AZZ Inc

NYSE:AZZ

Q2-2026 Earnings Call

[Operator]

Good day, and welcome to AZZ's Second Quarter Fiscal 2026 Earnings Conference Call and Webcast. [Operator Instructions] 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.

[Sandra Martin]

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/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, 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.

[Thomas Ferguson, executive]

Thank you, Sandy. Good morning, and 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 Coating 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's 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 continued 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.

[Jason Crawford, executive]

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 Metal sales declined 4.3% and due to a weaker 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 [ colo ] coating facility, which when combined, contributed to a small drag on 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 second quarter, reflecting the strength in operational execution on lower volumes. As noted last quarter, Fernweh, our 60% joint venture partner on [indiscernible] 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 we reported equity in earnings of $59.3 million in the quarter. On an adjusted basis, our quarterly equity in 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 is a [indiscernible] weaker summer season from our build welding solutions 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 extent earnings from unconsolidated subsidiaries to be 0 for the remainder of the year.

Interest expense for the second quarter was $13.7 million represent a significant improvement of $8.2 million from the prior year due to a combination of debt paydown, debt repricing and accounts receivable securitization facility introduced in the quarter. The accounts receivable facility has a borrowing limit of $150 million and is accounted for secured borrowings with an interest rate of 1 month so far plus 95 basis points.

Create 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 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 spend on our new build 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 amongst starter items, equity and earnings from the available divestiture are $61.6 million AZZ reported adjusted net income of $46.9 million or adjusted diluted EPS of $1.55.

This compares favorably to the prior year's adjusted net income of $41.3 million or adjusted diluted EPS of $1.37, an increase of 13.1% compared to the same period of the prior year. Second quarter adjusted EBITDA was $88.7 million or 41.2% 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% and 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 capital 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 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 1.7x compared to 2.7x in Q2 of last year. As communicated, we continue to maintain a disciplined approach to our capital allocation strategy transition 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 1.5x to 2.5x.

With that, I'll turn the call over to David.

[David Nark, executive]

Thank you, Jason. Let me begin with an update on the Infrastructure Investment and Jobs Act. As of August of this year, the Department of Transportation reported that 73% of II JA program funds totaling $319 billion have 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 we'll continue to monitor discussions regarding potential reauthorization beyond 2026 once the government reopens. During AZZ's second quarter, we continue to see infrastructure, nonbuilding and civil works projects as a bright spot, offset by softness in nonresidential and residential building construction.

Reported end market sales for AZZ were up, including utilities, up 19%, consumer up 7.6%, while construction sales were up by less than 1% as 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 a 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.

[Thomas Ferguson, executive]

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 centers. Grid 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 reindustrialize 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 multiyear tailwind and 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 the range of $1.625 billion to $1.725 billion. Adjusted EBITDA will be within the lower half of the range of $360 million to $400 million due to the lack of available 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 strengthening 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 hard-working 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 services 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.

[Operator]

[Operator Instructions] Our first question comes from Ghansham Panjabi with Baird.

[Ghansham Panjabi, analyst]

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 so on and so forth. How should we think about the contribution from the share gain piece?

[Thomas Ferguson, executive]

Yes. I think -- so a couple of things there. One, we picked up share gain because the -- and we referenced it. The pre-painted imports are because of the tariffs are down significantly. So that's been transitioning to domestic supply, and we're painting at least as much as our share. But if you take that, it's probably, David, what about 10% on imports.

So we've picking 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 post market softness, if you will.

[Ghansham Panjabi, analyst]

Sure. And so sticking with Precoat, so some of the challenges that you called out, building construction, HVAC, appliances, they all seem sort of 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 the Washington Missouri facility that are the 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.

[Thomas Ferguson, executive]

Yes, I'll start and then Jason can probably add some additional color. Yes, 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 that market -- those market share gains from picking up the past imported pre-painted metal.

Two, we are -- do have the [indiscernible] site. 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 a ramp to it as the next 6 months go on and pretty significantly. So that's opportunity. And that is where there is strong demand in that aluminum container market that's our sister facility to [indiscernible] which is the St. Louis which has 2 lines is doing really well because of the high demand in that market.

So as I look at it, I think -- well, 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 have a lot of customers at our annual golf tournament. And they generally feel like things have bottomed and starting to come back up in certain areas of the country, particularly.

So we feel good about what we're doing and also commend the Precoat team. they've adjusted their operating and shifts and times and capacity. 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 Precoat, but I'd say the Metal Coatings side has done that outstandingly well during that same time period. Jason, did you want to add anything?

[Jason Crawford, executive]

No. I think the only other thing you could potentially add there is when you think about the construction, it certainly have an impact on the H5 appliance, but very minimally so if you look at those 2 businesses, they're actually doing reasonably well. And quarter-to-quarter, there's an impact in terms of inventory levels and model changes, et cetera. So I don't necessarily see them as being as much of a drag in comparison to the construction market.

[Thomas Ferguson, executive]

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 are starting -- the corner is starting to turn.

[Operator]

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

[Nick Giles, analyst]

It's still a very solid quarter here. And I 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 high or low 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?

[Thomas Ferguson, executive]

I'll answer the first part of that, and then Jason can opine on Washington. I feel like when it comes to -- and 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, $15 million of avail EBITDA impact from last year versus we've signaled 0 for Q2, Q3 and Q4 for Aval. And so that's the biggest impact in terms of our EBITDA guidance.

And I'd say that was harder for us to predict until now you can -- we can see with primarily WSI as the main asset left in avail. And they had just gone through this summer is obvious weak because there's just not turnarounds and outages during the summer. So we felt that -- and going forward, they do come back into -- so in terms of the upside, hopefully, they do have a strong fall season, which is back to how turnarounds and outages run.

I think interest savings is going to continue. We've paid down the debt. We continue, even after acquiring Canton, we paid down some debt. So 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 we feel good about that. It's mostly embedded in our outlook, but there's upsize to that.

And then hopefully, we get a deal or 2 done on the -- particularly on the galvanizing side that before the end of the year and have some impact there because obviously, the assets we're buying are going to be good galvanizing assets that we hope to improve as well. I think those are all the kind of pieces. Precoat performing well. I think they're driving to sustain those margins over 20%. And given the volume fall off as volumes pick up at all, that could also be upside to us.

And then we 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 going to go away. So we're seeing lots of solar in pole transmission and distribution kind of activity, which is we signal maybe slightly lower margin than on balance, but it's really, really good volumes. So we like that stuff a lot.

And then Jason, on Washington.

[Jason Crawford, executive]

Yes. Certainly, Washington, as we've 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 that. Around about $2 million of a hit to margins in the first -- in Q2 essentially. From a contribution margin point of view, the business is contributing to 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 effect 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 year than Q3, Q4, it starts to ramp. And we're very much in line with the expectation of that ramp profile. We'll start to hit capacity towards the 50% arena through Q3 and then really see that start to pop in Q4. So very much aligned with expectations and very much built into original guidance and where we sit here today.

[Nick Giles, analyst]

Jason, really appreciate all that detail. Maybe just back on the 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 opportunities in 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 undertake

[Jason Crawford, executive]

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 off through the summer program. That we'll start to incrementally see some benefits, and we're seeing them start to kick in. And to be fair, that's applicable to both sides of the business.

There's -- as we've highlighted, our capital allocation is looking at outside and inside in some of the projects that [indiscernible] sidelines are now getting turned into execution. So again, I don't think there's going to be a big boost in terms of our stent function, but we're going to continue to drive the opportunities that we see in front of ourselves.

[Nick Giles, analyst]

Yes. Keep up the good work.

[Operator]

The next question comes from Adam Faltenheimer with Thompson Davis.

[Thomas Ferguson, executive]

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

[Operator]

Pardon me, we have Timna Tanners with Wells Fargo.

[Timna Tanners, analyst]

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.

[Thomas Ferguson, executive]

Yes, it's really early innings. I think probably a couple of months of that. So and that should have a good tail to it. It just -- it takes time to ramp up the domestic capacity change project sourcing 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 in so -- Yes. I look forward to that because it's -- 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 -- 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

[Timna Tanners, analyst]

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

[Jason Crawford, executive]

No, no. I mean, certainly not from our point of view at this point. Obviously, there's one customer supports that facility. And quite frankly, our production ramp is ahead of plan and we're executing with the material were out at the facility a couple of weeks ago and it's really starting to look like a coil quota facility versus a short piece that the analysts that saw a couple of, I guess, 6 weeks ago or so.

So I think we're in very good shape from that executing through the end of the year.

[Thomas Ferguson, executive]

Yes, there's a lot of aluminum sitting in that -- on that floor now. So.

[Timna Tanners, analyst]

Got you. Okay. All right. And then final one for me, if I could. I wanted to just probe a little bit more the M&A pipeline? Any updated thoughts on the economy having any impact on more or less appetite to sell to you at this juncture?

[Thomas Ferguson, executive]

Yes. I think there's -- we're working on a couple of typical bolt-ons for galvanizing. And it's One of them was actually a process. So we know that when we go forward. We can never quite predict -- we tend to believe we're always going to 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 going to be as aggressive as we need to be. Not seeing a whole lot shake loose because of it, which is actually a little bit surprising. We were hoping to see maybe one of these multisite galvanizers decide to go on the market, but we haven't gotten any indication of that at this point.

And then on the precode 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, the market hasn't seemed to cause them to want to move any faster than they were before. So it's a good pipeline. I think we've got 9 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.

[Operator]

The next question comes from Adam Thalhimer with Thompson Davis.

[Adam Thalhimer, analyst]

Can you hear me now?

[Thomas Ferguson, executive]

We can.

[Adam Thalhimer, analyst]

Great. First one, within pre-code, 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.

[Thomas Ferguson, executive]

I'll let David do it.

[David Nark, executive]

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 a bright spot or a tailwind for pre- because that means there's less competitive pre-painted steel coming in. But offsetting that, the bar [ 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 as this year because normally, that imported bear is volume that they would be the natural source to be selected to and coat 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.

[Thomas Ferguson, executive]

Yes. And I'd add that the tariff impact is really driven, as David mentioned, it's just the uncertainty. So you've got projects being deferred, delayed. And 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 anticipated 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 Coatings side, where those 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.

[Adam Thalhimer, analyst]

Okay. That makes sense. And then second question for me. I was curious on your confidence in no further losses from the veil. 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?

[Thomas Ferguson, executive]

Yes. And we are very much aligned that now you got a subscale piece of business, which is really 3 pieces. WSI forming by far, the largest in terms of sales, but not in terms of contribution margin. Then you got a lighting business, which is a nice little business that I think they'll get that transacted hopefully this year.

And then there'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 in -- from a market perspective in terms of refinery turnarounds and things like that. So that's probably -- we prefer not, but it's probably a longer-term piece.

In terms of the Q3, 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 overhead that they can't get at while the TSAs within Venor running. So on balance, I think we're pegging it at 0.

And I'd say it's more likely slightly negative in -- 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.

[Jason Crawford, executive]

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

[Operator]

[Operator Instructions] Our next question comes from Mark La Reichman with Noble Capital Markets.

[Mark La Reichman, analyst]

Just a couple of questions. On interest expense, when we published at the end of September, we took our interest expense numbers down. I think we were kind of landing around $49 million, $50 million for the year. And of course, the second quarter came in a little higher than our revised estimate.

So 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.

[Jason Crawford, executive]

Yes. I mean I think the part in terms of the interest and just picking up some favorability given that we've reduced our total debt through the bail transaction. As you look at our interest expense in the quarter, then we certainly picked up some favorability, but it was more towards the back end of the year. Sorry, the back into the quarter given the repricing the term loan and the introduction of the securitization.

So obviously, if you look at our quarter -- that's what improved in Q3 and Q4, obviously, through the cost of debt. And then we will continue to pay down debt through the second half of the year, excluding any impact from M&A or any share repurchases.

[Mark La Reichman, analyst]

And then the second question is SG&A in '25, ran about 9% of sales, that was 8.2%, I think, in the May quarter, but dipped down to 7.9% this quarter. What are kind of your expectations for the -- well, I guess is as 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?

[Jason Crawford, executive]

Yes. I mean I think that 8% number is fairly representative. Obviously, seasonality kicks in the back half of the year or certainly in Q4, we are -- obviously, 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 minus fees away from that through the end of the year. So it's got to be more of a fixed number versus a fixed percentage as you look at.

[Mark La Reichman, analyst]

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 quarter.

So what I heard from you is basically 0 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 male obviously.

[Jason Crawford, executive]

Yes, yes. I mean our guidance is 0 for both. And I think some of the discussions that we've been having is certainly a sensitivity around about that. We don't get it wrong. We've got to get it slightly wrong in the upside or the downside.

I would say in Q3, it's probably -- if anything, it's slightly wrong in the upside and then slightly wrong in the downside. The seasonality for the WSI business has got to kick in Q4. So the determining factor in Q4 is going to be how quickly they can ramp the overhead cost to realign to the current business.

But really, as you look at the numbers then in Q3 and Q4, it should be a very minimal plus or minus a.

[Mark La Reichman, analyst]

Okay. That's very helpful.

[Operator]

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

[John Franzreb, analyst]

I 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 the recovery in Precoat during that month?

[Jason Crawford, executive]

The only thing I would add is there's certainly fluctuations month-to-month and inventory by buying partners plays a part into that. And we're still coming through our strong construction season. So shipments versus -- or sorry, building inventory versus depleting inventory year you ended that time period where 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 bot strength to our customers. If you take that one single data point, our customers are looking for a healthy end to the season. would be my takeaway.

[John Franzreb, analyst]

Okay. Great. And it also sounds 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?

[Jason Crawford, executive]

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 [indiscernible] area, and we'll use some of the volume from that to help ramp, et cetera.

So it's not a black and white just looking at that single facility and how it's going to play into the overall results. They start a lot to play out here. 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 not a specific numbers around about it, but what we have built into the guidance, we're certainly very comfortable with those numbers.

[John Franzreb, analyst]

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?

[Thomas Ferguson, executive]

Sure. Yes. First thing is -- yes, we have seen that, which usually makes opportunities for not that we based our price off of cost. We were very value pricing oriented. But usually, when zinc's going up on the LME customers understand that's going to start to affect prices.

So that create some opportunities. Two, we've got 6 to 8 months of inventory in our kettles. So it doesn't have much impact on our margin profile, the balance of the year, our cost of zinc, 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 up but I'm not sure -- I'm not sure we're going to -- 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 yes, 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.

[John Franzreb, analyst]

Great. Makes sense.

[Operator]

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

[Jon Braatz, analyst]

Tom, a couple of questions. On the Metal Coatings 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?

[Thomas Ferguson, executive]

It's -- revenues in the quarter. $2 million. Yes, and a few hundred thousand of contribution margin.

[Jon Braatz, analyst]

Okay. Okay. Good.

[Jason Crawford, executive]

It was 2 months in the quarter. So we'll see a full quarter here going forward.

[Thomas Ferguson, executive]

That's right.

[Jon Braatz, analyst]

Okay. 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 EBITDA margin for that segment.

Is that -- that low -- at lower end of the range, is that still relevant? Is there a point where maybe you feel comfortable raising that lower end and getting closer to the 30% to 32%, something like that, absent -- again, absent any significant economic changes.

[Thomas Ferguson, executive]

Yes. We tend to -- yes, we haven't seen that -- the low end of that or even very much, I think one quarter, we were below 30%, which was last winter. We had a rougher than normal in Q4 last year. So that was probably the only time in a while we've seen below 30%.

But yes, 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 Yes, we're pretty comfortable with their margin profile at holding in the 30-plus percent range, the balance of this year. So yes, we might get comfortable to guide to a tighter range on that.

[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, executive]

Yes. Just a couple of things. I don't think we got any questions on share buybacks. Jason alluded to it, but we had kind of guided that we'd be buying -- well, we issued a 10b5-1 that for $20 million at a couple of price points. I think we're going to -- I'm confident we will get $20 million of our shares bought in over the next perhaps a 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 an outstanding outlook, particularly as we kind of 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.

[Operator]

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