Valmont Reports Second Quarter 2018 Results

Jul 23, 2018

OMAHA, Neb., July 23, 2018 /PRNewswire/ -- 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 second quarter 2018 results.

Second Quarter 2018 Financial Summary


GAAP


Adjusted1



6/30/2018

7/1/2017



6/30/2018

7/1/2017




Q2 2018

Q2 2017

vs. Q2 2017


Q2 2018

Q2 2017

vs. Q2 2017


Revenue

$682,405

$712,737

down 4.3%


$682,405

$712,737

down 4.3%


Operating Income

$63,670

$78,450

down 18.9%


$70,689

$78,450

down 9.9%


  Operating Income as a % of Net Sales

9.3%

11.0%



10.4%

11.0%



Net Earnings

$32,960

$45,664

down 27.8%


$44,709

$45,664

down 2.2%











Diluted Earnings Per Share

$1.46

$2.01

down 27.4%


$1.98

$2.01

down 1.5%


Average Shares Outstanding

22,573

22,740



22,573

22,740












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 GalvTracTM 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.

2018 Updated Guidance

GAAP Diluted EPS

$6.12 - $6.222

Adjusted Diluted EPS1

$7.55 - $7.65

Revenue Growth3

4%

Operating Profitability Growth4

25 bps

Free Cash Flow

1x Net Earnings

ROIC (after tax)

>10%


2Change to GAAP guidance from the July 12, 2018 release is the result of increased pre-tax restructuring expenses and minor revisions to the accounting for the divestiture of the grinding media business. 

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.

 

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Dollars in thousands, except per share amounts)

(unaudited)
















Second Quarter


Year-to-Date





13 Weeks Ended


26 Weeks Ended





30-Jun-18


1-Jul-17


30-Jun-18


1-Jul-17

Net sales




$      682,405


$   712,737


$ 1,381,089


$ 1,350,210

Cost of sales




507,406


529,457


1,036,850


1,002,325

          Gross profit




174,999


183,280


344,239


347,885

Selling, general and administrative expenses




111,329


104,830


216,609


204,779

          Operating income 




63,670


78,450


127,630


143,106

Other income (expense)











     Interest expense




(11,791)


(10,818)


(22,865)


(22,122)

     Interest income




1,446


967


2,713


1,894

     Loss from divestiture of grinding media business (Donhad)


(6,084)


-


(6,084)


-

     Other




1,844


(192)


703


853





(14,585)


(10,043)


(25,533)


(19,375)

          Earnings before income taxes




49,085


68,407


102,097


123,731

Income tax expense




14,405


21,085


26,937


36,448

          Net earnings




34,680


47,322


75,160


87,283

Less:  Earnings attributable to non-controlling interests



(1,720)


(1,658)


(2,919)


(2,640)

          Net earnings attributable to Valmont Industries, Inc.


$        32,960


$     45,664


$      72,241


$      84,643























Average shares outstanding (000's) - Basic




22,438


22,517


22,523


22,494

Earnings per share - Basic




$            1.47


$         2.03


$          3.21


$          3.76












Average shares outstanding (000's) - Diluted



22,573


22,740


22,684


22,700

Earnings per share - Diluted




$            1.46


$         2.01


$          3.18


$          3.73












Cash dividends per share




$          0.375


$       0.375


$        0.750


$        0.750























 

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

SUMMARY OPERATING RESULTS

(Dollars in thousands)

(unaudited)
















Second Quarter


Year-to-Date





13 Weeks Ended


26 Weeks Ended





30-Jun-18


1-Jul-17


30-Jun-18


1-Jul-17












Net sales











     Engineered Support Structures




$      250,711


$   236,803


$    475,665


$    441,752

     Utility Support Structures




197,719


210,604


407,581


410,869

     Coatings




91,572


79,781


176,519


153,249

        Infrastructure products




540,002


527,188


1,059,765


1,005,870












     Irrigation




162,936


188,287


350,889


355,511

     Other




4,681


21,072


23,080


40,666

     Less: Intersegment sales




(25,214)


(23,810)


(52,645)


(51,837)

          Total




$      682,405


$   712,737


$ 1,381,089


$ 1,350,210












Operating Income











     Engineered Support Structures




12,965


20,288


19,912


29,752

     Utility Support Structures




20,841


22,394


44,208


46,601

     Coatings




14,868


12,108


26,735


21,514

        Infrastructure products




48,674


54,790


90,855


97,867












     Irrigation




27,728


34,670


61,615


64,961

     Other




(334)


1,859


(913)


3,945

    Adjustment to LIFO inventory valuation method



(1,651)


(434)


(2,732)


(1,213)

     Corporate




(10,747)


(12,435)


(21,195)


(22,454)

          Total




$        63,670


$     78,450


$    127,630


$    143,106












Valmont has aggregated its business segments into four global reportable segments as follows.












Engineered Support Structures:This segment consists of the manufacture of engineered metal and composite pole, 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 the global utility transmission, distribution, and generation applications, wind and offshore structures outside of North America, and inspection services.  












Coatings:This segment consists of global galvanizing, painting and anodizing services.















Irrigation:This segment consists of the global manufacture of agricultural irrigation equipment, parts and 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. This includes the manufacture of forged steel grinding media and is reported in the "Other" category until its divestiture.





 


VALMONT INDUSTRIES, INC. AND SUBSIDIARIES




CONDENSED CONSOLIDATED BALANCE SHEETS




(Dollars in thousands)




(unaudited)




















30-Jun-18




1-Jul-17




ASSETS












Current assets:












     Cash and cash equivalents




$        722,588




$      448,222




     Accounts receivable, net




472,849




496,962




     Inventories




381,971




382,648




     Prepaid expenses




127,843




43,545




     Refundable and deferred income taxes




9,841




4,830




          Total current assets




1,715,092




1,376,207




Property, plant and equipment, net




492,688




520,107




Goodwill and other assets




571,581




626,848








$   2,779,361




$ 2,523,162
















LIABILITIES AND SHAREHOLDERS' EQUITY











Current liabilities:












     Current installments of long-term debt




$              863




$            921




     Notes payable to banks




271




376




     Accounts payable




193,612




193,087




     Accrued expenses




151,176




171,191




     Dividend payable




8,412




8,472




          Total current liabilities




354,334




374,047




Long-term debt, excluding current installments



988,520




754,436




Other long-term liabilities




286,683




292,233




Shareholders' equity




1,149,824




1,102,446








$   2,779,361




$ 2,523,162















CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS




(Dollars in thousands) and unaudited








YTD




YTD




Cash flows from operating activities




30-Jun-18




1-Jul-17




   Net Earnings




$          75,160




$       87,283




   Depreciation and amortization




41,657




41,754




   Loss from divestiture of grinding media business



6,084




-




   Contribution to defined benefit pension plan



(731)




(25,379)




   Change in working capital 




(73,192)




(64,304)




   Other




4,680




16,376




        Net cash flows from operating activities



53,658




55,730
















Cash flows from investing activities












   Purchase of property, plant, and equipment




(31,816)




(26,183)




   Proceeds from sale of assets




64,393




-




   Acquisitions




(9,300)




-




   Other




783




3,546




        Net cash flows from investing activities




24,060




(22,637)
















Cash flows from financing activities












   Proceeds from long-term borrowings




237,641




-




   Net borrowings on short and long-term agreements



130




(803)




   Purchase of treasury shares




(43,999)




-




   Purchase of noncontrolling interest




(5,510)




-




   Dividends paid




(17,003)




(16,913)




   Other




(6,194)




4,223




        Net cash flows from financing activities



165,065




(13,493)




Effect of exchange rates on cash and cash equivalents 



(13,000)




16,106




Net change in cash and cash equivalents 




229,783




35,706




Cash and cash equivalents - beginning of year 



492,805




412,516




Cash and cash equivalents - end of period 




$        722,588




$      448,222



























 

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES


SUMMARY OF EFFECT OF SIGNIFICANT NON-RECURRING ITEMS ON REPORTED RESULTS


REGULATION G RECONCILIATION


(Dollars in thousands, except per share amounts)


(unaudited)




The non-GAAP tables below disclose the impact on (a) diluted earnings per share of (1) restructuring costs related to the plan announced in February 2018 and (2) the loss from divestiture of its grinding media business, (b) operating income of restructuring costs and the divestiture of grinding media business, and (c) segment operating income of restructuring costs. Amounts may be impacted by rounding. We believe it is useful when considering company performance for the non-GAAP adjusted net earnings and operating income to be taken into consideration by management and investors with the related reported GAAP measures. 














13 Weeks
Ended June 30,
2018


Diluted
earnings per
share


26 Weeks
Ended June 30,
2018


Diluted
earnings per
share



Net earnings attributable to Valmont Industries, Inc. - as reported


$         32,960


$             1.46


$      72,241


$                 3.18














Restructuring expenses - pre-tax


7,019


0.31


11,419


0.50














Loss from divestiture of grinding media business, pre-tax

6,084


0.27


6,084


0.27














Total Adjustments


13,103


0.58


17,503


0.77














Tax effect of adjustments * 


(1,354)


(0.06)


(2,429)


(0.11)














Net earnings attributable to Valmont Industries, Inc. - Adjusted


$         44,709


$             1.98


$      87,315


$           3.84



Average shares outstanding (000's) - Diluted




22,573




22,684



* The tax effect of adjustments is calculated based on the income tax rate in each applicable jurisdiction, 





Operating Income Reconciliation


13 Weeks
Ended June 30,
2018


13 Weeks
Ended July 1,
2017


26 Weeks
Ended June 30,
2018


26 Weeks
Ended July 1,
2017



Operating income - as reported


$         63,670


$         78,450


$    127,630


$     143,106














Restructuring expenses 


7,019


-


11,419


-














Adjusted Operating Income 


70,689


78,450


139,049


143,106














Operating loss/(income) from divested grinding media business

334


(1,859)


913


(3,945)














Adjusted Operating Income, from ongoing operations

$         71,023


$         76,591


$    139,962


$     139,161














Net Sales - as reported


$       682,405


$        712,737


$  1,381,089


$   1,350,210



Net sales from divested grinding media business

(4,681)


(21,072)


(23,080)


(40,666)














Adjusted Net Sales


$       677,724


$        691,665


$  1,358,009


$   1,309,544














Operating Income as a % of Sales


9.3%


11.0%


9.2%


10.6%



Adjusted operating income from ongoing operations, as a % of Adjusted Sales


10.5%


11.1%


10.3%


10.6%















For the Second Quarter Ended June 30, 2018


Segment Operating Income Reconciliation


Engineered
Infrastructure
Products


Utility Support
Structures


Coatings


Irrigation


Other/ Corporate












Operating income - as reported


$         12,965


$         20,841


$      14,868


$       27,728


$      (12,732)












Restructuring expenses 


5,419


1,474


-


-


126












Adjusted Operating Income 


$         18,384


$         22,315


$      14,868


$       27,728


$      (12,606)












Net sales 


250,711


197,719


91,572


162,936














Operating Income as a % of Sales


5.2%


10.5%


16.2%


17.0%


NM












Adjusted Operating Income as a % of Sales


7.3%


11.3%


16.2%


17.0%


NM













For the Second Quarter Ended July 1, 2017













Operating income - as reported


$         20,288


$         22,394


$      12,108


$       34,670


$           (11,010)












Net sales 


236,803


210,604


79,781


188,287














Operating Income as a % of Sales


8.6%


10.6%


15.2%


18.4%


NM













 

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES


SUMMARY OF EFFECT OF SIGNIFICANT NON-RECURRING ITEMS ON ESTIMATED 2018 RESULTS


REGULATION G RECONCILIATION


(Dollars in thousands, except per share amounts)










The non-GAAP tables below disclose the impact on the range of estimated diluted earnings per share of (1) restructuring costs related to the plan announced in February 2018, (2) preliminary loss from the divestiture of the grinding media business, which occurred on April 30, 2018 and (3) certain refinancing expenses associated with redemption of bonds completed in the third quarter of 2018.  We believe it is useful when considering company performance for the non-GAAP adjusted net earnings to be taken into consideration by management and investors with the related reported GAAP measures as non-recurring transactions were or expected to be recognized in 2018. 










Reconciliation of Range of Net Earnings - Full Year 2018

Low End


High End


Adjustments 


Estimated net earnings - GAAP


$       138,666


$        140,866












Estimated restructuring expense, pre-tax






20,000










Loss from divestiture of grinding media,  pre-tax





6,084










Redemption of long-term debt expenses, pre-tax





14,750










Total pre-tax adjustments






40,834










Estimated tax benefit from above expenses*






(8,500)










Total Adjustments, after-tax






$      32,334










Estimated net earnings - Adjusted


$       171,000


$        173,200












Diluted Earnings Per Share Range - GAAP 

$            6.12


$             6.22




Diluted Earnings Per Share Range - Adjusted

$            7.55


$             7.65












*The tax effect of adjustments is calculated based on income tax rate in each applicable jurisdiction.

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 

 

SOURCE Valmont Industries, Inc.

For further information: Renee Campbell, 402-963-1057


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