Valmont Industries, Inc. — Fiscal 2022 Form 10-K Summary
Business Context and Reporting Period
Valmont is a diversified manufacturer serving infrastructure and agriculture markets. Its reportable segments are Infrastructure, which includes utility, lighting, transportation, coatings, telecommunications, and renewable-energy products, and Agriculture, which includes mechanized irrigation, parts, and precision-agriculture technology. Fiscal 2022 ended December 31, 2022 and included 53 weeks, compared with 52 weeks in fiscal 2021. Management estimates the extra week contributed approximately $80.8 million of sales and $5.3 million of net earnings.
Approximately 32% of fiscal 2022 sales were sold in markets or produced by facilities outside North America. The company operated more than 80 manufacturing plants and had 11,364 employees at year-end.
Key Financial Metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Net sales | $4,345.3 million | $3,501.6 million | 24.1% |
| Gross profit | $1,126.2 million | $883.9 million | 27.4% |
| Gross margin | 25.9% | 25.2% | +70 basis points |
| Operating income | $433.2 million | $286.8 million | 51.1% |
| Operating margin | 10.0% | 8.2% | +180 basis points |
| Net earnings attributable to Valmont | $250.9 million | $195.6 million | 28.3% |
| Diluted EPS | $11.62 | $9.10 | 27.7% |
| Effective tax rate | 29.9% | 23.6% | +630 basis points |
| Operating cash flow | $326.3 million | $65.9 million | Significant increase |
| Capital expenditures | $93.3 million | $107.8 million | Decrease |
| Interest-bearing debt | $878.0 million | $965.4 million | Decrease |
| Cash and cash equivalents | $185.4 million | $177.2 million | Increase |
Adjusted EBITDA was $579.4 million, compared with $448.9 million in 2021. Net indebtedness under the company’s covenant calculation was $742.6 million, and the leverage ratio was 1.28x versus 1.87x in 2021. Return on invested capital increased to 12.9% from 10.1%.
Segment Performance and Material Changes
| Segment | 2022 Net Sales | 2021 Net Sales | 2022 Operating Income | 2021 Operating Income |
|---|---|---|---|---|
| Infrastructure | $2,909.7 million | $2,361.5 million | $354.5 million | $273.6 million |
| Agriculture | $1,335.3 million | $1,017.1 million | $179.3 million | $137.1 million |
- Infrastructure sales increased 23.2%, driven primarily by higher selling prices, modest volume growth, 5G-related demand, and a doubling of Renewable Energy sales. Currency translation reduced Infrastructure sales by approximately $48.7 million.
- Agriculture sales increased 31.3%, primarily from approximately 22% higher irrigation-equipment pricing, stronger North American volumes, and continued adoption of technology products. Technology sales rose to $115.1 million from $97.9 million.
- Pricing actions and contractual mechanisms generally offset higher steel, labor, energy, and other input costs, resulting in a higher consolidated gross margin.
- Operating cash flow improved substantially as the significant working-capital build in 2021 did not recur, despite higher pension contributions.
- Valmont acquired 51% of ConcealFab for approximately $39.3 million, expanding its 5G infrastructure portfolio. It also acquired the remaining interests in Convert Italia and Valmont West Coast Engineering.
- The company divested its offshore wind energy structures business, Valmont SM, in November 2022. The divestiture generated a $33.3 million pretax loss and no associated tax benefit.
- Backlog increased to $1.656 billion at year-end from $1.622 billion. Infrastructure backlog rose to $1.339 billion, while Agriculture backlog declined to $317.3 million from $471.0 million.
Cash Flow, Debt, Liquidity, and Capital Allocation
- Cash flow from operations was $326.3 million; investing cash outflow was $132.1 million, including $93.3 million of capital expenditures and $39.3 million for the ConcealFab acquisition; financing cash outflow was $181.9 million.
- The company had $185.4 million of cash, of which approximately $147.2 million was held by non-U.S. subsidiaries.
- Debt consisted primarily of $450 million of 5.00% senior notes due 2044, $305 million of 5.25% senior notes due 2054, and $140.5 million outstanding under an $800 million revolving credit facility maturing in 2026.
- Available borrowing capacity was approximately $659.4 million under the revolving facility and $119.2 million under short-term bank lines. The company was in compliance with its debt covenants at year-end.
- Fiscal 2023 capital expenditures were expected to be approximately $105 million to $125 million. Management stated that available cash, credit facilities, debt capacity, and expected operating cash flows provided adequate liquidity for 2023 and beyond.
- Cash dividends paid were $45.8 million. The company repurchased approximately $40.5 million of stock during 2022 and had approximately $81.4 million remaining under its repurchase authorization at year-end. The board subsequently increased remaining authorization by $400 million on February 27, 2023.
Outlook, Risks, Contingencies, and Unusual Items
The filing does not provide formal consolidated revenue or earnings guidance. Management cited long-term opportunities from electric-grid hardening, U.S. infrastructure legislation, 5G deployment, renewable-energy investment, water conservation, precision agriculture, and food-security initiatives. In January 2023, Agriculture secured an $85 million multi-year agreement for projects in Africa.
- Key risks include cyclical utility, construction, wireless, and agricultural markets; lower farm income; changes in government infrastructure or farm-support programs; drought and water restrictions; and economic weakness.
- Steel, aluminum, zinc, natural gas, fuel, labor, and logistics costs remain material margin risks. Fixed-price contracts and delays in passing through input-cost increases could reduce profitability.
- Foreign-exchange translation reduced 2022 sales and remains a risk because of the company’s broad international footprint. The Russia-Ukraine conflict, tariffs, geopolitical instability, and supply-chain disruption may also affect results.
- Debt agreements contain leverage, cross-default, and other restrictive covenants. Pension funding obligations for the U.K. Delta plan are expected to total approximately $16.0 million annually for the recovery plan plus approximately $1.6 million for administrative expenses.
- Warranty claims, product-quality issues, contract penalties, environmental liabilities, cybersecurity incidents, acquisitions, and goodwill or intangible-asset impairment represent additional potential exposures.
- The company reported no material legal proceedings and stated that known claims, environmental costs, commitments, and contingencies were not expected to materially affect results, liquidity, or financial condition.
- Auditors issued unqualified opinions on the financial statements and internal control over financial reporting. Goodwill valuation was identified as the critical audit matter; no goodwill impairment was recorded in 2022.
Important Facts for Investors to Verify
- Whether Infrastructure backlog converts into sales and margin at the expected pace, particularly given fixed-price contracts and volatile steel costs.
- Whether Agriculture demand remains resilient as management’s cited forecast showed U.S. net farm income declining 15.9% in 2023 from 2022.
- The sustainability of 2022 margin expansion after excluding the benefit of pricing actions and the extra fiscal week.
- The financial performance and integration progress of ConcealFab and the recurring-revenue growth of Prospera-related agriculture technology.
- Cash repatriation constraints and the concentration of cash outside the United States relative to U.S.-based debt obligations.
- Future pension contributions, operating-lease obligations, commodity-hedge results, and compliance with the 3.50x leverage covenant.
- Potential tax-asset valuation changes, foreign-exchange effects, warranty claims, environmental matters, cybersecurity events, and goodwill impairment assumptions.