OMAHA, Neb., July 23, 2018 /PRNewswire/ -- Valmont Industries, Inc. VMI, a leading global provider of engineered products and services for infrastructure development and irrigation equipment and services for agriculture, today reported second quarter 2018 results.

Second Quarter 2018 Financial Summary

Second Quarter 2018 Highlights

• Higher revenues in the Engineered Support Structures and Coatings segments were more than offset by lower sales in the Irrigation and Utility Support Structures segments
• Late-quarter market headwinds contributed to unfavorable sales comparisons in the Irrigation segment
• Farmers in North America delayed equipment purchase decisions due to increased uncertainty over tariff and trade policies, and a meaningful decline in grain prices during the quarter
• The truckers' strike in Brazil led to an unexpected, country-wide business interruption, which hindered the Company's operations during the quarter, contributing to lower international irrigation sales and profitability
• Unfavorable sales comparisons in the Utility segment were largely due to project timing and product mix
• Despite lower volumes, price recovery and project mix led to higher adjusted operating margins
• Repurchased 203,900 shares of Company stock for $29.2 million, at an average price of $143.28 per share
• Extended the average duration of long-term debt during an attractive interest rate environment, reducing interest expense by approximately $2.5 million per year
• Completed the previously-announced divestiture of the grinding media business, (Donhad Pty. Ltd.) on April 30, 2018, generating net cash proceeds of $61.0 million

"Our focus on price recovery and maintaining gross profit served us well as we combatted challenging end-market dynamics this quarter," said Stephen G. Kaniewski, President and Chief Executive Officer. "Our performance demonstrates our team's agility to quickly respond to rapidly changing market conditions."

Second Quarter 2018 Segment Review

Infrastructure

Engineered Support Structures Segment (37% 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 $250.7 million were 5.9% higher than second quarter 2017, 2.5% was attributable to favorable foreign currency translation, with the remainder due to price and organic growth. Sales growth was mostly driven by improved lighting and traffic structures demand in North America and Europe. In the Asia Pacific region, sales decreased, mainly due to significantly lower wireless communication structures demand in China.

Double-digit sales growth of North American lighting and traffic products was driven by increased transportation market demand, and price recovery of higher steel costs. The sales increase was partially offset by lower commercial lighting sales, as actions to fully recover price temporarily impacted demand. In Europe, lighting sales also grew, aided by improving economic conditions across the region, and increased funding for government infrastructure spending.

Continued infrastructure investment in Australia and India led to higher highway safety product sales in those regions.

Sales of North American wireless communication products and components were higher compared to last year, led by demand from carriers and tower companies preparing site development for 5G implementation. A pause in spending by the largest wireless carrier in China resulted in decreased site and tower demand. Access Systems sales rose slightly above last year.

Operating income was $13.0 million or 5.2% of sales ($18.4 million, or 7.3% adjusted¹) compared to $20.3 million, or 8.6% of sales in 2017. As expected, profitability was impacted by lower volumes due to price recovery actions in certain markets.

Utility Support Structures Segment (29% of Sales)
Steel and concrete structures for global utility transmission, distribution and generation applications, wind and offshore structures, and inspection services

Sales of $197.7 million decreased 6.1% compared to last year, mostly due to lower volumes attributed to a less favorable product mix in North America. Higher steel costs were recovered through increased pricing. Sales volumes of offshore wind structures in Northern Europe were lower than last year, due to a challenging pricing environment.

Operating income was $20.8 million, or 10.5% of sales ($22.3 million, or 11.3% adjusted¹) compared to $22.4 million or 10.6% of sales last year. Despite lower sales and under- performance in offshore wind, margins improved due to a more favorable project mix compared to 2017.  

Coatings Segment (13% of Sales)
Global galvanizing, painting and anodizing services to preserve and protect metal products

Global sales of $91.6 million were 14.8% higher than last year, reflecting price recovery of higher zinc costs and improved volumes. Increased broad-based industrial demand across all regions drove sales higher. Sales to other Valmont segments were comparable to last year.

Operating income was $14.9 million, or 16.2% of sales, compared to $12.1 million, or 15.2% of sales in 2017. Higher volumes, pricing to recover zinc cost increases, and improved operating leverage, all contributed to favorable results. Profitability was also aided this quarter by recent implementation of the GalvTrac^TM management tool, aligning with the Company's strategy to use innovative technology to drive productivity improvements, and operational best practices across its global locations.  

Agriculture

Irrigation Segment (24% of Sales)
Agricultural irrigation equipment, parts, services and tubular products, water management solutions, and technology for precision agriculture

Global sales of $162.9 million were 13.5% below last year. In North America, the increased uncertainty of tariff and trade policies late in the quarter pressured grain prices, causing farmers to delay purchase decisions. As expected, project sales in the second quarter of 2017 did not repeat this year, contributing to unfavorable comparisons. Irrigation technology product and service sales were higher, resulting from the Company's strategy to drive adoption of integrated technology offerings, supported by increasing global demand for precision irrigation solutions.

International sales declined from last year, due to smaller project sizes.  Sales were further impacted by project movements out of the second quarter. In Brazil, currently the Company's largest international market, the truckers' strike that began in late May disrupted business country-wide. As a result, factory operations were suspended, unfavorably impacting sales for the quarter. Despite robust market demand, longer approvals for government-sponsored financing programs in Brazil delays the timing of orders released for shipment.

Operating income was lower at $27.7 million, or 17.0% of sales, compared to $34.7 million, or 18.4% of sales in 2017. Price increases implemented during the quarter successfully offset inflationary costs. Segment profitability was unfavorably impacted by lower project volumes, and some productivity impacts resulting from the Brazil strike. 

Other (1% of Sales)
Manufacture of forged steel grinding media for the mining industry

Sales in grinding media were $4.7 million, and second quarter operating loss was $0.3 million. The divestiture of the grinding media business, (Donhad Pty. Ltd.) was completed on April 30, 2018. Going forward, the Company will no longer report on the "Other" segment.

Operational Transformation Update

As the Company executes on its operational transformation strategy, additional actions were taken during the quarter. These primarily included the consolidation of three Engineered Support Structures' facilities in China to a single location, and completion of the Hazelton, PA factory consolidation in the Utility segment. The resulting pre-tax expenses were $7.0 million, predominately cash.

Through ongoing lean initiatives, assessment of local market conditions, and supply chain optimization efforts, additional opportunities in the Asia Pacific region have been

identified. Anticipated full-year expenses attributed to these combined actions have increased from the $10 million previously communicated, to approximately $20 million ($14 million cash and $6 million non-cash). An annualized payback of 12-18 months is expected on the $14 million of cash expense.

2018 Outlook

The Company's updated 2018 guidance is as follows.

Mr. Kaniewski stated, "As we consider the outlook for the remainder of the year, we remain very positive on our markets and businesses. The steps we are taking to transform our operational footprint support our strategy to become a market-focused, growth-oriented organization that is well-positioned for the future, and creating shareholder value."

"Turning to our markets, in the Engineered Support Structures segment, we expect favorable revenue and operating profit comparisons, as a result of pricing actions and improved demand in the lighting and traffic business, and the upcoming transition to 5G. We anticipate favorable third quarter comparisons in our Utility segment, supported by current backlogs. Full-year revenue and operating profit should approximate 2017 results. Irrigation segment results are expected to be below last year due to challenging end-market conditions, but as always, international project activity can influence sales. Although Brazil's current political environment and truckers' strike are impacting full-year sales and profitability, market demand remains robust there. Our Coatings segment is expected to perform in line with first half results, tracking with strong industrial demand."

Added Mr. Kaniewski, "We believe our flexible, global footprint enables us to withstand cost impacts resulting from current tariff and trade policies. However, the effect on end-market demand remains dynamic. Additional opportunities to favorably transform our supply chain in the Asia Pacific region have been identified. We believe executing on these initiatives will lower our cost structure, while continuing to provide high service levels to our customers."

An audio discussion of Valmont's second quarter 2018 results will be available live by dialing 1-877-407-6184 or 1-201-389-0877 (no Conference ID needed), or via webcast, at 8:00 a.m. CDT on July 24, 2018, by pointing browsers to this link: Valmont Industries Q2 2018 Earnings Conference Call. A replay is available by accessing the above link, or by telephone at 1-877-660-6853 or 1-201-612-7415, and enter Conference ID 13680596, beginning July 24, 2018 at 11:00 a.m. CDT through 10:59 p.m. CDT on July 31, 2018. The Company's slide presentation for the call will be simultaneously available on the Investor Relations page at www.valmont.com.

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 improves farm productivity while conserving fresh water resources. In addition, Valmont provides coatings services that protect against corrosion and improve the service lives of steel and other metal products.

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, 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.

¹Please see Reg G reconciliation of non-GAAP financial measures to GAAP measures at end of the document.

 

 

 

 

 

¹Please see Reg G reconciliation of GAAP operating income, net earnings and EPS to Adjusted figures at end of document
³Excludes any potential acquisitions, and grinding media, (Donhad) revenue in both 2018 and 2017
⁴Excludes $20 million of pre-tax 2018 restructuring expenses 

 

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SOURCE Valmont Industries, Inc.