AZZ (AZZ)

Metal coating and infrastructure solutions provider AZZ (NYSE:AZZ) fell short of the market’s revenue expectations in Q3 CY2025 as sales rose 2% year on year to $417.3 million. On the other hand, the company’s full-year revenue guidance of $1.68 billion at the midpoint came in 0.7% above analysts’ estimates. Its non-GAAP profit of $1.55 per share was 1.5% below analysts’ consensus estimates.

Company Overview

Responsible for projects like nuclear facilities, AZZ (NYSE:AZZ) is a provider of metal coating and power infrastructure solutions.

Commercial building products companies, which often serve more complicated projects, can supplement their core business with higher-margin installation and consulting services revenues. More recently, advances to address labor availability and job site productivity have spurred innovation. Additionally, companies in the space that can produce more energy-efficient materials have opportunities to take share. However, these companies are at the whim of commercial construction volumes, which tend to be cyclical and can be impacted heavily by economic factors such as interest rates. Additionally, the costs of raw materials can be driven by a myriad of worldwide factors and greatly influence the profitability of commercial building products companies.

AZZ’s top competitors include Valmont Industries (NYSE:VMI) and Haynes International (NYSE:HAYN).

A company’s long-term performance is an indicator of its overall quality. Any business can have short-term success, but a top-tier one grows for years. Luckily, AZZ’s sales grew at an impressive 10.8% compounded annual growth rate over the last five years. Its growth beat the average industrials company and shows its offerings resonate with customers, a helpful starting point for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. AZZ’s recent performance shows its demand has slowed significantly as its annualized revenue growth of 3.1% over the last two years was well below its five-year trend.

This quarter, AZZ’s revenue grew by 2% year on year to $417.3 million, falling short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 7% over the next 12 months. While this projection indicates its newer products and services will catalyze better top-line performance, it is still below the sector average. At least the company is tracking well in other measures of financial health.

AZZ has bad unit economics for an industrials company, giving it less room to reinvest and develop new offerings. As you can see below, it averaged a 24% gross margin over the last five years. Said differently, AZZ had to pay a chunky $76.00 to its suppliers for every $100 in revenue.

This quarter, AZZ’s gross profit margin was 24.3%, marking a 1 percentage point decrease from 25.3% in the same quarter last year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

AZZ has been an efficient company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 15%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.

Analyzing the trend in its profitability, AZZ’s operating margin rose by 2.2 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q3, AZZ generated an operating margin profit margin of 16.4%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

AZZ’s EPS grew at an astounding 23.2% compounded annual growth rate over the last five years, higher than its 10.8% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into AZZ’s quality of earnings can give us a better understanding of its performance. As we mentioned earlier, AZZ’s operating margin was flat this quarter but expanded by 2.2 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For AZZ, its two-year annual EPS growth of 26% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.

In Q3, AZZ reported adjusted EPS of $1.55, up from $1.37 in the same quarter last year. Despite growing year on year, this print slightly missed analysts’ estimates, but we care more about long-term adjusted EPS growth than short-term movements. Over the next 12 months, Wall Street expects AZZ’s full-year EPS of $5.70 to grow 10.7%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

AZZ has shown robust cash profitability, enabling it to comfortably ride out cyclical downturns while investing in plenty of new offerings and returning capital to investors. The company’s free cash flow margin averaged 11.8% over the last five years, quite impressive for an industrials business.

Taking a step back, we can see that AZZ’s margin expanded by 23 percentage points during that time. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although AZZ has shown solid business quality lately, it historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 9.1%, somewhat low compared to the best industrials companies that consistently pump out 20%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. On average, AZZ’s ROIC increased by 1.7 percentage points annually over the last few years. its rising ROIC is a good sign and could suggest its competitive advantage or profitable growth opportunities are expanding.

AZZ reported $897,000 of cash and $566.9 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $357 million of EBITDA over the last 12 months, we view AZZ’s 1.6× net-debt-to-EBITDA ratio as safe. We also see its $41.5 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was great to see AZZ’s full-year revenue and EBITDA guidance top analysts’ expectations. On the other hand, its revenue missed and its EBITDA fell short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock traded down 4.9% to $100.76 immediately following the results.

Updated: December 4, 2025 at 10:10 PM EST

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own AZZ, you should also grasp the company’s longer-term business quality and valuation.

In our opinion, AZZ is a solid company. First off, its revenue growth was impressive over the last five years. And while its low gross margins indicate some combination of competitive pressures and high production costs, its rising cash profitability gives it more optionality. On top of that, its astounding EPS growth over the last five years shows its profits are trickling down to shareholders.

AZZ’s P/E ratio based on the next 12 months is 17.2x. When scanning the industrials space, AZZ trades at a fair valuation. If you believe in the company and its growth potential, now is an opportune time to buy shares.

Wall Street analysts have a consensus one-year price target of $125.56 on the company (compared to the current share price of $106.77), implying they see 17.6% upside in buying AZZ in the short term.