Valmont Industries, Inc. — Fiscal 2021 Form 10-K Summary
Business context and reporting period
Valmont is a diversified manufacturer and services provider serving infrastructure and agriculture markets through four segments: Engineered Support Structures, Utility Support Structures, Coatings, and Irrigation. Products include lighting, traffic, wireless and utility structures, protective metal coatings, mechanized irrigation equipment, and precision-agriculture technologies.
The filing covers the 52-week fiscal year ended December 25, 2021, with comparisons to December 26, 2020. Approximately 34% of net sales were sold in markets or produced at facilities outside North America. The company operated more than 80 manufacturing plants on six continents and employed 11,041 people.
Key financial metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Net sales | $3,501.6 million | $2,895.4 million | 20.9% |
| Gross profit | $883.9 million | $765.5 million | 15.5% |
| Gross margin | 25.2% | 26.4% | Down 120 bps |
| Operating income | $286.8 million | $226.0 million | 27.0% |
| Operating margin | 8.2% | 7.8% | Up 40 bps |
| Net earnings attributable to Valmont | $195.6 million | $140.7 million | 39.0% |
| Diluted EPS | $9.10 | $6.57 | 38.5% |
| Operating cash flow | $65.9 million | $316.3 million | Down $250.4 million |
| Capital expenditures | $107.8 million | $106.7 million | 1.0% |
Segment net sales and operating income were: Utility $1,121.0 million and $67.6 million; ESS $1,064.4 million and $115.5 million; Coatings $299.1 million and $50.3 million; and Irrigation $1,017.1 million and $137.1 million. Irrigation was the fastest-growing segment, with sales up 58.9% and operating income up 65.0%.
At year-end, cash and cash equivalents were $177.2 million, compared with $400.7 million in 2020. Total interest-bearing debt was $965.4 million, versus $766.3 million, and net working capital was $946.9 million, versus $881.3 million. The leverage ratio was 1.87x, compared with 1.13x, below the 3.50x covenant limit. Adjusted EBITDA was $448.9 million, compared with $368.5 million.
Material changes versus the prior comparable period
- Sales increased in every segment, driven by higher pricing and mix, volume growth, favorable currency translation, and acquisitions.
- Higher steel, zinc, and other input costs reduced gross margin, particularly in Utility and Irrigation. The company stated that raw-material inflation was not fully recovered through pricing.
- ESS operating income increased 76.9%, supported by communication-product demand related to 5G and connectivity initiatives, pricing, and the absence of 2020 goodwill impairment and restructuring charges.
- Utility operating income declined 32.9%, primarily because of a $27.9 million pre-tax impairment related to the Offshore and other complex steel structures reporting unit, including $21.4 million of property, plant, and equipment impairment and $6.5 million of intangible-asset impairment and related charges.
- Irrigation benefited from higher global volumes, improved agricultural economics, Egypt project deliveries, pricing, and the acquisitions of Prospera and PivoTrac.
- Prospera was acquired for $300 million and PivoTrac for $12.5 million in 2021. The acquisitions contributed substantially to the increase in goodwill and investing cash outflows.
- Operating cash flow fell sharply as inventory increased by $289.9 million and receivables increased by $69.3 million, partly offset by higher accounts payable and accrued expenses.
- Backlog rose to $1,621.9 million from $1,139.1 million, with most of the 2021 backlog expected to be fulfilled in fiscal 2022.
Outlook, liquidity, risks, and unusual items
Management expects fiscal 2022 capital expenditures of approximately $115 million and believes available cash, credit facilities, and expected operating cash flows are adequate to meet near-term requirements. The revolving credit facility was extended to October 2026 and provides $800 million of commitments; $590.5 million was available at year-end after letters of credit. Approximately 96% of consolidated cash was held outside the United States.
Principal debt included $450 million of 5.00% senior unsecured notes due 2044, $305 million of 5.25% senior unsecured notes due 2054, and $218.9 million drawn on the revolving facility. Contractual cash obligations totaled $2.466 billion, including debt, interest, pension contributions, and operating leases. The company was in compliance with its debt covenants at year-end.
Fiscal 2021 results included $27.9 million of pre-tax long-lived-asset impairments, $5.2 million of after-tax stock-based compensation related to Prospera employees, and a $5.5 million receivable write-off. The effective tax rate was 23.6%, compared with 25.7% in 2020. No goodwill impairment was recorded in 2021, although goodwill valuation involved significant assumptions regarding projected cash flows, discount rates, and market multiples.
Key risks include cyclical infrastructure, utility, agriculture, construction, and wireless markets; steel, aluminum, zinc, natural gas, and fuel price volatility; fixed-price contracts and potential margin compression; COVID-19-related supply-chain and operating disruption; foreign currency, tariff, political, and international operating risks; acquisition integration and technology execution risks; cybersecurity threats; warranty and contract-performance exposure; environmental liabilities; pension funding requirements; and potential restrictions on repatriating foreign cash.
The Delta U.K. pension plan was approximately $0.5 million underfunded for accounting purposes at year-end, but contractual annual funding requirements were approximately $17.5 million plus approximately $1.7 million of administrative expenses. The company reported no material legal proceedings and stated that known litigation, environmental costs, and contingencies were not expected to materially affect results or liquidity.
Deloitte & Touche issued unqualified opinions on the consolidated financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether the elevated $1.622 billion backlog converts to revenue and cash flow as expected during fiscal 2022.
- Whether pricing actions offset ongoing steel and other commodity inflation, especially in Utility and Irrigation.
- The sustainability of the sharp Irrigation growth rate, including the Egypt project and technology revenue.
- Integration progress, operating contribution, and impairment risk related to Prospera and PivoTrac.
- Working-capital normalization after the significant 2021 inventory and receivables build.
- Debt repayment, interest-rate exposure, covenant headroom, and the concentration of cash in non-U.S. subsidiaries.
- Potential further impairment or tax valuation allowances associated with the Offshore and other complex steel structures business.
- Future pension contributions, lease obligations, warranty claims, environmental exposure, and cybersecurity developments.