Valmont Industries, a global provider of engineered products and services for infrastructure development and irrigation equipment and services for agriculture, has reported financial results for the second quarter ended June 27, 2020.
Net Sales of $688.8 million declined 1.7%; excluding $13.7 million of unfavorable currency impacts, sales were similar to last year, as strong growth in Utility Support Structures was offset by lower sales in the Coatings segment due to COVID-19 impacts, as expected. Operating Income of $43.4 million, or 6.3% of sales ($65.7 million or 9.5% adjusted) compared to $61.5 million or 8.8% of sales last year; profitability improved in all segments except Coatings
The company generated strong operating cash flow of $88.3 million, driven by operating income and working capital management; cash and cash equivalents were $353.3 million at the end of second quarter. The company also completed 2 acquisitions in the Irrigation segment; purchased a majority stake in Solbras - Energia Solar do Brasil, and acquired 100% of the assets of PrecisionKing.
"Valmont delivered strong second quarter operating performance as our team persisted in serving customers despite COVID-19 challenges, including related shutdowns and economic restrictions," said Stephen G. Kaniewski, president and CEO. "Revenue and profitability were better than expected across all segments, as we successfully managed pricing and operational performance. We completed strategic capacity additions, which contributed to improved performance and revenue growth, particularly in the Utility Support Structures segment. Our consistent focus on liquidity and working capital management led to strong operating cash flows. Importantly, I want to thank all employees for their hard work and resiliency in producing products and providing services that support critical infrastructure sectors and food security around the world. As always, the safety and well-being of our employees remains our top priority."
Second Quarter 2020 Irrigation Segment Review
Irrigation (21.9% of Sales)
Agricultural irrigation equipment, parts, services and tubular products, water management solutions, and technology for precision agriculture
Global sales of $150.6 million decreased 3% year-over-year due to unfavorable currency impacts of $5.6 million, otherwise sales were similar to last year. Higher sales of irrigation products were offset by lower industrial tubing sales.
North American sales of $99 million were down 3.7% compared to 2019. Higher sales of irrigation products and pricing were more than offset by lower industrial tubing sales driven by lower steel costs.
International sales of $51.6 million decreased 1.5% compared to 2019. Sales volumes increased approximately 10% excluding unfavorable currency impacts, led by continued strong demand in Brazil and higher sales in European markets.
Segment operating income was $22.4 million, or 14.8% of sales, compared to $21.5 million, or 13.9% of sales in 2019. Profitability improvement was led by pricing and higher sales volumes. Higher SG&A expense included $1.4 million of incremental R&D expense for technology growth investments.
During the quarter, the Company purchased a majority stake in Solbras - Energia Solar do Brasil, a leading provider of solar energy solutions for agriculture that allows Valmont to deliver a first-to-market, advanced solar power and monitoring solution to growers. The company also expanded its global technology leadership position with the asset purchase of PrecisionKing, a subscription-based provider of control technology and remote monitoring solutions for the U.S. market.
COVID-19 Business Continuity and Operations Update
Valmont is considered an essential business because of the products and services that serve critical infrastructure sectors and food security, as defined by many governments around the world. To protect the safety, health and well-being of employees, customers, suppliers and communities, CDC, WHO and local guidelines continue to be followed.
Beginning late in the first quarter, a number of Valmont manufacturing facilities outside of the U.S. were closed due to the pandemic. During the second quarter, all facilities resumed operations. Incremental expenses related to the pandemic during the quarter were approximately $2.5 million, or $0.09 per diluted share.
Valmont monitors health advisories on a continuous basis, particularly in areas reporting recent increases in infection. The Company continues to take deliberate steps to protect all stakeholders and minimize the operational and financial impacts on the business. To date, Valmont has not experienced any significant disruptions or changes to the supply of raw materials and other critical components, and is not currently experiencing meaningful delays in its global supply chain.
Third-Quarter 2020 Financial Outlook and Key Assumptions
Although the pandemic's impacts on global economic factors and pace of economic recovery remain unclear, the Company is providing a greater level of transparency during this time, including key assumptions and indications for third quarter 2020, to help the financial community understand short-term impacts and expectations.
|Operating Profit Margin
|Segment Sales: Utility Support Structures
|~20.0% Increase (vs. prior year)
Utility Support Structures sales estimate driven by higher sales in international businesses
Tax rate of ~25%
- Unfavorable currency translation on net sales of $7M – $9M
- Positive operating cash flows
- Stable raw material costs and no significant supply chain interruptions
- No closures of large manufacturing facilities or workforce disruptions
Kaniewski continued, "Our quick and decisive actions at the outset of the pandemic allowed us to mitigate the severity of its impact on our operating and financial results through the first half of the year. We continue to work diligently and safely to provide our customers with the essential products and solutions they need. The global backlogs in our infrastructure businesses are solid, providing a good line of sight for third quarter sales, and our balance sheet is strong. We continue to closely monitor all discretionary spending and capital expenditures, with an additional emphasis on managing working capital and cash flow. Through the use of lean and agile, we will continue to aggressively drive operational efficiencies. We will successfully navigate through these uncertain times by focusing on employee safety and well-being, remaining flexible, and managing what we can control to drive long-term shareholder value."