Valmont Industries (VMI) has reduced its earnings outlook for 2014. The company mainly attributed the reduction to decreased demand for irrigation equipment in the fourth quarter. The revision also takes into account unfavorable impacts of a strengthening U.S. dollar and production and shipping delays in the company’s utility structures business.
The Nebraska-based steel pipe and tube company now sees earnings, excluding one-time items, for 2014 in the band of $8.10 to $8.20 per share, down from its prior view of $8.55 and $8.65. Including special items, earnings are expected in the range of $7.02 to $7.12 per share versus $7.46 to $7.56 a share expected earlier.
Valmont noted that, in its irrigation business, net farm income and crop prices were much lower than year-ago levels, leading to a greater reduction in demand in North America in the fourth quarter than what was expected while the company issued its earlier guidance in Oct 2014. The company has cut costs in response to this reduced demand and expects to realize the benefits of this move in late 2015.
Valmont has also reduced its fourth-quarter revenue expectation for its Utility Support Structures division to roughly $215 million from around $220 million factoring in internal challenges in meeting production schedules. Operating income percentage for the segment is expected to be modestly below 10%.
Valmont has made a number of changes to boost operational improvements in the utility business. These include the addition of management talent to the operations function and reorganization of reporting structure of manufacturing locations to beef up performance.
Valmont sees higher year-over-year operating income in its Engineered Infrastructure Products unit in the fourth quarter, driven by acquisitions. Benefits from acquisitions are expected to offset lower earnings in Asia-Pacific and unfavorable currency swings.
However, a weak Australian industrial economy continues to affect Valmont’s Coatings and Engineered Infrastructure Products divisions. A strong U.S. dollar vis-à-vis the Australian dollar has contributed to reduced sales and earnings in its Australian operations.
Valmont also added that it has bought back around 2.7 million shares worth $395 million since it announced its capital allocation plan on May 13, 2014.
Valmont will report its fourth-quarter results on Feb 17. It is a Zacks Rank #4 (Sell) stock.
Better-ranked companies in the steel and related industries include Synalloy Corporation (SYNL), Mueller Water Products, Inc. (MWA) and LB Foster Co. (FSTR). While Synalloy holds a Zacks Rank #1 (Strong Buy), both Mueller Water and LB Foster carry a Zacks Rank #2 (Buy).
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