Valmont Industries, Inc. — Q1 2022 Form 10-Q Summary
Business context and reporting period
Valmont Industries, Inc. reported unaudited results for the thirteen weeks ended March 26, 2022, compared with March 27, 2021. The company manufactures infrastructure products and provides coatings services, irrigation equipment, and precision-agriculture technology solutions. Beginning in fiscal 2022, management realigned reporting into two segments: Infrastructure and Agriculture; prior-period segment data was recast.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net sales | $980.8 million | $774.9 million | 26.6% |
| Gross profit | $249.2 million | $204.6 million | 21.8% |
| Gross margin | 25.4% | 26.4% | Down 100 bps |
| Operating income | $94.8 million | $77.2 million | 22.8% |
| Operating margin | 9.7% | 10.0% | Down 30 bps |
| Net earnings attributable to Valmont | $62.3 million | $55.0 million | 13.3% |
| Diluted EPS | $2.90 | $2.57 | 12.8% |
| Operating cash flow | $2.7 million | $33.2 million | Down $30.5 million |
| Capital expenditures | $27.1 million | $27.6 million | Down $0.5 million |
Infrastructure net sales increased 24.0% to $677.6 million and operating income increased 42.5% to $77.5 million. Agriculture net sales increased 32.7% to $303.2 million, while operating income declined 3.1% to $37.5 million because of lower margins and higher selling, general and administrative expenses.
Cash and cash equivalents were $149.7 million at March 26, 2022, down from $177.2 million at December 25, 2021. Total interest-bearing debt was $975.7 million, including $234.6 million drawn under the revolving credit facility. The company reported $565.2 million of available borrowing capacity under that facility and $129.8 million of unused short-term bank lines. Its reported leverage ratio was 1.85x versus a 3.50x covenant limit, and the company was in compliance with its debt covenants.
Working capital increased to $1.02 billion, primarily because of higher inventories and receivables. Inventory rose to $807.5 million from $728.8 million at year-end. The company paid $10.6 million in dividends and declared a quarterly dividend of $0.55 per share, a 10% increase from $0.50.
Material changes versus the prior comparable period
- Revenue growth reflected higher average selling prices, particularly for steel-intensive products, with pricing mechanisms and selling-price actions largely offsetting inflation in material costs.
- SG&A increased 21.2% to $154.3 million, driven by contributions from Prospera, higher incentives, salary increases, research and development costs, and higher corporate expenses.
- Interest expense increased because of borrowings under the revolving credit facility.
- Operating cash flow declined materially as receivables, inventories, and contract assets increased with higher sales and commodity prices.
- Prospera and PivoTrac, acquired in 2021, increased Agriculture sales and expenses. Q1 2022 comparability included $1.6 million of Prospera intangible amortization and $2.5 million of Prospera stock-based compensation expense.
- The company reported an unrealized investment loss of $1.1 million related to deferred-compensation assets; the filing states this was offset by an equal change in SG&A.
Guidance, outlook, risks, and unusual items
- Backlog was approximately $1.8 billion at March 26, 2022, compared with $1.6 billion at December 25, 2021. Approximately $1.6 billion was expected to be fulfilled within the following 12 months. The increase included a roughly $135 million transmission, distribution, and substation order.
- Fiscal 2022 capital expenditures were expected to range from $110 million to $120 million.
- Management stated that manufacturing facilities were open and fully operational as of March 26, 2022, but continued to monitor COVID-19, supply-chain effects, demand, and governmental restrictions.
- Key risks identified include raw-material availability and pricing, inflation, customer demand, supply-chain disruption, COVID-19 effects, foreign exchange, geopolitical conditions, competition, product acceptance, and government policy changes.
- On April 27, 2022, the company agreed to acquire a majority interest in ConcealFab for approximately $41 million, net of cash acquired. The transaction was expected to close in the second quarter of 2022, subject to customary conditions.
- The filing reports no material changes to previously disclosed risk factors, market risk, financial obligations, or critical accounting policies.
- The filing presents inconsistent effective tax-rate information: the results table shows 23.4% for Q1 2022 versus 23.0% for Q1 2021, while MD&A states 26.8% versus 21.9%. The financial statements report income tax expense of $23.1 million on $86.4 million of pretax earnings, implying approximately 26.8%; this discrepancy should be verified.
Most important facts for investors to verify
- Whether higher selling prices can continue to offset steel, labor, freight, and other input-cost inflation without further margin compression.
- The sustainability and conversion timing of the $1.8 billion backlog, including the approximately $135 million large project.
- Working-capital requirements and whether operating cash flow improves from the Q1 2022 level of $2.7 million.
- The impact of Prospera and PivoTrac on Agriculture profitability, including technology adoption, amortization, and stock-based compensation.
- The effective tax-rate discrepancy in the filing and its implications for earnings comparability.
- Closing, financing, and integration considerations for the planned ConcealFab acquisition.
- Compliance with the revolving-credit leverage covenant and the company’s investment-grade debt objectives.