Valmont Industries Inc.

10/23/2019 | Press release | Distributed by Public on 10/23/2019 17:26

Valmont Reports Third Quarter 2019 Results

OMAHA, Neb., Oct. 23, 2019/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 financial results for the third quarter ended September 28, 2019.

Third Quarter 2019 Highlights (metrics compared to third quarter 2018 unless otherwise noted)

  • Revenues grew 1.7% to $690.3 million, despite a challenging agricultural market environment; sales were higher in three of four segments
  • Operating income improved to $63.9 millionor 9.3% of sales, compared to $38.4 millionor 5.7% of sales ($63.2 millionadjusted1 or 9.3% of sales)
  • Diluted Earnings per Share increased to $1.85compared to $0.20($1.82adjusted1); 2019 results include a ($0.24)after-tax impact from a non-recurring loss associated with two large Access Systems sales projects in the Engineered Support Structures segment
  • Operating cash flows grew to $125.0 million, a substantial increase compared to 2018, and the highest third quarter level since 2012
  • Repurchased 126,700 shares of company stock for $16.8 million, at an average price of $132.76per share
  • Revising 2019 diluted EPS guidance range to $7.05- $7.45from $8.10- $8.70, due to the impact of non-recurring expenses recognized in the third quarter, insufficient capacity to meet North American infrastructure market demand, lower anticipated volumes in the Coatings segment, and continued lower Irrigation segment sales

Key Financial Metrics

Third Quarter 2019

GAAP

Adjusted1

9/28/2019

3Q 2019

9/29/2018

3Q 2018

vs. 3Q 2019

9/28/2019
3Q 2019

9/29/2018

3Q 2018

vs. 3Q 2019

Net Sales

$690,340

$678,692

1.7%

$690,340

$678,692

1.7%

Operating Income

63,863

$

38,360

66.5%

63,863

$

63,242

1.0%

Operating Income as a % of Net Sales

9.3%

5.7%

9.3%

9.3%

Net Earnings

40,144

4,448

802.5%

40,144

40,728

(1.4)%

Diluted Earnings Per Share

$

1.85

$

0.20

825.0%

$

1.85

$

1.82

1.6%

Average Shares Outstanding

21,684

22,352

YTD 2019

GAAP

Adjusted1

09/28/2019

YTD 2019

09/29/2018

YTD 2018

vs. YTD 2019

09/28/2019

YTD 2019

09/29/2018

YTD 2018

vs. YTD 2019

Net Sales

$

2,083,350

$

2,059,781

1.1%

$

2,083,350

$

2,059,781

1.1%

Operating Income

182,679

165,990

10.1%

182,679

203,272

(10.1)%

Operating Income as a % of Net Sales

8.8%

8.1%

8.8%

9.9%

Net Earnings

118,022

76,689

53.8%

118,022

129,024

(8.5)%

Diluted Earnings Per Share

$

5.41

$

3.40

59.1%

$

5.41

$

5.72

(5.4)%

Average Shares Outstanding

21,826

22,574

'We achieved year-over-year revenue and earnings growth despite a challenging agricultural market environment and significant project losses in our Engineered Support Structures segment,' said Stephen G. Kaniewski, President and Chief Executive Officer. 'Continued strong order flow from robust market demand in our infrastructure businesses created capacity constraints this quarter, leading to operational inefficiencies and impacting our ability to effectively manage the additional volume. Sales growth this quarter was led by strong demand from transportation and wireless communication markets, particularly in North America, revenue from acquisitions, and favorable pricing across the portfolio. Order flow in Engineered Support Structures continued to accelerate during the quarter, increasing backlogs and causing industry lead times to remain extended. Utility Support Structures revenue in the third quarter was below our expectations, from less available market capacity in China, and factory capacity constraints in North American markets. Coatings benefited from recent acquisitions and pricing discipline.'

Kaniewski continued, 'Despite the usual seasonal slowdown, North America Irrigation sales grew in line with our expectations, but volumes were lower in international markets as projects pushed into 2020. For the Company, gross profit margins were higher, due to pricing discipline and the benefit of lower steel costs. We were pleased to recognize another quarter of very strong operating cash flows of $125 million, a result of working capital improvements and the receipt of a project down payment.'

Third Quarter 2019 Segment Review

Infrastructure

Engineered Support Structures Segment (38.8% 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 $268.1 millionincreased 6.6% compared to last year, net of a 2.3% unfavorable currency translation impact. Significantly higher volumes in North American markets, revenue from recent acquisitions, and favorable pricing drove sales growth.

Lighting and traffic sales were higher in North America, driven by strong market demand from continued state and local government spending, and pricing. In Europe, sales decreased from lower volumes and unfavorable currency impacts. Sales of highway safety products were also lower from a slowdown in government spending in Australiaand India, and lower project sales.

Wireless communication and components sales increased more than 30% globally compared to last year. As expected, strong demand in North American markets was led by carriers' ongoing expansion of 4G networks and 5G site preparation. Sales growth was driven by higher volumes and revenues from recent acquisitions.

Sales of Access Systems products were lower compared to last year, from lower volumes in the Asia Pacificregion due to strategically exiting certain markets and product lines in 2018 and currency translation impacts.

Operating income was $21.8 millionor 8.1% of sales compared to $16.5 million, or 6.6% of sales ($22.8 millionor 9.1% adjusted1) in 2018. Profitability improvement from pricing discipline across the segment, a more favorable product mix, and benefits from the 2018 operational transformation, were more than offset by a one-time loss of approximately $7.5 millionassociated with two Access Systems projects that were completed in the third quarter.

Utility Support Structures Segment (29.7% of Sales)

Steel and concrete structures for global utility transmission, distribution and generation applications, renewable energy generation equipment, and substations

Revenues of $205.0 milliondecreased 6.1% compared to last year. Favorable pricing was more than offset by lower volumes from less available market capacity, particularly in China, and a North Americaplant closure in early 2019. Profitability was also impacted by slightly lower production levels in North American facilities.

Operating income was $20.4 millionor 9.9% of sales compared to $2.1 million, or 1.0% of sales ($20.0 millionor 9.2% adjusted1) in 2018. Pricing actions were offset by lower volumes and factory capacity constraints, and lower profitability in the international businesses.

Coatings Segment (13.5% of Sales)

Global galvanizing, painting and anodizing services to preserve and protect metal products

Global sales of $93.0 millionincreased 2.8% versus the prior year, led by sales from recent acquisitions and continued pricing discipline, offset by slightly lower volumes in external markets.

Operating income was $13.9 millionor 14.9% of sales, compared to $14.4 millionor 15.9% of sales in 2018. Improved pricing was more than offset by factory inefficiencies from lower external volumes and non-recurring integration-related expenses.

Agriculture

Irrigation Segment (20.9% of Sales)

Agricultural irrigation equipment, parts, services and tubular products, water management solutions, and technology for precision agriculture

Global sales of $144.1 millionwere 2.9% higher compared to last year.

North Americasales of $82.8 millionwere 6.0% higher compared to last year, led by higher sales of systems, aftermarket parts and technology solutions, offset by lower industrial tubing sales.

International irrigation sales of $61.3 milliondecreased 1.0% compared to last year. Higher Middle Eastproject sales and solid demand from Brazilwere offset by significantly lower volumes in Australiaand New Zealand, where adverse weather has been muting demand.

Segment operating income was $18.2 million, or 12.6% of sales, compared to $21.3 million, or 15.2% of sales in 2018. Lower volumes in international markets and industrial tubing and higher R&D expense for technology growth investments, led to lower profitability.

2019 Outlook

2019 Full Year Financial Outlook

Previous Outlook

Revised Outlook

Diluted Earnings per Share

$8.10 - $8.70

$7.05 - $7.45

Revenue Growth2

6% - 7%

1% - 2%2

Operating Margin Change

10 - 40 bps increase

(60 - 90) bps decrease

Global Effective Tax Rate

~ 25%

No Change

Capital Expenditures

$90 - $100 million

No Change

'While North American market demand in Engineered Support Structures and Utility Support Structures remains very strong, Irrigation segment sales are trending approximately 10% below our previous expectations for the year,' said Mr. Kaniewski. 'Additionally, the recent slowdown in U.S. industrial production is expected to impact Coatings segment volumes in the fourth quarter. Based on shipment schedules, fourth quarter wireless communication sales are not expected to grow as fast, but we expect continued growth in 2020. Accordingly, we have lowered our 2019 revenue growth expectations for the Company. The non-recurring expenses recognized in the third quarter, along with insufficient capacity in our North American infrastructure facilities, are not expected to be recovered this year. These impacts have collectively led to downward revisions to full-year operating margin and earnings per share.'

Kaniewski continued, 'We have already taken immediate steps to carefully add capacity to only our existing infrastructure factories in North America, and are actively expanding our workforce and training programs. The benefits from these actions are expected to be realized over the next two quarters. In Engineered Support Structures, we expect demand to remain strong from North American transportation and wireless communication markets, causing industry lead times to remain extended. Global backlogs of more than $600 millionin Utility Support Structures are being driven by receipt of the second purchase order of the large, multi-year project in the southeastern United States, along with robust market demand that has accelerated throughout this year, continuing into 2020. We are monitoring changes to industrial production trends that may impact our Coatings business, and are awaiting the outcome of fall harvest in North American Irrigation markets, along with any resulting impact to commodity prices that could affect demand. We continue to focus on margin expansion given the current, favorable raw material environment, and are making smart investments in technology, new products and market growth. Additionally, our balance sheet and cash flows remain very strong and we expect to deliver free cash flow of more than 1.2x net earnings for 2019.'

A live audio discussion with Stephen G. Kaniewski, President and Chief Executive Officer, and Mark C. Jaksich, Executive Vice President and Chief Financial Officer, will be accessible by telephone on Thursday, October 24, 2019at 8:00 a.m. CDTby 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 Third Quarter 2019 Earnings 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 13684642. The replay will be available through 10:59 p.m. CDTon October 31, 2019.

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 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.

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, 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.

1

Please see Reg G reconciliation of GAAP sales, operating income, net earnings and EPS to Adjusted figures at end of document.

2

Led by approximately 10% lower Irrigation segment sales compared to 2018 and excludes additional acquisitions in 2019.

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Dollars in thousands, except per share amounts)

(unaudited)

Third Quarter

Year-to-Date

13 Weeks Ended

39 Weeks Ended

28-Sep-19

29-Sep-18

28-Sep-19

29-Sep-18

Net sales

$

690,340

$

678,692

$

2,083,350

$

2,059,781

Cost of sales

514,254

514,352

1,561,721

1,551,202

Gross profit

176,086

164,340

521,629

508,579

Selling, general and administrative expenses

112,223

125,980

338,950

342,589

Operating income

63,863

38,360

182,679

165,990

Other income (expense)

Interest expense

(9,976)

(10,954)

(29,971)

(33,819)

Interest income

969

1,000

2,815

3,713

Gain on investments (unrealized)

402

1,068

4,754

1,146

Costs associated with refinancing of debt

-

(14,820)

-

(14,820)

Loss from divestiture of grinding media business (Donhad)

-

-

-

(6,084)

Other

768

1,428

1,938

2,053

(7,837)

(22,278)

(20,464)

(47,811)

Earnings before income taxes

56,026

16,082

162,215

118,179

Income tax expense

13,763

9,091

40,151

36,028

Net earnings

42,263

6,991

122,064

82,151

Less: Earnings attributable to non-controlling interests

(2,119)

(2,543)

(4,042)

(5,462)

Net earnings attributable to Valmont Industries, Inc.

$

40,144

$

4,448

$

118,022

$

76,689

Average shares outstanding (000's) - Basic

21,556

22,215

21,725

22,421

Earnings per share - Basic

$

1.86

$

0.20

$

5.43

$

3.42

Average shares outstanding (000's) - Diluted

21,684

22,352

21,826

22,574

Earnings per share - Diluted

$

1.85

$

0.20

$

5.41

$

3.40

Cash dividends per share

$

0.375

$

0.375

$

1.125

$

1.125

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

SUMMARY OPERATING RESULTS

(Dollars in thousands)

(unaudited)

Third Quarter

Year-to-Date

13 Weeks Ended

39 Weeks Ended

28-Sep-19

29-Sep-18

28-Sep-19

29-Sep-18

Net sales

Engineered Support Structures

$

268,058

$

251,524

$

757,094

$

727,189

Utility Support Structures

204,958

218,269

658,709

625,850

Coatings

92,957

90,433

278,142

266,952

Infrastructure products

565,973

560,226

1,693,945

1,619,991

Irrigation

144,180

140,175

452,181

491,064

Other

-

-

-

23,080

Less: Intersegment sales

(19,813)

(21,709)

(62,776)

(74,354)

Total

$

690,340

$

678,692

$

2,083,350

$

2,059,781

Operating Income

Engineered Support Structures

$

21,825

$

16,499

$

55,152

$

36,411

Utility Support Structures

20,362

2,090

61,443

46,298

Coatings

13,865

14,373

39,037

41,108

Infrastructure products

56,052

32,962

155,632

123,817

Irrigation

18,204

21,302

59,868

82,917

Other

-

-

-

(913)

Adjustment to LIFO inventory valuation method

2,799

(2,780)

5,539

(5,512)

Corporate

(13,192)

(13,124)

(38,360)

(34,319)

Total

$

63,863

$

38,360

$

182,679

$

165,990

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 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 the global utility transmission, distribution, and generation applications, renewable energy generation equipment, and substations.

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

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. 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)

28-Sep-19

29-Dec-18

ASSETS

Current assets:

Cash and cash equivalents

$

327,200

$

313,210

Accounts receivable, net

501,215

483,963

Inventories

377,300

383,566

Contract asset - costs and profits in excess of billings

120,376

112,525

Prepaid expenses

50,420

42,800

Refundable income taxes

11,893

4,576

Total current assets

1,388,404

1,340,640

Property, plant and equipment, net

548,368

513,992

Goodwill and other assets

789,745

675,642

$

2,726,517

$

2,530,274

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

Current installments of long-term debt

$

745

$

779

Notes payable to banks

19,324

10,678

Accounts payable

197,535

218,115

Accrued expenses

305,255

171,233

Dividend payable

8,088

8,230

Total current liabilities

530,947

409,035

Long-term debt, excluding current installments

764,524

741,822

Other long-term liabilities

299,875

243,894

Shareholders' equity

1,131,171

1,135,523

$

2,726,517

$

2,530,274

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(unaudited)

YTD

YTD

28-Sep-19

29-Sep-18

Cash flows from operating activities

Net Earnings

$

122,064

$

82,151

Depreciation and amortization

60,424

62,018

Impairment of long-lived assets

-

4,197

Impairment of goodwill and intangibles

-

15,780

Loss from divestiture of grinding media business

-

6,084

Contribution to defined benefit pension plan

(17,426)

(1,555)

Change in working capital

72,575

(96,912)

Other

1,593

(3,710)

Net cash flows from operating activities

239,230

68,053

Cash flows from investing activities

Purchase of property, plant, and equipment

(71,981)

(48,919)

Proceeds from sale of assets

1,325

64,786

Acquisitions

(81,841)

(125,309)

Other

13,301

(3,992)

Net cash flows from investing activities

(139,196)

(113,434)

Cash flows from financing activities

Proceeds from long-term borrowings

31,000

236,936

Proceeds from short-term borrowings

9,284

3,217

Principal payments on long-term borrowings

(10,578)

(252,952)

Purchase of treasury shares

(55,172)

(86,919)

Purchase of noncontrolling interest

(27,845)

(5,510)

Dividends paid

(24,554)

(25,415)

Other

(4,794)

(6,064)

Net cash flows from financing activities

(82,659)

(136,707)

Effect of exchange rates on cash and cash equivalents

(3,385)

(15,095)

Net change in cash and cash equivalents

13,990

(197,183)

Cash and cash equivalents - beginning of year

313,210

492,805

Cash and cash equivalents - end of period

$

327,200

$

295,622

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) debt refinancing expenses (2) impairment of goodwill and tradename (3) restructuring costs (4) acquisition diligence expenses and (5) the loss from divestiture of Donhad, (b) operating income from these expenses, and (c) segment operating income for these items. 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.

Thirteen
Weeks ended
September 29,
2018

Diluted

earnings per

share

Thirty-nine
Weeks Ended
September 29,
2018

Diluted
earnings per
share

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

$

4,448

$

0.20

$

76,689

$

3.40

Debt refinancing expenses, pre-tax

14,820

0.66

14,820

0.66

Impairment of goodwill and tradename, pre-tax

15,780

0.71

15,780

0.70

Restructuring and related asset impairment costs - pre-tax

6,243

0.28

17,662

0.78

Acquisition diligence costs, pre-tax

2,859

0.13

3,840

0.17

Loss from divestiture of grinding media business, pre-tax

-

-

6,084

0.27

Total Adjustments

39,702

1.78

58,186

2.58

Tax effect of adjustments *

(3,422)

(0.15)

(5,851)

(0.26)

Net earnings attributable to Valmont Industries, Inc. - Adjusted

$

40,728

$

1.82

$

129,024

$

5.72

Average shares outstanding (000's) - Diluted

22,352

22,574

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

Operating Income Reconciliation

Thirteen
Weeks ended
September
29, 2018

Thirty-nine
Weeks Ended
September
29, 2018

Operating income - as reported

$

38,360

$

165,990

Impairment of goodwill and tradename

15,780

15,780

Restructuring and related asset impairment costs

6,243

17,662

Acquisition diligence costs

2,859

3,840

Adjusted Operating Income

$

63,242

$

203,272

Net Sales - as reported

678,692

2,059,781

Operating Income as a % of Sales

5.7

%

8.1

%

Adjusted Operating Income as a % of Sales

9.3

%

9.9

%

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

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

REGULATION G RECONCILIATION (CONTINUED)

For the third quarter ended September 29, 2018

Segment Operating Income Reconciliation

Engineered
Support
Structures

Utility
Support
Structures

Coatings

Irrigation

Other/
Corporate

Operating income - as reported

$

16,499

$

2,090

$

14,373

$

21,302

$

(15,904)

Impairment of goodwill and tradename

-

15,780

-

-

-

Restructuring and related asset impairment costs

5,746

497

-

-

-

Acquisition diligence costs

553

1,672

-

-

634

Adjusted Operating Income

$

22,798

$

20,039

$

14,373

$

21,302

$

(15,270)

Net sales

251,524

218,269

90,433

140,175

-

Operating Income as a % of Sales

6.6

%

1.0

%

15.9

%

15.2

%

NM

Adjusted Operating Income as a % of Sales

9.1

%

9.2

%

15.9

%

15.2

%

NM

SOURCE Valmont Industries, Inc.