Valmont Industries, Inc. (VMI)
Q1 2010 Earnings Call
February 16, 2010 9:00 am ET
Jeff Lauden – Manager, Investor Relations
Mogens Bay – Chairman, Chief Executive Officer
Mark Jaksich – Vice President, Corporate Controller
Terry McClain – Senior Vice President, Chief Financial Officer
Arnold Ursaner – CJS Securities
Brent Theilman – D. A. Davidson
James Bank – Sidoti & Company
Ned Borland – Hudson Securities
Jonathan Bratz – Kansas City Capital
Steven Gambuzza – Longbow Capital
Michael Coleman – Stern, Agee
Previous Statements by VMI
» Valmont Industries, Inc. Q3 2009 (Qtr End 9/30/09) Earnings Call Transcript
» Valmont Industries, Inc. Q4 2008 Earnings Call Transcript
» Valmont Industries Inc. Q3 2008 Earnings Conference Call Transcript
I would like to welcome everyone to the Valmont Industries first quarter earnings conference call. (Operator Instructions) I will now turn the conference over to Mr. Jeff Lauden, Manager of Investor Relations.
Welcome to the Valmont Industries first quarter 2010 earnings conference call. With me today are Mogens Bay, Chairman and Chief Executive Officer, Terry McLain, Senior Vice President and Chief Financial Officer and Mark Jaksich, Vice President and Corporate Controller.
Before we begin, please note that this discussion is subject to our disclosure on forward-looking statements which applies to today’s talk and will be read in full at the end of the call. The instructions for accessing a replay of the call can be found in our press release.
I would now like to turn the floor over to our Chairman and Chief Executive Officer, Mogens Bay.
Good morning everybody and thank you again for joining us. Let me begin with first quarter highlights. Sales decreased 19% and net earnings declined 54%. Second, operating income in the utilities portfolio segment decreased 64% on a 38% decline in sales.
Third, the results in the Engineered Support Structures segment were weaker, impacted by slow global markets. Fourth, global irrigation results were somewhat improved, and fifth, unusually harsh weather conditions throughout the Northern Hemisphere, interfered with production, shipping and the availability of our customers to store products. Sixth, the after tax expense associated with the Delta acquisition was approximately $3.3 million for the quarter.
Before turning to the quarterly performance by segment, I’d like to make a few comments about our proposed offer for Delta PLC in the U.K. To recap the rational for the acquisition, their product lines either fit perfectly with ours such as galvanizing and poles, or are potential new growth platforms such as highway safety products and access systems.
We also like the fact that they operate in the fast growing Southeast Asia economy and the resource driven Australian economy where our footprint today are limited. In support of this transaction, we last week issued $300 million of senior unsecured notes with a ten-year maturity and a 6 5/8 coupon.
Delta’s Board has stated that Valmont’s offer represents the most attractive opportunity for their shareholders to realize value of their investment. Since we remain in the offer period, we are limited in what we can say about the transaction and must abide by the regulatory disclosure rules, any further details about the transactions can be found in the offer document which is posted on Valmont’s and Delta’s websites.
Let’s now review the first quarter results. I’ll begin with the Utility Support Structure segment where sales decreased 38% to $113 million and operating income fell 64% to $14.7 million or 13% of sales.
As we discussed in the fourth quarter conference call, this year’s Utility business stands in sharp contrast to last year. This time last year, we had a record backlog that included large project orders. We were in a favorable pricing environment and raw material costs were declining.
This year our backlog is one-half what it was last year. We have fewer project orders, more competitive pricing environment and rising steel costs. Some utilities in the space of declining revenues have cut back capital investment for 2010 and moved projects later for ’10 to ’11 and beyond.
In our discussion with utility customers, they affirm their commitment to continue the necessary investments to build and upgrade the North American transmission grid. The projects on the drawing board should be implemented and are merely delayed. Nothing has changed the necessity to improve the capacity and reliability of the grid.
In our International market, sales were off significantly from last year. We’ve been fulfilling shipments on project orders for Africa from some of our plants in Europe and China and sales within China were higher than last year. Economic growth cannot take place without reliable supply of electricity.
Valmont’s global utility business is favorably positioned to participate in the build out and developing economies and upgrades to the transmission infrastructure in developing economies. At the beginning of this year, our utility division made the transition into a global division. This will allow our utility management to put more focus on the significant international opportunities that exist in transmission, substation and distribution support structures.
In the Engineered Support Structure segment, sales decreased 21% to $107 million. Operating income declined 59% to $2.6 million or 2.4% of segment sales, mainly due to lower volume, i.e., deleverage.
In North America, lighting and traffic sales were lower. State budgets are under stress from lower tax revenues. This constrains a State’s ability to access Federal matching funds for their roadway projects. The lack of a multi-year highway bill leads to a reluctance to begin larger multi-year projects.
The recent extension of the 2005 highway bill until the end of this year will help though the annual funding is significant and Congress commitment to infrastructure tied to job growth is a positive sign for our industry.