Joe Dorame - Lytham Partners Tom Ferguson - President, Chief Executive Officer Paul Fehlman - Chief Financial Officer, Senior Vice President, Finance, Secretary.

Schon Williams - BB&T Capital Markets John Franzreb - Sidoti & Company Brent Thielman - D.A. Davidson Noelle Dilts - Stifel Bill Baldwin - Baldwin Anthony Securities.

Good morning and welcome to the AZZ Incorporated First Quarter Fiscal Year 2016 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Joe Dorame of Lytham Partners. Please go ahead, sir..

Thank you, Denise. Good morning and thank you for joining us today to review the financial results of AZZ Incorporated for the first quarter of fiscal year 2016 ended May 31, 2015. As Denise indicated, my name is Joe Dorame. I am with Lytham Partners and we are the Investor Relations consulting firm for AZZ Incorporated.

With us on the call, representing the company are, Mr. Tom Ferguson, Chief Executive Officer and Mr. Paul Fehlman, Chief Financial Officer. At the conclusion of today's prepared remarks, we will open the call for a question-and-answers.

If anyone participating on today's call does not have a full text copy of the press release, you can retrieve it from the Company’s website at azz.com or numerous financial websites.

Before we begin with prepared remarks, I would like to remind everyone, certain statements made by the management team of AZZ during this conference call constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Except for the statements of historical fact, this conference call may contain forward-looking statements that involve risks and uncertainties, some of which are detailed from time-to-time in documents filed by AZZ with the United States Securities and Exchange Commission, including the Annual Report on Form 10-K for the fiscal year ended February 28, 2015.

Those risks and uncertainties include, but are not limited to 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. Overall, I am pleased with our solid financial results for the first quarter of fiscal 2016.

Our galvanizing and legacy electrical businesses continue to perform well, and we have made significant progress at our WSI Welding Solutions business.

We continued to gain traction on several important strategic initiatives, including joint ventures, the opening of our new Greenfield galvanizing plant in Reno, Nevada, and completing the acquisition of six galvanizing sites from Trinity Industries shortly after the end of Q1.

Fiscal year 2016 continues to be a year of great potential for us to drive market share growth at our galvanizing and energy businesses in the phase of some market headwinds from lower oil prices. WSI is benefiting from our strategic reconfiguration of the business resulting in improved operational performance in a more normal nuclear outage cycle.

While refinery utilization rates remain high, we have benefited from market share gains as our business development efforts gained traction. This has resulted in winning our new customers and also renewing business relationships with some customers from the past. We also won several significant international jobs during the quarter.

With the improved efficiencies and operating margins, we are optimistic for the balance of this fiscal year. Our galvanizing businesses, our galvanizing services business has accelerated several new products and services growth initiatives and continues to drive organic and inorganic growth through acquisitions, and also new metal finishing services.

Operational excellence and pricing for our industry-leading value-added solutions are also areas of continued focus. We have a fairly high concentration of galvanizing capacity in the US Gulf Coast area, so we are monitoring the economic impact of lower oil prices on fabrication projects.

As we stated last quarter, the impact so far has been small, but we are seeing a few of the larger fabrication projects delayed. Yesterday, we announced our plan to build a new state-of-the-art galvanizing facility in Reno, Nevada. It has been approximately 24 years since our last Greenfield construction in Arizona.

We view Reno as a very important region to add to our geographical coverage. Our goal is to have the plant fully operational by January 2016. This will give us a network of 43 galvanizing plants within North America. We are very excited to offer our leading-edge corrosion protection services to this new white space market.

Our legacy electrical business, the results overall for the quarter have met our expectations with some businesses doing well and others being a little more challenged. This platform’s overall performance is reasonably good given their mixed market conditions.

The electric utility market in the US remains sluggish, but we have benefited from strong international opportunities and a solid backlog. We are optimistic about this segment’s opportunities in the balance of 2016.

They are focused on establishing international joint ventures to provide market access and on improving their operational efficiencies and customer service. The legacy electrical platform as with galvanizing has a stable leadership team, solid operating performance, and some good niche technologies.

The exposure to lower oil prices is relatively small for this platform and primarily impacts our API tubular and hazardous duty lighting businesses. In the aggregate, these represent approximately 5% of AZZ’s overall revenue. We will continue to focus on key operational fundamentals including our tax and capital efficiency.

Additionally, we believe we are already benefiting from having our new incentive programs that tie performance with pay. These programs are designed predominantly around performance and operating income, cash flow, return on assets, productivity, and safety. To help drive positive results, every employee is now a participant in our incentive programs.

I am pleased with our progress and believe we have the leadership team, products and services, and balance sheet to generate above market results for a long time. We have taken steps necessary to reconfigure our businesses over the past 12 months that have positioned us for stronger financial performance for the balance of fiscal year 2016.

As a result, we are raising our previously announced guidance for fiscal year 2016 EPS to $2.85 to $3.30 per diluted share, and revenues in the range of $900 million to $940 million, as compared to our previously issued guidance of EPS of $2.75 to $3.25 per diluted share, and revenues in the range of $875 million to $925 million.

Now, I’d like to turn it over to Paul Fehlman to cover the financial highlights..

Thanks, Tom. For the first quarter of fiscal 2016, we are reporting revenues of $228.9 million, and an EPS of $0.77, as compared to revenues of $216.1 million and EPS of $0.58 for the same quarter last year reflecting a year-over-year EPS increase of 32.8%.

Bookings were $215.2 million this quarter compared to $200.2 million in the first quarter of fiscal 2015. Our backlog at the end of the first quarter finished at $318.9 million, reflecting a book-to-bill ratio of 0.94 up from the 0.93 book-to-bill ratio for the first quarter of last year.

As we have noted before, we expect our sales to continue to be seasonally skewed to our first and third quarters, and this quarter was certainly no exception.

Overall, revenues were up 5.9% compared to the first quarter of last year as they grew 5% in the energy segment, primarily on growth in several of our energy business units and up 7.3% in Galvanizing Services, compared to the same period last year driven primarily by the acquisition of Zalk in June 2014 and growth in many of our served market sectors.

Gross margins for the quarter finished at 25.9%, an increase of 30 basis points compared to the 25.6% posted in the first quarter last year.

Of particular interest is the fact that the prior year gross profit reflects a $2.4 million benefit from business interruption insurance in our Galvanizing segment compared to approximately $300,000 of BI Insurance for the first quarter of fiscal 2016.

SG&A fell to 11.5% of sales compared to 12.7% in the first quarter of fiscal 2015 from continued focus on costs, especially in corporate. As a result, we achieved an operating margin of 14.4% for the first quarter of fiscal 2016, up 150 basis points compared to the 12.9% reported in the first quarter of fiscal 2015.

Our tax rate improved as we recorded an effective rate of 31.7% for the first quarter of fiscal 2016 compared to 37% for the same quarter last year. I am pleased that the business continues to execute on several corporate initiatives including cost control, gross margin expansion, managing the effective tax rate, and cash flow generation.

Our cash flow performance over the past several quarters has allowed us to take meaningful steps to drive both organic and inorganic growth through acquisition and Greenfield expansion. I would caution however, this is still a feasible business that is typically not as strong in the second quarter.

With that, I’ll turn it back to Tom for concluding remarks.

Tom?.

Thanks, Paul. I believe AZZ is well positioned to continue to expand our market share in galvanizing and energy and confident in our ability to grow our businesses profitably. We have a solid balance sheet and strong cash flows.

Our great portfolio of products and services and significant international growth opportunities, as well as a talented and seasoned leadership team. We will continue to focus on growing our galvanizing business both organically and through targeted acquisitions.

We will continue to expand the presence of our electrical businesses internationally both directly and through joint ventures. We are accelerating our emphasis on operational excellence and customer service at both WSI and NOI.

While we have made significant progress over the past few quarters, we have tremendous upside going forward to grow our businesses as the leadership team continues to gain traction on our key initiatives and our customers experience the improvement in our service performance.

I’d also like to remind you that we have seasonality in our business and because of the way our fiscal year calendar runs, the second quarter is usually not a strong one for us. This is primarily due to the low outages and turnarounds available during the summer months.

We will continue to leverage our expertise as the solutions leader in protecting metal and electrical systems that drive infrastructure and with the strategic acquisition of six galvanizing plants, and opening the Greenfield in Nevada we are looking forward to continued improvement in our businesses and greater impact from our new growth strategies for the balance of fiscal 2016.

Now, we’ll open it up for questions. .

Thank you. [Operator Instructions] And our first question will come from Schon Williams of BB&T Capital Markets. Please go ahead..

Hi, good morning gentlemen. .

Good morning, Schon. .

Congrats on the quarter. Wonder if we could maybe talk a little bit, I mean, can you spend a little bit of time talking about, maybe the timing and the seasonality of kind of the general business, but I wonder if you could maybe specifically address the $25 million in nuclear orders that are out there projected to be shipped this fiscal year.

Can you – do you have any line of sight on anything here in the next couple of months? Should we still be – should we be expecting that kind of more in the back half of this fiscal year? Just any help on kind of how that may play out over the next couple of quarters here would be helpful. .

Yes, I wish I could say that was going to – be able to pull it into the second quarter, but I’d actually say it’s a little bit of – these are primarily the Westinghouse new nuclear orders in both the Carolinas as well as over in China. Some of that may go.

The orders are very active, and I think the customers are showing the intent to take delivery later on this year. I’d still position it in the latter half of the year, third and fourth quarters..

Okay, that’s helpful. And then, I wonder if we could just talk about where – in terms of the integration with Trinity, I know that, less than 30 days ago.

But I mean, can you just give me a general idea of – I don’t know, is this something that you guys feel comfortable with given, kind of your M&A path on the galvanizing side? Is that something you can turnaround in kind of 60, 90 days in terms of the integration or how should we be thinking about how that plays out there?.

Yes, I think, these good sites, good locations, Trinity had invested in those businesses. So I think our guys are – we were on site first thing in the morning after we bought it. Teams are feeling pretty good about the integration process. So, we expect those to be, you know to kind of normalized run rates as we get into the latter half of this year.

Lot of heavy lifting going on now in the second quarter to bring those in and get them up to our standards, that’s really about it. These are no big ahas, no big surprises in the first few weeks, pretty much business as usual, and we expect them to be operating to our standard procedures in, I’d say third quarter..

Okay, that’s helpful guys. I’ll get back in the queue here..

And our next question will come from John Franzreb of Sidoti & Company. Please go ahead..

Good morning guys. Could you just go into the decision behind Greenfielding in Reno.

Especially, it’s been quite sometime since you’ve undertaken that kind of project and also give us some color on the costs associated with it?.

Yes, it’s – we’d always – it’s always faster and easier to go buy a site when they are available.

One of the things we looked at in this case, and I’ve talked about that white space being out there kind of in the West, Northwest where there is just not any sites within 250 miles or so of a pretty good market for fabrication-type companies and businesses. So, we want to be able to serve those markets.

Quite a bit of activity going on now in outside of that Reno area, but it also gives us access to more to the Northwest and West and even a little bit further East, because I think our next closest operation for us is in Denver, and then you’ve got to go all the way down to Good Year which is outside of Phoenix.

So, getting into a market, we’ve done a pretty good market study that show there is enough opportunity to get a site up to our normal run rates. And with 25% margin type business, it doesn’t take long to justify with normally a $15 million to $20 million capital investment over 12 to 18 months. .

$15 million to $20 million, okay.

And Tom, does that suggest to us that there is not anymore sizable Trinity-like acquisitions out there for you on the galvanizing side?.

Yes, Trinity was really the last probably actionable multi-site field that we see. There is a couple other multi-site businesses out there including Belmont, but I think they are pretty well attached to their business.

So, I look at that as this was our last shot to pick up multiple sites, so it was somewhat strategic partly because we wouldn’t want it falling into somebody else’s hands. And secondly, they were pretty good sites and give us access to a couple of new markets in South Texas and West Texas and a little bit into New Mexico.

So, that kind of thing is what we are looking at. Other than that, there is 1Z, 2Zs. Those are actionable whenever the owners get to the point that they are ready to leave the business and we know who they are and we are always in touch with them and we’d always want to be a consideration.

But in this particular area, like I said, for a radius of about 250 miles, they are just not a whole lot. There wasn’t anything for us to go buy in the area but we like the area..

Great.

And then just switching over to the energy side, now that you’ve kind of completed the restructuring actions, what do you think the margin potential is in the energy business, say two to three years down the line?.

This is Paul. In the past, what we have said is, we’ll be getting into low teens to mid teens on a normalized basis over the long run there, and I think that’s probably still a fair assumption. There are a number of different ways that we can get there and we still expect to get there.

But we do see improvement, especially in WSI and that had – WSI have an awful lot to do with the improvement in the first quarter..

Okay guys. I’ll get back into queue. Thank you..

[Operator Instructions] The next question will come from Brent Thielman of D.A. Davidson. Please go ahead..

Okay, good morning. .

Good morning..

Good morning..

With the net that 3% backlog growth, are there wide variances across your operating divisions, I mean, are there some particular areas within energy growing a lot faster in terms of order improvement?.

Yes, well, in energy and particularly in electrical, legacy electrical, it’s such a wide range of diverse businesses there that you’ve got the backlogs going down in the ones that are affected by oil production and rig counts and then you’ve got the – we’re actually capacity constrained in a couple of our businesses, medium voltage bus and in closures.

So there the backlogs are moving a lot because we are full. So, and we’ve been full for the most part and then in high voltage bus and in switchgear, we’ve got opportunities and some of those are fairly significant when you get into the high voltage bus, you are talking multi-million dollar projects.

So, we anticipate – and that, since we do have some capacity and in switchgear we are freeing up some capacity for some operational improvement projects, that’s where we look to still have opportunity to grow backlog..

Okay, that’s great. And then, on the US Galvanizing acquisition, I know I guess you had a few different regions.

Is there a big difference in kind of addressed end-markets when you compare to the existing AZZ platform?.

Not really. It just gives us more capacity and an attractive market area for us and one where we do have a lot of experience in. But, like I said, we do get a little bit more geographic access because of the facility in Big Spring at West Texas. And we really the closest thing we had for South Texas was Houston.

So, San Antonio gives us good participation in that market. So we broaden the geographic coverage somewhat which probably surprises people. But, in terms of the actual markets in industries we serve that’s fabrication stuff and pretty much looks like the business we had..

Okay, and then I guess just lastly, and I know it’s the first quarter, but you said you got the $0.10 accretion coming from the galvanizing deal, you are bumping up the top-end by $0.05 a share just for guidance.

Are you just still maintain a little more conservatism just basing kind of timing the deliveries or there is some specific end-markets you might be a little more cautious around? Any color that would be helpful..

Yes, I think as you’ve seen from us, we try to be a little cautious and stay conservative. So we felt like with the acquisition and likely $0.10 accretion from the acquisition of US Galvanizing that we can bottom, our low-end was protected because the biggest risk there was these NOI nuclear Westinghouse jobs not going.

This offsets that risk and covers it.

In terms of the top side, we are still just, even though we only have 5% exposure from our energy businesses to the oil markets, our rig activity being really low and our concern is, does it have any fallout impact to our galvanizing businesses as we see some of the petrochemical, refinery, and other projects impacted.

So, we are remaining cautious on the upside or a little more cautious anyways. We still feel pretty good about it and the other businesses, in many cases, they’ve already got the backlog for their year. In terms of the legacy electrical, we still have a few holes to fill, but not too much.

And then WSI is heavily dependent on a good turnaround cycle in the third quarter. So, that we just want to make sure, because that’s book and ship within a year. We’ve got good visibility to what we are quoting. We feel good about the activity.

But until we see the orders and we are deployed on those locations, we don’t want to get too far out over our skies. .

Understood. Thanks for the commentary. .

And our next question will come from Noelle Dilts of Stifel. Please go ahead..

Hi, good morning, Tom and Paul. .

Good morning. .

Good morning. .

My first question, I just wanted to touch a bit on the galvanizing margins still running around 24% this quarter. I think you are targeting getting back to the 25% to 26% range.

Can you just talk about some steps that you’ll take to get there and what’s going to help us get back into that – those levels?.

I think, we’ve seen zinc prices move around a little bit and had some volatility up and down in recent weeks and months and of course we do some forward buys and then we also do a lot of spot buys and then we try to manage the price.

So, right now, we are looking at – zinc having somewhat of a – I don’t know, call it a ceiling effect on our ability to drive margins up, which we are evaluating very carefully what do we do around our zinc.

On the other hand, we are continuing to drive the operational excellence and with the acquisition of US Galvanizing which, as most of our galvanizing acquisitions are they are lower margins than that were at, so we’ll drive those up and get more of our normal 24% to 26% range.

We didn’t have any of the one-time effects from what we had small effect versus last year in terms of margins. So, that’s one thing. We are pretty much very stable. What you are seeing is normal flow through margins for us. There is not a tremendous amount we can do in the short-term in terms of operational improvement because we run very effectively.

We do have some technology things we are working that we think will help us improve the margins in the mid to longer-term. And then we, it’s like, normally you take 42 sites at the moment and you parade those and look at the ones that are below our normal margins and work diligently to bring those up.

Those are the ones that will tend to be in the more competitive areas along the Gulf Coast that where we were depending, where we were hoping for a lot more of a robust petrochemical build cycle. That’s a long answer to the question. Good question, but probably a complicated answer. .

Sure, no that’s fair.

I guess to be a little bit more simple, just looking at the Reno plant, can you give us some thoughts on how essentially revenue will ramp as that comes online and just kind of how we should think about the revenue potential for that operation given the kind of sites over the next few years?.

The – sorry, we had a little distraction here..

Okay. No problem..

The ramp – we anticipate, we are accelerating the construction, we got a really good location. And fortunately the city and the state work well with us. So we are anticipating getting it opened quicker than we had originally planned. We are looking for a ramp.

It still takes two three quarters to build that out and probably it have to look at about an 18 months to where we are fully loaded running normal cycles processes firmly entrench, discipline in place. So, I like that 18 month window to when we look for it.

It’s now full, operating efficiently, normalized margins and that’s when we’ll start putting in additional services and looking at additional kettles and things like that. .

Okay. And then last question, just looking at NOI, you are hoping you get that $25 million of orders this year.

Can you just give us some thoughts on how we should think about that business moving out to fiscal 2017 without the sort of sizable benefit that we are getting this year from those projects?.

It’s interesting. Those projects have been talked about since before I came on board and that’s now 18 months. And I have to say that the – while they have a pretty good profit impact when they do ship, the margins are outrageously great.

So, when you look at it, we are replacing - we are looking to replace those kinds of projects with our normal, more profitable business. So, while the business will be somewhat smaller than – without those projects, the earning stream maybe very similar in spite of that.

So, because we are becoming more selective, we are not chasing these things that we are not good at big strange assemblies and there is not a lot of new project activity anyways, although there is some in China. So, I think better discipline on what we are going after, better operational efficiencies and then the sales force is really solid.

We’ve got a good presence and we are seeing pretty normalized outages and there is still a 104 reactors in the US and we are going after business in internationally as well. So, I think, it doesn’t take a lot to move the needle and replace the earnings from that $25 million quite frankly. .

Okay, great. Thank you..

And the next question will come from Q - John Franzreb of Sidoti & Company. Please go ahead. .

Yes, I guess, to follow-up on that last thought, could you just talk about some of the international opportunities at WSI and some of those potential wins that you kind of referenced in the press release?.

Yes, we’ve had a – I don’t know, if I call it a presence, but we’ve gone after work in India, the Middle East, China even though we don’t have any operational capability, but we do have agents and we are absent in sales efforts.

So, we are seeing good, and I have talked a little bit about the fact that where we do well is Coker drums and things like that and that there were a lot of new Coker systems that have come online internationally over the last few years. It takes six to eight years before you have that full turnaround on those Coker drums.

So when you look at India, China, Southeast Asia, Middle East, we opened a facility in Brazil and we’ve done well with Petrobras. We anticipate continuing to accelerate those activities. We have added some sales resources and we are looking at some service facility partnering type approaches in the Middle East and maybe Southeast Asia.

So, we had good project activity in the quarter. As we look now and one of the things I like about south of the equator is they are on the opposite seasonality cycle versus North America and Europe for instance. So, that helps us deploy our resources from Europe and the US when normally we are off-season.

So, and we’ll get better at that and that will help us offset some of the cyclicality in the WSI business from the seasonality. .

Perfect. Thank you Tom..

[Operator Instructions] The next question will come from Bill Baldwin of Baldwin Anthony Securities. Please go ahead..

Good morning. Just wanted to ask briefly on WSI. You mentioned in the last conference call that the heck of the strikes and so forth in the refiner industry had delayed WSI’s ability to do some turnarounds.

Did some - and I think it was meant to $6 million to $8 million, did some of that fall here in the first quarter of fiscal 2016?.

It did, that’s what probably gave us a little bit of a lift from WSI in the quarter. They had a lot of activity and while they were getting pretty good emerging work, they also got some of the larger turnarounds that they like to see. I haven’t actually looked at whether those came from sites that were strike impacted.

We can check on that and get back to you, but my guess is that that some of that did just because they had work that they needed to get done and as soon as they had staffing back in place, they were able to get to it. .

Bill, it’s Paul. It’s kind of interesting too, if you take a look at the utilization of the refineries in the US, it’s still running very high.

So, that’s a good question and that’s just part of the story and part of it is just the growth of the sales force is very effectively turning that these opportunities into more business while we still see very high utilization rates as that starts normalize down a little bit, you would expect to see a little acceleration from that.

So, it’s a combination of things..

Do you think that you’ll see that utilization begin to come back to – I guess, what you consider more normalized levels this year or is that hard to say?.

You know it’s – it’s hard to say, but, I’ve having been around this industry for a long time. You have to believe that those – one, they’ve got to bring the utilization down, because some of these turnarounds are going to be larger ones and longer ones and that will drop the utilization rate.

So, I think that happens this year, but we’ll – and we are seeing a lot of activity, quoting activity for the third quarter. So, that would be a pretty good indicator that the utilization rates are going to drop just because there is going to be more turnarounds and we feel pretty good about that and we feel very well positioned for it as well. .

Good, good.

The WSI had relationships with most of the refining companies that we think about and we think about who is in that business, domestically?.

They deal with the rebuilt sales force and now we just had our first sales leadership meeting here a few weeks ago and I have to say, now, when I look at that list of major refineries and customers that either we are doing business with today or there is list now we are quoting, it’s the normal folks you’d expect to see in the downstream sector.

So, which is one of the reasons that we get pretty confident about the outlook. .

Right, super, good job..

Okay, thank you..

And our next question will come from Brent Thielman of D.A. Davidson. Please go ahead..

Hey, Paul, just a follow-up.

With US Galvanizing and then the Reno project starting up, do you have a forecast for CapEx and D&A for this year?.

Actually, the – I think it’s fair to say that the CapEx situation at US Galvanizing was pretty good plants they have invested decently in them. It’s getting normal run rate there with the Greenfield. What I had said earlier in the year was to expect the normal run rate at about 30 and if we tacked on Greenfield that would drive it up.

With most of that happening this year, I’d say, it’s probably be safe to tack on close to 15 on top of that 30..

Okay. Okay, thank you..

Welcome..

And this will conclude our question and answer session. I would like to hand the conference back over to Tom Ferguson for his closing remarks..

Very good. Thank you. Well, thank you all for participating in today’s call. We look forward to talking with you again at the conclusion of this current quarter. So again, thank you. May god bless you all and have a great day..

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