AZZ 2027年度第2四半期決算説明会：過去最高の売上高と業績予想の上方修正

主要なポイント

• AZZが発表した2027年度第2四半期の売上高は、両事業セグメントでの2桁成長により前年同期比16.7%増の4億8,690万ドルとなり、過去最高を記録しました。
• 調整後希薄化後EPSは29%増の2.00ドルとなりました。営業利益は8,380万ドルに増加し、営業利益率は80ベーシスポイント拡大して17.2%となりました。
• メタル・コーティングス部門の売上高は、建設、産業、インフラ、輸送向け出荷量の増加に支えられ22.9%増加しました。セグメントの調整後EBITDA利益率は30.7%でした。
• プリコート・メタルズ部門の売上高は、コイルコーティングの出荷量増加、ミズーリ州ワシントン工場の稼働拡大、価格改定の効果により11.5%増加しました。調整後EBITDA利益率は100ベーシスポイント拡大し21.2%となりました。
• 営業キャッシュフローは1億280万ドルに達しました。当四半期末時点におけるAZZの流動性は3億7,640万ドル、直近12ヶ月間の調整後EBITDAに対する純レバレッジ比率は1.3倍となりました。
• 経営陣は2027年度の通期業績予想を引き上げ、売上高を18億2,500万ドル〜18億7,500万ドル、調整後EBITDAを3億8,000万ドル〜4億2,000万ドル、調整後希薄化後EPSを7.00ドル〜7.30ドルとしました。

主要財務データ

事業・業績の動向

メタル・コーティングス部門は22.9%の売上増を達成し、出荷量の増加が最大の寄与要因となりました。建設、産業、インフラ、輸送の各市場における需要増加に加え、インフレに伴う価格転嫁がプラスに作用しました。ロンドン金属取引所（LME）の亜鉛価格上昇に伴い亜鉛サーチャージを導入したことで、原材料価格の変動リスクが緩和されました。

同セグメントはスループットの向上と営業レバレッジにより、30.7%の調整後EBITDA利益率を維持しました。AZZによると、シアトル・ガルバナイジングの貢献は当四半期のうち1ヶ月分のみであり、同セグメントの成長の大部分は既存事業によるものです。買収した事業基盤により、AZZは太平洋北西部に2つの拠点を保有することになり、同地域最大級のめっき槽と新たなスピンめっき設備を獲得しました。

プリコート・メタルズ部門の売上高は11.5%増加し、調整後EBITDA利益率は100ベーシスポイント上昇して21.2%に達しました。ミズーリ州ワシントン工場は順調に稼働拡大を続け、今年度の目標貢献利益率を達成しました。経営陣は、同工場が年度末までに主要顧客向けに目標とする稼働率に達すると見込んでおり、残りの25%の生産能力の商業化にも取り組んでいます。

最終市場向けの売上高は、電力インフラ需要に支えられた産業向けが39.6%増と牽引しました。コンテナ向け売上高はミズーリ州ワシントン工場の寄与により153%増加しました。建設向けは15.5%増、インフラ向けは7.2%増、輸送向けは約4%増となりました。HVAC（空調）および家電向け売上高は、住宅着工の低迷を受けて合計で10%減少しました。

AZZは既存事業の生産能力拡大も進めています。テキサス州クロウリーの拡張拠点は堅調な市場環境下で稼働しており、カンザスシティとリノでもプロジェクトが進行中です。経営陣によると、これらのプロジェクトは概ね各1,000万ドル未満であり、既存需要に支えられているとのことです。タルサ近郊での新たな亜鉛めっきプロジェクトは、工場構成や不動産取得費用に応じて約3,500万ドル〜5,000万ドルとなる見込みです。

業績予想（ガイダンス）

上半期の業績推移とシアトル・ガルバナイジングの新規連結を踏まえ、AZZは2027年度の通期業績予想を引き上げました。

改定された負債削減目標には、シアトル・ガルバナイジングの買収費用5,750万ドルが反映されているものの、合弁事業の売却による現金収入で一部相殺されています。また、経営陣は今後も機動的な自社株買いを継続する計画であると述べました。

当四半期中、同社は平均取得価格146.71ドルで2,000万ドル相当の自社株買いを実施し、四半期配当を1株あたり0.24ドルに増額しました。

リスクと注視事項

鋼板母材の調達可能性は、依然としてプリコート・メタルズの顧客にとって制約となっています。経営陣によると、市場は2021年以来最もひっ迫した状態の1つであり、亜鉛めっき薄鋼板のリードタイムは7ヶ月以上にわたり9週間近く続いています。AZZ自体は母材を購入していませんが、製鉄所、ディストリビューター、サービスセンターを通じて顧客の調達を支援しています。

金利の上昇は建設活動を圧迫する可能性があります。しかし、経営陣によると、プロジェクトのキャンセルや遅延に関する報告は受けておらず、データセンター向け事業がAZZ全体の事業に占める割合は依然として比較的小さいと説明しています。

第4四半期の天候や建設業界の季節変動も不確実性の要因です。深刻な凍結や暴風雨により稼働日が減少する可能性があり、冬季の取扱量減少は第2四半期や第3四半期と比較して固定費レバレッジを低下させ、利益率を圧迫する要因となります。

アナリスト質疑応答の要点

• 成長の質：経営陣は、第2四半期におけるシアトル・ガルバナイジングの貢献は1ヶ月分のみであり、メタル・コーティングス部門の成長の大部分は既存需要、出荷量増加、価格調整によるものだと述べました。
• 設備稼働率：メタル・コーティングス部門はネットワーク全体で約60%〜70%の稼働率で操業しています。現在の能力増強は、全社的な生産能力の制約に対処するものではなく、特に需要が高い特定市場での能力増強を目的としています。
• 買収パイプライン：AZZは規模の異なる3件のボルトオン買収について活発な協議を行っていますが、経営陣は年度末までに完了するかどうかについては明言を避けました。
• キャピタルアロケーション：高リターンの自社成長投資が最優先事項であり、次いで戦略的M&Aおよび株主還元となります。維持更新および技術関連の設備投資需要は、通常年間5,000万ドル〜6,000万ドル程度です。
• 長期需要指標：AZZの事業は短期サイクルのため、従来の受注残高を保持していません。代わりに顧客の受注残高をモニタリングしており、メタル・コーティングス部門の主要顧客1社では、受注残高の伸びが約35%から44%へ加速しました。
• ワシントン工場の立ち上げ状況：経営陣は、同工場の収益性が月ごとおよび四半期ごとに改善し続けていると述べました。現在のペースが維持されれば、年度末頃にはプリコート・メタルズのネットワーク内で4番目に大きな拠点となる可能性があります。

決算説明会文字起こし全文

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決算説明会の完全なトランスクリプト

経営陣による説明

Operator

Good day, and welcome to the AZZ Inc. Second Quarter Fiscal Year 2027 Earnings Conference Call and Webcast. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Philip Kupper with Three Part Advisors. Please go ahead.

Phillip Kupper

Good morning. Thank you for joining us today to review AZZ's Fiscal 2027 Second Quarter Results for the period ended August 31, 2026. 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 of today's call is available at www.azz.com/investor-events.

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 and some of which are detailed 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 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.

Thomas Ferguson

Thank you, Philip, and good morning. We delivered record second quarter sales up 16.7% from the prior year, reflecting strong execution, a resilient business model and the strength of our growth strategy. Our performance and market demand continue to validate the investments we made to expand capacity, strengthen customer partnerships and enhance our market positions. Segments achieved record quarterly sales. Metal Coatings sales increased 22.9%, driven by higher volumes across the construction, industrial, infrastructure and transportation end markets, along with inflationary price increases passed through by our team.

Segment adjusted EBITDA margin remained strong at 30.7%, benefiting from operating leverage on record sales and volume. While LME zinc prices have increased, our pricing model and associated surcharge mechanisms continue to mitigate raw material price volatility. Freeco metal sales increased 11.5%, driven by volume growth from the continued ramp of our Washington, Missouri facility and value-added pricing initiatives, primarily to offset inflationary pressures on paint and other items. Segment adjusted EBITDA margin expanded 100 basis points to 21.2%, reflecting higher throughput and solid operational execution.

During the second quarter, we completed the acquisition, integration of Seattle Galvanizing Company, establishing AZZ's presence in the Pacific Northwest. This acquisition expands our position in an attractive region that is experiencing favorable demand in the infrastructure, industrial and construction markets. The acquisition adds a high-quality multisite platform, including the region's largest galvanizing Kettle and a new spin galvanizing facility. Extending our footprint into a new 5-state region. Our growth strategy balances disciplined acquisitions with value-accretive organic investments that strengthen our competitive position.

In Metal Coatings, we continue to expand capacity where demand fundamentals remain strong and returns are attractive. Our recently expanded Crowley, Texas facility is providing additional capacity in a strong growth market reinforcing our ability to capture demand and generate attractive returns on invested capital. We will discuss U.S. end market demand in more detail in a moment. We have also initiated a new greenfield hot dip galvanizing plant in the Tulsa area linked to a major anchor customer. We have other greenfields in the works and hope to be able to discuss those in more detail later this fiscal year.

The strength in infrastructure and the long-term outlook is creating opportunities for us to partner with major customers as they expand their capacity. We also continue to advance strategic business development initiatives through our deeper acquisition opportunities. These partnerships allow manufacturers to divest noncore galvanizing and coil coating operations while securing a long-term relationship with AZZ. These opportunities offer AZZ, a capital-efficient pathway to expand capacity deepen customer relationships and gain market share.

Our pipeline remains active and provides a meaningful opportunity for future value creation. At Precoat Metals, the Washington, Missouri facility continues to ramp as planned. We remain on track to reach targeted utilization levels with our strategic partner, while commercializing the remaining capacity. The facility has already achieved its expected contribution margin targets for the year and performance within the beer and beverage packaging category remains solid. Waston has already become an important contributor to Precoat's future earnings growth, and we look forward to his continued progress.

Technology remains a key enabler of our strategy. We are leveraging AI and proprietary digital tools to enhance productivity, improve operational efficiency and scale our businesses more effectively. By integrating AI into our enterprise platforms, we are streamlining software development and operational workflows while accelerating better data-driven decisions. Across both segments, our digital platforms are increasing visibility and improving operational consistency. Our Metal codes Digital Galvanizing System and precoated metals coil 1 platform, strengthens customer experience while reinforcing our competitive advantages and operational excellence.

We will continue investing in value-accretive opportunities, allocating capital with discipline, expanding our market leadership and delivering exceptional customer service. With a strong balance sheet, differentiated capabilities and a proven operating model, we believe we have the right platform to benefit from the long-term investment trends shaping our end markets. These trends provide a meaningful opportunity to drive profitable growth and create long-term shareholder value.

With that, I'll turn it over to Jason.

Jason Crawford

Thank you, Tom. We delivered record quarterly sales of $486.9 million, up 16.7% year-over-year, with double-digit growth in both operating segments. Gross margins expanded 80 basis points. Adjusted diluted EPS increased 29%, and we generated $102.8 million of operating cash flow. By segment, Metal Coatings sales increased 22.9%, reflecting continued momentum in the construction and industrial end markets. Precoat metal sales increased 11.5% and driven by higher coil coating volume, the continued ramp-up of the Washington, Missouri facility and pricing actions in response to higher material input costs. These gains were partially offset by softer volume in the HVAC and appliance end markets.

From a profitability standpoint, gross profit was $122.1 million or 25.1% of sales representing an 80 basis point improvement year-over-year. This reflects favorable mix, pricing discipline and improved operational execution. SG&A expenses were $38.3 million or 7.9% of sales, which was flat against last year's quarter. However, excluding this year's $2.8 million in acquisition-related costs mostly associated with the Seattle galvanizing transaction, SG&A as a percentage of sales improved to 7.3%, reflecting operating leverage on higher revenue.

Operating income increased to $83.8 million or 17.2% of sales, an improvement of 80 basis points versus the prior year. reflecting strong operational execution and leverage on higher volumes. Turning briefly to the Vale JV. As a reminder, our second quarter of the prior year included $59.3 million in total equity and earnings, a substantial portion of which was attributable to the remaining gain recorded on the divestiture of the Electrical Products Group. During this year's second quarter, we recorded $7.3 million of equity and earnings related to the sale of the lighting business. Separately, we received an $18.2 million cash distribution as part of the Vail divestitures, which netted to $15.7 million in our cash flow statement after accounting for less taxes paid by Aval on behalf of AZZ. Our JV partner continues to pursue the divestiture of its remaining assets, which operationally now consists of the Welding Solutions Brazil business.

Interest expense improved to $10.8 million, down $0.9 million from the prior year, driven by debt reduction and capital market initiatives discussed in more detail in our SEC filings. The lower interest expense reflects our continued focus on managing our overall cost of capital and strengthening our balance sheet. The second quarter's income tax expense was $21.3 million which reflects an effective tax rate of 26.7% compared to 21.9% last year. Last year's lower tax rate was due to an increase in R&D tax credits attributable to the technology spend in the new build Washington Zuri facility.

GAAP net income was $58.5 million and adjusted diluted EPS was $2 up 29% year-over-year. The increase reflects the combination of revenue growth, margin expansion and lower interest expense. Consolidated adjusted EBITDA was $110.9 million or 22.8% of sales. Infrastructure Solutions adjusted EBITDA moved from a loss of $2.3 million in the prior year second quarter to a small income of $0.1 million in the current quarter, further reflecting the impact of divestitures in the JV. Metal Coatings adjusted EBITDA margins remained strong at 30.7%, while Precoat Metals adjusted EBITDA margin improved to 21.2% supported by operational performance and product mix from our Washington, Missouri facility.

Volumes at the facility continued to ramp in line with expectations, and we remain on track for it to continue to contribute meaningfully to segment revenue and profitability in the second half of fiscal 2021. Turning to our cash flow and balance sheet. AZZ generated $102.8 million of operating cash flow during the quarter, demonstrating the fundamentals of our business model and converting EBITDA into cash and strong working capital execution. As of August 31, our total available liquidity was $376.4 million, providing ample flexibility to fund both organic and inorganic growth opportunities. As noted, we completed the acquisition of Seattle Galvanizing during the quarter, establishing our Metal Coatings presence in the Pacific Northwest. This transaction expands our geographic coverage and customer service capabilities, while providing a premier platform for future growth.

We continue to evaluate a healthy acquisition piling across both segments against our strategic and financial criteria. Our balance sheet remains a distinct competitive advantage. During the quarter, we reduced debt by $15 million and ended the quarter with a net leverage of 1.3x the trailing 12 months adjusted EBITDA. Capital expenditures for the quarter totaled $18.5 million, with a growing focus on high-return organic investments. Capital allocation priorities continue to include returning capital to shareholders while investing for future growth.

During the quarter, we repurchased $20 million of stock at an average price of $146.71 per share, increased our quarterly dividend to $0.24 per share and completed the Seattle Galvanizing strategic acquisition. These actions demonstrate the strength of our cash generation, the flexibility of our balance sheet and our commitment to creating long-term shareholder value. Overall, the quarter reflected strong execution margin expansion, cash generation and disciplined capital deployment.

With that, I will turn the call over to David.

David Nark

Thank you, Jason. Good morning, everyone. Our consolidated year-over-year sales growth of 16.7% reflects broad-based strength across our end markets. Sales related to construction grew 15.5%, driven by manufacturing projects, including semiconductor and large data centers. while industrial sales increased by 39.6% on strong utility scale power demand, Infrastructure sales grew 7.2%, supported by electrical and transmission and distribution activity and transportation, namely bus and semi-trailer activity increased approximately 4%.

Container sales rose 153%, benefiting from the performance at our Washington, Missouri facility. Somewhat offsetting these gains were HVAC and appliance markets, which remained soft in the quarter, collectively declining 10% due to the continued weakness in new residential construction. Looking ahead, Industry forecasts and customer activity continue to support constructive outlook for investment across our end markets over the coming years. Projections call for approximately $1.3 trillion of U.S. utility capital investment between 2026 and 2030, including more than $500 billion dedicated to transmission and distribution infrastructure.

Reinforcing this trend, the Department of Energy recently announced 31 grid modernization projects across 26 states under its Spark initiative. Representing a $5.25 billion investment focused on transmission upgrades, reconductoring and grid-enhancing technologies. These projects are expected to unlock more than 23 gigawatts of additional capacity while accelerating the modernization of the nation's electric grid. We continue to see investments translate into tangible customer demand. For example, 1 major utility structure customer has reported that backlog growth has accelerated from approximately 35% earlier this year to 44% in its most recent quarter. This momentum, along with sustained order activity throughout the grid infrastructure value chain support our positive long-term outlook for many of our end markets.

With that, I will turn the call over to Tom.

Thomas Ferguson

Thank you, Dave. As you've heard today, our record second quarter performance reflects the strength of our business model, the benefits of our strategic investments and the exceptional execution by our employees across AZZ. We continue to see healthy demand across our core construction, industrial and infrastructure markets, supported by powerful long-term trends in grid modernization, electrification, manufacturing expansion and domestic infrastructure investment combined with our expanding geographic footprint, growing capacity, digital capabilities and strong customer relationships, we believe AZZ is well positioned to capitalize on these opportunities and extend its market leadership. .

Reflecting our strong first half performance and confidence in the underlying fundamentals of the business, we are raising our fiscal 2027 outlook. We now expect sales of $1.825 billion to $1.875 billion, adjusted EBITDA of $380 million to $420 million, and adjusted diluted EPS of $7 to $7.30. We will also expect to reduce debt by $100 million to $140 million during fiscal 2027, further strengthening an already strong balance sheet, and we'll continue to opportunistically purchase shares of AZZ stock.

Looking ahead, we remain confident in our outlook and focused on executing strategic priorities, which remain clear: execute safely and efficiently. serve our customers, drive profitable growth, allocate capital with discipline and create long-term value for our shareholders. With a differentiated market position, strong competitive moat, ample cash flow generation, attractive organic and acquisition opportunities and favorable secular demand trends, we remain confident in our ability to deliver sustainable earnings growth and increasing shareholder returns over the long term.

I want to thank our employees for their continued dedication to serving our customers and delivering outstanding operational performance.

With that, operator, we are ready to take analyst questions.

Operator

We will now begin the question-and-answer session. [Operator Instructions] The first question today comes from Ghansham Panjabi with Baird.

質疑応答

Ghansham Panjabi

Good morning, everybody. I guess, first off, going back to the second quarter and the upside, if you could give us some more color as to what drove that upside. Clearly, you raised the guidance for the full year, so 2Q came in above, but you also left the back half relatively intact versus certainly what we had originally. So just curious as to what drove the upside in 2Q?

Thomas Ferguson

Yes, a couple of things. This is Tom. One, we're factoring in the acquisition of Seattle Gal that's performing well. So I gave us confidence. We got off to a good start with it. So we've rolled that in. Second, both segments are operationally performing with the volumes and the demand they have real good about infrastructure spend, industrial in many parts of the country. So we felt good about that. I think the uncertainty for us is always how does winter turn out in the fourth quarter. That tends to be our softest I'll call it, our softest opportunity if we get -- as we did a while back, we get hard freeze, difficult storms, we lose working days.

But -- and so until we get closer and can see how winners looking, which will be after the third quarter puts us into January. That's when we have a really good look at how things look. And so we're still somewhat conservative, but we feel good in both segments. Both segments being up. Pricing has flowed through. We've got surcharges attached on Zinc LME. So we feel protected on that. Just lots of positives for us.

Ghansham Panjabi

Okay. Terrific. And since the last time you reported, obviously, interest rates have step function significantly higher. Construction is almost 60% of your end market exposure and data centers have been a very fast growing sort of vertical for you, but there seems to be more public backlash against them moratorium including where we live in Texas, et cetera. So -- how are you sort of thinking about those factors as it relates to the outlook as we -- not just the back half, but certainly into your fiscal year '28? .

David Nark

Yes. Ghansham, this is David. I think we continue to monitor that situation. Obviously, interest rates going up is never good for construction overall. However, our customers and what we're seeing in the backlog with our customers, gives us really good confidence as Tom mentioned, for the outlook for the remainder of the year and as we head into next year, thus far, we've not heard of any cancellations or delays. So thus far, right now, it's steady as she goes, and we feel pretty good.

Thomas Ferguson

Yes. And I'd add, Data center is still a pretty small portion of our total business. So when we look at got to build out the fixed transmission distribution. We're still lots of rebuilding of the electrical grid going on and lots of power generation that still has to come in where people are moving to we look at it. We see the opportunities. We like them when we see them in our plants. But we're not really that dependent on it in the overall. It's been nice tailwinds. .

Operator

The next question comes from Richard Garcia with Barclays. .

Unknown Analyst

Great. Thanks and solid quarter, everybody. My first question is in terms of the impact of the sale galvanizing on me coatings, can you break out how much of the growth in that segment came from the acquisition versus organic growth? .

Jason Crawford

Yes. To be clear, it's Jason here. Very level came from the acquisition. And if you think of the acquisition that really only contributed 1 month in the quarter. As you look at the overall growth, then it's all fundamental to the underlying business. .

Unknown Analyst

Okay. Great. So more to look forward to there. And then maybe in terms of the in the environment, the market environment, we're seeing obviously still tight steel markets. Is that causing issues for your customers obtaining substrate lead times 8 to 10 weeks for some products. How is this maybe an impact? And does this maybe actually provide further visibility into next year in terms of strength in terms of the order book?

Thomas Ferguson

Yes, I'll answer the first part. Maybe Jason, let's take a shot at the second part. But substrate is affecting us primarily on the pre-coat side. it's -- they've got a lot of customers that just can't get it in the time frame they need. So -- and of course, the costs are up. So it's made the opportunities a little tighter. And as they look at things, we're obviously trying to work to take market share where we can. And we're trying to help our customers find substrate. So we formed a team now that helps them with logistics helps find.

Obviously, the tariffs don't help with the imports, but we're still trying to help customers find stuff, whether it's import or domestic and work in the service center inventory is really hard. So I think that's how we're partnered with our customers. It's what we do, and we're doing more of it, actually dedicating resources to it instead of just as we used to. -- through our normal customer service. So I think it definitely has an effect. We'd love to see it free up. If it does, I think there's more opportunities out there for us.

Jason Crawford

Yes. And I think in the kind of medium-term visibility as much as a very dynamic market out there that's changing very quickly and as Tom highlighted, the imports seen is not necessarily helping us today. The idea hope is that starts to free itself up a little bit. But at the moment, given that we probably carry plus or minus 3 months' worth of inventory in our warehouses. We've got a reasonable visibility through the end of the year and where that's coming from. And we'll stay close as we get into our next fiscal year.

Operator

The next question comes from Daniel Rusa with Jefferies.

Daniel Rizzo

So you mentioned the backlog, and you talked about this a little bit. You said it's up to 45% -- can you just kind of provide color on how that works? What does that mean in terms of dollars? And I mean, is there -- what's the lag of flow through it? How should we think about it? .

Unknown Executive

Yes. And just to be clear on that one, Daniel. That's 1 of our big customers on the Metal Coatings side who has that backlog increase. So we, of course, at AZZ don't have a backlog. Our business is more short cycle. But what we do is we use customer backlog like that 1 and others as a proxy for what we can expect in the future going forward. So that's how we look at it. We spend a lot of time with the teams on our weekly calls on both sides of the segment to get updates on the demand outlook in each of our end markets. But as Tom mentioned on the call, I think we feel very comfortable this year throughout the balance of the fiscal year. And as Jason said, we'll continue to monitor that looking forward into next year. .

Daniel Rizzo

And you mentioned doing the acquisition in Seattle. Is the Pacific Northwestern area where we can maybe look to also increase density further? I mean, is that a ripe opportunity for more consolidation or just acquisitions?

Thomas Ferguson

Yes, it is. There are some others up there and having an anchor facility, if you will, or anchored 2 facilities. that gives us the -- we love to have capability in a region or in an area so that we can always provide great customer service. whether it kettles down for maintenance or for whatever might be going on. So there's opportunities up there. There's other companies, other facilities, and that's part of our pipeline. .

Operator

The next question comes from Timna Turners with Wells Fargo.

Timna Tanners

Wanted to follow up on the earlier question about steel availability. The largest buyer, 1 of the largest buyers of flat rolled last week said they were not able to get enough steel to meet customer demand. So granted, it's helpful to hear about your 3 months of inventory. But can you just elaborate a little bit more on any mechanisms to ensure that you have sufficient galvanized supply because this is just sorry, substrate supply. It just seems like a huge topic that doesn't seem to be getting better in the short term. And also, can you explain if you are important because imports have fallen pretty sharply on flat-rolled, but trending back up on hot rolled. So just if you could elaborate more on your strategy for substrate availability.

Thomas Ferguson

Yes. I think -- so it's our customers. We don't buy any substrate ourselves in. So the inventory we have in our warehouses is customer inventory that we're warehousing for them until they need to paint it or warehousing it for them after we've painted it. So for us, that's why our teams work with distributors, suppliers, service centers, we keep tabs on the mills. So we try to help direct our customers to where we find substrate available, which they also have their own resources doing that in many cases. So that's where we play in the value chain is.

We contact -- we obviously have contacts with a lot of service centers, a lot of distribution in all the mills. So we kind of play in that gap of trying to connect our customers with available substrate. But it's tight. We see it every day, particularly galvanized sheet metal, it's difficult. So -- but we've been facing that now for a while. This is not new. I think it's just now getting the news more broadly, but we've been facing that all year. So -- and we've dealt with it and helped our customers. As part of our value add for customers is being able to do that for them and try to connect them so that they can be competitive on and fulfill the projects that they've already committed to. I don't know if David wants to add anything to that.

David Nark

Yes, I would just add a couple of things. It's been a tight market. It's 1 of the tightest substrate markets since 2021. section 232 running 50% is not certainly helping things. It's taken out a lot of steel out of the market. I think domestic mills have added some, but not enough. Some of that is going to more pipe and tube customers as well. And then when you look at just the galvanized lead times on some of the stuff coming from the mills, not our galvanized product, but again, flat roll. It's looking like those are now out around 9 weeks and have been running that kind of 9-week lead time for over 7 months, which again is kind of along the lines of what we saw in 2021.

So summing that up, I'd say what Tom said, it's a tight market. Things don't look to be getting any better, but we're out there making sure that we're working with our customers to find anything that we can.

Unknown Executive

Sorry, Tim. The only thing I'd add on top of that is when substrate does come available, then precocbusiness model allows us to store our customers' materials. So at any given point in time, there's spot of opportunities. And as you highlighted, imports a little bit tight at the moment. But there's a windows where it opens up and given our warehousing capabilities, then that's where our customers take advantage of our business model.

Timna Tanners

No, that's helpful and more imports seem to be on the way. So I appreciate that color. Just on gross profit margin in the second half. first half steady as kind of typical quarter-over-quarter holding up nicely. But should we assume like a similar cadence into the second half from the first half as in past years, in terms of like the seasonal impact on gross margins? Or are there any other factors we should be considering for the cadence there?

Thomas Ferguson

Yes. I would add as you think your second half margins and most specifically Q4, we will lose some momentum there just by leverage of our fixed cost basis volumes are down just in that weaker construction season for us it's December, January, February. Certainly, Q3 and Q2 more of Q2, we should have relative very strong margins and continue that. The only thing to know bottom beyond that is the impact of the Washington facility. It certainly had an impact in Q2. And we highlighted in our commentary, that will continue to have a greater impact going forward.

So we get the tailwind to that. But certainly, Q4 should be relatively in line with where we've been seasonally historically. And I'd also add, because we've pushed through price increases due to the inflation that those price increases have taken effect. And so we'll feel that in even or so in the back half of the year for metal coatings, particularly.

Operator

The next question comes from Adam Thalhimer with Thompson Davis.

Adam Thalhimer

Congrats guys, nice quarter. Tom, you mentioned the Tulsa Greenfield, and then you said there were other greenfield galvanizing opportunities. I'm curious if you can elaborate on those and if there's an underlying trend that's driving those opportunities?

Thomas Ferguson

Yes, a couple of things. One, I probably should refer to the 1 up around Tulsa as brownfield because it's adjacent to our existing -- 1 of our existing facilities. So even less risk because we've got a team already there. But it's coming about because of the increased capacity to address the high demand on infrastructure. So -- this is not so much to serve existing capacity. It's where some large customers, particularly in the infrastructure and industrial side are adding capacity and we're aligning ourselves with them. And that's why it's relatively new. It's the kind of thing that as we came into this year, we were not seeing those kinds of opportunities. But we've got several of our major customers look either looking at or that are expanding their capacity.

And we've been partnering with them. So we've got the 1 that we've announced and got the real estate and all that for. And then we've -- I don't want to commit too much right now. We're still working 2 or 3 other opportunities. We'd love to be able to talk about those as the year goes on. In some cases, they would be in new area for us, in some cases, they're where we already have capacity, but this will be more fully committed to the new customer capacity coming online. The other thing to keep in mind is this is a new state-of-the-art best facilities we're going to be making.

So it gives us the capability to be more efficient, more productive, have a design that keeping in mind the last time we built -- well, we built a couple of plants, but the last greenfield we built was Reno but obviously, we know how to construct plants. We know how to maintain them. We understand all of the technology that goes into them. So we feel real good about this. We feel real good about commitments. As we did in wash melt where we had the anchor customer for 75% of the volume. These aren't quite as extensive, but having an anchor customer allows us to ramp up with confidence in that we're going to have the demand available instead of having to go find it and chase it.

Adam Thalhimer

And can you remind us what the investment is, I feel like it's relatively modest.

Thomas Ferguson

It is -- yes, by far. It's $35 million to $50 million depending on whether it's going to go in for a large structure plant or whether it's more of a general use plant -- so you can use the $35 million to $50 million. It also depends on what the real estate values turn out to be. But -- so that's the range. .

Adam Thalhimer

Okay. And my follow-up was more on the M&A side if you're still focused on that. And if there's a potential for something else before fiscal year-end?

Thomas Ferguson

Yes, we're working on some -- I think David had said it. But yes, our pipeline is full. We're very active. We -- they're all bolt-ons. -- all in our strategic for the most part, middle of the fairway. Love to see us close one. They're so hard to predict. But yes, we're working on. We've got 3 that I would consider active I'm not going to try to prognosticate on whether they're high probability by the end of the year or even if we can close them. But that gives you an idea. We're in active discussions on 3 different deals of 3 different -- significantly different sizes. And that's just the market out there. There's consolidation opportunities. There's -- we're always looking well, I shouldn't say that.

There was a period where we were just paying down debt, and we're looking at deals for the last year. Obviously, we've been more active in completing the Canton deal and now the Seattle Gal. So I think the team feels like we've got a good pace going. We've got active discussions. I'd love to see us close 1 by the end of the year, but I'm not going to -- I'll hedge that statement.

Operator

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

Nick Giles

Congrats on strong quarter just wanted to clarify, if I'm not mistaken, the debt reduction target was reduced from 130 to 170 to 100 to 140, is that just a function of cash being used for the acquisition or just maybe preserving cash for other opportunities? .

Unknown Executive

It's 100% the former in relation to the acquisition that we just made -- if you look at that, it was $57.5 million and slightly to materially offset by -- we equally did not have our cash flow, the cash that we received from availing the quarter either. So net-net, there's $40 million that was not in our original prediction there. .

Nick Giles

Got it. Okay. And then maybe just to back up on how you're prioritizing capital allocation? I mean shareholder returns have increased sounds like the M&A pipeline continues to be active. Where do kind of some of the organic growth opportunities that you've outlined in the past fit into that, whether it be asset optimization or margin expansion opportunities? And what could the capital intensity of those be? .

Unknown Executive

Yes. I mean, to be fair, they are by far our #1 priority. Obviously, the return the greatest returns for us. So -- we continue to look at them and evaluate them and prioritize them. There's only so much the business is going to absorb at any given point in time. So we continue to feed the pipeline there. Above and beyond that, I think as Tom just kind of outlined M&A is very much a strategic priority for us. we need 2 people to come to the table there. And if you look at the Seattle acquisition then, it took a little bit longer than what we'd originally anticipated. So hence, Tom, kind of hedge in terms of further for this year. But certainly, we've got the capability of that when they become available that we can go execute on them.

And then obviously, the introduction in this quarter is the greenfield stroke brownfield opportunities that we are seeing and 1 that came to fruition and others that are in the pipeline. If you look at our our capital available, then all of the above, very much fits within our strategic plans and included within that is further returning capital to our shareholders, as we've outlined previously. So I don't think we're necessarily changing anything that we spoke about previously other than the slight introduction of the greenfield facility

Thomas Ferguson

Well -- and I would add that we have -- we mentioned some expansion. So we've expanded a cattle in Crowley, we're expanding in Kansas City. We're expanding ground-line coatings in Reno. So we've got several of those. At any given time, the team's got 3 to 6 of those kind of things, they're sub-$10 million investments, but they're almost immediately accretive because there's existing demand as soon as we get them started up, which is what happened in Crawley. So -- so that is -- we've got a lot of focus on that. The metal coatings folks put a team in place to help facilitate that to make us more efficient at it or -- and to be able to move capacity increases more quickly.

So we feel very good about our structure for it. We feel real good about the team and the capabilities and just we're going to continue to move quickly and if anything, accelerate some of that.

Operator

The next question comes from John Franzreb with Sidoti & Company.

John Franzreb

I'd just like to circle back on the Seattle acquisition. And I might have missed this, but what was the revenue run rate on an annual basis before you acquired the company? You mentioned a stub period in the quarter. And also, what's the operational contribution profile like of the business compared to the legacy Metal Coatings business?

Thomas Ferguson

It was -- like I said, there's -- I think we noted there's actually 2 facilities, the main facility, which fits probably in the top #3 of the fleet in terms of size and contribution, we usually don't give specifics. But yes, consider it in the top #3 of the of the average fleet size, if you will. And from a contribution perspective, it's above somewhat -- a little bit above the fleet average margins. So -- and we'll continue to improve that. We've -- as we do, we jump in with things like digital galvanizing system, our playbooks.

And it was a great facility before, and we hope we can with our sales efforts and the ability to invest in the site, make it even greater and they had built a pretty much a new spin plant. We like the spin work. That's the smaller components, high-quality high volume. And so we're looking to get that filled up fairly soon. So that's just pure new opportunity.

John Franzreb

And the revenue run rate? .

Unknown Executive

I mean at this point, we don't necessarily give out the revenue run rate or the financials or the specific acquisitions. The -- $5 million acquisition that essentially never included the land and building. So as Tom mentioned, it's -- if you think of our facilities, it's the premier end in terms of volume and margins.

John Franzreb

Okay. Fair enough. And regarding the price increases, what was the impact on revenues in the second quarter for the price increases to reflect higher inflation? .

Unknown Executive

Again, I don't think we'll go into the details in terms of breaking out the revenue and how much of that is price from volume mix. certainly contributed to both businesses, as I think we've previously highlighted from a galvanizing point of view, we've got some premiums just in association with the increase in zinc pricing. And then from a preco point of view, the pass-through of the pain prices paying price increases that we've seen at the start of the year. play a part. But what I would say for both businesses is volume is the strongest contributor to the increasing sales numbers.

Thomas Ferguson

Yes. And I would add. So on the Metal Coatings side, they put their zinc because zinc has been moving up and it reached the level. They -- in the quarter -- in the yes, in the second quarter, they put the surcharges in place. So those are still just now starting to take -- show any real effect along with the base price increase to just deal with a lot of the inflation that have already been flowing through on everything other than sync. And as Jason said, on the precut side, they they'd had to put price increases through earlier because of higher prices on paint. So that's more embedded in the precoat side.

John Franzreb

And I guess 1 last question, and I know this might be nothing burger considering your tolling model, but does high diesel costs come into play regarding customer demands or impact you in any way?

Thomas Ferguson

It does. It's -- we have our own -- a lot of our own trucks. And so we feel it on that, but then we're passing that through to the customers. In terms of I think it works for our model because customers don't want trucks sitting on highways or going on highways any longer than they have to. So the closer they are to our facility. The better. and because of our large network of facilities, they can pick an easy site and not have to pend as much on those high transportation costs because of diesel. So that's how it plays out for us. Customers are going to put stuff on trucks. They're -- but they want to send it to the site that's as close as they can to minimize the fuel cost. .

Operator

The next question comes from Mark Reichman with Noble Capital Markets.

Mark La Reichman

Within Metal Coatings, I mean you already kind of talked about the organic volume growth, the pricing and the acquisitions. But how sustainable is the underlying volume growth? And which end markets do you think offer the strongest opportunities through fiscal year 2028?

Thomas Ferguson

I'll answer the first part of it and David may want to chime in on the markets. Continuing at a 20% growth clip or whatever. I wouldn't expect that we start to lap tougher comps in terms of quarter-over-quarter as we get later in this year. On the other hand, that base growth and those volumes we don't see those declining. We just -- at some point, it's going to be a lower growth rate but still with the volume. So we've got capacity available. We're running all out in a handful of our locations. We're running really solid in most. So we've got the capacity to continue to take the volume in spite of the other than where there's new capacity that's going to be coming online with some of our customers, which is related to the brownfields and greenfields. So we feel real good about that or we want to be investing in new capacity.

Unknown Executive

Yes. Just speaking of that, on the new capacity, -- in terms of the capital expenditure guidance, I mean, what's the split between maintenance and growth? -- maintenance capital versus growth capital. And I would categorize an expansion as growth .

Thomas Ferguson

Yes, yes. And to be fair, the expansions are still to factor through into our forecast, obviously, the recently announced greenfield is the capital comes a little bit later in the cycle. If you look at our forecast, as we commented, we're turning more of it to investments and returns. There's not a sustaining part there that impact a number. It's somewhere between $50 million and $60 million. a fine line between sustaining and developing as you bring in new technology, then you're getting the return and increased productivity. So classifying it between left and right bucket, I guess a little bit great. But in a normal year, spending $50 million to $60 million is what we expect just to maintain our technology levels.

Mark La Reichman

That's helpful. And then just lastly, we're in kind of this interest rates are going up. The Fed seems to be kind of on a hiking cycle. -- the economy seems a little more uncertain. And I'm just wondering, do you think that AZZ can sustain above-market organic growth while expanding margins? Or do you think that you might become a little more active on the acquired growth front. Just kind of your view on kind of over the next 3 to 5 years, kind of what you're expecting kind of an organic growth rate and what you perceive is maybe needing to accelerate growth with acquisitions.

Thomas Ferguson

Yes. Great question. I think as we're talking about, so we completed the Washington facility, which is with a $125 million capital investment and brought that in and of course, ramped it up, and it's a highly complex modern site with lots of new technology, and we feel real good about our ability to do that. On the Galvanizing side, when we're talking about brownfield and greenfield is they take about 18 months to construct and bring them into production. So as we layer in those, we'd love to see them ramping up and having an impact basically every year so that we've got that new capacity coming on for -- and then in terms of these other investments, as I mentioned, they're relatively quick hits when we're expanding kettles, adding ground-line coatings adding on the precode side, it could be adding a blend cell.

So that's bringing in other services or expanding our service offering. And and we've been focused on that. If anything, that's just -- as Jason just said, we're going to ramp that up even further and be more aggressive with it because we put the resources in place to support it without our day-to-day operations. So -- but on the other side, I think we will be doing acquisitions. We have the cash available for it, the capital available for it. We'll stick to as far as we're concerned right now, we're going to stick to what we know well, which is coil coating and hot dip galvanizing and keep our focus around that as we love the idea of helping a customer taking over their galvanizing and so that they can be vertically disintegrate, if you will. So I think that plays into -- but yes, we're going to be active on there, good opportunities.

We're not going to chase bad deals. I think we've demonstrated our history is we tend to chase the deals that make sense to us that we can bolt on and we can operate that we can bring value to and we're going to be aggressive with that. So we've got a team focused -- well, both segments are focused on it, and then it's imported here from the corporate side. So I think that will play a bigger and bigger part as you talk about 3 to 5 years out and we get those deals done over the next couple of years and then grow them.

Operator

The next question comes from Eric Boyes with Evercore ISI. .

Eric Boyes

On thank you First question on metal coatings capacity. I appreciate the comments on the expansions at Crowley and Kansas City and Reno. But maybe rough order of magnitude, can you give us some sense on how much these are expanding capacity? Are we talking like mid-single-digit percentage? Is it teens? Is it more than that? And then I have a follow-up. .

Unknown Executive

Great question. When you look at it, it's probably to your kind of outlying near mid-single digits. When you look at it, we've got 3 facilities and some facilities a bit multiple kettles, so expanding and adding the kettle. -- certainly addresses some opportunities that we have in those specific geographies. across our fleet, then we're still somewhere between 60% and 70% capacity utilization. So with plenty of opportunity for growth. This is really just specifically addressing growth within individual geographies.

Eric Boyes

That's great. And then my second 1 is on the precoat side. You mentioned that Watch mois on track, but maybe could you just expand on where it sits today, kind of in terms of utilization and remind us on the remaining ramp time line .

Thomas Ferguson

Yes. Q2 was a solid quarter for the Washington facility, a solid quarter for the business in total. As we spoke about previously, we're challenging ourselves to get to that 75% anchor customer get them ramped up. I would say, in the quarter, we are well within that path we will get there to the end of the year. We're certainly from a sales point of view, much closer -- as you look at it from a profitability point of view, the facility continues to improve phenomenally quarter-on-quarter, month-on-month. There's still some more opportunity there.

I think as we've commented historically, we're now actively working that other 25% when the right opportunity comes in, then we'll start to bleed that in. But certainly, that could be in the second half, but you look at this facility, and there's a lot to it. And we're certainly being very cautious -- as we work in that facility, then we certainly don't take any steps parkland touchwood, we have not been there up to this point, and we continue.

Unknown Executive

Yes, one Of the things I'll add is if it continues at this pace, and we have no reason to expect it not to, it's probably going to be the fourth largest site in our fleet as we hit the end of the year and go into the next year. So we feel really good about it. And kudos to the team for being a wrap up such a complex project in and in some cases, with -- we had not done a prep line in any of our other facilities, and we've been able to ramp that up there, which gives us confidence that maybe we can do that in other places. So it's created some opportunities for us to look at and provide additional growth just because of the things we've been working with our partner on at the Washington site. So exciting on multiple levels from our perspective.

Operator

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

Thomas Ferguson

Thank you for joining us this morning. Hopefully, what you've heard from us is we've -- we're pleased with our results year-to-date. We're confident about the future and look forward to talking to you after the third quarter. Have a great day. .

Operator

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