Valmont Reports Second Quarter Results
Second Quarter Highlights:
| • | Record quarterly sales, operating income and net earnings. |
| • | Operating income rose 49% and was 11.1% of net sales with gains in all segments. |
| • | Net earnings increased 56% on a 19% revenue gain. |
Omaha, NE - Valmont Industries, Inc. (NYSE: VMI), a leading global manufacturer of engineered support structures for infrastructure, mechanized irrigation equipment for agriculture, and a provider of coating services and tubular products, reported second quarter sales of $402.3 million compared with $338.8 million for the same period of 2006. Net earnings for the second quarter were $26.9 million, or $1.03 per diluted share, versus second quarter 2006 net earnings of $17.3 million, or 67 cents per diluted share.
For the first six months of 2007, sales were $742.9 million versus $642.4 million in 2006. Valmont’s first half net earnings were $45.7 million, or $1.76 per diluted share, compared with 2006 first half net earnings of $30.4 million, or $1.18 per diluted share.
Second Quarter Review:
“Sales growth was broad-based across all segments and driven primarily by unit volume increases,” said Mogens C. Bay, Valmont’s Chairman and Chief Executive Officer.
“In our largest segment, Engineered Support Structures, we had stronger demand in China and Europe and solid demand in North America.
“Utility Support Structure Segment sales were very strong, responding to continued increased levels of investment in the electrical transmission grid by utility companies.
“In the Irrigation Segment, North American sales rose sharply, reflecting positive conditions in the agricultural economy and successful spring sales incentives. International sales gains were the result of stronger demand in our core markets.
“Gains in Coatings Segment sales were volume-related and from price increases to recover higher costs, as demand from infrastructure spending increased and zinc costs were above last year’s second quarter levels.
“Sales in the Tubing Segment improved, sparked by demand from manufacturers of grain handling equipment, and increased demand for the custom tubing sizes in which Valmont specializes.
“We have had a focus on improving the quality of our earnings with an emphasis on getting value in the market for the products we produce, reducing costs and improving employee engagement. As a result of these initiatives, and a combination of good markets and strong operating leverage, consolidated operating income for the Company as a whole improved 2.3 percentage points to 11.1% of revenues.”
Second Quarter Summary - Infrastructure Markets: (67% of 2nd Quarter Net Sales)
Engineered Support Structures Segment (38% of 2nd Quarter Net Sales)
Structures and specialty structures for lighting and traffic, wireless communication and overhead signs, worldwide. Includes utility support structures outside of North America.
Sales were $160.6 million, an increase of 17% over last year’s $137.6 million second quarter level. Most of the sales gains were from very strong demand for utility and wireless communication structures in China. In Europe, increased municipal spending on infrastructure products drove sales higher.
In North America, sales to the transportation market were similar to last year’s levels. Commercial and decorative product sales in North America were moderately above last year. Sales of specialty structures remain below last year’s levels.
Segment operating income increased 51% to $16.7 million and was 10.4% of segment sales. The improvement in operating profit was largely due to the strong performance in all regions, partly offset by sub-par performance in North American specialty structures.
Utility Support Structures Segment (22% of 2nd Quarter Net Sales)
Steel and concrete structures for electric power delivery in North America.
Sales increased 18% to $89.7 million compared with $76.3 million in 2006. The improvement in sales reflects increased investment by utility companies in transmission and distribution structures for electrical power delivery. Utility investment in the electric transmission grid is increasing and proposed project sizes have become larger. Incentives in U.S. Energy Bill policy encourage utilities to improve the reliability and interconnectivity of the transmission and distribution grid.
Operating income increased 48% to $12.0 million and was 13.4% of segment sales. The increase in operating income was mostly due to higher volumes and a more favorable pricing environment.
Coatings Segment (7% of 2nd Quarter Net Sales)
Hot-dip galvanizing and other coatings services to protect against corrosion of steel and aluminum in North American markets.
Sales of $35.4 million were 30% above last year’s $27.3 million. Improved conditions in the industrial economy, strong internal demand and higher levels of infrastructure spending drove the sales increase. Additionally, the sales increase reflects higher pricing to recover zinc costs above last year’s second quarter levels.
Segment operating income rose to $5.9 million, an increase of 21%, and was 16.7% of segment sales. During the quarter, the Company took a $650 thousand charge for disposal of equipment at one of the coatings locations.
Second Quarter Summary - Agricultural Markets: (32% of 2nd Quarter Net Sales)
Irrigation Segment (27% of 2nd Quarter Net Sales)
Center pivot and linear move mechanized irrigation equipment and related service parts for agriculture in global markets.
Sales improved 22% to $107.6 million compared with $87.9 million in 2006. North American sales were supported by grower expectations for an improved agricultural economy and by a strong backlog generated by a sales promotion during the first quarter of this year.
International sales increased in most markets for mechanized irrigation equipment, except Australia, where drought has led to government restrictions on irrigation. Higher grain prices and increased emphasis on the efficient use of water for irrigation are the primary drivers for growth in the market worldwide.
Segment operating income increased 51% to $16.7 million and was 15.5% of segment sales. The improved operating income was the result of the operating leverage that resulted from increased unit volume.
Tubing Segment (5% of 2nd Quarter Net Sales)
Custom steel tubing for mechanical and structural applications.
Sales were 12% higher at $26.5 million. Demand was especially strong from agricultural equipment manufacturers, driven by the increased need for grain handling and storage.
Segment operating income increased 40% to $5.2 million as a result of higher volumes and a favorable sales mix, and was 19.4% of segment sales.
2007 Outlook:
“Our outlook for the second half of the year is for improved operating performance and favorable comparisons with last year, Mr. Bay said. “We will likely achieve our near-term goal of improving operating income as a percent of sales to 10% this year. Year-over-year percentage improvements for the last two quarters of the year however, will likely not be as strong as those in the first half of 2007.
“The current market trends for our businesses are strong. Our performance reflects favorable market conditions as well as our initiatives to realize full value for the products we sell, reduce costs and improve employee engagement. A combination of a continued emphasis on these programs, favorable competitive pricing environments and good market conditions could provide a climate for additional improvement in results.
“Looking forward, we believe our current business drivers are global, compelling and enduring. Many opportunities remain for us to leverage our products, markets and capabilities around the world. Our core businesses have strong fundamentals and continue to offer good returns on invested capital.”
An audio discussion of Valmont’s second quarter results by Mogens C. Bay, Chairman and Chief Executive Officer and Terry J. McClain, Senior Vice President and Chief Financial Officer, will be available live by telephone by dialing 1-877-493-2981 and entering Conference ID#: 2634530 or via the Internet at 8:00 a.m. July 19, 2007 CDT, by pointing browsers to: http://www.valmont.com/asp/investor_relations/ir6.asp. After the event you may listen by accessing the above link or by telephone. Dial 1-800-642-1687 or 706-645-9291, and enter the Conference ID#:2634530 beginning July 19, 2007 at 10:00 a.m. CDT through 12:00 p.m. CDT on July 26, 2007.
Valmont is the global leader in designing and manufacturing poles, towers and structures for lighting and traffic, wireless communication and utility markets, and a provider of protective coating services. Valmont also leads the world in mechanized irrigation equipment for agriculture, enhancing food production while conserving and protecting natural water resources. In addition, Valmont produces a wide variety of tubing for commercial and industrial applications.
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.
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES | |||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||
(Dollars in thousands, except per share amounts) | |||||||
(unaudited) | |||||||
|
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|
|
|
|
|
| Second Quarter |
| Year-to-Date | ||||
| 13 Weeks Ended |
| 26 Weeks Ended | ||||
| 30-Jun-07 |
| 1-Jul-06 |
| 30-Jun-07 |
| 1-Jul-06 |
Net sales | $ 402,257 |
| $ 338,791 |
| $ 742,939 |
| $ 642,416 |
Cost of sales | 293,343 |
| 253,729 |
| 545,258 |
| 481,661 |
Gross profit | 108,914 |
| 85,062 |
| 197,681 |
| 160,755 |
Selling, general and administrative expenses | 64,362 |
| 55,153 |
| 119,715 |
| 107,269 |
Operating income | 44,552 |
| 29,909 |
| 77,966 |
| 53,486 |
Other income (expense) |
|
|
|
|
|
|
|
Interest expense | (4,404) |
| (4,338) |
| (8,689) |
| (8,486) |
Interest income | 500 |
| 395 |
| 1,130 |
| 948 |
Miscellaneous | 256 |
| 286 |
| (23) |
| 1,183 |
| (3,648) |
| (3,657) |
| (7,582) |
| (6,355) |
Earnings before income taxes, minority interest, and equity in earnings (losses) of nonconsolidated subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
40,904 |
| 26,252 |
| 70,384 |
| 47,131 | |
Income tax expense | 13,664 |
| 8,494 |
| 23,974 |
| 16,165 |
Earnings before minority interest, equity in earnings (losses) of nonconsolidated subsidiaries |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
27,240 |
| 17,758 |
| 46,410 |
| 30,966 | |
Minority interest | (443) |
| (341) |
| (655) |
| (509) |
Earnings (losses) in nonconsolidated subsidiaries | 164 |
| (132) |
| (66) |
| (87) |
Net earnings | $ 26,961 |
| $ 17,285 |
| $ 45,689 |
| $ 30,370 |
|
|
|
|
|
|
|
|
Average shares outstanding (000's) - Basic | 25,497 |
| 25,091 |
| 25,459 |
| 24,880 |
Earnings per share - Basic | $ 1.06 |
| $ 0.69 |
| $ 1.79 |
| $ 1.22 |
|
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|
|
|
Average shares outstanding (000's) - Diluted | 26,107 |
| 25,859 |
| 26,018 |
| 25,654 |
Earnings per share - Diluted | $ 1.03 |
| $ 0.67 |
| $ 1.76 |
| $ 1.18 |
|
|
|
|
|
|
|
|
Cash dividends per share | $ 0.105 |
| $ 0.095 |
| $ 0.200 |
| $ 0.180 |
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VALMONT INDUSTRIES, INC. AND SUBSIDIARIES | |||||||
SUMMARY OPERATING RESULTS | |||||||
(Dollars in thousands) | |||||||
(unaudited) | |||||||
|
|
|
|
|
| ||
| Second Quarter |
| Year-to-Date | ||||
| 13 Weeks Ended |
| 39 Weeks Ended | ||||
| 30-Jun-07 |
| 1-Jul-06 |
| 30-Jun-07 |
| 1-Jul-06 |
|
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|
|
Net sales |
|
|
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|
|
|
|
Engineered Support Structures | $ 160,588 |
| $ 137,623 |
| $ 285,831 |
| $ 253,162 |
Utility Support Structures | 89,649 |
| 76,256 |
| 170,130 |
| 142,466 |
Coatings | 35,390 |
| 27,290 |
| 69,029 |
| 52,598 |
Infrastructure products | 285,627 |
| 241,169 |
| 524,990 |
| 448,226 |
|
|
|
|
|
|
|
|
Irrigation | 107,562 |
| 87,854 |
| 200,479 |
| 174,725 |
Tubing | 26,541 |
| 23,672 |
| 52,546 |
| 47,137 |
Agriculture products | 134,103 |
| 111,526 |
| 253,025 |
| 221,862 |
|
|
|
|
|
|
|
|
Other | 5,903 |
| 4,695 |
| 11,407 |
| 9,071 |
Less: Intersegment sales | (23,376) |
| (18,599) |
| (46,483) |
| (36,743) |
Total | $ 402,257 |
| $ 338,791 |
| $ 742,939 |
| $ 642,416 |
|
|
|
|
|
|
|
|
Operating Income |
|
|
|
|
|
|
|
Engineered Support Structures | $ 16,743 |
| $ 11,075 |
| $ 25,423 |
| $ 18,078 |
Utility Support Structures | 12,044 |
| 8,135 |
| 21,595 |
| 16,094 |
Coatings | 5,896 |
| 4,883 |
| 11,100 |
| 7,263 |
Infrastructure products | 34,683 |
| 24,093 |
| 58,118 |
| 41,435 |
|
|
|
|
|
|
|
|
Irrigation | 16,657 |
| 11,007 |
| 28,902 |
| 22,284 |
Tubing | 5,146 |
| 3,679 |
| 9,674 |
| 7,302 |
Agriculture products | 21,803 |
| 14,686 |
| 38,576 |
| 29,586 |
|
|
|
|
|
|
|
|
Other | 540 |
| (406) |
| 555 |
| (1,065) |
Corporate | (12,474) |
| (8,464) |
| (19,283) |
| (16,470) |
Total | $ 44,552 |
| $ 29,909 |
| $ 77,966 |
| $ 53,486 |
|
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Valmont has aggregated its business segments into five reportable segments as follows.
Engineered Support Structures: This segment consists of the manufacture of engineered metal structures and components for the lighting, traffic and wireless communication industries worldwide and certain international utility businesses.
Utility Support Structures: This segment consists of the manufacture of engineered steel and concrete structures primarily for the North American utility industry.
Coatings: This segment consists of galvanizing and other coating services in North America.
Irrigation: This segment consists of the manufacture of agricultural irrigation equipment and related parts and services worldwide.
Tubing: This segment consists of the manufacture of steel tubular products in North America.
In addition to these five reportable segments, Valmont also has other businesses that individually are not more than 10% of consolidated net sales. These businesses, which include machine tool accessories and industrial fasteners, are reported in the "Other" category.
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES | ||||
CONDENSED CONSOLIDATED BALANCE SHEETS | ||||
(Dollars in thousands) | ||||
(unaudited) | ||||
|
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|
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| 30-Jun-07 |
| 1-Jul-06 |
ASSETS |
|
|
|
|
Current assets: |
|
|
|
|
Cash and cash equivalents |
| $ 47,924 |
| $ 34,547 |
Accounts receivable, net |
| 247,929 |
| 223,068 |
Inventories |
| 218,197 |
| 165,248 |
Prepaid expenses |
| 11,133 |
| 10,818 |
Refundable and deferred income taxes |
| 18,645 |
| 17,479 |
Total current assets |
| 543,828 |
| 451,160 |
Property, plant and equipment, net |
| 217,135 |
| 190,406 |
Goodwill and other assets |
| 196,103 |
| 199,187 |
|
| $ 957,066 |
| $ 840,753 |
|
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|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
Current liabilities: |
|
|
|
|
Current installments of long-term debt |
| $ 22,166 |
| $ 15,587 |
Notes payable to banks |
| 17,900 |
| 4,825 |
Accounts payable |
| 103,086 |
| 93,452 |
Accrued expenses |
| 84,024 |
| 70,102 |
Dividend payable |
| 2,708 |
| 2,426 |
Total current liabilities |
| 229,884 |
| 186,392 |
Long-term debt, excluding current installments |
| 206,235 |
| 212,030 |
Other long-term liabilities |
| 69,633 |
| 72,503 |
Shareholders' equity |
| 451,314 |
| 369,828 |
|
| $ 957,066 |
| $ 840,753 |
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