Q4 2024 AZZ Inc Earnings Call

Participants

Thomas Ferguson; President & Chief Executive Officer; AZZ Inc

Philip Schlom; Chief Financial Officer; AZZ Inc

David Nark; Senior Vice President of Marketing, Communications and Investor Relations; AZZ Inc

Sandy Martin; Modertor; AZZ Inc

Lucas Pipes; Analyst; B. Riley Securities, Inc

John Franzreb; Analyst; Sidoti & Company

Adam Thalhimer; Analyst; Thompson, Davis & Co

Jon Braatz; Analyst; Kansas City Capital

Presentation

Operator

Good day and welcome to the AZZ., Inc., Q4 and Year-End 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, three-part advisors. Please go ahead.

Sandy Martin

Thank you, operator. Good morning, and thank you for joining us today to review AZZ financial results for the fiscal 2020 for fourth quarter and full year which ended February 29, 2024.
For joining the call today are Tom Ferguson, President and Chief Financial Executive Officer; Philip Sherringham, Chief Financial Officer; and Dave Clark, Senior Vice President of Marketing, Communication and Investor Relations. After today's prepared remarks, we will open the call for questions. Please note the live webcast for today's call, which can be found at www.azz.com/investors dash events.
Before we begin, I want to remind everyone that our discussion today will include forward-looking statements made under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. By their nature, forward-looking statements are uncertain and outside of the company's control. Except for actual results or 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 annual report on Form 10 K for the fiscal year. These statements are not guarantees of future performance. Therefore, undue reliance should not be placed upon them or actual results could differ materially from these expectations In addition, today's call will discuss non-GAAP financial measures. Non-gaap financial measures should be considered a supplement to not a substitute for GAAP measures. We refer you to the reconciliation from GAAP to non-GAAP measures in today's earnings press release. I would now like to turn the call over to Tom Ferguson.

Thomas Ferguson

Good morning, and thank you for joining us today. Fiscal 2024 was an exciting and successful year for AZZ, including several important operational and financial achievements. We are proud of our team's hard work and exceptional accomplishments for the fiscal year. Today, I will discuss the fourth quarter and full year highlights. Philip will then cover the detailed financial results, and Dave will cover industry updates.
I will conclude by discussing our current outlook before opening the line for questions today. Azz as a pure-play metal coatings company, AZZ leads with North North America's number one market position in each of our two business segments, which includes hot-dip galvanizing and coil coating solutions. Our large-scale strategic footprint serves a broad, diversified customer base, including long-term blue-chip customers. And the company also brings over 65 years of trusted expertise we provide sustainable unrivaled coating solutions supported by proprietary customer-centric technologies. Last year, our teams focused on critical operational and financial objectives, and I am pleased to report that both segments performed exceptionally well, particularly in the fourth quarter and the full year. Our fiscal year results that ended February 2024 reflect the combination of near and longer-term strategic initiatives that generated sales growth, margin enhancements and significant working capital improvements. We're uniquely positioned to serve customers with an expanding competitive moat through extensive technical expertise and solutions based capabilities, a deep bench of talented leadership, proprietary technologies and strategically placed facilities across the US and Canada.
In fiscal 2024, we significantly reduced the Company's debt and took action to strengthen AZ's balance sheet our relentless commitment to operational excellence continues to be the focus of our talented teams and our strong collaborative culture supports our future growth and success.
Turning to our results for the fiscal year, we increased total sales by 16.2% to a record $1.54 billion. Metal Coatings, full year sales were $656 million, up 3% versus the prior year. And Precor metal sales were $881 million, up 28.4% compared to the prior year pre-COVID fiscal 2024 included 52 weeks of sales versus 42 weeks for the prior year.
Our full year adjusted EBITDA increased to $334 million, and we generated cash provided by operations of $245 million for the year. We will discuss the uses of cash in a few moments.
Finally, adjusted earnings per share grew to $4.53, up almost 35% compared to the previous year's EPS for the fiscal 2024 fourth quarter, which is usually our weakest due to slower construction activity during the winter months. Total sales of $366 million increased by 8.9% with Metal Coatings up 3.3% and precut metals up 13.4% entirely from organic expansion.
Also for the quarter, we increased adjusted earnings per share by 210% to $0.93 and grew adjusted EBITDA by 29% to $74 million. This led to strong cash flow from operations for the quarter of $64 million. As a result, adjusted EBITDA margins were 28.6% for Metal Coatings and 17.8% for free coat metals within our targeted range for each segment. In short, our continued dedication to delivering best-in-class customer service and quality led to increased sales, improved profitability and significant cash flow for the fourth quarter and full year. We also continue to invest in our operational technology platforms in fiscal 2024 as we seek to more deeply integrate our business with our customers.
Our Metal Coatings segment has a platform called Digital Galvanizing system or DGS. So we benefit from our improved productivity and efficiencies and customers are provided faster and more effective communication and better visibility into their projects from beginning to end for Precor metals customers utilize coils on a proprietary platform, which provides 24/7 access 365 days a year to real-time inventory scheduling and other vital information customer.
You customers utilized to help run their business on a daily basis across precut network of 13 facilities. These innovative platforms and passion for excellent service among our teams position. Azz is a highly differentiated Metal Coatings provider to customers throughout North America. Our strategic transformation over the past two years has been a catalyst for generating a significantly higher run rate, EBITDA and cash flow as Philip will discuss more in a moment.
We continue to strengthen AZZ balance sheet and allocate capital prudently. Last year, we reduced our debt by $115 million over the last year and repriced our term loan or revolver to lower interest costs. We also deployed significant funds to the greenfield aluminum coil coating facility in Washington, Missouri, as part of our organic growth plans. This critical project remains on schedule. We are highly focused on creating long-term value for our sustainable solutions. We believe that by continually investing in our people and relentlessly executing our strategy, we will accelerate ACC's value creation. We plan to continue scaling our business through organic inorganic growth and leveraging our highly differentiated value proposition to customers. As we create long-term value for our shareholders.
With that, I'll turn it over to Philip.

Philip Schlom

Thanks, Tom, and good morning, everybody. As Tom mentioned, we reported fiscal year 2020 for fourth quarter sales of $367 million compared to $337 million in last year's fourth quarter. Total sales increased 8.9% over the fourth quarter of last year with Metal Coatings sales up 3.3% and pre-COVID made of metals up 13.4%. Fourth quarter gross profit was $81 million or 22.1% of sales compared to $61.3 million or 18.2% of sales in the prior year fourth quarter. Gross margins improved by 390 basis points as a result of lower costs in the Metal Coatings segment and lower overhead costs and the precut Metals segment as performance improved over a year ago period.
Also, gross profit benefited from reclassifying intangible asset amortization to our corporate center, partially offset by increased labor and other variable costs. Selling, general and administrative expenses were $38.8 million in the fourth quarter compared to $25.1 million in the prior year fourth quarter. The fourth quarter included $6.8 million in legal accruals related to the resolution of long outstanding commercial disputes.
Excluding the fourth quarter legal accruals, SG&A expenses for the fiscal fourth quarter would have been $32 million or 8.7% of sales compared to 7.4% in the prior year. Fourth quarter operating income was $42.3 million or 11.5% of sales, an improvement of 16.8% and-- 70 basis points from last year's fourth quarter of 36.2 million or 10.8% of sales.
Interest expense for the fourth quarter was $24.7 million compared to $27.1 million in the prior year due to lower outstanding debt and repricing the Company's term loan B and revolving credit facility late in the year. I will discuss our capital allocations efforts in a moment. Equity and earnings of unconsolidated subsidiaries for the fourth quarter increased to $4.3 million compared to $1.6 million for the same quarter last year. The increase is due to higher minority interest earnings from our 40% ownership in the AVAIL JV as they continue to perform to expectations.
Current quarter income tax was $4.1 million, reflecting an effective tax rate of 18.7% in the quarter compared to 34.8% in the prior year fourth quarter, where the rates were much higher due to the impact of the transformative M&A activities during the prior year.
Reported net income for the fourth quarter was $17.9 million compared to $7.4 million for the fourth quarter of prior year. Adjusted net income for the fourth quarter was $27.5 million compared to $7.6 million in the prior year, up more than 2.5 times over the prior year.
Our adjusted diluting the --excuse me, our adjusted diluted earnings per share of $0.93, as Tom spoke about, compared to $0.3 in the prior year fourth quarter. Since the preferred convertible shares are dilutive in the current quarter to adjusted EPS. The preferred dividends are added back to earnings for the Company's adjusted EPS computation under a full conversion assumption the preferred convertible shares weighted average shares outstanding in the quarter, our approximately 29.5 million shares.
Fourth quarter adjusted EBITDA was $73.9 million or 20.2% of sales compared to $57.2 million or 17% of sales in the last year. The 320 basis point improvement in adjusted EBITDA margin was primarily driven by improved operational efficiencies in our precut Metals segment and continued strong earnings by our Metal Coatings segment. For the full fiscal year ending in February, our sales were just over $1.5 billion, up 16.2% over last year.
The pre-COVID results include 52 weeks of sales in the full fiscal year compared to only 42 weeks in the prior. Gross profit increased to $363 million or 23.6% of sales from a year ago, improving 120 basis points over the year ago.
Gross margin on the same operational efficiencies I just spoke about during the fourth quarter, SG&A costs were $141.9 million, 9.2% of sales on par with the SG&A as a percentage of sales from last year. Operating income was $221.6 million or 14.4% of sales or 130 basis points improved when compared to operating income of 13.1% of sales in the prior year.
Reported net income from continuing operations was $101.6 million for the year compared to $66.3 million last year. Adjusted net income was $132.8 million for the year or $4.53 per share compared to $95.2 million or $3.36 per share last fiscal year, a solid 35% EPS improvement year over year. Adjusted EBITDA for the year was $333.6 million or 21.7% of sales compared $267.4 million or 20.2% of sales in the prior fiscal year, which represents an increase in EBITDA of [28.4% ]compared to the prior fiscal year.
But turning to our financial position and balance sheet now, we generated strong cash flow from operations of $244.5 million and free cash flow of $149.3 million. As we executed on several working capital initiatives during the year, our free cash flow is computed as cash flows from operating activities less capital expenditures. Capital expenditures for the year were $95.1 million, including typical safety, maintenance and gross spending as well as approximately $47.7 million related to the new greenfield aluminum coating plant under construction in Washington, Missouri.
Tom will cover the project in a few moments in fiscal '25, we expect capital expenditures to be approximately $100 million to $120 million included $50 million to $60 million related to the Washington facility. As we complete construction and ready the site for production. We reduced debt during the year by $115 million, exceeding the $75 million to $100 million target we provided as part of our annual guidance.
Additionally, with our focus on working capital and strong overall debt reduction, we exceeded our originally stated leverage goal back in May of 22 by reaching debt leverage net leverage ratio of 2.9 times with a target of getting under three.
In addition, during the last year, we successfully successfully repriced our Term Loan B twice and repriced our $400 million revolving credit facility repricing the Term Loan B in August 23 and again in March 24, each time reducing our margin by 50 basis points for a total 1-percentage-point reduction.
Additionally, we repriced our revolving credit facility in December 2023, which moved us from a sulfur fixed sulfur rate of sulfur plus 425 margin to a tiered pricing grid at February 24, with our year end leverage ratio being below three, we expect our go forward revolving credit rate to be marginal so for plus 275 or another 25 basis point reduction in margin.
In addition, we are pleased to share that S&P Global upgraded our senior secured debt rating from double B minus to BB from B, a two notch increase and Fitch Ratings initiated coverage on the company with a very similar rating, acknowledging the progress we have made since the acquisition of precut metals in May of 2022. Our capital structure provides a strong foundation as we move forward, and our liquidity position remains strong with no debt maturities until 2027, we continue to be under a swap agreement that fixes more than half the variable rate debt. Finally, we paid cash dividends on common and preferred stock totaling $31.4 million for the year. We made no share repurchases during the year since we focused on debt reduction.
With that, I'd like to turn the call over to David Norris.

David Nark

Thank you, Phil, and good morning, everyone. Tom began today's discussion by describing AZ's number one market position into highly differentiated value added metal coating segments that provide scale, expertise and customer-centric technology uniquely positioned to serve the North American steel and aluminum markets. Our services provide sustainable, environmentally friendly solutions that extend the life of our customers' products through our specialized coating materials process, our business is well positioned to benefit from secular growth drivers related to infrastructure and renewables investments, reshoring, the US and North American manufacturing, as well as important conversions from plastic to aluminum.
Looking back at our fourth fiscal fourth quarter, which included in February, both segments benefited from unseasonably warmer weather that favorably impacted the construction industry. Regarding our end markets, Metal Coatings was supported by robust transmission and distribution activity and a continued ramp of interstate bridge and highway projects in the quarter. We continue to see beneficial tailwinds associated with critical infrastructure projects closely tied to the AIGA. and chipsets, which positively impact our results. We are seeing signs of a ramp up in the cadence of federal funding as evidenced by the uptick in award announcements by the Department of Energy, commerce and transportation. We believe in-store infrastructure monies are flowing in 2024, and that DOT budgets are available in all 50 states.
Going forward, we expect an elevated number of projects related to T and D bridge and highway data centers and chip plant work in our future quarters. Within T and D. We are encouraged by the US Department of Energy's October announcement of up to $3.5 billion in grid resilience and innovation partnership program investments for 58 projects across 44 states to strengthen electric grid resilience and reliability across America. 16 of these projects specifically relate to grid resilience, which is where hot-dip galvanized steel is commonly used within bridge and highway. We are encouraged by the announcement this January of more than $4.9 billion in funding by the Department of Transportation for 37 different infrastructure projects in the manufacturing sector, the Administration announced up to $8.5 billion in direct funding and $11 billion in loans to Intel for the construction of computer chip plants in Arizona, Ohio, New Mexico and Oregon. And as recently as last week, the Administration announced up to $6.4 billion in direct funding for Samsung Electronics to develop computer chip manufacturing and a research cluster here in Texas. Samsung's Texas manufacturing cluster will include two factories as well as an R&D facility and packaging facility. The first facility is expected to be operational in 2026 with the second being operational in 2027. Both Intel and Samsung are projects that we either have or are currently actively providing hot-dip galvanizing or coil coating solutions.
Lastly, we continue to see a slight rebound from solar and renewables end markets with pockets of regional strength across the United States, where nearly $17 billion in planned investments have been announced so far. Precut metal segment continued to perform better than the market in the fourth quarter with growing volumes based on conversion, selling and value pricing volume gains, a slight market rebound and favorable mix helped our fourth quarter performance, especially in the construction and appliances categories. Trico continued to win captive paint lines and coil coating projects from companies that decided to outsource the services. Although smaller volumes, the container and transportation categories continued to be under some pressure in the quarter, offset by the construction spending increases projections for calendar 2024 construction spending call for significant year-over-year improvements, which include public construction projects, private nonresidential spending and higher manufacturing construction compared to the last year, nonresidential construction continues to perform well with building strength in manufacturing and agriculture. As you saw from our raised guidance, we remain optimistic about the long-term expectations for manufacturing reshoring and the transition to pre painted steel and aluminum. We also see a steady movement from plastics to aluminum, the container category throughout North America. Our Metal Coatings and precut metals teams continue to make solid progress with incremental market share gains with new customers in both our hot-dip galvanizing and coil coating business.
With that, I'd like to turn it back over to Tom.

Thomas Ferguson

Thanks, Dave. Fiscal 2024 was a pivotal year for the Company. Our AZZ teams continued to drive the strategy forward by focusing on serving customers well improving our operations and prudently deploying cash on high-return projects throughout fiscal 2024. I'm proud of our leaders who demonstrated both private passion as they drove organic growth and improved operational efficiencies to further enhance margins. While we collectively strengthen the Company's financial position. The Company generated significant cash from operations and paid down debt ahead of expectations. We ended the year with our net debt to trailing EBITDA of 2.92 times, which is a testament to our cash management discipline last year as well as our ability to grow adjusted EBITDA by 25% to $334 million. We continue to build trust with our customers as we partner with them to provide superior quality and service levels.
Our business segments providing important, sustainable metal coating solutions that enhance the longevity and appearance of building products and infrastructure essential to everyday life. We enjoy the fact that our solutions and services are synonymous with sustainability. As Dave mentioned, our business outlook is positive, particularly as we enter the spring and summer months when construction activity is at its strongest, our teams are positioned to find new ways to grow market share and benefit from the expected ramp up of infrastructure spending. Given AZZ strong market positions in both segments, our broad scale and our strategic footprint, we believe we are well positioned for, however, the economy shapes up this year. Labor and employee turnover continues to improve from a year ago. Since we are tolling business, we will remain nimble and adjust inventories of paint and say, if demand shifts, whether due to our growth initiatives or other macroeconomic impacts, our greenfield aluminum coating coil coating facility in Missouri is progressing well and tracking on schedule work has shifted to the inside of the building with the electrical installation underway and the installation of the coating line in process. Our focus is now turning to our staffing commissioning and qualification efforts. It's exciting to think that our hot testing of the coating line will begin in the third quarter just a few months from now, we raised our guidance a couple of weeks ago, and I reiterate reiterating it today. Our fiscal 2025 guidance is for sales in the $1.525 billion to $1.625 billion range, adjusted EBITDA in the $310 million to $360 million range and adjusted EPS guidance of $4.50 to $5.
Capital expenditures for the current fiscal year are expected to remain unchanged at $100 million to $120 million, including $50 million to $60 million related to the new WASHINGTON Missouri plant the equity and earnings from our minority interest in the AVAIL joint venture is expected to be $15 million to $18 million this year, and debt reduction is planned in the $60 million to $90 million range. While we will remain focused on paying down debt, we are seeing some small galvanizing acquisition opportunities beginning to enter the pipeline. Our dedicated teams are operating confidently as we began the new fiscal year, and I want to thank them for their hard work and accomplishments this past year. We are energized as we find ourselves already halfway through our first quarter and believe we are well positioned to deliver strong results, generate significant cash flow and maximize shareholder value in fiscal 2025.
Now Would the operator please open up the call for questions.

Question and Answer Session

Operator

(Operator Instructions) First question comes from Lucas Pipes with B. Riley Securities. Please go ahead.

Lucas Pipes

Thank you very much, operator. Good morning, everyone. Missed my my first question is on the balance sheet. Good, good job are getting the leverage ratio at 2.9 times. I wondered with with this arm, do you plan to maybe hold a little bit more cash on the balance sheet and do you think about acquisitions? And if so, where do you see more opportunities on the on the pre COVID side?
Or on the Metal Coatings side? Thank you very much.

Philip Schlom

Can start, Tom with the balance sheet question on yields, typically what we've done is we operate pretty low cash balances and then use excess cash to reduce the borrowings on the revolver. We have $400 million revolver with about $355 million in capacity at the end of the year. So the acquisitions, Tom, was speaking to we should be able to fund smaller bolt-on through the revolving credit facility.
Tom?

Thomas Ferguson

Yes, Lucas, I think as you know right now, what we're seeing is there's a couple of potential galvanizing opportunities that have popped up that the kind of bolt on one-off sites that that our team likes to look at. No idea tells how active those will be, but we would fund those off of the revolver. But naturally, we'd have we'd expect to have good EBITDA above above our multiple.

Lucas Pipes

Got it. And then you mentioned bolt on up to what level would you consider of EBITDA or volume? Would you consider bolt-on? And I'm just trying to get a sense for kind of what do you have a teaser?

Thomas Ferguson

These are typically in the $10 million to $20 million revenue side. So and usually they're going to have save three or four?
Well, yes, probably $3 million or $4 million of EBITDA. We tend to pay roughly six times. So that that's what we consider bolt-on. And then our team, we anticipate good strong first year synergies often in the 500,000 basis point improvement range.

Lucas Pipes

Very helpful. And for this fiscal year here, how many of those do you think are realistic to take care if there hadn't been any last year.

Thomas Ferguson

Of course, we've taken the we've taken the flag down that we were out there in acquisition mode. So I think we've kind of let folks know that as we've gotten our debt under three times quicker than we'd anticipated on that, while we're still going to be focused on paying down debt funding the facility in Washington and our normal CapEx needs. So we just recently kind of let it let it out that we're interested again. And these usually have a four to six month cycle times from from when they become active to wind, we're able to do due diligence and close. So may maybe one or two, I'd be about it.

Lucas Pipes

That's very helpful. And maybe just to round out the conversation on Avon growth. If you think about kind of organic growth, we're with that factor in vis a vis some of these bolt-ons you mentioned. Thank you.

Thomas Ferguson

Yes, I think we still in our normal organic growth, particularly on the Metal Coatings side, tends to run with GDP. So when we can get a couple of acquisitions and that's going to going to add another 5%or 6% on a full year run rate basis.
On the prepaid side, we've got two things going on. One, we feel volumes are improving as we saw in the fourth quarter, I believe we were up about 9% on volume. So we're seeing the volumes pick up on the precut side, which gives us nice organic growth. And then as we get into next year, finish out this year, get into next calendar year, that's when we'll start to have the Washington site coming online. So which should provide some additional revenue and EBITDA growth.

Lucas Pipes

Yes, gentlemen, very helpful. I appreciate all the color and continued Best of luck.

Thomas Ferguson

Thanks.

Operator

Our next question comes from John Franzreb with Sidoti & Company. Please go ahead.

John Franzreb

Good morning, guys, and congratulations on another good quarter. And I'd like to start with the revenue profile. In the fourth quarter, you suggested there was some it was unusually warm and on seasonal basis, I'm wondering two things that suggests a spread on business is pulled from the first quarter into the fourth quarter and B, if that was the case. It does suggest that maintaining guidance is actually more of a positive thing because you are back PHIL some of that revenue.

Thomas Ferguson

That's a good point, John, I think on the on the Metal Coatings side, you get an earlier start, it kind of depends on what.
Yes. So we did see some of that pull in and stay active hopefully, there's some additional projects to come in the pipeline as the summer as we get into the summer months and into fall.
And then on the prepaid side, this the normal ordering cycles of the construction ramp up, I would not sure a whole lot pulled pulled in from from first quarter to potentially a little bit in terms of inventory buildup among some of our customers. So yes, we feel like at like the guidance is solid and as traditionally, we tried to be conservative. And then then we'll continue to update that as the year goes on.

John Franzreb

Fair enough. And you also mentioned in the press release there was market share gains on the prepaid side. Can you talk a little bit about the market share gains and we're getting it from.

David Nark

Yes, John, this is Dave. I think as you look at it, there's a couple of areas in the end markets. We're seeing some improvement and we believe we're outperforming the market in the construction segment and also in the appliance market has another area where we're outperforming and I'm seeing some conversions taking place. So those are the two main areas I'd point to.

John Franzreb

Okay. And one last question and I'll get back in queue. You talk about pricing initiatives on the Metal Coatings side of the business benefited the quarter, please. A little bit deeper on that. Is that in response to zinc prices, can you what's going on in the pricing initiative front end on an MC?

Thomas Ferguson

Yes, I think we've always tried to talk about how we I've tried to differentiate our value pricing versus zinc, but it does help zinc has been trending up. And so as things trends up. That tends to help support our price levels. I also think that we continue to add services and anywhere from adding more transportation so that we're able to be more responsive, but that also adds basically just revenue and flow through income and increases our price per hundredweight, if you will. So I think all those things have they bode well would we also have improved. We added another spin line late last year, so we're getting the benefit of that. And that tends to be at a at a higher price for 100 weight actually tends to be priced for per piece. So those are all things that have benefited us and we hope to continue to benefit from as we go forward.
This year.

John Franzreb

Great. Great, Tom. Thanks for the additional color. I'll get back into queue.

Philip Schlom

Thanks.

Operator

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

Adam Thalhimer

Hey, guys. Congrats on a strong quarter. And Philip, congrats on your retirement. I think you have in Metal Coatings, so your gross margins were up 170 basis points in fiscal 24, curious how that might trend in fiscal '25 if there's room for more improvement.

Philip Schlom

And I think this we talked a lot about DGS. and the leadership teams and our playbooks. We believe we are benefiting from that. And then we should continue to benefit and hopefully hold those margin improvements in and continue to benefit from the various strategies or tactics that we use and we feel pretty confident with the team. And as long as we as long as volumes hold up, I believe we can drive those margins.

Adam Thalhimer

Okay. And then at pre-COVID, just normal seasonality between November and February or sounds like you also just had a really good quarter and pre-COVID in February.

Thomas Ferguson

We did some part of this is yes, it was a lighter winter than normal. But also I think just we had mentioned last fourth quarter where we were carrying a lot of customer inventory and we clean that out as we got into the fiscal year.
Good, good, good operating performance by the team in pre-COVID. And then so this fourth quarter, I think it was the benefit of kind of normal customer inventory sitting in our facilities, which allows us to drive productivity and efficiency. And then the volume just to we start to start to get when volume flows through those margins tend to pop nicely.

Adam Thalhimer

Okay. And then that you guys have a like an actual interest expense and tax rate forecast that's embedded in the guidance we do.

Philip Schlom

I mean we look at the forward curve on our interest rates. So just like everybody else out there, we're we are expecting four to six cuts this year than we got out there and we're able to reprice here in March 24, which wouldn't have been part of our original forecast.

Thomas Ferguson

We don't have cuts factor here. We have the yes, the forward curve just to Jorg are not actors, but not any additional cuts.(multiple speakers)

Philip Schlom

And then on the tax rate, we have a 21% stat rate and then we're primarily North America So call it 3% 3.5% to 4%. So that's kind of 23.5% to 24% tax rate is what we utilize.

Adam Thalhimer

Okay. I'll turn it over. Thank you.

Thomas Ferguson

I think yes.

Operator

Our next question comes from Jon Braatz with Kansas City Capital. Please go ahead this morning, everyone.

Jon Braatz

On a John and Tom, can you talk a little bit about Washington, Missouri, as you as you ramp up, what can you say about maybe start-up costs or costs you're absorbing prior to production? And is there a little bit of a drag on margins for this fiscal year.

Thomas Ferguson

And now there should be I think we've got all that plan, but in our budgets for how we're going to ramp up. And naturally, we've got a little bit of contingency in there, too. So yes, so we've got some decisions to make as the line test out and comes online, whether we actually start producing at the end of the year or whether we just carry carry in and meet the normal customer demand that's been committed. So but in either case, I don't look for those to be a drag. So it should be a pity.

Jon Braatz

Okay. And how much of production is committed at this point?

Thomas Ferguson

75% is contractually committed and that's kind of how that is how we've built the model. And in fact, that in so we've got 25% to go sell, although in this case through the customer that made that commitment actually would have liked to have had a 100% of it. So so we've got upside with the with this customer, which we hope to announce here in the next a month or so. And then secondly, there's it does give us the opportunity to go go chase some other business, which and I would liken that to that ability to do.

Jon Braatz

That at the most. What would you like to see committed by one customer would do your 75% now? I mean, would you be okay, 85%, 90%?

Thomas Ferguson

Yes, I think so. I always hesitate to give you that dependent on one customer. But in this case, because it's a seven year contractual arrangement, I'm less concerned. So to speak. And obviously with that much business, we do have it another plant in St. Louis that does a smaller capability, but we do have another aluminum line well to actually so we do have that opportunity to a pickup business and make sure that we balance that between both plants.

Jon Braatz

Okay. Thank you very much, sir.

Operator

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

Thomas Ferguson

Thank you for your time today. Yes, as you can tell, we're excited about our future and I look forward to updating you on the on our first quarter results in just a few months.

Operator

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