AZZ Inc. — FY2021 Form 10-K
Business context and reporting period. AZZ provides metal coating and galvanizing services, specialty electrical equipment, and engineered welding services through its Metal Coatings and Infrastructure Solutions segments. This is the annual report for the fiscal year ended February 28, 2021; the filing also presents unaudited quarterly results, including the quarter ended February 28, 2021.
Financial performance
| Metric | FY2021 | FY2020 |
|---|---|---|
| Sales | $838.9 million | $1,061.8 million |
| Gross profit / margin | $188.7 million / 22.5% | $237.2 million / 22.3% |
| Operating income / margin | $61.6 million / 7.3% | $79.3 million / 7.5% |
| Net income / net margin | $39.6 million / 4.7% | $48.2 million / 4.5% |
| Diluted EPS | $1.52 | $1.84 |
| Cash from operations | $92.0 million | $142.3 million |
| Capital expenditures | $37.1 million | $32.6 million |
| Gross debt at year-end | $179.0 million | $203.0 million |
Operating cash flow less capital expenditures was approximately $55.0 million, versus $109.7 million in FY2020; this is a simple calculation, not a company-defined non-GAAP measure. Cash and cash equivalents were $14.8 million, working capital was $189.6 million, and shareholders’ equity was $623.3 million at year-end. AZZ reported $411.4 million of additional availability under its revolving facility, after outstanding borrowings and letters of credit under that facility.
- Metal Coatings: Sales declined 8.3% to $457.8 million; segment operating income fell 11.1% to $95.9 million, with a 21.0% operating margin versus 21.6%.
- Infrastructure Solutions: Sales declined 32.3% to $381.1 million; operating income fell to $6.5 million from $32.8 million, and margin fell to 1.7% from 5.8%.
- Fourth quarter: Sales were $195.6 million and net income was $16.2 million, compared with sales of $245.4 million and a net loss of $10.6 million in the prior-year quarter.
- Non-GAAP results: Adjusted earnings were $55.0 million, or $2.11 per diluted share, compared with $71.2 million, or $2.71, in FY2020. These exclude restructuring and impairment charges, net of tax; they are not GAAP results.
Material changes and capital allocation
- Total sales decreased 21.0%. Metal Coatings was affected by lower steel volumes amid the COVID-19 economic slowdown, partly offset by higher selling prices. Infrastructure Solutions was affected by the absence of large international electrical projects recognized in the prior year, weaker oil and gas markets, and divestitures.
- Infrastructure Solutions backlog was $186.1 million, down 23.7% from $243.8 million. Its book-to-sales ratio improved to 0.94 from 0.92.
- FY2021 included $20.0 million of restructuring and impairment charges, including write-downs, asset abandonment, disposal losses, and inventory charges. AZZ sold its Galvabar and SMS businesses, closed some underperforming Metal Coatings locations, and classified additional operations as held for sale. It acquired Acme Galvanizing in January 2021.
- Operating cash flow declined by $50.3 million year over year. Investing cash used was $28.6 million, including $37.1 million of capital expenditures; financing cash used was $88.4 million, including $48.3 million of share repurchases and $17.6 million of dividends.
- AZZ issued $150 million of senior notes at 2.77% and 3.17% coupon rates to refinance $125 million of 5.42% notes due in January 2021 and for general corporate purposes. The company reported compliance with debt covenants at year-end. The revolving facility matures in March 2022.
Outlook, risks, and other notable items
Management said it could not reasonably estimate the duration or financial effects of COVID-19 on FY2022. Operations remained open, with limited order deferrals and few cancellations, but customer-site access and supply-chain effects remained uncertain. No quantified earnings or revenue guidance is provided in the filing.
- The Board-led portfolio and capital-allocation review, announced in FY2021, is intended to focus the company on core businesses and enhance shareholder value; the filing does not specify its final outcome.
- Key risks include cyclical demand and economic conditions, COVID-19 disruption, oil and gas market weakness, competition, skilled-labor availability, and volatility in zinc, natural gas, and other raw-material costs. Fixed-price project estimates, backlog cancellations, and cost-to-cost revenue estimates in Infrastructure Solutions can also affect reported results.
- Routine legal proceedings include commercial, employment, workers’ compensation, intellectual-property, and environmental matters. Management said it did not expect them to have a material effect, while noting outcomes cannot be predicted with certainty.
- The prior-year material weakness in income-tax controls was reported as remediated. Management and the external auditor concluded internal control over financial reporting was effective as of February 28, 2021; the auditor issued unqualified opinions on the financial statements and controls.
Important facts for investors to verify
- Whether backlog converts to sales and margins, and whether project timing or cancellations further affect Infrastructure Solutions.
- How demand, pricing, and input costs develop in Metal Coatings and energy-related markets, and whether cost increases can be passed through.
- Progress and financial consequences of the portfolio review, remaining held-for-sale assets, and any further restructuring or impairment charges.
- Cash-flow and working-capital trends, debt covenant headroom, and refinancing needs as the revolving facility approaches its March 2022 maturity.
- Whether FY2021 adjusted earnings provide a useful comparison with GAAP earnings given the $20.0 million of restructuring and impairment charges.