Valmont Reports Record Fourth Quarter and Fiscal 2006 Results17 February 2007
Valmont Industries, Inc. (NYSE: VMI), 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 fourth quarter of $328.0 million compared with $311.3 million for the same period of 2005. Fourth quarter 2006 net earnings were $16.1 million, or 62 cents per diluted share, versus fourth quarter 2005 net earnings of $11.6 million, or 45 cents per diluted share.
For fiscal 2006, sales were $1,281.3 million versus $1,108.1 million in 2005, an increase of 16%. Valmont's fiscal year net earnings were $61.5 million, or $2.38 per diluted share, compared with 2005 fiscal year earnings of $39.1 million, or $1.54 per diluted share. Valmont's 2006 fiscal year had 52 weeks with 13 weeks in the fourth quarter compared to 53 weeks with 14 weeks in the fourth quarter in 2005.
Fourth Quarter Review:
"We had a strong finish to the year with operating income as a percent of sales increasing nearly one percentage point for the quarter and net earnings up 39%," said Mogens C. Bay, Valmont's Chairman and Chief Executive Officer. "Our international businesses continued to improve and contributed substantially to sales and earnings.
"Sales in the Engineered Support Structures Segment were bolstered by demand for wireless communication structures in China. Sales in the North American and European markets were basically unchanged.
"Utility Support Structures sales increased in the North American market due to expanding investment in the electrical transmission grid by utility companies.
"Most of the sales increase in the Coatings Segment reflects pricing actions taken to recover higher zinc costs.
"In the Irrigation Segment, North American sales were lower than last year. While grain prices were substantially higher, the irrigation season developed slower than expected. International sales were higher as a result of improved market conditions worldwide and increased project sales.
"Sales in the Tubing Segment were lower, mostly due to customers delaying shipments at year end.
"Two other items impacted fourth quarter results. During the quarter we suspended the development of our structure for the wind energy industry, which led to an after-tax charge of approximately $400,000. We are confident that we have a unique and technically solid design, but are not convinced at this time that we can generate the kind of financial returns we require. Our effective tax rate declined from 39.9% in 2005 to 30.0% in 2006 reflecting the mix of international earnings at lower tax rates and a $1.1 million tax expense in 2005 related to the repatriation of dividends from foreign subsidiaries.
"The key drivers behind the 17% increase in operating income were the contribution of improved international results, higher coatings segment profitability and lower corporate expenses."
2006 Review:
"We saw significant improvement in two of our key financial measures during 2006. Operating income as a percent of sales improved to 8.6% from 7.5% and return on invested capital rose to 11.1% from 7.7%. Conditions were favorable in most of our markets and we continued our focus on raising the quality of our business, improving productivity, and increasing employee engagement. Our objective is to continue to increase our operating income percent to double digit levels and improve returns on invested capital.
"Engineered Support Structures Segment sales were driven by solid growth in China and Europe and good transportation and commercial demand in North America. Profitability for the segment was hampered by poor performance in our North American specialty structures businesses. We have a new management team in place in specialty structures and expect results to improve in 2007.
"The utility business posted record sales and operating income as electric utilities stepped up investment in the transmission grid. Our product offering of both steel and concrete structures positions us to be a preferred provider of both new and replacement structures for the electric utility industry.
"Sales in the Irrigation Segment improved from the soft market conditions of 2005. In worldwide markets, increased crop prices, dry weather and water conservation drove the demand for irrigation equipment and parts. Our efforts to open new international markets paid dividends, as project business made a meaningful contribution to growth.
"The Coatings Segment operated very well in the face of sharply higher and volatile zinc costs. Demand increased from infrastructure markets and improved conditions in the industrial economy. As expected, this allowed us to achieve improved operating leverage.
"The Tubing Segment continued its strong performance.
"Looking at the total year, we are pleased with the progress we made, yet not satisfied. We believe there is more work to be done to realize further improvements in top line growth, operating performance and returns on capital."
Fourth Quarter Summary - Infrastructure Markets: (73% of 4th Quarter Net Sales)
Engineered Support Structures Segment (43% of 4th Quarter Net Sales)
Structures and specialty structures for lighting and traffic, wireless communication and overhead signs, worldwide. Includes all support structures outside of North America.
Sales were $146.6 million, an increase of 7% from 2005 levels. In North America and Europe, sales were comparable with last year. In China, sales of wireless communication products and utility structures were particularly strong.
Segment operating income decreased 10% to $13.6 million and was 9.3% of sales. Profitability was strong in China, but not enough to fully offset poor performance in North American specialty structures and a slight decline in European profitability.
Utility Support Structures Segment (23% of 4th Quarter Net Sales)
Steel and concrete structures for the North American electric utility industry.
Sales increased 6.9% to $74.0 million compared with $69.2 million in 2005. The sales increase reflects increased pricing and continued demand from utilities to invest in the transmission grid. Order flow continued strong and backlogs increased during the quarter.
Operating income increased 6% to $8.2 million and was 11.1% of sales.
Coatings Segment (7% of 4th Quarter Net Sales)
Hot-dip galvanizing, anodizing and powder coatings to protect against corrosion of steel and aluminum in North American markets.
Sales of $30.7 million were 24% above last year's $24.7 million. The sales increase was mainly due to increased pricing. During the fourth quarter, zinc prices averaged nearly three times higher than the same period of 2005, necessitating price increases to recover costs.
Operating income rose 86% to $5.6 million, or 18.2% of segment sales. The improvement in operating income reflects increased pricing and reduced plant operating costs, especially energy costs.
Fourth Quarter Summary - Agricultural Markets: (26% of 4th Quarter Net Sales)
Irrigation Segment (21% of 4th Quarter Net Sales)
Center pivot and linear move mechanized irrigation equipment and parts for agriculture in global markets.
Sales improved 1.2% to $70.3 million compared with $69.5 million in 2005. Increased international sales more than offset a modest decline in North American sales. International sales were boosted by project business and improved global market conditions.
Operating income declined 2.3% to $5.1 million and was 7.2% of sales.
Tubing Segment (5% of 4th Quarter Net Sales)
Custom steel tubing for mechanical and structural applications.
Sales were 10% lower at $19.6 million mostly due to customers delaying shipments at year end.
Operating income decreased 2% to $3.6 million and was 18.3% of sales.
2007 Outlook:
"We are expecting further progress in 2007, Mr. Bay said, "We are off to a solid start with good order flow and record backlogs in our structures businesses and positive market trends in our other businesses.
"In our Engineered Support Structures Segment, ongoing highway spending should provide solid support for our lighting, traffic and overhead sign structures businesses. We expect continued strength in international infrastructure markets in Europe and Asia. In our utility business, we expect growing transmission investment by electric utilities. In the irrigation business, we believe greater investments in ethanol production are supportive of global grain prices and net farm income. However, irrigation equipment sales will also be influenced by weather, water conservation and government support programs. In the coatings business, increased infrastructure spending and an improved industrial economy should lead to continued strong results. We expect our tubing business to continue to generate solid earnings.
"To meet increased customer demands, we are in the process of increasing capacity in selected operations worldwide. We expect for the first time since the year 2000, that capital spending will exceed depreciation and amortization for the year.
"We believe our current businesses offer great platforms for further growth going forward. Many opportunities remain for us to leverage our products, markets and capabilities in the worldwide arena. Our businesses have the characteristics that allow for improved operating performance and good returns on invested capital. We will maintain our focus on growth, on increasing operating income as a percent of sales and on return on invested capital in 2007."
An audio discussion of Valmont's fourth quarter results by Mogens C. Bay, Chairman and Chief Executive Officer and Terry J. McClain, Senior Vice President and Chief Financial Officer, will be available live by telephone by dialing 1-877-493-2981 and entering Conference ID#: 2631666 or via the Internet at 8:00 a.m. February 15, 2007 CST, by pointing browsers to: http://www.valmont.com/asp/investor_relations/ir6.asp. After the event you may listen by accessing the above link or by telephone. Dial 1-800-642-1687 or 706-645-9291, and enter the Conference ID#:2631666 beginning February 15, 2007 at 10:00 a.m. CST through 12:00 p.m. CST on February 23, 2007.
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.
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(unaudited)
Fourth Quarter Year-to-Date
13 & 14 Weeks Ended 52 & 53 Weeks Ended
29-Dec-06 31-Dec-05 29-Dec-06 31-Dec-05
Net sales $327,961 $311,283 $1,281,281 $1,108,100
Cost of sales 242,660 231,852 954,555 829,805
Gross profit 85,301 79,431 326,726 278,295
Selling, general
and administrative
expenses 57,721 55,912 216,641 195,432
Operating income 27,580 23,519 110,085 82,863
Other income
(deductions)
Interest expense (4,309) (4,785) (17,124) (19,498)
Interest income 487 573 1,984 1,810
Debt prepayment
expenses -- -- -- --
Miscellaneous 77 (225) 1,374 (802)
(3,745) (4,437) (13,766) (18,490)
Earnings before
income taxes,
minority
interest,
and equity
in earnings
(losses) of
non-consolidated
subsidiaries 23,835 19,082 96,319 64,373
Income tax expense 7,160 7,620 30,820 24,348
Earnings before
minority
interest,
equity in
earnings
(losses) of
nonconsolidated
subsidiaries 16,675 11,462 65,499 40,025
Minority interest (388) 90 (1,290) (1,052)
Earnings (losses)
in nonconsolidated
subsidiaries (175) 68 (2,665) 106
Net earnings $16,112 $11,620 $61,544 $39,079
Average shares
outstanding (000's)
- Basic 25,440 24,502 25,197 24,287
Earnings per share
- Basic $0.63 $0.47 $2.44 $1.61
Average shares
outstanding (000's)
- Diluted 26,015 25,728 25,863 25,367
Earnings per share
- Diluted $0.62 $0.45 $2.38 $1.54
Cash dividends
per share $0.095 $0.085 $0.370 $0.335
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
SUMMARY OPERATING RESULTS
(Dollars in thousands)
(unaudited)
Fourth Quarter Year to Date
13 & 14 Weeks Ended 52 & 53 Weeks Ended
29-Dec-06 31-Dec-05 29-Dec-06 31-Dec-05
Net sales
Engineered Support
Structures $146,590 $137,491 $533,020 $492,115
Utility Support
Structures 74,023 69,234 282,829 222,473
Coatings 30,704 24,718 113,238 87,110
Infrastructure
products 251,317 231,443 929,087 801,698
Irrigation 70,325 69,521 312,852 260,359
Tubing 19,572 21,695 89,706 86,891
Agriculture
products 89,897 91,216 402,558 347,250
Other 5,170 4,393 18,567 18,400
Less: Intersegment
sales (18,423) (15,769) (68,931) (59,248)
Total $327,961 $311,283 $1,281,281 $1,108,100
Operating Income
Engineered Support
Structures $13,647 $15,096 $46,194 $44,588
Utility Support
Structures 8,234 7,773 31,038 20,632
Coatings 5,579 2,994 18,759 8,452
Infrastructure
products 27,460 25,863 95,991 73,672
Irrigation 5,094 5,216 32,961 24,830
Tubing 3,590 3,662 14,704 14,543
Agriculture
products 8,684 8,878 47,665 39,373
Other (737) (2,114) (2,175) (4,062)
Corporate (7,827) (9,108) (31,396) (26,120)
Total $27,580 $23,519 $110,085 $82,863
Valmont has aggregated its segments into five reportable segments
organized on a worldwide product basis.
Engineered Support Structures: This segment consists of the
manufacture of engineered metal structures and components for the
lighting, traffic and wireless communication industries, and certain
international utility businesses.
Utility Support Structures: This segment consists of the manufacture
of engineered steel and concrete structures primarily for the North
American utility industry.
Coatings: This segment consists of galvanizing, anodizing and powder
coating services.
Irrigation: This segment consists of the manufacture of agricultural
irrigation equipment and related parts and services.
Tubing: This segment consists of the manufacture of steel tubular
products.
In addition to these five reportable segments, Valmont also has other
businesses that individually are not more than 10% of consolidated net
sales. These businesses, which include wind energy development, machine
tool accessories and industrial fasteners, are reported in the "Other"
category.
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(unaudited)
29-Dec-06 31-Dec-05
ASSETS
Current assets:
Cash and cash equivalents $63,504 $46,867
Accounts receivable, net 213,660 180,969
Inventories 194,278 158,327
Prepaid expenses 6,086 7,643
Refundable and deferred income taxes 17,130 14,506
Total current assets 494,658 408,312
Property, plant and equipment, net 200,610 194,676
Goodwill and other assets 197,042 199,054
$892,310 $802,042
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $18,353 $13,583
Notes payable to banks 13,114 4,918
Accounts payable 103,319 90,674
Accrued expenses 79,699 67,869
Dividend payable 2,437 2,107
Total current liabilities 216,922 179,151
Long-term debt, excluding current
installments 202,784 218,757
Other long-term liabilities 71,323 75,459
Shareholders' equity 401,281 328,675
$892,310 $802,042
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
CALCULATION OF RETURN ON INVESTED CAPITAL
(Dollars in thousands)
(unaudited)
2006 2005
Operating income $110,085 $82,863
Effective tax rate 32.0% 37.8%
Tax effect on Operating income (35,227) (31,322)
After-tax Operating income 74,858 51,541
Average Invested Capital 674,124 669,542
Return on invested capital 11.10% 7.70%
Total Assets $892,310 $802,042
Less: Accounts Payable (103,319) (90,674)
Less: Accrued Expenses (79,699) (67,869)
Less: Dividends Payable (2,437) (2,107)
Total Invested Capital $706,855 $641,392
Beginning of year Invested Capital 641,392 697,691
Average Invested Capital $674,124 $669,542
Return on Invested Capital is calculated as Operating Income (after-tax)
divided by the average of beginning and ending Invested Capital. Invested
Capital represents Total Assets minus Accounts Payable, Accrued Expenses
and Dividends Payable. Return on Invested Capital is one of our key
operating ratios, as it allows investors to analyze our operating
performance in light of the amount of investment required to generate our
operating profit. Return on Invested Capital is also a measurement used
to determine management incentives. Return on Invested Capital is not a
measure of financial performance or liquidity under generally accepted
accounting principles (GAAP). Accordingly, Return on Invested Capital
should not be considered in isolation or as a substitute for net earnings,
cash flows from operations or other income or cash flow data prepared in
accordance with GAAP or as a measure of our operating performance or
liquidity. The table above shows how Invested Capital and Return on
Invested Capital are calculated from our income statement and balance
sheet.
Source: prnewswire
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