter totaled a record setting $100 million, resulting in a book to ship ratio of 107% for the first quarter. There were no significant international orders received in the first quarter of FY09.

Domestic backlog increased 19% when compared to one year ago and total backlog was up 6.9% when compared to the February 29, 2008 backlog. 93% of our backlog is expected to ship in the current fiscal year and of the backlog of $14.8 million 19% is expected to be exported from the U.S.

Quotations activity and project opportunities continue at a very excellent pace. However, as we have said before the timing of these orders, particularly large international orders, has been slower than desired. We still anticipate that we will have the opportunity to secure an increased level of international bookings in the first half of our current fiscal year.

Galvanizing demand remains strong and tonnage of steel galvanized shipments increased 42% for the first quarter. This increase was partially offset by a 3% price decrease during the first quarter. The acquisition of AAA Galvanizing accounted for 70% of the quarter-over-quarter revenue increase.

Operating margins for the electrical industrial products remains strong with margins of 15.3% reflecting our ability to continue to price to recover escalating costs. Operating margins for the galvanizing services segment was extremely strong with margins of 27.9%, an increase of 1.9% over the prior year. Customer demand remains strong which facilitated minimal price concessions and we benefited from lower costs included in our cost of sales.

As a company our accomplishments have improved and we continue to double and re-double our efforts to secure more profitable business and effectively and efficiently execute on that business. Our continuous improvement programs combined with aggressive marketing programs have had a very positive impact on our operating results. We believe that these efforts that the leverage gained from additional volume has very positively impacted our operating results.

Subsequent to the quarter end we signed an agreement to acquire a strategically significant company for our electrical and industrial products segment. We signed an asset purchase agreement with Blenkhorn and Sawle Limited, a privately held company located in St. Catherine’s, Ontario, Canada. The acquisition is anticipated to be accretive and to be effective July 1, 2008. The purchase price was approximately $14 million in cash plus assumption of certain current liabilities.

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