Valmont Reports Fourth Quarter and Fiscal Year 2017 Results

OMAHA, Neb., Feb. 21, 2018 /PRNewswire/ -- Valmont Industries, Inc. (NYSE: VMI), a leading global provider of engineered products and services for infrastructure development and irrigation equipment and services for agriculture, today reported fourth quarter and full year 2017 results.

 Fourth Quarter Highlights:

• Revenues increased 6.0% to $715.0 million with sales increases in all reportable segments
• Volumes were higher in the Irrigation and Utility Support Structures segments, partially offset by volume declines in Engineered Support Structures and the grinding media business
• GAAP operating income increased 13.6% to $63.7 million. On an adjusted basis, operating income was comparable to 2016
• Inflationary cost pressures resulted in a $3 million incremental impact from LIFO inventory valuation expense compared to 2016
• GAAP diluted loss per share was $0.16 compared to earnings per share (EPS) of $3.10 in 2016 ($1.67 and $1.61 adjusted).1
• GAAP results for 2017 include a $42 million tax expense resulting from the recently enacted Tax Cuts and Jobs Act ("TCJA")1

Full Year Highlights:

• Full year revenues increased 9.0%, reflecting higher sales in all reportable segments, the first full year of sales growth since 2013
• Higher volumes in the Utility and Irrigation segments, partial price recovery of raw material costs across all reportable segments, and favorable foreign currency translation, led to the revenue increase
• GAAP operating income increased $22.9 million to $266.4 million, (increased $10.5 million from $255.9 million adjusted in 2016)1
• GAAP diluted EPS was $5.11, down 33% compared to $7.63 last year ($6.97, up 8.6% compared to $6.42 adjusted in 2016)1
• Productivity improvements and cost reductions were not enough to fully offset lagging recoveries of zinc and steel costs throughout the year
• Total year operating cash flows were $145.7 million and capital expenditures were $55.3 million, resulting in free cash flow of $90.4 million

Resegmentation

In the fourth quarter, the Company modified its management and reporting structure to four segments, eliminating the former Energy and Mining as a reporting segment. This reflects a reduced dependency on the energy and mining end-markets, and the pending divestiture of the grinding media business, subject to regulatory approval. The following changes were made:

• Access Systems is now reported in the Engineered Support Structures Segment
• The offshore structures business is included in the Utility Support Structures Segment, and
• Grinding media is reported in "Other," pending its divestiture.

Impact of Tax Cuts and Jobs Act

Fourth quarter earnings include a $42 million, or $1.841 per diluted share, expense for the estimated impact of the recently enacted TCJA. This is comprised of:

• $20.4 million of expense related to the remeasurement of U.S. deferred tax assets at a lower rate
• $21.6 million of expense related to the taxation of unremitted foreign earnings, including anticipated withholding taxes on foreign dividends

Fourth Quarter Summary

"We achieved solid results for the quarter despite some headwinds," said Stephen G. Kaniewski, President and Chief Executive Officer. "Strong underlying demand in North America utility and international irrigation drove higher sales. The Coatings Segment successfully recovered higher zinc costs, but the Engineered Support Structures Segment was challenged to fully recover inflationary costs. As expected, the grinding media business was faced with lower volumes, and difficulties fully recovering steel costs, similar to prior quarters."

"One particular challenge we faced was rapid inflation of raw material costs. On balance, sales price increases and productivity improvements mitigated the impact of inflation on earnings. We believe we managed well through these challenges."

Fourth Quarter Segment Review

Infrastructure-related

Engineered Support Structures (35.0% of Sales)Poles, towers and components for the global lighting, traffic and wireless communication markets, engineered access systems, and highway safety products.

Sales of $250.1 million were 2.4% higher than last year. Higher highway safety product sales in Australia, were partly offset by lower sales of lighting, traffic and wireless communication structures globally. Access Systems revenues were similar to last year.

In North America, sales of lighting and traffic structures were lower, due to a decline in non-residential construction. An initiative by the Australian government to improve roadway safety resulted in increased sales of our highway safety products in that region. In Europe, lighting sales were up slightly.

Global wireless communication structures revenues were lower. Increases in North America were more than offset by significantly lower sales in China. One particular challenge we faced in China, were government mandates to reduce pollution, leading to cuts in steel production and telecom demand.

Operating income was $16.3 million or 6.5% of sales, compared to $16.5 million, or 6.8% of sales in 2016, ($22.7 million and 9.3% adjusted).1 Despite the modest increase in sales, operating income as a percentage of sales was lower. Unfavorable sales mix was only partially offset by productivity improvements.

Utility Support Structures (34.0% of Sales)Steel and concrete structures for the global electric utility industry, wind and offshore structures.

Sales of $243.4 million increased 14.0%, driven by continued strong demand in North America and price recovery of increased steel costs. International sales were lower than last year due to a large project in the fourth quarter of 2016 that did not repeat.

Operating income increased to $28.4 million or 11.7% of sales, compared to $22.6 million or 10.6% of sales in 2016. Increased volume, factory productivity, and SG&A leverage were the major contributors to improved profitability.

Coatings Segment (11.6% of Sales)Global galvanizing, painting and anodizing services.

Sales of $83.0 million were up 10.1% compared to last year. Increased sales to other Valmont segments, improving market conditions in Australia, and pricing to recover zinc cost increases led to the sales gain.

Operating income was $14.1 million, or 17.0% of sales compared to $9.5 million, or 12.5% of sales in 2016, ($9.8 million and 13.0% adjusted).1 Pricing actions to recover inflation, and favorable SG&A comparisons drove profitability gains. In the Asia Pacific region, productivity improvements, and volume recoveries, further contributed to profitability improvement.

Agriculture-related

Irrigation Segment (20.9% of Sales)Agricultural irrigation equipment, parts, services and tubular products.

Global irrigation sales of $149.5 million were 9.4% higher than last year, mainly driven by project activity and elevated demand in our core international markets. Sales in North America were comparable to 2016.

Operating income was $18.3 million or 12.2% of sales, compared to $15.7 million or 11.5% last year, ($16.2 million and 11.9% adjusted).1 The increase in operating income was the result of improved volume leverage in our factories and pricing actions amid increased inflation.

Other (2.2% of sales)Manufacture of forged steel grinding media for the mining industry

Sales in grinding media were $15.8 million compared to $21.9 million in 2016, a decline of 28%. Fourth-quarter operating loss was $1.6 million compared to operating income of $2.1 million in 2016. As announced last August, the divestiture of the grinding media business is pending and subject to regulatory approval.

2018 Restructuring Plan

The Company is planning to restructure certain operations in 2018, primarily in the Engineered Support Structures segment, through consolidation and other cost-reduction activities. A pre-tax charge of $10 million is expected, of which $8.5 million is cash expenses. We anticipate these expenses to be recovered through lower operating costs within 12-18 months of their occurrence. We will continue our ongoing efforts to reduce costs as appropriate and further improve productivity.

2018 Outlook

The Company is issuing 2018 annual guidance of GAAP diluted EPS to be approximately $7.70, and adjusted diluted EPS to be approximately $8.00. Adjusted EPS does not include the impacts of the 2018 Restructuring Plan. Any effects from the divestiture of the grinding media business or potential acquisitions have not been included in the earnings guidance

Assumptions:

• Revenue growth of 7%, excluding the impact from the divestiture of the grinding media business and any potential acquisitions
• Inflationary environment in raw material costs will continue through the year, which are expected to be mostly offset by pricing actions, cost reductions, and productivity improvements. Inflation assumptions do not include potential tariffs and quotas enacted by the U.S. Department of Commerce
• Modest positive impact from foreign exchange translation
• Tax rate of 25%

"We expect sales and earnings growth in 2018," said Mr. Kaniewski. "We also anticipate continued challenges from an inflationary environment, particularly in steel and freight. We will strive to recover these increases through strategic pricing actions and ongoing efforts to improve productivity."

"The current global economic recovery should produce modest growth for the Engineered Support Structures and Coatings segments. Continued good market conditions in Utility support a positive outlook. Expected growth in our Irrigation business will be driven by international markets, with modest growth in North America."

An audio discussion of Valmont's fourth quarter results will be available live by Telephone by dialing 1-877-493-2981 and entering Conference ID#:2874769 or via Webcast at 8:00 a.m. CST February 22, 2018 at https://engage.vevent.com/rt/valmontindustries_ao~2874769

A replay is available through the above link or by telephone (855) 859-2056 or (404) 537-3406, Conference ID#: 2874769 beginning February 22, 2018 at 10:00 a.m. CST through 12:00 p.m. CST on March 1, 2018. The Company's slide presentation for the call will be simultaneously available on the Investors page at www.valmont.com.

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 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.

 

 

 

 

 

 

 

 

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SOURCE Valmont Industries, Inc.