What happened
Shares in hot-dip galvanizing and metal-coating company AZZ (AZZ +1.64%) fell 10.3% this week up to Friday morning. While the stock experienced significant volatility in the week, the main reason for the overall decline was the reception to its second quarter 2023 results issued on Tuesday.
To say they were messy is an understatement. With the market in its current anxious mode, it's no surprise that the stock was sold off heavily after management declined to give full-year guidance.
On the earnings presentation, CEO Tom Ferguson talked of supply chain disruptions, labor shortages, signs of economic slowing, and "experiencing the rising cost of zinc in our kettles as we have noted previously."
Meanwhile, the company's debt (it took on debt to fund the $1.28 billion purchase of metal coil coating company Precoat) is causing concern in a rising-rate environment. In fact, management has had to take action to hedge interest-rate risk in 50% of its existing loan debt.
NYSE: AZZ
Key Data Points
So what
That said, the results were not that bad. The addition of Precoat helped boost sales to $407 million in the second quarter compared to $131 million in the same period last year. Moreover, adjusted earnings before interest taxation, depreciation, and amortization (EBITDA) of $100.5 million demonstrate the company's EBITDA margin potential.
Meanwhile, AZZ continues to refocus on its core galvanizing and coatings business following the sale of its majority 60% stake in its infrastructure-solutions joint venture.
Now what
Management didn't give full-year guidance because it did not want to estimate income from the new structure at its joint venture, and it's still working out accounting analytics for the Precoat acquisition.
As such, the key for investors is whether its end markets hold up long enough for the company to potentially take advantage of a margin expansion opportunity as its supply chain and raw material challenges ease -- something to look out for.
