AZZ Incorporated (AZZ)

AZZ 
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Industry: Consumer Durables
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AZZ incorporated (AZZ)

F2Q09 Earnings Call

September 26, 2008 11:00 am ET

Executives

Joe Dorame – Investor Relations, Lytham Partners

David H. Dingus – President, Chief Executive Officer

Dana L. Perry – Chief Financial Officer, Senior Vice President - Finance

Analysts

Ned Borland – Next Generation Equity Research

Brent Thielman – D. A. Davidson & Company

John Franzreb – Sidoti & Company, LLC

Fred Buonocore – CJS Securities

James D. Padgett – The Boston Company

Noah Steinberg – Intrepid Capital

Presentation

Operator

Welcome to the AZZ incorporated second quarter of fiscal year 2009 financial results conference call. (Operator Instructions) I would now like to turn the conference over to Joe Dorame.

Joe Dorame

I’m 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 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 for the conference call for the second quarter in the first six months of our fiscal year 2009. For the three-month period ended August 31 the company set a record for revenues, net income, earnings per share, and backlog. For the first six months ended August 31, 2008, when compared to the prior year revenues increased 30%, net income is up 75%, earnings per share increased 72%, and backlog is up 28%.

We continue to benefit from strong market conditions, expanded third markets, international opportunities continue to play an important role in our growth potential.

Total incoming orders for the quarter were a record-setting $139.1 million while shipments for the quarter totalled a record-setting $103.3 million resulting in a book-to-ship ratio of 135% for the second quarter.

There were two significant international orders received in the second quarter of fiscal 2009, as forecast, totalling approximately $23 million. This combined with the booking, the opening backlog of Blenkhorn and Sawle increased international backlog by more than 200%. Domestic orders remain strong with backlog increasing 19% when compared to the first quarter. Our total backlog was up 28% when compared to last year and 35% when compared to the 22908 backlog. Sixty percent of our backlog is expected to ship in the current fiscal year and of the backlog of $190.8 million 29% is to be delivered outside of the US.

The quotation activity and project opportunities continue at an excellent pace. The timing and 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 orders released. 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. Large international orders are often slower than desired.

We still anticipate that we will have the opportunity to secure additional large international orders, but the timing is not yet finalized as to whether it will be further positively impact the excellent current-year backlog or whether we’ll be in the beginning of fiscal year 2010. We anticipate that international revenues will continue to represent approximately 25% of our electrical and industrial product shipment.

Galvanizing demand remains strong and tonnage of steel processed increased 47% for the second quarter. On a same-store basis this is up 12%. This increase was partially offset by a 2% decrease in our average selling price during the second quarter.

For the first six months revenues increased 40% in total and 9% on a same-store basis. Operating margin for the electrical and industrial products were strong at 19%, reflecting our ability to continue to price to recover escalating costs. We had a very balanced product mix in the second quarter.

Operating margins for the galvanizing services segment was also very strong with margins of 30%. Margins for the quarter were favourably impacted by the insurance settlement related to a fire at one of our facilities. However, without this gain the margins were 28% and compare favourably to the 25% in the same period last year. For the first six months margins are 29% compared to 25% in the prior year period.

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