Will General Electric's Success Help or Hurt AZZ Earnings?

This article features General Electric, AZZ, and ABB.

AZZ (NYSE: AZZ  ) will release its quarterly report on Friday, and after a big drop back in June, shareholders have seen the stock rebound impressively. But to avoid a repeat of what happened last quarter, AZZ earnings will need to post much better performance than the company managed in its May quarter.

AZZ has two major segments. It makes electrical and industrial products that are designed for electricity distribution, helping to facilitate the safe movement of power from where it's generated to end-customers. AZZ is also the largest galvanizing company on the continent, providing corrosion protection products and services to steelmakers. In those businesses, AZZ has some of the same opportunities as much larger peers, most notably General Electric (NYSE: GE  ) in its core power business. Let's take an early look at what's been happening with AZZ over the past quarter and what we're likely to see in its report.

Stats on AZZ

Analyst EPS Estimate

$0.66

Change From Year-Ago EPS

6.5%

Revenue Estimate

$202.83 million

Change From Year-Ago Revenue

32%

Earnings Beats in Past Four Quarters

3

Source: Yahoo! Finance.

Can AZZ earnings grow faster?
In recent months, analysts have cut their views on AZZ earnings substantially, cutting more than 15% from their August-quarter estimates and reducing their full-year fiscal 2014 projections by more than a dime per share. But the stock has risen 4% since late June, having regained every bit of the ground it lost after its previous earnings report.

AZZ's May-quarter report did a huge amount of damage to the stock, sending it down more than 10% in a single day. Overall revenue soared 44%, with the electrical segment seeing sales more than double due largely to recent acquisitions. But net income fell 9%, countering expectations for better results, and the company said gave earnings guidance that similarly fell short of what investors had hoped to see. Adding to the challenges was the announcement that CEO David Dingus will retire early next year, which will force AZZ to deal with a leadership change even as it fights to get its earnings growth back up.

That hasn't stopped AZZ from moving aggressively to secure its place in the industry even against tough competition. AZZ's acquisition of Aquilex earlier this year added its specialty of maintenance and repair of power plants, refineries, and other industrial plants.

Yet the big question for AZZ is how it can capitalize on the revolution toward new power plants. The conversion of coal-fired power generation to natural gas has caused major utilities to shift their focus, spending huge amounts on replacing power plants. Meanwhile, General Electric and ABB (NYSE: ABB  ) have capitalized on the rising solar industry, selling inverters and other essential components for solar-power plants. ABB in particular bought Power-One to help it boost its presence in the solar industry, and as solar becomes a more integral part of the power grid, ABB and GE will continue jockeying for position.

In the AZZ earnings report, look to see how the company views its larger peers in the space. If it can build strategic partnerships with GE or ABB, then AZZ could find lucrative new growth opportunities easily. Without those connections, though, AZZ still has the potential to take advantage of favorable industry conditions and grow.

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