Valmont Announces Second Quarter Earnings
Highlights:
o Net sales decline 11% on weaker utility and wireless market conditions.
o Growth in lighting and international irrigation sales.
o Coatings performance impacted by weakness in U.S. industrial sectors and
lower internal utility and wireless communication volumes.
o Net earnings decrease 38.2% from record 2002 second quarter levels.
o Operating cash flow exceeds $25 million.
Omaha, NE - Valmont Industries, Inc. (NYSE: VMI), the leading global
manufacturer of engineered support structures and coating services for
infrastructure, and mechanized irrigation equipment for agriculture, reported
second quarter 2003 net earnings of $6.4 million, or 26 cents per diluted share,
versus second quarter 2002 net earnings of $10.3 million, or 42 cents per
diluted share. Sales for the second quarter were $201 million compared with $225
million for the same period of 2002.
For the first six months of 2003, Valmont's net earnings were $13.7
million, or 56 cents per diluted share, compared with 2002 first half net
earnings of $17.1 million, or 70 cents per diluted share. First half sales for
2003 were $408 million versus $434 million in 2002.
Second Quarter 2003 Review:
"Net sales declined 11% primarily due to sharply lower utility volume and
pricing, as well as continued weakness in the communication and coatings
markets," said Mogens C. Bay, Valmont's Chairman and Chief Executive Officer.
"International irrigation sales were significantly higher due to strong markets
in Brazil and South Africa, offsetting lower sales in North America. Overall
profitability declined due to lower infrastructure product sales and production
levels. This resulted in less fixed cost absorption. In total, operating income
fell 30% compared to last year's record levels."
"This is the first quarter of combining the businesses of the poles and
wireless communication segments as the Engineered Support Structures Segment. We
expect to achieve annualized savings of approximately $4 million through this
combination. We are seeing good synergies as a result of this action. We have
been successful in using the engineering and manufacturing skills of our
wireless communication group and the distribution channels of our utility, and
lighting and traffic groups to develop new products and attract new customers.
For example, new sign structures designed and manufactured by the wireless
communication group are being successfully marketed through Valmont's lighting
and traffic distribution channels."
Second Quarter Summary - Infrastructure Markets:
Engineered Support Structures Segment sales of $93.4 million represented a
19% decline from 2002 levels. Whereas lighting and traffic sales and
profitability were higher, lower sales and profitability of utility products in
North America more than offset the increases. As a result, operating income for
the segment fell by 62% to $3.1 million. Utilities and independent power
producers have reduced capital spending. Additionally, weak wireless
communication markets caused some communication pole manufacturers to enter the
utility market. These factors have combined to create a very competitive pricing
environment. During the second quarter, Valmont maintained pricing discipline,
giving up some market share. Valmont has recently supported its market position,
resulting in a growing utility backlog, although at lower margins. The long-term
outlook remains favorable for the utility market. Needed upgrades to the
electrical transmission grid should support growth. Power generating capacity is
also expected to expand over time in order to sustain economic growth around the
world.
Lighting and traffic sales increased 9% globally. Lighting sales in Europe
were similar to 2002 in local currency, but higher in U.S. dollars. In the U.S.,
conditions in the road and highway construction markets remain firm. Safety and
improving traffic flow remain important drivers of sales growth. New product
introductions have further contributed to growth.
In China, Valmont's Shanghai facility is operating at capacity. Sales were
slightly lower in lighting, but this was more than offset by higher utility and
wireless communication sales. New utility product introductions have been well
received. Increased volumes from the broader product offering led to improved
profitability.
Global sales of wireless communication structures and components were 13%
lower as markets remain weak. Service providers have delayed network expansions
and their capital spending remains constrained. To better utilize its tower
manufacturing facilities, Valmont is developing a wider range of sign and
support structures. There is a growing backlog for these products.
In the Coatings Segment, sales of $23.6 million were 13% lower than last
year. A sluggish U.S. industrial economy resulted in lower demand for coating
services. Internal volumes were substantially lower due to the weak domestic
utility and wireless communication markets. Operating profits fell 56% to $1.1
million as a result of lower sales, reduced absorption of fixed costs and higher
natural gas prices.
Second Quarter Summary - Agricultural Markets:
In the Irrigation Segment, second quarter sales increased 1% to $71.3
million. Stronger international sales offset lower North American sales.
Operating income of $8.7 million was 10% higher than last year.
The main factors dampening North American sales were lower crop prices,
wetter growing conditions and delays in implementing certain conservation
features of the U.S. farm program. Water conservation measures in the U.S. farm
bill promote the use of highly efficient irrigation methods, which include
mechanized irrigation equipment. Delays in the implementation of these programs
have caused some growers to postpone equipment purchases. Additionally, lower
potato prices unfavorably impacted demand in the Pacific Northwest.
International sales and profits improved. In Brazil, the market benefited
from higher crop prices and supportive government farm programs. Markets were
strong in South Africa and Australia due to dry conditions and higher crop
prices. The war in Iraq halted sales activity in the Middle East. As a result of
Valmont's strategy of manufacturing in key agricultural markets around the
world, the Company continues to increase its international sales and earnings.
Tubing Segment sales of $14 million were 12% lower than in 2002, due to the
slowdown in the U.S. industrial economy and pricing pressure. Operating income
of $1.4 million was 15% lower than the second quarter of 2002.
Second-Half Outlook:
Commenting on the outlook for the second half of the year, Mr. Bay said,
"Weakness in the utility and wireless communication markets and a sluggish U.S.
industrial economy continue to impact our businesses. We are actively pursuing
opportunities to grow revenues and reduce costs. The outlook for all of 2003 is
a modest reduction in sales. Earnings per share for the year are likely to be
down 10 to 20 percent. Our businesses, however, continue to generate strong cash
flows, and we will support our market leadership positions. In view of the
strong underlying drivers of our markets, we remain confident that, when the
industrial sectors recover, we will be very well positioned for improved
performance and further growth."
An audio discussion of Valmont's second quarter results by Valmont
officers, Mogens C. Bay, Chairman and Chief Executive Officer, and Terry J.
McClain, Senior Vice President and Chief Financial Officer, will be available
live via the Internet at 8:00 a.m. July 22, 2003 CDT, by pointing browsers to:
http://www.valmont.com/investor_relations/call.shtml. 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#: 1758333 beginning July 22, 2003 at
10:00 a.m. CDT through 12:00 p.m. CDT on July 29, 2003.
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 statements are based on
management's current views and estimates and are subject to uncertainty and
changes in circumstances. Future economic and market circumstances, industry
conditions, Company performance and financial results, operating efficiencies,
availability and price of raw materials, availability and market acceptance of
new products, product pricing, domestic and international competitive
environment, actions and policy changes of domestic and international
governments and other risks described from time to time in Valmont's reports to
the Securities and Exchange Commission are examples of factors, among others,
that could cause results to differ materially from those described in the
forward-looking statements. The Company cautions that any forward-looking
statements 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)
Second Quarter Year-to-Date
13 Weeks Ended 26 Weeks Ended
--------------------------------------------------------
29-Jun-03 28-Jun-02 29-Jun-03 28-Jun-02
------------------------------------------ -------------
Net sales $ 200,666 $ 225,090 $ 407,960 $ 433,738
Cost of sales 149,178 164,008 303,619 317,423
-------- -------- -------- -------
Gross profit 51,488 61,082 104,341 116,315
Selling, general and administrative expenses 37,757 41,500 75,559 80,813
------- ------- ------- ------
Operating income 13,731 19,582 28,782 35,502
------- ------- ------- ------
Other income (deductions)
Interest expense (2,631) (3,053) (5,316) (6,252)
Interest income 317 194 551 529
Miscellaneous (117) (259) (155) (565)
----- ----- ----- -----
(2,431) (3,118) (4,920) (6,288)
------- ------- ------- -------
Earnings before income taxes, minority
interest, equity in earnings (losses) of
non- consolidated subsidiaries and change in
accounting principle 11,300 16,464 23,862 29,214
Income tax expense 4,114 5,995 8,762 10,718
------ ------ ------ ------
Earnings before minority interest, equity in
earnings (losses) of nonconsolidated
subsidiaries and change in accounting
principle 7,186 10,469 15,100 18,496
Minority interest (after tax) (717) (438) (988) (418)
Earnings (losses) in nonconsolidated subsidiaries (102) 275 (452) (503)
Cumulative effect of change in accounting principle - - - (500)
----- ----- ----- -----
Net earnings $ 6,367 $ 10,306 $ 13,660 $ 17,075
======== ========= ========= ========
Average shares outstanding (000's) - Basic 23,786 24,076 23,832 24,054
======= ======= ======= ======
Earnings per share - Basic $ 0.27 $ 0.43 $ 0.57 $ 0.71
======= ======= ======= ======
Average shares outstanding (000's) - Diluted 24,300 24,655 24,345 24,505
======= ======= ======= ======
Earnings per share - Diluted $ 0.26 $ 0.42 $ 0.56 $ 0.70
======= ======= ======= ======
Cash dividends per share $ 0.080 $ 0.075 $ 0.155 $ 0.140
======== ======== ======== =======
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
SUMMARY OPERATING RESULTS
(Dollars in thousands)
(unaudited)
Second Quarter Year-to-Date
13 Weeks Ended 26 Weeks Ended
---------------------------- ------------- -------------
29-Jun-03 28-Jun-02 29-Jun-03 28-Jun-02
---------------------------- ------------- -------------
Net sales
Engineered Support Structures $ 93,409 $ 115,270 $ 185,289 $ 221,208
Coatings 23,556 26,943 50,718 54,492
------- ------- ------- ------
Infrastructure products 116,965 142,213 236,007 275,700
Irrigation 71,344 70,583 146,913 135,943
Tubing 14,015 15,867 30,476 29,745
------- ------- ------- ------
Agriculture products 85,359 86,450 177,389 165,688
Other 4,461 4,265 9,077 8,373
Less: Intersegment sales (6,119) (7,838) (14,513) (16,023)
------- ------- -------- --------
Total $ 200,666 $ 225,090 $ 407,960 $ 433,738
========== ========== ========== =========
Operating Income
Engineered Support Structures 3,107 8,139 5,322 13,152
Coatings 1,104 2,528 2,737 4,772
------ ------ ------ -----
Infrastructure products 4,211 10,667 8,059 17,924
Irrigation 8,721 7,929 18,730 15,219
Tubing 1,385 1,633 3,001 3,195
------ ------ ------ -----
Agriculture products 10,106 9,562 21,731 18,414
Other (586) (647) (1,008) (836)
----- ----- ------- -----
Total $ 13,731 $ 19,582 $ 28,782 $ 35,502
========= ========= ========= ========
Valmont has four reportable segments organized on a worldwide product basis.
Engineered Support Structures: This segment consists of the manufacture of
engineered metal structures and components for the lighting, traffic,
utility and wireless communication industries.
Coatings: This segment consists of galvanizing, anodizing and powder
coating services.
Irrigation: This segment consists of the manufacture of agricultural
irrigation equipment and related parts and services.
Tubing: This segment consists of the manufacture of tubular products.
In addition to these four reportable segments, Valmont also has other businesses
that individually are not more than 10% of consolidated net sales. These
businesses, which include wind energy development, 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)
29-Jun-03 28-Jun-02
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 28,642 $ 16,920
Accounts receivable, net 135,341 139,690
Inventories 115,973 103,845
Prepaid expenses 7,447 5,973
Refundable and deferred income taxes 10,268 13,644
------- ------
Total current assets 297,671 280,072
Property, plant and equipment, net 187,005 202,936
Goodwill and other assets 89,597 93,170
------- ------
$ 574,273 $ 576,178
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 11,778 $ 11,076
Notes payable to banks 12,415 10,665
Accounts payable 56,105 50,262
Accrued expenses 51,283 62,822
Dividend payable 1,915 1,806
------ -----
Total current liabilities 133,496 136,631
Long-term debt, excluding current installments 142,836 167,053
Other long-term liabilities 43,485 37,315
Shareholders' equity 254,456 235,179
-------- -------
$ 574,273 $ 576,178
========== =========