Valmont (VMI) Q2 Earnings Beat, Sales Miss, Shares Down

Valmont Industries, Inc. (NYSE:VMI) reported net earnings of roughly $42 million or $1.85 per share for second-quarter 2016. Earnings per share improved around 55% year over year and beat the Zacks Consensus Estimate of $1.74.

The bottom line was driven by the company’s restructuring efforts taken last year and cost-saving measures implemented in the current year.
Net sales for the quarter were reported at $640.2 million, down 6% from the prior-year figure. The top line missed the Zacks Consensus Estimate of $651 million. Revenues declined mainly because of lower irrigation equipment and international utility sales and $10 million of currency translation effects.

Valmont’s shares closed around 3.5% lower at $132.38 yesterday.

Segment Review

Broadly, the Omaha, NE-based company classifies its business segments as infrastructure- and agriculture-related.

Infrastructure-Related

Engineered Support Structures: The segment’s sales of $203.9 million for the reported quarter were higher than the prior-year period due to increased telecommunication structure sales in the Asia-Pacific region. Sales of lighting and traffic products were almost on par in North America while sales of wireless communication products were lower. Lighting and traffic structure sales in Europe fell modestly from the prior-year quarter due to spending restraint for infrastructure projects.

Utility Support Structure: Sales fell 7% year over year to $151.2 million, hurt by contractual price reductions tied to lower steel costs. The market is however attractive, as demand is driven by reliability standards and higher renewable energy projects.

Coatings Segment: This segment saw net sales of $75.3 million, almost flat with second-quarter 2015. Lower sales in the Asia-Pacific region were mainly offset by the positive effect of the acquisition of American Galvanizing last year.

Energy and Mining: Net sales decreased 6.5% to $80.7 million due to lower sales of access systems and grinding media products, partially neutralized by improved sales of wind tower products.

Agriculture-Related

Irrigation: The segment reported net sales of $152.3 million, down 12% primarily due to lower North-America irrigation equipment and tubing sales. Sales of Irrigation equipment in North America were subdued by restrained capital investment by growers facing prospects of further pressure on net farm income. Tubing sales fell despite recent firmness in steel prices.

Financial Position

Valmont ended the quarter with a cash balance of $344.3 million, up roughly 8.4% year over year. Long-term debt at the end of the quarter was $756.5 million, down 1.1% year over year.

The company repurchased 92,000 shares worth $11.7 million during the quarter. The authorized buyback program still has a balance of $153 million.

Outlook

Valmont does not expect considerable short-term improvement in its end markets, and anticipates consistent downward pressure in the irrigation market. With steel being a major input cost, the company expects earnings per share to be in the range of $6.31–$6.49 for 2016, which takes into account some margin pressure in the second half, especially in the Engineered Support Structures Segment. It assumes stable steel prices for the balance of the year.

Valmont is investing in new products, opening new markets and pursuing acquisitions to augment future profitable growth in its infrastructure and agricultural markets.

The company’s cost reduction structure has identified opportunities to reduce costs in Australia resulting in a cash restructuring charge, expected to be $4.7 million, over the remainder of 2016. Restructuring activities are expected to impact the Energy and Mining and Coatings Segments. The main activities will involve the consolidation and closure of a few facilities, and headcount reductions.

VALMONT INDS Price, Consensus and EPS Surprise

VALMONT INDS Price, Consensus and EPS Surprise | VALMONT INDS Quote

Zacks Rank

Valmont currently holds a Zacks Rank #4 (Sell).

Some better-ranked stocks in the sector include ArcelorMittal (NYSE:MT) , AK Steel Holding Corporation (NYSE:AKS) and Tenaris S.A. (NYSE:TS) , all carrying a Zacks Rank #2 (Buy).