7/24
AZZ incorporated(代號:AZZ) 作为一家电气器材制造商，一季度28%的利润率这着实令分析师感到惊诧，因为实际上没有人指望公司能够交出如此亮丽的成绩，然而电镀层的主要材料——锌 ——开始出现价格滑落，尽管如此，AZZ仍然能够保证公司股票的溢价不变。强劲的市场需求使得AZZ在面对大客户时，仍然能够维持较高的产品价格。公司拥有两大核心业务：一是为石化、电子和电信公司提供镀锌服务，二是制造供电系统的相关产品。公司还为U-Haul拖车提供镀锌服务。
Next Generation 分析师Ned Borland表示：“AZZ的任务就是为有需求的客户生产受欢迎的锌产品。”自1956年成立以来，AZZ就一直着手于锌产品的业务，并不断扩大产品组合。06年当原料锌的价格上涨至每磅2.25美元时，公司立刻提高了产品价格。07年一季度公司利润达到32.2%，但是目前锌价格下降至每磅0.85美元。“但是公司十分坚持目前低价格，并连续六个季度保持利润率高于预期。”公司CEO表示：“尽管锌价格下降了，但是其它生产原料和天然气价格却在稳步攀升，因此我们必须维持较高的产品价格以抵消成本压力。”“我们将继续抵御降价的压力。”
然而石化板块客户需求强劲为公司增添信心，油气是大型炼油厂和化学工厂。AZZ在11个州拥有20家子公司，包括德路易斯安那州、伊利诺斯州和印第安纳州。多数分公司位于墨西哥湾，靠近当地的大型炼油厂。分析师表示：“对于AZZ来说，超过上述地域以外的市场就不存在利用价值了。”
北美有195家热浸镀锌工厂，受到高价运输因素影响，这些企业的运营成本居高不下，因此靠近大型客户的地理优越性是AZZ最大的优势，尤其是德州和墨西哥湾地区，可谓是兵家必争之地。公司拥有全美20%的镀锌市场份额，南部和西南部的市场份额更是高达25% 。近期公司还收购了Joliet公司以扩大在中西部地区的市场。此次收购预期将提高公司09年70%的营收。
但是AZZ还能享受多久高价锌的优势呢？分析师Buonocore表示：“我不认为公司将大幅降低价格。”大多分析师预期公司的旺盛需求将保持到2010 年。但是分析师Bill Baldwin认为，公司将在锌价格下降之前就进行价格调整，因为镀锌业务最大的风险在于是100%依赖于国内客户，换句话说，国际市场是业务最薄弱的环节。
美国目前疲软的经济环境和能源价格高企是威胁公司业绩的潜在因素，“公司不可避免将面临业绩下滑，27.9%的利润率是不可能长期保持的。”分析师预期公司利润率将回落至18-22%之间。“我们预期今年四季度市场需求量将有所下降，因此将造成价格压力，从而拖累整体业绩。”
同时，这个行业也不乏强有力的竞争对手，包括西部的Valmont Industries(代號:VMI)，中西部的North American Galvanizing(代號:NGA)，东北部的Hill&Smith和西南部的Delta等公司。但是分析师表示AZZ特殊的地理优势使得其能够雄踞业界首位。公司正在专注于开拓更多的高端客户。
公司镀锌业务占到总营收的45%，公司有55%的营收来自制造电子和工业产品。随着通用电气(代號:GE)等大型制造企业耗电量日益增加，AZZ生产的高压传输系统、断路器和开关设备将拥有较为广阔的市场。
Investor's Business Daily
Steel Galvanizer Passes Price Hikes To Customers At Least For Now
Wednesday July 23, 6:07 pm ET
Miho Nagano AZZ, a provider of hot-dip galvanizing services, surprised analysts by hitting a 28% margin in its galvanizing business during the first quarter.
Analysts didn't expect margins to be that high in the June-ended quarter because the high price of zinc -- the main raw material used in galvanized coating -- was falling.
But despite falling raw-material prices, AZZ (NYSE:AZZ - News) was able to maintain the premium prices it charged customers. Thanks to strong demand, AZZ even managed to keep prices high for its biggest clients.
The Fort Worth, Texas-based AZZ has two key businesses: It provides galvanizing services for petrochemical, electrical and telecom companies, and it makes products used for electrical power distribution.
When fabricated, steel is coated by molten zinc, making it resistant to corrosion. Customers ship metal parts and pipes -- pretty much anything that would be exposed to corrosive liquid -- to AZZ to get it galvanized.
AZZ also galvanizes U-Haul's moving trailers.
"They (AZZ) dunk the steel in zinc and send them back to the customers sometimes in the same day," said analyst Ned Borland of Next Generation.
AZZ has been in business since 1956, and it can handle large, complex jobs in a 6- to 10-day turnaround, says analyst Fred Buonocore at CJS Securities.
Raw-Material Costs
When zinc prices skyrocketed to $2.25 a pound in late '06, AZZ immediately raised its prices to customers, Borland says. Margin peaked out at 32.2% in '07's second quarter.
But now the price of zinc has fallen to 85 cents a pound.
"But they have been stubborn on price," Borland said. "For six straight quarters, their margins came in better than before." Borland says the company dropped its prices only 3%.
Said CEO David Dingus in an e-mail: "While the cost of zinc has reduced, all other operating materials and natural gas have increased, which requires us to maintain pricing to recover these costs."
This echoes what he said in a late-June conference call: "We will continue to resist downward pricing pressure."
The strong demand was driven by petrochemical customers, especially big refineries and chemical plants. AZZ has 20 facilities in 11 states, including Texas, Louisiana, Illinois and Indiana. Several facilities are along the Gulf Coast, close to big refineries.
The name of the game of the galvanizing business is to build facilities as close as possible to major customers. Borland says there is a 300-mile-radius limit. "It doesn't make sense to use facilities outside the radius," he said.
Dingus says there are 195 North American hot-dip galvanizing facilities run by 125 companies.
Because of the high costs of shipping large galvanized structures such as cell towers, power poles or cargo trailers to customers, its proximity to customers is the biggest advantage AZZ has, especially in Texas and the Gulf region, analyst Buonocore says.
AZZ has about a 20% share of the U.S. galvanizing market and more than 25% market share in the South and Southwest, analysts say.
It recently acquired Joliet, Ill.-based AAA Galvanizing to expand into the upper Midwest. The acquisition accounted for 70% of the revenue increase in its galvanizing segment in the first quarter of '09.
But how long can AZZ enjoy this fat while zinc prices keep tumbling?
"I don't think that (the margin) would decline significantly anytime soon," said Buonocore, adding that some experts predict strong demand will continue until 2010.
But analyst Bill Baldwin of Baldwin Anthony thinks selling prices could drop faster than the price of zinc. He says the big risk in the galvanizing business is that companies have to depend 100% on domestic customers. A weaker U.S. economy and higher energy costs could hit margins.
"They cannot avoid a slowdown," Baldwin said.
"Margins of 27.9% are not felt to be sustainable for the longer term," Dingus said, adding that margins would eventually drop to the company's historical range of 18% of 22%. "Our guidance anticipates that we will see some moderating of demand in the fourth quarter of our current fiscal year, which may lead to some pricing pressure."
Main competitors are Valmont Industries (NYSE:VMI - News) in the West, North American Galvanizing (NasdaqGM:NGA - News) in the Midwest, Hill & Smith in the Northeast and Delta in the Southwest, Buonocore says.
But Baldwin says AZZ is ahead of many rivals because of its specialized marketing approach. "They don't go after volume," he said. The company focuses on quality and capturing high-end customers, he says.
While the galvanizing business generates about 45% of total revenue and creates cash flow, AZZ earns nearly 55% of total revenue from manufacturing electrical and industrial products.
When companies like General Electric (NYSE:GE - News) are in charge of big generators and motors to create electricity, AZZ gets the electricity from one place to another.
AZZ makes high-voltage transmission bus systems, circuit breakers and switch gear for utilities, refineries and chemical companies.
Borland says soaring demand helps the company upgrade 50- to 60-year-old grids required by 2005 energy legislation. Annual spending by utilities is expected to more than double the record amount of $5 billion.
Since the 2003 Northeast blackout, "every utility company is under pressure from the federal government to maintain the grid," said Borland. "They don't want to get fined."
AZZ's strength is in the niche of the high-voltage transmission market through underground tunnel cable in highly populated areas such as New York, Buonocore says.
An AZZ competitor is Houston-based Powell Industries (NasdaqGS:POWL - News), whose medium-voltage business is strong in heavy industrial markets such as oil and gas and chemical companies.
"(AZZ's) margins are a lot better than Powell's," said Baldwin. Powell doesn't have a galvanizing business, so it cannot enjoy fat margins. But even comparing margins on the electrical equipment unit, AZZ has better margins than Powell, he says.
Earnings Report
AZZ's first-quarter earnings in fiscal 2009 more than doubled to 82 cents, beating estimates by 28 cents. Revenue rose 33% to $100 million, also above views. The electrical and industrial product segment's margin was 15%. The company raised full-year EPS guidance to $2.95 to $3.05, vs. views of $2.43.
AZZ recently purchased Blekhorn & Sawle, a Canadian provider of engineered switching gear products, for $14 million in cash. The acquisition targets utilities and key energy markets in Canada, which is in the midst of an oil and gas boom.
Unlike the galvanizing segment, AZZ exports power transmission products overseas. China and the Middle East account for more than 20% of AZZ's electrical product sales.
Even though the company is aggressively acquiring competitors, AZZ kept debt to a minimum and should generate free cash flow of $30 million in 2008. Analysts expect similar figures in 2009.
"This means they can take more debt if they want to, and they can continue to expand through acquisitions," said Buonocore.
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