Press Release July 20, 2004
Valmont Second Quarter Net Sales Rise 33% - Operating Income Increases 38%
Highlights:
o Net sales rose 33% primarily due to improved market conditions,
product pricing reflective of higher steel costs, as well as the
acquisition of Newmark.
o Operating income increased 38%, mainly due to a strong irrigation and
tubing performance, improvement in the coatings and utility
businesses, excellent results in China, and the acquisition of
Newmark.
o The Company successfully refinanced its debt with the issuance of $150
million Senior Subordinated Notes. As part of the refinancing, there
was a previously announced after-tax prepayment expense of 25 cents
per diluted share.
o China sales increased 77% with strong earnings growth.
o Record quarterly sales in the Irrigation Segment.
o Improved market conditions in utility and wireless communication led
to sales increases and improvements in profitability.
o Rising steel prices continue to pressure margins.
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 and
tubular products, reported sales for the second quarter of $266.0 million
compared with $200.7 million for the same period of 2003. Second quarter 2004
net earnings, which include a $6.1 million after-tax charge to prepay debt (25
cents per diluted share), were $2.8 million, or 12 cents per diluted share,
versus second quarter 2003 net earnings of $6.4 million, or 26 cents per diluted
share.
For the first six months of 2004, sales were $481.9 million versus $408.0
million in 2003. Valmont's first half net earnings were $8.3 million, or 34
cents per diluted share, compared with 2003 first half net earnings of $13.7
million, or 56 cents per diluted share.
The following table shows the calculation of net earnings as if the
prepayment expense had not been incurred and reconciles the net earnings
calculations.
Second Quarter Year-to-Date
13 Weeks Ended 26 Weeks Ended
------------------------------------------------------
26-Jun-04 28-Jun-03 26-Jun-04 28-Jun-03
--------------------------------------- ------------
Earnings per share - Basic $ 0.12 $ 0.27 $ 0.35 $ 0.57
Earnings per share - Diluted $ 0.12 $ 0.26 $ 0.34 $ 0.56
Net earnings as reported $ 2,812 $ 6,367 $ 8,313 $ 13,660
Charges to prepay debt, net of tax at 38% 6,113 - 6,113 -
Net earnings without charges to prepay debt $ 8,925 $ 6,367 $ 14,426 $ 13,660
Average shares outstanding (000's) - Basic 23,866 23,786 23,856 23,832
Earnings per share without charges to prepay debt- Basic $ 0.37 $ 0.27 $ 0.60 $ 0.57
Average shares outstanding (000's) - Diluted 24,413 24,300 24,466 24,345
Earnings per share without charges to prepay debt- Diluted $ 0.37 $ 0.26 $ 0.59 $ 0.56
Second Quarter 2004 Review:
"Profitability improved in all of our segments despite unprecedented
increases in steel prices," said Mogens C. Bay, Valmont's Chairman and Chief
Executive Officer. "I believe that our people managed well through turbulent
steel market conditions. They reacted quickly and prudently to rapidly rising
steel costs, although in many cases steel prices went up faster than we could
increase our sales prices, including backlog orders with longer lead times. This
put pressure on margins. In our irrigation business, quarterly sales set a
record due to a strong spring selling season in North America. Our tubing
business had significant sales gains due to price increases that reflected
higher steel costs, and strong industrial and agricultural demand. This increase
in sales and improvement in factory performance drove stronger earnings.
Performance in our structures businesses was aided by improving market
conditions in the utility and wireless markets and very strong markets in China.
The addition of Newmark to Valmont's operations on April 16, 2004 contributed to
the growth in sales and earnings. The integration of Newmark is going well and
we are in the process of aligning our organizational structure to best address
the needs of our utility customers. In our coatings business, an improvement in
galvanizing volumes resulted in profitability gains even though anodizing sales
were down. Overall, market conditions appear to be strengthening in our
businesses that had experienced weakness in recent quarters."
Second Quarter Summary-Agricultural Markets:
In the Irrigation Segment, second quarter sales were $87.6 million, a 23%
increase over 2003. Operating income for the segment of $12.0 million was a 24%
improvement over 2003.
Sales and earnings improved in North America due to a strong spring selling
season. To recover significantly higher steel costs, the Company had to increase
prices on a regular basis throughout the quarter. In addition to a generally
stronger farm economy, farmers placed orders early in the season to avoid
further price increases, which helped drive demand. Internationally, sales were
even with last year and profitability declined primarily due to sales mix. Sales
rose in Europe due to a strong market in Spain. In Brazil, sales and earnings
were strong, although below last year's record levels, as government financing
programs are being implemented at a slower pace this year and price competition
increased in the market. Sales declined in South Africa as drought conditions
eased and local crop prices were lower than last year. For the segment, the
improved profitability was driven by higher North American sales and better
factory utilization.
In the Tubing Segment, sales rose sharply to $24.1 million, a 72% increase.
The sales increase reflects both the pass-through of higher steel prices and
volume increases due to strong agricultural and industrial demand. Operating
income of $3.4 million more than doubled from last year due to the higher
volumes and improvements in manufacturing efficiencies.
Second Quarter Summary - Infrastructure Markets:
Sales in the Engineered Support Structures Segment were $120 million, an
increase of 29% from 2003 levels. Operating income for the segment was $6.0
million, a 27% increase from last year's weak levels.
Sales of lighting and traffic products in North America rose primarily due
to customers taking product ahead of anticipated price increases. The U.S.
lighting market is showing signs of uncertainty as state and local governments
await passage of new federal highway spending legislation. Profitability for the
lighting and traffic business was negatively impacted by rising steel prices.
For items in the backlog and long lead time products, steel costs rose faster
than could be recovered through price increases. In Europe, sales increased
reflecting higher prices and an improvement in the European economy.
Profitability was impacted by severance charges in connection with lowering our
cost structure in the European operation. Lighting sales improved in China due
to a strong economy and ongoing infrastructure development programs. While
profitability remains strong in China, rising steel costs compressed margins.
Specialty Structure sales increased as Valmont's sign structures were
introduced to more states. Global sales of wireless communication products were
higher. In North America, demand for wireless communication poles, towers and
components rose as carriers increased their capital spending budgets for the
first half of 2004. In China, sales of wireless communication products doubled
as the two leading service providers expanded their networks at a brisk pace.
The specialty structures business returned to profitability in the second
quarter largely due to improved sales and market conditions in North America and
the strong results in China.
Valmont's steel utility business showed significant improvement over last
year. In North America, sales rose substantially as selling prices reflected
higher steel costs and improved volumes. Strengthening demand led to a better
pricing environment. Utility sales in China doubled due to heavy demand for
electrical transmission infrastructure.
Valmont has added Concrete Support Structures as a reporting segment as a
result of the acquisition of Newmark on April 16, 2004. The Concrete Support
Structures Segment had solid sales and earnings performance, as demand remains
strong for concrete utility structures throughout the Southeast and Southwest.
Demand for concrete utility structures is increasing as a result of increased
spending by utilities on capital and maintenance projects to improve the
reliability of the electrical grid system. To streamline its operating structure
and better serve utility customers, the Company is realigning its steel and
concrete utility organizations.
Sales in the Coatings Segment were even with last year at $23.6 million.
Operating income rose 75% to $2.6 million. Anodizing sales were lower due to a
decline in demand from a large customer. Galvanizing sales rose on higher
internal volumes and greater industrial demand. Profitability improved due to
the increased galvanizing volumes, which allowed for more efficient operations.
In the past, the Company has indicated that increased volumes should lead to
improved operating leverage in the galvanizing business as fixed factory
expenses are better absorbed.
Second Half Outlook:
Commenting on the outlook for the rest of the year, Mr. Bay said, "Although
we anticipate tight steel supplies and pricing pressure to continue, we expect
favorable sales and earnings comparisons. In our Engineered Support Structures
Segment, we expect sales gains across all product lines. Our backlogs are
growing in our infrastructure businesses and we have increased our steel
inventories to help cover that demand. Demand for concrete utility structures is
strengthening and the Newmark acquisition should continue to perform well. For
our coatings business, we anticipate an improvement in profitability. In our
irrigation business, our results will depend on conditions in the new fall
selling season, and at this time it is too early to tell what those trends will
be. In our tubing business, we expect continued strong operating performance.
Overall, we believe business conditions are improving, and this should result in
a stronger performance in the second half of the year."
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 21, 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#: 7040977 beginning July 21, 2004 at
10:00 a.m. CDT through 12:00 p.m. CDT on July 28, 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 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)
Second Quarter Year-to-Date
13 Weeks Ended 26 Weeks Ended
-----------------------------------------------------
26-Jun-04 28-Jun-03 26-Jun-04 28-Jun-03
---------------------------------------- ------------
Net sales $ 266,013 $ 200,666 $ 481,910 $ 407,960
Cost of sales 199,933 149,178 364,550 303,619
Gross profit 66,080 51,488 117,360 104,341
Selling, general and administrative expenses 47,071 37,757 86,602 75,559
Operating income 19,009 13,731 30,758 28,782
Other income (deductions)
Interest expense (4,067) (2,631) (6,465) (5,316)
Interest income 419 317 695 551
Debt prepayment expense (9,860) - (9,860) -
Miscellaneous (274) (117) (260) (155)
(13,782) (2,431) (15,890) (4,920)
Earnings before income taxes, minority
interest, equity in earnings (losses) of
non-consolidated subsidiaries 5,227 11,300 14,868 23,862
Income tax expense 1,927 4,114 5,456 8,762
Earnings before minority interest, equity in
earnings (losses) of nonconsolidated
subsidiaries and change in accounting
principle 3,300 7,186 9,412 15,100
Minority interest (after tax) (718) (717) (1,173) (988)
Earnings (losses) in nonconsolidated subsidiaries 230 (102) 74 (452)
Net earnings $ 2,812 $ 6,367 $ 8,313 $ 13,660
Average shares outstanding (000's) - Basic 23,866 23,786 23,856 23,832
Earnings per share - Basic $ 0.12 $ 0.27 $ 0.35 $ 0.57
Average shares outstanding (000's) - Diluted 24,413 24,300 24,466 24,345
Earnings per share - Diluted $ 0.12 $ 0.26 $ 0.34 $ 0.56
Cash dividends per share $ 0.080 $ 0.080 $ 0.160 $ 0.155
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
SUMMARY OPERATING RESULTS
(Dollars in thousands)
(unaudited)
Second Quarter Year-to-Date
13 Weeks Ended 26 Weeks Ended
--------------------------- -------------------------
26-Jun-04 28-Jun-03 26-Jun-04 28-Jun-03
--------------------------- ------------ ------------
Net sales
Engineered Support Structures $ 120,078 $ 93,409 $ 219,514 $ 185,289
Concrete Support Structures 16,575 - 16,575 -
Coatings 23,568 23,556 46,224 50,718
Infrastructure products 160,221 116,965 282,313 236,007
Irrigation 87,582 71,344 167,681 146,913
Tubing 24,096 14,015 41,419 30,476
Agriculture products 111,678 85,359 209,100 177,389
Other 4,503 4,461 8,863 9,077
Less: Intersegment sales (10,389) (6,119) (18,366) (14,513)
Total $ 266,013 $ 200,666 $ 481,910 $ 407,960
Operating Income
Engineered Support Structures $ 5,967 $ 4,682 $ 7,408 $ 8,745
Concrete Support Structures 1,755 - 1,755 -
Coatings 2,601 1,488 3,067 3,568
Infrastructure products 10,323 6,170 12,230 12,313
Irrigation 12,008 9,665 23,853 20,780
Tubing 3,421 1,601 5,506 3,468
Agriculture products 15,429 11,266 29,359 24,248
Other (593) (525) (1,085) (874)
Corporate (6,150) (3,180) (9,746) (6,905)
Total $ 19,009 $ 13,731 $ 30,758 $ 28,782
Valmont has five 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.
Concrete Support Structures: This segment consists of the manufacture of
engineered concrete structures primarily for the utility industry.
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 five 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)
26-Jun-04 28-Jun-03
-------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 29,699 $ 28,642
Accounts receivable, net 177,677 135,341
Inventories 159,433 115,973
Prepaid expenses 8,703 7,447
Refundable and deferred income taxes 10,949 10,268
Total current assets 386,461 297,671
Property, plant and equipment, net 209,623 187,005
Goodwill and other assets 180,949 89,597
$ 777,033 $ 574,273
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 1,217 $ 11,778
Notes payable to banks 11,913 12,415
Accounts payable 77,635 56,105
Accrued expenses 62,852 51,283
Dividend payable 1,911 1,915
Total current liabilities 155,528 133,496
Long-term debt, excluding current installments 301,886 142,836
Other long-term liabilities 50,168 43,485
Shareholders' equity 269,451 254,456
$ 777,033 $ 574,273