AZZ: Substrate constraints pressure Precoat Metals while galvanizing stays strong

CEO Tom Ferguson said demand tied to data centers, transmission and distribution, bridges and highways remains strong.

“There was hardly a single plant manager or sales manager I talked to that isn’t working on one, two, or three data center projects at any given time right now,” he commented on the call. He noted the Fort Worth, Texas-based company’s network allows it to handle large, multi-site projects reliably.

Supply and demand

Ferguson reiterated that Metal Coatings, which operates dozens of locations throughout the US and Canada, has seen demand remain strong across infrastructure-related markets. Customers are “bullish” on near-term activity, he said.

Data center construction continues to expand. And AZZ expects more projects to enter the build phase in 2026. Executives highlighted the projects require heavy galvanized steel content and often include co-located power generation and transmission upgrades.

“Importantly, our customer demand is not isolated to data centers,” noted Chief Marketing, Communications and Investor Relations Officer David Nark. “We’re seeing continued strength across key end markets, including bridge and highway construction, power generation,  and electrical transmission and distribution, all of which are supported by long-term secular tailwinds.”

Precoat Metals saw softer demand tied to residential and nonresidential construction. It operates ~14 locations throughout the US East Coast, Midwest, and South. Roughly 75% of its end markets are construction-related, with about one-third tied to residential, according to the executives. They said higher interest rates, elevated project costs, and limited substrate availability are pressuring volumes.

Tariffs on imports and uneven domestic supply are driving the limited substrate availability. Nark noted some customers are delaying orders and carrying lower inventories because “there are some constraints in terms of available substrate to be painted” and buyers want to “wait until it’s closer to the demand for the season” before committing to material. The company said this trend raises project costs and makes demand harder to predict, but it also favors AZZ’s quick-turn, small-lot operating model.

Expansions

AZZ continues to add galvanizing capacity to meet rising demand. The company is installing new kettles, including one in North Texas, that will start up in the coming weeks. Ferguson said these investments are low-risk because “the demand is already there.”

The new Washington, Mo., aluminum coil-coating facility is ramping steadily. It operated at roughly 40% utilization and is expected to reach 45,000-50,000 tons this year. Management said the plant is tracking to expectations and will continue to increase output through fiscal 2027.

M&A

AZZ continues to pursue bolt-on acquisitions in the metal coatings sector. The company recently acquired a galvanizing plant in Canton, Ohio, for $30 million, expanding its footprint and service capabilities.

Ferguson said the M&A pipeline is active, with several small Metal Coatings deals under discussion and one in due diligence. Typical targets generate about $15 million in sales and $4 million to $6 million in EBITDA. He indicated larger transactions remain possible but are further out.

Outlook

AZZ expects Metal Coatings growth in the mid- to high-single-digit range for fiscal 2027, supported by infrastructure and data centers. Precoat Metals is expected to remain roughly flat year over year, with growth later in the year as the Washington facility ramps up.

Nonresidential and residential construction are expected to stay soft due to interest rates and affordability pressures. However, AZZ sees no slowdown in infrastructure-related steel demand, particularly in power transmission and data-center-related work.

Ferguson said municipalities continue to move forward with required infrastructure upgrades despite budget pressures, especially in high-growth regions such as Texas.