Valmont Industries, Inc. (NYSE: VMI), a leading global provider
of engineered products and services for infrastructure development
and irrigation equipment and services for agriculture, today
reported financial results for the first quarter ended March 28,
2020.
First Quarter 2020 Highlights (all metrics compared to
First Quarter 2019 unless otherwise noted)
- Net Sales of $674.2 million, a decline of 2.6%; strong North
American sales were more than offset by anticipated lower sales in
the Utility Support Structures segment due to a $30.0 million solar
tracker project in 2019 that did not repeat this year, and
approximately $10 million of unfavorable currency translation
impact
- Operating income grew 22.5% to $66.9 million, or 9.9% of sales
compared to $54.6 million or 7.9% of sales; all segments
contributed to the improvement
- Diluted Earnings per Share of $1.99 grew 21.3% compared to
$1.64
- Completed previously-announced acquisition of remaining 49%
stake of AgSense® in the Irrigation segment
- Utility Support Structures global backlog increased 12.0% from
last quarter to a record $689.0 million, including a large
transmission order for the European market
- Generated operating cash flow of $62.4 million, significantly
higher than last year and strongest first quarter since 2016
- Repurchased 190,500 shares of company stock for $20.5 million
at an average price of $107.52 per share, prior to halting share
repurchases in March
- Announced a 20% quarterly dividend increase, from $0.375 to
$0.45 ($1.50 to $1.80 annualized), the first increase since
2014
- Withdrawing 2020 financial outlook due to ongoing uncertainties
around business impacts from the COVID-19 pandemic
- Providing key assumptions and indications for the second
quarter and second half of 2020
Key Financial Metrics
First Quarter 2020
03/28/2020
1Q 2020
03/30/2019
1Q 2019
vs. 1Q 2019
Net Sales
$
674,200
$
692,139
(2.6)%
Operating Income
66,895
$
54,602
22.5%
Operating Income as a % of Net Sales
9.9
%
7.9
%
Net Earnings
42,929
36,104
18.9%
Diluted Earnings Per Share
$
1.99
$
1.64
21.3%
Average Shares Outstanding
21,549
21,964
"We had a strong first quarter in the majority of the regions
where we operate, despite COVID-19 interruptions," said Stephen G.
Kaniewski, President and Chief Executive Officer. "As discussed in
previous quarters, our sales and profitability improvements were
primarily driven by three strategic focus areas - capacity
expansions in North America to meet strong infrastructure market
demand and better serve our customers, improved operational
efficiencies, and pricing discipline while seeing deflation in raw
material costs. We are very pleased with our results across all
segments, with revenue and profitability exceeding our
expectations.”
First Quarter 2020 Segment Review
Infrastructure
Engineered Support Structures Segment (34.2% of
Sales)
Poles, towers and components for the global lighting, traffic
and wireless communication markets, engineered access systems,
integrated structure solutions for smart cities, and highway safety
products
Sales of $230.7 million were flat with last year. Higher sales
in North American markets were offset by lower sales in the Asia
Pacific region, primarily in the Access Systems product line.
Lighting and traffic sales were higher compared to last year,
driven by strong North American transportation market demand,
partially offset by lower demand in commercial lighting markets and
slightly lower international sales.
Sales of wireless communication structures and components
decreased 11.0% as anticipated compared to last year, after a very
strong first quarter of growth in 2019. Slower capital spending due
to the delayed T. Mobile/Sprint merger led to lower sales.
Government-mandated facility closures in China related to COVID-19
impacts represented $2.0 million of the sales decline.
Access Systems product sales decreased 32.0% compared to last
year, led by continued weakness in Australian construction
end-market demand.
Operating income was $15.9 million or 6.9% of sales compared to
$12.5 million or 5.4% of sales in 2019.
Profitability improvement was led by improved operational
performance and lower raw material costs, partially offset by lower
volumes from Access Systems.
Utility Support Structures Segment (33.4% of Sales)
Steel and concrete structures for global utility transmission,
distribution, substations, and renewable energy generation
equipment
Sales of $225.5 million decreased 7.6% compared to last year, as
expected, primarily due to a large solar tracker project in 2019
that did not repeat this year. Higher North American volumes were
led by continued strong market demand.
Operating income was $27.7 million or 12.3% of sales compared to
$25.1 million, or 10.3% of sales in 2019. Profitability improvement
from higher volumes and lower raw material costs in North American
markets, were partially offset by lower volumes in the
international businesses.
Coatings Segment (13.1% of Sales)
Global galvanizing, painting and anodizing services to preserve
and protect metal products
Sales of $88.1 million increased 1.5% versus the prior year.
Higher volumes in North American markets, mostly internal, were
partially offset by unfavorable currency translation impacts. Lower
volumes in international markets due to government-mandated
facility closures late in the quarter related to COVID-19
represented a negative impact of approximately 1.0% to sales.
Operating income was $11.1 million or 12.6% of sales, compared
to $10.1 million or 11.7% of sales in 2019, due to lower zinc costs
and improved operational performance.
Agriculture
Irrigation Segment (23.2% of Sales)
Agricultural irrigation equipment, parts, services and tubular
products, water management solutions, and technology for precision
agriculture
Global sales of $156.7 million increased 2.6% compared to last
year.
North American sales of $106.6 million were down 1.8% compared
to 2019. Higher volumes of systems, aftermarket parts and advanced
technology solutions were more than offset by lower industrial
tubing sales.
International sales of $50.1 million grew 13.1% compared to last
year, despite $2.7 million of unfavorable currency translation
impacts. Volumes were higher in most regions. Record first-quarter
sales in local currency in Brazil, and a recovering market in
Australia, led to the sales growth.
Segment operating income was $23.7 million, or 15.1% of sales,
compared to $20.1 million, or 13.2% of sales in 2019. Profitability
improvement from higher selling prices and improved volumes of
aftermarket parts was partially offset by approximately $0.8
million of planned higher R&D expense for technology
investments.
COVID-19 Business Continuity and
Operations Update
On March 26, 2020, the Company provided perspectives and
observations on the COVID-19 impact on the business. Valmont is
considered an essential business because of the products and
services that serve critical infrastructure sectors and food
security, as defined by many governments around the world. In
response to the situation, a cross-functional taskforce was
assembled in February 2020 to monitor this evolving situation.
Valmont has activated a business continuity plan that encompasses
all segments and regions of operation. To protect the safety,
health and well-being of employees, customers, suppliers and
communities, CDC, WHO and local guidelines are being followed to
ensure employee safety in all facilities. Valmont has also
implemented several preventive measures while meeting the needs of
its global customers. These include increased frequency of cleaning
and disinfecting of facilities, social distancing practices, remote
working when possible, business travel restrictions, cancellation
of certain events and limitations on visitor access to facilities.
Additional safety and flexibility measures in manufacturing
facilities have been implemented as the Company strives to keep its
factories operational.
Since the March communication, one additional manufacturing
facility in South Africa has temporarily ceased operations due to
preemptive government mandates. Valmont facilities currently
impacted include operations in Argentina, France, India, Malaysia,
New Zealand, Philippines and South Africa, but all are anticipated
to resume operations in early May. All other Valmont facilities
remain open and fully operational. Deliberate and proactive steps
have been taken to protect all stakeholders and minimize the
operational and financial impacts of COVID-19 on the business. At
present, multiple sources of supply for raw materials and other
critical components are in place, and Valmont is currently not
experiencing any delays in its global supply chain.
Balance Sheet, Liquidity and Capital
Allocation
In response to COVID-19 uncertainty, the Company is focused on
actions to reduce discretionary capital and operating expenditures,
adjust its cost structure, and preserve its financial flexibility
and strong liquidity position. The cash balance as of April 21,
2020 was approximately $350.0 million. At the beginning of second
quarter, the Company proactively drew down $75.0 million of its
$600.0 million revolving credit facility to ensure sufficient
liquidity. To date, the Company has not experienced any significant
slowdown in customer payments or adjustments to credit terms, and
has no significant long-term debt maturities until 2044.
Recognizing its strong balance sheet and confidence in
generating good cash flows in the future, in February the Company
announced a 20.0% increase to its quarterly dividend, the first
increase since 2014. Given the decrease in the number of shares
outstanding over the past several years, and lower expected
minority interest dividends going forward, the effect of the
dividend increase on net cash outflows is not significant. In
March, the Company halted share repurchases to strengthen financial
liquidity until future impacts from COVID-19 are more clear. 2020
capital expenditures are expected to now be in the range of $75.0
to $90.0 million. The previously-announced strategic capacity
expansions are tracking in line with expectations, while other
capital expenditures have been delayed. Valmont remains committed
to maintaining its investment grade credit rating.
2020 Outlook and Key
Assumptions
As demonstrated by a strong first quarter performance, the
Company was on track to maintain its full year 2020 guidance
metrics. As a result of the evolving impact of COVID-19 on the
global economy, the Company is now anticipating and planning for
slowdown in customer demand and increased business disruption,
primarily beginning in the second quarter. The extent and duration
of these impacts are not presently able to be quantified, and
therefore future impacts are difficult to determine. For these
reasons, Valmont believes it is prudent to withdraw its full year
2020 guidance.
In lieu of annual guidance and to help the financial community
understand business impact and sensitivities, the Company is
providing key assumptions and indications for the second quarter
and second half of 2020.
Second Quarter Financial
Outlook
- Net sales estimated to be between $645 million and $665
million
- Operating margins estimated to be in the range of 7.0% to 8.5%
of net sales
- Irrigation segment revenue expected to be down 5.0% to 10.0%
from prior year, due to recent disruptions to food supply chains,
ethanol demand and unfavorable currency translation impacts
- Coatings segment revenue expected to be down 20.0% to 25.0%
from prior year, as a result of recent industrial production levels
and GDP trends
- Anticipate positive operating cash flows
- Assume no additional closures of large manufacturing facilities
globally due to COVID-19
Second Half 2020 Key Assumptions and
Perspectives
- Planning and anticipating for recessionary forces to
potentially impact global demand and revenues due to volatile
market demand profiles
- Anticipating lower raw material costs and assuming no
significant supply chain interruptions
- Expecting lower working capital requirements associated with
reduced market demand
- Balance sheet that reflects strong financial and operational
position, with ample liquidity and room under debt covenants
- Prepared to execute additional cost management measures, as
appropriate
- Assuming no additional closures of large manufacturing
facilities globally due to COVID-19
Kaniewski continued, "I believe we are in a solid financial
position to navigate the COVID-19 outbreak during this period of
unprecedented volatility. As a global provider of products and
services that support critical infrastructure sectors and food
security, we continue to work diligently and safely to provide our
customers with the essential products and solutions they need. Our
balance sheet is strong, with $350.0 million in cash. We have
suspended share repurchases and are taking a hard look at all
discretionary spending and capital expenditures, with an emphasis
on managing working capital and cash flow. While the outbreak
continues to unfold, I have unwavering confidence in Valmont
employees and our ability to navigate this crisis. We have a strong
track record of managing through business cycles and emerging from
economic downturns in a solid financial position. During this
unprecedented time of market disruption and uncertainty, we will
remain flexible and take further actions as needed. The long-term,
enduring market drivers for all our businesses are strong, and we
remain confident in our long-term growth strategy."
A live audio discussion with Stephen G. Kaniewski, President and
Chief Executive Officer, and Avner M. Applbaum, Executive Vice
President and Chief Financial Officer, will be accessible by
telephone on Thursday, April 23, 2020 at 8:00 a.m. CDT by dialing
1-877-407-6184 or 1-201-389-0877 (no Conference ID needed), or via
webcast by pointing browsers to this link: Valmont Industries 1Q
2020 Earnings Conference Call. A slide
presentation will simultaneously be available for download on the
Investors page at www.valmont.com. A replay of the event can be
accessed two hours after the call at the above link or by telephone
at 1-877-660-6853 or 1-201-612-7415. Please use conference
identification number 13698671. The replay will be available
through 10:59 p.m. CDT on April 30, 2020.
About Valmont Industries, Inc.
Valmont is a global leader, designing and manufacturing
engineered products that support global infrastructure development
and agricultural productivity. Its products for infrastructure
serve highway, transportation, wireless communication, electric
transmission, and industrial construction and energy markets. Its
irrigation equipment and services for large-scale agriculture
improve farm productivity while conserving fresh water resources.
In addition, Valmont provides coatings services that protect
against corrosion and improve the service life of steel and other
metal products. For more information, visit valmont.com.
Concerning Forward-Looking Statements
This release contains forward-looking statements, within the
meaning of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements are based on assumptions that
management has made in light of experience in the industries in
which Valmont operates, as well as management’s perceptions of
historical trends, current conditions, expected future developments
and other factors believed to be appropriate under the
circumstances. As you read and consider this release, you should
understand that these statements are not guarantees of performance
or results. They involve risks, uncertainties (some of which are
beyond Valmont’s control) and assumptions. Although management
believes that these forward-looking statements are based on
reasonable assumptions, you should be aware that many factors could
affect Valmont’s actual financial results and cause them to differ
materially from those anticipated in the forward-looking
statements. These factors include among other things, the
continuing and developing effects of COVID-19 including the effects
of the outbreak on the general economy and the specific economic
effects on the Company’s business and that of its customers and
suppliers, risk factors described from time to time in Valmont’s
reports to the Securities and Exchange Commission, as well as
future economic and market circumstances, industry conditions,
company performance and financial results, operating efficiencies,
availability and price of raw material, availability and market
acceptance of new products, product pricing, domestic and
international competitive environments, and actions and policy
changes of domestic and foreign governments. The Company cautions
that any forward-looking statement included in this press release
is made as of the date of this press release and the Company does
not undertake to update any forward-looking statement.
VALMONT INDUSTRIES, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF EARNINGS
(Dollars in thousands, except per
share amounts)
(unaudited)
First Quarter
13 Weeks Ended
28-Mar-20
30-Mar-19
Net sales
$
674,200
$
692,139
Cost of sales
487,951
527,512
Gross profit
186,249
164,627
Selling, general and administrative
expenses
119,354
110,025
Operating income
66,895
54,602
Other income (expense)
Interest expense
(10,014
)
(9,878
)
Interest income
1,043
810
Gain (loss) on investments
(unrealized)
(2,308
)
2,832
Other
1,810
1,014
(9,469
)
(5,222
)
Earnings before income taxes
57,426
49,380
Income tax expense
14,486
12,302
Equity in earnings (loss) of
nonconsolidated subsidiaries
(219
)
—
Net earnings
42,721
37,078
Less: Loss (earnings) attributable to
non-controlling interests
208
(974
)
Net earnings attributable to Valmont
Industries, Inc.
$
42,929
$
36,104
Average shares outstanding (000's) -
Basic
21,453
21,886
Earnings per share - Basic
$
2.00
$
1.65
Average shares outstanding (000's) -
Diluted
21,549
21,964
Earnings per share - Diluted
$
1.99
$
1.64
Cash dividends per share
$
0.450
$
0.375
VALMONT INDUSTRIES, INC. AND
SUBSIDIARIES
SUMMARY OPERATING
RESULTS
(Dollars in thousands)
(unaudited)
First Quarter
13 Weeks Ended
28-Mar-20
30-Mar-19
Net sales
Engineered Support Structures
$
230,742
$
230,288
Utility Support Structures
225,461
243,922
Coatings
88,085
86,779
Infrastructure products
544,288
560,989
Irrigation
156,720
152,816
Less: Intersegment sales
(26,808
)
(21,666
)
Total
$
674,200
$
692,139
Operating Income
Engineered Support Structures
$
15,931
$
12,445
Utility Support Structures
27,724
25,048
Coatings
11,054
10,140
Infrastructure products
54,709
47,633
Irrigation
23,663
20,134
Corporate
(11,477
)
(13,165
)
Total
$
66,895
$
54,602
Valmont has aggregated its business segments into four global
reportable segments as follows.
Engineered Support Structures: This segment consists of
the manufacture and distribution of engineered metal and composite
poles, towers, and components for global lighting, traffic, and
wireless communication markets, engineered access systems,
integrated structure solutions for smart cities, and highway safety
products.
Utility Support Structures: This segment consists of the
manufacture of engineered steel and concrete structures for global
utility transmission, distribution, substations, and renewable
energy generation equipment
Coatings: This segment consists of global galvanizing,
painting and anodizing services to preserve and protect metal
products.
Irrigation: This segment consists of the global
manufacture of agricultural irrigation equipment, parts, services,
tubular products, water management solutions, and technology for
precision agriculture.
In addition to these four reportable segments, the Company had
other businesses and activities that individually are not more than
10% of consolidated sales, operating income or assets.
VALMONT INDUSTRIES, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE
SHEETS
(Dollars in thousands)
(unaudited)
28-Mar-20
28-Dec-19
ASSETS
Current assets:
Cash and cash equivalents
$
294,645
$
353,542
Accounts receivable, net
492,785
480,000
Inventories
416,613
418,370
Contract asset - costs and profits in
excess of billings
144,777
141,322
Prepaid expenses
63,306
32,043
Refundable income taxes
2,300
6,947
Total current assets
1,414,426
1,432,224
Property, plant and equipment, net
553,981
558,129
Goodwill and other assets
789,172
816,863
$
2,757,579
$
2,807,216
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt
$
757
$
760
Notes payable to banks
19,719
21,774
Accounts payable
209,132
197,957
Accrued expenses
170,944
167,264
Contract liability - billings in excess of
costs and earnings
151,034
117,945
Dividend payable
9,625
8,079
Total current liabilities
561,211
513,779
Long-term debt, excluding current
installments
776,139
764,944
Other long-term liabilities
310,099
338,748
Shareholders' equity
1,110,130
1,189,745
$
2,757,579
$
2,807,216
VALMONT INDUSTRIES, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
YTD
YTD
28-Mar-20
30-Mar-19
Cash flows from
operating activities
Net Earnings
$
42,721
$
37,078
Depreciation and amortization
20,343
20,253
Contribution to defined benefit pension
plan
(17,039
)
(13,943
)
Change in working capital
2,813
(43,453
)
Other
13,514
7,978
Net cash flows from operating
activities
62,352
7,913
Cash flows from
investing activities
Purchase of property, plant, and
equipment
(23,580
)
(21,109
)
Proceeds from sale of assets
684
422
Acquisitions
(8,804
)
(57,106
)
Other
(1,436
)
(1,667
)
Net cash flows from investing
activities
(33,136
)
(79,460
)
Cash flows from
financing activities
Proceeds from long-term borrowings
10,000
10,000
Proceeds (payments) from short-term
borrowings
(1,442
)
9,327
Principal payments on long-term
borrowings
(188
)
(10,194
)
Purchase of treasury shares
(20,481
)
(9,421
)
Purchase of noncontrolling interest
(53,534
)
(23,082
)
Dividends paid
(8,079
)
(8,213
)
Other
(5,285
)
(411
)
Net cash flows from financing
activities
(79,009
)
(31,994
)
Effect of exchange rates on cash and cash
equivalents
(9,104
)
1,568
Net change in cash and cash
equivalents
(58,897
)
(101,973
)
Cash and cash equivalents - beginning of
year
353,542
313,210
Cash and cash equivalents - end of
period
$
294,645
$
211,237
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