Valmont Industries Inc. (VMI), a leading producer of engineered products, posted fourth-quarter 2011 net earnings of $1.83 per share, up 38% from last year’s $1.32. Results beat the Zacks Consensus estimate of $1.66 per share.
Quarterly revenues, however, jumped 25.7% year over year to $752.7 million. The fourth-quarter results were driven by a significant growth in Irrigation Segment sales, increased revenue in every segment and strong market fundamentals.
In fiscal 2011, revenue was $2.7 billion versus $2.0 billion in fiscal 2010.
Segment Review
Irrigation Segment:The segment manufactures mechanized irrigation equipment for the global agricultural market. Sales surged 34% year over year to $180.6 million, generating 24% of total sales.
An increase in the global demand for feed-grains is being driven by population growth and dietary improvement. The greater demand led to high crop prices and farm income. With a positive long-term outlook for the agricultural economy, farmers increased their investments in mechanized irrigation equipment to maximize productivity and increase yields. Favorable weather conditions in North America resulted in an early harvest, further strengthening farmer sentiment. International sales benefited from the same global drivers in addition to successful development in new markets.
Operating income grew 40% to $27.1 million and was 15.0% of segment sales. The improvement in operating income was the result of increased productivity and volume leverage.
Utility Support Structures Segment: The segment, which manufactures steel and concrete structures for the global electric utility industry, reported sales of $202.8 million, up 63% year over year, driven by significant increase in project orders from utility customers. However, international sales declined in the quarter.
Operating income doubled to $29.4 million and was 14.5% of sales. The increase in operating income was due to the positive impact of volumes on operating leverage and a more favorable mix of product sales than in 2010.
Engineered Infrastructure Products Segment: Valmont manufactures structures for lighting and traffic, wireless communication and other specialty structures within this segment. This segment also includes Delta’s lighting, communication, access systems and roadway safety products.
In the fourth quarter of 2011, segment sales were $220.0 million, up 5% year over year. In North America, commercial lighting sales improved. Transportation lighting and traffic product sales declined due to reduced government funding for multi-year infrastructure projects.
In international markets, European lighting and traffic structure sales rose modestly despite soft market conditions and a competitive pricing environment. In the Asia-Pacific region, light poles and highway safety product sales slowed, while sales of engineered access systems improved.
Sales of wireless communication structures and components were flat in North American markets and lower in China.
Operating income was $9.8 million, or 4.5% of segment sales. Segment operating income reflects approximately $4 million of one-time charges for the quarter previously announced on December 20, 2011. While operating income percentages were at satisfactory levels in the Asia-Pacific region, operating income in Europe and North America was negatively impacted by a continued weak pricing environment.
Coatings Segment:The segment produces hot-dip galvanizing, anodizing and powder coatings to protect steel against rust. The segment also includes Delta’s galvanizing operations. Sales of $88.9 million were up 11% from last year’s sales. Internal demand rose due to higher irrigation and utility volumes. Custom sales rose in global markets due to improved industrial demand.
Operating income increased 30% to $19.1 million, or 21.4% of segment sales.
Financial Position
As of December 31, 2011, cash and cash equivalents were $362.9 million versus $346.9 million at the end of December 31, 2010.
Outlook
Management expects another strong performance in 2012. Currently, the company continues to see strength in the demand for irrigation equipment, and increasing demand for Utility Support Structures. Besides, a continued good performance in Coatings Segment is expected. The outlook for the Engineered Infrastructure Products Segment is for increased sales and profitability, but still operating in an environment of fiscal austerity and measured government funding for infrastructure projects in 2012.
With respect to the outlook for earnings, management currently expects revenue growth of approximately 10% and earnings per share in the range of $7.30-$7.60 per diluted share for fiscal 2012.
Zacks Recommendation
Currently, Valmont has a short-term (1 to 3 months) Zacks #2 Buy rating and a long-term (6 months) Outperform recommendation.
Competitors
The company faces stiff competition from Lindsay Corporation (LNN) and Thomas and Betts Corp. (TNB).
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