Valmont Industries' CEO Discusses Q4 2011 Results - Earnings Call Transcript

Valmont Industries, Inc. ( VMI)

Q4 2011 Earnings Call

February 15, 2012 9:00 am ET

Executives

Jeff Laudin - Manager of IR

Mogens Bay - Chairman and CEO

Terry McClain - SVP and CFO

Mark Jaksich - VP and Corporate Controller

Analysts

Julian Mitchell - Credit Suisse

Arnie Ursaner - CJS Securities

Carter Shoop - KeyBanc

Schon Williams - BB&T Capital Markets

Brian Drab - William Blair

Jeff Beach - Stifel Nicolaus

Taryn Kuida - D. A. Davidson

Presentation

Operator

At this time, I would like to welcome everyone to the Valmont Industries' fourth quarter earnings conference call. (Operator Instructions) I would now like to turn the call over to Mr. Jeff Laudin, Manager of Investor Relations.

Jeff Laudin

Welcome to the Valmont Industries' fourth quarter earnings conference call. With me today are Mogens Bay, Chairman and Chief Executive Officer; Terry McClain, Senior Vice President and Chief Financial Officer; and Mark Jaksich, Vice President and Corporate Controller.

Before we begin please note, 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 this 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.

Mogens Bay

Good morning, everyone, and thank you for joining us. I trust you have all read the press release, so I will focus on some of the highlights for the quarter and for the year. The main drivers of fourth quarter operating results were significant sales increases in the irrigation and utility businesses and great operating leverage in the Utility Support Structures, Irrigation and Coatings segments.

One-time items previously discussed in December were noteworthy to our reported results. Excluding the one-time events, fourth quarter earnings per share were $1.83. In the Irrigation segment, positive momentum driven by a strong farm economy continued during the fourth quarter.

Favorable weather conditions and an early harvest in North America bolstered already strong farmer sentiment which further benefited sales. In international markets, the same drivers of firm commodity prices with high relative farm income supported our business and led to widespread demand in almost all of our major markets.

Positive comparisons in the Utility Support Structures segment resulted from increased volumes and operating leverage. The utility market continues to strengthen and grow. As a result, new players from other industries are entering the marketplace, and as consequence the pricing environment while improving remains challenging.

Sales in Engineered Infrastructure Product segment rose modestly. Operating margins, however, did not follow suit and remained unsatisfactory. They also reflect the previously mentioned one-time charges in the quarter.

Operating margins remain under pressure largely due to a continuation of weak demand and a difficult pricing environment. A bright spot in this segment is the positive contributions of the former delta businesses in Asia-Pacific, which are operating well.

Our North American Coatings business benefited from higher industrial demand, including demand from our other segments. International Coatings revenues and earnings improved, due to a favorable business environment in Australia and Asia.

Turing to other financial measures, you will notice that the corporate expenses were higher than last year. The major reason for this are increased incentive compensations, consulting cost related to the company's legal entity restructuring and normal adjustments that take place in the fourth quarter.

Going forward, we would expect corporate expenses to run around $12.5 million to $13.5 million for the quarter. The tax rate for the quarter were out of the one-time items, would have been approximately 33%, which is what we expect on a go-forward basis. Inventory increased compared to last year, due to the higher activity levels in Irrigation and Utility.

Depreciation and amortization for the quarter was $22 million and capital expenditures were $37 million, putting the annual depreciation at $75 million and total capital expenditures for the year at $83 million. At the current time we are expecting depreciation at $70 million and capital expenditures of $75 million in 2012.

The full year results reflect many of the same dynamics as the quarterly results. Irrigation market has strong fundamentals, good commodity prices and record farm income. Revenue in the Utility business grew over 30% driven by renewed investment in the North American transmission grid, somewhat offset by lower activity levels in international markets.

The Coating segment had good results over the year, reflecting stronger than expected industrial demand in our markets and improved internal demand. A full year of contribution from the former delta businesses further contributed to our results.

The biggest challenges we faced in 2011 was weak markets in our global lighting and traffic businesses, due to pressure on government funding for infrastructure. Pricing became very competitive and an increase in steel cost in the first part of 2011, put further pressure on profitability.

Yearend is a good time to reflect on the soundness of our strategy as a company. Nearly two decades ago, we put together Valmont's strategy. It has not changed since then. It has served us well, delivering approximately 15% compounded return to shareholders over that period of time.

It's easy to communicate and focused strategy is one of leverage. We leverage what we do well. We take products we know well to new markets. We add new products to markets we know well and we take capabilities and build businesses along them. We focus on two major markets, agriculture and infrastructure, which have strong, global and enduring drivers and we have established strong leadership positions.

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