AZZ Inc. Sheds Two Plants and Nuclear Wing in an Effort to Regain Margins
Depressed oil and gas markets have weighed heavily on the energy equipment manufacturer
Stock for energy equipment manufacturer AZZ Inc. recently fell 14 percent after the company reported declining profitability, mainly as a result of low fuel prices.
Compared with a year ago, revenue is down nine percent and bookings have fallen 17 percent. Net income fell 41.9%, from $0.67 to $0.38 per diluted share. In an effort to return to healthier margins, the company announced plans to shutter two steel galvanizing plants and sell its nuclear business to Westinghouse Electric Co.
“I’m not thrilled with how the quarter turned out,” CEO Tom Ferguson said on an earnings call.
Ferguson attributed the revenue declines refineries and power plants that have put off major maintenance projects amid low oil and gas prices. Such cost-cutting measures help bolster the bottom line for energy producers, but they’re bad news for equipment suppliers like AZZ. Maintenance budgets are the bread and butter of the company, which sells energy products such as lighting for oil rigs, galvanized steel, rebar, tubular products and enclosure systems.
The fall maintenance season — which energy producers take advantage of due to naturally low demand — is the typical harvest for AZZ. This year’s forecast is a “mixed bag,” Ferguson said. “It’s a little softer than last fall.” With no clear end in sight to low energy prices, the company has likewise found ways to trim expenses.
Ferguson reiterated plans to complete the sale of Nuclear Logistics LLC to Westinghouse before year end, though few details have been disclosed. Two galvanizing plants, which the company said were underutilized, will also be shut down in an effort to reduce overhead and sync up supply with flagging demand. A third plant is being repurposed to focus on galvanized rebar production.
All of these measures, the company hopes, will help it refocus on growth in new arenas. The company, which had enjoyed a 25 percent gross margin a year ago compared with 21 percent this quarter, said it was on track to return to similar profitability.