Joe Dorame Thomas E. Ferguson - Chief Executive Officer, President and Director Dana L. Perry - Chief Financial Officer, Senior Vice President of Finance, Secretary and Director Ashok E. Kolady - Senior Vice President of Electrical and Industrial Products Segment Timothy E. Pendley - Senior Vice President of Galvanizing Services Segment.

John Franzreb - Sidoti & Company, LLC Christopher Schon Williams - BB&T Capital Markets, Research Division Brent Thielman - D.A. Davidson & Co., Research Division Jonathan P.

Braatz - Kansas City Capital Associates Jeffrey Bronchick - Cove Street Capital, LLC Steven Folse - Stifel, Nicolaus & Co., Inc., Research Division Peter Van Roden Garo Norian - Palisade Capital Management LLC Cezary Nadecki.

Good morning, and welcome to the AZZ Incorporated Third Quarter Fiscal Year 2014 Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Joe Dorame of Lytham Partners. Please go ahead, sir..

changes in customer demand and response to products and services offered by the company, including demand by the electrical power generation markets, electrical transmission and distribution markets, the industrial markets and the hot-dip galvanizing markets; prices and raw material costs, including zinc and natural gas which are used in the hot-dip galvanizing process; changes in the economic conditions of the various markets the company serves, foreign and domestic; customer-requested delays of shipments; acquisition opportunities; currency exchange rates; adequate financing; and availability of experienced management employees to implement the company's growth strategies.

The company can give no assurance that such forward-looking statements will prove to be correct. These statements are based on information as of the date hereof, and AZZ assumes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise. With that said, let me turn the call over to Mr.

Tom Ferguson, Chief Executive Officer of AZZ.

Tom?.

Thank you, Joe. Good morning to all of you on today's call, and we thank you for your continued interest in AZZ. It's my pleasure to speak with you today for the first time as the CEO of AZZ.

This is a great company with a strong track record of success built under the leadership of David Dingus and the team of operating executives that he put together.

While David is no longer with us, we remain inspired to continue to grow this business and to do it in a manner that is fiscally responsible and that will continue to drive value for our shareholders.

While it's only been 9 weeks since my appointment, I'm committed to maintaining the strategy of growth in both our Galvanizing and Electrical and Industrial segments. We will focus on the continued expansion of our Galvanizing Services business, both organically and through acquisitions.

As the industry leader, we are committed to leveraging our strong standard of operating practices to improve profitability and service. We are continuing to integrate NLI and WSI, and have completed most of the back-office standardization with the recent conversion of WSI to our standard Oracle ERP system.

We are now focusing more on leveraging our customer contacts and sales organizations across the Electrical and Industrial businesses. We will accelerate our international growth initiatives while increasing the emphasis on safety and operational excellence.

We see opportunities both domestically and internationally in the oil and gas sector, as well as in most segments of the electrical utility sector, while particular emphasis in the nuclear -- will be on the nuclear arena.

These are areas in which I have more than 30 years of operational and sales experience, and I'm excited about the strong technologies that AZZ has developed in both electrical products and welding services.

Although the results of the third quarter did not meet our internal targets, I believe the headwinds and distractions we have faced recently are diminishing as we enter into the next fiscal year and beyond.

I am confident we can move quickly on the international front and in leveraging our customer-facing organization, as well as improving project execution in our E&I segment, combined with growth potential of our Galvanizing segment, AZZ has a bright future and I'm excited to be part of it.

Dana Perry, Ashok Kolady and Tim Pendley are joining me on the call today and will be presenting the prepared remarks, as well as participating in the question-and-answer session. With that, let me now turn the call over to Dana Perry for a review of the financial results.

Dana?.

Thanks, Tom. On an operational basis for our third quarter of fiscal 2014, we recorded revenues of $197.8 million and EPS of $0.72, as compared to $149.7 million in revenues and EPS of $0.60 in the prior year -- prior quarter last year.

Non-recurring items during the quarter included continued losses related to our fire at our Joliet galvanizing facility, as well as the gains from property insurance proceeds related to that fire. During the prior year third quarter, we also recorded non-recurring items for the Joliet facility.

Earnings per share for the third quarter fiscal 2014 without these non-recurring items would have been $0.59 per diluted share compared to $0.64 for the third quarter in fiscal 2013.

Our assimilation of the new acquisition continues to progress smoothly, and our results for the third quarter reflect the continuation of our integration efforts of WSI into our operating system.

We continue to believe that our balance sheet is one of our core strengths and along with our strong cash flow characteristics, combined with excess borrowings under existing banking arrangements provides us with adequate flexibility to continue the growth of our company.

For the 9-month period, cash provided by operations was $94.6 million compared to $66.6 million in the prior year. Earnings before interest, taxes, depreciation and amortization was $123.5 million.

Our total outstanding bank debt has been paid down by $46 million this year and at the end of our third quarter stood at $428 million, and our cash position was $51 million. Our leverage ratio, which is defined as our funded debt divided by our cash flow, at the end of our third quarter was 2.6x.

Based on the evaluation of information currently available to us, we are revising our previously issued guidance for the fiscal year 2014 revenues to be in the range of $760 million to $770 million, and for earnings per share to be within range of $2.30 to $2.40.

Our estimates assume that we will not have any appreciable change in our current market conditions, competitive activity, including pricing or additional significant delays in delivery or timing in received orders of our Electrical and Industrial Products and demand for our Galvanizing Services.

We continue to be optimistic about our future and the opportunities that will -- that have occurred as a result of our expanded product and service offerings, both domestic and international. At this time, Ashok Kolady will give us an overview of our Electrical and Industrial Products segment.

Ashok?.

Thank you, Dana. For the third quarter, Electrical and Industrial Product and Services recorded revenues of $112 million, and operating income of $11.8 million and an operating margin of 11%. The segment ended the quarter with a backlog of $211 million, which does not include WSI services.

WSI recorded revenues of $61.7 million and operating income of $6.5 million for the quarter and an operating margin of 11%. Third quarter revenue for the segment came in lower than forecasted due to several international projects shipping out of the quarter on the services side.

We anticipate completing majority of these projects in the current fiscal year. Slowdown in domestic new capacity additions in power generation has affected our incoming order rates for power generation products in our legacy business.

As we reported last quarter, we continue to see the effects of the construction delays for the 2 domestic nuclear projects and the plants in China. Spending pullback by nuclear power plants in anticipation of Fukushima-related updates has delayed revenue for our services offerings at NLI and WSI.

The low number of scheduled outages in 2013 also affected our order intake for the current fiscal year. While nuclear utilities have pulled back on all other nonessential spending in anticipation of these major projects, we continue to remain optimistic in our outlook for the future.

Domestic transmission and distribution market is stable, and we do not anticipate any significant change year-over-year. International inquiries remained strong for power generation and T&D products. We anticipate closing the fiscal year with a strong backlog of international orders which partially offsets the current weakness in the domestic market.

With the addition of WSI and NLI, AZZ is well positioned to serve the aging energy infrastructure market in power generation, refining and petrochemical segments worldwide. The integration process for both NLI and WSI are progressing on schedule and we anticipate improved margins for both businesses in fiscal 2015.

Our mix of products and services, combined with our balanced global footprint has positioned us well for the incoming rebound in the domestic market and for further international growth. Tim Pendley will now give us an overview of the Galvanizing segment.

Tim?.

Thank you, Ashok. For the third quarter, Galvanizing Services recorded revenues of $85.7 million, and operating income of $21.3 million and an operating margin of 24.9%. Operating margins, excluding the non-recurring items during the period, would have been 26.4%.

Third quarter revenue for the segment came in lower than forecasted due to the continued softness in electrical utility transmission in the silver markets. Overall, volume was down 6.4% compared to the prior quarter. For the 9-month period ending November 30, 2013, Galvanizing volume was down 4.6% compared to the previous period.

While revenues of 25.8 -- $258.1 million were flat on improved pricing, yielding an operating income of $73.3 million and margins of 28.4%, operating margins, excluding the non-recurring items during the period, would have been 26.9%.

Volumes in the electrical utility market, along with the bridge and highway market, continue to trail last year's level. Petrochemical volume is up 3% compared to the previous period, and our Joliet facility is now back online and will be ramping up to full production by February.

However, the positive impact of having this operation back online will be minimized by the seasonal construction decline. Our fourth quarter volumes will be affected by the extremely harsh winter that North America has experienced thus far over and above the normal seasonality of the Canadian and Northern operations.

We do anticipate some positive offset by the steady improvement of the petrochemical market in our southern operations. The Galvanizing Service segment remains optimistic that we will surpass last year's record performance in both the revenue and operational income. Tom will now give us his closing comments..

Thanks, Tim. We remain committed to setting the standard in quality and service that will position us to take advantage of opportunities to maximize volume and market share, while maintaining pricing levels for all of our products and services offerings.

The completion of another solid quarter, the financial strength of the company and a great group of employees is reflected in our third quarter operating results and the confidence we have in our future. We will be issuing fiscal year 2015 guidance and also announcing our quarterly dividend within the next 10 days.

Thank you for your participation today. We would like to open it up for any questions at this time..

[Operator Instructions] Our first question will come from John Franzreb of Sidoti & Company..

I guess, first thing I want to discuss is what I'd call the legacy Industrial side of the business. By my math, it looks like it was down about 12% or so in the quarter but I was under the impression that there was sufficient orders, that that business will be close to flat for the full year.

Can we talk a little bit about what's going on in that legacy Industrial side of the market?.

This is Ashok Kolady, I'm going to answer that. The -- you're right. For the quarter, we are lower for the legacy products. At the beginning of the year, we have forecasted to be flat or 3% to 5% higher this year versus last year.

Last quarter, if you may recall, we had announced that about -- we had announced $35 million of nuclear projects moving out of the year and about 1/3 of that is from our legacy business, so about $10 million in shipments revenue for the legacy products moved out of the year due to new construction in the domestic nuclear projects.

And that's -- today, we're forecasting to end the year slightly below where we were last year..

Would that suggest that the fourth quarter, on a legacy basis, you'll be up year-over-year, Ashok?.

Yes, and we would end the year slightly lower than last year. So it will be a slight recovery from the third quarter, better fourth quarter..

Okay.

And can you just give me a sense of nuclear? How big of a business is that now at AZZ on the E&I side in total?.

On the E&I side, nuclear business is about 25% of revenue..

That's 25% of sales.

And there's still be expectations that we're going to see a rebound in the number of jobs next year coming off the low base of this year, or has there been any change to that forecast?.

No, there is no change in that forecast. We expect nuclear to perform better next year over this year..

So the shutdown should still come back to the 60 to 65 per year range?.

These are preannounced several years ago and utilities plan for these over 2 years. So they are announced, and a lot of those are starting in the February, March timeframe..

Our next question will come from Schon Williams of BB&T Capital Markets..

I just wanted to -- I want to make sure that I understand the delays that continued to plague the company.

Are we talking about -- it sounds like we're talking about different projects that had slipped from fiscal Q3 and fiscal Q4 versus what we were talking about last quarter which was some of the more domestic projects that we're going to be in more of a fiscal 2015 issues.

So I just -- I want to make sure that we've got all of the moving pieces straight here. I mean, it sounds like we now have new projects that are slipping from fiscal Q3 into fiscal Q4.

Is that correct?.

That is correct. We have -- at the WSI operation, we have about $14 million to $15 million in projects that moved out of the quarter. We expect to capture a majority of it in the fourth quarter..

Okay. But then given that the guidance was actually lowered, I mean, something else has slipped beyond the fiscal quarter.

What would be that difference then?.

On the Electrical side, the change in guidance is about $10 million from the previous quarter's guidance..

Also -- yes, Schon, also on the Galvanizing side, we're seeing further delays due to weather all over the country, not just our regions in Canada, slowness in the electrical utility and bridge and highway and it seemed like every day, we have a little lower production level.

Tim, do you want to comment on that a little further?.

Yes, that's the biggest thing we're seeing. Fourth quarter is always one of our weaker quarters and unfortunately, with the weather impacts that we're seeing in December of our southern operations and certainly in our northern operations in January, it's having significant impact on what our quarter ending results will be..

Combination of both segments, just a lot of moving parts. It's just not going in our favor right now..

Okay, understood. And then maybe if I could touch on Galvanizing again. Could you just comment on what you're seeing on the zinc pricing? I mean, zinc has moved up pretty sharply on the spot market the last couple of weeks.

Just can you talk about implications for your Galvanizing business?.

Yes, sure. This is Tim. What we're seeing going forward in zinc is really in that -- going to be in that $0.90 -- the mid-$0.90 range. What is finally taking place is the reality that there will be some shortages coming forward on the raw material side coming out of the mines. Mine closures have been significant over the past couple of years.

With the reduced pricing, mine openings have been delayed and we're just seeing the kind of catch-up factor in that. The good news for us is pricing's very elastic for us, so we'll be able to offset movement in the zinc cost in pricing..

And you should be able to pass that through pretty quickly.

Is that correct?.

That is correct..

We think our pricing next year will be $1 to $1.05, including our premiums..

Correct..

And probably will get locked in a minimum 50% of our usage for next year in that price range fairly quickly..

Our next question will come from Brent Thielman of D.A. Davidson..

I was just hoping you guys could maybe expand a little bit more on the investments you're making in some of the international markets.

In the E&I business, what specifically are you doing there, kind of where are you focusing those investments?.

On the E&I segment, we see growth in power gen in the Middle East and in the oil and gas side in the Middle East. That is one of our biggest focus areas. The nature of our product, it's manufactured in the U.S. and we ship it internationally. So in terms of investment, we're adding salespeople and agents primarily.

So at this point, the investment is minimal, as lot of our agents are based on success-based compensation. So the investment you will see from a capital point is minimum..

Okay. And then second question, I think for Tim, I think on the last call, you had mentioned you were maybe seeing a little bit of an uptick on the utility side of things for Galvanizing. Not sure.

That didn't sound like you saw much growth year-over-year on the quarter, but are you starting to see a pickup on the utility market for Galvanizing?.

We are seeing some improvement, but nothing that's really moving the needle for us, just more stability than anything else going forward. On a real positive note, we're finally starting to see the petrochemical market move forward with us. We've had 3% increase year-over-year. We do anticipate that to continue going into the fourth and first quarter..

Our next question will come from Jon Braatz of Kansas City Capital..

Tom, just had a couple of questions from your commentary. You had mentioned that -- we've been talking about projects being pushed off to the right a little bit and in your commentary, you had mentioned that you've got some of the headwinds have been abating. And also, you mentioned that you want to -- you're looking to improve project execution.

I guess, my question is, what do you see out there that gives you confidence that some of the headwinds are abating? And was there some project execution issues at all during the last quarter?.

Yes, I think, part of what I'd say that the headwinds in terms of the projects, we just feel like there's a little better mood out there on the nuclear side.

They're still waiting on Fukushima regulatory impacts before they move forward but I think, in general, a lot of the utilities are starting to look at making the upgrades they're going to need to make and feeling a little better as they get into probably the latter half of next calendar year -- or this calendar year, sorry.

I think on the oil and gas side, we -- a lot of that's is going to be -- I'll just say, our approach internationally were we're going to be more aggressive, and so that opens up some markets for us, particularly in the Middle East and China and Latin America. So some of that is more internal just as our approach, so I'm looking at that.

We can be more decisive as we move forward this year. In terms of the project execution, I think project management is just -- always a focus for me, it was when I was at Flowserve. My view is, we can always do a better job.

We -- so as I've spent just a few weeks here at -- looking at what we're doing, I think we've got opportunities to improve our project management, improve our engineering on some of the projects, reduce our cycle times and then improve our predictability.

I don't think we've had any -- as I look at it, it's not that we've had significant impact on the projects over the last couple of quarters because of execution. It's -- the vast majority has been customer delays. But I think it's an opportunity to improve our customer service, improve our customer satisfaction.

And at the same time, the better you manage these projects, the better the margins will be..

What might happen, should these Fukushima rules, regulations be delayed even further? I know we've been talking about it for some time, but -- and I don't know what time -- type of timetable there is in the industry.

But any expectation out there on what some of these -- the timing of some of these new rules and regulations?.

The NRC is looking at the calendar year -- this calendar year 2014 for those to be released. And the utility note -- all utilities are expecting to spend about $100 million for those updates. So nothing has changed from previous [ph] ..

Okay.

Well, are we expecting in the first half, second half? And can -- and I guess, in advance of some of these rules, can there be some spending going on ahead of these rules?.

We are seeing a little better spending mood coming in the start of this year. So I would think the first things are a little looser than last year, but not as much as we would like it to be..

Our next question will come from Jeff Bronchick of Cove Street Capital..

Tom, maybe just stepping back a bit.

Can you just generally talk about maybe what you're really excited about be at AZZ as far as the opportunities, number one? Number two, what do you know today that you didn't know the day before you first started about AZZ, and then lastly, close your eyes and look out 5 years, are you at the point where you have a vision for what you think the company you'd like it to look like?.

Nice, easy questions. The -- I think, starting with what have I learned in the last 60 days or so, I think I really, really do like the Galvanizing business. It's a business where you compete on service every day. We've got a lot of facilities and we can continue to grow that platform across North America.

So I like the margins, I like the standardization that the Galvanizing team's already put in place. So I'm really excited about what we can do on the Galvanizing side, primarily in North America, but we have some opportunities internationally. I really like the WSI business, welding services and welding technologies.

That's just a market that I think is -- one of my strengths is focusing on the customer service, the sales and opportunity management, and I just think that's something we can pursue aggressively. It's not capital-intensive to move internationally with welding capabilities. It's just people and technology.

So I'm excited about that as we look forward over the next 18 months or so, to really make some inroads in some of these strong international markets, particularly the Middle East and Latin America and even Asia to some extent.

I look at NLI and there's just -- a lot of OEMs have lost their ability to do ASME and nuclear code work, and we've got that capability to certify.

So I think pursuing more OEMs and finding more products that we can move through NLI, both for the domestic nuclear market and existing infrastructure, but also for new plants as well, where they want to continue on with whatever products they've used as their standards over the years.

So those are the opportunities I see as I look forward over the next 5 years. I won't be so presumptuous as to think I have a lot of answers after 60 days. But I think what you can look for -- we will be going through a process over the next 90 to 120 days to really look at our strategic direction and review all of the major opportunities.

And so you'll hear me talk about that a lot more probably by the next call. But I just think international is a big play. There's tremendous opportunities given our service capabilities and ability to engineer and project manage on the E&I side domestically as well. So lots of opportunities, and I'm excited about them..

[Operator Instructions] The next question will come from Steven Folse of Stifel..

You guys talked a little bit about some of the further project pushouts, kind of did a good job explaining why we should see some weakness in the fourth quarter but by my math, still the sales guidance isn't really just too, too weak. It's more on the margin side. It seems to imply roughly 10.5%, 11% company-wide margins.

You talked a little bit about weather.

Can you -- just typically a seasonally weaker quarter, I understand, but can you quantify or directionally talk about just how much of that couple hundred points, basis points weakness on the margin side is attributable to abnormally severe weather relative to historic norms?.

On the Galvanizing side, with the reduction on days to operate, we're starting to see the impact on revenue and with that lower revenue, we just don't get the impact to our bottom line that we would anticipate..

On the electrical side, our gross margins are pretty stable and what you see is lower revenue in the resulting loss of leverage. So, really, a volume issue for the couple points change in margin you see..

Okay. And then, I guess circling back to the utility markets, you said that you didn't quite see the pickup that you're expecting.

Previously, you had referenced kind of a little bit of a bubble in the transmission tower market that kind of have been pushed through as a result of the CREZ projects, and you had expected that to kind of work off mid- to late October.

I was wondering if that was something that you saw in the quarter or if there are still kind of oversupply in that market?.

What I'm getting from our utility market suppliers is that the overall demand is still out there, but there are seems to continually be delays in projects. When you look at the transmission hub quarterly update, they're still estimating roughly, for 2014, another $25.6 billion expansion projects on the grid.

So I think it's more of a timing issue from the utility standpoint..

Okay.

And would you say that directionally, you're still expecting growth in that market in fiscal '15 or [indiscernible] ?.

That's -- I wouldn't anticipate some growth, nothing significant of the magnitude that we saw a couple of years ago, but more of a steady state moving forward..

Our next question will come from Peter Van Roden of Spitfire Capital..

Just a quick question. Can you just walk me through the revenue and operating income for both WSI and NLI? I just want to make sure I have those right..

We'll be reporting those this afternoon with our 8-K, but we'd break those out in our 10-Q we'll be filing. For the quarter on NLI -- or WSI, we had roughly $61.7 million. Of course, the first quarter -- or this quarter last year, we already included NLI.

For the 9 months consolidated basis, $146.8 million for NLI and WSI combined for the 9-month revenue..

Okay. And then on a broader basis, on the legacy EIP business, you guys sort of talked about how these orders keeping pushed to the right.

Can you just talk a little bit about why the customers are continuing to do this? And are -- is there any chance that these just don't get put into place?.

On the legacy side, our revenues have moved slightly to right, shipping issues, delays on projects. On the orders side in the domestic market on the power generation business, the amount of new power generation projects this year -- in calendar 2013 is one of the lowest we have seen in terms of megawatt addition.

And our sweet spot is fossil, gas, coal, nuclear or hydro. And any addition you see in solar or wind, we do play in it but to a smaller extent, unless the solar form or wind form is above a certain megawatt range, the utility scale solar field we have application.

So if you add up all that, the low megawatt addition, one of the lowest in the last 5, 6 years, plus higher percentage of renewable additions is the reason why our traditional Electrical Products side order incoming is slightly weaker this year.

The megawatt addition is scheduled to go up next year but more gas-fired generation than this year, so we will see a rebound next year.

On the international side, we typically see more orders coming in in the fourth quarter on the international side, and this is true in the Middle East, this is true in China, and we are anticipating an uptick in international orders in this quarter..

Our next question will come from Garo Norian of Palisade Capital Management..

I just wanted to make sure I was also understanding kind of the change in the guidance. If I kind of go midpoint to midpoint, it was down about $30 million and for the quarter, you guys were down about $20 million to the quarterly expectation.

And I thought I just heard that the electrical, there was kind of $10 million that came out, but it also sounds like that Galvanizing probably is going to have a weaker quarter, too.

So is it just kind of roundings on the math that makes it seem that it's probably more than $30 million at the midpoint, or is there something else that I'm missing?.

I think you're pretty accurate. We're seeing downticks on both sides. Ashok is kind of seeing a shift from one quarter there, then our big drop is going to be on Galvanizing. It's just the delay in projects due to weather and so forth; he's just got lower volumes..

Got you, got you. Okay.

And then just on the Electrical side, is there any way of communicating kind of like what level of confidence you have on both the nuclear and the historic business for the pickup that we hope to see in calendar '14?.

In the nuclear, our confidence comes from some orders we have, the increased number of outages scheduled for next year. Our WSI works especially on outage-related work and NLI also has a lot of replacement and safety-related equipment that comes in during that scheduled outage. So that derives our confidence.

The other piece is going more international in the nuclear arena. So we expect -- WSI already had a pretty good international presence. We expect to leverage that international presence for NLI and get more business next year through that -- through the synergies with the both business.

Does that answer your question?.

Yes, yes. I guess, the other side, it seems like that -- and you touched on a little bit the fossil fuels on the megawatts side, I don't know if there's anything else kind of on the historic domestic kind of E&I side that can really point to that's trending or that looks to be trending better..

On the domestic side, it's -- we will see a better year we're forecasting next year, but the growth for us will come next year in our new acquired businesses, NLI and WSI, more than legacy business..

Our next question will come from Cezary Nadecki of Schroders..

Just a couple of questions, follow-ups on NLI and WSI. Ashok, if you can look at NLI versus last year, I think after acquisition, you guys had a couple of quarters where you hit kind of north of $15 million. The year-over-year difference, is that driven by the pushout of the new power plants in the U.S.

or there's something else there that went away?.

Year-over-year, last year same quarter, we did have $13.8 million, and this year -- this third quarter, we did $11.6 million. So slightly lower, but originally, the large nuclear new construction jobs were scheduled for the third quarter that moved out. So without those projects, we're slightly lower.

Now the nuclear pullback -- spending pullback we talked about earlier by all the utilities also pay -- plays a small part in this. So it's a combination of the large projects moving out of the year and spending reduction we're seeing in nuclear for this year..

I was under the impression with that business, there is not much wiggle room for the utilities. If they're running on schedules, they require shutdowns, restarts and maintenance.

Is there something related to the lower utilization of these plants? What is it that changes there?.

The actual number of shutdowns is lower this year domestically in calendar 2013. It was 1 versus the normal run rate of mid 60s. So if you correlate that lower number of outages, which is unusually low for the nuclear industry. So when that comes back to normal cycle next year, we'll see a recovery [ph] ..

Okay. And then switching to the WSI. I think for the last few quarters, you kind of been explaining a little bit the seasonality that's going on there.

Is there -- do you see it differently now? Because I think after the last quarter, you gave us guidance it was going to be up $25 million, $30 million sequentially, and it kind of made sense with the comments you made before on the shutdown in the refining and then the outages from the nuclear side.

How is it that that's switching now, or is it being pushed out a quarter? Do you see that seasonality differently, or is there something you learned about the business?.

It has not changed significantly. What exactly happened was a large project that we anticipated completing in November slipped to December which is already completed. That was a project close to $10 million.

So if we you had that back and another nuclear projects that's delayed into fourth quarter, you would make up that difference that we initially forecast. But for WSI, the fiscal year forecast hasn't changed much.

We are seeing that slight shift from third quarter to fourth quarter which, in a sense, was a 2-week shift from November, December, and we recognized revenue in December..

Okay, okay. And then kind of looking at the overall guidance for the last quarter than I think we're looking at the force [ph] out here 190, 200. I'm assuming, to get to that, we're going to have a weaker Galvanizing quarter partially because of the weather and seasonality as well.

Would that kind of indicate the E&I that's where we should -- or we're targeting to have somewhat flat revenue sequentially that's how I get there?.

Correct. From the last quarter's update to this quarter, E&I changed. We're looking at potentially less than 10% lower than -- from the last announcement. So the overall top line for AZZ, the biggest change will be in Galvanizing..

Our next question will be a follow-up from John Franzreb of Sidoti & Company..

Yes.

Considering the more challenging operating environment, I wonder if you could address what the pricing of jobs is like, both in the acquired businesses and on the legacy businesses separately, are you seeing a more aggressive pricing environment?.

For the acquired businesses, we are seeing stable gross margins and pricing. What -- the strategy we've had put in place is to improve those margins by focusing more on pricing and execution. So we're in the middle of that transitional process and we expect to see higher amount [ph] next year because of that.

And the traditional core products, we will see -- expecting -- this year, we're expecting continued pricing pressures, especially on international projects..

And that's where your new sales effort is focused?.

That's where the growth is for new power generation and T&D markets, and that's why we're focused on those markets, because if you'll recall, traditional core electrical product is driven by new construction, and then that's -- the new construction today, the market -- the growth markets are the Middle East and Asia..

Okay. You mentioned that there were some -- there was a changeover to the new Oracle ERP platform.

I'm wondering if there's any -- onetime costs in SG&A that are associated with that, or anything else related to integrating the new businesses that might not be a recurring in coming quarters?.

We've had probably $600,000 to $800,000 in that G&A cost this last quarter that went down in the fourth quarter. They'll be a couple or $300,000 lower probably in the fourth quarter and we actually went live with Oracle January 1 or January 6, whatever it was, and we're winding down those costs associated with that very rapidly now..

Okay.

Will that spillover into the first quarter of 2015, Dana, that was closed [ph]? No?.

No, those [ph] specific costs will be behind us..

Okay.

And then lastly, in your guide number for the fourth quarter, is there any assumptions made on insurance recoveries for the quarter?.

No..

So you're assuming you're getting no recoveries on the insurance side?.

In our guidance, that's correct..

Ladies and gentlemen, that will conclude our question-and-answer session. I would like to turn the conference back over to Tom Ferguson for his closing remarks..

Well, I just want to thank everybody. Very good questions and I look forward to future discussions and being able to lay out in more detail any changes in strategy or where I see us going probably around the next call.

But we look forward to continuing to grow this business and improving our performance and driving operational excellence and leveraging our strong platform of products, services and technologies. Thank you very much..

Ladies and gentlemen, the conference has now concluded. We thank you for attending today's presentation. You may now disconnect your lines..