Valmont Reports Second Quarter 2016 Earnings


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OMAHA, Neb., July 20, 2016 /PRNewswire/ -- Valmont Industries, Inc. (NYSE: VMI), a leading global provider of engineered products and services for infrastructure development and mechanized irrigation equipment and services for agriculture, today reported second quarter results.

  • Revenues of $640.2 million were down 6% year-over-year, primarily reflecting lower irrigation equipment and international utility sales, and $10 million of foreign exchange translation effects.
  • Operating income rose to $71.8 million, or 33%, (5% excluding 2015 restructuring) benefitting from the restructuring and further cost reductions this year and was 11.2% of net sales compared to 7.9% in 2015, (10.0% excluding restructuring).
  • Diluted EPS were $1.85 compared to $1.19 in 2015 ($1.61 when restructuring expenses are excluded).
  • During the third quarter, the Company will further restructure its Australia operations, consolidating certain Energy and Mining, and Coatings facilities, plus reduce other SG&A costs. Restructuring charges are estimated to be $4.7 million, mostly cash. The benefit of the restructuring is expected to approximate $5.0 million and should be recovered through lower operating costs in 2017.
  • The Company repurchased 92,000 shares for $11.7 million during the quarter; $153 million remains on the current authorization.
  • The Company is reaffirming 2016 annual guidance of diluted EPS between $6.31 and $6.49.

"Net earnings improved meaningfully on lower revenues reflecting the positive impact of last year's restructuring and further cost reduction initiatives implemented this year more than offsetting the weakness in the irrigation business," said Mogens C. Bay, Valmont's Chairman and Chief Executive Officer.

"Ongoing reviews of our cost structure identified opportunities to reduce costs in Australia. This will result in a mostly cash restructuring charge, estimated to be $4.7 million over the remainder of the year. Restructuring activities will affect the Energy and Mining and Coatings Segments. The primary activities will be the consolidation and closure of a few facilities, and headcount reductions."










Second Quarter


Year-to-date

Summarized Financial Info. 

13 Weeks Ended


26 Weeks Ended


25-Jun-16


27-Jun-15


25-Jun-16


27-Jun-15

Net sales

$ 640,249


$ 682,123


$ 1,236,854


$ 1,352,521

Operating income 

71,806


54,000


134,171


111,683

  Operating income as a % of net sales

11.2%


7.9%


10.8%


8.3%

Net earnings - GAAP

42,026


27,873


74,995


58,612

Net earnings - Adjusted *

42,076


37,868


76,030


68,503









Diluted EPS - GAAP net earnings

$       1.85


$       1.19


$          3.29


$          2.47

Average Shares Outstanding - Diluted

22,749


23,450


22,782


23,716









Diluted EPS - Adjusted net earnings *

$       1.85


$       1.61


$          3.34


$          2.89









Average Shares Outstanding - Diluted

22,749


23,450


22,782


23,716









* Please see Reg. G reconciliation table on last page.  



 

Second Quarter Segment Review

Infrastructure-related

Engineered Support Structures(32% of Sales)
Poles, towers and components for the global lighting, traffic and wireless communication markets, and highway safety products.

Sales of $203.9 million were slightly higher than last year mainly due to increased telecommunication structure sales in the Asia-Pacific region.

In North America, sales of lighting and traffic products were comparable to last year while wireless communication products sales were lower.

In Europe, lighting and traffic structure sales declined modestly reflecting continued spending restraint for infrastructure projects.

Operating income was $21.0 million or 10.3% of sales compared to $16.2 million, ($19.3 million adjusted for restructuring), in the prior-year period, driven by the positive impacts of last year's restructuring, and lower raw material costs that more than offset a less favorable sales mix.

Utility Support Structures (24% of Sales)
Steel and concrete structures for the global electric utility industry.

Sales of $151.2 million decreased 7% year-over-year, largely a result of contractual price reductions tied to lower steel costs (de-escalation clauses), but volume increased. The overall market environment remains attractive, with demand continuing to be driven by reliability standards and increased renewable energy projects. Market pricing remains competitive.

Operating income was $17.5 million or 11.6% of sales compared to $10.4 million ($12.9 million adjusted for restructuring) in the prior-year period, reflecting the positive impact of ongoing operational improvements and restructuring.

Coatings Segment (12% of Sales)
Global galvanizing, painting and anodizing services.

Sales of $75.3 million were essentially flat with last year. The positive impact of the acquisition of American Galvanizing last year mostly offset lower sales in the Asia-Pacific region.

Operating income was $14.0 million, or 18.6% of sales, compared to $7.9 million ($12.6 million adjusted for restructuring), in the prior-year period.

Energy and Mining Segment (13% of Sales)
Offshore structures, engineered access systems and grinding media.

Sales of $80.7 million were 6.5% lower than last year due to reduced sales of access systems and grinding media products partially offset by increased sales of wind tower products. Continued weakness in the oil and gas markets led to lower offshore structure and access systems sales into those markets.

Operating income was $3.3 million or 4.1% of sales compared to $2.7 million ($4.2 million adjusted for restructuring), in the prior-year period. Last year's restructuring helped mitigate the impact of weaker access systems markets on operating performance.

Agriculture-related

Irrigation Segment (24% of Sales)
Agricultural irrigation equipment, parts, services and tubular products.

Sales of $152.3 million were down 12% due to lower North America irrigation equipment and tubing sales. Irrigation equipment sales in North America were muted by restrained capital investment by growers facing forecasts of further pressure on net farm income. Given a declining sales environment, industry pricing was competitive although relatively disciplined, its impact mitigated by lower average input costs. International irrigation equipment sales were comparable to last year despite unfavorable currency translation effects. The international irrigation business benefited from Valmont's geographic diversification, supporting the business.

Tubing sales fell despite recent firmness in steel prices. In the past, steel inflation has led to higher tubing sales. This year, declines reflected customer wariness over short-term steel price volatility.

Operating income fell 13% to $27.8 million impacted by the lower volumes. Operating income as a percent of sales of 18.2% was similar to last year despite lower revenue, due to cost management and lower input costs.

Outlook:

"We do not expect a significant short-term improvement in our end markets, and we see continued downward pressure in the irrigation market," Mr. Bay said. "With steel being a major input cost, our guidance of earnings per-share between $6.31 and $6.49 in 2016 takes into account some margin pressure in the second half, particularly in the Engineered Support Structures Segment, and assumes stable steel prices for the remainder of the year."

"Our goal of improving earnings in a challenging environment is showing results. Looking forward, we are investing in new products, opening new markets and pursuing acquisitions to drive future profitable growth in our infrastructure and agricultural markets."

"Long-term, our outlook is quite positive due to the strong inherent drivers in infrastructure and agriculture markets."

An audio discussion of Valmont's second quarter results will be available live by Telephone by dialing 1-877-493-2981 and entering Conference ID#:15297367 or via Webcast at 8:00 a.m. CDT July 21, 2016 at https://engage.vevent.com/rt/valmontindustries_ao~15297367.  A replay is available through the above link or by telephone (877-493-2981 or 404-537-3406, Conference ID#:15297367) beginning July 21, 2016 at 10:00 a.m. CDT through 12:00 p.m. CDT on July 28, 2016. The Company's slide presentation for the call will be simultaneously available on the investor relations tab at www.valmont.com under Investor Relations.

Valmont is a global leader, designing and manufacturing highly engineered products that support global infrastructure development and agricultural productivity. Its products for infrastructure serve highway, transportation, wireless communication, electric transmission, and industrial construction and energy markets. Its mechanized irrigation equipment for large scale agriculture improves farm productivity while conserving fresh water resources. In addition, Valmont provides coatings services that protect against corrosion and improve the service lives of steel and other metal products.

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 EARNINGS

(Dollars in thousands, except per share amounts)

(unaudited)










Second Quarter


Year-to-Date


13 Weeks Ended


26 Weeks Ended


25-Jun-16


27-Jun-15


25-Jun-16


27-Jun-15

Net sales

$      640,249


$     682,123


$   1,236,854


$  1,352,521

Cost of sales

465,132


512,575


900,768


1,017,519

          Gross profit

175,117


169,548


336,086


335,002

Selling, general and administrative expenses

103,311


115,548


201,915


223,319

          Operating income 

71,806


54,000


134,171


111,683

Other income (expense)








     Interest expense

(11,122)


(11,232)


(22,176)


(22,360)

     Interest income

707


616


1,518


1,490

     Other

1,252


(28)


(426)


988


(9,163)


(10,644)


(21,084)


(19,882)

          Earnings before income taxes and equity in

62,643


43,356


113,087


91,801

          earnings of nonconsolidated subsidiaries 








Income tax expense

19,201


13,917


35,474


30,855

          Net earnings

43,442


29,439


77,613


60,946

Less:  Earnings attributable to non-controlling interests

(1,416)


(1,566)


(2,618)


(2,334)

          Net earnings attributable to Valmont Industries, Inc.

$        42,026


$       27,873


$        74,995


$       58,612

















Average shares outstanding (000's) - Basic

22,602


23,336


22,651


23,602

Earnings per share - Basic

$            1.86


$           1.19


$            3.31


$           2.48









Average shares outstanding (000's) - Diluted

22,749


23,450


22,782


23,716

Earnings per share - Diluted

$            1.85


$           1.19


$            3.29


$           2.47









Cash dividends per share

$          0.375


$         0.375


$          0.750


$         0.750

 

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

SUMMARY OPERATING RESULTS

(Dollars in thousands)

(unaudited)










Second Quarter


Year-to-Date


13 Weeks Ended


26 Weeks Ended


25-Jun-16


27-Jun-15


25-Jun-16


27-Jun-15









Net sales








     Engineered Support Structures

$      203,916


$     200,756


$      380,887


$     378,660

     Utility Support Structures

151,245


162,929


295,765


339,270

     Energy and Mining

80,692


86,302


153,141


174,363

     Coatings

75,298


76,093


143,879


150,453

        Infrastructure products

511,151


526,080


973,672


1,042,746









     Irrigation

152,252


173,303


310,766


347,880

     Other

-


2,342


-


4,511

     Less: Intersegment sales

(23,154)


(19,602)


(47,584)


(42,616)

          Total

$      640,249


$     682,123


$   1,236,854


$  1,352,521









Operating Income








     Engineered Support Structures

$        20,968


$       16,219


$        35,176


$       25,669

     Utility Support Structures

17,528


10,399


32,296


25,756

     Energy and Mining

3,341


2,698


5,243


7,064

     Coatings

14,023


7,862


25,436


18,861

        Infrastructure products

55,860


37,178


98,151


77,350









     Irrigation

27,763


31,865


56,608


62,039

     Other 

-


(1,271)


-


(2,379)

     Corporate

(11,817)


(13,772)


(20,588)


(25,327)

          Total

$        71,806


$       54,000


$      134,171


$     111,683



Valmont has aggregated its business segments into five global reportable segments as follows.










Engineered Support Structures: This segment consists of the manufacture of engineered metal structures and components for lighting and traffic, wireless communication, and roadway safety.  









Utility Support Structures:This segment consists of the manufacture of engineered steel and concrete structures for the utility industry.









Energy and Mining: This segment includes the manufacture of access systems applications, forged steel grinding media, and offshore oil and gas and wind energy structures. 









Coatings:This segment consists of galvanizing, painting and anodizing services.












Irrigation:This segment consists of the manufacture of agricultural irrigation equipment and related parts and services for the agricultural industry and tubular products for industrial customers. 





 

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

(unaudited)








25-Jun-16




27-Jun-15

ASSETS






Current assets:






     Cash and cash equivalents

$        344,346




$        317,523

     Accounts receivable, net

469,674




491,706

     Inventories

372,106




379,897

     Prepaid expenses

60,725




56,653

     Refundable and deferred income taxes

20,441




44,072

          Total current assets

1,267,292




1,289,851

Property, plant and equipment, net

526,347




570,977

Goodwill and other assets

602,234




706,564


$   2,395,873




$   2,567,392







LIABILITIES AND SHAREHOLDERS' EQUITY






Current liabilities:






     Current installments of long-term debt

$              889




$            1,096

     Notes payable to banks

3,735




7,914

     Accounts payable

183,126




186,421

     Accrued expenses

161,784




165,138

     Dividend payable

8,505




8,733

          Total current liabilities

358,039




369,302

Long-term debt, excluding current installments

756,543




765,272

Other long-term liabilities

287,120




292,225

Shareholders' equity

994,171




1,140,593


$   2,395,873




$   2,567,392

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(Dollars in thousands) and unaudited



YTD




YTD


Cash flows from operating activities

25-Jun-16




27-Jun-15


   Net Earnings

$          77,613




$          60,946


   Depreciation and amortization

40,804




47,761


   Contribution to defined benefit pension plan

(712)




(15,735)


   Change in working capital 

(33,615)




7,804


   Other

9,484




17,569


        Net cash flows from operating activities

93,574




118,345









Cash flows from investing activities







   Purchase of property, plant, and equipment

(26,019)




(24,758)


   Increase in restricted cash - pension plan

(13,652)




-


   Other

219




6,997


        Net cash flows from investing activities

(39,452)




(17,761)









Cash flows from financing activities







   Net borrowings on short and long-term agreements

1,934




(6,547)


   Purchase of treasury shares

(28,621)




(121,020)


   Purchase of noncontrolling interest

(11,009)




-


   Dividends paid

(17,098)




(17,956)


   Other

2,599




(1,311)


        Net cash flows from financing activities

(52,195)




(146,834)


Effect of exchange rates on cash and cash equivalents 

(6,655)




(7,806)


Net change in cash and cash equivalents 

(4,728)




(54,056)


Cash and cash equivalents - beginning of year 

349,074




371,579


Cash and cash equivalents - end of period 

$        344,346




$        317,523

 

VALMONT INDUSTRIES, INC. AND SUBSIDIARIES

SUMMARY OF EFFECT OF SIGNIFICANT NON-RECURRING ITEMS ON REPORTED RESULTS

REGULATION G RECONCILIATION

(Dollars in thousands, except per share amounts)

(unaudited)

The non-GAAP tables below disclose the impact on (a) diluted earnings per share of (1) restructuring costs, and (2) the non-cash after-tax loss or gain associated with adjusting the fair value of Delta EMD Pty. Ltd (Delta EMD) shares owned to its quoted market price at June 25, 2016 and June 27, 2015,   (b) operating income of restructuring costs, and (c) segment operating income of restructuring costs. Amounts may be impacted by rounding. We believe it is useful when considering company performance for the non-GAAP adjusted net earnings and operating income to be taken into consideration by management and investors with the related reported GAAP measures. 






Second Quarter
Ended June 25,
2016


Diluted
earnings per
share


Year-to-Date
June 25, 2016


Diluted
earnings per
share

Net earnings attributable to Valmont Industries, Inc. - as reported

$          42,026


$            1.85


$          74,995


$            3.29












Fair market value adjustment, Delta EMD - after-tax

50


-


1,035


0.05












Net earnings attributable to Valmont Industries, Inc. - Adjusted

$          42,076


$            1.85


$          76,030


$            3.34

Average shares outstanding (000's) - Diluted



22,749




22,782
















Second Quarter
Ended June 27,
2015


Diluted
earnings per
share


Year-to-Date
June 27, 2015


Diluted
earnings per
share

Net earnings attributable to Valmont Industries, Inc. - as reported

$          27,873


$            1.19


$          58,612


$            2.47












Restructuring expenses - after tax

9,828


0.42


10,324


0.44












Fair market value adjustment, Delta EMD - after-tax

167


0.01


(433)


(0.02)












Net earnings attributable to Valmont Industries, Inc. - Adjusted

$          37,868


$            1.61


$          68,503


2.89

Average shares outstanding (000's) - Diluted



23,450




23,716












Operating Income Reconciliation

Second Quarter
Ended June 25,
2016


 Operating
Income as a %
of Sales 


Second Quarter
Ended June 27,
2015


 Operating
Income as a %
of Sales 

Operating income - as reported

$          71,806


11.2%


$          54,000


7.9%












Restructuring expenses - before tax

-




14,273














Adjusted Operating Income 

$          71,806


11.2%


$          68,273


10.0%

Net Sales

$        640,249




$        682,123
















For the Second Quarter Ended June 25, 2016

Segment Operating Income Reconciliation

Engineered
Support
Structures

Energy and
Mining


Utility Support
Structures


Coatings


Irrigation


Other/
Corporate












Operating income - as reported

$   20,968

$    3,341


$          17,528


$         14,023


$          27,763


$       (11,817)












Net Sales

$ 203,916

$  80,692


$        151,245


$         75,298


$        152,252














Operating Income as a % of Sales

10.3%

4.1%


11.6%


18.6%


18.2%
















For the Second Quarter Ended June 27, 2015

Segment Operating Income Reconciliation

Engineered
Support
Structures

Energy and
Mining


Utility Support
Structures


Coatings


Irrigation


Other/
Corporate












Operating income - as reported

$   16,219

$    2,698


$          10,399


$           7,862


$          31,865


$       (15,043)












Restructuring expenses - before tax

3,029

1,541


2,455


4,769


349


2,130












Adjusted Operating Income 

$    19,248

$    4,239


$          12,854


$         12,631


$          32,214


$       (12,913)












Net Sales

$  200,756

86,302


162,929


76,093


173,303














Operating Income as a % of Sales

8.1%

3.1%


6.4%


10.3%


18.4%














Adjusted Operating Income as a % of Sales

9.6%

4.9%


7.9%


16.6%


18.6%



 

 

SOURCE Valmont Industries, Inc.

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