Good morning, and welcome to the AZZ, Inc. Fourth Quarter and Fiscal Year 2019 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, today’s event is being recorded.

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

Thank you, Rocco. Good morning and thank you for joining us today to review the financial results of AZZ Inc. for the fourth quarter and fiscal year 2019 ended February 28, 2019. On the call representing the Company are Mr. Tom Ferguson, Chief Executive Officer; and Mr. Paul Fehlman, Chief Financial Officer.

After the conclusion of today’s prepared remarks, we will open the call for a question-and-answer session. Please note, there is a slide presentation for today’s call, which can be found on AZZ’s Investor Relations page under Financial Information at www.azz.com.

Before we begin with prepared remarks, I’d 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, 2019.

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 power generation markets, electrical transmission and distribution markets, the industrial markets and the metal coatings markets; prices and raw material costs including zinc and natural gas, which are used in the hot-dip galvanizing process, changes in political stability and economic conditions of the various markets that AZZ serves, foreign and domestic, customer requested delays of shipments; acquisition opportunities; currency exchange rates; adequate financing and availability of experienced management and 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, let me turn the call over to Mr.

Tom Ferguson, Chief Executive Officer of AZZ.

Tom?.

Thank you, Joe. Welcome to our fourth quarter and full fiscal year 2019 earnings call, and thank you for joining us this morning. We had to delay our earnings release announcement due to the need to clarify final results.

With the recent implementation of ASC 606 accounting standard, the interpretation that the Company has a material weakness had to be worked through the appropriate channels. This resulted from converting our revenue recognition policy to be in line with ASC 606 coming into the fiscal year.

We also chose to implement Oracle projects to assist us in complying with ASC 606, since percentage of completion accounting rules would apply to a much larger portion of our shipments. This added some complexity in our reconciliation processes that took several months this year to address.

We’re confident that our financial results for fiscal 2019 are properly stated at this point with the audit completed. We’re confident that our financial processes are far stronger today and we should be able to clear the material weakness later this year. Moving on to review of our fiscal 2019 financial results.

On one hand, we’re pleased to achieve our 32nd year in a row of profitability to generate $89 million in free cash flow, which is an increase of 81% year-over-year. Fiscal 2019 was a year of recovery as we improved our sales by 14% and operating income by 59% versus prior year.

During the year, we experienced the resurgence in demand for our galvanizing services, refinery turnarounds, and international products for the Energy segment in both electrical and industrial. And on the other hand, the fourth quarter results were below our expectations which are attributed to three things.

The first and most significant was the delay of the first phase of the large high-voltage bus order for China. This delay was resulted in about $12 million of shipments in the associated income, pushing into Q1 of this new fiscal year.

Our welding solutions business had several opportunities lined up for Q4, but too many pushed into fiscal year 2020 and one large international customer decided to just pass their buses for a short term fix.

Finally, while we continue to gain traction in our Metal Coatings business, the high class zinc took longer to clear our kettles than we anticipated. While we had generally good demand at many galvanizing plants at few of our larger sites with higher class zinc inventory, actually experienced reduced demand.

The higher volume on the other sites was not able to offset this margin impact. Despite the challenges in Q4, we did make progress in several key areas.

Our realignment efforts in the industrial businesses have positioned us for improved margins in fiscal 2020, and the renewed emphasis on customer service has resulted in a good pipeline of opportunities for both the spring and fall outage seasons.

The nuclear sector seems to have stabilized as we are beginning to see better opportunities for both WSI and NLI. Our international expansion efforts in South America are finally beginning to pay off as we have both traditional refinery activity and also offshore opportunities.

The business activity in Europe has been very robust and we have undertaken planning for the new expansion of our Radom Poland facility to accommodate this demand. Our electrical businesses had a solid backlog and strong pipeline of opportunities.

The enclosure facilities are working well together and we are leveraging our three plants in Maryland, Tennessee, and Kansas to pursue a wider range of opportunities.

The switchgear businesses are experiencing positive momentum and synergies resulting in sharing new business opportunities and best practices as we are able to pursue a wider range of projects with plants in both Wisconsin and Missouri.

Finally, our Metal Coatings business is benefitting from the reorganized leadership team that under Bryan Stovall who took over in late October is driving collaboration, team work and emphasis on customer service across all the regions.

Bryan has risen through the ranks over his 25-year career with AZZ Galvanizing and has a demonstrated track record of developing high performing teams and exceeding his objectives and creating outstanding value for our customers and AZZ.

The new digital galvanizing system, which we call DGS, is gaining adoption throughout the galvanizing plants which will result in virtual elimination of paper throughout the plants.

DGS will ensure we can drive and sustain productivity and efficiencies to significantly improve and maintain our margins, while also providing a more consistent level of customer service across all of our plants. We also continue to rationalize our galvanizing footprint by closing two plants in areas that could be served by other AZZ sites.

Additionally, we are gaining traction with our GalvaBar product, which is growing market acceptance as we work with state DOTs to change the design standards and push the strategic relationship with major rebar suppliers.

Our powder coating initiatives are also bearing fruit and we believe, the addition of the two facilities from K2 Partners will give us the scale and key resources we need to accelerate both, growth and profitability in this area.

While much of the fiscal year 2019 is to reorganizing and building out new systems and processes, we believe particularly now that zinc costs have been reduced, we have positioned ourselves to both grow and significantly improve our margins in fiscal year 2020.

Since we’re almost at the end of our first quarter fiscal 2020, we are seeing stronger markets for almost all of our products and services. The industrial businesses are seeing normal strength turnarounds and outages.

They are also anticipating a stronger than normal fall season as we are actively negotiating several large opportunities, which bodes well for the year. Our electrical BUs have the benefit of strong backlogs, particularly in high-voltage bus and an improving pipeline of opportunities for most of the other electrical business units.

Our focus in fiscal 2020 is on executing on their backlog, improving margins significantly and finding synergies across their enclosure and switchgear platforms. They are currently shipping the delayed Chinese product as well as working on the others in their backlog.

All of this bodes well for working back towards double digit operating margins in electrical, once the current backlog figures during the balance of this year. Metal Coatings also recently completed a nice add-on acquisition, Tennessee Galvanizing in Chattanooga, which gives us more spending capacity and some new processes as well.

We like the geographic positioning of these businesses and the expertise they bring in these areas. Galvanizing will be focused on driving margins back towards the 22% to 24% level, while continuing to grow. And fiscal 2019 that demonstrated we could grow share even while closing two plants.

We will seek to minimize distractions in fiscal 2020 and let this team focus on sustaining our growth through outstanding customer service and generating significantly improved profitability.

AZZ’s surface technologies which is what we are calling our GalvaBar and powder coating platform will be focused on continuing to gain market acceptance for GalvaBar and integrating our powder coating and plating facilities operation to improve our service and profitability.

We will be pursuing additional accretive acquisitions for both galvanizing and surface technologies while the Energy segment business is focused on improving profitability and pursuing profitable, organic growth opportunities. And with that, I’ll turn it over to Paul Fehlman.

Paul?.

Thanks, Tom. For the full fiscal year 2019, we reported net revenue of $927.1 million, a $116.7 million increase or 14.4% greater than fiscal year 2018. Net income for fiscal 2019 was $51.2 million, an increase of $6 million or 13.4% greater than the prior year.

Reported diluted EPS grows 13.3% to $1.96 on a GAAP reported basis compared to $1.73 in the prior year. Fiscal 2019 gross margins improved to 21.4% from 19.8% on a year-over-year basis, primarily on recovery in the Energy segment margins.

Operating profit for fiscal year 2019 grew from $48.2 million in the prior year to $77 million in the current year, representing a 59.5% increase. Operating margins of 8.3% increased 230 basis points compared to 6% in the prior year. Our effective tax rate for the year was 18.7% compared to last year year's rate of negative 46.2%.

In fiscal year 2018, we booked a net gain $23.7 million in tax, primarily as a result of the evaluation of the deferred tax liabilities under the Tax Cuts and Jobs Act of 2017, which passed in December of 2017. Without the change, we would estimate that we would have realized the tax rate in 2018 of about 30.5%. As for our segment results.

Full-year revenues in our Energy segment were up 15.6% to $486.8 million, compared to the prior year of $421 million. Much of the increase in sales can be attributed to several factors Tom already discussed, improved turnaround activity in U.S. refinery market, increased international projects and an increase in our electrical business.

Energy segment operating income increased $33.1 million, when compared to the $1.8 million loss in the prior year, which included pretax charges in that year of $15.3 million during the year as we impaired certain long-lived assets and notes receivable.

Gross margins in the segment improved to 20.6% in fiscal 2019, compared to 14.9% in the prior year. Operating margins for 2019 were 6.4%, compared to negative 0.4% in the prior year.

In our Metal Coatings segment, fiscal 2019, revenues rose 13.1% to $440.3 million, compared to prior year of $389.4 million while operating income declined 0.9% to $83.6 million, compared to the $84.3 million in the same period last year.

The decrease was due primarily to higher zinc and labor costs that were not fully offset by the increase in pricing. Operating margins finished at 19% for the year, down 270 basis points, compared to 21.7% for the prior year.

Cash flow from operations increased by $35.8 million in fiscal 2019, compared to prior year on higher net income and improved working capital requirements. Page 11. Free cash flow increased $39.8 million on improved operations and lower CapEx spend compared to prior year.

In total, we generated cash flow in excess of net income at 174%, compared to a 109.1% in the prior year. Despite the challenging year, we continued to achieve our goal of free cash flow in excess of net income once again. And as you can see, in fiscal 2019, we were focused on working capital and CapEx spending.

At this point, we would expect spending in 2020 slightly above the spend in fiscal 2019. However, we also have the ability to ramp up in certain areas if the operational metrics signal it's time for additional capital investment. With that, I will turn it back to Tom.

Tom?.

Tanks, Paul. In closing, we are focused on improving productivity and efficiency throughout the Company. Given the headwinds we faced, it has taken us longer than anticipated the recovery in our Energy segment from the impact of the decline in the U.S.

nuclear sector as well as to stabilize our Metal Coatings organization and regain the discipline to deliver consistently high operating margins as well as focus on organic growth. During the year, we had to make several senior leadership changes and realign several businesses to improve operational performance.

And we believe we have the stronger and much better position to generate consistent operating results going forward. We are reaffirming our fiscal 2020 earnings per fully diluted share guidance range of $2.25 to $2.75. We’re also reaffirming our fiscal 2020 annual sales guidance range of $950 million to $1,030 million.

We believe we are taking the necessary actions to improve operating performance and with the improved market dynamics, we are very-optimistic for improved fiscal 2020. And now, we’ll open it up for questions..

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Today’s first question comes from John Franzreb of Sidoti & Company. Please go ahead..

Good morning, Tom and Paul. .

Good morning, John..

I wanted to start with the clarification, how much revenues actually deferred from fourth quarter projects into the first quarter, I didn’t quite here you on that one?.

Well, on the -- we mentioned the one $12 million portion of a China project for the electrical side. We didn’t really give any exact numbers on the industrial piece. It’s in the $10 million plus range..

So, you’re talking north of $20 million has been deferred into Q1?.

That’s correct. [Ph].

Okay. I just wanted to make sure. Got it. And on the zinc demand -- I'm sorry, on the galvanizing demand side, you said it was weaker than expected, and you are still incurring higher zinc cost.

Can you talk to both pieces of that? Why is demand weaker and how come it’s taking you so long to kind of run through some of the higher zinc?.

Yes. I was trying to be specific. It was weaker at certain of our large, multi-kettle plants that still had a lot of high cost zinc in their kettle. Whereas we had anticipated that would have cleared by as we went through Q4.

So, what cleared was that higher cost zinc in those plants, and some of the lower kettle in other plants was actually off a little bit. So, it was just a shift in -- it’s probably not well understood across our 40 plus plants.

Zinc is coming in at different price points at different times during the year, and we obviously look at weighted average in hindsight for the most part. But, in this case, we had something that really expensive $1.60 zinc, it was clear in kettles and a handful of large plants in the fourth quarter.

Keeping in mind, we had an overall impact year-over-year just on zinc cost of over $20 million..

$20 million occurred in ‘19 versus ‘18?.

Correct. .

Got it. Okay. And could you just -- I guess, on the SG&A line in the quarter, it seems like it was somewhat higher than what I expected. Are there any professional fees or anything running through that line because $29 million, $30 million versus a year ago, it was 27 and again 27 in November quarter on lower revenues.

Is this something I should be cognizant of, what’s going on in the SG&A line? And then, I’ll go back in the queue. Thank you..

Sure. Okay, John. A couple of things there. We did have higher professional fees on the corporate side.

It’s higher SG&A fees -- or costs I should in the field, it had to do with the acquisitions that have been made year-over-year but also the professional fees and the bonuses paid to employees were much better in fiscal 2019 than they we were in fiscal 2018, which was not a terribly satisfying year..

[Operator Instructions] Today’s next question comes from Noelle Dilts of Stifel. Please go ahead..

Thanks, guys. Good morning..

Good morning..

Thanks.

First, just starting with going back to the zinc question, now that you’ve kind of looked at your -- the kettle cost across your various plants, how are you thinking about zinc moving forward, and generally, kind of the cadence of margin improvement as we move through the year? And then, the second part of that is, could you give us an update on some of the trends you’re seeing in the key end market verticals for the Metal Coatings business?.

Yes. Noelle, I think zinc is now much lower in our kettles. We’ve taken the opportunity to go ahead and lock in some of our projected demand at these lower zinc costs and make sure that we stay below budget, if you will. So, we see that continuing. And the zinc has been hovering in the low $1.20s to low $1.30s plus premium.

So, we feel pretty good about how it’s kind of stabilized. We also feel a lot better about what one of the benefits of DGS is. We get a much more real time feel for what our actual zinc inventory in process in our kettles and how much weight of steel is going to through our plants.

So, it’s a lot more visible to us looking forward than in words used to, it was kind of looking in the rear-view mirror. So, we feel good about our ability to look forward and judge how zinc is moving. We feel good about the value we’re braining to -- we're holding price and even where we had labor cost increases continuing to push price where we can.

But, we are all -- are also focused on not losing market share gain, which is what was going on 18 months or so ago….

Right..

Now about the markets. .

As far as the end markets, we -- electrical utility, industrial have been particularly strong for us year-over-year, and we expect those to still be positive trends, bridge and highway will grow as the galvanize rebar does. OEMs are kind of flat going forward until few things resolve in that market and we see petrochem as being flat to challenged..

Okay. Thanks. That’s helpful. And then, just as we look at moving the galvanizing margins from say the high teens in fiscal 2019 to more of 24%, 26% range, can you give us a sense of just thinking about the buckets of that improvement, how much of it is the kind of zinc headwind? You talked about that a little bit.

How much of it is labor, how much of it is getting through DGS, and kind of maturation the surface technologies business? How do we think about which are the most important levers moving forward?.

Yes. I think -- I won’t say that they are almost equal. I mean, part of what we’re trying to do is make sure that our customers are having consistently outstanding experience, so that we can hold price.

Two, I think, we've gone through, in terms of labor costs, we made some significant increases in the early part of last year just to be able to get labor in the door. That's kind of settled out now. And we're not still -- we still need labor, but we're fine with that, the levels we are out right now. So, there's no surprises this year.

So, there is going to be -- and also I think this DGS has given us the opportunity to improve both labor productivity as well as what we're looking at in terms of how quickly we can move from process orders and process information as I mentioned looking forward, which I think gave the team a much better chance to maintain productivity, to maintain their efficiencies.

So, I'm going to say that it's about a quarter holding price. I'll give probably a quarter of it to maintaining that labor productivity and efficiencies, managing our over time as well as continuing to get labor in the door.

And the biggest singular piece is just the zinc that’s at a much lower cost as it’s going through our kettles now, but 40%, 50% of what we're looking at. So, continuing to manage that, like play some smart bets on zinc demand or buying zinc for our demand.

And I think the team, what they're doing now, they're really leveraging the knowledge of the organization across all the regions to make those decisions a lot better and in real time rather than in hindsight. So, zinc is a biggest piece..

Okay. Thanks. That's helpful. One more question if I may, shifting over to the Energy business.

Can you give us any sense here for just sort of how to think about again kind of the cadence of revenues as we move the year? You can have kind of a few different variables going on with both project shipments into China, any thoughts on sort of how to think about the phasing of those shipments? And then, how you're thinking about -- it sounds like spring turnaround is progressing okay, but how are you thinking about fall season as well?.

Yes, Noelle, I think on the Electrical side, they do have that $140 million, $150 million of Chinese backlog. That spreads beyond this year. So, that's going to continue going out. I have not personally looked at the quarterization of that other than, they did get out that slug of the one project in Q1 and that's all tracking in the first quarter.

I think that kind of layers out through this year and then into next year. The other part of course is, we are bigger player with enclosure sites two switchgear sites, we're seeing okay revenues in the oil-patch related business, not a great but not bad.

But, in enclosures and switchgear, our backlogs are looking good and those will -- they are project-oriented. So, you’re going to get some spikes as the quarters go on. But in general, those tend to ship a little smoother than the really big high-voltage bus.

When it comes to medium-voltage bus, we’re rebuilding their domestic business and focused them on the more profitable piece of the domestic market. In terms of the industrial, nuclear is a little better. I think NLI seems some opportunities, some of the nuclear facilities are starting to spend at -- not a great level but a more normal level.

So, NLI, that piece is looking kind of spread through this year, decent; obviously it kind of spread through the quarters. WSI and SMS, mostly WSI, it’s a solid spring season. And as I mentioned in my remarks, they’re stacked up for a big fall season. Assuming it all comes through, they’ll be in really, really good shape.

I have to admit though, we’ve seen sometimes not all of it tends to come through. But we’re pretty optimistic about it. And so because that kind of starts in our second quarter and spreads into the third, we’re looking at a nice fall through them..

Thank you..

And hopefully some of that carries over into the fourth, where we’re really seeing that help and that carries through -- and if we don’t get terrible winter, that can continue to play out as we get into January. .

[Operator Instructions] Today’s next question comes from Jon Braatz of Kansas City Capital. Please go ahead..

Good morning Tom, good morning, Paul..

Good morning, Jon..

Once again, you guys did a real good job in 2019 generating free cash flow. And certainly, it looks like, it’ll be similar in 2020.

I guess, how would you think about your use of that capital between debt repayment, further acquisitions or maybe dividend increase, how you look at that allocation process?.

Well, Jon, if you look at history, we’re not going to give you roadmap into the future. We’ll just talk about we took out $60 million more in debt during fiscal ‘19, left the dividend where it is, and we gave ourselves a little bit of room to take a look at what we could do to bolster our portfolio.

And as you saw, we picked up two acquisitions, the first one for fiscal ‘20 and we did pick up the one set of assets over Lectrus side of bankruptcy. So, I’d say, we’re looking for opportunistic pickups where it makes sense, we’re looking to bolster the places we’re interested in the future.

But, I'm not guiding you with anything specific with that that we will leave ourselves open to continue to bolster the portfolio where we feel we’ve got good growth opportunities in the future..

Yes. A couple of things from my perspective. It’s -- I think on the Metal Coatings side, you’re going to see us continue to invest in powder coating and GalvaBar. So, there’s some opportunities we have as the year wears on. We’re seeing the margins at the powder coatings start to get up to where they are not a big drag.

And it’s a bit of a drag on the galvanizing margins as has been. But, we see some more acquisitions in that space. We’d like to get started on the next GalvaBar plan as the volumes start to take hold and working with our some of our partners. But that could easily be in the fourth quarter and probably stretch into the next fiscal year.

In terms of our maintenance capital on galvanizing, I think the guys are doing a far better job of managing for maintainability rather than emergencies. It takes to be a lot more controllable, where we spend it in a timely fashion, if we’ve got the emergency. So, we’re doing that.

And I think the team’s got a lot better process in place for how they’re managing that maintenance capital, getting it spent without people having the scream for it. And we’ve added a little bit to the engineering side to ensure we’re doing a better job of deploying that large $20 million, $25 million of maintenance capital into galvanizing.

And then, finally, and we’ve mentioned this, we have a really, really good active pipeline, not just on the powder coating side but -- and there is some more galvanizing deals out that as long as we can buy out the one-off sites and get them at a decent price and bring our team in and in some times we work with more owners as well.

As we’re doing at Tennessee Galv, we feel really good. If we get another one or two of those done this year, that’s a good use of our capital. And we are making sure we’re finding the adjacencies..

Okay.

Did you mention what your CapEx spending would be for 2020?.

We expect it to be just a hair below right now where it was in 2019. But again, we’re leaving ourselves up in the possibilities as they come up..

Certainly, certainly. Okay, Paul. Thank you..

Thank you..

And our next question is a follow-up from John Franzreb of Sidoti & Company. Please go ahead..

Yes. Tom, just wondering about your thoughts about the current configuration of the business. You’ve hired some people, you’ve closed down some facilities.

Are you kind of satisfied with the current structure of AZZ right now, or is there more rationalization that’s required at the firm?.

Yes. I think, one of the things we’ve decided to do is -- and I’ll start with the Metal Coatings side. We’ve -- over the last three years, I think, we’ve closed about six plants. So generally, we keep that fairly quiet.

We don’t like to do it unless we give it a fair shot and -- or where we do have overlapping capacity, so we’re not going to disappoint any customers. We’re always going to look at that. We have a lot of sites -- there is, but we don’t want to be in the mode of closing plants every year. I’d say, there we’re pretty well done.

If it happens, maybe there is one more, but I’d have a hard time putting my finger on it. So, generally, we feel like we’ve done what we needed to do over the last three years to get the plant we need to running. We’re also now looking greenfield. It was our last one and probably our last one for quite a while.

Now, on the GalvaBar side, we’ve -- it has to be a greenfield because we’ve got the only one out there right now. I think, in electrical, the structure, we’re really operating it as an enclosure platform, if you will, trying to find a leverage across the three enclosure plants.

There is also some leverage with the two switchgear plants, Ken Lavelle and his team are very focused on where can they find some leverage points, whether it’s zinc procurement, continuous improvement, get most of that -- most of those businesses are on, our Oracle backbone already.

So, leveraging the back office as much as possible that we feel that we’re in good shape there. But now, the focus has been more on the supply chain, continuous improvement, standard designs, and we think there is opportunity there. So, how we run those with more as platforms versus independent business units, that’s been a shift that’s been underway.

And we will continue doing that. In terms of what we are doing in Industrial, that we have found some synergy and mostly in the back-office side across NLI, WSI, SMS, accounting, HR, what they're doing from a leadership perspective, we feel pretty good about and then sales.

We’ve probably got as about as much leverage as we can find in the sales organizations with calling on nuclear plants or calling on refineries. So, we're probably in the I’d call seventh inning. We've got some things we can still do.

We’ll continue to look at those, but we feel like we’ve gotten a lot done, particularly in this past year to really stabilize with the leaders we brought in, the controllers we brought in, the acquisitions -- we’ve got some good talent in the acquisitions that helps us leverage things faster.

And then Metal Coatings, their reorganization, they just wanted beginning of last year and of course it’s different team, we reorganized it towards end of the year.

But, we're seeing that traction and we are feeling really good about the team they’ve put in place, the things they are focusing on how and they're leveraging DGS, how they're leveraging their sales organization to sell value, not just knock on doors, as I used to call deliver donuts.

So, I think the leadership is what we want to see right now in the businesses..

Okay. Fair enough. And I guess one last question.

Paul, I don't know if you said this, but what kind of tax rate should we be using for fiscal 2020?.

I didn't but I’ll guide -- we’ll stick with around 21% right now..

And our next question today comes from John Sturges of Oppenheimer. Please go ahead..

Thank you. It's a nice snapback on operating margins, and actually there was a nice sum recovery in net income margins. Could you add some color operating margins closer to where you've been several years ago? And I was just curious if the direction was back towards those numbers..

Yes. John, that's -- you nailed it. We want to see particularly galvanizing continue. There used to have some years which were kind of oddball years, 27% and 29%.

So, we're not trended to that, but we would like to see trended back towards the -- as I said in my remarks, 22% to 24% this year and then continuing to make progress hopefully towards the north end of that.

And I think from -- keeping in mind that in total Metal Coatings we do have powder coating, which is lower asset investment but it's also 15% to 20% margin. So, that plays a bigger role.

We think galvanizing is going to be where we see the first improvement, powder coating, as we get more leverage and more scale, they’ll start trending more towards the 20% mark. In terms of electrical, there were times going back where they were in the nice double-digit operating margins. That's where we'd like to see that to impact to.

I think, there is -- we've done what we could do from a sales perspective in terms of finding the right mix of business, the right kinds of value-based customers, terms of driving volume. We still got some work to do on the operating efficiency and productivity side, how we find supply chain leverage.

So, I -- but yes, we’re committed to driving those margins back in that direction over the next couple of years..

And our next question is a follow-up from Jon Braatz from Kansas City Capital. Please go ahead..

Tom, I don’t know if you discussed this, but are the trade issues that we’re having with China impeding your ability at all to bid on new business in China?.

No, not impeding us on bidding on new business. It is -- we do have -- I want to be careful with this, the impact is really that the President of that group Ken Lavelle has spent a lot of time. He’s like a commuter back and forth between here and China. We did establish capability in China to manufacture. And so, we do have that opportunity.

We can’t manufacture everything for high-voltage bus there but we can manufacture a lot of it. And so, we’re going to leverage that capability as the customers in China will let us to do that. So, that’s our focus. And they’re letting us bid.

And our preference is to right now bid it from the China facility because we have the capacity there and we’re not at the mercy of whatever the tariffs turn out to be. So, we prefer contracts in RMB that we deliver in RMB. And as long as we can bid those, we’re in a good shape.

And we do have some domestic opportunities to keep our midway facility focused on domestic opportunities as well as able to provide the technical support for the China operations. So, a few days ago, we’d play it day-by-day but a few days ago when China responded with tariffs, it gave us some concern.

We were able to advantage through that and have a line of sight to be able to continue to ship. So, so far, something we’re watching very, very carefully. It does create some -- I don’t know how to put it, some -- does keep us on our toes and in terms of how bid, where bid from and how we support that. But we do have a very good product.

The customers there have been very, very pleased with it. And these are big projects. So, our focus is on making sure we can continue to deliver. So, a long answer to a complicated question..

I understand completely. Okay. Thank you very much..

And ladies and gentlemen, this concludes our question-and-answer session. I’d like to turn the conference back over to Mr. Ferguson for any closing remarks. .

I think we’ve talked about everything that I can think of to talk about. And so, we thank you for listening to us today. I’d say, stay tuned for fiscal year 2020.

We like to see this be very stable year for us and one where we demonstrate we’re back to normal and doing the things we need to do to generate the margins that we’ve committed to and generate profitability and the cash that our investors are used. So, thank you. And I appreciate any patience you can bring to us in that regard..

Thank you, sir. Today’s conference has now concluded. And we thank you all for attending today’s presentation. You may disconnect your lines. Have a wonderful day..