OMAHA, Neb., July 17 /PRNewswire-FirstCall/ -- Valmont Industries, Inc. , a leading global manufacturer of engineered support structures for infrastructure, mechanized irrigation equipment for agriculture, and a provider of coating services, reported second quarter sales of $497.1 million compared with $402.3 million for the same period of 2007. Net earnings for the second quarter were $37.3 million, or $1.41 per diluted share, versus second quarter 2007 net earnings of $26.9 million, or $1.03 per diluted share.
For the first six months of 2008, sales were $919.4 million versus $742.9 million in 2007. Valmont's first half net earnings were $67.0 million, or $2.55 per diluted share, compared with 2007 first half net earnings of $45.7 million, or $1.76 per diluted share.
Second Quarter Summary:
"Substantially stronger global demand for irrigation equipment led to record second quarter sales," said Mogens C. Bay, Valmont's Chairman and Chief Executive Officer. "Sales in our structural segments also increased due to the impact of acquisitions made earlier in the year and effective pricing actions to recover higher input costs.
"In our Engineered Support Structures Segment, sales were higher than last year as highway spending programs remained a priority for governments worldwide. Sales grew in North America despite concerns about reductions in state budgets. The acquisition of West Coast Engineering Group contributed meaningfully to segment results and is now being integrated with Valmont's operations. As a result of actions taken in 2007, North American specialty structures operations improved substantially compared to last year.
"In the Utility Support Structures Segment, sales increased due to price increases to recover higher raw material costs and the PennSummit acquisition that was completed in early 2008. PennSummit performed very well during the quarter, adding significantly to results while expanding our geographic footprint.
"Gains in the Coatings Segment sales primarily resulted from higher unit volumes and lower costs.
"The biggest challenge during the quarter was rapidly rising steel costs. Steel represents between 35% and 40% of Valmont's cost of goods sold. During the quarter, steel costs rose approximately 35%. This is the most dramatic increase in steel prices we have ever faced in one quarter. These inflationary pressures necessitated raising prices on most of our products. I am very pleased with the outstanding way our team managed through this period of rapid inflation. They acted quickly and appropriately to mitigate the impact of inflation on our results. Additionally, inflation led to an increase in the LIFO reserve of approximately $16 million during the quarter.
"As a result of strong markets, timely pricing actions to recover inflationary costs and improved operating leverage, consolidated operating income for the Company as a whole improved 1.6 percentage points to 12.7% of revenues."
Second Quarter Segment Review: Engineered Support Structures Segment (38% of 2nd Quarter Net Sales)
Structures for lighting and traffic, wireless communication and overhead signs, worldwide. Includes all support structures outside of North America.
Sales were $191.0 million, an increase of 19% over last year's $160.6 million second quarter levels. Sales increased in most global markets. The West Coast Engineering Group and Tehomet acquisitions accounted for approximately 45% of the sales increase over second quarter 2007 levels.
In North America, lighting and traffic sales surpassed last year's levels due to increased demand for structures funded through the federal highway program. This increase was largely offset by lower project sales and sales for residential lighting. Specialty structures sales also were higher as a result of improved demand for wireless communication structures.
In Europe, sales were higher mainly due to incremental sales from the Tehomet acquisition and favorable currency translation.
In China, sales were flat due to a decline in wireless communication sales, largely offset by higher utility and lighting sales. The temporary softness in the communication segment was driven by an industry-wide restructuring designed to promote competition. Valmont expects this change to create new opportunities, as the restructuring broadens Valmont's potential customer base.
Segment operating income increased 7.4% to $17.9 million and was 9.4% of segment sales. While operating income dollars increased, operating income percent for the segment declined, largely due to inflationary costs rising faster than pricing actions to recover those costs.
Utility Support Structures Segment (20% of 2nd Quarter Net Sales)
Steel and concrete structures for the North American electric utility industry.
Sales increased 13% to $101.3 million compared with $89.7 million in 2007. The growth in sales primarily reflects the acquisition of PennSummit in February and sales price increases to recover higher steel costs. While physical volumes shipped were slightly below second quarter 2007 levels, this was primarily the result of the timing of shipments. Order rates are strong and the backlog at the end of the second quarter is at record levels. The strong pace of orders is due to the continued investment in transmission and distribution infrastructure by electric utility companies. In their efforts to increase capacity and improve the reliability of the grid, the level of investment by utilities is high and project sizes are larger than in prior years.
Operating income increased 15% to $13.8 million and was 13.7% of segment sales, due to improved pricing and better factory performance.
Coatings Segment (8% of 2nd Quarter Net Sales)
Hot-dip galvanizing and other coatings services to protect against corrosion of steel and aluminum in North American markets.
Sales of $37.2 million were 5% above last year's $35.4 million mostly as a result of stronger demand from agricultural and petrochemical markets.
Segment operating income rose to $9.1 million, an increase of 54%, and was 24.4% of segment sales. Most of the gains in operating income resulted from improved factory efficiencies and lower costs. Additionally, a $650 thousand charge for disposal of equipment in the second quarter of 2007 contributed to favorable quarterly comparisons.
Irrigation Segment (32% of 2nd Quarter Net Sales)
Center pivot and linear move mechanized irrigation equipment and related service parts for agriculture in global markets.
Sales improved 48% to $159.7 million compared with $107.6 million in 2007. Irrigation equipment sales were driven by increased global demand for grains for food and biofuel use. The increase in demand led to higher crop commodity prices and higher farm income. Farmers increased their purchases of mechanized irrigation equipment to benefit from the enhanced productivity and water saving features of center pivot technology. While sales demand was broad-based through most markets, markets were particularly strong in North America, Brazil, Australia, and the Middle East. North American demand was also strong for aftermarket parts.
Valmont believes that the pressures on agriculture to support increased demand for feed grains worldwide have caused an important shift in the economics of agriculture. Previously, supply disruptions caused temporary price increases in grains that would be relieved when production increased in subsequent years. The current environment is demand driven, as population growth, dietary improvement and competing demands for biofuels create a much larger and more sustainable market. Valmont's mechanized irrigation equipment provides a way for farmers to increase crop production, while at the same time conserve water resources. This is expected to lead to continued growth in Valmont's irrigation business.
Segment operating income increased 68% to $28.0 million and was 17.5% of segment sales. The growth in operating income was due to the operating leverage that resulted from increased unit volume.
2008 Outlook:
"Our outlook for the second half of the year is positive," Mr. Bay said. "For the year, we now expect a revenue growth percentage in the mid-twenties, and we are still expecting operating income as a percent of sales to increase more than one percentage point.
"Current market trends are expected to continue through the second half of the year. In the Engineered Support Structures Segment, we believe infrastructure development in Europe and China should lead to increased sales. In North America, our outlook is for lighting and traffic product sales to remain steady as funding continues under the 2005 highway bill. Utility demand is expected to continue to be supported by the investment needed to add capacity and improve the reliability of the transmission grid. Current demand for coatings is firm. Going forward, coatings demand will be a function of the local economies in our service areas. In the Irrigation Segment, while the third quarter is the seasonally slowest for sales, the outlook is for better comparisons as global demand for feed-grains should remain strong.
"Looking beyond 2008, we believe Valmont is well positioned to benefit from global infrastructure development and the benefits mechanized irrigation provides in addressing the need for agriculture to increase feed-grain supply."
An audio discussion of Valmont's second quarter results by Mogens C. Bay, Chairman and Chief Executive Officer and Terry J. McClain, Senior Vice President and Chief Financial Officer, will be available live by telephone by dialing 1-877-493-2981 and entering Conference ID#: 32008444 or via the Internet at 8:00 a.m. July 18, 2008 CDT, by pointing browsers to: http://www.valmont.com/asp/investor_relations/ir6.asp. After the event you may listen by accessing the above link or by telephone. Dial 1-800-642-1687 or 706-645-9291, and enter the Conference ID#:32008444 beginning July 18, 2008 at 10:00 a.m. CDT through 12:00 p.m. CDT on July 25, 2008.
Valmont is the global leader in designing and manufacturing poles, towers and structures for lighting and traffic, wireless communication and utility markets, and a provider of protective coating services. Valmont also leads the world in mechanized irrigation equipment for agriculture, enhancing food production while conserving and protecting natural water resources. In addition, Valmont produces a wide variety of tubing for commercial and industrial applications.
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 OPERATIONS (Dollars in thousands, except per share amounts) (unaudited) Second Quarter Year-to-Date 13 Weeks Ended 26 Weeks Ended 28-Jun-08 30-Jun-07 28-Jun-08 30-Jun-07 Net sales $497,129 $402,257 $919,415 $742,939 Cost of sales 359,926 293,343 666,404 545,258 Gross profit 137,203 108,914 253,011 197,681 Selling, general and administrative expenses 73,833 64,362 139,175 119,715 Operating income 63,370 44,552 113,836 77,966 Other income (expense) Interest expense (4,709) (4,404) (9,182) (8,689) Interest income 877 500 1,498 1,130 Miscellaneous (514) 256 (1,858) (23) (4,346) (3,648) (9,542) (7,582) Earnings before income taxes, minority interest, and equity in earnings (losses) of nonconsolidated subsidiaries 59,024 40,904 104,294 70,384 Income tax expense 20,548 13,664 35,602 23,974 Earnings before minority interest, equity in earnings (losses) of nonconsolidated subsidiaries 38,476 27,240 68,692 46,410 Minority interest (1,243) (443) (1,686) (655) Earnings (losses) in nonconsolidated subsidiaries 31 164 (43) (66) Net earnings $37,264 $26,961 $66,963 $45,689 Average shares outstanding (000's) - Basic 25,823 25,497 25,763 25,459 Earnings per share - Basic $1.44 $1.06 $2.60 $1.79 Average shares outstanding (000's) - Diluted 26,377 26,107 26,306 26,018 Earnings per share - Diluted $1.41 $1.03 $2.55 $1.76 Cash dividends per share $0.105 $0.105 $0.210 $0.200 VALMONT INDUSTRIES, INC. AND SUBSIDIARIES SUMMARY OPERATING RESULTS (Dollars in thousands) (unaudited) Second Quarter Year-to-Date 13 Weeks Ended 26 Weeks Ended 28-Jun-08 30-Jun-07 28-Jun-08 30-Jun-07 Net sales Engineered Support Structures $190,960 $160,588 $340,398 $285,831 Utility Support Structures 101,301 89,649 202,472 170,130 Coatings 37,200 35,390 72,328 69,029 Infrastructure products 329,461 285,627 615,198 524,990 Irrigation 159,667 107,562 290,445 200,479 Other 30,803 32,444 56,251 63,953 Less: Intersegment sales (22,802) (23,376) (42,479) (46,483) Total $497,129 $402,257 $919,415 $742,939 Operating Income Engineered Support Structures $17,990 $16,743 $28,072 $25,423 Utility Support Structures 13,833 12,044 28,506 21,595 Coatings 9,085 5,896 15,631 11,100 Infrastructure products 40,908 34,683 72,209 58,118 Irrigation 28,001 16,657 50,396 28,902 Other 5,288 5,686 9,700 10,229 Corporate (10,827) (12,474) (18,469) (19,283) Total $63,370 $44,552 $113,836 $77,966 Valmont has aggregated its business segments into four reportable segments as follows. Engineered Support Structures: This segment consists of the manufacture of engineered metal structures and components for the lighting, traffic and wireless communication industries worldwide and certain international utility businesses. Utility Support Structures: This segment consists of the manufacture of engineered steel and concrete structures primarily for the North American utility industry. Coatings: This segment consists of galvanizing and other coating services in North America. Irrigation: This segment consists of the manufacture of agricultural irrigation equipment and related parts and services worldwide. In addition to these four reportable segments, Valmont also has other businesses that individually are not more than 10% of consolidated net sales. These businesses, which include the manufacture of tubular products and industrial fasteners, are reported in the "Other" category. VALMONT INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands) (unaudited) 28-Jun-08 30-Jun-07 ASSETS Current assets: Cash and cash equivalents $64,835 $47,924 Accounts receivable, net 306,887 247,929 Inventories 250,247 218,197 Prepaid expenses 25,764 11,133 Refundable and deferred income taxes 28,240 18,645 Total current assets 675,973 543,828 Property, plant and equipment, net 259,384 217,135 Goodwill and other assets 270,735 196,103 $1,206,092 $957,066 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current installments of long-term debt $61,820 $22,166 Notes payable to banks 20,588 17,900 Accounts payable 158,522 103,086 Accrued expenses 110,530 84,024 Dividend payable 3,397 2,708 Total current liabilities 354,857 229,884 Long-term debt, excluding current installments 181,409 206,235 Other long-term liabilities 79,158 69,633 Shareholders' equity 590,668 451,314 $1,206,092 $957,066
