Valmont(VMI) - 2020 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Net sales for Q2 2020 were $688.8 million, a decline of $12 million or 1.7% compared to the previous year, with sales flat when excluding unfavorable currency impacts [9][10] - Operating income for Q2 was $65.7 million, or 9.5% of sales, which grew 3% compared to last year on comparable sales [24] - Diluted earnings per share for Q2 were $2, an increase of approximately 10% compared to last year [24] Business Line Data and Key Metrics Changes - Engineered Support Structures segment sales were $253.4 million, a decline of 2.1% year-over-year, but flat when excluding currency impacts [10] - Utility Support Structures segment sales grew 10.2% to $231.3 million, driven by increased demand for global transmission products [11] - Coatings segment sales decreased 18.7% to $80 million due to COVID-19 impacts [13] - Irrigation segment sales declined 3% to $150.6 million, with North American sales down 3.7% [13] Market Data and Key Metrics Changes - Strong growth in wireless communication sales, which increased over 7% compared to last year, driven by carrier spending in North America [10] - International sales in irrigation grew organically across all regions, particularly strong demand in Brazil [14] - The global backlog at the end of the quarter was nearly $650 million, including a significant order for lattice structures [12] Company Strategy and Development Direction - The company is focused on acquisitions to enhance growth in adjacent markets and technology leadership, including a majority stake in solbras for solar energy solutions [15][16] - The company aims to expand its product offerings in Ag Tech and irrigation technology, emphasizing sustainability and environmental impact [16][34] - The partnership with Locweld for lattice structures is expected to provide growth opportunities and enhance supply flexibility [40][50] Management's Comments on Operating Environment and Future Outlook - Management noted that the fundamental market drivers remain intact, with government investments in infrastructure expected to support growth [32] - The company anticipates challenges due to potential longer-term economic headwinds but remains confident in its diversified business portfolio [20][21] - Management expressed optimism about the ongoing demand for wireless communication structures and the necessity for grid hardening and renewable energy solutions [32][35] Other Important Information - The company reported solid operating cash flow of $88.2 million for the quarter, leading to a 33% improvement in year-to-date operating cash flows compared to last year [26] - The company has recalibrated its capital spending plans for 2020, expecting to range between $80 million to $90 million [27] Q&A Session Summary Question: Operating margins and expectations for Q3 - Management indicated that Q3 margins are expected to be lower primarily due to seasonal impacts on irrigation and ongoing economic challenges in the coatings market [38] Question: Details on the Locweld partnership - The partnership with Locweld is expected to provide good margins and growth opportunities in the lattice structure market, leveraging cost advantages from India [40] Question: Competitors' pricing actions - Management stated that they will maintain pricing discipline and have not observed significant price erosion in the market despite fluctuations in raw material costs [44][45] Question: Outlook for international irrigation projects - Management noted a strong pipeline of potential international orders driven by food security concerns, although timing may be impacted by currency fluctuations [47] Question: Impact of COVID-19 on cost reductions - Management confirmed that they did not lay off employees due to COVID-19 and incurred additional costs related to safety measures [55] Question: Infrastructure spending outlook - Management suggested that clarity on infrastructure spending will likely emerge after the upcoming election, with state budgets remaining uncertain [57] Question: Productivity impacts from COVID-19 - Management reported productivity gains from reduced travel and remote work, while also noting some additional costs related to safety measures [61] Question: 5G investment trends - Management indicated that while 5G investments are planned, the pandemic has shifted demand towards suburban areas, which may benefit their business [63]