Azz Inc Q2 FY2026 Earnings Call

Good day, and welcome to AZZ's Second Quarter Fiscal 2026 Earnings Conference Call and Webcast. All participants will be in listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to Sandy Martin of Three Part Advisors. Please go ahead.

Good morning. Thank you for joining us today to review AZZ's Second Quarter Fiscal 2026 Results for the period ended August 31, 2025. Joining the call today are Tom Ferguson, President and Chief Executive Officer; Jason Crawford, Chief Financial Officer; and David Nark, Chief Marketing Communications and Investor Relations Officer. After today's prepared remarks, we will open the call for questions. Please note that the live webcast for today's call can be found at www.azz.com/investorevents. Before we begin, I would like to remind everyone that our discussion today will include forward-looking statements made in accordance with the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. By their nature, forward-looking statements are uncertain and outside the company's control. Except for actual results, AZZ's comments containing forward-looking statements may involve risks and uncertainties, some of which are detailed from time to time in documents filed by AZZ with the Securities and Exchange Commission, including the latest annual report on Form 10-K. These statements are not guarantees of future performance. Therefore, undue reliance should not be placed upon them. Actual results could differ materially from these expectations. In addition, today's call will discuss non-GAAP financial measures which should be considered supplemental and not as a substitute for GAAP financial measures. We refer our shareholders to our reconciliations from GAAP to non-GAAP measures contained in today's earnings press release. I would now like to turn the call over to Tom Ferguson.

Thank you, Sandy. Good morning, thank you for joining us to review AZZ's financial results today. We delivered solid second quarter results. Total sales increased by 2%, adjusted earnings per share rose 13.1%, and operating cash flow improved by 23%. Underscoring our disciplined execution in a highly dynamic environment. Metal Coatings achieved a strong double-digit sales growth supported by higher volumes and sustained momentum related to robust infrastructure project activity. Metal cutting margins of 30.8% were down slightly as our mix of solar and transmission distribution increased, and these tend to be slightly lower margin markets. We remain confident in the strength of our core markets and the growth potential ahead for galvanized steel in construction, industrial, and electrical utility projects this year. Similar to others in the industry, this quarter, Precoat Metals faced some mixed market conditions, particularly in relation to tariffs, but focused on protecting margins while pursuing market share opportunities. While Precoat benefited from the tariff impact on pre-painted imported metal, they faced headwinds due to softer building construction that extended to HVAC and appliance end markets. Looking ahead, we are encouraged by Precoat's new customer wins which are generating market share gains. This is primarily due to a strong focus on key markets impacted by reduced access to imported pre-painted metal, including the aluminum container market. Our container and beverage results continue to reach new highs during the quarter, indicating that the shift from plastic to aluminum is gaining momentum as we ramp production at the new facility in Washington, Missouri. However, the overall demand outlook remains mixed for Precoat end markets, so we are maintaining a cautious outlook, as ongoing tariffs have contributed to customer hesitation on non-infrastructure related projects. Dave will provide more details on industry trends and AZZ's end markets shortly. Consolidated adjusted EBITDA for the quarter was $88.7 million, reflecting a margin of 21.3%. The divestiture of the Electrical Products Group through the AVAIL joint venture created a modest EBITDA headwind in the quarter, which Jason will address shortly. At our new Washington, Missouri facility, sales continue to increase and operating leverage is improving as we ramp up production. We remain confident in achieving gross margin improvements as volumes grow at the new site through the second half of the year. AZZ's proprietary technology continues to set us apart. We continue to pursue technology upgrades, ranging from updating system applications, continuing to migrate data systems to Oracle, exploring AI opportunities, and developing new galvanizing and coding processes to drive operational efficiencies across our broad network of facilities. As is normal for our Metal Coatings team, they quickly integrated the newly acquired Ohio facility onto Oracle and DGS, which is our proprietary digital galvanizing system. With that, I will turn it over to Jason.

Thank you, Tom. For the second quarter, we reported sales of $417.3 million, representing a 2% increase from $409 million in the prior year period. Growth was led by our Metal Coatings segment, where sales increased 10.8% over the prior year's quarter, driven by higher volumes and supported by infrastructure-related spending across our largest verticals. In contrast, Precoat Metals sales declined 4.3% due to a weaker end market environment, reflecting lower volumes in building construction, HVAC, and appliance end markets. As Tom mentioned, Precoat continues to win market share in a competitive and dynamic marketplace. The second quarter gross profit was $101.3 million, or 24.3% of sales, compared to $103.5 million, or 25.3% of sales in the same quarter of the prior year. The Precoat Metals segment margins were impacted by customer buying patterns, and the introduction of our new aluminum coil coating facility, which when combined contributed to a small drag in margins. Whereas in the Metal Coatings segment, product mix was slightly unfavorable in comparison to the prior year quarter. Selling, general, and administrative expenses totaled $32.8 million in the second quarter, or 7.9% of sales. This compares favorably to last year's second quarter, which was $35.9 million, or 8.8% of sales. Operating income for the quarter was $68.5 million, or 16.4% of sales, compared with $67.6 million, or 16.5% of sales in the prior year's second quarter, reflecting the strength and operational execution on lower volumes. As noted last quarter, Fernway, our 60% joint venture partner in Avail, divested the majority of its electrical products business in the quarter. For the second quarter, this transaction resulted in accounting adjustments to record an additional gain on the sale. Combined with other adjustments and operating performance of the remaining businesses, reported equity and earnings of $59.3 million in the quarter. On an adjusted basis, our quarterly equity and earnings reflected a loss of $2.3 million from continuing operations. The loss in the quarter is primarily due to the excess overhead costs resulting from the divestiture of the electrical products business and the traditionally weaker summer season from our Beale's Welding Solution business. Looking ahead, regarding our 40% ownership interest in the remaining Avail business, which now consists of welding services, lighting, and some international joint ventures, we are forecasting equity and earnings from unconsolidated subsidiaries to be zero for the remainder of the year. Interest expense for the second quarter was $13.7 million, representing a significant improvement of $8.2 million from the prior year, due to a combination of debt pay down, debt repricing, and accounts receivable securitization facility introduced in the quarter. The accounts receivable facility has a borrowings limit of $150 million and is accounted for as secured borrowings with an interest rate of one month LIBOR plus 95 basis points, creating an expected annual interest savings of $1.4 million versus current borrowings on the term loan. During the quarter, 100% of the proceeds received from this facility were used to pay down existing debt. The current quarter's income tax expense was $25 million, reflecting an effective tax rate of 21.9%, compared to a 25.6% tax rate in the prior year's quarter. The tax rate reduction in the quarter is due to an increase in R&D tax credits attributable to technology spending on our new build in Washington, Missouri facility. Reported net income for the second quarter was $89.3 million, compared to $35.4 million for the prior year quarter. Since our non-GAAP measure for adjusted net income excludes, among other items, equity and earnings from the Avail divestiture of $61.6 million, AZZ reported adjusted net income of $46.9 million on adjusted diluted EPS of $1.55. This compares favorably to the prior year's adjusted net income of $41.3 million, with adjusted diluted EPS of $1.37, reflecting an increase of 13.1% compared to the same period of the prior year. Second quarter adjusted EBITDA was $88.7 million, or 21.3% of sales, compared to $91.9 million, or 22.5% of sales in the prior year. Excluding the impact of equity and earnings, our adjusted EBITDA for the second quarter would have been $91 million or 21.8%, compared to $90.4 million or 22.1% in the same quarter last year. Turning to our financial position and balance sheet. For the second quarter, we generated cash flow from operations of $58.4 million. Consistent with our capital allocation strategy, in the quarter, we invested $19.3 million in expenditures for the businesses, invested a further $30.1 million in the acquisition of our new galvanizing facility in Canton, Ohio, and increased our dividend payments to shareholders over the prior year. With a slight pay down of debt in Q2, combined with our continued financial performance, our credit agreement net leverage ratio remained at 1.7 times, compared to 2.7 times in Q2 of last year. As communicated, we continue to maintain a disciplined approach to our capital allocation strategy, transitioning our focus to investments in organic growth and strategic M&A, while returning value to our shareholders through cash dividends and share buybacks and maintaining our debt leverage in the target range of 1.5 to 2.5 times. With that, I'll turn the call over to David.

Thank you, Jason. Let me begin with an update on the Infrastructure Investment and Jobs Act. As of August, the Department of Transportation reported that 73% of IIJA program funds totaling $319 billion had been committed to specific projects, with approximately $177 billion already outlaid. Similarly, according to the Department of Energy website, 77% or $74.9 billion had been obligated to certain projects. Both agencies are expected to continue to announce awards or initiatives throughout the balance of this year. We believe that because the current legislation is scheduled to expire in 2026 and requires projects such as utility-grade solar to be completed by the end of next year, IIJA-related spending is having a positive effect on demand for our Metal Coatings segment. We expect multiyear tailwinds associated with IIJA spending and will continue to monitor discussions regarding potential reauthorization beyond 2026 once the government reopens. During AZZ's second quarter, we continued to see infrastructure, non-building, and civil works projects as a bright spot. However, there was a softness in nonresidential and residential building construction. Reported end market sales for AZZ were up, including utilities up 19%, and consumer up 7.6%, while construction sales were up by less than 1%, compared to the same quarter last year. As noted today and in prior quarters, end market growth in utilities is elevated due to IIJA related project spending, particularly solar, transmission and distribution, and data center projects. As Tom mentioned, the transition to aluminum packaging in both the food and beverage sectors remains a significant growth driver for AZZ. Our container end market has sustained strong momentum this year, supported by the continued ramp-up of the production at our new Greenfield facility in Washington, Missouri, and recent share gain activity. While we have seen increased opportunities from tariffs associated with imported pre-painted aluminum steel, weakness in both nonresidential building, particularly commercial office and retail construction, as well as residential building has created some divergence in our construction end market sales. However, our teams remain well positioned to execute through the balance of the fiscal year and we are approaching calendar year 2026 with measured optimism. With that, I will now turn the call back over to Tom.

Thanks, Dave. We continue to see a strong pipeline of project-related activity driven by megatrends such as energy transition and the growing demand for electricity generation to support the rapid growth of data modernization, transmission line expansion, and the integration of multiple energy sources will fuel further demand at our plants. As the country continues its journey to re-industrialize, the AI boom and cloud expansion are driving massive data center projects and infrastructure development. With higher interest rates lasting longer than anticipated, new housing development and related supporting projects remain muted. Public infrastructure spending tends to be less sensitive to interest rate fluctuations as it is often funded through grants, bonds, or supported by subsidies. Overall, we anticipate and have planned for a multi-year tailwind in infrastructure spending, particularly in energy and power generation capacity, despite the potential for continued pressure on residential construction. For our 2026 fiscal year, we are reiterating guidance for total sales, EBITDA, and adjusted EPS. We anticipate that our sales will be in a range of $1.625 billion to $1.725 billion. Adjusted EBITDA will be within the lower half of the range, from $360 million to $400 million due to the lack of Avail equity income as they continue to transition without the electrical products businesses. Adjusted diluted earnings per share will be in a range of $5.75 to $6.25, which translates to an increase of between 10% to 20% over the fiscal 2025 adjusted earnings. Although markets may be choppy in the second half of our current fiscal year, which extends through February 2026, our numbers are supported by strengthened projects and structural steel demand forecasts. We continue to strengthen our operational performance and maintain disciplined execution at each of our facilities. Our liquidity position and balance sheet are strong and flexible, with a low debt-to-EBITDA ratio, especially given our cash generation capabilities. We remain well positioned to pursue strategic growth opportunities, including our other capital allocation strategies as we have already discussed. Finally, industry consolidation presents ongoing opportunities for our company, and we are actively evaluating bolt-on acquisitions that are strategically aligned, fit our integration playbook, and extend our market leadership in Metal Coatings. Our M&A pipeline is healthy and we plan to remain disciplined in pursuing only high-quality opportunities that create long-term, accretive value for our shareholders. As always, I would like to express my gratitude to our hardworking and highly talented team for executing AZZ's shared vision of growth, profitability, and operational excellence. Our mission is to create superior value within a culture where our people can grow and traits matter. Our culture is built on providing outstanding quality and service as directed within our servant leader mindset. These principles continue to shape our path forward and underpin our success. I am proud of our team's execution of the fiscal 2026 plan so far this year and remain confident we are positioned for continued growth and success. We are committed to driving top-line growth, enhancing profitability, and generating robust cash flow, all of which are supported by a disciplined capital allocation philosophy. Through the successful execution of our strategic priorities, we believe we will continue to deliver sustainable value for all of our stakeholders. Now operator, we would like to open up the call for questions.

We will now begin the question and answer session. If you would like to withdraw your question, please do so. Our first question comes from Ghansham Panjabi with Baird. Please go ahead.

Hey guys, good morning. I guess, first off on the Precoat market share gains that you called out, Tom, can you just give us a bit more color on that dynamic and maybe dimensionalize the boost for AZZ? And I'm just asking because obviously volumes were down in the quarter, you cited some of the obvious in terms of construction and, you know, so on and so forth. How should we think about the contribution from the share gain piece?

Yes. I think to a couple of things there. One, we picked up share gain because the and we'd referenced it. The pre-painted imports are down significantly due to the tariffs. So that's been transitioning to domestic supply, and we're capturing, you know, at least as much as our share. If you take that, it's probably, David, what? It's about 10% on imports. So we've picked up our share of it. So we've picked up 3% or 4% to offset the roughly 9%, 10% market decline. So it's just offsetting but it's also positioning us depending on what happens with tariffs. Hopefully, to sustain that market share and be able to take advantage of it as we go forward. As we're picking up new customers, new applications, converting that, and that's pretty much at our normal margin profile. So it's not like we've had to go aggressively discount to take that share, which is why I'm also confident that those margins will continue to flow through going forward despite any market softness, if you will.

Sure. Sticking with Precoat, so some of the challenges that you called out, you know, building construction, HVAC, appliances, they all seem sort of you know, aligned towards the same theme. It doesn't seem like there's any short-term catalyst for those end markets in terms of reversing that weakness. Would it just be the share gains and then you know, the Washington, Missouri facility that are positive offsets? And how do you think that nets out for segment volumes as we think about the back half of the year? For Precoat?

Yes, I'll start and then Jason can probably add some additional color. Yeah, I think you pretty much summed it up. So we're going to continue to assuming the tariffs stay in place, which looks like they will, then we should be able to sustain those market share gains from picking up the past imported pre-painted metal. Two, we do have the Washington site? It's, you know, it's still I think we're saying it's running about 20% of its capacity or some number thereabouts. So it's still got to ramp up as the next six months go on and pretty significantly. So that's an opportunity, and that is where there's strong demand in that aluminum container market. That's our sister facility to Washmo, which is in St. Louis, which has two lines, is doing really well because of the high demand in that market. As I look at it, I think well, and then the third piece is we're also aggressively going after other conversions and chasing things. So any kind of rebound in construction. And I think we're seeing some signs of that. We had a big customer well, we had a lot of customers at our annual golf tournament. And, and they generally feel like things have bottomed and are starting to come back up in certain areas of the country, particularly. So we feel good about what we're doing, and I'd also commend the Precoat team. They've adjusted it. They're operating in shifts and times and capacity. You know, we're retaining capacity for the upturn that we hope to have as the year goes on. But also as we talk about our variable cost structure, they've been able to adjust that pretty quickly. And I know this is about pre-COVID, but I'd say the metal coatings side has done that outstandingly well during that same time period.

Okay. Very good. Thank you.

Jason, did you want to add any?

No, the only other thing you could potentially add there is that, you know, when you think about the construction, it certainly has enough impact on HVAC and appliances, but very minimally so if you look at those two businesses. They're doing reasonably well. And quarter to quarter, there's an impact in terms of inventory levels and model changes, etcetera. So don't see them as being much of a drag in comparison to the construction market. And I'll also add in, we had a good solid September, so we feel good as we've kicked off the third quarter. So kind of in line with the fact that a lot of the Precoat customers are feeling like things have started turning the corner.

Fantastic. Thank you so much.

The next question comes from Nick Giles with B. Riley Securities. Please go ahead.

Yes. Thank you, operator. Good morning, everyone. Guys, still a very solid quarter here and wanted to just turn it on the guidance for a second. So you've reiterated your adjusted EBITDA guidance and just curious really what would take you to the higher or lower end of the range at this point? I mean, how much is end market driven versus operational? And then how much EBITDA could Washington incrementally contribute as volumes continue to ramp? Thank you.

I'll answer the first part of that and then Jason can opine on Washington. I feel like when it comes to, I don't know if this has got missed or not. We've talked about it a few times. But you look at the $14 million to $15 million of Avail EBITDA impact from last year versus we've signaled zero in Q2, Q3, and Q4 for Avail. And so that's the biggest impact in terms of our EBITDA guidance. And I'd say that was, you know, harder for us to predict until now. We can see with primarily WSI as the main asset left in Avail. And they had just gone through this summer. It's obviously weak because there's just not turnarounds and outages during the summer. So we've felt that. And going forward, though, they do come back into, you know, so in terms of the upside. Hopefully they do have a strong fall season, which is you know, back to how turnarounds and outages run. I think interest savings is, is gonna continue. We've paid down the debt. We continue even after acquiring Canton, paid down some debt. And interest rates have finally moved a little lower. And we've done that through our own actions in terms of repricing and the securitization. So, you know, we feel good about that. It's mostly embedded in our outlook, but you know, there's upsides to that. And then hopefully, we can get a deal or two done on the particularly on the galvanizing side that before the end of the year and have some impact there and because, obviously, the assets we're buying are gonna be good galvanizing assets that we hope to improve as well. I think those are all the kind of pieces. Precoat's performing well. I think they're driving to sustain those margins over 20%. And given the volume fall-off, if all that picks up at all, that can also be upside to us. And then do believe the metal coatings folks are driving hard to sustain that 30%, 31% margin profile while taking advantage of the higher than expected growth driven partly by regulatory changes and the threat that solar is gonna go away. So we're seeing lots of solar and pole transmission distribution kind of activity, which we signaled may have slightly lower margin than on balance, but it's really, really good volumes. So we like that stuff a lot.

Yeah. Certainly, Washington, you know, as we previously communicated, would be a drag in margins in the first half of the year and then start to turn positive in the second half of the year. And we're very much in line with around about $2 million of a hit to margins in the first in Q2 essentially. From a contribution margin point of view, the businesses contribute with the volume that's flowing through there. We know that's ramp up volume. But obviously, you've got the fixed costs associated with that facility and largely the fixed costs are driven by depreciation of the $125 million. So it's very much in line with expectations. As you start to look at the second half of the year, then Q3, Q4, it starts to ramp. And, you know, we were very much in line with the expectation of that ramp profile. We'll start to hit capacity towards the 50% arena in Q3 going into Q4, and then really see that start to pop in Q4. So very much aligned with the and very much built into our original guidance and where we sit here today.

Tom, Jason, I really appreciate all that detail. Maybe just back on the coiled coating side. I mean, you've obviously deployed meaningful growth capital to expand capacity with Washington. But in the past, I think you have spoken about there could be some margin expansion on the coil coating side that could require some capital. Can you just remind us how you're thinking about that opportunity today? What would be the timing around kind of a project like that? And how many quarters would something like that take? Thank you.

Yes. And to be fair, I don't think there's any one big silver bullet out there. I think there's multiple projects that we've started to kick coming through the summer program that we'll start to incrementally see some benefits and, you know, we're seeing them start to kick in. And, you know, to be fair, that's applicable to both sides of the business. As we've highlighted, our capital allocation is looking at outside and inside and some of the projects that sat on the sidelines are now getting turned into execution. So you know, again, I don't think there's gonna be a big boost in terms of a step function. But we're going to continue to drive the opportunities that we see in front of ourselves.

Guys, thanks again. Keep up the good work.

The next question comes from Adam Thalhimer with Thompson Davis. Please go ahead.

Hey, Adam, we can't hear you. You might be on mute.

Pardon me. We have Timna Tanners with Wells Fargo.

Hey, Timna. Import opportunity, is that fully played out? Or are we still in somewhat early innings? I know that imports only really started to drop off more recently. So I'm just wondering if we could see a bit more share gains still to come.

Yeah. It's really early innings. I think probably, you know, a couple of months of that. So that should have a good tail to it. It just takes time to ramp up the domestic capacity, change projects, we're seeing and things like that. So we feel good about that the balance of the year. I'm not sure it's fully embedded in our forecast. Jason would probably disagree with me. Probably, it is fully embedded. But I'm probably more of the optimist. And so I yeah, I look forward to that because we're engaging with some new customers and able to demonstrate our value-add capabilities in terms of quality service and particularly responsiveness and it does impact our, I would say it does have a slight negative impact on our margin profile because we're, you know, a lot of these are smaller orders. And we're winning them because we can turn them quickly and give them whatever kind of color combination that they want. So we really look forward to that continuing to grow and be able to sustain it regardless of whether the imports come back up or not.

Got you. Okay. Thank you. On the Washington ramp-up, are you seeing any impact of reduced substrate because of the Oswego fire?

No, no. I mean, certainly not from that point of view. At this point. Obviously, there's one customer that supports that facility quite frankly. Our production ramp is ahead of plan. Yeah. And, you know, we're executing with the material and, you know, we're out at the facility a couple of weeks ago and, you know, it's really starting to look like a coil coating facility versus a showpiece that, you know, a lot of the analysts that saw a couple of I guess, six weeks ago or so. So I think we're in very good shape from that execute through the end of the year.

There's a lot of aluminum sitting in that on that floor now.

Gotcha. Okay. Alright. And then final one for me if I could. Wanted to just probe a little bit more into the M&A pipeline, any updated thoughts on the economy having any impact on more or less to sell to you at this juncture? Thanks.

Yeah. I think there's, you know, we're working on a couple of the typical bolt-ons for galvanizing and it's one of them is actually a process, so we know that one will go forward. We can never quite predict. We tend to believe we're always gonna be a strong contender for those, and then we've got a good game plan once we do acquire them as we just did with Canton. Almost immediately ramping it up to our margin profile. So I look forward to that, and we're gonna be as aggressive as we need to be. Not seeing a whole lot shake loose because of it, which actually is a little surprising. We were hoping to see maybe one of these multi-site galvanizers decide to go on the market, but we haven't gotten any indication of that at this point. And then on the Precoat side, there's a couple of things out there. I think it's probably as much in our control as they can be. But once again, there the market hasn't seemed to cause them to want to move any faster than they were before. So but it's a good pipeline. I think we've got nine good opportunities that are in various stages, not to mention a long list of other ones that we remain in contact with. So I'm hopeful we get something done before the end of the year, and maybe more than one.

Okay. Thanks again.

The next question comes from Adam Thalhimer with Thompson Davis. Please go ahead.

Good morning, guys. Can you hear me now?

We can. We can.

Great. First one, within Precoat, I think there's also a negative impact from tariffs that possibly offsets the positive impact. I was just curious if you could walk through that, Tom.

I'll let David do it. Yes. I think as you're right. As you look at the overall market for imported steel, Adam, we know that the pre-painted imports are down 23% this year. That has been, you know, a bright spot or a tailwind for Precoat because that means there's less competitive pre-painted steel coming in. But offsetting that, the Bayer Galvalume market has been down about 50% due to the tariff impacts. So that's really the difference in the numbers and why Precoat was having some headwinds this year because normally that imported bear is volume that they would be the natural source to be selected to quote that product. So, but as Tom mentioned, we think that our customers are telling us things have bottomed out. They did buy ahead and placed orders ahead of the tariffs and have been working through the inventory that they've had on the shelf. And we look forward to things turning around later on. Yes. And I'd add that the tariff impact is really driven, as Dave mentioned, it's just the uncertainty. So you've got projects being deferred, delayed. I'd say it's a combination of tariffs as well as the lower interest expectations as we had noted. Interest rates have stayed higher from the Fed longer than I think a lot of people. And now with the government shutdown, who knows what the next step is? So I think that's just created hesitancy on non-infrastructure projects. Versus what you see on the metal coating side where infrastructure projects are going forward. And if anything on the solar stuff, it's accelerated. So on one segment, it's a positive. On the other segment, it's mixed, as you said, and probably more negative than positive in the aggregate for Precoat.

Okay. That makes sense. And then second question for me, I was curious on your confidence in no further losses from Avail. I'm just curious if just to be conservative, if we should model a slight loss in Q3 and then where they are in the process of monetizing the remaining businesses.

Yeah. And we very much aligned that now you got to subscale piece of business, which is really three pieces. WSI forming by far the largest in terms of sales but not in terms of contribution margin. Then you've got a lighting business, which is a nice little business that I think they'll get transacted, you know, hopefully this year. And then there's a Chinese, it's a Chinese joint venture, high voltage bus business that once again, I'd hope that they could get that transacted this year. WSI is a tougher one because it's a little more impacted from a market perspective in terms of refinery turnarounds, turnarounds, and things like that. So that's probably a prefer not, but it's probably a longer-term piece. In terms of Q3, you know, you could, I'd say it's hard for us to predict because Q3 should be typically is the fall season and tends to be a stronger one for WSI. On the other hand, as Jason alluded to, they are carrying more over that they can't get at while the TSAs with InVent are running. So, you know, on balance, I think we're pegging it at zero. And I'd say it's more likely slightly negative in Q3. The risk is probably more negative in Q3 than the upside. And then Q4, they go into the winter, but hopefully, some of these other things transact.

And the only thing, I would talk about, Adam, is they've started to digest the TSA and started to accommodate the infrastructure that they need to support that. So we are starting to see some moves in terms of, you know, realigning their core overhead costs. So you should get that pickup going into the second half and then, you know, as Tom mentioned, the seasonality impact of the WSI business.

Good color. Thanks, guys.

Our next question comes from Mark Reichman with Noble Capital Markets. Please go ahead.

Thank you. Just a couple of questions. On interest expense, when we published at the September, we took our interest expense numbers down, I think we were kind of landing around $49 million to $50 million for the year. And of course, the second quarter came in a little higher than our revised estimate. I was just kind of curious, your guidance hasn't changed. But in the past, your guidance had included $55 million to $65 million of interest expense. What would your expectations be for interest expense for the full year of 2026 for the fiscal year 2026?

Yes. I mean, I think the part in terms of interest and picking up some favorability given that we've reduced our total debt through the Avail transaction. As you look at our interest expense in the quarter, then, you know, we certainly picked up some favorability, but it was more towards the back end of the year. Oh, sorry. The back end of the quarter. Given the repricing, the term loan, and introduction of the securitization. So obviously, as you look at our quarter in Q2, that's what we improved in Q3 and Q4, through cost of debt. And then, you know, we will continue to pay down debt through the same half of the year, excluding any impact from M&A or any share repurchases.

And the second question is SG&A, 2020, '25 ran about 9% of sales. It was 8.2%, I think, in May, but dipped down to 7.9% this quarter. Are your kind of your expectations for the, well, I guess, is a percentage of sales the right way to look at it? Or what would you kind of your expectations be for the remainder of the year and maybe kind of an ongoing percentage?

Yes. I mean, I think that 8% number is fairly representative. Obviously, seasonality kicks in the back half of the year. So certainly in Q4, we're SG&A is a little bit more of a fixed cost. So the number that you're seeing in Q2, there really isn't any great pluses or minuses away from that through the end of the year. So it's gotta be more of a fixed number versus a percentage as you look at Q3 and Q4.

Okay. And just one follow-up to Adam's question. On the equity and earnings of unconsolidated subsidiaries. So we originally had like $1.4 million in the third quarter, and I think $774,000 in the February. So what I heard from you is based basically zero in the third quarter, and kind of maybe modestly positive or close to neutral in the fourth quarter for that? And that would be a veil obviously.

Yes, yes. I mean, guidance is zero for both. And I think some of the discussions that we've been having is there's certainly a sensitivity around about that, but we're going to get it wrong. We're going to get it slightly wrong in the upside or the downside. I would say in Q3, it's probably, you know, if anything, it's slightly wrong in the upside and then slightly wrong in the downside, you know, the seasonality of the WSI business has got kicked in Q4. So, you know, the determining factor in Q4 is gonna be how quickly they can ramp the overhead cost to, you know, be aligned to the current business. But really, as you look at the numbers, then, you know, in Q3 and Q4, it should be a very minimal plus or minus roundabout zero.

Okay. That's very helpful. Thank you very much.

The next question comes from John Franzreb with Sidoti and Company. Please go ahead.

Good morning, guys, and thanks for taking the questions. Actually want to go back to one of your responses to an earlier question about Precoat doing better in September. Do you have any idea or can you give us any color as to what's driving maybe recovery in Precoat during that month?

The only thing I would add is, there's certainly fluctuations month to month and, you know, inventory buying patterns plays a part into that. And obviously, they're still coming through our strong construction season. So shipments versus, sorry, building inventory versus depleting inventory. You're into that time period where, you know, you're starting to look at the end of the season and accommodate your inventory for that. And again, quite frankly, in September, we've seen a lot of our strength. So our customers, you know, if you take that one single data point, our customers are looking for a healthy end to the season. Would be my takeaway.

Okay. Great. And also, it also sounded like that maybe demand in the Washington facilities is maybe a little bit better than you expected. Can you kind of remind us or update us as to what the revenue contribution is in Washington that's embedded in your full year revenue guidance?

Yes. To be fair, we've not went into that level of detail. And there's still a lot of variations to take place. And quite frankly, we've got a sister facility in the simplest area and, you know, we'll use some of the volume from that to help ramp it. So it's not a black and white just looking at that single facility and how it's quite playing to do it, the overall results. There's still a lot to play out here. You know, we are, we started the production in April, and we're certainly progressing very, very well. But equally, we're cautious just in terms of what could be around the corner. So really don't like if it's specific numbers round about it, but, you know, what we have built into the guidance, we're certainly very comfortable with those numbers.

Okay. Fair enough. And one last question, if I may. The zinc prices have rebounded sharply from their bottoms early in the spring. Just maybe some thoughts or commentary on what you're seeing in the zinc market that might be helpful for us?

Sure. Yes, first thing is, yes, we have seen that, which usually makes, you know, opportunities for not that we base our price off of costs, were very value-pricing oriented. But usually when zinc goes up on the LME, customers understand that's gonna start to affect prices, so that creates some opportunities. Two, we've got six to eight months of inventory in our kettles, so it doesn't have much impact on our margin profile the balance of the year, our costs of zinc for the balance of the year. But clearly, that will start to color how we look at next year and as we're entering the process to put our plans and budgets together for the next fiscal year. But generally, I think it's going to continue on. But I'm not sure, yeah, I'm not sure we're gonna usually, when things start to change, when you see some spikes, and this has been more of a gradual increase, and generally, that's very manageable for us. So, yeah, minor impact on our outlook in metal coatings for this year. Clearly, as we start to put our plans together, it will be a talking point as we talk about however we end up guiding for the next fiscal year.

Great. Makes sense. Thanks for taking my questions. Appreciate it.

Sure thing. Thanks, John.

The next question comes from Jon Braatz with Kansas City Capital. Please go ahead.

Good morning, everyone.

Morning, John.

Tom, a couple of questions. On the metal coating business, you completed the Canton acquisition, I think July 1. How much of a contribution did Canton have in terms of revenues in the quarter?

It's revenues in the quarter million. Yes, a few hundred thousand dollars in contribution margin.

Okay. Okay, good. And it was like two months in the quarter, so we'll see a full quarter not yet going forward.

That's right.

And secondly, on the margin profile for the Metal Coating business, it's been very, very good over the last couple of years. And absent any significant change in zinc prices or the economy and so on. Is that range that you provided in terms of adjusted margin, adjusted EBITDA margin for that segment. Is that 20 that low 20 that lower end of the range, is that is that still relevant? Is there a point where maybe you feel comfortable raising that lower end and getting closer to the, you know, 30 to 32%, something like that? Absent again, absent any significant economic changes.

Yeah. We tend to, yeah. We haven't seen that that 20, the low end of that, or even very much think one quarter, we were below 30%, which was last winter. We had a rougher than normal Q4 last year. So you know, that was probably the only time in a while we've seen below 30%. But yeah. Like I think we're pretty confident in this, where we're at is 30% to 32%. We'll look at that as we go into the planning process. We just completed our strategic plan and we'll be rolling out some communication on that as we go forward. But yeah, we're pretty comfortable with their margin profile holding in the 30-plus percent range for the balance of this year. So yeah, we might get comfortable to guide to a tighter range on that.

Alright. Thank you very much.

This concludes our question and answer session. I would like to turn the conference back over to Tom Ferguson for any closing remarks.

Yes. Just a couple of things. I don't think we got any on share buybacks. Jason alluded to it. But we had kind of guided that we'd be buying that we what we issued 10b5-1 for $20 million at a couple of price points. Depending I think we're going to I'm confident we will get $20 million of our shares bought in over the next perhaps few weeks to a couple of months. And look forward to doing that and because we think we're still a great high value stock and business with, with an outstanding outlook, particularly as we finish out the choppiness of this year and look forward to next year. So thank you for joining us. We look forward to talking to you after our third quarter results.

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