Valmont Industries' CEO Discusses Q2 2012 Results - Earnings Call Transcript

Valmont Industries, Inc. (VMI)

Q2 2012 Earnings Call

July 25, 2012 9:00 a.m. ET

Executives

Jeffrey S. Laudin - Investor Relations

Mogens C. Bay - Chairman and Chief Executive Officer

Mark C. Jaksich - Vice President and Controller

Terry McClain, Senior Vice President and Chief Financial Officer

Analysts

Schon Williams - BB&T Capital Markets
Carter Shoop – KeyBanc Capital Markets
Brent Thielman – D.A. Davidson
Arnold Ursaner – CJS Securities

Brian Drab – William Blair

Jeffrey Beach – Stifel Nicolaus

Jon Braatz – Kansas City Capital

Presentation

Operator

Good morning. My name is Holly, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Valmont Industries, Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator Instructions)

I'll now turn the call over to Jeff Laudin. Please go ahead, sir.

Jeff Laudin

Thank you, Holly. Welcome to the Valmont Industries' Second 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 C. Bay

Thank you, Jeff and 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. The main driver of second quarter results was substantial increase of Utility Support Structure segment sales and operating income, record second quarter Irrigation segment sales and operating income, and record Coatings operating income.

The quality of our earning improved with operating income as percentage of sales increasing from 10.3% to 12.7%. We are pleased with this level of operating income particularly considering our largest segment, the Engineered Infrastructure Products segment continued to face very difficult market conditions in the Lighting and Traffic businesses, particularly in the US and in Europe.

Profitability in the Utility Support Structure segment more than doubled and were 12.5% operating income as a percentage of sales. We absorbed in the quarter a significant financial penalty in connection with one large order experiencing productivity and quality issues. Absent these costs, operating income as a percentage of sales would have been in the mid-teens, which is the level of operating income we’d expect for the balance of the year.

The outlook for our Utility business remains very strong, and we continue to get confirmation from the marketplace that this high level of activity will last for a number of years. We are adding capacity in Oklahoma, in Pennsylvania, in Texas, and in Mexico. These additions are all part of, or adjacent to current facilities. We will continue to rely on some of our overseas plants when economic considerations, such as exchange rates, freight costs, etc, allows us to do so.

Our Irrigation business had a great quarter exceeding last year’s record second quarter both as it relates to sales and operating income. In 2011, we had a later selling season than we experienced in 2012 where we benefited from favorable weather conditions in the first quarter of this year. Currently, summer sales are following a more usual pattern, less business from storm damage, but continued strong part sales as equipment is being utilized aggressively in this very dry environment in North America.

Sales in our International markets were also up as compared to the same period in 2011. In North America, we are experiencing very widespread drought conditions. Such an environment would typically indicate a strong fall selling season. At this time, it is too early to determine whether revenues in the second half of the year will match, or surpass last year's record performance. One concern would be if this drought continues for much longer, it could lead to water pumping restrictions in certain parts of the country.

Our Coatings businesses continue to operate very well. Sales increases in North America basically offset lower revenue in the Asia-Pacific markets. We are seeing a very high quality level of our earnings in this segment benefiting from moderating zinc prices and lower energy costs. Going forward, we expect strong performance from this segment for the rest of the year and we would be pleased if we could match the recent earnings quality.

We have commenced operations in India at our galvanizing facility there, which is built adjacent to our pole plant. And we expect to generate meaningful custom galvanizing in that country, but it will take time to build up volume.

The Engineered Infrastructure Products segment had increased revenue and operating income. In the US, we welcomed the passage of a two year Highway Bill. We would much prefer a longer bill enabling local governments more visibility, but is a start and demonstrates an understanding on both sides of the aisle of the importance of this funding. While the two-year bill reduces uncertainty and probably improves the mood of the market, we do not expect much benefit in the near-term.

Other areas of our North American Structures business improved. With the AT&T and T-Mobile merger off the table, our Wireless Communications and Components businesses saw a meaningful improvement in revenue and earnings. We also saw some improvement in the Commercial Lighting market and we added additional revenue from internal demand for utility structures.

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