雅虎香港財經 Valmont Industries, Inc. (NYSE:VMI) Q1 2024 Earnings Call Transcript
Valmont Industries, Inc. (NYSE:VMI) Q1 2024 Earnings Call Transcript May 2, 2024
Valmont Industries, Inc. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Greetings, welcome to Valmont Industries, Inc. First Quarter 2024 Earnings Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Renee Campbell, Senior Vice President, Investor Relations and Treasurer. Ms. Campbell, you may begin.
Renee Campbell: Thank you, and good morning. Welcome to Valmont Industries' first quarter 2024 earnings call. With me today are Avner Applbaum, President and Chief Executive Officer; and Tim Francis, Interim Chief Financial Officer. This morning, Avner will provide a brief summary of our first quarter results, current market dynamics and strategic priorities for 2024. Tim will review our first quarter financial performance and provide our updated outlook and indications for the year with closing remarks from Avner. This will be followed by Q&A. A live webcast of the presentation will accompany today's call and is available for download from the webcast or on the investor’s site at valmont.com. A replay will be available on our website later this morning.
Please note that this call is subject to our disclosure on forward-looking statements, which applies to today's discussion is outlined on Slide 3 of the presentation, and will be read in full at the end of today's call. Finally, to stay updated with Valmont's latest news releases and information, please sign up for e-mail alerts on our investors site. We also invite investors and other interested parties to follow Valmont and our brands on the social media channel linked on our website. With that, I would now like to turn the call over to our President and Chief Executive Officer, Avner Applbaum.
Avner Applbaum: Thank you, Renee. Good morning, everyone, and thank you for joining us. Before discussing first quarter results, I'd like to address the recent severe weather in the Central U.S., including Nebraska. I'm relieved to report that our employees are safe, our facilities are undamaged and our operations have not been disrupted. The extent of the damage to local irrigation system and utility infrastructure throughout the area is not yet clear, but we're ready to support our dealers and customers with any need repairs and replacements. We extend our heartfelt concerns to everyone impacted by these events. Now turning to Slide 5 and first quarter results. We've had a strong start to 2024, delivering results that exceeded our expectations with significant commercial and operational achievements and solid financial performance.
Our success this quarter demonstrates the strength of our organization and the value we create through the Valmont business model, guided by our core values and aligned around our focus areas, we are a more resilient company and are more adaptable to dynamic market conditions. Through this strong performance, we expanded operating margins 240 basis points and grew diluted earnings per share nearly 25% despite sales decreasing 8%. Our focus on commercial execution, operational excellence and reduced SG&A expenses has allowed us to improve profitability in an environment of lower demand from some end markets. This was a true team effort across the organization. I am very proud of what we were able to accomplish. Overall, I'm encouraged by our ability to execute and drive profitability.
Our success reflects our shared core capabilities across the organization, including product innovation, talent development and operational excellence. Our legacy was built on leveraging these core competencies to build a resilient company with a broad market exposure. The strength of our portfolio diversity is evident in our first quarter results, as the size and strength of our Infrastructure segment is helping to balance soft demand in agriculture. This quarter saw continued strong demand in infrastructure, notably in our TD&S business driven by the multi-year energy transition and needed investments to build a more resilient grid. Our strategic investments to enhance flexibility in our footprint are helping to drive favorable product mix and generate higher returns.
For example, this quarter, we grew our transmission business but also successfully increasing the production of distribution and substation products. Stable demand in lighting and transportation markets continue even as IIJA funding has yet to benefit our business. As expected, demand in telecommunications markets remains muted, as carrier investments normalize to support network expansion. Turning to Agriculture. Demand in North America continues to be soft but stable and generally in line with our expectations. We are encouraged by the trend of higher order rates during the spring selling season compared to last year as center pivots continue to be a compelling investment for growers. In Brazil, we continue to see muted grower sentiment and general market softness.
Lower crop prices are weighing on gross profitability, causing them to defer certain capital investments, including irrigation equipment. International project shipments this quarter were lower, largely due to challenging conditions in Egypt. We effectively navigated these delays and are pleased to report that shipments have resumed in the second quarter. Turning to Slide 6 and shifting our view from near-term dynamics to long-term fundamentals. Our end markets have several multi-year demand drivers. In our Infrastructure segment, the energy transition, replacement of aging infrastructure for enhanced resiliency and rising consumption of data and technology are all multi-year megatrends, driving increased demand for our products. Investments in grid infrastructure are increasing to support these megatrends with projections for U.S. electricity demand growth over the next five years doubling from last year's estimates.
This growth is driven by both expansion of data centers to manage AI's extensive data needs and by increased manufacturing for high-demand industries such as chips, batteries and electric vehicles. Requested rate increases by utilities set a record in 2023 for the third consecutive year, supporting their capital investment plans. While high interest rates and the approval timing of rate increases can lead to project movement for certain customers, we have built flexibility in our footprint to be agile and adjust quickly to evolving customer needs. Transmission demand continues to grow at high rates, and all of TD&S is supported by compelling global megatrends. Lighting and transportation products typically delivered in the latter stages of projects financed by IIJA funding, along with coating services, which protects steel from corrosion and harsh environments, also stand to benefit from these enduring multi-year drivers.
In telecom markets, our customers expect carrier CapEx spending to remain muted this year, following record years in 2021 and 2022. We stand ready to quickly respond to the anticipated uptick in demand driven by spectrum deployment and continued 5G expansion. Turning to Agriculture. Projected net farm income levels and lower crop prices plus natural variation in weather pattern, all impact grower sentiment, especially in larger markets such as North America and Brazil. While global ag market conditions remained soft in the near-term, several factors are poised to drive demand growth in the global irrigation market beyond 2024. Climate change, water scarcity and sustainability consideration are key drivers. Food security concerns and population growth will further bolster demand for irrigation products.
North America and Brazil both remain key geographic regions for our business, each projected to a favorable long-term growth trends. Our international project pipeline remains strong. I'm pleased to share that we have recently secured over $50 million in new projects for Middle East market. We expect to complete most of these shipments in 2024. This specific region is seeing an overall strategic shift from flood to center pivot irrigation. The drivers for this shift include water conservation, increasing land productivity and reducing crop inputs, key aspects of sustainable agriculture and improving resource efficiency. Valley irrigation is well positioned to support these significant projects, utilizing our advanced technology, manufacturing footprint and strong dealer network.
As you can see, even with softness in certain markets, our broad and diverse revenue streams are paying off. We have strategically built our end market exposure around our core capabilities. Our growth strategy is aligned with multi-year demand drivers across these markets. This diversification makes us less susceptible to a downturn in any single market, enhancing the stability and consistency of our profitability and growth. Turning to Slide 7. I'd like to highlight our strategic priorities for this year. These are grounded in the Valmont business model, which we shared last quarter, and are the foundation to value creation. Each priority ties back to our key focus areas. Starting with our people. This quarter's accomplishments underscore the high-performance culture we're building, one that drives market leadership and fosters innovation.
We continue to live our core values of passion, integrity and continuous improvement as we deliver results on our journey towards excellence. I want to thank our team for their extraordinary efforts. Next is return on invested capital. We are sharpening our focus on core competencies to enhance ROIC. This ensures we are maintaining our competitive edge, allocating resources where they generate the highest returns for maximum value creation. Finally, sustainability is embedded in our operations and the innovative solution we offer to our customers. In Infrastructure, as a trusted leader across our markets, we're advancing sustainable products that can endure a changing climate, conserve resources and last long into the future. Our concrete utility pole facility in Bristol, Indiana, demonstrates this commitment.
It produces transmission and distribution poles using low-carbon processes and materials to support the growing needs of our utility customers, while aligning with their own sustainability goals. A 500-kilowatt solar array with our award-winning solar trackers was built to fully offset this facility's annual electricity usage, highlighting our commitment to sustainable operations. In agriculture, technology enhances efficiency on the farm by reducing inputs, increasing lab productivity and lowering labor costs. Our fully integrated tech teams have developed a road map to deliver exceptional value to our customers. We are actively engaging our core engineering teams with AI and machine learning capabilities to embed predictive analytics into our products.
This strategic integration positions valley technology at the forefront of the industry, delivering a distinct competitive edge by enabling smarter and more efficient irrigation solutions. I'm very pleased with our progress and excited about our future. To summarize, we have had a strong start to 2024, delivering impressive results despite demand headwinds in some markets. I am confident that our focus on operational excellence and value creation for our stakeholders will continue to drive positive outcomes. Now I'll turn it over to Tim for our first quarter financial review and an updated 2024 outlook.
Tim Francis: Thank you, Avner, and good morning, everyone. Turning to Slide 9 and first quarter results. Net sales of $977.8 million decreased 8% year-over-year. Operating income increased 11% to $131.6 million and operating margins improved meaningfully to 13.5%. Diluted earnings per share of $4.32 increased nearly 25% year-over-year. The steps we have taken to control expenses and reduce our cost structure are clearly having a favorable impact on our profitability. Turning to the segments on Slide 10. Infrastructure sales of $723.6 million decreased 1.7% year-over-year. Higher volumes in TD&S and solar, supported by continued strong utility market demand and favorable pricing across the portfolio were more than offset by significantly lower telecommunications volumes.
Operating income increased to $117.9 million or 16.4% of net sales. The improvement in operating margins was driven by successful commercial execution, including pricing strategies, delivered actions to improve cost of goods sold and lower SG&A expenses. We also realized benefits from strategic investments in our manufacturing facilities, enabling us to increase production of higher-margin products. Moving to Slide 11. Agriculture sales of $258.7 million decreased 22.1% year-over-year. In North America, irrigation equipment volumes were lower as the first quarter of 2023 benefited from the ongoing delivery of elevated backlog. Average system selling prices were slightly lower compared to last year. International sales decreased primarily driven by lower sales in Brazil due to more normalized backlog levels as compared to the first quarter of 2023, and softer soybean prices impacting grower sentiment.
Middle East project sales were also lower. The sales contribution from the HR products acquisition partially offset the lower sales. Operating income decreased to $41 million or 15.9% of net sales. Improvement in gross profit margins and the benefit of lower SG&A expenses were more than offset by the impact of lower volumes. Turning to cash flows and liquidity on Slide 12. First quarter operating cash flows were $23.3 million, and we ended the quarter with approximately $169 million in cash. We expect strong cash flow throughout 2024 through earnings growth and diligent working capital management. Total debt to adjusted EBITDA of 1.82x was within our desired range of 1.5x to 2.5x. Our cash balances, available credit and flexible balance sheet provide us with ample liquidity to execute our capital allocation strategy.
Turning to Slide 13 for a summary of first quarter capital deployment. Capital spending was $15 million. Strategic CapEx spending is a cornerstone in elevating the performance and resilience of our businesses. A standout initiative in response to rising customer demand is increasing capacity at multiple sites for concrete, transmission and distribution structures. We have strategically increased the flexibility of our operations, leading to improved and more consistent performance across our product lines. These targeted investments underscore our dedication to maintaining a competitive edge and meeting our long-term financial goals. Our acquisition strategy this year is sharply focused on natural adjacencies to our core capabilities that would enhance our portfolio or expand our addressable markets.
This targeted approach ensures that our investments strengthen our existing market presence and promote sustainable, profitable growth. Our capital deployment approach balances growth investments with returning cash to shareholders. This quarter, we returned approximately $12 million of capital to shareholders through dividends and completed the $120 million accelerated share repurchase program that commenced in the fourth quarter of 2023. I will now share our updated 2024 outlook as shown on Slide 14. We expect net sales to be down 2% to up 0.5%, an improvement from our previous guidance of down 3% to flat. Turning to the segments. Our outlook for Infrastructure is unchanged as we expect volume growth approaching mid-single digits this year.
In Agriculture, we expect continued market softness this year due to lower grain prices and current farm income projections. However, we now have better visibility into international projects and anticipate segment sales to be down between 10% and 15% compared to prior year, an improvement from our previous forecast of a 15% to 20% decline. We remain focused on targeted pricing strategies and increasing adoption of our technology solutions. Our updated outlook expects diluted earnings per share to be in the range of $15.40 to $16.40. We also expect second quarter earnings per share to be slightly below first quarter 2024 results. Doing the math, this implies a lower quarterly EPS during the second half of this year. Let me walk you through the moving pieces.
In Infrastructure, we anticipate full year gross profit margins to be improved compared to full year 2023, but likely not as high as the first quarter, which benefited from favorable product mix and an opportunistic steel purchase. While we are always striving to drive margins higher, our guidance assumes these positive factors will not recur at the same level we experienced in the first quarter. In Agriculture, a higher mix of international projects during the second half of the year is expected to pressure segment margins, although this will be partially mitigated by reduced SG&A expenses compared to last year. We expect second half segment operating margins to be similar to the fourth quarter of 2023, which was 10.3% on an adjusted basis.
Our outlook also assumes consolidated SG&A as a percentage of net sales will be better than last year, reflecting meaningful process changes we've implemented to ensure effective cost management moving forward. With that, I will turn the call back over to Avner.
Avner Applbaum: Thank you, Tim. Turning to Slide 15. In closing, I want to once again highlight the effectiveness of the Valmont team in navigating current market dynamics. We're actively managing what we can control through commercial excellence and focusing on our core competencies. We are proactively taking steps across our global operations, investing in our footprint to support growth, enhance productivity and maximize returns while driving strong cash flow generation. This strength across our portfolio demonstrates a level of resilience and forward momentum that was not achieved in previous agriculture down cycles, demonstrating the progress we've made on creating a high-performance culture and positioning us for sustained financial success.
With these ongoing actions, we are trying to further expand margins as volumes recover in agriculture and telecom markets. Supported by long-term mega trends in Infrastructure and Agriculture, our diverse portfolio positions us well to meet our long-term financial targets and deliver lasting value to our shareholders. I will now turn the call back over to Renee.
Renee Campbell: Thank you, Avner. At this time, the operator will open up the call for questions.
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