AZZ incorporated (NYSE:AZZ) Q4 2018 Earnings Conference Call - Preliminary Transcript

May 15, 2018 • 11:00 am ET

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AZZ incorporated (NYSE:AZZ) Q4 2018 Earnings Conference Call - Preliminary Transcript

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Q & A
Analyst
John Franzreb

Good morning, Tom. Paul, nice to have you guys back.

Executive
Paul Fehlman

Hi, John.

Executive
Tom Ferguson

Thank you, John.

Analyst
John Franzreb

Couple of questions, I guess, I'm going to start with the guidance. It's actually better than expected on the top line. So I want to go through a little bit in detail yes. Firstly, how much of acquisition-related revenue is built into your top line guidance? And while I'm talking about revenue, should we expect a similar normal distribution on that revenue being heavily weighted in Q1 and Q3?

Executive
Tom Ferguson

Yeah. I think the -- we did, because we have closed on the Lectrus deal in March. We have embedded that in our guidance, as well as rock as Rogers Galvanizing. We don't have other anticipated acquisitions embedded in that at this point. So we're able to do in our normal galvanizing type acquisitions, the Powder Coating would be incremental to this. I'm looking at Paul to answer the question on Q1 and Q3.

Executive
Paul Fehlman

Yeah. So, none of this is going to be relatively industrial. So..

Analyst
John Franzreb

Yeah.

Executive
Paul Fehlman

we're not going to look for that sort of a cyclical turn on 1 and 3. The galvanizing is little flatter than that, probably down a little bit in Q4 reduction, especially Metal Coatings business. So, look, the incremental based on this, I believe is about 25ish, there's a little -- did you hear more John and yes, you would look for pretty fair margins out of these businesses off the bat.

Analyst
John Franzreb

Perfect, okay. And on the gross margin profile on the electrical side of the business. Is there contracts that is still working through that has lower margins that are working against you in the near-term. Can you kind of talk about or maybe is it you're -- you mentioned a competitive landscape was a problem. When does the margin profile come closer to historic trends on that business?

Executive
Paul Fehlman

We're already happy with the electric system. We're very happy with what we're seeing out of the spinner up in Illinois, which is Rogers Brothers. And so, yes, we have pretty comparable margins.

Okay, good. Good question, because we're -- that's part of what's going on with that margin ramp up is that, on the Energy side, especially Electrical, there were some jobs taken that were at some challenging margins and that's really where the market was at that point. We saw a market -- the challenging market last year as there was lot of capacity in certain areas, especially enclosures.

We -- you'll probably see those starting to turn up, I'll say, towards the end of the year, probably third quarter, and you'll see them ramp for the next -- well, probably into 2019. I'm not going to give you the exact ramp dimensions there, but yes, you're calling it right, which is they're lower right now. And that's part of what you're seeing is the dynamic between the higher revenue and -- I mean, a bit lower margin than you might expect on the guidance.

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