AZZ (AZZ)

Metal coating and infrastructure solutions provider AZZ (NYSE:AZZ) missed Wall Street’s revenue expectations in Q1 CY2025, with sales falling 4% year on year to $351.9 million. On the other hand, the company’s outlook for the full year was close to analysts’ estimates with revenue guided to $1.68 billion at the midpoint. Its non-GAAP profit of $0.98 per share was in line with 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 sales performance can indicate its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Thankfully, AZZ’s 8.2% annualized revenue growth over the last five years was decent. Its growth was slightly above the average industrials company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. AZZ’s annualized revenue growth of 9.2% over the last two years aligns with its five-year trend, suggesting its demand was stable. AZZ’s recent performance shows it’s one of the better Commercial Building Products businesses as many of its peers faced declining sales because of cyclical headwinds.

This quarter, AZZ missed Wall Street’s estimates and reported a rather uninspiring 4% year-on-year revenue decline, generating $351.9 million of revenue.

Looking ahead, sell-side analysts expect revenue to grow 5.9% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and suggests its products and services will face some demand challenges. 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 23.7% gross margin over the last five years. Said differently, AZZ had to pay a chunky $76.27 to its suppliers for every $100 in revenue.

This quarter, AZZ’s gross profit margin was 22.4%, in line with 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 14%. 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 5.3 percentage points over the last five years, as its sales growth gave it immense operating leverage.

In Q1, AZZ generated an operating profit margin of 11.5%, down 1.5 percentage points year on year. Since AZZ’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, R&D, and administrative overhead increased.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

AZZ’s EPS grew at a remarkable 13.9% compounded annual growth rate over the last five years, higher than its 8.2% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into the nuances of AZZ’s earnings can give us a better understanding of its performance. As we mentioned earlier, AZZ’s operating margin declined this quarter but expanded by 5.3 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses 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 24% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.

In Q1, AZZ reported EPS at $0.98, up from $0.93 in the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects AZZ’s full-year EPS of $5.20 to grow 12.1%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

AZZ has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 6.7% over the last five years, slightly better than the broader industrials sector.

Taking a step back, we can see that AZZ’s margin expanded by 3.2 percentage points during that time. This is encouraging because it gives the company more optionality.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared 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 9.2%, 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. Fortunately, AZZ’s ROIC averaged 2.3 percentage point increases 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 $1.49 million of cash and $852.4 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 $347.9 million of EBITDA over the last 12 months, we view AZZ’s 2.4× net-debt-to-EBITDA ratio as safe. We also see its $81.28 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 EBITDA guidance top analysts’ expectations. On the other hand, its revenue and EBITDA fell short of Wall Street’s estimates. Overall, this was a mixed quarter. The stock remained flat at $77.62 immediately following the results.

Updated: May 22, 2025 at 11:17 PM EDT

Are you wondering whether to buy AZZ or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

AZZ is a fine business. To kick things off, its revenue growth was decent over the last five years. And while its low gross margins indicate some combination of competitive pressures and high production costs, its expanding operating margin shows the business has become more efficient. On top of that, its strong operating margins show it’s a well-run business.

AZZ’s P/E ratio based on the next 12 months is 15.4x. Looking at the industrials landscape right now, AZZ trades at a pretty interesting price. For those confident in the business and its management team, this is a good time to invest.

Wall Street analysts have a consensus one-year price target of $103.88 on the company (compared to the current share price of $89.61), implying they see 15.9% upside in buying AZZ in the short term.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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