AZZ Inc. (AZZ) Q2 2027 earnings review
AZZ sales grow 17%, but it trims its debt paydown plan
Both of AZZ's coating businesses grew at the same time, and the galvanizer raised its full-year plan again. Sales rose 17% to a record, and profit per share excluding one-offs climbed 29%. Chief executive Tom Ferguson credited higher steel volumes, price increases and the new Missouri coil-coating plant. By our math the new plan has sales growing about 13% in the second half.
| Sales | $486.9M +16.7% from a year ago |
|---|---|
| Metal Coatings sales | $233.5M +22.9% from a year ago |
| Precoat Metals sales | $253.4M +11.5% from a year ago |
| Full-year sales outlook | Raised $25M middle of the range: 12.1% growth |
⚖️ Verdict: 🟢 Bullish
The story got better because the sales plan that looked hard to reach in June now asks for less growth than AZZ just delivered. The bad news: the company cut its debt-paydown plan by $30 million after buying Seattle Galvanizing, and by our math the raised outlook has profit growing slower than sales in the second half.
The question now is whether the jump in galvanizing demand is a multi-year grid build or a run of projects with nothing booked behind it. AZZ keeps no backlog, so only the next sales figures can tell. Third-quarter Metal Coatings sales, due in January, will answer.
🐂 Bull Case
Metal Coatings Grows 23% on Steel Volume
AZZ's Metal Coatings business dips fabricated steel into molten zinc so that bridges, power-line towers and factory frames do not rust. Its customers build power grids, data centres and industrial plants, and this quarter they sent the galvanizer far more steel than a year ago.
Segment sales rose 22.9% to $233.5 million. AZZ's own bridge attributes most of the increase to "a higher volume of steel processed", with a smaller part from "higher average selling prices in response to inflationary pressures".
- Volume: $34.5 million of the $43.5 million increase
- Price: $6.5 million of the increase
- Industrial customers: sales up 40% across the company
- Construction customers: sales up 16%
This matters because volume growth turns into profit better than price does, since the kettles and crews carry fixed costs. The segment's profit margin before interest, tax and depreciation held at 30.7% even though zinc costs climbed, so the extra tonnage paid for the metal. The segment grew faster than 20% in two of the last three quarters.
What to watch: Metal Coatings sales growth in the third quarter, due in January. Growth above 20% again would mean the grid and factory work is a multi-quarter cycle rather than a run of projects that ends when the sites are finished.
Precoat Metals Returns to Growth
Precoat Metals paints steel and aluminium coils before customers cut them into roofing, appliance panels and drink cans. The business shrank for most of last year because builders and appliance makers ordered less, so growth here is news. This quarter it grew 11.5%, its first double-digit gain in the quarters we track.
AZZ said more coils went to construction and container customers, that prices rose on "vendor price increases passed through to customers", and that the new plant in Washington, Missouri sold more. Ferguson pointed to "the continued ramp-up of our new Washington, Missouri facility within our Precoat Metals segment". That plant coats aluminium for beverage cans, and container sales across the company reached $22.8 million, up from $9.0 million a year ago.
The margin improved as well, because the new plant spread its fixed costs over more coils. Cost of sales fell 1.1 percentage points to 79.4% of segment sales. The segment's profit margin before interest, tax and depreciation therefore rose to 21.2%. But the release still lists "lower volume in HVAC and appliances, transportation, and other end markets", so the recovery is not across the board.
What to watch: container sales in the third-quarter filing, due in January. A rise from this quarter's level would mean the Missouri plant is still filling toward its contracted capacity rather than levelling off.
AZZ's Sales Plan Now Looks Reachable
In June AZZ raised its full-year sales target to $1.80-1.85 billion after a quarter that grew only 6%. By our math, the middle of that range needed about $459 million of sales in each remaining quarter, more than the company had ever recorded in one quarter.
The second quarter brought $486.9 million, well above that pace, and Ferguson lifted the target again, to $1.825-1.875 billion, citing "increased confidence in our outlook for the remainder of fiscal year 2027". The new range includes Seattle Galvanizing, bought at the end of July, whose sales the galvanizer has not disclosed.
The outlook now has second-half sales growing about 13% by our math, after 17% in this quarter alone. The first half grew 11%. That is why the plan looks reachable: it asks for less growth than the Fort Worth company just delivered, in a half that includes an acquisition. The caution is the fourth quarter, which winter weather usually makes the weakest.
What to watch: third-quarter sales in January against the roughly $457 million per quarter the plan now needs by our math. A quarter above that pace would leave only the weather-prone fourth quarter between AZZ and a third raise.
🐻 Bear Case
Total Borrowings Rose Despite the Debt Paydown
"We continued to strengthen our balance sheet and return value to shareholders," Ferguson said, pointing to "reducing debt by $15 million" in the quarter. The bank-debt figure is right: gross borrowings fell to $500 million from $515 million in February.
The full picture is different. Buying Seattle Galvanizing came with $29.3 million of leases on land and buildings that AZZ must eventually purchase, and its lenders count those leases as debt. Counting them, total indebtedness rose $23 million in the half, to $539 million. The cash went to deals and shareholders instead.
- Seattle Galvanizing purchase: $57.5 million
- Share buyback: $20.0 million at an average $146.71 per share
- Dividends paid in the half: $13.2 million
- Debt repaid in the half: $15.0 million
That is why the company cut its full-year debt-reduction plan to $100-140 million, from $130-170 million. The new range still needs $85-125 million of repayment in the second half by our math, more than five times what the first half delivered, while acquisitions keep competing for the same cash.
What to watch: gross debt at the end of November, due in January. If it still sits near $500 million, the reduced plan is slipping too, and AZZ is choosing acquisitions over the repayment it promised.
Zinc Costs Rise Faster Than Galvanizing Prices
Zinc is the main raw material in galvanizing, and AZZ buys it months before it melts in the kettles. The company says it lifts prices when zinc climbs, but this quarter the cost moved first and the price followed only part of the way.
The segment's cost bridge shows "an $11.3 million increase in zinc costs" in the quarter, while higher selling prices added $6.5 million. Over the half year the gap is wider, and the raw-material inventory that will reach the kettles later keeps growing.
- Zinc cost increase, first half: $17.5 million
- Price increase, first half: $6.2 million
- Raw-material inventory since February: up $20.4 million to $131.9 million
The margin held because volume carried the fixed costs, not because pricing caught up. In its quarterly filing AZZ wrote that Metal Coatings prices "are expected to increase slightly due to zinc inflationary pressures", so the cost is still coming and the planned price response is small.
What to watch: the Metal Coatings margin in the third quarter. A reading below 30% while sales keep growing would mean the zinc bought this summer is reaching the kettles before prices catch up.
Outlook Implies Thinner Second-Half Margins
AZZ raised the middle of its sales target by $25 million but the middle of its profit target by only $5 million. The profit measure is adjusted EBITDA, earnings before interest, tax, depreciation and one-off items, which is the figure its lenders use.
Subtract the first half from both targets and the second half looks less profitable than anything AZZ has reported in the last year. By our math the plan has second-half profit growing about 10% on sales growing about 13%.
- Second-half profit implied by the outlook: about $190 million, by our math
- Second-half sales implied: about $915 million
- Implied second-half margin: 20.7%
- First-half margin: 22.5%; last year's second half: 21.3%
The plan may simply be careful, as the June plan turned out to be. But it may also reflect zinc cost arriving in the kettles, the cost of absorbing Seattle Galvanizing and the usual winter slowdown. The company gave no reason for the gap between the two raises.
What to watch: the adjusted EBITDA margin in the third quarter, due in January. A reading near 21% would show that the profit plan, not the sales plan, is the one to believe.
Risks This Quarter Didn't Answer
Four standing concerns received no new numbers in this quarter's release or filing, so a reader cannot yet say whether they are getting better or worse. One legal dispute moved without ending. Each item below names the reading that would settle it.
- Kaiser Aluminum dispute: mediation on August 10 did not settle it, but the parties "mutually agreed to work together to enter into a new commercial contract"; AZZ is "unable to estimate a range of possible loss", and its court response is due October 14.
- Acquisition pricing: Seattle Galvanizing cost $57.5 million, of which $25.9 million is goodwill, and AZZ has not disclosed its sales; the first full quarter, ending in November, will show what that price bought.
- Forward visibility: AZZ still reports no backlog, and its filing says contracted future work is not significant in any year through fiscal 2031, so a demand break would appear only in reported volumes.
- Segment margin targets: the ranges published for every quarter of last year are absent from this year's outlook for a third quarter.
- Winter: the fourth quarter is seasonally the weakest, and the second-half pace in the plan assumes normal weather.
👓 Other Themes
AZZ Buys Seattle Galvanizing for $57.5 Million
On July 30 AZZ bought Seattle Galvanizing, a hot-dip galvanizer in Arlington, Washington, for $57.5 million, its first site in the Pacific Northwest. Goodwill accounts for $25.9 million of the price, and the deal came with leases on the land and buildings that AZZ must eventually buy out. The company recorded $2.8 million of deal costs and has not said how much the business sells.
💲 Other KPIs
Net borrowings fell to 1.3 times a year of adjusted EBITDA, from 1.4 times in February. The ratio counts bank debt and finance leases less cash, divided by profit before interest, tax, depreciation and one-offs. It has fallen or held in every quarter since February 2025, this time because trailing profit rose rather than because borrowings fell.
Cash from operations rose 76% from a year ago, to $102.8 million by our math. That is 1.8 times net income. For the half, AZZ generated $140.0 million even though receivables and inventories absorbed $52.6 million. The prior-year half carried a one-off $273.2 million distribution from the AVAIL joint venture, so the reported half-year comparison means little.
Customer receivables rose 26% since February, against first-half sales growth of 11%. The build absorbed $34.1 million of cash in the half, compared with $5.2 million a year earlier, and only $2.4 million arrived with Seattle Galvanizing. Receivables normally rise into the summer selling season, but this rise outran sales.
Interest expense fell 21% from a year ago. Average borrowings were $131.9 million lower than a year ago. The average interest rate fell to 5.22% from 6.20% after AZZ repriced its revolving credit line in May. Finance-lease interest rose, partly offsetting the savings, and the leases taken on with Seattle Galvanizing will add to that line.
🔮 Guidance
Raised. The middle of the range moved up $25 million, to $1.85 billion. That is 12.1% growth for the year, and by our math it leaves second-half sales growing about 12.8%, after 11.5% in the first half. The range now includes Seattle Galvanizing but no further deals. Second raise this year, and smaller than the first: +$75 million, then +$25 million.
Raised. The middle moved up $5 million, to $400 million, about 8.8% above last year. By our math that leaves $189.7 million for the second half, a 20.7% margin, below this quarter's 22.8%. Each raise is smaller than the last: +$15 million, then +$5 million.
Raised. The middle moved up $0.20, to $7.15, about 15.5% above last year's $6.19. By our math the second half needs $3.31 per share, a 15.7% rise from a year ago, slower than this quarter's 29% gain. Two raises of $0.20 each this year; the plan assumes a 25% tax rate and no further acquisitions.
Unchanged. First-half spending of $37.2 million runs below the range on an annual basis, so the plan assumes heavier spending on galvanizing capacity and plant technology in the second half. AZZ says the range includes growth capital for new hot-dip galvanizing kettles.
Unchanged. First-half interest expense of $22.1 million puts the year near the top of the range. A lower average rate after the May refinancing should ease the second half, but only if the debt paydown happens; the new finance leases pull the other way.
Unchanged. The quarter's rate was 26.7%, above the plan, because last year's quarter carried research credits and because more executive pay now exceeds the deductible limit. The half-year rate of 24.2% sits just under the plan, so the full-year assumption still looks achievable.
Cut. The middle of the range fell $30 million, to $120 million, after the Seattle purchase used cash the earlier plan had left for repayment. AZZ repaid $15 million in the first half, so the new range needs $85-125 million in the second half by our math.
Unchanged. AZZ still expects the new Missouri coil-coating plant to add to earnings this year. Container sales, where most of its output lands, rose for a second straight quarter, and the plant carries a customer contract with obligations running through fiscal 2031.
❓ Key Questions
Is Kaiser Aluminum the Washington, Missouri plant's main customer?
The dispute with Kaiser remains open, with a court response due October 14 and a new contract under negotiation. If Kaiser is the contracted partner, the plant's ramp and the lawsuit are the same story.
How much did Seattle Galvanizing sell in its first month?
AZZ calls the contribution not material and gives no figure. Without it, readers cannot separate organic growth from the acquisition in either this quarter's 16.7% or the raised outlook.
Why does the plan have second-half margins falling?
By our math the raised targets imply a 20.7% profit margin in the second half, below the first half and below last year. Management should say whether zinc, Seattle costs or caution explains it.
When does this summer's zinc reach the kettles?
Raw-material inventory rose $20.4 million since February while prices rose less than zinc cost. The quarter in which that inventory hits cost of sales decides whether the 30% margin holds.
Will the debt paydown reach $100 million this year?
AZZ repaid $15 million in the first half and cut the target. The second half needs $85-125 million while the company keeps buying galvanizers and shares.