Valmont Industries, Inc. — Q1 2023 Form 10-Q Summary
Business Context and Reporting Period
Valmont Industries, Inc. reported unaudited results for the thirteen weeks ended April 1, 2023, compared with the thirteen weeks ended March 26, 2022. The company operates through Infrastructure and Agriculture reportable segments. The Infrastructure segment serves utility, solar, lighting, transportation, telecommunications, and coatings markets; Agriculture provides irrigation equipment, parts, tubular products, and precision-agriculture technology.
The period included the June 2022 acquisition of ConcealFab, a 5G infrastructure business, and reflected the absence of the offshore wind energy structures business, which was divested in November 2022.
Key Financial Metrics
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Net sales | $1,062.5 million | $980.8 million | 8.3% increase |
| Gross profit | $308.6 million | $249.2 million | 23.8% increase |
| Gross margin | 29.0% | 25.4% | Up 3.6 percentage points |
| Operating income | $118.5 million | $94.8 million | 24.9% increase |
| Operating margin | 11.1% | 9.7% | Up 1.4 percentage points |
| Net earnings attributable to Valmont | $74.5 million | $62.3 million | 19.6% increase |
| Diluted EPS | $3.47 | $2.90 | 19.7% increase |
| Effective tax rate | 30.3% | 26.8% | Up 3.5 percentage points |
| Operating cash flow | $21.2 million | $2.7 million | Increase of $18.5 million |
| Capital expenditures | $22.4 million | $27.1 million | Decrease of $4.7 million |
Infrastructure net sales increased 11.1% to $732.2 million and operating income increased 20.5% to $94.4 million. Agriculture net sales increased 9.0% to $330.3 million and operating income increased 42.3% to $53.3 million.
At April 1, 2023, cash and cash equivalents were $172.9 million, including approximately $132.8 million held by non-U.S. subsidiaries. Total interest-bearing debt was $998.2 million, compared with $878.0 million at December 31, 2022. Long-term debt was $985.6 million, and revolving-credit borrowings were $255.7 million. The company reported $544.1 million of available borrowing capacity under its revolving facility and was in compliance with all debt covenants.
Last-four-quarter Adjusted EBITDA was $602.1 million and the reported leverage ratio was 1.50x, below the 3.50x covenant threshold. Management stated that available credit facilities, recent note issuance, and historically positive operating cash flows provide adequate liquidity.
Material Changes Versus the Prior Comparable Period
- Higher average selling prices, including pricing mechanisms tied to steel costs, more than offset higher material and labor costs and drove significant gross-margin expansion.
- SG&A increased 23.2%, partly because of higher salaries, incentives, travel, incremental ConcealFab costs of approximately $3.2 million, and a $2.7 million bad-debt reserve related to an insolvent telecommunications customer.
- Net interest expense increased 11.2% because of higher borrowings under the revolving credit facility.
- The effective tax rate increased primarily because of a change in the geographic mix of earnings.
- Operating cash flow improved despite an approximately $15 million pension contribution and working-capital investment.
- The company repurchased 356,887 shares for $111.1 million during the quarter. The board also authorized an additional $400 million of repurchases, leaving approximately $370.3 million available under the program at April 1, 2023.
- The quarterly dividend increased from $0.55 to $0.60 per share, or $2.40 annualized.
Guidance, Outlook, Risks, and Unusual Items
- Management expects fiscal 2023 capital expenditures of approximately $105 million to $125 million.
- Backlog was approximately $1.6 billion at April 1, 2023, down from approximately $1.7 billion at December 31, 2022.
- Management expects North American Infrastructure sales to benefit from continued implementation of the Infrastructure Investment and Jobs Act and the Inflation Reduction Act.
- Agriculture demand in North America was affected by higher interest rates, inflation, economic uncertainty, and recession concerns, although international sales and technology adoption improved.
- Key monitored risks include inflation and raw-material prices, supply-chain disruptions, foreign-exchange movements, rising interest rates, labor shortages, geopolitical risks including the Russia-Ukraine conflict, demand cyclicality, competitive conditions, and product acceptance.
- Steel, natural-gas, and diesel-price exposure is managed partly through commodity forward contracts. The company also uses foreign-currency and cross-currency derivatives.
- Unusual or comparability-related items included the ConcealFab acquisition, the prior-year offshore wind business and its subsequent divestiture, a telecommunications customer bad-debt charge, pension-plan contributions, and non-cash amortization and stock-based compensation.
- The filing states that there were no material changes to previously reported risk factors, market risk, financial obligations, or critical accounting policies.
Most Important Facts for Investors to Verify
- Whether pricing actions continue to offset steel, labor, energy, and other input-cost inflation without weakening demand.
- The sustainability of the improved Infrastructure and Agriculture operating margins.
- Progression of backlog, order volumes, and North American Agriculture demand.
- Revolving-credit borrowings, interest expense, leverage, and compliance with the 3.50x debt covenant.
- Cash conversion, working-capital requirements, pension contributions, and the pace of share repurchases.
- Foreign-currency effects and the valuation and effectiveness of commodity and currency hedges.
- The impact of the ConcealFab acquisition and any further acquisitions or divestitures.
- The filing is unaudited, and management cautions that first-quarter results are not necessarily indicative of full-year results.