OMAHA, Neb., Oct. 23, 2014 /PRNewswire/ — Valmont Industries, Inc. (NYSE: VMI), a leading global provider of engineered products and services for infrastructure and mechanized irrigation equipment for agriculture, reported third quarter sales of $765.7 million compared with $778.0 million for the same period of 2013. Third quarter 2014 operating income was $87.8 million versus $109.9 million in 2013. Third quarter net income was $23.6 million versus $56.5 million in 2013, or $0.92 in diluted earnings per share compared to$2.10 in 2013. Third quarter net income per diluted share as adjusted for significant non-recurring items was $1.92 for the 2014 third quarter and $2.41 for the 2013 third quarter.
The Company completed a refinancing of its long-term debt in the third quarter. The Company issued $250 million of 5.0% senior notes due 2044 and $250 million 5.25% senior notes due 2054. A portion of the proceeds from the sale of the notes were used for a partial tender offer to repurchase approximately $200 million of existing senior notes that are due in 2020. The tender offer resulted in a non-recurring expense of $38.7 million ($24.2 million or $0.95 per diluted share after tax for the quarter). Last year’s third quarter included an $8.3 million, (or $0.31 per diluted share) reduction in net earnings arising from a change in the U.K. tax rate. (See Regulation G reconciliation table on last page.)
For the first nine months of 2014, sales were $2,360.0 million versus $2,476.3 million in 2013. Valmont’s nine month net earnings were$143.5 million, or $5.43 per diluted share, compared with 2013 nine month net earnings of $223.6 million, or $8.31 per diluted share. Nine month net income per diluted share as adjusted for significant non-recurring items was $6.53 for the 2014 third quarter and $8.46for the 2013 third quarter.
Third Quarter Review:
“It was a particularly weak quarter in the Utility Support Structures Segment. Underutilization of capacity and price weakness in certain markets led to a 59% decline in segment profitability. We expect significant fourth quarter revenue and profitability improvements compared with third quarter results,” said Mogens C. Bay, Valmont’s Chairman and Chief Executive Officer. “Profitability improved in the Engineered Infrastructure Products Segment, benefiting from acquisitions and continuing operational improvements. In the Irrigation Segment, operating income remained strong at 15.4%, somewhat lower than last year’s exceptional third quarter results. International Irrigation sales and profitability improved. The Coatings Segment operating income was a solid 20.2% despite reduced volumes in Australia. Consolidated operating income was 11.5% of sales, compared with last year’s record third quarter result of 14.1%.”
Third Quarter Segment Review:
Infrastructure
Engineered Infrastructure Products Segment (37% of 3rd Quarter Sales)
Lighting, traffic and highway safety products, wireless communication structures and components, industrial gratings, access systems and wind energy and oil and gas exploration applications in global markets.
Third quarter sales were $294.9 million, a 13.3% increase over 2013. Sales gains were supported by the addition of $41.3 million in revenue from the March 2014, acquisition of Valmont-SM, a European manufacturer of offshore structures and components for the wind and energy industries.
In North America, sales of lighting and traffic structures increased, while sales of wireless communication products were slightly lower.
In Europe, lighting and traffic structure sales were lower in all regions except the U.K.
In the Asia-Pacific region, engineered access system sales were comparable to last year, with improved activity in Southeast Asian markets offsetting declines in Australia due to mining weakness. Highway safety product sales improved. In China, wireless communication structure sales were higher and intercompany utility sales declined.
We are pleased with the improved segment results especially in light of constrained spending on infrastructure due to economic weakness in Europe, a decline in the mining sector in Australia, a reduced pace of economic growth in China, and the lack of a new highway bill in North America. Longer term, we believe the pace of investment in infrastructure should increase, since infrastructure spending contributes to the growth of an economy, global competitiveness and employment.
Operating income increased 29% to $33.2 million, or 11.3% of segment sales. The increase was the result of operational improvements and the contribution from Valmont-SM. In addition, a $4.3 million accrual made for contingent purchase consideration at the time of the Locker acquisition was reversed during the third quarter.
Utility Support Structures Segment (23% of 3rd Quarter Sales)
Steel and concrete structures for the global electric utility industry.
Sales of $181.2 million were 21% lower than 2013, due to a reduction in North American volumes, including lack of large projects. The resulting sales mix included a greater proportion of smaller projects, which are subject in some cases to highly competitive pricing.
Capacity added in the industry last year has relieved extreme tightness in the structures market, bringing supply into better balance with demand, resulting in increased price competition in some market segments.
The long term drivers of North American utility demand remain in place. There is a need to upgrade transmission infrastructure to meet the goals of improved reliability and increased capacity. Alternative energy sources drive additional needs for transmission capacity. These factors, combined with a regulatory environment that encourages greater investment in the transmission grid should lead to continued demand for Valmont’s utility support structures.
Utility Support Structures Segment operating income declined 59% to $17.0 million, or 9.4% of segment sales. The decrease in operating income was due to reduced volumes and related deleverage of fixed operating costs, a less favorable sales mix, and a more competitive pricing environment.
Coatings Segment (11% of 3rd Quarter Sales)
Hot-dip galvanizing, and other coatings to protect against corrosion of steel and aluminum in global markets.
Global Coatings Segment sales of $86.7 million were 3% lower than last year.
Operating income of $17.6 million was 11% below last year at a solid 20.2% of segment sales, despite increased zinc costs and weakness in Australia. The reduction in operating income was due to volume declines and the associated fixed cost deleverage inAustralia. Benefitting third quarter operating income were $2.5 million of insurance proceeds related to a fire at a facility last year.
Third Quarter Segment Review Agriculture:
Irrigation Segment (22% of 3rd Quarter Sales)
Center pivot and linear move mechanized irrigation equipment and parts for agriculture in global markets.
Irrigation Segment sales were virtually unchanged from last year at $174.3 million. Sales in North American markets declined modestly, offset by increased international sales.
International demand improved, benefitting from broad geographic coverage and increased investments in farm productivity.
The long term drivers of demand for irrigation equipment remain quite strong, as global population growth and changing dietary preferences increase the demand for food. Mechanized irrigation equipment is a vital part of the solution to global water and food challenges with its ability to significantly reduce the amount of water used in agriculture and improve farm productivity.
Operating income declined 14% to $26.9 million, or 15.4% of segment sales. The decline in operating income was primarily due to the slightly lower sales in North America and the associated deleverage of fixed factory and SG&A costs.
Outlook:
“In the Utility Support Structures Segment, we expect significant fourth quarter sales improvements and a return to double digit operating income percent, compared to the third quarter, although well below last year’s fourth quarter levels. This is supported by our existing backlog and current order flow. In the Irrigation Segment, the fall harvest is not complete and until then, growers are not inclined to visit dealers, resulting in a later start to the selling season. We expect our earnings per diluted share for the year will be in the range of $8.55 to $8.65 per share, which includes the impact of share repurchase, excludes the $0.18 year-to-date fair value adjustments for Delta EMD and excludes the $0.91 year-to-date expenses associated with our debt refinancing,” concluded Mr. Bay.
An audio discussion of Valmont’s third quarter results by Mogens C. Bay, Chairman and Chief Executive Officer, and Mark C. Jaksich, Executive Vice President and Chief Financial Officer, will be available live by telephone by dialing 1-877-493-2981 and entering Conference ID#: 50531894 or via the Internet at 8:00 a.m. CDT October 24, 2014, by pointing browsers to: https://us.meeting-stream.com/valmontindustries_102414. After the event you may listen by accessing the above link or by telephone. Dial 1-855-859-2056 or 404-537-3406, and enter the Conference ID#: 50531894 beginning October 24, 2014 at 10:00 a.m. CDT through 12:00 p.m. CDT on October 31, 2014.
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.