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

May 15, 2018 • 11:00 am ET


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


Loading Event

Loading Transcript

Tom Ferguson

challenging year compounded by financial restatement efforts over the past several months. Unfortunately, the situation limited our ability to communicate publicly since our second quarter earnings call. So for today's call, we have published a presentation to help explain the complexity of issues we dealt with during fiscal year 2018, and also that further supports the guidance for fiscal year 2019 that we are issuing today. We are glad to have the year, as well as the restatement behind us.

During this quiet period, we have worked to ensure our businesses hit the ground running coming into fiscal year 2019. We did navigate a wide range of challenges during the year, many of which were market-related, but some that were operational. Refinery turnarounds last spring were light, but this was dramatically compounded by the impact of Hurricane Harvey on the fall turnaround season. We are a soft nuclear power generation market turned into -- in effect of hurricane level impact on our businesses once Westinghouse Electric declared bankruptcy in March.

During the third quarter, the magnitude of the impact going into the fourth quarter as well became more evident. The bankruptcy itself negatively impacted several businesses within our Energy segment, but then the VC Summer Nuclear construction project in South Carolina was cancelled in July of 2017. Additionally, the Vogtle nuclear project in Georgia changed engineering firms away from Westinghouse, which resulted in some order cancellations. Also, during Q3, our partner for Water Jet Peening, Mitsubishi Nuclear decided to withdraw from the US nuclear market. This resulted in impairing about 10.5 million of equipment that had been specifically built for nuclear services within our Specialty Welding organization. This also guided what had been anticipated to be a strong and long way of growth opportunity for our Specialty Welding business.

We now believe the nuclear market is likely to remain in secular decline going forward with the nuclear fleet that will continue to get smaller. While we believe our Specialty Welding and NLI, or Nuclear Logistics Inc. businesses can continue to compete well in this market and are also focused on international nuclear opportunities, we have sized our organizations for the smaller opportunity level we see. We're also accelerating our international expansion for Specialty Welding, which over time will more than fill impact on revenue and profit from the US nuclear opportunity.

Within our Energy segment, our normally solid electrical enclosure business ran into a situation, where there was way too much industry capacity for the available demand, which resulted in some competitors offering irrational prices and contract terms. The Lectrus bankruptcy was evidence of this market situation, better allowed us to buy those assets out of bankruptcy at a very good price. We're quite pleased with the addition of a third facility to our Electrical enclosure platform and believe this positions us well geographically and gives us the scale to drive greater operational leverage.

Our Metal Coatings business was unable to drive price increases well enough to offset inflation from