News Release
April 19, 2004
Valmont Reports First Quarter Results
Highlights:
o Net Sales increased 4% primarily due to foreign currency translation.
o Net earnings decreased 25% mainly due to the continued weak pricing
environment for steel structures in the utility market.
o China sales and profitability doubled in the first quarter.
o Coatings Segment profitability was impacted by continued weak markets.
o Irrigation Segment profits rose 7% on a sales increase of 6%.
Omaha, NE - Valmont Industries, Inc. (NYSE: VMI), a leading global
manufacturer of engineered support structures for infrastructure and mechanized
irrigation equipment for agriculture and a provider of coating services,
reported sales for the first quarter of $215.9 million compared with $207.3
million for the same period of 2003. First quarter 2004 net earnings were $5.5
million, or 22 cents per diluted share, versus first quarter 2003 net earnings
of $7.3 million, or 30 cents per diluted share. The Company had previously
announced on March 18, 2004 that it expected earnings for the quarter to be in
the range of 19-21 cents per diluted share.
First Quarter 2004 Review:
"A very competitive pricing environment in the utility market combined with
rapid steel price increases hurt profitability in the first quarter," said
Mogens C. Bay, Valmont's Chairman and Chief Executive Officer. "We had growth in
sales and profits in both our North American and international irrigation
businesses. Sales and profits rose in our tubing business as fabrication
customers sought steady supplies of tubing in a rising price environment. Global
sales of lighting and traffic products were flat. Volumes were lower in our
coatings business as some of our steel fabrication customers had difficulty
obtaining steel for production."
First Quarter Summary-Agricultural Markets:
The Irrigation Segment's first quarter sales of $80.1 million were 6%
higher than 2003. Operating income for the segment of $11.8 million was a 7%
improvement over 2003.
Sales improved in North American markets due to a favorable farm economy.
Internationally, sales rose in South America and Europe. Higher crop prices are
strengthening the demand for irrigation equipment in many parts of the world.
The economic benefits of mechanized irrigation equipment to growers are
compelling. In addition to conserving water, mechanized irrigation reduces labor
and improves yields.
The Tubing Segment sales of $17.3 million were 5% higher than in 2003. The
sales increase reflects the pass through of higher steel prices on revenues.
Operating income of $2.1 million was 12% above the first quarter of 2003, due to
improved manufacturing efficiencies.
First Quarter Summary - Infrastructure Markets:
The Engineered Support Structures Segment sales of $99.4 million increased
8% from 2003 levels. Operating income for the segment fell by 65% to $1.4
million. Profitability was adversely impacted by the competitive pricing
environment in the North American utility market and an unprecedented and rapid
increase in steel prices.
Utility product sales were slightly lower in North America. The utility
market for steel structures is experiencing an intensely competitive pricing
environment. As the Company does not expect significant improvement in this
competitive environment in the short-term, measures are planned to reduce the
cost structure of the business to improve Valmont's competitive position in the
marketplace. Utility sales and profits in China rose significantly as electrical
transmission infrastructure development remains very strong. These higher
volumes resulted in greater profitability for Valmont's utility business in
China.
Sales of lighting and traffic products in North America and Europe were
flat. Specialty structure sales grew with the introduction of a sign structure
product line. Sales of wireless communication products in North America were
similar to first quarter 2003 levels; however, the backlog is growing as order
rates have improved. Results in the specialty structures business unit improved
due to cost reductions implemented last year. In China, sales of wireless
communication products were substantially higher. The demand for wireless
communication products in China remains very strong as service providers expand
their networks.
The Coatings Segment sales of $22.7 million were 17% lower than last year.
Galvanizing volumes were lower as some customers were unable to secure steel for
fabrication. The sales decline also reflects a reduction in assembly service
revenues in the anodizing business, as demand slowed from industrial customers.
Operating profits fell 78% to $466 thousand, as fixed costs were incurred
despite lower sales volumes. The persistent weakness in the industrial economy
over the past 18 months has caused considerable volume declines leading to
manufacturing deleverage. When the industrial economy recovers, the Company
expects an increase in coatings revenues and improved profitability.
Second Quarter Outlook:
Commenting on the outlook for the second quarter, Mr. Bay said, "While we
will continue to face challenges in the second quarter, we expect consolidated
sales and operating earnings comparisons to be favorable. We expect strong sales
gains in our lighting and traffic, utility and specialty structures businesses,
compared with the second quarter of 2003. Results in our coatings business will
largely depend on our customers' ability to acquire steel and the general level
of the industrial economy. In our irrigation business, we expect results similar
to last year's solid second quarter performance. In our tubing business, we
expect an improvement in results compared to last year's second quarter. We
believe that by continuing to focus on lowering costs, while improving quality
and customer service, we should improve our competitive position and
profitability."
Debt Refinancing:
Terry J. McClain, Valmont's Senior Vice President and Chief Financial
Officer said, "As a result of the April 16, 2004 acquisition of Newmark and the
favorable financing environment, Valmont plans to refinance the majority of its
existing long term debt. Plans include the refinancing of the existing revolving
credit facility, as well as restructuring the promissory notes that are
presently on the balance sheet. The proposed new financial structure will be a
mix of credit facilities and other debt. This structure should give the Company
additional financial flexibility and capacity at very competitive rates and
terms."
Mr. McClain added, "In the process of implementing this financial
structure and paying off the existing promissory notes, there will be a
prepayment premium in the range of $12-13 million pre-tax or approximately 32-35
cents per diluted share. This charge will be taken upon finalizing the new
structure, which is expected to be completed in the second quarter of this
year."
The new financial structure is expected to include a $375 million mix of
credit facilities and other debt. Mr. McClain commented that, "This new
financial structure should give Valmont the flexibility and capacity necessary
to handle our business needs at a very economical cost over the next 5 to 10
years. With our good cash flow characteristics we should be able to reduce our
debt levels over the next 12-18 months to our normal operating range of 40% of
long term debt to total capital."
An audio discussion of Valmont's first 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. April 20, 2004 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#: 6400946 beginning April 20, 2004 at
10:00 a.m. CDT through 12:00 p.m. CDT on April 27, 2004.
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 statement. 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)
First Quarter
13 Weeks Ended
--------------------------
27-Mar-04 29-Mar-03
--------------------------
Net sales $ 215,897 $ 207,294
Cost of sales 164,617 154,441
Gross profit 51,280 52,853
Selling, general and administrative expenses 39,531 37,802
Operating income 11,749 15,051
Other income (deductions)
Interest expense (2,398) (2,685)
Interest income 276 234
Miscellaneous 14 (38)
(2,108) (2,489)
Earnings before income taxes, minority
interest, equity in earnings of nonconsolidated
subsidiaries 9,641 12,562
Income tax expense 3,529 4,648
Earnings before minority interest, equity in
earnings (losses) of nonconsolidated
subsidiaries 6,112 7,914
Minority interest (455) (271)
Loss in nonconsolidated subsidiaries (156) (350)
Net earnings $ 5,501 $ 7,293
Average shares outstanding (000's) - Basic 23,846 23,878
Earnings per share - Basic $ 0.23 $ 0.31
Average shares outstanding (000's) - Diluted 24,520 24,388
Earnings per share - Diluted $ 0.22 $ 0.30
Cash dividends per share $ 0.080 $ 0.075
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
SUMMARY OPERATING RESULTS
(Dollars in thousands)
(unaudited)
First Quarter
13 Weeks Ended
-------------------------
27-Mar-04 29-Mar-03
-------------------------
Net sales
Engineered Support Structures $ 99,436 $ 91,880
Coatings 22,656 27,162
Infrastructure products 122,092 119,042
Irrigation 80,099 75,569
Tubing 17,323 16,461
Agriculture products 97,422 92,030
Other 4,360 4,616
Less: Intersegment sales (7,977) (8,394)
Total $ 215,897 $ 207,294
Operating Income
Engineered Support Structures 1,441 4,063
Coatings 466 2,081
Infrastructure products 1,907 6,144
Irrigation 11,845 11,115
Tubing 2,085 1,868
Agriculture products 13,930 12,983
Other (492) (351)
Corporate (3,596) (3,725)
Total $ 11,749 $ 15,051
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)
27-Mar-04 29-Mar-03
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 24,197 $ 23,330
Accounts receivable, net 149,505 131,997
Inventories 132,068 121,117
Prepaid expenses 7,601 5,560
Refundable and deferred income taxes 10,284 11,719
Total current assets 323,655 293,723
Property, plant and equipment, net 184,784 190,531
Goodwill and other assets 95,807 88,905
$ 604,246 $ 573,159
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 15,115 $ 10,790
Notes payable to banks 20,705 21,806
Accounts payable 65,993 52,616
Accrued expenses 52,070 51,170
Dividend payable 1,910 1,792
Total current liabilities 155,793 138,174
Long-term debt, excluding current installments 129,847 145,530
Other long-term liabilities 49,871 41,464
Shareholders' equity 268,735 247,991
$ 604,246 $ 573,159