Valmont Industries, Inc., 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 first quarter ended March 27, 2021.
First Quarter 2021 Highlights (all metrics compared to First Quarter 2020 unless otherwise noted)
- Net Sales of $774.9 million increased 14.9% led primarily by significantly higher sales in Irrigation and Utility Support Structures
- Operating Income increased 15.4% to $77.2 million, or 10.0% of sales compared to $66.9 million or 9.9% of sales last year, despite significant inflationary pressures
- Diluted Earnings per Share (EPS) improved to $2.57 compared to $1.99, an increase of 29.1%
- Record global backlog of more than $1.3 billion, reflecting strong market demand
- Utility Support Structures global backlog increased 27.0% during the quarter to a record $717.0 million, including receipt of two additional purchase orders totaling approximately $220 million for the large 500kV project in the Southeast U.S.
- Irrigation global backlog increased to approximately $350.0 million during the quarter
- Generated operating cash flow of $33.2 million; cash and cash equivalents at end of first quarter were $391.5 million
- Repurchased 50,147 shares of company stock for $11.1 million, at an average price of $221.98 per share
- Announced an 11.0% quarterly dividend increase, from $0.45 to $0.50 ($1.80 to $2.00 annualized)
- Recognized a favorable tax rate of 21.9% primarily due to a non-recurring incremental tax benefit attributed to employee stock option exercises
Released the Valmont 2021 Sustainability Report, highlighting commitments to environmental, social and governance (ESG) principles along with key metrics and 2025 environmental goals:
- 19% reduction in Scope I carbon intensity of Company vehicles
- 12% additional reduction in normalized global electricity usage
- 10% reduction in Scope I/II carbon intensity
Commissioned a 1MW solar installation at the Company's largest manufacturing facility in Valley, Nebraska, utilizing the Company's proprietary solar tracker technology to supply approximately 6.0% of the site's electricity demand
“We achieved solid sales and earnings growth across the majority of our businesses this quarter through proactively implementing pricing actions starting in fourth quarter 2020, which helped largely offset steep inflationary pressures,” said Stephen G. Kaniewski, President and Chief Executive Officer. “Sales growth was led by significantly higher sales in the Irrigation segment including a 34.0% increase in technology products year-over-year, as higher agricultural commodity prices are driving positive farmer sentiment, and deliveries of the large, multi-year project for Egypt continued during the quarter. Higher volumes in the Utility Support Structures segment were driven by strong underlying demand, including in renewable energy markets, and we were pleased to be awarded two additional purchase orders for the large 500kV project in the Southeast U.S. In Engineered Support Structures, higher sales of wireless communication products helped partially offset anticipated lower transportation market volumes, and the Coatings segment continues to improve with general economic trends. We generated positive free cash flow despite unprecedented raw material inflation, driven by our continued focus on working capital management and solid earnings growth.”
First Quarter 2021 Segment Review
Utility Support Structures Segment (32.7% of Sales)
Steel, concrete and composite structures for utility markets, including transmission, distribution, substations, and renewable energy generation equipment and drone inspection services
Sales of $253.1 million grew 12.3% year-over-year, led by higher volumes from increasing demand for renewable energy generation and utilities' continued investments in grid resiliency.
Operating Income was $21.7 million or 8.6% of sales compared to $27.7 million, or 12.3% of sales in 2020. Higher volumes and improved operational performance were more than offset by the impact of rapid raw material cost inflation that could not be fully recovered through pricing actions and a higher mix of global generation products.
Engineered Support Structures Segment (28.7% of Sales)
Poles, towers and components for the lighting, traffic and wireless communication markets, engineered access systems, integrated structure solutions for smart cities, and highway safety products
Sales of $222.3 million decreased 3.6% year-over-year, as lower volumes in transportation markets were partially offset by favorable pricing, higher sales of wireless communication products and components, and $8.6 million of favorable currency impacts.
Lighting and traffic sales of $153.9 million decreased 10.5% year-over-year. Lower volumes, primarily due to COVID-19 impacts on project timing and delays in approving the FAST Act extension, were partially offset by favorable pricing in all regions.
Wireless communication structures and components sales of $46.1 million increased 20.6% year-over-year. Increasing capital investments from wireless carriers and favorable pricing led to the sales growth.
Access Systems sales of $22.3 million increased 8.8% year-over-year, primarily due to favorable currency impacts.
Operating Income was $19.9 million or 9.0% of sales compared to $15.9 million or 6.9% of sales in 2020. Profitability improvement was driven by favorable pricing, a more favorable mix of products and lower SG&A expense.
Coatings Segment (12.0% of Sales)
Galvanizing, painting and anodizing services to preserve and protect metal products
Sales of $93.3 million increased 5.9% year-over-year, as favorable pricing and higher internal volumes were partially offset by lower external volumes in North America due to disruptions from COVID-19 and winter weather on end customers.
Operating Income was $12.9 million or 13.8% of sales compared to $11.1 million or 12.5% of sales in 2020. Profitability improvement was led by favorable pricing and operational efficiencies, partially offset by a $0.8 million non-recurring, natural gas expense due to impacts of the Texas winter weather event during the quarter.
Irrigation Segment (29.6% of Sales)
Irrigation equipment, center pivots and linears for agricultural markets, including parts, services, and tubular products, and advanced technology solutions for water management and precision agriculture
Global sales of $229.7 million increased 46.5% year-over-year, due to higher volumes across most markets, particularly in the Middle East, and higher technology sales, partially offset by $6.1 million of unfavorable currency impacts.
North American sales of $122.8 million increased 15.2% compared to 2020, due to higher volumes across all irrigation product lines, and higher industrial tubing sales.
International sales of $106.9 million more than doubled year-over-year and increased more than 125.0% in local currencies. Sales growth was led by higher volumes including continued deliveries of the large multi-year Egypt project, strong demand in Brazil, improved product mix and sales from recent acquisitions.
Operating Income was $38.7 million, or 16.9% of sales compared to $23.7 million, or 15.1% of sales in 2020. Profitability growth was driven by higher volumes and improved operational efficiency, partially offset by higher R&D expense of approximately $2.0 million for technology growth investments.
Strength of Global Supply Chain and Continuation of COVID-19 Safety Protocols
Since the start of the pandemic, the Company has been taking measured and deliberate steps to strengthen its global supply chain. Through its strong relationships with many strategic suppliers, Valmont has been able to continue procuring raw materials and components critical to its operations, particularly steel. Other supply constraints have been largely mitigated by effectively utilizing the Company's global footprint. Further, current constraints at global seaports have not significantly disrupted its operations. Additionally, Valmont continues to follow CDC, WHO and local guidelines during the pandemic to protect the safety, health and well-being of employees, customers, suppliers and communities.
Balance Sheet, Liquidity and Capital Allocation
The Company continues to generate good cash flows through strong earnings and a focus on working capital management, including inventory optimization. At end of the first quarter, cash and cash equivalents were $391.5 million. Valmont purchased $11.1 million of company stock in the first quarter, and $136.8 million remains on the current authorization, with no expiration. Recognizing its strong balance sheet and confidence in generating good cash flows in the future, the Company in February announced an 11.0% increase to its quarterly dividend. During the quarter, Moody's reaffirmed the Company’s Baa3/Stable credit rating and Valmont remains committed to maintaining its Investment Grade rating.
Second-Quarter 2021 Financial Outlook and Reaffirming Full-Year Key Assumptions
While certain aspects of the pandemic's impact on global economic factors and pace of economic recovery remain somewhat uncertain, the Company will continue to provide a greater level of transparency, including key assumptions and indications for second quarter 2021, to help the financial community understand short-term impacts and expectations. The Company is also reaffirming key assumptions and indications for full-year 2021.
2Q 2021 Financial Outlook
- 2Q Net Sales estimated to be $805.0 - $830.0 million, an increase of 17.0% - 20.0% vs. prior year
- 2Q Operating Profit Margin estimated to be 9.5% - 10.5%
- Tax rate between 23.0% - 24.0%
Reaffirming Full Year 2021 Financial Outlook and Key Assumptions
- Net Sales estimated to increase 9.0% - 14.0% vs. prior year
- Favorable foreign currency translation impact of approximately 2.0% of Net Sales
- Irrigation segment sales estimated to significantly increase 27.0% - 30.0% vs. prior year
- In Utility Support Structures, significant raw material cost inflation negatively impacting gross profit margins in the first half of 2021
- Diluted Earnings per Share estimated to be $9.00 - $9.70
- Second half 2021 tax rate between 24.0% - 25.0%; no tax law changes
- Capital expenditures to be in the range of $110 - $120 million to support strategic growth initiatives and Industry 4.0 advanced manufacturing initiatives
No closures of large manufacturing facilities, workforce disruptions, or significant supply chain interruptions
Kaniewski added, "We've had a strong start to the year, and are very encouraged by the tailwinds across many of our global markets. We entered the second quarter with a new record global backlog of more than $1.3 billion, including more than $700 million in the Utility Support Structures segment, providing a good line of sight for us into 2022. In the Engineered Support Structures segment the need for critical infrastructure investment globally gives us confidence in the long-term market growth trends, and we are benefiting from increasing demand in wireless communications markets as 5G build-outs continue to ramp. Our Coatings business is trending in-line with improving industrial production levels. In Irrigation, the large, multi-year project for Egypt and favorable market trends globally are providing strong momentum, as evidenced by our global backlog of more than $350 million. Across the portfolio, we continue to execute pricing strategies to recover the impact of unprecedented raw material cost increases and leverage the strength of our global supply chain. Additionally, our balance sheet is strong and gives us flexibility to execute our long-term strategic plan. Our strategy remains focused on long-term growth, with an organizational emphasis on ESG principles, Return on Invested Capital, Operational Excellence and strengthening our organization for the future. As always, the safety and well-being of our employees remains our number one imperative, while we continue to execute and drive growth and performance."
A live audio discussion with Stephen G. Kaniewski, President and Chief Executive Officer, and Avner M. Applbaum, Executive Vice President and Chief Financial Officer, will be accessible by telephone on Thursday, April 22, 2021 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 1Q 2021 Earnings Conference Call. A slide presentation will simultaneously be available for download on the Investors page at 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 13713719. The replay will be available through 10:59 p.m. CDT on April 29, 2021.