Valmont Industries Inc Q1 FY2026 Earnings Call

Greetings. Welcome to Valmont Industries First Quarter 2026 earnings conference call. Please note this conference is being recorded. I will now turn the conference over to your host, Renee Campbell, Senior Vice President, Capital Markets and Risk. Ms. Campbell, you may begin.

Good morning, everyone, and thank you for joining us. With me today are Avner Applbaum, President and Chief Executive Officer; John Schwietz, Executive Vice President and Chief Financial Officer; and Eric Johnson, Chief Accounting Officer. Earlier this morning, we issued a press release announcing our first quarter 2026 results. Both the release and the presentation for today's webcast are available on the Investors page of our website at valmont.com. A replay of the webcast will be available later this morning. To stay updated with Valmont's latest news releases and information, please sign up for e-mail alerts on our Investor site. We'll begin today's call with prepared remarks and then open it up for questions. Please note that this call is subject to our disclosure on forward-looking statements, which is outlined on Slide 2 of the presentation and will be read in full after Q&A. With that, I'd now like to turn the call over to Avner.

Thank you, Renee. Good morning, everyone, and thank you for joining us. Turning to Slide 4. I'll start with a few key messages for the quarter. First, we delivered a strong start to the year with sales growth, record first quarter earnings per share and progress against our strategic priorities. This reflects our discipline and focused execution across the business. We remain committed to serving customers, managing what we can control, and advancing our value drivers. Our performance reflects the execution of our strategy. We're prioritizing high-value offerings, strengthening our core businesses, and improving operational performance. Our strategy is anchored in markets with durable demand drivers, most notably utility, while continuing to improve the quality and resiliency of our earnings. Second, infrastructure is performing well, supported by a growing demand for energy. This includes the need to expand the electrical grid to support data centers and the need to replace aging assets. Our capacity expansion plans are on track, and these actions are driving improvements in throughput and overall operational performance as reflected in the 27% sales growth in North America Utility. Third, in agriculture, we were able to grow in North America year-over-year due to favorable pricing. I also want to recognize our teams in the Middle East who continue to navigate a very challenging environment. The safety and well-being of our employees remain our top priority. We are focused on supporting them as they manage through the ongoing situation. We appreciate their commitment to one another and to our customers during this time. Turning to Slide 5 for a review of our current market dynamics, starting with North America Utility. Our customers are implementing multiyear increases in capital spending, driving strong demand in utility infrastructure. U.S. Utilities are planning roughly $1.4 trillion of investment through 2030, up meaningfully from prior expectations driven by load growth, grid modernization, and increasingly data center demand. This environment supports our growth outlook and the capacity expansions we have underway. Industry supply remains constrained with extended lead times and favorable pricing and margins. North America Coatings is also capturing growth from infrastructure activity and increasing exposure to data center construction. Our galvanizing services play a critical role in protecting and extending the life of steel structures. In North America Lighting and Transportation, market conditions remain mixed. In Lighting, demand continues to be impacted by softer housing activity and commercial development. In Transportation, the market is supported by stable infrastructure spending. From an operational standpoint, we have made progress, but we are not yet where we want to be in terms of consistency. Our priority is improving performance to deliver reliably for our customers. Turning to International Infrastructure. Market conditions across Europe and Asia Pacific remained soft, but stable. We are advancing commercial discipline and improving operational performance. Turning to Slide 6. Agriculture markets are navigating a dynamic environment as we begin the year. In North America, grower sentiment remains cautious, reflecting tighter farm economics supported by USDA data. Seasonal order patterns have been more muted with no meaningful acceleration in the spring selling season. Taken together, current indicators, including input costs and overall farmer profitability, suggest the market will remain under pressure in the near term. International markets are seeing variability in demand, ongoing challenges in the Middle East, including logistic constraints and reduced operating capacity are impacting activity and the pace of execution. At the onset of the conflict, our Dubai facility operated at a minimal level, prioritizing employee safety in alignment with local government guidance. The plant has currently paused operations until conditions stabilize. We have mitigated some of this impact through our global manufacturing footprint, leveraging other facilities to support demand in the region. Long-term demand is supported by investment in food security and water infrastructure. In Brazil, tight credit availability and delays in government-backed financing continue to weigh on near-term demand. Over the longer-term, Brazil remains an attractive growth market, supported by favorable agronomics, multiple crop cycles, and compelling returns on irrigation equipment. We continue to advance our priorities in technology and aftermarket positioning agriculture to perform through the cycle. Turning to Slide 7. I'd now like to welcome and introduce John Schwietz as Valmont's Chief Financial Officer. John has been with Valmont for more than 16 years with leadership roles across both our Infrastructure and Agriculture segments. He brings deep knowledge of the business and a strong track record of financial discipline and execution. John leads with integrity and accountability, brings a passion for serving our customers, and is deeply committed to continuous improvement and delivering results. This is a seamless transition as our strategy, value drivers, and capital allocation priorities remain unchanged. We're confident in John's leadership as we continue to build on our momentum. I'll now turn the call over to John to review our first quarter financial results and updated 2026 outlook.

Thank you, Avner. Good morning, everyone, and thank you for joining us today. I'd like to start by thanking Avner and the Board for their confidence in me as I step into the CFO role. I appreciate the opportunity to build upon the strong foundation already in place. I look forward to working closely with our teams across Valmont to reinforce financial discipline, support our strategy, and deliver long-term value for our customers, employees, and shareholders. Turning to Slide 9. Net sales of $1.03 billion increased 6.2% year-over-year driven by sales growth and infrastructure, particularly North America Utility. Operating income increased to $155.6 million and operating margins improved 190 basis points to 15.1%, reflecting stronger performance in both segments. Our tax rate remained steady at approximately 26%. Diluted earnings per share was $5.51, a 27.5% increase from prior year. Moving to our segment results on Slide 10. I want to start by highlighting a change to our infrastructure product line revenue reporting beginning this quarter. We have realigned to better reflect the markets that we serve and how we manage them. We are now reporting our North America Infrastructure businesses separately and have consolidated international infrastructure and global solar into one product line. A quarterly recast for 2025, reflecting these updates, is included in the appendix of today's presentation. Now moving to Infrastructure results. Sales of $806 million grew 14.1% year-over-year. North America Utility sales increased 27.4% driven by pricing and higher volumes. Sales in North America Lighting and Transportation declined 4.4% due to the production challenges as noted by Avner. North America Coatings sales increased 13.3% supported by healthy infrastructure and data center demand. North America Telecommunications sales decreased 3.9% as volume softened due to a shift in carrier spending allocation. International Infrastructure sales increased 6.9% due to favorable foreign exchange impacts. Operating income was $143 million or 17.8% of net sales, an increase of 110 basis points as a result of our pricing actions and fixed cost leverage. Turning to Slide 11. First quarter Agriculture sales decreased 15.1% year-over-year to $227 million, driven by lower international sales. North America Agriculture increased 1.5% year-over-year. Importantly, operating margin improved to 14.8% in the quarter, returning to double-digit levels. This reflects the benefits of our continued focus on pricing, cost management, and risk mitigation. Following up on last quarter, we reached a settlement on the material Brazil legal matter we previously discussed, and it was resolved within our existing accrual. Moving to Slide 12. For Cash, liquidity and capital allocation. We had another quarter of healthy operating cash flows, generating $103.5 million. We ended the quarter with $160.2 million of cash and our net debt leverage is approximately 1x. During the quarter, we invested $35 million in CapEx, primarily for utility capacity expansion. As previously discussed, we finalized the acquisition of Rational Minds and the purchase of the remaining minority shares of ConcealFab for a combined $20 million. We returned $71 million to shareholders, including $13 million through dividends and $58 million through share repurchases. In February, we also increased our quarterly dividend by 13% to $0.77 per share or $3.08 on an annualized basis. Turning to our 2026 outlook on Slide 13. We are increasing our full year EPS guidance. Net sales are projected to be between $4.2 billion to $4.4 billion. We are increasing infrastructure sales to be between $3.3 billion to $3.45 billion. This is offset by a decline in Agriculture with sales to be between $0.9 billion to $0.95 billion. In Infrastructure, the increase is driven by North America Utility. We expect pricing and volumes to remain elevated throughout the year. In Agriculture, given recent changes in market conditions and project economics, primarily related to the Middle East conflict, we have become more selective in our pipeline aligning with our disciplined approach and focus on long-term value. Diluted earnings per share are projected to be in the range of $21.50 to $23.50. At midpoint, this represents a 4.8% growth in revenue and a 17.9% growth in adjusted EPS. Higher pricing and volumes in North America Utility are driving the increase in our EPS target. Also included in our EPS guidance is the impact of the tariff changes that went into effect on April 6. These primarily affect a portion of our North America Utility production sourced from Mexico. Importantly, we are mitigating much of this exposure by using primarily U.S.-melted and poured steel, which limits the incremental Section 232 tariff to 10%. Looking ahead, we remain focused on what we can control and prioritizing opportunities that support sustainable, higher-quality earnings. With that, I'll turn the call back to Avner to review our value drivers.

Thank you, John. Moving to Slide 14. We continue to advance our three core value drivers, catching the infrastructure wave, positioning agriculture for growth, and executing disciplined resource allocation. These priorities are guiding how we invest in capacity, strengthen our product and technology offerings, and align our cost structure supporting improved performance and more consistent profitable growth over time. We continue to drive above-market growth in Infrastructure through targeted investments in capacity and operational efficiency, and we're seeing the benefits reflected in our sales volume. In Agriculture, we are growing our presence in emerging markets and investing in aftermarket and technology to improve the mix of higher-margin business. Finally, our disciplined resource allocation initiatives are on track. Overall, we are confident in our 2026 performance and achieving our long-term value driver targets. We look forward to sharing more details at our upcoming Investor Day on June 16. Before we close, I want to thank the entire Valmont team for their efforts navigating a dynamic first quarter. With that, I will now turn the call over to Renee.

Thank you, Avner. At this time, the operator will open up the call for questions.

Our first question is from Nathan Jones with Stifel.

Good morning, everyone. I'll begin with a question about the 232 tariffs. We've received numerous inquiries from investors, and I imagine you have too. There seems to be an expectation that these new tariffs would significantly impact Valmont, more than what you’re suggesting. Can you provide more insight? I know John mentioned that using poured and melted U.S. steel helps mitigate this, but could you elaborate on your strategies to manage this with customers?

John, do you want to take that one?

Thank you. We appreciate the clarity provided on April 6 with the updated regulations. Our understanding of these rules is reflected in our guidance. As mentioned, the key focus of this guidance is to maximize the use of U.S. poured and melted steel, which we have been prioritizing over the past few quarters and will continue to do. Tariffs are subject to change, and as they do, we adapt our pricing and our supply chains accordingly. Though this process takes some time to implement, we are overall confident in our approach. As previously stated, our goal is to remain tariff-cost-profit neutral, and that sentiment is included in our guidance.

That's helpful. I guess my second question is around the U.S. Utility business. Through the last 12 to 18 months, I think the company has been talking about effectively being out of capacity and having to increase CapEx to add capacity which it's been doing. But I think the story was kind of that $1 of CapEx was going to increase capacity by $1 and the business is clearly outperforming the level of CapEx that's going into it. Can you talk a little bit about where the additional productivity is coming from or how we should think about $1 of CapEx now translating into maybe more than $1 of capacity?

We are very pleased with our quarterly results, having achieved over 27% growth in Utility. Much of this growth is due to the strong market conditions and our investments in capacity. This year, we plan to invest between $170 million and $200 million, primarily in Utility. While capital investment is one aspect, it's part of a broader strategy to enhance our capacity. We focus not only on capital but also on operational and commercial capacity. Our employees consistently seek ways to increase throughput. For instance, in one plant, we identified bottlenecks and found that adding some labor allowed us to boost output. A successful hiring event resulted in increased capacity at that site. Additionally, we improved the flow at another site by conducting Kaizen events. With 24 facilities across the U.S., we are implementing various strategies to enhance output, and we anticipate this trend will continue into Q2. We expect to see similarly strong growth, or even better, in the second quarter, forecasting a robust year for Utility overall. In summary, we are pursuing multiple initiatives, with capital being just one of them, and we are experiencing more than a one-to-one return on our capital investments. We look forward to leveraging the strength of this market further.

Our next question is from Chris Moore with CJS Securities.

Recognizing you don't necessarily provide backlog on a quarterly basis. Can you give any big picture thoughts in terms of kind of what it looks like today versus kind of year-over-year or sequentially?

Yes, we are seeing that our backlog is relatively flat sequentially, but it has increased year-over-year. It's important to highlight that the backlog reflects the strength of our business, although it's just one indicator of market strength. To give you more detail, we manage our lead times carefully, and we have currently improved them to the best in the industry, ranging between 42 to 44 weeks for our bid market. We also have many projects in the pipeline with our alliance customers that aren't included in the backlog, which actually benefits us by minimizing risk related to steel pricing, among other factors. Overall, the key takeaway is that we are experiencing unprecedented demand in this market. As I've mentioned, the Investor Owned Utilities are planning to invest $1.4 trillion through 2030, which is a significant increase from the previous $1.1 trillion projection—around a 27% increase. Initially, we anticipated 8% to 10% growth in our Utility segment this year, but it now looks like we will achieve growth in the mid-teens to high teens. All signs point to a robust market, the likes of which we haven't seen in decades, and we are very satisfied with our position regarding backlog, lead time, and our partnerships with customers.

Very helpful. And maybe just one on Ag. So maybe can you talk a little bit about rising fertilizer prices, potential impact on pivot demand, not necessarily for '26. It sounds like there could be kind of a lag in demand, but what might be felt in '27? And just how much visibility do you have on that front?

There isn't much visibility into 2027 at this time. However, we view fertilizer as a significant input cost that will affect farmers, putting additional pressure on their profitability, which has already been strained. Consequently, we anticipate a challenging environment in 2026. Our focus is on identifying areas to enhance farmer profitability. We are supporting our farmers with our aftermarket and technology, empowering our dealers to boost their profitability. The markets have strong long-term fundamentals, and as conditions improve, we will be positioned to take advantage of the opportunities.

Our next question is from Tomo Sano with JPMorgan.

John, congrats on your new role.

Thank you.

And for North America Utility, could you comment on any changes in pricing or the competitive landscape on pricing power infrastructures? What gives you confidence in your ability to sustain or enhance pricing, especially as competitive dynamics evolve, please?

Thank you for the question. The market environment continues to be extremely strong right now. We always focus on value pricing. We are the leader in the market with the highest market share. And we provide the utilities with mission-critical products and solutions supported by our strength in our engineering, our reliability, quality, on-time delivery. And in this environment, there's very strong value in our offering, especially in a constrained environment. And the entire industry has been very disciplined around pricing. So while there will continue to be growth in this area and our competitors will continue to invest, we remain very disciplined, taking pricing leadership and as evident by our Q1 performance, which had significant pricing in our performance pretty much demonstrates that there's no concern regarding pricing in this environment.

And follow-up on Ag margins, have you held up well despite lower sales. If the sales headwinds persist, what structural mix factors do you see as most critical for sustaining or even expanding margins in this segment, please?

Thank you, Tomo. As you noted, Ag margins performed well this quarter, reaching 14.8%. This was primarily due to favorable pricing and an improved mix of products and regions. Looking ahead to the remainder of the year, we anticipate some challenges. Specifically, as we shift more towards international markets and away from North America, we expect our margins in Ag to face pressure due to seasonality. Additionally, the fixed cost pressures from our Dubai facility will also affect our margins. Therefore, we expect our Ag margins to be in the mid-teens to low teens for the year.

Our next question is from Brian Drab with William Blair.

Like Nathan mentioned, most recent inquiries have centered on Section 232. I wanted to approach a similar question from a different angle. In the 10-K, there is mention of approximately $220 million in products from the Utility sector coming in from Mexico. However, I couldn't locate the 10% figure anywhere. I'm curious if this is part of the new structure, specifically if it indicates that 10% applies when using melted and poured U.S. steel for finished products coming from Mexico, or if this is just your assessment after reviewing everything. If that is the case, would this mean an additional roughly $20 million in costs that you would need to absorb, given the 10% figure applied to the $220 million?

Thank you for the question. Yes, 10% is part of the new regulation, and you're considering this correctly. That figure represents approximately our output from Mexico and exports to the United States, which varies each year. As I mentioned earlier regarding our supply chain transition, the objective is to maximize the use of U.S. melt and pour steel, which will help reduce our tariff exposure and costs over time. The teams are focused on this, and although it will take some time, we are making significant progress in ensuring we adapt to maximize our U.S. melt and pour steel. This will bring us closer to achieving the additional 10%.

Okay. But you can't size the incremental cost for us at all. You don't want to quantify that today. I don't want to press you too much on it, but that's what we're looking for?

Yes. So I'd say your general range, how you're thinking about it is approximately right.

And I'll just add, right, we're seeing strong growth, right? So that $220 million is going to easily be $250 million. So as we grow and capitalize on the market, well, we'll pay more tariffs. But of course, we make very strong margins out of our plant in Mexico. So no concerns on our end.

Well, my conclusion at the moment is that the impact seems negligible considering the size of that business, the pricing power, and the pricing dynamics within the industry and your operational efforts. Thanks for the clarification. Regarding the Utility business, you mentioned that price and volume contributed to the growth, with price highlighted first in your press release. Can you discuss the balance between price and volume in driving the business? Additionally, is the price increase primarily driven by soaring steel costs or is it also influenced by market demand?

Okay. So thanks for the question. So if we look at Q1, the 27% increase was driven primarily by price, as you know. It's important to note, though, that volume was an important contributor as well for Q1, that was in the double digits. As we look through the rest of the year, Avner noted mid-teens to upper teens and growth rate expectations for Utility, we expect that, Brian, to be a balance between price and volume for 2026. As it is to your question about the price environment, Avner gave some good comments on what we're seeing in the price environment. To Avner's comments, we are pricing to market. We're constantly testing the top of that market. But yes, some of that is passed through contract pricing with regards to material escalations and then also logistics escalation. So yes, that's a component of it. But as Avner mentioned, we have confidence in the overall pricing environment for Utility.

We have reached the end of our question-and-answer session. I will now turn the call over to Renee Campbell for closing remarks.

Thanks, everyone, for joining us today. A replay of this call will be available for playback on our website and by phone for the next 7 days. We look forward to speaking with you again next quarter.

These slides and the accompanying oral discussion contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on assumptions made by management considering its experience in the industries where Valmont operates, perceptions of historical trends, current conditions, expected future developments, and other relevant factors. It is important to note that these statements are not guarantees of future performance or results. They involve risks, uncertainties, some of which are beyond Valmont's control and assumptions. While management believes these forward-looking statements are based on reasonable assumptions, numerous factors could cause actual results to differ materially from those anticipated. These factors include, among other things, risks described in Valmont's reports to the Securities and Exchange Commission, SEC, the company's actual cash flows and net income, future economic and market circumstances, industry conditions, company performance and financial results, operational efficiencies, availability and price of raw material, availability and market acceptance of new products, product pricing, domestic and international competitive environments, geopolitical risks and actions and policy changes by domestic and foreign governments, including tariffs. The company cautions that any forward-looking statements in this release are made as of its publication date and does not undertake to update these statements, except as required by law. The company's guidance includes certain non-GAAP financial measures, adjusted diluted earnings per share, and adjusted effective tax rate presented on a forward-looking basis. These measures are typically calculated by excluding the impact of items such as foreign exchange, acquisitions, divestitures, realignment or restructuring expenses, goodwill or intangible asset impairment, changes in tax law, change in redemption value of redeemable noncontrolling interests, and other nonrecurring items. Reconciliations to the most directly comparable GAAP financial measures are not provided, as the company cannot do so without unreasonable effort due to the inherent uncertainty and difficulty in predicting the timing and financial impact of such items. For the same reasons, the company cannot assess the likely significance of unavailable information, which could be material to future results.