Industry News

Valmont Second Quarter Net Sales Rise 33% - Operating Income Increases 38%

Published on 2004-07-21. Author : SpecialChem


Omaha, NE -- Valmont Industries, Inc. (NYSE: VMI), a leading global manufacturer of engineered support structures for infrastructure and mechanized irrigation equipment for agriculture and a provider of coating services and tubular products, reported sales for the second quarter of $266.0 million compared with $200.7 million for the same period of 2003. Second quarter 2004 net earnings, which include a $6.1 million after-tax charge to prepay debt (25 cents per diluted share), were $2.8 million, or 12 cents per diluted share, versus second quarter 2003 net earnings of $6.4 million, or 26 cents per diluted share.

For the first six months of 2004, sales were $481.9 million versus $408.0 million in 2003. Valmont's first half net earnings were $8.3 million, or 34 cents per diluted share, compared with 2003 first half net earnings of $13.7 million, or 56 cents per diluted share.

Second Quarter 2004 Review:

"Profitability improved in all of our segments despite unprecedented increases in steel prices," said Mogens C. Bay, Valmont's Chairman and Chief Executive Officer. "I believe that our people managed well through turbulent steel market conditions. They reacted quickly and prudently to rapidly rising steel costs, although in many cases steel prices went up faster than we could increase our sales prices, including backlog orders with longer lead times. This put pressure on margins. In our irrigation business, quarterly sales set a record due to a strong spring selling season in North America. Our tubing business had significant sales gains due to price increases that reflected higher steel costs, and strong industrial and agricultural demand. This increase in sales and improvement in factory performance drove stronger earnings. Performance in our structures businesses was aided by improving market conditions in the utility and wireless markets and very strong markets in China. The addition of Newmark to Valmont's operations on April 16, 2004 contributed to the growth in sales and earnings. The integration of Newmark is going well and we are in the process of aligning our organizational structure to best address the needs of our utility customers. In our coatings business, an improvement in galvanizing volumes resulted in profitability gains even though anodizing sales were down. Overall, market conditions appear to be strengthening in our businesses that had experienced weakness in recent quarters."

Second Quarter Summary-Agricultural Markets:

In the Irrigation Segment, second quarter sales were $87.6 million, a 23% increase over 2003. Operating income for the segment of $12.0 million was a 24% improvement over 2003.

Sales and earnings improved in North America due to a strong spring selling season. To recover significantly higher steel costs, the Company had to increase prices on a regular basis throughout the quarter. In addition to a generally stronger farm economy, farmers placed orders early in the season to avoid further price increases, which helped drive demand. Internationally, sales were even with last year and profitability declined primarily due to sales mix. Sales rose in Europe due to a strong market in Spain. In Brazil, sales and earnings were strong, although below last year's record levels, as government financing programs are being implemented at a slower pace this year and price competition increased in the market. Sales declined in South Africa as drought conditions eased and local crop prices were lower than last year. For the segment, the improved profitability was driven by higher North American sales and better factory utilization.

In the Tubing Segment, sales rose sharply to $24.1 million, a 72% increase. The sales increase reflects both the pass-through of higher steel prices and volume increases due to strong agricultural and industrial demand. Operating income of $3.4 million more than doubled from last year due to the higher volumes and improvements in manufacturing efficiencies.

Second Quarter Summary - Infrastructure Markets:

Sales in the Engineered Support Structures Segment were $120 million, an increase of 29% from 2003 levels. Operating income for the segment was $6.0 million, a 27% increase from last year's weak levels.

Sales of lighting and traffic products in North America rose primarily due to customers taking product ahead of anticipated price increases. The U.S. lighting market is showing signs of uncertainty as state and local governments await passage of new federal highway spending legislation. Profitability for the lighting and traffic business was negatively impacted by rising steel prices. For items in the backlog and long lead time products, steel costs rose faster than could be recovered through price increases. In Europe, sales increased reflecting higher prices and an improvement in the European economy. Profitability was impacted by severance charges in connection with lowering our cost structure in the European operation. Lighting sales improved in China due to a strong economy and ongoing infrastructure development programs. While profitability remains strong in China, rising steel costs compressed margins.

Specialty Structure sales increased as Valmont's sign structures were introduced to more states. Global sales of wireless communication products were higher. In North America, demand for wireless communication poles, towers and components rose as carriers increased their capital spending budgets for the first half of 2004. In China, sales of wireless communication products doubled as the two leading service providers expanded their networks at a brisk pace. The specialty structures business returned to profitability in the second quarter largely due to improved sales and market conditions in North America and the strong results in China.

Valmont's steel utility business showed significant improvement over last year. In North America, sales rose substantially as selling prices reflected higher steel costs and improved volumes. Strengthening demand led to a better pricing environment. Utility sales in China doubled due to heavy demand for electrical transmission infrastructure.

Valmont has added Concrete Support Structures as a reporting segment as a result of the acquisition of Newmark on April 16, 2004. The Concrete Support Structures Segment had solid sales and earnings performance, as demand remains strong for concrete utility structures throughout the Southeast and Southwest. Demand for concrete utility structures is increasing as a result of increased spending by utilities on capital and maintenance projects to improve the reliability of the electrical grid system. To streamline its operating structure and better serve utility customers, the Company is realigning its steel and concrete utility organizations.

Sales in the Coatings Segment were even with last year at $23.6 million. Operating income rose 75% to $2.6 million. Anodizing sales were lower due to a decline in demand from a large customer. Galvanizing sales rose on higher internal volumes and greater industrial demand. Profitability improved due to the increased galvanizing volumes, which allowed for more efficient operations. In the past, the Company has indicated that increased volumes should lead to improved operating leverage in the galvanizing business as fixed factory expenses are better absorbed.

Second Half Outlook:

Commenting on the outlook for the rest of the year, Mr. Bay said, "Although we anticipate tight steel supplies and pricing pressure to continue, we expect favorable sales and earnings comparisons. In our Engineered Support Structures Segment, we expect sales gains across all product lines. Our backlogs are growing in our infrastructure businesses and we have increased our steel inventories to help cover that demand. Demand for concrete utility structures is strengthening and the Newmark acquisition should continue to perform well. For our coatings business, we anticipate an improvement in profitability. In our irrigation business, our results will depend on conditions in the new fall selling season, and at this time it is too early to tell what those trends will be. In our tubing business, we expect continued strong operating performance. Overall, we believe business conditions are improving, and this should result in a stronger performance in the second half of the year."

Source: Valmont Industries, Inc.

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