AZZ feels double-edged sword of tariffs with coating wins, Precoat headwinds

AZZ Inc. delivered steady results in its fiscal second quarter. While infrastructure-heavy work buoyed its Metal Coatings segment, its Precoat Metals business navigated softer building markets and tariff-driven uncertainty.

Financials

Sales for the Fort Worth, Texas-based coil coater increased 2% from last year to $417.3 million in the quarter ended Aug. 31. Net income of $89.3 million jumped 152% y/y, while adjusted net income of $46.9 million showed a more modest 14% increase.

Metal Coatings sales grew 10.8% y/y to $190 million on higher volumes in solar, transmission, and distribution work. The segment’s EBITDA margin was 30.8%, slightly lower on a higher mix of electrical, solar, transmission, and distribution projects, the company said.

Precoat Metals sales fell 4.3% y/y to $227.3 million, with construction, HVAC, and appliance markets softening. The segment’s margin of 20.2% was down from last year due to lower volumes.

Market sales to utilities grew 19% y/y, and consumer sales rose 7.6%, while construction edged up less than 1% amid softness in both non-residential and residential building. Demand from data centers and grid modernization remains a bright spot, executives said on a conference call Thursday, discussing the quarterly earnings report.

Tariff and policy dynamics

AZZ President and CEO Tom Ferguson said tariffs have driven a 23% decline in imports of pre-painted steel this year, to the benefit of domestic coil coaters. That is still in the early days, he noted, anticipating another couple of months of that dynamic.

Focusing on the markets impacted by reduced access to pre-paint imports, Precoat Metals has been winning new customers. It’s already generated market share gains of 3-4%, according to the chief executive.

But tariffs are a double-edged sword.

Tariff-driven uncertainty is delaying some non-infrastructure projects and having a more negative impact on Precoat than on Metal Coatings.

David Nark, senior vice president of marketing, communications, and investor relations for AZZ, noted that bare Galvalume import volumes are down significantly, by nearly half. This has created mixed effects, particularly for Precoat Metals, which has typically purchased imported Galvalume.

Other policy tailwinds also remain in play. Executives pointed to multi-year demand support from the Infrastructure Investment and Jobs Act (IIJA), with 73% of Department of Transportation funds committed and 77% of Department of Energy funds obligated.

“Overall, we anticipate and have planned for a multi-year tailwind in infrastructure spending, particularly in energy and power generation capacity, despite the potential for continued pressure on residential construction,” Ferguson commented on the call.

Zinc

Zinc prices have firmed, Ferguson commented in response to an analyst question, noting AZZ carries 6-8 months of kettle inventory. This limits the near-term cost impact but will likely be more of a talking point when AZZ offers its guidance for the 2026 fiscal year.

Aluminum coating facility ramp-up

AZZ CFO Jason Crawford said Precoat margins reflected buying patterns and start-up drag from a new aluminum coating plant in Washington, Mo.

Responding to an analyst’s question, Crawford stated that the ‘Washmo’ facility has not seen reduced substrate availability due to the recent fire at Novelis’ aluminum sheet mill in Oswego, N.Y., which is expected to interrupt automotive production in the US.

“There’s a lot of aluminum sitting on that floor now,” he commented. The greenfield plant is currently running at ~20% of its capacity, and will be ramping up significantly over the next six months.

Ferguson noted that the ongoing shift from plastic to aluminum packaging continues to support volumes.

Outlook

AZZ is remaining disciplined with its M&A strategy, with Ferguson pointing to a healthy M&A pipeline that currently includes nine active opportunities. He hopes to complete at least one by year’s end.

For the fiscal year that ends on Feb. 28, 2026, AZZ forecasts total sales of $1.625 billion to $1.725 billion and adjusted EBITDA in the lower part of $360 million to $400 million.

“We think that our customers are telling us things have bottomed,” Nark said, noting customers bought ahead of the tariffs but have been working through that inventory.