S&P Lowers Outlook on Valmont Industries (VMI) to Negative; Sees Persistent Headwinds Over Next ~2 Years

Standard & Poor's Ratings Services said it revised its outlook on the corporate credit rating on Valmont Industries (NYSE: VMI) to negative from stable. At the same time, we affirmed our 'BBB+' corporate credit rating on the company and our 'BBB+' issue-level rating on its senior unsecured notes.

"The negative outlook reflects our view that the recent headwinds Valmont has experienced in a number of its end markets will persist over the next 12 to 24 months, which could place additional downward pressure on the company's earnings," said Standard & Poor's credit analyst Michael Maggi. "Though still below 2x, Valmont's debt to EBITDA has slowly increased since the end of 2014 due to declining levels of EBITDA, leaving a smaller buffer in the company's credit measures for the current rating level."

We could lower Valmont's ratings if current market conditions remain weak and/or worsen over the next 12 to 24 months leading to lower levels of EBITDA and pressuring credit measures such that debt to EBITDA rose above 2x for a sustained period. This could lead us to revise Valmont's financial risk profile lower to "intermediate" from "significant," a level more in line with a 'BBB' rating. Separately, our base case assumes a moderate level of ongoing acquisitions and share repurchases. Though unlikely, if management were to adopt a more aggressive financial policy than we currently anticipate such that leverage increased above this 2x level, we could lower the rating. This could occur, for example, if EBITDA held steady and Valmont added an additional $100 million or more of debt to pursue shareholder-friendly actions.

We view an upgrade as unlikely over the upcoming 12 months given the weakness the company is currently experiencing in each of its segments and end markets. However, we could revise the outlook to stable if the company were to reduce some of its existing debt balance and/or experience better-than-expected operating results such that leverage fell below 1.5x on a sustained basis. In addition, we could also raise the company's ratings if Valmont strengthened its business risk profile to "strong" from "satisfactory" by increasing operating efficiency, realizing additional competitive advantages, and/or further enhancing its overall strategy and position through complementary acquisitions.

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