On Mar 11, we issued an updated research report on steel pipe and tube company Valmont Industries VMI. While the company’s long-term prospects appear healthy, it is exposed to some short-term challenges in its utility and irrigation businesses and currency headwind.
Valmont posted lackluster fourth-quarter 2014 results on Feb 17. Revenues and profit for the quarter fell year over year on weakness across irrigation and utility businesses. Both revenues and adjusted earnings missed Zacks Consensus Estimates. The company expects difficult market conditions to persist in 2015.
Valmont, a Zacks Rank #4 (Sell) stock, faces certain near-term headwinds across a number of businesses. It is seeing continued challenges in its irrigation business due to weak commodity pricing and large crop inventories.
The results in the company’s North American irrigation business are expected to be affected by lower commodity prices which are affecting farm income. Lower farm income, in turn, is expected to impact equipment purchases by farmers. The division remains affected by high inventories of key crops such as soy, soybeans and corn.
Moreover, Valmont’s utility business is expected to continue to be hurt by a difficult pricing environment. Revenues in this business have also been hit by fewer large projects in the sales mix.
Within the company’s coatings business, a weak Australian economy is impacting the profitability of its galvanizing businesses in that country. Weakness in the Australian mining industry is expected to continue to affect results in the company’s coatings business.
Valmont is also exposed to currency headwind. A stronger U.S. dollar is expected to reduce its overseas revenues and hurt export profitability.
Factoring in all these issues, the company expects its results in first-quarter 2015 to be significantly weaker than what was witnessed a year ago.
Other Stocks to Consider
Other companies in the steel and related industries worth considering include Kobe Steel Ltd. KBSTY, ThyssenKrupp AG TYEKF and Companhia Siderurgica Nacional SID. While Kobe Steel and ThyssenKrupp hold a Zacks Rank #1 (Strong Buy), Companhia Siderurgica Nacional retains a Zacks Rank #2 (Buy).
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