AZZ (NYSE:AZZ) Misses Q2 Sales Targets

Metal coating and infrastructure solutions provider AZZ (NYSE:AZZ) missed Wall Street’s revenue expectations in Q2 CY2025 as sales rose 2.1% year on year to $422 million. The company’s full-year revenue guidance of $1.68 billion at the midpoint came in 0.5% below analysts’ estimates. Its non-GAAP profit of $1.78 per share was 11.7% above analysts’ consensus estimates.

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Tom Ferguson, President, and Chief Executive Officer of AZZ, commented, "We are off to a great start in the fiscal year as sales grew to $422.0 million, up 2.1% over the prior year, with Adjusted diluted EPS of $1.78 up 21.9%. Consolidated Adjusted EBITDA grew to $106.4 million, or 25.2% of sales, primarily driven by higher volume for hot-dip galvanized steel and operational productivity over the prior year. Metal Coatings benefited from improved zinc utilization and delivered an Adjusted EBITDA margin of 32.9%. Precoat Metals' Adjusted EBITDA margin improved to 20.7%, primarily due to favorable mix and improved operational performance. While volumes were slightly lower for Precoat Metals, customer demand improved, as shipments of customer inventories increased compared to first quarter of last year."

Company Overview

Responsible for projects like nuclear facilities, AZZ (NYSE:AZZ) is a provider of metal coating and power infrastructure solutions.

Revenue Growth

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Luckily, AZZ’s sales grew at a solid 10% compounded annual growth rate over the last five years. Its growth beat the average industrials company and shows its offerings resonate with customers, a helpful starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. AZZ’s recent performance shows its demand has slowed as its annualized revenue growth of 2.6% over the last two years was below its five-year trend.

This quarter, AZZ’s revenue grew by 2.1% year on year to $422 million, falling short of Wall Street’s estimates.

We also like to judge companies based on their projected revenue growth, but not enough Wall Street analysts cover the company for it to have reliable consensus estimates. This signals AZZ could be a hidden gem because it doesn’t get attention from professional brokers.

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Operating Margin

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

AZZ has been an efficient company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 14.7%. This result was particularly impressive because of its low gross margin, which is mostly a factor of what it sells and takes huge shifts to move meaningfully. Companies have more control over their operating margins, and it’s a show of well-managed operations if they’re high when gross margins are low.

Analyzing the trend in its profitability, AZZ’s operating margin rose by 3.6 percentage points over the last five years, as its sales growth gave it operating leverage.

This quarter, AZZ generated an operating margin profit margin of 16.5%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Earnings Per Share

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

AZZ’s EPS grew at an astounding 21.2% compounded annual growth rate over the last five years, higher than its 10% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into the nuances of AZZ’s earnings can give us a better understanding of its performance. As we mentioned earlier, AZZ’s operating margin was flat this quarter but expanded by 3.6 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For AZZ, its two-year annual EPS growth of 24.5% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.

In Q2, AZZ reported EPS at $1.78, up from $1.46 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects AZZ’s full-year EPS of $5.52 to grow 9.8%.

Key Takeaways from AZZ’s Q2 Results

We were impressed by how significantly AZZ blew past analysts’ EPS and EBITDA expectations this quarter. We were also glad it raised its full-year EPS and EBITDA guidance. On the other hand, its revenue missed and its full-year revenue guidance fell slightly short of Wall Street’s estimates. Overall, this print was mixed but still had some key positives. The stock remained flat at $100.88 immediately after reporting.

Should you buy the stock or not? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.