Valmont Reports Fourth Quarter and Full Year 2018 Results

OMAHA, Neb., Feb. 20, 2019 /PRNewswire/ -- Valmont Industries, Inc. (NYSE: VMI), a leading global provider of engineered products and services for infrastructure development and irrigation equipment and services for agriculture, today reported financial results for the fourth quarter and full year ended December 29, 2018.

Fourth Quarter 2018 Highlights (all metrics compared to fourth quarter 2017 unless otherwise noted)

• Revenues of $697.4 million declined 2.5%, as higher sales in the Engineered Support Structures and Coatings segments were offset by lower project sales in the Utility segment and International Irrigation markets, and $13.0 million of unfavorable currency translation impact
• GAAP operating income was $36.3 million or 5.2% of sales; adjusted¹ operating income of $66.1 million, or 9.5% of sales was 3.5% higher
• 2018 GAAP diluted EPS was $0.80 in 2018 compared to ($0.16) in 2017; adjusted¹ diluted EPS was $1.87 in 2018 compared to $1.67, an increase of 12.0%
• Strong operating cash flow of $85.0 million, improved considerably over prior quarters
• Repurchased 229,000 shares of company stock for $27.9 million, at an average price of $121.87 per share
• As part of our Operations Transformation, the Company is ceasing manufacturing at a Utility structures facility in Hazleton, PA, curtailing operations at an Engineered Support Structures facility in the EMEA region, and exiting the industrial product line in its Access Systems business

Full Year 2018 Highlights (all metrics compared to full year 2017 unless otherwise noted)

• Full Year revenues of $2.8 billion were slightly higher, led by sales growth in the Engineered Support Structures and Coatings segments
• Higher average selling prices later in the year across all segments were offset by lower International Irrigation volumes, and lower Utility volumes due to smaller structure sizes
• GAAP operating income was $202.3 million or 7.3% of sales; adjusted¹ operating income was $269.4 million, or 9.8% of sales, comparable to last year
• Operating income growth was partially offset by approximately $10.0 million of LIFO inventory valuation expense, $4.2 million more than 2017
• GAAP diluted EPS was $4.20, a decrease of 17.8%; adjusted¹ diluted EPS of $7.59 increased 8.9%; the impact of LIFO expense decreased full-year EPS by $0.33
• Deployed $143.0 million of cash for six acquisitions; 2018 ending cash was $313.2 million
• Returned $149.0 million of capital to shareholders through share repurchases and dividends
• Substantially completed the previously-announced 2018 Operations Transformation. Total expenses were $42.0 million ($29.0 million cash, $13.0 million non-cash), resulting in 2018 savings of $9.0 million

Key Financial Metrics

"Our performance in the fourth quarter was in line with our expectations," said Stephen G. Kaniewski, President and Chief Executive Officer. "As promised, profitability in the Engineered Support Structures segment, as adjusted, increased significantly, from solid pricing actions to recover steel cost inflation. North America Irrigation sales grew 9.0% despite continued low net farm income levels. We are pleased with the considerable operating income improvement in our Utility business compared to last quarter, and our Coatings business delivered solid results. As expected, we had strong cash generation during the quarter and continued executing on opportunistic share repurchases while completing our sixth acquisition of the year."

Kaniewski continued, "Despite significant headwinds in 2018, our teams successfully delivered revenue growth and solid operating income results. We largely completed our Operations Transformation, entering 2019 with a more lean and simplified business model, positioning our businesses for strategic growth opportunities. Return on invested capital improved despite a high inflationary environment, and we demonstrated our commitment to balanced capital deployment through acquisitions and capital investments that supported market growth."

Fourth Quarter 2018 Segment Review

Infrastructure

Engineered Support Structures Segment (37% of Sales)

Poles, towers and components for the global lighting, traffic and wireless communication markets, engineered access systems, integrated structure solutions for smart cities, and highway safety products

Sales of $259.7 million increased 3.8% versus prior year, led by pricing across the segment  and higher volumes in North America. Significantly lower wireless communication volumes in China, and unfavorable currency translation, impacted sales.

In North America, lighting and traffic product sales were higher, primarily driven by pricing actions, and higher volumes from ongoing investment by federal and state governments. In Europe, sales were lower due to lower volumes and unfavorable currency translation, partially offset by price recovery of steel cost inflation. Higher sales of highway safety products was led by governments' continued safe-road investments in India and Australia.

Wireless communication and components sales were lower compared to last year, primarily from lower volumes in China.

Sales of Access Systems products were similar to 2017.

GAAP operating loss of $1.6 million is not meaningful as a percentage of sales. Adjusted operating income¹ was $20.2 million or 7.8% of sales. For 2017, operating income was $16.3 million, or 6.5% of sales. Profitability improvement, on an adjusted basis, was led by higher North America volumes and restructuring benefits, partially offset by lower volumes in China.

Utility Support Structures Segment (33% of Sales)

Steel and concrete structures for global utility transmission, distribution and generation applications, renewable energy generation equipment, and inspection services

Revenues of $233.3 million decreased 4.1% compared to last year. Sales were lower due to a sizable project that did not repeat, and a less favorable product mix in North America. Revenues in the offshore wind business were comparable to 2017.

Operating income was $18.5 million or 7.9% of sales ($25.9 million adjusted¹ or 11.1% of sales) compared to $28.4 million, or 11.7% of sales in 2017. Results were negatively impacted by a continued competitive pricing environment in the offshore wind business.

Coatings Segment (10% of Sales)

Global galvanizing, painting and anodizing services to preserve and protect metal products

Global sales of $86.4 million grew 4.0% versus prior year. Sales grew from pricing actions taken earlier in the year to recover zinc cost increases, and firm industrial demand.

Operating income was $14.2 million or 16.5% of sales ($14.6 million adjusted¹ or 16.9% of sales), compared to $14.1 million or 17.0% of sales in 2017.

Agriculture

Irrigation Segment (20% of Sales)

Agricultural  irrigation  equipment,  parts,  services  and  tubular  products,  water  management solutions, and technology for precision agriculture

Global sales of $142.6 million were 4.6% lower than last year.

North America sales of $84.8 million grew 9.0% compared to 2017. Despite continued low net farm income levels, revenue from acquisitions completed in 2018, and growers' increased adoption of advanced, integrated technology solutions, contributed to sales growth.

International irrigation sales of $57.8 million were down 20.0% compared to last year. Lower project sales in emerging markets that did not repeat this year, and unfavorable currency translation impacts of $3.4 million, led to the sales decrease.

Segment operating income was $14.8 million, or 10.4% of sales, compared to $18.3 million, or 12.2% of sales in 2017. Price recovery of steel cost inflation was more than offset by lower project volumes and currency translation impacts.

2018 Operations Transformation

In 2018, the Company announced an initiative to transform its operational business model. This transformation, primarily within the Engineered Support Structures segment, was substantially completed at the end of 2018. These actions resulted in the closure of five facilities in 2018, including three in China, and the closure of two additional facilities by the end of Q2 2019. $9.0 million of savings was recovered in 2018, with an additional $11.0 million expected to be recovered on an accelerated basis throughout 2019, and the remaining $9.0 million to be recovered in 2020.

2019 Annual Financial Outlook and Key Metrics

2019 Key Assumptions

• Revenue Growth Evenly Divided Between Organic and Completed Acquisitions
• Unfavorable Foreign Exchange Translation Impact of ~ 1% of Sales
• Raw Material Costs Expected to be Flat to Slightly Deflationary

"We have a positive outlook for 2019, with sales and earnings growth driven by solid market demand, and supported by backlogs across our businesses," said Mr. Kaniewski. "In Engineered Support Structures, continued government investments in infrastructure development and 5G site preparation are driving higher sales. In the Utility segment, strong market demand from ongoing investments in grid hardening and renewable energy sources will drive sales growth. North America Irrigation markets will continue to be muted by low projected net farm income levels, and low commodity prices. International irrigation project activity in emerging markets is expected to accelerate throughout the year, and we anticipate an improved market environment in Brazil. Global industrial economic growth will drive higher sales in our Coatings business."

Added Mr. Kaniewski, "Growth from acquisitions, and a more simplified operational business model, will further our strategy of addressable market expansion and increased profitability. We expect free cash flow and return on invested capital results to be aligned with our long-term financial goals. Our recently-announced partnership with Prospera Technologies is a significant first step toward advancing our strategy of integrating artificial intelligence with center pivot irrigation."

A live audio discussion with Stephen G. Kaniewski, President and Chief Executive Officer, and Mark C. Jaksich, Executive Vice President and Chief Financial Officer, will be accessible by telephone on Thursday, February 21, 2019 at 8:00 am CST, by dialing 1-877-407-6184 or 1-201-389-0877 (no Conference ID needed), or via webcast by pointing browsers to this link: Valmont Industries Q4 2018 Earnings Conference Call. A slide presentation will simultaneously be available on the Investors page at www.valmont.com. A replay of the event can be accessed two hours after the call at the above link or by telephone at 1-877-660-6853 or 1-201-612-7415. Please use conference identification number 13684640. The replay will be available through 10:59 p.m. CST on February 28, 2019.

Valmont is a global leader, designing and manufacturing engineered products that support global infrastructure development and agricultural productivity. Its products for infrastructure serve highway, transportation, wireless communication, electric transmission, and industrial construction and energy markets. Its irrigation equipment and services for large-scale agriculture improves farm productivity while conserving fresh water resources. In addition, Valmont provides coatings services that protect against corrosion and improve the service lives of steel and other metal products.

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.

¹ Please see Reg G reconciliation of GAAP operating income, net earnings and EPS to Adjusted figures at end of document
² Excludes additional acquisitions in 2019

The backlog of orders for the principal products manufactured and marketed was $644.7 million at the end of the 2018 fiscal year and $670.0 million at the end of the 2017 fiscal year. An order is reported in our backlog upon receipt of a purchase order from the customer or execution of a sales order contract. We anticipate that most of the 2018 backlog of orders will be filled during fiscal year 2019. At year-end, the segments with backlog were as follows (dollar amounts in millions):

Valmont has aggregated its business segments into four global reportable segments as follows.

Engineered Support Structures: This segment consists of the manufacture of engineered metal and composite poles, towers, and components for global lighting, traffic, and wireless communication markets, engineered access systems, integrated structure solutions for smart cities, and highway safety products.

Utility Support Structures: This segment consists of the manufacture of engineered steel and concrete structures for the global utility transmission, distribution, and generation applications, renewable energy generation equipment, and inspection services.

Coatings: This segment consists of global galvanizing, painting and anodizing services.

Irrigation: This segment consists of the global manufacture of agricultural irrigation equipment, parts, services, tubular products, water management solutions, and technology for precision agriculture.

In addition to these four reportable segments, the Company had other businesses and activities that individually are not more than 10% of consolidated sales, operating income or assets. This includes the manufacture of forged steel grinding media and is reported in the "Other" category until its divestiture.

SOURCE Valmont Industries, Inc.

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