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Valmont's Operating Income Increases 12% as Net Earnings Achieve Record Second Quarter Levels

Published on 2005-07-19. Author : SpecialChem

OMAHA, Neb. -- Valmont Industries, Inc. (NYSE: VMI - News), a leading global manufacturer of engineered support structures for infrastructure, mechanized irrigation equipment for agriculture, and a provider of coating services and tubular products, reported sales for the second quarter of $265.1 million compared with $266.0 million for the same period of 2004. Second quarter 2005 net earnings were $10.4 million, or 42 cents per diluted share, versus second quarter 2004 net earnings of $2.8 million, or 12 cents per diluted share. Second quarter 2004 net earnings included a $6.1 million after-tax charge related to debt prepayment costs.

For the first six months of 2005, sales were $530.9 million versus $481.9 million in 2004. Valmont's first half net earnings were $17.3 million, or 69 cents per diluted share, compared with 2004 first half net earnings of $8.3 million, or 34 cents per diluted share.

Second Quarter Review:

"We are pleased with our second quarter results, as we achieved record earnings despite a significant decline in irrigation sales and profitability," said Mogens C. Bay, Valmont's Chairman and Chief Executive Officer. "Sales increases in the Engineered Support and Utility Support Structures Segments offset the decline in Irrigation Segment sales. Sales in the Coatings and Tubing Segments were modestly below last year's levels. The significant factors that led to the improvement in operating income were a better pricing environment, the impact of acquisitions, and a strong performance in the European structures operations. This quarter's results highlight the benefit of our diversification geographically and across infrastructure and agricultural markets, which helps us to better weather the cyclical declines that occur from time to time in certain of our businesses."

Second Quarter Summary - Infrastructure Markets:

Sales in the Engineered Support Structures Segment were $120.4 million, an increase of 12% from 2004 levels. Operating income for the segment increased 68% to $10.7 million. In North America, higher sales largely reflect improved pricing and the impact of acquisitions in 2004. In Europe, improved market conditions and new product introductions resulted in sales and profitability increases.

In North America, sales of lighting and traffic products were higher than last year. The lack of a new federal highway bill, despite numerous extensions to the existing bill, most likely created uncertainty and dampened new orders for lighting and traffic products. Commercial lighting sales decreased due to a decline in non-residential construction in North America.

Sales of wireless communication products were lower in North America as the Company took a disciplined approach to product pricing in a competitive marketplace. Sign structure sales improved due to increased market demand and the acquisition of Sigma Industries, an overhead sign structure company, during the third quarter of 2004.

In China, lower sales of wireless communication structures were offset by higher sales of utility structures. Valmont's structures plant in Shanghai is operating near capacity and construction of a second plant has commenced in southern China.

Utility Support Structures Segment sales increased 12% to $42.9 million and operating income more than doubled to $3.6 million, reflecting improved margins for steel utility structures and the addition of Newmark on April 16, 2004. Order flows reflect firm demand for steel and concrete utility structures in North America due to increased spending by utilities for capital and maintenance projects for upgrades to the electrical transmission grid. The Utility Support Structures Segment has a solid backlog going into the second half of the year.

Coatings Segment sales of $21.2 million were 10% lower than last year's second quarter due to lower anodizing sales and a decline in internal volumes. Operating income for the segment of $2.1 million was 19% below last year. Rapidly rising natural gas costs and higher zinc costs dampened profitability.

Second Quarter Summary - Agricultural Markets:

In the Irrigation Segment, second quarter sales were $65.4 million, a 25% decrease from last year's record second quarter results. Operating income for the segment declined 37% to $7.5 million due to lower volumes and reduced factory utilization. Cost cutting measures were taken during the quarter. In North America, demand fell substantially due to lower crop prices and inflation in energy and fertilizer costs for growers. Many farmers use large amounts of diesel fuel and prices have risen to record high levels. Certain crop fertilizers are produced as a by-product in the production of natural gas, where prices are also fluctuating in tandem with crude oil. In international markets, sales levels increased in the smaller markets while declining in major international markets largely due to lower world crop prices and increased energy costs. Valmont believes the long-term economic and water saving benefits of mechanized irrigation continue to be compelling.

In the Tubing Segment, sales were 6% lower at $22.7 million due to lower volumes and an increased competitive environment. Operating income increased 14% to $3.9 million reflecting an improved product mix and lower administrative costs.

2005 Outlook:

Commenting on the outlook for the second half of 2005, Mr. Bay said, "We expect better pricing in the infrastructure businesses to lead to improved profitability in the second half of the year compared to the same period last year. We have a strong backlog in our utility business. We remain optimistic about the enactment of new highway funding legislation, which should provide a good long-term platform for growth in our lighting and traffic business. In our irrigation business, results will depend on growing conditions and the resulting commodity prices in our key markets. In the meantime, we have taken steps to lower costs in the Irrigation Segment. We believe that for the corporation as a whole, we will have a positive earnings comparison also for the second half of the year."

An audio discussion of Valmont's second quarter results by Valmont officers, Mogens C. Bay, Chairman and Chief Executive Officer, and Terry J. McClain, Senior Vice President and Chief Financial Officer, will be available live via the Internet at 8:00 a.m. July 19, 2005 CDT.

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.

Source: Valmont Industries, Inc.


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