Valmont Announces Third Quarter 2015 Results

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Valmont Industries, Inc.
OMAHA, Neb., Oct. 21, 2015 /PRNewswire/ -- Valmont Industries, Inc. (NYSE: VMI), a leading global provider of engineered products and services for infrastructure and mechanized irrigation equipment for agriculture, today reported third quarter results.
Highlights: -- GAAP diluted EPS were $0.52 compared with $0.92 in 2014. Adjusted diluted EPS, before restructuring and impairment charges, were $1.39, as compared with $1.92 in 2014 before refinancing charges. -- Revenues of $633 million were down 17% from 2014 with foreign exchange representing about half of the decline. -- Operating income was $37 million ($61.0 million before charges); foreign exchange impact was $(6.0) million year-over-year. Operating income was 5.9% of net sales. Excluding restructuring and impairment charges, operating income was 9.6% of net sales, compared with 11.5% in 2014. -- The previously announced restructuring initiative is proceeding as planned with overhead reductions, plant consolidations and other cost actions on track. Completion of most activities is expected by year-end; estimated annualized benefit has increased to $30 million from $19 million. -- $8.8 million of pre-tax restructuring expense was recognized during the quarter. In addition, the annual impairment testing of trade names and goodwill resulted in pre-tax impairment charges of $15.2 million. -- Repurchased 247,000 of Company shares during quarter for $27.2 million. -- Completed acquisition of American Galvanizing on September 30.
Summarized Financial Info. Third Quarter Year-to-Date 13 Weeks Ended 39 Weeks Ended ($ in thousands, except per share data) 26-Sep-15 27-Sep-14 26-Sep-15 27-Sep-14 Net Sales $632,575 $765,668 $1,985,096 $2,360,007 Operating Income -GAAP 37,012 87,803 148,695 291,427 Operating Income -Adjusted * 61,012 87,803 187,738 291,427 Net Earnings - GAAP 12,066 23,559 70,678 143,515 Net Earnings - Adjusted * 32,176 49,088 100,678 172,545 Diluted EPS - GAAP Earnings $0.52 $0.92 $3.00 $5.43 Diluted EPS - Adjusted Earnings * $1.39 $1.92 $4.28 $6.53 Average Shares Outstanding - Diluted 23,170 25,513 23,534 26,439 * Please see Reg. G reconciliation table on last page.
"The end-market challenges of weak agricultural commodity prices and reduced mining and energy driven demand, along with unfavorable currency translation, persisted during the quarter," said Mogens C. Bay, Valmont's Chairman and Chief Executive Officer. "Our goal in this environment remains to drive earnings improvement next year despite continued difficult market conditions. During the quarter, we continued our restructuring efforts and are on track to complete most initiatives by year-end. We now expect annualized cost savings from restructuring and cost reduction actions to approximate $30 million per year, compared to our prior expectations of $19 million in annualized savings."
Restructuring Plan Update
Third quarter progress on the Company's 2015 restructuring efforts entailed numerous actions to streamline management structure, consolidate production to lower cost facilities and reduce overhead. The major actions that took place during the quarter were as follows: In the Engineered Infrastructure Products Segment, overhead reductions occurred in all geographic regions, plant consolidations took place in access systems in Australia and a small facility in China was closed. In the Coatings segment, the idling of one Australian facility was completed.
The total restructuring costs incurred during the third quarter for the above actions, plus other restructuring activities, were $8.8 million pre-tax. The restructuring charges comprised of $5.5 million of cash expenses and $3.3 million of non-cash asset impairments. As part of the Company's annual impairment testing of intangible assets, during the third quarter, a pre-tax, non-cash impairment charge of $15.2 million was recorded on certain intangible assets, including a $10.2 million impairment of certain intangible assets in the Coatings Segment.
Third Quarter Segment Review
Engineered Infrastructure Products Segment (41% of 3rd Quarter Sales)
Engineered structures and components for global lighting and traffic, wireless communication, roadway safety, offshore structures and access systems applications.
Third quarter sales were $259.9 million, compared to $294.9 million in 2014, of which currency translation represented $30.0 million of the decline.
In North America, sales of lighting and traffic products increased due to the acquisition of Shakespeare, a composite structures manufacturer, in October, 2014. Wireless communication structure sales were lower due a major carrier's absence from the market.
In Europe, lighting and traffic structure sales declined slightly in local currency reflecting continued restraint in government investment in infrastructure due to general economic conditions in the region. Offshore structure sales were lower as investments in the energy sector were curtailed. A customer's delayed introduction of larger next-generation wind turbines also pushed out offshore structure deliveries into next year.
In the Asia-Pacific region, an increase in wireless communication structure sales benefitting from China's investment in its 4G wireless technology rollout was more than offset by engineered access system sales declines due to lower oil and gas investment in the region and a reduction of new investment in the Australian mining sector.
Operating income was $14.2 million, or 5.4% of segment sales, (9.1% before charges) compared with $33.2 million or 11.3% of segment sales in 2014, (included approximately $4.0 million reversal of a contingent purchase price provision related to the 2013 acquisition of Locker). Volume deleverage, impairment and restructuring charges and currency translation effects accounted for most the decline.
Utility Support Structures Segment (26% of 3rd Quarter Sales) Steel and concrete structures for the global electric utility industry.
Sales of $164.7 million were 9% lower than 2014, due to the revenue impact of lower steel costs, modest volume declines and continued competitive pricing. International sales were comparable with last year.
In North America, utility investment in transmission this year, in some cases favored capital deployment to coal plant retirements required by the EPA.
Segment operating income declined to $14.5 million or 8.8% of segment sales, (9.5% excluding charges). Operating income as a percent of sales was 9.4% in 2014.
Coatings Segment (12% of 3rd Quarter Sales) Global galvanizing, painting and anodizing services.
Global Coatings Segment sales of $76.2 million were 12% lower than last year. Sales declined in Australia due to reduced volumes related to mining and energy development projects. In North America, both custom and internal irrigation volumes declined. Custom volumes were slightly lower mostly due to weaker demand from agricultural customers.
Operating income was $3.1 million, ($14.2 million, or 18.6% of net sales excluding restructuring and impairment costs of $11.0 million), operating income was 20.2% of net sales last year.
During the quarter, the Company completed the acquisition of American Galvanizing, located in Folsom, New Jersey. This operation provides an important galvanizing presence for Valmont in the Northeast U.S. for both custom and internal volumes.
Irrigation Segment (18% of 3rd Quarter Sales) Agricultural irrigation equipment and related parts and services worldwide.
Irrigation Segment sales fell 36% to $112.2 million due to the absence this year of approximately $25 million in sales to replace and repair storm damaged machines that were included in last year's sales of $174.3 million, and the impact on demand of lower global farm income. In North America, favorable growing conditions lowered operating run-times on irrigation equipment, also reducing demand for aftermarket parts. Sales declined in international markets, due to currency translation effects and reduced volumes, particularly in South America.
Operating income was $10.5 million or 9.4% of segment sales, primarily reflecting lower sales volume and related manufacturing and SG&A deleverage.
"At this time, we are not expecting the current market environment to improve and our immediate focus remains on aligning our cost structure through the planned restructuring activities, but still investing in product line development to strengthen our leading market positions. We expect a meaningful improvement in 2016 earnings," said Mr. Bay.
An audio discussion of Valmont's third quarter results will be available live by telephone by dialing 1-877-493-2981 and entering Conference ID#: 66187261 or via Webcast at 8:00 a.m. CDT October 22, 2015 at . A replay is available through the above link or by telephone (855-859-2056 or 404-537-3406, Conference ID#: 66187261) beginning October 22, 2015 at 10:00 a.m. CDT through 12:00 p.m. CDT on October 29, 2015.
Valmont is a global leader, designing and manufacturing highly engineered products that support global infrastructure development and agricultural productivity. Its products for infrastructure serve highway, transportation, wireless communication, electric transmission, and industrial construction and energy markets. Its mechanized irrigation equipment for large scale agriculture improves farm productivity while conserving fresh water resources. In addition, Valmont provides coatings services that protect against corrosion and improve the service lives of steel and other metal products.
This release contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on assumptions that management has made in light of experience in the industries in which Valmont operates, as well as management's perceptions of historical trends, current conditions, expected future developments and other factors believed to be appropriate under the circumstances. As you read and consider this release, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties (some of which are beyond Valmont's control) and assumptions. Although management believes that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect Valmont's actual financial results and cause them to differ materially from those anticipated in the forward-looking statements. These factors include among other things, risk factors described from time to time in Valmont's reports to the Securities and Exchange Commission, as well as future economic and market circumstances, industry conditions, company performance and financial results, operating efficiencies, availability and price of raw material, availability and market acceptance of new products, product pricing, domestic and international competitive environments, and actions and policy changes of domestic and foreign governments. The Company cautions that any forward-looking statement included in this press release is made as of the date of this press release and the Company does not undertake to update any forward-looking statement. VALMONT INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Dollars in thousands, except per share amounts) (unaudited) Third Quarter Year-to-Date 13 Weeks Ended 39 Weeks Ended 26-Sep-15 27-Sep-14 26-Sep-15 27-Sep-14 Net sales $632,575 $765,668 $1,985,096 $2,360,007 Cost of sales 475,824 566,168 1,493,343 1,733,048 Gross profit 156,751 199,500 491,753 626,959 Selling, general and administrative expenses 104,539 111,697 327,858 335,532 Impairment of goodwill and intangible assets 15,200 - 15,200 - --- --- Operating income 37,012 87,803 148,695 291,427 Other income (expense) Interest expense (11,120) (8,716) (33,480) (25,217) Interest income 905 1,477 2,395 4,793 Costs related to refinancing of debt - (38,705) - (38,705) Other (1,230) (2,344) (242) (6,253) (11,445) (48,288) (31,327) (65,382) Earnings before income taxes and equity in earnings of nonconsolidated subsidiaries 25,567 39,515 117,368 226,045 Income tax expense 12,018 14,226 42,873 78,311 Earnings before equity in earnings of nonconsolidated subsidiaries 13,549 25,289 74,495 147,734 Equity in earnings of nonconsolidated subsidiaries - (4) - (34) --- --- --- --- Net earnings 13,549 25,285 74,495 147,700 Less: Earnings attributable to non-controlling interests (1,483) (1,726) (3,817) (4,185) Net earnings attributable to Valmont Industries, Inc. $12,066 $23,559 $70,678 $143,515 Average shares outstanding (000's) -Basic 23,057 25,287 23,420 26,208 Earnings per share - Basic $0.52 $0.93 $3.02 $5.48 Average shares outstanding (000's) -Diluted 23,170 25,513 23,534 26,439 Earnings per share - Diluted $0.52 $0.92 $3.00 $5.43 Cash dividends per share $0.375 $0.375 $1.125 $1.000 VALMONT INDUSTRIES, INC. AND SUBSIDIARIES SUMMARY OPERATING RESULTS (Dollars in thousands) (unaudited) Third Quarter Year-to-Date 13 Weeks Ended 39 Weeks Ended 26-Sep-15 27-Sep-14 26-Sep-15 27-Sep-14 Net sales Engineered Infrastructure Products $259,869 $294,899 $759,331 $827,713 Utility Support Structures 164,684 181,185 503,954 608,942 Coatings 76,200 86,735 226,654 254,063 Infrastructure products 500,753 562,819 1,489,939 1,690,718 Irrigation 112,205 174,288 420,502 606,938 Other 42,285 60,838 146,547 181,226 Less: Intersegment sales (22,668) (32,277) (71,892) (118,875) Total $632,575 $765,668 $1,985,096 $2,360,007 Operating Income Engineered Infrastructure Products $14,154 $33,200 $43,560 $75,534 Utility Support Structures 14,505 16,975 40,261 76,107 Coatings 3,145 17,554 22,006 47,260 Infrastructure products 31,804 67,729 105,827 198,901 Irrigation 10,539 26,888 60,655 111,507 Other 3,886 6,211 16,757 23,104 Corporate (9,217) (13,025) (34,544) (42,085) Total $37,012 $87,803 $148,695 $291,427 Valmont has aggregated its business segments into four reportable segments as follows. Engineered Infrastructure Products:This segment consists of the manufacture of engineered metal structures and components for global lighting and traffic, wireless communication, roadway safety and access systems applications. Utility Support Structures:This segment consists of the manufacture of engineered steel and concrete structures for the global utility industry. Coatings:This segment consists of global galvanizing, painting and anodizing services. Irrigation:This segment consists of the manufacture of agricultural irrigation equipment and related parts and services worldwide. In addition to these four reportable segments, Valmont also has other businesses that individually are not more than 10% of consolidated net sales. These businesses, which include the manufacture of forged steel grinding media, tubular products, and industrial fasteners are reported in the "Other" category.
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands) (unaudited) 26-Sep-15 27-Sep-14 ASSETS Current assets: Cash and cash equivalents $312,851 $452,218 Accounts receivable, net 501,403 570,810 Inventories 368,290 384,645 Prepaid expenses 52,208 64,673 Refundable and deferred income taxes 44,736 64,438 Total current assets 1,279,488 1,536,784 Property, plant and equipment, net 543,235 616,552 Goodwill and other assets 666,978 709,385 $2,489,701 $2,862,721 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current installments of long-term debt $1,099 $188 Notes payable to banks 1,496 17,863 Accounts payable 186,581 209,996 Accrued expenses 175,028 187,942 Dividend payable 8,649 9,299 Total current liabilities 372,853 425,288 Long-term debt, excluding current installments 764,823 768,611 Other long-term liabilities 286,248 310,136 Shareholders' equity 1,065,777 1,358,686 $2,489,701 $2,862,721 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited) and dollars in thousands Year to Date Year to Date 26-Sep-15 27-Sep-14 Cash flows from operating activities Net Earnings $74,495 $147,700 Depreciation and amortization 70,859 64,460 Impairment of assets - restructuring activities 12,659 - Impairment of goodwill and trade names 15,200 - Change in working capital 8,637 (121,404) Other 972 (8,059) --- Net cash flows from operating activities 182,822 82,697 Cash flows from investing activities Purchase of property, plant, and equipment (34,447) (63,412) Acquisitions, net of cash acquired - (137,438) Other 9,236 5,099 Net cash flows from investing activities (25,211) (195,751) Cash flows from financing activities Proceeds from long-term borrowings 37,000 652,540 Principal payments on long-term borrowings (37,878) (357,059) Purchase of treasury shares (148,220) (316,296) Dividends paid (26,708) (23,357) Other (14,420) 969 --- Net cash flows from financing activities (190,226) (43,203) Effect of exchange rates on cash and cash equivalents (26,113) (5,231) Net change in cash and cash equivalents (58,728) (161,488) Cash and cash equivalents - beginning of year 371,579 613,706 Cash and cash equivalents -end of period $312,851 $452,218
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES SUMMARY OF EFFECT OF SIGNIFICANT NON-RECURRING ITEMS ON REPORTED RESULTS REGULATION G RECONCILIATION (Dollars in thousands, except per share amounts) (unaudited) The non-GAAP tables below disclose the impact on (a) diluted earnings per share of (1) restructuring costs, (2) goodwill and trade name impairment charges, and (3) the non-cash after-tax loss or gain associated with adjusting the fair value of Delta EMD Pty. Ltd (Delta EMD) shares owned to its quoted market price at September 26, 2015, and September 27, 2014, (b) operating income of restructuring costs, and (c) segment operating income of restructuring costs. Amounts may be impacted by rounding. We believe it is useful when considering company performance for the non-GAAP adjusted net earnings and operating income to be taken into consideration by management and investors with the related reported GAAP measures. Third Quarter Diluted earnings Year-to-Date Diluted Ended Sept. 26, per share Sept. 26, 2015 earnings per 2015 share ---- Net earnings attributable to Valmont Industries, Inc. -as reported $12,066 $0.52 $70,678 $3.00 Restructuring expenses - after tax 6,310 0.27 16,634 0.71 Impairment of goodwill and trade names - after tax 13,370 0.58 13,370 0.57 Fair market value adjustment, Delta EMD - after-tax 430 0.02 (4) NM --- ---- --- --- Net earnings attributable to Valmont Industries, Inc. - Adjusted $32,176 $1.39 $100,678 $4.28 Average shares outstanding (000's) - Diluted 23,170 23,534 Third Quarter Diluted earnings Year-to-Date Diluted Ended Sept. 27, per share Sept. 27, 2014 earnings per 2014 share ---- Net earnings attributable to Valmont Industries, Inc. -as reported $23,559 $0.92 $143,515 $5.43 Costs related to refinancing of debt - after tax 24,171 0.95 24,171 0.91 Fair market value adjustment, Delta EMD - after-tax 1,358 0.05 4,859 0.18 ---- ---- Net earnings attributable to Valmont Industries, Inc. - Adjusted $49,088 $1.92 $172,545 $6.53 Average shares outstanding (000's) - Diluted 25,513 26,439 Operating Income Reconciliation Third Quarter Year-to-Date Ended Sept. 26, Sept. 26, 2015 2015 --- ---- Operating income - as reported $37,012 $148,695 Restructuring expenses - before tax 8,800 23,843 Impairment of goodwill and trade names - before tax 15,200 15,200 Adjusted Operating Income $61,012 $187,738 Net Sales 632,575 1,985,096 Operating Income as a % of Sales 5.9% 7.5% Adjusted Operating Income as a % of Sales 9.6% 9.5% --- --- For the Third Quarter Ended Sept. 26, 2015 Segment Operating Income Reconciliation Engineered Utility Support Coatings Irrigation Other/ Infrastructure Structures Corporate Products --- Operating income -as reported $14,154 $14,505 $3,145 $10,539 $(5,331) Restructuring expenses -before tax 4,568 1,159 806 52 2,215 Impairment of goodwill and trade names - before tax 5,000 - 10,200 - - Adjusted Operating Income $23,722 $15,664 $14,151 $10,591 $(3,116) --