AZZ Inc (AZZ) 2009 Q4 法說會逐字稿

Good morning. My name is Tatum, and I will be your conference operator today. At this time, I would like to welcome everyone to the AZZ fourth quarter 2009 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions). Thank you. Mr. Dorame, you may begin your conference.

Good morning. Thank you for joining us today to review the financial results for AZZ Incorporated for the fourth quarter and fiscal year 2009 ended February 28th, 2009. As Tatum 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 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 the 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 the hot dip Galvanizing markets. Prices 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, currency exchange rates, 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 Mr. David Dingus, President and Chief Executive Officer of AZZ incorporated. David?

Thank you, Joe and thanks to each of you for taking the time to join us for the conference call for the fourth quarter and fiscal 2009. For the three months and the fiscal year ended February 28th, 2009, the Company is again pleased to report very positive results. For the record setting '09, when compared to the prior years, revenues increased 29%, net income is up 52%. Earnings per share increased 52% and backlog is up 30% when compared to one year ago.

Backlog at the end of the fourth quarter was $174.8 million, compared to $195.2 million at the end of the previous quarter and $134.9 million for the fourth quarter of last year. Incoming orders for the fourth quarter totaled $79.9 million, while shipments for the quarter totaled $100.3 million, resulting in a book to ship ratio of 80% for the quarter. Incoming orders for the quarter, however, increased 24% when compared to the fourth quarter of last year. Based upon customer requested delivery dates and our planned production schedule, 94% of our backlog is expected to ship in fiscal 2010. Of our $174.8 million backlog, 40% is expected to be delivered outside of the US.

For the fiscal year, incoming orders totaled $439.1 million, while fiscal year revenues totaled $412.4 million, resulting in a book to ship ratio of 106% for the fiscal year. Incoming orders for the fiscal year increased 31% when compared to the prior year. While quotations and opportunities continue at a good pace, incoming orders have been slower than desired due to increased customer deliberation on the release of new orders pertaining to projects that are currently in process as well as those that are still in the planning phase. We did see increased competitive pricing pressures on our large international quotations, which also has had an adverse impact on our incoming order rate. We are pleased that to date we have only seen isolated cases where customers have requested delays or changes in delivery of orders, which are currently in our backlog. Additionally, any cancellations that have occurred have been very, very minimal.

The fourth quarter, which has historically been our lowest booking quarter, did reoccur in the current fiscal year. As we indicated to you last quarter, was highly probable. Different than in prior years, we do not anticipate that our backlog will increase in the second quarter or recover to the record-setting levels of the third quarter of fiscal 2009 until we see improvement in our markets. We remain optimistic that we'll see some leveling in our backlog after the second quarter and a modest recovery as we enter 2011. So our quarterly results will continue to be lumpy.

Now, the Galvanizing demand in some of our served markets did soften further during the quarter, but the demand that is being driven by the infrastructure work related to the Electrical as well as the petrochemical market remained at a strong pace. Shipments for the year increased 37% with 86% of that increase being attributable to the acquisition of AAA that was made during fiscal 2009. Operating margins for the Electrical and Industrial sector were very strong in the fourth quarter, and for the full fiscal year. We believe that this was due to pricing discipline, improved project management, assisted by favorable costs of key commodities, and our operating margins for the quarter were 18.1% and 17.3% for the full fiscal year.

The operating margins for the Galvanizing Services segment was very strong again, with margins of 27.8% for the quarter and 28.5% for the full fiscal year. Despite pricing pressures, and lower demand, our strategies, combined with lower commodity costs allowed us to maximize margins in these challenging market conditions. While we do not believe that they are sustainable at this level going forward, we do believe that they will remain very strong. As a Company, our accomplishments have continued as we double and redouble our efforts to increase our upside potential by securing more profitable business and continuing to efficiently and effectively execute our backlog. The strength of our balance sheet, our strong cash position, combined with access to borrowings of our existing banking agreements, should facilitate the execution of our business strategies.

The completion of another excellent quarter and a record-setting fiscal year, the financial strength of the Company, the successful assimilation of strategic acquisitions and a great group of employees is reflected and responsible for our outstanding fiscal results. While our operating results have increased, so have our challenges, as we again navigate through challenging waters in a period of extreme economic uncertainty. We are keenly aware of the challenges brought about by the current economic conditions, and the big competitive nature of our business environment. We do believe that we can successfully navigate through these challenging conditions, as we have effectively done so in the past.

Now, with that as an overview of our results, Dana will now give us a review of the operating results for the fourth quarter and the full fiscal year.

Thank you, David. I would also like to welcome each of you to our fourth quarter conference call and at this time, I will review our unaudited consolidated results for the period ending February 28th, 2009.

For the fourth quarter, financial results remained strong as AZZ recorded revenues for the quarter ending of $100.3 million, as compared to $76.6 million in the prior year. Net income for the quarter increased 36% to $10 million as compared to $7.3 million. Diluted earnings per share increased 35% to $0.81 as compared to last year's $0.60. Revenues for the 12 month period ending February '09 were a record $412.4 million, a 29% increase, as compared to $320.2 million in the prior year. Net income for the 12 month period was $42.2 million, an increase of 52%, which compares to $27.7 million. Diluted earnings per share was a record of $3.43 compared to last year's $2.26.

We are again extremely pleased with our fourth quarter and fiscal year results. Our strong operating performance in both segments of our Company allowed us to continue to record record-setting results for the year. We achieved a book to ship ratio of 106% for the the year, and ended the year with a backlog of $174.8 million, as compared to $134.9 million at the end of our prior fiscal year end. For the quarter, our book to ship ratio was 80%, which was essentially the same as it has been in the fourth quarter and three of our past four years. Our backlog remains strong despite reduced orders during this fourth quarter, and our Galvanizing segment, good price realization due to continued strong demand for our Galvanizing Services allowed us to achieve record results for the year. Our interest expense increased this year due to higher levels of debt associated with our $100 million note placement earlier in the year, to facilitate our acquisitions for this fiscal year.

Our Electrical and Industrial segment generated 55% of our revenues for the fiscal year 2009, while our Galvanizing segment generated 45%. We anticipate that 62% of of our revenues for fiscal 2010 will be generated from the Electrical and Industrial segment and the balance of 38% will be generated from the Galvanizing segment.

At this time, David will give us an overview of the Electrical and Industrial segment.

The industrial demand, which includes the petrochemical market for our power distribution and motor control centers has slowed. Timing of new projects related to energy infrastructure rebuilds, expansion and upgrades remains an issue and is impacting incoming order rates. We believe that most of the projects will eventually go forward, but we're unable at this time to fully assess when these projects will be released. Low utilization levels of existing manufacturing capacity combined with lower petroleum costs is having an impact. Demand for our metal clad outdoor switch gear products did see a continuation of strong demand during the fourth quarter. While it has definitely reached a plateau in some areas, it does appear to be holding strongly at the current levels.

Quotation and orders for our high voltage transmission bus products were again at excellent levels, and reflect strong international demand. However, as we indicated before, pricing has become a major challenge on the very large, high profile orders. Some of our competitors have offered to lower price to secure business and offset softness in downturns in some of their other more traditional geographic markets. We continue to operate at record-setting levels due to the strength of our current backlog. Increased US infrastructure spending on the grid would provide additional opportunities in the years subsequent to our fiscal 2010. The power generation market remains strong and while some schedules are shifting, overall, we believe the market is relatively stable. Domestic emphasis on renewables such as wind and solar energy and environmental upgrades should continue to positively impact our market opportunities.

Our specialty lighting product sales were flat and we do not anticipate any additional growth until there is economic recovery. Our product development efforts, though, continue and we will continue to be very positively positioned for any market improvement. The tubular products to the petroleum market is operating at excellent levels, but below the levels of the first three quarters of fiscal '09. We believe that they will remain at these levels until we see increased pricing in the oil and gas market.

Blenkhorn and Sawle assimilation is progressing. We still anticipate that opportunities to jointly quote with our US operations on projects will increase. We continue our efforts to increase participation in the Canadian utility market and to seek pull-through opportunities for our other AZZ products.

Dana will now cover the operating results of this segment.

In our Electrical and Industrial segment, we recorded revenues for the quarter of $59.9 million. That's compared to prior year results of $41.7 million which were favorably impacted by our Canadian acquisition. Operating income was $10.8 million, as compared to $6.8 million, and operating margins were 18.1% for the quarter, compared to 16.4% in the prior year period. Our operating margins and profit improvements for the year are attributable to the leverage gained from our increased volumes and pricing actions as a result of favorable marketing conditions we operated in during the year. At this time, David will give and overview of our Galvanizing segment.

Our strategy to provide the premium level of service and quality to our customers will continue and we will continue to resist downward pricing pressures. Revenue dollars will be impacted in future periods if market pricing is required to be adjusted as a result of reduced demand. Now, as we indicated before, approximately 50% of our current volume is reflective of the GDP, and 50% is related to the infrastructure build-out of Electrical, generation and transmission, oil and gas reduction, refining and delivery. And the overall petrochemical market. We continue to maximize our market share growth without sacrificing price.

We're pleased with the integration of AAA into our network of plants and their performance for the fiscal year is consistent with what we had anticipated. There remains concern over the impact of economic conditions. We do anticipate that we will see additional bridge and highway work as a result of the stimulus package in the second half of fiscal 2010. Dana will now give us a review of the key operating statistics for this segment and cover the key balance sheet items.

Revenues in our Galvanizing segment for the quarter were $40.2 million,(Sic-see press release) an increase of 16% compared to $35 million recorded in our fourth quarter in fiscal 2008. Our fourth quarter and year-to-date revenues were favorably impacted by the acquisition of AAA Galvanizing. Operating income increased 26% to $11.2 million compared to $8.9 million in the prior year. This year's increased operating income resulted from higher volumes, primarily related to the acquisition of AAA and the lower cost of zinc. Operating margins for the year increased to 28.5% compared to 24.8%. As David indicated earlier, this slowing of industrial sector of the general economy will continue to have an adverse effect on future revenue and earnings.

At this time I will cover some of our key cash flow and balance sheet items on a comparative basis. For the 12 month period, cash provided by operations was $60.2 million compared to $38.9 million in the prior year. While our working capital needs increased for the year, due to our increased business levels, our receivable days outstanding and inventory turns remained good. Accounts receivable days outstanding were 51 days at the end of the fourth quarter, as compared to 49 days at the same time last year. Year-to-date capital improvements were made in the amount of $20 million, of which $2.5 million was associated with a fire at one of our Galvanizing facilities during the year. Depreciation and amortization was $14.5 million for the year. Our total outstanding bank debt at the end of the quarter and fiscal year was again $100 million.

At this time I will turn the conference over to David for closing comments and then we will open for question-and-answer session.

We're extremely pleased with the results of our fourth quarter and the record-setting 2009. Our products and services are well positioned to benefit from an increased infrastructure emphasis and rebuild program. The timing of projects and the release of orders will always have an impact on the quarterly recognition of bookings, backlog, revenues and earnings, and will result in quarter-to-quarter fluctuations which may be greater than true changes in market demand and our competitive position and success.

On January 16th, '09, the Company issued projections for fiscal 2010 that revenues would be in the range of $420 million to $440 million, and that fully diluted earnings per share would be in the range of $2.75 to $2.95. Based upon the evaluation of information currently available to management, we're revising our guidance for revenues to be in the range of $395 million to $415 million, and our earnings guidance to remain unchanged from that that was previously issued. Our estimates for fiscal '10 assume that we will not have any appreciable change in our current market conditions, significant delays in the delivery and timing and receipt of orders of our electrical and industrial products, and that the pricing and demand for our galvanizing services will not significantly change from our current outlook in fiscal 2010.

Again, we thank you for your participation today, and we'd like to open it up for any questions that you may have at this time.

(Operator Instructions). We'll pause for just a moment to compile the Q&A roster. (Operator Instructions). There are no questions at this time.

Okay. We appreciate your participation today and should you have any questions subsequent to this call, don't hesitate to get in touch with ourselves or Joe Dorame and the individuals at Lytham Partners. Again, we appreciate your time today and look forward to speaking to you again at the end of our first fiscal quarter of 2010.

This concludes today's conference call. You may now disconnect.