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 million or 9.3% of sales, compared to
$38.4 million or 5.7% of sales ($63.2 million adjusted(1 )or 9.3% of
sales)
-- Diluted Earnings per Share increased to $1.85 compared to $0.20 ($1.82
adjusted(1)); 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 $132.76 per share
-- Revising 2019 diluted EPS guidance range to $7.05 - $7.45 from $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
Adjusted(1)
9/28/2019 9/29/2018
vs. 3Q 2019 9/28/2019 9/29/2018
vs. 3Q 2019
3Q 2019
3Q 2019 3Q 2018 3Q 2018
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
Adjusted(1)
09/28/2019 09/29/2018
vs. YTD 2019 09/28/2019 09/29/2018
vs. YTD 2019
YTD 2019 YTD 2018 YTD 2019 YTD 2018
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 million increased 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 Australia and 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 Pacific region due to strategically exiting certain markets and product lines in 2018 and currency translation impacts.
Operating income was $21.8 million or 8.1% of sales compared to $16.5 million, or 6.6% of sales ($22.8 million or 9.1% adjusted(1)) 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 million associated 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 million decreased 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 America plant closure in early 2019. Profitability was also impacted by slightly lower production levels in North American facilities.
Operating income was $20.4 million or 9.9% of sales compared to $2.1 million, or 1.0% of sales ($20.0 million or 9.2% adjusted(1)) 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 million increased 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 million or 14.9% of sales, compared to $14.4 million or 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 million were 2.9% higher compared to last year.
North America sales of $82.8 million were 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 million decreased 1.0% compared to last year. Higher Middle East project sales and solid demand from Brazil were offset by significantly lower volumes in Australia and 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 Growth(2) 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 million in 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, 2019 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 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. CDT on 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 Diluted Thirty-nine Diluted
Weeks ended Weeks Ended earnings per
September 29, earnings per September 29, share
2018 2018
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 Thirty-nine
Weeks ended Weeks Ended
September September
29, 2018 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 5.7
% of Sales % 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 Utility Coatings Irrigation
Support Support
Structures Structures 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 6.6 1.0 15.9 15.2
% of Sales
%
%
%
% NM
Adjusted Operating
Income as a % of
%
%
%
%
Sales 9.1 9.2 15.9 15.2 NM
--- ---
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SOURCE Valmont Industries, Inc.
