On Mar 5, we issued an updated research report on steel pipe and tube company Valmont Industries, Inc. (VMI). While the company should gain from strong demand environment across utility and coatings markets, it is exposed to volatility in raw material costs, near-term challenges in its irrigation business and a still challenging operating backdrop in Europe.
Valmont posted mixed fourth-quarter 2013 results on Feb 20 with adjusted earnings beating the Zacks Consensus Estimate while sales missing the same. Profit fell by double digits year over year, hurt by impairment and deconsolidation charges. The company envisions a challenging first-quarter 2014 and expects earnings to fall 25% year over year.
Valmont is witnessing significant strength across utility and coatings markets. The company is poised to savor incremental opportunity in the utility market driven by the ongoing investment in North American transmission grid.
The global transmission and distribution markets are seen as major long-term growth opportunities in the utility market. Valmont also expects healthy demand for its Coatings segment which is benefiting from Pure Metal acquisition.
Moreover, Valmont is actively pursuing capacity expansion through new constructions and extension of existing facilities to meet the increasing demand from utility customers in North America. Acquisitions will also support growth in 2014.
However, Valmont remains affected by a still weak operating environment in Europe. In its Engineered Infrastructure Products division, weak government infrastructural funding is affecting lighting and traffic product markets. Moreover, results in the company’s North American irrigation business are expected to be hurt by lower commodity prices in the first quarter.
Valmont is also exposed to volatility in raw material costs. Higher-than-expected prices for key raw materials such as steel, aluminum and zinc, along with their reduced availability, may raise the company’s operating costs and reduce its profitability.
Key Picks from the Sector
Other companies in the steel and related industries with favorable Zacks Rank are United States Steel Corp. (X), AK Steel Holding Corp. (AKS) and Worthington Industries, Inc. (WOR). All of them hold a Zacks Rank #2 (Buy).
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