Valmont Industries, Inc. — Fiscal 2023 Form 10-K Summary
Business context and reporting period
Valmont is a diversified manufacturer serving infrastructure and agriculture markets through two reportable segments: Infrastructure and Agriculture. Infrastructure includes utility, solar, lighting, transportation, telecommunications, and coatings products; Agriculture includes mechanized irrigation equipment, parts, tubular products, and precision-agriculture technology.
The filing covers the 52-week fiscal year ended December 30, 2023, compared with the 53-week fiscal year ended December 31, 2022. Management estimates that the additional week in fiscal 2022 contributed approximately $80.8 million of sales and $5.3 million of net earnings. Approximately 31% of fiscal 2023 sales were sold in markets or produced by facilities outside North America.
Financial performance and key metrics
| Fiscal year ended December 30 | 2023 | 2022 | Change |
|---|---|---|---|
| Net sales | $4,174.6 million | $4,345.2 million | (3.9%) |
| Gross profit | $1,236.0 million | $1,126.3 million | 9.8% |
| Gross margin | 29.6% | 25.9% | +370 bps |
| Operating income | $291.6 million | $433.3 million | (32.7%) |
| Operating margin | 7.0% | 10.0% | (300 bps) |
| Net earnings attributable to Valmont | $150.8 million | $250.9 million | (39.9%) |
| Diluted earnings per share | $6.78 | $11.62 | (41.7%) |
| Net interest expense | $50.6 million | $45.5 million | 11.2% |
| Effective tax rate | 38.1% | 29.9% | +820 bps |
Net margin was approximately 3.6% in 2023 versus approximately 5.8% in 2022. Gross margin improved primarily because of higher selling prices, customer pricing mechanisms, lower steel costs, and cost improvements, but operating income was reduced by impairment charges, realignment costs, higher SG&A, and increased interest expense.
- Infrastructure: Net sales of $2,999.6 million increased 3.1%; operating income of $396.3 million increased 11.8%. TD&S and Solar sales grew, while Telecommunications sales declined 21.3% due to lower volumes.
- Agriculture: Net sales of $1,175.0 million declined 12.0%; operating income fell 90.6% to $16.9 million. North American sales declined 23.4%, primarily due to lower irrigation-equipment volumes, lower farm income, delayed grower capital spending, and economic uncertainty. International sales increased 2.6%.
- Backlog: Consolidated backlog was $1,465.5 million at year-end versus $1,656.4 million at the prior year-end. Infrastructure backlog was $1,299.6 million; Agriculture backlog was $165.9 million. Most of the fiscal 2023 backlog was expected to be shipped in fiscal 2024.
Cash flow, liquidity, capital allocation, and debt
- Operating cash flow was $306.8 million, compared with $326.3 million in 2022.
- Capital expenditures were $96.8 million, and investing cash flow was negative $115.3 million. Investing activity included the $32.7 million acquisition of HR Products, an Australian irrigation-parts supplier.
- Financing cash flow was negative $176.4 million, including $345.3 million of treasury-share purchases and $49.5 million of dividends paid.
- Cash and cash equivalents were $203.0 million, including approximately $162.0 million held by non-U.S. subsidiaries.
- Total interest-bearing debt was $1,138.1 million, up from $878.0 million. Debt included $450.0 million of 5.00% senior notes due 2044, $305.0 million of 5.25% senior notes due 2054, and $377.9 million outstanding under the revolving credit facility.
- Available borrowing capacity under the revolving facility was $421.9 million, and unused short-term bank lines totaled $36.1 million. The company was in compliance with its debt covenants, including the 3.50 maximum leverage ratio; reported leverage was 1.60 times Adjusted EBITDA.
- Management stated that available credit facilities, access to capital markets, and positive operating cash flow provide adequate liquidity for fiscal 2024 and beyond. Fiscal 2024 capital expenditures are expected to be approximately $125 million to $140 million.
- The quarterly dividend was increased 9% in February 2023 to $0.60 per share, or $2.40 annualized. The company repurchased 714,037 shares during the fourth quarter and had $136.1 million remaining under its repurchase authorization at year-end. A $120.0 million accelerated share repurchase was expected to be completed in the first quarter of fiscal 2024.
Material changes and unusual items
- The company recorded $140.8 million of goodwill and intangible-asset impairment charges, including a $120.0 million impairment of the Agriculture Technology reporting unit and a $17.3 million impairment of Prospera-related technology. The impairments reflected a weaker North American agriculture outlook and slower-than-expected adoption of agronomy software.
- The company recorded $35.2 million of realignment charges for a voluntary early-retirement program and other headcount reductions. Approximately $22.7 million was paid during fiscal 2023, with $12.5 million remaining accrued at year-end.
- The company recorded $5.6 million of non-recurring charges related to major scope changes in two strategic projects initiated by departed senior leadership.
- Fiscal 2023 included a $3.0 million gain on the divestiture of Torrent Engineering and Equipment. Fiscal 2022 included a $33.3 million loss on the divestiture of the offshore wind structures business.
- Higher interest expense reflected increased borrowings and interest rates. The effective tax rate increased primarily because goodwill impairment charges were not tax deductible.
- The company acquired HR Products for $37.3 million in cash and completed the divestiture of Torrent Engineering and Equipment. Subsequent to year-end, it acquired an additional approximately 9% of ConcealFab for $7.2 million and expected to pay $10.5 million to acquire the remaining interest in another consolidated entity following exercise of a put option.
- The filing corrects the presentation of redeemable noncontrolling interests, moving prior-period amounts outside shareholders’ equity. Management concluded the prior-period error was not material, individually or in aggregate.
Guidance, outlook, commentary, and risks
- Management expects Infrastructure sales to increase by mid-single digits in fiscal 2024, driven by TD&S and Solar, grid-hardening activity, and the global energy transition.
- Management expects North American Agriculture irrigation-equipment and aftermarket-parts sales to remain below prior-year levels. The business remains exposed to farm income, commodity prices, weather, water regulations, interest rates, government support programs, and grower sentiment.
- Key risks include cyclical infrastructure, telecommunications, and agriculture demand; volatility in steel, aluminum, zinc, natural gas, fuel, and freight costs; fixed-price contract exposure; foreign currency movements; tariffs and geopolitical disruption; labor availability; cybersecurity; environmental obligations; product warranty and contract claims; and potential additional goodwill impairment.
- Four reporting units had less than 15% excess fair value over carrying value, including Europe, Middle East & Africa Structures, Asia Pacific Highway Safety, Asia Pacific Access Systems, and Solar Tracking Structure. Further deterioration in assumptions could result in additional impairment charges.
- The U.K. pension plan was overfunded for accounting purposes by approximately $15.4 million at year-end, but annual funding and administrative contributions were expected to total approximately $18.4 million. Changes in actuarial assumptions or funding requirements could increase future cash needs.
- The company reported no material legal proceedings and stated that known litigation, environmental costs, commitments, and contingencies were not expected to materially affect results, financial condition, or liquidity.
Investor verification items
- Verify the sustainability of improved gross margins after pricing benefits and lower input costs normalize.
- Track North American Agriculture demand, farm income, irrigation volumes, and the performance and adoption of Prospera-related technology.
- Assess whether Infrastructure growth, particularly in TD&S and Solar, offsets continued Telecommunications weakness.
- Reconcile debt growth, interest-rate exposure, share repurchases, dividends, and planned capital expenditures against operating cash flow.
- Review goodwill impairment sensitivities and the risk of additional charges in reporting units with limited valuation cushion.
- Confirm completion and final share settlement of the November 2023 accelerated share repurchase and the subsequent ConcealFab and redeemable-interest transactions.
- Consider the effect of foreign cash restrictions, currency movements, commodity prices, tariffs, and geopolitical conditions on liquidity and reported earnings.
- Review the corrected redeemable noncontrolling-interest presentation and its effect on equity, earnings per share, and future redemption obligations.