AZZ Inc. (AZZ) Q4 2026 earnings review
A Tale of Two Segments: Infrastructure Booms While Construction Lags
AZZ capped off a transformational FY26 with a strong Q4, driven entirely by a 25.7% revenue surge in its Metal Coatings segment. Adjusted EPS soared 36.7% YoY to $1.34, easily brushing past the noise of a $21.7M Q4 equity loss from the AVAIL JV divestiture aftermath. However, the top-line story is heavily bifurcated. While Metal Coatings rides a multi-year infrastructure wave, the Precoat Metals segment continues to bleed, with Q4 sales down 2.4% due to sluggish residential construction and HVAC end markets. Despite this drag, management's aggressive deleveraging campaign throughout the year—slashing net leverage from 2.5x to 1.4x—positions the company perfectly for resumed M&A. FY27 guidance reflects steady, albeit slightly decelerating, top-line and earnings growth expectations.
🐂 Bull Case
The Metal Coatings segment is accelerating, posting 25.7% YoY growth in Q4 (up from 16% in Q3). Margins remain elite at 30.2%, fueled by sustained IIJA infrastructure spending and operational efficiency.
By utilizing the $273M AVAIL JV cash distribution and robust free cash flow, AZZ paid down $385.3M in debt in FY26. Net leverage is now 1.4x, down from 2.5x, drastically reducing interest expenses and opening the door for aggressive M&A.
🐻 Bear Case
Precoat Metals sales contracted 2.4% in Q4. While management points to the new Washington, MO facility reaching profitability, it wasn't enough to offset volume declines in core HVAC and residential construction end markets.
GAAP Net Income dropped 21% in Q4 primarily due to a $21.7M equity loss from unconsolidated subsidiaries (AVAIL JV). While non-operational, working through the stranded overhead and accounting errors from this divestiture remains a persistent drag on reported bottom-line metrics.
⚖️ Verdict: 🟢
Bullish. The persistent weakness in Precoat Metals is a legitimate concern, but the sheer velocity of the Metal Coatings segment and the brilliantly executed deleveraging strategy easily overshadow it. Management has de-risked the balance sheet and built a foundation for highly accretive capital allocation in FY27.
Key Themes
Metal Coatings: Infrastructure Tailwinds Accelerating
The Metal Coatings segment delivered an explosive 25.7% YoY revenue increase to $186.5M in Q4, significantly accelerating from earlier quarters. While Q4 FY25 provided an easy comparison due to severe weather, the underlying momentum from IIJA-related infrastructure, solar, and transmission/distribution spending is undeniable. Segment Adjusted EBITDA margins held strong at 30.2%, proving that volume leverage is effectively absorbing any cost inflation.
Precoat Metals Growth Stuck in Reverse
In stark contrast to Metal Coatings, Precoat Metals remains a persistent laggard. Q4 sales fell 2.4% YoY to $198.6M. Management cited lower end-market demand in residential construction, transportation, and HVAC. Furthermore, segment EBITDA margins sequentially decelerated throughout FY26 (20.7% in Q1 to 18.2% in Q4). Until the macro environment for residential construction and HVAC normalizes, this segment will handicap overall consolidated growth.
Masterclass in Deleveraging
AZZ executed a textbook deleveraging strategy in FY26. Armed with $525M in operating cash flow—bolstered by a $273.2M distribution from the AVAIL JV divestiture—the company retired $385.3M in debt. Net leverage plummeted from 2.5x to 1.4x in just 12 months. This not only structurally de-risks the company but dramatically lowered Q4 interest expense to $11.2M (down 35% YoY from $17.4M), acting as a massive tailwind for Adjusted EPS.
AVAIL JV Post-Divestiture Mess
While the AVAIL JV divestitures injected massive cash into the business in Q1, the Q4 accounting reality was ugly. Q4 GAAP net income dropped 21% largely because equity in earnings of unconsolidated subsidiaries swung to a $21.7M loss (vs a $3.7M gain last year). Management noted this included a loss related to the sale of Welding Services (WSI) and prior period accounting errors in AVAIL's Brazil operations. It is a one-off hit, but it muddies the GAAP reporting significantly.
Washington, Missouri Facility Reaches Profitability
A critical milestone was achieved in Q4: the new greenfield coil coating facility in Washington, Missouri officially reached profitability. After acting as a slight margin drag during its ramp-up phases in H1 FY26, this facility validates the capital investment strategy and positions Precoat Metals to capture the secular shift from plastic to aluminum in packaging, offsetting some of the broader macro construction weakness.
Digital Galvanizing System (DGS) Yielding Results
AZZ's push into operational tech is paying dividends. Management previously noted they are approaching 'theoretical zinc efficiency levels' via their proprietary Digital Galvanizing System (DGS). This operational rigor is the silent partner to the volume growth, ensuring that the Metal Coatings segment successfully expanded full-year Adjusted EBITDA margins to 31.0%, sitting at the absolute high end of their 27-32% target range.
Capital CapEx Cycle Ramping Back Up
With the balance sheet repaired, CapEx is expanding again. FY26 CapEx came in at $80.8M. For FY27, guidance models an increase to $80M - $100M to fund capacity expansions and technology improvements in both segments. While healthy for long-term growth, it will moderately compress Free Cash Flow conversion compared to the depressed CapEx levels seen immediately following the Precoat acquisition.
Other KPIs
Plunged 35% YoY from $17.4M. For the full year, interest expense dropped to $55.6M from $81.3M in FY25. This $25.7M annual saving directly drops to the bottom line, acting as the primary bridge between the 4.6% top-line growth and the 19.0% Adjusted EPS growth for FY26.
With leverage comfortably below the 2.0x threshold, management reactivated share repurchases, buying back 201,416 shares at an average price of $99.28. Combined with $23.1M in dividends, capital return to shareholders is scaling up.
Guidance
Stable to slightly accelerating. The midpoint ($1.75B) implies 6.0% YoY growth, an acceleration from the 4.6% achieved in FY26. Notably, this explicitly excludes any potential M&A activities, suggesting organic momentum remains intact.
Stable. The midpoint of $380M represents a modest 3.4% growth over FY26's $367.6M. This deceleration relative to top-line growth suggests management is anticipating some margin compression, potentially from raw material inflation or a heavier weighting of lower-margin Precoat sales if construction recovers.
Accelerating. The midpoint of $6.75 implies 9.0% YoY growth, up from FY26's $6.19. This is heavily supported by the assumption of a much lower interest expense run-rate ($35M - $45M guided for FY27) due to FY26's massive debt paydowns.
Key Questions
Precoat Turnaround Visibility
Precoat Metals volume declined sequentially throughout the year. With the Washington, MO facility now profitable, what needs to happen from a macro perspective (rates, residential starts) for the legacy Precoat volume to flip positive in FY27?
M&A Strategy with 1.4x Leverage
Net leverage is now 1.4x, well below historical target ranges. Should we expect a shift back to larger, transformative M&A deals in FY27, or will the focus remain strictly on bite-sized, single-facility bolt-ons like Canton Galvanizing?
AVAIL JV Final Clean-up
Q4 saw a messy $21.7M equity loss related to accounting errors and the WSI sale in the AVAIL JV. Is there any remaining stranded cost, liability, or operational exposure from the 40% retained interest that could impact FY27 earnings?