July 2, 2008
Knobias Clip Report (07-01-2008)
By admin
Submitted By Knobias ClipReport
AZZ: Shares Gain on Solid Earnings; Rising Steel Prices
Tuesday’s session saw the Dow fall to triple digits on the back of renewed oil and financial worries. A better than expected manufacturing report provided a brief tailwind to the market, but it was quickly given up with on the beginning of a new quarter but with the same old problems. Tensions between Iran and Israel were also on the forefront of many traders minds with the employment report due on Thursday and the upcoming earnings season exacerbating their concern.
Late in the trading day though, a heavy anchor on the market was lifted when General Motors reported sales that were only off by 8.3% when the street was looking for a decline of 21%. The data sent the market into a rally, causing many to feel that the morning lows could have signaled a bottom. Only time will ultimately tell if it was correct. However, many were noting the market was a dead cat bounce since the VIX wasn’t at a level indicative of a bottom. Others responded with the fact that the VIX hasn’t been anywhere close to a level indicative of a down trend either which the market had been engulfed in the first place. Either way, the upcoming earnings season and energy prices will seem to dictate who is correct.
In the small cap space, one name to watch could be AZZ Incorporated (AZZ). The Company is a specialty electrical equipment manufacturer serving the global markets of power generation, transmission and distribution and industrial, as well as a leading provider of hot dip galvanizing services to the steel fabrication market nationwide.
Last Friday, the Company reported its first quarter earnings numbers that had many take notice. Keeping in tow with the thought that growing top line companies could be the way to weather a storm, AZZ’s revenues for the first quarter increased 33 percent to $100 million compared to $75.4 million for the same quarter last year. Net income for the quarter was $10.1 million, or $0.82 per diluted share, compared to net income of $4.1 million, or $0.34 per diluted share, in last year’s first fiscal quarter.
Backlog at the end of the first quarter was $141.8 million compared to the year-end backlog of $134.9 million. Backlog at the end of the first quarter of FY 2008 was $144.8 million. Incoming orders for the first quarter were a record setting total of $106.9 million while shipments for the quarter totaled $100.0 million, resulting in a book to ship ratio of 107 percent.
However, there weren’t any significant international orders in the first quarter of FY 2009. Also, the Company expected that 93 percent of the backlog at May 31, 2008 would ship in the current fiscal year. And finally, revenues for the Company’s Galvanizing Service Segment for the first quarter were $48 million, an increase of 39 percent compared to the $34.5 million in the same period last year. But 70% of the revenue increase was due to the Company’s acquisition of AAA Galvanizing in March.
Even so, steel names have become a favorite as commodity prices have increased while demand hasn’t slacked on infrastructure build out internationally. If the Company can build the backlog while still enjoying healthy margins and increase international growth, the name is certainly one to follow. Investors would be wise to watch.
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