AZZ — Q2 2026 (Fiscal Q2 FY2027) Financial Report Analysis

Overview

AZZ coats steel so it doesn't rust. It dips steel beams, poles and other parts into molten zinc (hot-dip galvanizing, the Metal Coatings segment), and it paints large rolls of flat steel and aluminum before they are cut into things like building panels, HVAC housings and beverage cans (coil coating, the Precoat Metals segment). This report covers AZZ's fiscal second quarter of fiscal 2027, the three months from June to August 2026. AZZ's fiscal year ends in late February, so this is the June–August 2026 calendar quarter.

Sales rose 16.7% to $486.9 million and operating income rose 22.4% to $83.8 million, with both coating businesses growing faster than in the first quarter. Reported net income still fell 34.6% to $58.5 million and diluted earnings per share (EPS) fell 34.2% to $1.94. The drop comes entirely from a one-off a year ago: AZZ owns 40% of a former subsidiary, the AVAIL joint venture, and last year's quarter included $61.6 million of AZZ's share of a gain when AVAIL sold its Electrical Products Group. On AZZ's own adjusted basis, which strips out those joint-venture gains, EPS rose 29.0% to $2.00 from $1.55.

At a glance

• Sales +16.7% to $486.9 million. Galvanizing grew 22.9% and coil coating 11.5%. Most of the increase came from more steel and more coils going through the plants, not from higher prices.
• Operating margin 17.2%, up from 16.4%. Operating margin is the share of sales left after running the business, before interest and tax. Both segments kept a bigger slice of each dollar of sales even though zinc and paint costs went up.
• Diluted EPS $1.94, down 34.2%; adjusted EPS $2.00, up 29.0%. The two numbers move in opposite directions because of a $61.6 million joint-venture gain a year ago. The business AZZ actually runs made more money.

Results summary

Source: AZZ Form 10-Q for the quarter ended August 31, 2026. Percentages and margins are computed from the filing's figures. Adjusted EBITDA is earnings before interest, tax, depreciation and amortization, also excluding the items listed in the quality check below.

Takeaway: The 34% fall in reported EPS is an accounting echo of last year's one-time joint-venture gain. Pre-tax income from AZZ's own businesses, excluding the joint venture, rose about 33% (from $55.0M to $73.0M). Both coating segments accelerated from the first quarter, which is the opposite of what the headline EPS suggests.

Segment performance

Metal Coatings (hot-dip galvanizing): sales +22.9%, operating income +23.9%

Sales rose $43.5 million to $233.5 million. AZZ attributes $34.5 million of that to "a higher volume of steel processed, driven by increases in the construction, industrial, infrastructure, and transportation end markets," $6.5 million to higher average selling prices "primarily in response to inflationary pressures," and $2.5 million to other sales. Roughly four-fifths of the growth was more work, not higher prices.

Costs rose too. Cost of sales went up $30.5 million, including $11.3 million more for zinc, $8.5 million in variable overhead and $6.1 million in labor, all tied to the higher volume, plus $4.8 million of fixed costs, mainly utilities and leases. Operating income still grew slightly faster than sales, to $64.1 million, and the margin edged up to 27.4%.

The segment also grew by acquisition this quarter. On July 30, 2026 AZZ bought Seattle Galvanizing, a privately held galvanizer in Arlington, Washington, for about $57.5 million. It is AZZ's first galvanizing presence in the Pacific Northwest. That business was only owned for about one month of the quarter, and the filing says acquisitions were not material to the results. So the 22.9% sales growth is mostly from plants AZZ already owned.

Precoat Metals (coil coating): sales +11.5%, operating income +18.7%

Sales rose $26.1 million to $253.4 million. The 10-Q cites "a higher volume of coils coated, driven by increases in the construction and container end markets (including the continued ramp-up at the Washington, Missouri facility)." That plant is AZZ's new aluminum coil coating facility, and its ramp-up is what drove growth in the container market (metal used for cans and similar packaging). Volumes fell in HVAC and appliances, transportation and other markets. Average prices also rose, mainly because paint suppliers raised prices and AZZ passed those increases on to customers.

Operating income grew faster than sales, to $43.3 million, and the segment margin improved a full point to 17.1%. Cost of sales rose $18.2 million, of which $11.4 million was materials (more volume plus pricier paint).

This is a real change of pace. Precoat sales in the first quarter (March–May 2026) were up only about 1.5% year on year, and for the half year the 10-Q says coil volumes were lower, with growth coming from price. The second quarter is the first in which volume itself turned positive.

Corporate and the AVAIL joint venture

Corporate overhead rose $3.9 million to $23.6 million. $2.6 million of that is one-time acquisition costs for Seattle Galvanizing, and $1.3 million is higher pay and stock compensation. The AVAIL joint venture contributed $6.8 million, mostly AZZ's share of the gain on AVAIL's May 2026 sale of its Rig-A-Lite industrial lighting business. AZZ says its share of AVAIL's ongoing operating earnings was "not significant." With AVAIL having sold its main businesses, AZZ's investment in it is down to $11.5 million. Expect this line to be small from here, which makes AZZ's earnings simpler to read.

What the headline numbers hide

• GAAP vs adjusted. In this quarter the two measures are close: adjusted EPS is $2.00 against $1.94 GAAP. AZZ adds back $5.9 million of amortization (a non-cash charge spreading out the cost of past acquisitions) and $2.8 million of Seattle Galvanizing deal costs, and it removes the $6.7 million joint-venture gain. A year ago the gap ran the other way, with $1.40 per share of net adjustments, almost all the AVAIL gain. That gap is why the reported and adjusted EPS trends point in opposite directions.
• Where the EPS growth came from. Excluding the joint venture, pre-tax income rose about $18.0 million. About $15.3 million came from higher operating income and about $2.9 million from lower interest costs. Interest expense fell to $10.8 million from $13.7 million because average debt was $131.9 million lower and the average rate fell to 5.22% from 6.20%. Buybacks barely mattered: diluted shares fell only 0.4%, to 30.1 million. Tax worked against earnings, because the effective tax rate rose to 26.7% from 21.9%. AZZ says last year had larger one-time research tax credits. Nearly all of the underlying improvement came from the plants themselves.
• Cash conversion is weaker than last year's headline, but healthy on a like-for-like basis. Operating cash flow for the first half was $140.0 million against net income of $110.5 million. That ratio is fine, but it is far below last year's $373.2 million, which included a $273.2 million cash distribution from AVAIL that won't recur. Working capital, the cash tied up in day-to-day operations, consumed $31.3 million. Trade receivables rose to $179.1 million from $142.6 million at the end of February (+25.5%), and inventory rose to $134.0 million from $113.4 million (+18.2%). These are compared with February, AZZ's slow season, and the 10-Q doesn't give a year-ago August balance sheet, so some of the build is seasonal. It is still worth watching whether receivables keep outrunning sales.
• Free cash flow paid for the deal, not much debt. After $37.2 million of capital spending, the first half produced roughly $103 million of free cash flow (operating cash flow minus capital spending). That went to Seattle Galvanizing ($57.5 million), buybacks ($20.0 million at an average $146.71 a share) and dividends ($13.2 million), leaving only about $15 million of net debt reduction. Gross debt was $500.0 million at August 31 against $515.0 million in February. The acquisition also added about $29.3 million of finance-lease obligations, because AZZ must buy Seattle Galvanizing's leased land and buildings when the leases end. Net leverage (debt relative to a year's earnings, as AZZ's lenders define it) stood at a comfortable 1.3x, against a covenant ceiling of 4.5x.
• One-offs. This year's quarter includes $2.8 million of acquisition costs and the $6.7 million AVAIL gain. Last year's included the $61.6 million EPG gain. Outside those items it was a clean quarter, with no restructuring charges.

Outlook

AZZ doesn't put numeric guidance in its 10-Q. Its stated expectations for the third quarter (September–November 2026) are qualitative:

• Galvanizing prices "are expected to increase slightly due to zinc inflationary pressures."
• Coil coating prices "are expected to stay consistent with current levels."
• Demand in both segments "is expected to follow our typical seasonal patterns." Galvanizing volumes and coil-coating customer inventories are both described as at "normal seasonal levels."

Construction activity usually slows heading into winter. A dip in sales from $486.9 million next quarter would fit the "typical seasonal patterns" management describes, so on its own it would not be a warning sign. Two things to watch in the next report: whether Precoat's volume recovery holds (this was its first quarter of volume growth this fiscal year, and HVAC and appliance demand is still falling), and whether Metal Coatings can keep pricing ahead of zinc costs, which rose $11.3 million this quarter. Seattle Galvanizing will contribute a full quarter for the first time.

On balance, the operating trend is stronger than the reported EPS decline suggests. Both segments grew volume and widened margins, interest costs are falling, and the joint-venture noise that distorted the past year's comparisons is now mostly gone.

AZZ's full-quarter figures in this report come from the Form 10-Q itself. Fiscal Q2 FY2027 is labelled "Q2 2026" on this site because the quarter ended in calendar 2026.