AZZ Inc. 2025 Annual Report Review: Metals to Markets| Investment Score: 7.0

In its fiscal year ended February 28, 2025, AZZ Inc. (NYSE:AZZ) continued its evolution as North America’s leading independent metal coatings and galvanizing solutions provider. Bolstered by strategic acquisitions and prudent financial management, AZZ generated $1.58 billion in revenue, delivered strong operating margins, and substantially improved its debt profile. This review highlights the most important sections of AZZ’s 10-K—spanning business segments, financial results, cash flow, capital structure and risk factors—culminating in an investment score of 7.0 based on a balanced view of growth potential and inherent cyclicality.

Warren.AI 💰 7.0 / 10

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1. Business Overview (Item 1)

AZZ operates three distinct lines:

• AZZ Metal Coatings (41 plants in North America) provides hot-dip galvanizing and other surface technologies for steel fabricators in transmission & distribution, bridge & highway, petrochemical and general industrial markets.

• AZZ Precoat Metals (13 U.S. facilities) toll-coats steel and aluminum coil for construction, appliance, HVAC, transportation, container and other end-markets. This segment was consolidated by the May 2022 acquisition of Precoat Metals from Sequa.

• AZZ Infrastructure Solutions holds a 40% non-controlling interest in AIS Investment Holdings LLC ("AVAIL JV"), which specializes in power transmission components, enclosure products and automated weld overlay services for critical infrastructure. AIS was contributed to the joint venture in September 2022; AVAIL JV equity income is now recorded under this segment.

AZZ’s strategy leans on local processing capabilities, human capital, environmental initiatives and disciplined capital returns. Seasonality is a factor—peak spring and summer volumes taper in winter—while 40% of AZZ’s revenues are tied to construction-related demand.

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2. Segment Results (Items 7 & 8)

Overall: Sales climbed 2.6% to $1,577.7 million. Gross margin of 24.3% expanded due to mix and operating efficiencies. Operating income rose to $236.4 million (15.0% of sales) vs. $221.6 million a year ago. Net income from continuing operations was $128.8 million.

AZZ Metal Coatings

• Sales: $665.1 million (+1.4%) on higher volumes (+17.8 million pounds processed), partially offset by modest price declines.
• Operating Income: $178.5 million (+8.3%), driven by volume, lower zinc costs, and one-time legal expense benefits ($5.5 million accrual saved from prior year).

AZZ Precoat Metals

• Sales: $912.6 million (+3.5%) on higher throughput.
• Operating Income: $147.8 million (+5.9%), despite rising labor and material costs and continued integration investments.

AVAIL Infrastructure Solutions

• Equity Income: $16.2 million vs. $15.4 million, driven by improved performance in power transmission products.
• Subsequent to year-end, on March 10, 2025, AVAIL sold its Electrical Products Group to nVent Electric plc for $975 million. Post‑transaction AVAIL JV will focus on lighting and welding solutions.

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3. Cash Flow & Liquidity (Item 7)

• Operating Cash Flow: $249.9 million vs. $244.5 million, fueled by $128.8 million in net income, $96.5 million of non-cash charges and $17.1 million in working capital improvements.
• Investing: $115.9 million in capital expenditures, including $52.8 million in construction of a new coil coating facility in Washington, Missouri—on track for fiscal 2026 start‑up.
• Financing: $111.0 million net debt paydown, $23.1 million in common dividends, and $308.9 million secondary offering in April 2024 to redeem Series A Preferred shares. No share repurchases in fiscal 2025, prioritizing leverage reduction.
• Liquidity: $1.5 million in cash, $354.6 million revolver capacity; fiscal 2025 leverage ratio (net debt/Adjusted EBITDA) was 2.5× vs. covenant max of 4.5×.

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4. Capital Structure

• 2022 Credit Facility: $870.3 million Term Loan B (due May 2029), $30.0 million revolver balance ($400 million capacity), bearing SOFR +2.5% on notes and SOFR +1.75% to 2.75% on revolver. Weighted average rate 7.54% in FY25 (vs. 8.58% in FY24) after three repricings.
• Hedging: 50% of variable‑rate debt swapped to a fixed rate of 6.777% through September 2025.
• Equity: On May 9, 2024, Series A Preferred Stock redeemed for $308.9 million (Return Factor 1.4× less dividends paid).

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5. Key Risk Factors (Item 1A)

AZZfaces multiple risks:

• Cyclicality & Seasonality: Sensitive to construction, industrial and metal markets. Winter slowdowns and adverse weather can compress volumes and margins.
• Commodity/Inflation: Zinc, natural gas and paint costs represent sizable portions of cost of sales. AZZ partially mitigates with fixed premium sulfate zinc contracts and energy hedges.
• Labor: Skilled operators are required for metal treatments; wage inflation and labor shortages could raise operating costs.
• Acquisitions: Integration risks, potential earn‑out adjustments.
• Leverage: High debt requires meeting covenant ratios; interest cost and refinancing risk remain.
• Legal & Environmental: Ongoing lawsuits and environmental cleanup contingencies could result in additional expenses.

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6. Outlook & Valuation

Outlook: Management expects average spot zinc and utility pricing, continued seasonal rebounding of construction volumes, and stable dynamics in coil coating. The new Missouri plant and AVAIL JV divestiture proceed as planned. Debt maturities remain well‑staggered, and financial covenants provide enough headroom for measured dividend, capex and M&A.

Valuation & Investment Score: 7.0 AZZ Inc. demonstrates strong cash generation, meaningful segment diversity and prudent debt reduction—key positives that support a mid‑single digit investment score. However, cyclicality in construction and industrial end‑markets, commodity price swings and high leverage underscore moderate volatility. Competitive price dynamics and the reliance on near‑term M&A add further caution to the outlook. Overall, AZZ offers investors leverage to North American infrastructure and building markets with a sound MDA, robust free cash flow and disciplined capital priorities.