The first-quarter 2011 net earnings of Valmont Industries, Inc. (VMI), a leading producer of engineered products, increased 56.5% to 97 cents per share from last years’ 62 cents per share, surpassing the Zacks Consensus Estimate of 95 cents.
Cost of sales climbed 61.8% to $ 431.5 million in the quarter.
Quarterly revenues, however, jumped 55% year over year to $ 568.0 million, modestly beating the Zacks Consensus Estimate of $ 540 million. The first quarter results were driven by a significant growth in Irrigation Segment sales and the contribution of the Delta businesses.
Segment Review
Irrigation Segment: The segment manufactures mechanized irrigation equipment for the global agricultural market. Sales surged 39% year over year to $ 151.0 million, generating 27% of total sales.
There has been an alarming increase in the population leading to increased demand for food. The segment caters to the growing agricultural needs by efficiently supplying water when it is most needed by the farmers for crop development, thereby optimizing on input costs such as seed, fuel and fertilizer.
Operating income was driven by improved productivity and volume leverage and totaled $ 23.9 million, up 55% from the year-ago quarter.
Utility Support Structures Segment: The segment, which manufactures steel and concrete structures for the global electric utility industry, reported sales of $ 125.6 million, compared with $ 113.2 million in the prior-year quarter, driven by increased demand for utility structures in North America. Utilities increased during the quarter as they were used for the projects which resumed after having been deferred during the recession.
The management remains confident and believes that the segment has a positive outlook based on Valmont‘s increased bid activity and project proposals.
Operating income fell 8% to $ 13.5 million and was 10.7% of segment sales. The decline in operating income was mostly due to lower international sales, and an unfavorable product sales mix and pricing not keeping pace with inflation.
Engineered Infrastructure Products Segment: Valmont manufactures structures for lighting and traffic, wireless communication and other specialty structures within this segment. This segment also includes Delta's lighting, communication, access systems and roadway safety products.
In the first quarter of 2011, segment sales were $ 168.9 million, up 58% year over year, largely attributable to the Delta businesses now reported in this segment, whose sales were $ 50.8 million.
The segment witnessed an increasingly competitive pricing environment due to lower demand. The lighting product sales in North America in the first quarter were essentially flat as the market continued to struggle with the lack of a U.S. highway bill and budgetary constraints at the state and local levels. Wireless communication product sales were also flat in the region. It however increased in China due to increased orders.
International lighting sales were higher although the market resisted price increases necessary to recover inflationary raw material costs.
Results of Delta’s businesses were negatively impacted by severe weather disruptions in Australia and increased import competition caused by a strong Australian dollar.
The segment’s operating income decreased 16% to $ 2.2 million. The operating income attributable to the Delta businesses was $ 3.8 million. The segment would have posted an operating loss if there was no contribution from Delta due to reduced demand and highly competitive pricing. Non-recurring expenses in Europe and LIFO expenses also led to the decrease in operating income.
Coatings Segment: The segment produces hot-dip galvanizing, anodizing and powder coatings to protect steel against rust. The segment also includes Delta's galvanizing operations. Sales of $ 73.5 million jumped more than twice from last year’s sales.
The increase in sales included $ 38.8 million from the Delta galvanizers plus volume gains. Improved demand from industrial manufacturers in Midwestern regions of the U.S. further drove volume gains. Strong internal demand and improved sales to agricultural equipment manufacturers led to the increase in demand.
Operating income increased 2.3 times to $ 10.3 million, or 14% of segment sales. The increase in operating income included $ 3.9 million from the Delta businesses. Delta's forged steel grinding media and electrolytic manganese dioxide operations are included in "Other." Delta businesses contributed $ 2.6 million to operating income.
Financial Position
As on March 26, 2011, cash and cash equivalents were $ 358.3 million versus $ 374.0 million at the end of March 27, 2010.
Outlook
Valmont had previously forecast 2011 earnings per share to increase by 35-45%. However, based on the present scenario where the company is seeing significant strength in the irrigation market and an improving demand for utility transmission structure, it expects earnings per share to be on the higher end of that range in 2011.
In the Engineered Infrastructure Products Segment, the company expects to provide quality infrastructure.
In the irrigation business, the company expects to provide efficient irrigation equipment for agricultural practices in order to meet the growing demand for food.
The company expects to accomplish these ends by consistently improving its products and processes.
Zacks Recommendation
Currently, Valmont has a short-term (1 to 3 months) Zacks #3 Hold rating and a long-term (6 months) Underperform recommendation.
Competitors
The company faces stiff competition from Lindsay Corporation (LNN) and American Tower Corp. (AMT).
AMER TOWER CORP (AMT): Free Stock Analysis Report
LINDSAY CORP (LNN): Free Stock Analysis Report
VALMONT INDS (VMI): Free Stock Analysis Report
Zacks Investment Research
Be the first to comment