Robert Blum - Lytham Partners Tom Ferguson - Chief Executive Officer, President and Director Paul Fehlman - Chief Financial Officer, Senior Vice President of Finance and Secretary.

John Franzreb - Sidoti and Company Schon Williams - BB&T Capital Markets Brent Thielman - D.A. Davidson Jon Braatz - Kansas City Capital.

Good morning and welcome to the AZZ Incorporated Second Quarter Fiscal 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 Robert Blum of Lytham Partners. Please go ahead..

Good morning and thank you for joining us today to review the financial results of AZZ Incorporated for the second quarter of fiscal year 2016 ended August 31, 2015. As Aimee indicated, my name is Robert Blum. 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-answer session.

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 U.S. 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?.

Good morning to all of you on today’s call and we thank you for your continued interest in AZZ. Overall I am very pleased with our performance in the second quarter of fiscal 2016. Our galvanizing and the legacy electrical businesses continue to perform well and are meeting or exceeding our expectations.

As we mentioned on the last earnings call the summer season is always a slower period for our WSI business, but the team there did a great job of managing through the slow period. About one third of our revenue is now subject to these seasonal trends which is a significant change from AZZ's historical trends.

We are pleased with our progress integrating the recently acquired Trinity galvanizing sites and are ahead of schedule on our construction of our Greenfield galvanizing site near Reno, Nevada. We have also made progress on several technology and operational improvement initiatives that will drive future organic growth and value.

Fiscal year 2016 continues to be a year of great potential for AZZ as we drive market share growth and are galvanizing the energy businesses, in spite of some market headwinds due to lower oil prices. WSI continues to improve its operational performance and is regaining business with many former customers.

While refinery utilization rates remain high we have benefited from market share gains as our development efforts gain traction. This has resulted in winning new customers and growing in several international markets. With improved efficiencies and operating margins we anticipate a strong fall season and are optimistic for the balance of the year.

I'm sure I sound like a broken record when it comes to our Galvanizing Services business that we have accelerated several new products and service growth initiatives and continue to drive both organic and inorganic growth, both through operational excellence as well as pricing for our industry-leading value-added solutions these are areas of continued focus.

We have a fairly high concentration of galvanizing capacity in the U.S. Gulf Coast area so we are continuing to monitor the economic impact of lower oil prices on fabrication projects.

As we stated the last couple of quarters, the impact has been small to date, but we are seeing a few of the larger fabrication projects delayed although the petrochemical opportunities are increasing. Low zinc prices pose both a risk and opportunity for us, so we are monitoring this carefully.

Fortunately, this is not the first rodeo for our galvanizing team relative to zinc pricing and they are driving productivity and efficiency to maintain their margins. For our legacy electrical business the results overall for the quarter have met our expectations with some businesses doing well and others being more challenged.

This platform's overall performance was reasonably good for the quarter given their mixed conditions. The electric utility market in the U.S. remains sluggish but we have benefited from strong international opportunities and a solid backlog. We are optimistic about this platform's opportunities the balance of 2016.

They are focused on establishing international joint ventures to provide broader market access and on improving their operational efficiencies and customer service.

I'm optimistic about the potential for the electrical platform because we are only in the early innings on these initiatives and already seen improvement potential The legacy electrical platform as with galvanizing has a stable leadership team, solid operating performance and good niche technology.

The exposure to lower oil prices is relatively small for this platform and primarily impacts our API [ph] tubular and hazardous duty lighting businesses. In the aggregate these represent approximately 5% of AZZ's overall revenue. During the quarter we consolidated our BSL [ph] Canadian enclosure operations into our Pittsburg Kansas operation.

Our NLI nuclear business benefited from finally shipping a portion of the long delayed Westinghouse nuclear project orders and is continuing to focus on more normal maintenance opportunities instead of new projects. We continue to see the benefits of 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 program. So morale is high as we enter the second half of the year.

Additionally we will continue to focus on enhancing key operational fundamentals including our tax and capital efficiency. I'm 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 to 15 months and have positioned us for stronger financial performance for the balance of fiscal year 2016.

As a result we are maintaining our previously announced guidance for fiscal year 2016 EPS of $2.85 to $3.30 per diluted share and revenues in the range of $900 million $940 million. We will pay a dividend of $0.15 for this quarter. Now I'd like to turn it over to Paul Fehlman to cover the financial highlights..

Thanks Tom. For the second quarter of fiscal 2016 we recorded revenues of $214.2 million and EPS of $0.67 as compared to revenues of $193.4 million and EPS of $0.53 for the same quarter last year reflecting the year-over-year EPS increase of 26.4%.

Bookings were $233.5 million this quarter compared to $213.4 million in the second quarter of fiscal 2015 an increase of 9%.

Our backlog at the end of the second quarter finished at $338.1 million reflecting a book-to-bill ratio of 1.09 slightly up of the 1.10 book-to-bill ratio posted for the second quarter last year when we had a backlog of $329.1 million.

Overall revenues were up 10.8% compared to the second quarter last year as they grew 10.2% in the Energy segment which included the partial shipment of our Westinghouse project backlog out of our NLI business and up 11.4% year-over-year in Galvanizing Services primarily due to the acquisition of U.S. Galvanizing in June of 2015.

Gross margins for the quarter finished at 25% an increase of 320 basis points compared to the 21.8% gross margin posted in the second quarter last year. The second quarter includes a net amount of about $400,000 of additional realignment charges taken to consolidate our Canadian enclosures operation into our Pittsburg, Kansas enclosures operation.

We call out the net amount as we were still holding a small balance of the reserve taken earlier for realignment. The prior year gross profit included charges of $5.2 million in our Energy segment for certain talks or runs as well as $2.8 million in realignment charges to cost of goods sold.

SG&A rose to 12.6% of sales compared to 9.9% in the second quarter of fiscal 2015. This increase was primarily attributable to the release of a $9.1 million reserve partially offset by charges of $1.1 million to SG&A for realignment both taken in the second quarter of fiscal 2015.

We achieved an operating margin of 12.3% for the second quarter of fiscal 2016 up 40 basis points compared to the 11.9% reported in the second quarter of fiscal 2015.

Our tax rate improved as we recorded an effective tax rate of 21.2% for the second quarter of fiscal 2016 compared to 27.2% for the same quarter of last year primarily as a result of capture in certain state tax benefits in the second quarter.

I’m pleased that the business continues to execute on improvement efforts on several fronts including cost control, cash flow generation and once again managing the effective tax rate. Additionally, the strong bookings performance for the quarter nicely sets us up for the rest of the year for achieving top and bottom-line growth.

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

Tom?.

Thanks Paul. The key takeaways I’d like to leave you with are the following. 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 profitability.

We have a solid balance sheet and strong cash flows, a great portfolio of products and services, significant international growth opportunities and 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 now benefiting from our accelerated emphasis on operational excellence and customer service at both WSI and NLI.

While we have made significant progress over the past few quarters, we have tremendous upside going forward to grow our businesses as our 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 third quarter is usually a strong one for us. This is primarily due to the higher number of outages and turnarounds available during the fall months.

While refinery utilization rates are still running quite high we are seeing a nice number of turnaround opportunities for us to participating in for the third quarter.

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

Now we’ll open it to questions.

Aimee?.

Operator:.

Thank you. [Operator Instructions] Our first question is from John Franzreb at Sidoti..

Good morning guys..

Hi, John..

I guess, I'd start with the backlog, could you discuss I guess two things regarding it, one the mix in the backlog by segment or is one of the businesses doing stronger than the others? And secondly, are you seeing any pricing pressures within the backlog in and of itself?.

Well as you know we number one John, it’s all in the Energy segment..

Right..

In terms of particular strength, this is the quarter, second quarter as Tom pointed out where we will be building our book for our WSI business, so that’s going on.

In terms of particular strengths year-over-year, we don’t really get too much down into the weeds on that on this call, although I should say that we’ve got, we do have a little bit more on the electrical side as well in terms of backlog..

Okay, I think on the WSI side its really, they have a lot of opportunities, they quote them one week, they book them in a week or two, so and then they have some of the normal cycle as well that they book and then deploy resources in a month or two. So, we have solid backlog across the Energy segment.

We did drop backlog down at NLI of somewhat as we’ve shipped some of the project orders, but we filled some of that up with the normal maintenance component cycle which tends to be higher margin. And then on the pricing side, we haven’t really seen, in energy, we haven’t seen that much pricing pressure at all.

I won’t say there is none because we’re always competing given our products and services, but for the most part, I’d have to say that pricing in that backlog is pretty good..

Really, okay great.

And Paul regarding the tax rate, I know you’ve been allocating more resources to kind of get a better return on that, what kind of tax rates you’ll be thinking about for the balance of the year, what’s the normalized number?.

Yes, so year-to-date if you take a look at the six months where it’s about 27%, just over 27% I would say you’re probably save around 30% maybe 30% on the high end for the year..

Okay. Thank you, guys. I'll get back into queue..

The next question is from Schon Williams at BB&T Capital Markets..

Hi, good morning..

Good morning, Schon..

Good morning..

I’m wondering if there is a specialist on the turnaround, refinery turnaround side out this morning basically guiding down on kind of low oil prices essentially saying that some of their refinery work is actually drying up? I’m just wondering that seems to diverge some of your commentary.

Could you just talk a little bit about kind of what you’re seeing on the refinery side in terms of the backdrop there? Is that changing and then maybe a little bit more detail on kind of how some of the energy prices are feeding into maybe the tubular business and hazard lighting even on the galvanizing side?.

Yes that’s - one of the things as you know Schon, we’re probably a year into having a fully capable sales organization on the WSI side and doing well with that. So a lot of our gains and why we’re maybe a little more bullish than others is we’re still taking market share back, we’re regaining customers.

And the other component there is, I’d have to say we’re probably seeing it the way some of the others are as well that some of those turnaround opportunities are being pushed out as refineries are deciding to go at a run.

But we’re in a niche there, we’re in the specialty overlay which is going to be - we only need a handful of large full-cycle turnarounds to occur that we can participate in and we’re seeing those opportunities.

So we’re feeling good about our third quarter and we’re feeling good about the fall turnaround season because of the market share opportunities as well as the fact that the turnarounds are falling our way if you will. But we are seeing some of those same trends.

We’re just not as concerned about it and then we’re we do feel like next year there is some deferred maintenance that is going to occur. So if some of this happens we feel good about how that will set us up for the next fiscal year.

And then when it comes to the pricing you know I, to me fortunately it’s a relatively small piece of our business it’s definitely impacted. I give the folks credit out there though. They’re doing a nice job of managing to make money on much lower volume.

So we’re - we factored that into our guidance and so we’ve absorbed it, the energy team has absorbed it.

Lighting, as we've talked about before, it’s really less of what I would call pricing pressure is more, the rig stuff is off, but we have pivoted 18 months or so ago to a couple of things, one LEDs, two to other markets and applications and so we’re benefiting from having a broader product offering and broader application offering.

So it’s built the side from rig count being off, but it’s not impacted nearly as heavily as tubing because it had diversified..

All right, that’s helpful.

So Tom would it be fair to say that at this point the impact of lower oil that has been fairly contained as far as you’re concerned, I mean there is certainly pieces of the business that are still yet, but I don’t know you’re not sensing another let down at this point?.

No we’re not, I think galvanizing side we have talked about one of the reasons we’re still in my mind being somewhat cautious about taking our guidance up is because there is still some risk out there that the overall economy in Texas Louisiana kind of feel that pain from the lower oil prices just in the general economy.

But so far we’ve seen enough chemical, petrochemical projects for galvanizing to offset any of that impact and the general economy has stayed pretty robust in most part of those states.

We have seen a little impact up in Oklahoma where you don’t have as much refinery, petrochemical opportunities to turn to, but for the most part we’re looking forward and saying we got a pretty good hand to play with right now..

Yes Schon, I'd say that we continue to keep an eye obviously on oil and gas as we - and that is one of the reasons we still have a little bit of a spread in our guidance out there and we will watch that as a headwind, potential headwind, global economies, margins on the new assets, but at the same time we've got some tailwinds, tax rates as Tom talked about global growth internally improvement on the margins on those new assets.

So and there is a pretty good balance there and then we continued to monitor it very closely, but so far it is okay..

Hi thanks guys, I’ll get back into queue..

The next question is from Brent Thielman at D.A. Davidson..

Hi, good morning..

Good morning, Brent..

As far as the backlog how much is scheduled to be delivered this fiscal year versus next year?.

We haven’t really disclosed that, but typically that is going to be let's see, at this point in the year two-thirds to three quarters I would suppose.

Yes I think the majority of what has been in backlog up until what we just recently booked, we've got four to six months cycle times typically obviously when some of the projects, yes we've talked about it a lot. It's been around for quite a while.

Fortunately, that is not clearing and we anticipate it will continue to clear in the third quarter and then there will be in the normal cycle which is more like 6 to 12 months.

So I would have to say most of our business unit is on the electrical side would probably say they have their backlog in hand that they need to achieve their forecast for the year..

Okay and just given the nature of WSI, is it fair to say they don’t, there isn’t a lot of backlog associated with outages and the number you reported there?.

Yes that's the backlog there and as Paul alluded to we’ve booked some of that in the second quarter for the third quarter for our third quarter fallout each outage season. We were quoting stuff now for what it would be our fourth quarter and as we get into after the first of the year.

So we’re quoting that stuff now, but not booking those things yet, we will book that in the third quarter. So yes, they’ve got the backlog pretty much that they need for the third quarter and then as we've talked about a lot of what happens to them is they go in, it is $2 million job and by the time they’re done, it is a $4 million, $5 million job.

Yes, they are onsite. So we’re very comfortable with the backlog they have got for the third quarter..

Got it, really helpful and then on the delayed NLI shipments, I guess how much did you recognize that was delayed and was there kind of a drag associated with the margin for some of that work that might hit you in the quarter?.

Okay, so about $14 million of the $25 million we have been talking about shipped. In terms of margin, I’m not going to call it a drag to the overall. It maybe just a slight drag to the overall business, but let's call it an uptick in NLI..

Okay. Thanks guys..

Sure..

[Operator Instructions] And our next question comes from Jon Braatz at Kansas City Capital..

Good morning, Tom and Paul.

Paul maybe just answers this, I’m not sure, but if we strip out the Westinghouse shipment from NLI, how did NLI perform in the quarter on the margin front?.

Sorry, Jon we just, we don’t get down to that level in terms of calling out back with the margins are at the level, but it has improved..

Okay, okay alright and then on the galvanizing side of the business it sounded as if may be the organic growth was sort of flattish, can you give us a little color on that?.

Yes, that’s fair. I mean we’ve seen a little bit of..

Yes, that’s fair, they have some organic growth.

It wasn’t all from the acquisition because we didn’t have the full quarter for the acquisitions, but so they’ve got some organic growth in there and I think our focus is on that organic growth new services, service expansion, cover more territory new applications and so we’ve been investing in that and as we've talked about we’re committed to maintaining that 24% to 26% margin profile..

Okay and did the acquisition, Trinity acquisitions meet your expectations and contribute to the bottom-line in the quarter?.

Yes, it did. We’re integrating quicker than that we had planned on so, and driving those margins up and there is still a drag on galvanizing overall margins..

Yes, okay..

In the quarter, but we made a lot of progress and its moving faster, so we’re feeling really good about the progress today..

Okay, okay. Thank you very much..

You’re welcome..

The next question is from John Franzreb with Sidoti..

Just sticking with the galvanizing side of the business and the margin profile, what you think is going to hit you first? Would it be the improvements of the Trinity operations, improving the margins there or will it be Zinc prices, Zinc sort of they are at a five-year low right now, which should be the first impact?.

First impact is going to be the, well I believe the first positive impact is going to be from the improved margins and the volumes from the U.S. Galve sites.

And like I said we say we’ll get those up pretty close to our normal run rates by the end of the year and I think the guys are well on track to do that so we're already seeing the benefit from that. So that’s occurring now, so I’d have to say that’s the first.

In terms of Zinc as we talked about it’s a little, we actually in a lot of ways because of our size and scale and our ability to drive efficiencies and productivity on Zinc usage we tend to prefer prices on Zinc going up. On the other hand because of the volumes we can buy and we tend to buy forward to some extent or commit forward, not buy forward.

So yes, we’re looking at next year right as we get into say fourth quarter next year benefiting from the lower Zinc cost, but we’re not overly excited about where it is at..

Okay, so this Trinity is falling between those two?.

Well, I’m the sorry the Trinity, I refer to them as U.S. Galve, those are the Trinity….

Okay, so I thought it is the whole U.S. operations. I’m sorry, okay..

All right, the official name of the Trinity Galvanizing business was U.S. Galvanizing, so that's my fault. I didn’t mean to confuse you..

Okay, okay so okay, now perfect. That's it, that's all I was looking for, thank you..

Sure..

The next question is from Brent Thielman at D.A. Davidson..

Hi, guys one more, in terms of the backlog it looks like the international portion is just down some from where you were in the first quarter.

Is there just some seasonality to that?.

That’s lumpy because that tends to be the big electrical projects, the high voltage or medium voltage bus projects which that the one we have balanced was $10 million bucks so that's, you could miss it by a few days and it makes it look a little different. So there is a lot of lumpiness in that international project backlog.

And the same for WSI, when they’re booking international jobs those tend to be the bigger jobs and so changes that backlog pretty quickly. So well its down we’re not concerned about that at all. We see plenty of opportunities to on the international side and we have more resources in place to ensure we get those..

Yes, and the Chinese portion of the Westinghouse went in, so….

Yes, that’s part of it that was international backlog out of NLI the shift..

Okay, okay. That's, that makes sense..

Yes..

Okay, thanks guys..

Sure..

This concludes today's question-and-answer session. I'd like to turn the conference back to management for closing remarks..

Well, thank you, Aimee and I thank everybody for participating in today's call. We look forward to talking to you again at the conclusion of this current quarter. So once again, thank you and have great day..

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..