8-K
VALMONT INDUSTRIES INC (VMI)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
October 21, 2020
Date of Report (date of earliest event reported)
Valmont Industries, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | ||||
|---|---|---|---|---|
| (State or other jurisdiction of incorporation) | ||||
| 1-31429 | 47-0351813 | |||
| (Commission File Number) | (I.R.S. Employer Identification No.) | |||
| One Valmont Plaza | 68154 | |||
| Omaha | NE | |||
| (Address of Principal Executive Offices) | (Zip Code) |
(402) 963-1000
Registrant's telephone number, including area code
__________________________________________________________________________________
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Common Stock, $1.00 par value | VMI | New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
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Item 2.02. Results of Operations and Financial Condition.
Valmont Industries, Inc. issued a press release on October 21, 2020 announcing its financial results for its quarter ended September 26, 2020. The press release, along with the presentation to be used during its earnings call on October 22, 2020, are furnished with this Form 8-K as Exhibit 99.1 and Exhibit 99.2, respectively.
The information in this Item 2.02 is being furnished and shall not be deemed “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section. The information in this Item 2.02 shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
| Exhibit No. | Description |
|---|---|
| 99.1 | Press Release dated October 21, 2020 |
| 99.2 | Presentation Slides for earnings call on October 22, 2020 |
| 104 | Cover Page Interactive File (the cover page XBRL tags are embedded in the Inline XBRL document) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Valmont Industries, Inc. | ||
|---|---|---|
| Date: October 21, 2020 | ||
| By: | /s/ AVNER M. APPLBAUM | |
| Name: Avner M. Applbaum | ||
| Title: Executive Vice President and Chief Financial Officer |
Document
| FOR IMMEDIATE RELEASE | ||
|---|---|---|
| Contact: | Renee Campbell | |
| Phone: | +1 402.963.1057 | |
| Date: | October 21, 2020 |
Valmont Reports Third Quarter 2020 Results
Omaha, NE - Valmont Industries, Inc. (NYSE: VMI), a leading global provider of engineered products and services for infrastructure development and irrigation equipment and services for agriculture, today reported financial results for the third quarter ended September 26, 2020.
Third Quarter 2020 Highlights (all metrics compared to Third Quarter 2019 unless otherwise noted)
•Net Sales of $734.0 million increased 6.3% led primarily by significantly higher Utility Support Structures segment sales and improved international market demand
•Operating Income of $61.5 million, or 8.4% of sales ($67.1 million or 9.1% of sales adjusted^1^) compared to $61.1 million or 8.8% of sales last year
•Diluted Earnings per Share improved to $1.84 ($1.99 adjusted^1^) compared to $1.75
•Generated strong operating cash flow of $122.3 million, driven by higher operating income and strategic working capital management; cash and cash equivalents were $443.1 million at end of third quarter
•Lifted the temporary suspension of the Company’s share repurchase program on September 10, 2020; repurchased 60,600 shares of company stock in the third quarter for $7.5 million, at an average price of $124.08 per share
•Announced a $240.0 million multi-year order for irrigation products and services to provide modern irrigation and technology solutions for a ~500,000-acre agricultural development project in Egypt
•Providing key assumptions and indications for the fourth quarter 2020
^1^ Please see Reg G reconciliation of GAAP sales, operating income, net earnings and EPS to Adjusted figures at end of document
Key Financial Metrics
| Third Quarter 2020 | GAAP | Adjusted^1^ | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 09/26/2020 3Q 2020 | 09/28/2019<br>3Q 2019 | vs. 3Q 2019 | 09/26/2020 3Q 2020 | 09/28/2019<br>3Q 2019 | vs. 3Q 2019 | ||||||||||
| Net Sales | $ | 733,970 | $ | 690,340 | 6.3% | $ | 733,970 | $ | 690,340 | 6.3% | |||||
| Operating Income | 61,479 | 61,064 | 0.7% | 67,111 | 61,064 | 9.9% | |||||||||
| Operating Income as a % of Net Sales | 8.4 | % | 8.8 | % | 9.1 | % | 8.8 | % | |||||||
| Net Earnings | 39,342 | 38,045 | 3.4% | 42,670 | 38,045 | 12.2% | |||||||||
| Diluted Earnings Per Share | $ | 1.84 | $ | 1.75 | 5.1% | $ | 1.99 | $ | 1.75 | 13.7% | |||||
| Average Shares Outstanding | 21,416 | 21,684 | |||||||||||||
| YTD 2020 | GAAP | Adjusted^1^ | |||||||||||||
| 09/26/2020 3Q 2020 | 09/28/2019<br>3Q 2019 | vs. 3Q 2019 | 09/26/2020 3Q 2020 | 09/28/2019<br>3Q 2019 | vs. 3Q 2019 | ||||||||||
| Net Sales | $ | 2,096,978 | $ | 2,083,350 | 0.7% | $ | 2,096,978 | $ | 2,083,350 | 0.7% | |||||
| Operating Income | 171,814 | 177,140 | (3.0)% | 199,663 | 177,140 | 12.7% | |||||||||
| Operating Income as a % of Net Sales | 8.2 | % | 8.5 | % | 9.5 | % | 8.5 | % | |||||||
| Net Earnings | 104,878 | 113,868 | (7.9)% | 128,446 | 113,868 | 12.8% | |||||||||
| Diluted Earnings Per Share | $ | 4.89 | $ | 5.22 | (6.3)% | $ | 5.99 | $ | 5.22 | 14.8% | |||||
| Average Shares Outstanding | 21,453 | 21,826 |
"We achieved higher revenue year-over-year from operational excellence and increased volumes, and delivered earnings growth through our focus on pricing and market leadership, despite an extraordinary macro environment,” said Stephen G. Kaniewski, President and Chief Executive Officer. “Sales and profitability were better than anticipated, as we remained highly focused on execution and pricing across the portfolio. Sales growth was driven by strong demand in the Utility Support Structures segment, including significantly higher sales of renewable energy products. I am pleased with the solid operating performance in the Engineered Support Structures and Coatings segments, and the Irrigation segment delivered solid performance despite end-market instability, benefiting from continued strength in international markets and recent acquisitions. We recognized another quarter of very strong operating cash flows, driven by our strategic priorities for working capital management.”
Kaniewski continued, “Year-to-date, we have delivered solid sales, operating profit, and earnings, as well as significant cash flow, driven by the engagement and focus of our employees and successful execution of our strategies, in spite of a difficult macro environment. We have seen unprecedented challenges this year in our business, and I am incredibly proud of the way our team continues to perform. The safety and well-being of our employees remains our top priority. I want to thank the entire Valmont team for their hard work and resiliency to produce products and provide services that support critical infrastructure sectors and food security around the world.”
Third Quarter 2020 Segment Review
^1^ Please see Reg G reconciliation of GAAP sales, operating income, net earnings and EPS to Adjusted figures at end of document ^2^ Excludes primarily the expected pre-tax impact of the voluntary one-time Early Retirement Program
Infrastructure
Utility Support Structures Segment (37.4% of Sales)
Steel, concrete and composite structures for utility markets, including transmission, distribution, substations, and renewable energy generation equipment
Sales of $274.4 million grew 33.9% year-over-year, led by higher sales in the international businesses, including significantly higher solar tracker project sales. In North American markets, sales growth was led by continued robust market demand, strategic capacity additions in existing North American operations and favorable pricing, partially offset by deflation due to lower steel costs.
Operating income was $25.9 million or 9.4% of sales ($29.2 million adjusted^1^or 10.6% of sales) compared to $20.4 million, or 9.9% of sales in 2019. Profitability growth was led by higher volumes, improved operations performance, and favorable pricing.
Engineered Support Structures Segment (34.8% of Sales)
Poles, towers and components for the lighting, traffic and wireless communication markets, engineered access systems, integrated structure solutions for smart cities, and highway safety products
Sales of $255.7 million decreased 4.6% year-over-year. Higher sales of wireless communication products were more than offset by lower volumes of lighting and traffic products and lower Access Systems sales.
Lighting and traffic sales of $181.6 million decreased 5.1% year-over-year. In North America, lower volumes in transportation and commercial lighting markets led to lower sales. In international markets, sales were lower due to economic disruptions from COVID-19 impacts, which impacted end-market demand.
Wireless communication structures and components increased 4.8% to $50.7 million compared to last year. Higher volumes in Europe, favorable pricing, and wireless carriers’ continued capital spending in North American markets led to higher sales.
Access Systems sales of $23.4 million decreased 17.6% year-over-year due to lower volumes from strategically exiting product lines.
Operating income was $25.4 million or 9.9% of sales ($26.3 million adjusted^1^ or 10.3% of sales), compared to $21.8 million or 8.1% of sales in 2019. Profitability improvement was driven by favorable pricing, improved operations performance and the non-recurrence of one-time losses in the Access Systems business in third quarter 2019.
Coatings Segment (12.0% of Sales)
Galvanizing, painting and anodizing services to preserve and protect metal products
Sales of $87.9 million decreased 5.5% year-over-year. Higher internal volumes and favorable pricing were more than offset by lower external volumes in North American markets due to economic impacts from COVID-19 on end customers.
^1^ Please see Reg G reconciliation of GAAP sales, operating income, net earnings and EPS to Adjusted figures at end of document ^2^ Excludes primarily the expected pre-tax impact of the voluntary one-time Early Retirement Program
Operating income was $12.4 million or 14.1% of sales ($13.7 million adjusted^1^or 15.6% of sales), compared to $13.9 million or 14.9% of sales in 2019. Operating margin improvement on an adjusted basis was due to improved operational efficiencies and favorable pricing, partially offset by lower volumes.
Agriculture
Irrigation Segment (19.0% of Sales)
Irrigation equipment for agricultural markets, including center pivots, parts, services and tubular products, water management solutions, and technology for precision agriculture
Global sales of $139.2 million decreased 3.4% year-over-year, primarily due to $6.3 million of unfavorable currency impacts mostly from the depreciation of the Brazilian Real, otherwise sales were similar to last year.
North American sales of $75.8 million decreased 8.5% compared to 2019. Higher irrigation system volumes were more than offset by lower volumes of other products including industrial tubing sales.
International sales of $63.4 million increased 3.3% year-over-year and increased 13.7% in local currencies. Sales growth was led by higher sales in South American markets including continued strong demand in Brazil, higher sales in Europe and Australia, and sales from recent acquisitions.
Segment operating income was $14.7 million, or 10.6% of sales, compared to $18.2 million, or 12.6% of sales in 2019. Lower profitability was due to lower sales volumes, partially offset by pricing. Higher SG&A expense included $1.2 million of incremental R&D expense for technology growth investments.
During the quarter, the Company announced it had entered into a $240.0 million, multi-year supply agreement to bring modern irrigation and technology solutions to Egypt. Once completed, the project will be the largest "Connected Farm of Engaged Acres" in the world, demonstrating the growing global demand for more efficient and reliable food production, and increasing national investments in agriculture to feed growing populations and address food security issues. Project deliveries will begin in fourth quarter 2020.
Continuation of Enhanced COVID-19 Safety Protocols
To protect the safety, health and well-being of employees, customers, suppliers and communities, Valmont continues to follow CDC, WHO and local guidelines in all its facilities. The Company monitors health advisories on a continuous basis, particularly in areas reporting recent increases in infection, and continues to take deliberate steps to protect all stakeholders and minimize the operational and financial impacts on the business during the pandemic. During the third quarter, Valmont did not experience any significant disruptions in its operations or supply chain.
Balance Sheet, Liquidity and Capital Allocation
The Company continues to generate strong cash flows through a focus on working capital management, including strategic customer payment initiatives and inventory improvements. During third quarter, Standard & Poor's reaffirmed the Company’s BBB+/Stable credit rating. Cash and cash equivalents were $443.1 million at end of third quarter, including receipt of a significant customer down payment. During the quarter, Valmont resumed its previously-suspended share
^1^ Please see Reg G reconciliation of GAAP sales, operating income, net earnings and EPS to Adjusted figures at end of document ^2^ Excludes primarily the expected pre-tax impact of the voluntary one-time Early Retirement Program
repurchase program, purchasing $7.5 million of company stock, and $176.0 million remains on the current authorization with no expiration. 2020 capital expenditures are expected to be in the range of $85.0 to $95.0 million to support strategic growth initiatives. Valmont remains committed to maintaining its investment grade credit rating.
Voluntary One-Time Early Retirement Benefit Program
Valmont remains committed to the well-being of its employees in alignment with its core values, and driving growth while building a strong foundation for the future. In the third quarter 2020, Valmont initiated a one-time, voluntary Early Retirement Program that gives recognition to tenured U.S. administrative employees who have contributed to the Company’s success. As a result, in fourth quarter 2020 the Company expects to record estimated pre-tax charges of approximately $10.0 million ($7.5 million after-tax), with an estimated EPS impact of ($0.34), with an expected payback of 24 months. These charges will be excluded from fourth quarter adjusted earnings results.
Fourth-Quarter 2020 Financial Outlook and Key Assumptions
While the pandemic's impacts on global economic factors and pace of economic recovery remain uncertain, the Company is currently providing a greater level of transparency, including key assumptions and indications for fourth quarter 2020, to help the financial community understand short-term impacts and expectations.
Financial Outlook
| Metrics | Estimates |
|---|---|
| Net Sales | $715.0 to $735.0M |
| GAAP Operating Profit Margin | 6.5% to 7.5% |
| Adjusted Operating Profit Margin^2^ | 8.0% to 9.0% |
| Segment Sales: Irrigation | ~12%-15% Increase (vs. prior year) |
Key Assumptions
•Irrigation sales estimate driven by expected timing of international project deliveries
•Tax rate of ~ 25.0%
•Positive operating cash flows
•Stable raw material costs and no significant supply chain interruptions
•No closures of large manufacturing facilities or workforce disruptions
Kaniewski added, "We continue to prioritize employee safety and well-being while focusing on growth and performance, providing our customers with the essential products and solutions they need. The strong global backlog of approximately $600.0 million in our Utility Support Structures segment is providing a good line of sight well into 2021. In the Engineered Support Structures segment, we expect demand to remain strong in wireless communications markets as 5G build-outs continue to ramp. Our Coatings business is trending in line with industrial production levels and will improve over time as the general economy improves. The large, multi-year international irrigation project and favorable international market trends are providing increased momentum leading into 2021 and we are optimistic that recent increases in commodity prices may improve grower
^1^ Please see Reg G reconciliation of GAAP sales, operating income, net earnings and EPS to Adjusted figures at end of document ^2^ Excludes primarily the expected pre-tax impact of the voluntary one-time Early Retirement Program
sentiment in North American irrigation markets. Additionally, our balance sheet and cash flows remain very strong and we expect to deliver free cash flow of more than 1.2x net earnings for 2020. Our strategies remain focused on long-term growth with a strong emphasis on Return on Invested Capital, ESG principles, operational excellence and strengthening our organization for the future."
A live audio discussion with Stephen G. Kaniewski, President and Chief Executive Officer, and Avner M. Applbaum, Executive Vice President and Chief Financial Officer, will be accessible by telephone on Thursday, October 22, 2020 at 8:00 a.m. CDT by dialing 1-877-407-6184 or 1-201-389-0877 (no Conference ID needed), or via webcast by pointing browsers to this link: Valmont Industries 3Q 2020 Earnings Conference Call. A slide presentation will simultaneously be available for download on the Investors page at valmont.com. A replay of the event can be accessed two hours after the call at the above link or by telephone at 1-877-660-6853 or 1-201-612-7415. Please use conference identification number 13698673. The replay will be available through 10:59 p.m. CDT on October 29, 2020.
About Valmont Industries, Inc.
Valmont is a global leader, designing and manufacturing engineered products and services that support global infrastructure development and agricultural productivity. Its products for infrastructure serve highway, transportation, wireless communication, electric transmission, and industrial construction and energy markets. Its irrigation equipment and services for large-scale agriculture improve farm productivity while conserving fresh water resources. In addition, Valmont provides coatings services that protect against corrosion and improve the service life of steel and other metal products. For more information, visit valmont.com.
Concerning Forward-Looking Statements
This release contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on assumptions that management has made in light of experience in the industries in which Valmont operates, as well as management’s perceptions of historical trends, current conditions, expected future developments and other factors believed to be appropriate under the circumstances. As you read and consider this release, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties (some of which are beyond Valmont’s control) and assumptions. Although management believes that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect Valmont’s actual financial results and cause them to differ materially from those anticipated in the forward-looking statements. These factors include among other things, the continuing and developing effects of COVID-19 including the effects of the outbreak on the general economy and the specific economic effects on the Company’s business and that of its customers and suppliers, risk factors described from time to time in Valmont’s reports to the Securities and Exchange Commission, as well as future economic and market circumstances, industry conditions, company performance and financial results, operating efficiencies, availability and price of raw material, availability and market acceptance of new products, product pricing, domestic and international competitive environments, and actions and policy changes of domestic and foreign governments. The Company cautions that any forward-looking statement included in this press release is made as of the date of this press release and the Company does not undertake to update any forward-looking statement.
^1^ Please see Reg G reconciliation of GAAP sales, operating income, net earnings and EPS to Adjusted figures at end of document ^2^ Excludes primarily the expected pre-tax impact of the voluntary one-time Early Retirement Program
^1^ Please see Reg G reconciliation of GAAP sales, operating income, net earnings and EPS to Adjusted figures at end of document ^2^ Excludes primarily the expected pre-tax impact of the voluntary one-time Early Retirement Program
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in thousands, except per share amounts)
(unaudited)
| Third Quarter | Year-to-Date | |||||||
|---|---|---|---|---|---|---|---|---|
| 13 Weeks Ended | 39 Weeks Ended | |||||||
| 26-Sep-20 | 28-Sep-19 | 26-Sep-20 | 28-Sep-19 | |||||
| Net sales | $ | 733,970 | $ | 690,340 | $ | 2,096,978 | $ | 2,083,350 |
| Cost of sales | 543,223 | 517,053 | 1,536,045 | 1,567,260 | ||||
| Gross profit | 190,747 | 173,287 | 560,933 | 516,090 | ||||
| Selling, general and administrative expenses | 129,268 | 112,223 | 372,481 | 338,950 | ||||
| Impairment of goodwill and intangible assets | — | — | 16,638 | — | ||||
| Operating income | 61,479 | 61,064 | 171,814 | 177,140 | ||||
| Other income (expense) | ||||||||
| Interest expense | (10,454) | (9,976) | (30,566) | (29,971) | ||||
| Interest income | 430 | 969 | 1,931 | 2,815 | ||||
| Gain on investments (unrealized) | 900 | 402 | 1,102 | 4,754 | ||||
| Other | 233 | 768 | 1,349 | 1,938 | ||||
| Other income (expense), net | (8,891) | (7,837) | (26,184) | (20,464) | ||||
| Earnings before income taxes | 52,588 | 53,227 | 145,630 | 156,676 | ||||
| Income tax expense | 12,084 | 13,063 | 39,172 | 38,766 | ||||
| Equity in (loss) of nonconsolidated subsidiaries | (276) | — | (755) | — | ||||
| Net earnings | 40,228 | 40,164 | 105,703 | 117,910 | ||||
| Less: (Earnings) attributable to non-controlling interests | (886) | (2,119) | (825) | (4,042) | ||||
| Net earnings attributable to Valmont Industries, Inc. | $ | 39,342 | $ | 38,045 | $ | 104,878 | $ | 113,868 |
| Average shares outstanding (000's) - Basic | 21,309 | 21,556 | 21,358 | 21,725 | ||||
| Earnings per share - Basic | $ | 1.85 | $ | 1.76 | $ | 4.91 | $ | 5.24 |
| Average shares outstanding (000's) - Diluted | 21,416 | 21,684 | 21,453 | 21,826 | ||||
| Earnings per share - Diluted | $ | 1.84 | $ | 1.75 | $ | 4.89 | $ | 5.22 |
| Cash dividends per share | $ | 0.450 | $ | 0.375 | $ | 1.350 | $ | 1.125 |
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
SUMMARY OPERATING RESULTS
(Dollars in thousands)
(unaudited)
| Third Quarter | Year-to-Date | |||||||
|---|---|---|---|---|---|---|---|---|
| 13 Weeks Ended | 39 Weeks Ended | |||||||
| 26-Sep-20 | 28-Sep-19 | 26-Sep-20 | 28-Sep-19 | |||||
| Net sales | ||||||||
| Utility Support Structures | $ | 274,393 | $ | 204,958 | $ | 731,178 | $ | 658,709 |
| Engineered Support Structures | 255,656 | 268,058 | 739,783 | 757,094 | ||||
| Coatings | 87,886 | 92,957 | 255,976 | 278,142 | ||||
| Infrastructure products | 617,935 | 565,973 | 1,726,937 | 1,693,945 | ||||
| Irrigation | 139,209 | 144,180 | 446,568 | 452,181 | ||||
| Less: Intersegment sales | (23,174) | (19,813) | (76,527) | (62,776) | ||||
| Total | $ | 733,970 | $ | 690,340 | $ | 2,096,978 | $ | 2,083,350 |
| Operating Income | ||||||||
| Utility Support Structures | $ | 25,881 | $ | 20,362 | $ | 75,255 | $ | 61,443 |
| Engineered Support Structures | 25,434 | 21,825 | 46,183 | 55,152 | ||||
| Coatings | 12,416 | 13,865 | 33,618 | 39,037 | ||||
| Infrastructure products | 63,731 | 56,052 | 155,056 | 155,632 | ||||
| Irrigation | 14,687 | 18,204 | 60,701 | 59,868 | ||||
| Corporate | (16,939) | (13,192) | (43,943) | (38,360) | ||||
| Total | $ | 61,479 | $ | 61,064 | $ | 171,814 | $ | 177,140 |
Valmont has aggregated its business segments into four global reportable segments as follows.
Utility Support Structures: This segment consists of the manufacture of engineered steel and concrete structures for utility transmission, distribution, substations, and renewable energy generation equipment.
Engineered Support Structures: This segment consists of the manufacture and distribution of engineered metal and composite poles, towers, and components for lighting, traffic, and wireless communication markets, engineered access systems, integrated structure solutions for smart cities, and highway safety products.
Coatings: This segment consists of global galvanizing, painting and anodizing services to preserve and protect metal products.
Irrigation: This segment consists of the global manufacture of agricultural irrigation equipment, parts, services, tubular products, water management solutions, and technology for precision agriculture.
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(unaudited)
| 26-Sep-20 | 28-Dec-19 | |||
|---|---|---|---|---|
| ASSETS | ||||
| Current assets: | ||||
| Cash and cash equivalents | $ | 443,055 | $ | 353,542 |
| Accounts receivable, net | 502,004 | 480,000 | ||
| Inventories | 448,088 | 418,370 | ||
| Contract asset - costs and profits in excess of billings | 113,254 | 141,322 | ||
| Prepaid expenses and other assets | 51,745 | 32,043 | ||
| Refundable income taxes | — | 6,947 | ||
| Total current assets | 1,558,146 | 1,432,224 | ||
| Property, plant and equipment, net | 573,353 | 558,129 | ||
| Goodwill and other assets | 792,411 | 816,863 | ||
| $ | 2,923,910 | $ | 2,807,216 | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||
| Current liabilities: | ||||
| Current installments of long-term debt | $ | 1,922 | $ | 760 |
| Notes payable to banks | 14,227 | 21,774 | ||
| Accounts payable | 295,852 | 197,957 | ||
| Accrued expenses | 219,200 | 167,264 | ||
| Contract liability - billings in excess of costs and earnings | 119,529 | 117,945 | ||
| Income taxes payable | 724 | — | ||
| Dividend payable | 9,614 | 8,079 | ||
| Total current liabilities | 661,068 | 513,779 | ||
| Long-term debt, excluding current installments | 779,788 | 764,944 | ||
| Other long-term liabilities | 293,390 | 338,748 | ||
| Shareholders' equity | 1,189,664 | 1,189,745 | ||
| $ | 2,923,910 | $ | 2,807,216 |
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
| YTD | YTD | |||
|---|---|---|---|---|
| 26-Sep-20 | 28-Sep-19 | |||
| Cash flows from operating activities | ||||
| Net Earnings | $ | 105,703 | $ | 117,910 |
| Depreciation and amortization | 61,523 | 60,424 | ||
| Impairment of long-lived assets | 19,449 | — | ||
| Contribution to defined benefit pension plan | (17,398) | (17,426) | ||
| Change in working capital | 109,468 | 67,793 | ||
| Other | (5,699) | 10,529 | ||
| Net cash flows from operating activities | 273,046 | 239,230 | ||
| Cash flows from investing activities | ||||
| Purchase of property, plant, and equipment | (70,960) | (71,981) | ||
| Acquisitions | (15,862) | (81,841) | ||
| Other | 15,437 | 14,626 | ||
| Net cash flows from investing activities | (71,385) | (139,196) | ||
| Cash flows from financing activities | ||||
| Proceeds from long-term borrowings | 88,872 | 31,000 | ||
| Proceeds (payments) from short-term borrowings | (6,462) | 9,284 | ||
| Principal payments on long-term borrowings | (76,417) | (10,578) | ||
| Purchase of treasury shares | (28,006) | (55,172) | ||
| Purchase of noncontrolling interest | (55,916) | (27,845) | ||
| Dividends paid | (27,316) | (24,554) | ||
| Other | (4,739) | (4,794) | ||
| Net cash flows from financing activities | (109,984) | (82,659) | ||
| Effect of exchange rates on cash and cash equivalents | (2,164) | (3,385) | ||
| Net change in cash and cash equivalents | 89,513 | 13,990 | ||
| Cash and cash equivalents - beginning of year | 353,542 | 313,210 | ||
| Cash and cash equivalents - end of period | $ | 443,055 | $ | 327,200 |
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
SUMMARY OF EFFECT OF SIGNIFICANT NON-RECURRING ITEMS ON REPORTED RESULTS
REGULATION G RECONCILIATION
(Dollars in thousands, except per share amounts)
(unaudited)
The non-GAAP tables below disclose the impact on (a) diluted earnings per share of (1) impairment of goodwill, and tradenames, (2) restructuring costs and non-recurring asset impairments (b) operating income from these expenses, and (c) segment operating income for these items. Amounts may be impacted by rounding. We believe it is useful when considering company performance for the non-GAAP adjusted net earnings and operating income to be taken into consideration by management and investors with the related reported GAAP measures.
| Thirteen weeks ended September 26, 2020 | Diluted | Thirty-nine weeks ended September 26, 2020 | Diluted | ||||||
|---|---|---|---|---|---|---|---|---|---|
| earnings per | earnings per | ||||||||
| share | share | ||||||||
| Net earnings attributable to Valmont Industries, Inc. - as reported | $ | 39,342 | $ | 1.84 | $ | 104,878 | $ | 4.89 | |
| Impairment of goodwill and intangible assets, pre-tax | — | — | 16,638 | 0.78 | |||||
| Restructuring and asset impairment costs - pre-tax | 5,632 | 0.26 | 11,211 | 0.52 | |||||
| Total Adjustments | 5,632 | 0.26 | 27,849 | 1.30 | |||||
| Tax effect of adjustments * | (776) | (0.04) | (2,753) | (0.13) | |||||
| UK tax rate change | (1,528) | (0.07) | (1,528) | (0.07) | |||||
| Net earnings attributable to Valmont Industries, Inc. - Adjusted | $ | 42,670 | $ | 1.99 | $ | 128,446 | $ | 5.99 | |
| Average shares outstanding (000’s) - Diluted | 21,416 | 21,453 |
* The tax effect of adjustments is calculated based on the income tax rate in each applicable jurisdiction.
| Thirteen weeks ended September 26, 2020 | Thirty-nine weeks ended September 26, 2020 | |||||
|---|---|---|---|---|---|---|
| Operating Income Reconciliation | ||||||
| Operating income - as reported | $ | 61,479 | $ | 171,814 | ||
| Impairment of goodwill and tradename | — | 16,638 | ||||
| Restructuring and related asset impairment costs | 5,632 | 11,211 | ||||
| Adjusted Operating Income | $ | 67,111 | $ | 199,663 | ||
| Net Sales - as reported | 733,970 | 2,096,978 | ||||
| Operating Income as a % of Sales | 8.4 | % | 8.2 | % | ||
| Adjusted Operating Income as a % of Sales | 9.1 | % | 9.5 | % |
VALMONT INDUSTRIES, INC. AND SUBSIDIARIES
SUMMARY OF EFFECT OF SIGNIFICANT NON-RECURRING ITEMS ON REPORTED RESULTS
REGULATION G RECONCILIATION (CONTINUED)
| For the third quarter ended September 26, 2020 | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Engineered | Utility | |||||||||||||
| Support | Support | |||||||||||||
| Segment Operating Income Reconciliation | Structures | Structures | Coatings | Irrigation | Corporate | |||||||||
| Operating income - as reported | $ | 25,434 | $ | 25,881 | $ | 12,416 | $ | 14,687 | $ | (16,939) | ||||
| Restructuring and related asset impairment costs | 902 | 3,301 | 1,284 | — | 145 | |||||||||
| Adjusted Operating Income | $ | 26,336 | $ | 29,182 | $ | 13,700 | $ | 14,687 | $ | (16,794) | ||||
| Net sales | $ | 255,656 | $ | 274,393 | $ | 87,886 | $ | 139,209 | — | |||||
| Operating Income as a % of Sales | 9.9 | % | 9.4 | % | 14.1 | % | 10.6 | % | NM | |||||
| Adjusted Operating Income as a % of Sales | 10.3 | % | 10.6 | % | 15.6 | % | 10.6 | % | NM | |||||
| Financial Outlook Adjusted Operating Profit Margin Reconciliation for Fourth Quarter 2020 | ||||||||||||||
| --- | --- | --- | --- | |||||||||||
| in thousands | Low End | High End | ||||||||||||
| Net Sales | 715,000 | to | 735,000 | |||||||||||
| Operating Profit | 47,000 | to | 55,750 | |||||||||||
| GAAP Operating Profit Margin | 6.5 | to | 7.5 | |||||||||||
| Expected pre-tax impact on operating profit of voluntary one-time Early Retirement Program Expense | 10,000 | 10,000 | ||||||||||||
| Adjusted Operating Profit | 57,000 | to | 65,750 | |||||||||||
| Adjusted Operating Margin | 8.0 | to | 9.0 |
All values are in US Dollars.
vmi3qearningsslides
Valmont Industries, Inc. Third Quarter Earnings Presentation October 22, 2020 © 2020 Valmont® Industries, Inc.
Disclosure Regarding Forward-Looking Statements These slides contain (and the accompanying oral discussion will contain) “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors that could cause the actual results of the Company to differ materially from the results expressed or implied by such statements, including general economic and business conditions, conditions affecting the industries served by the Company and its subsidiaries including the continuing and developing effects of COVID-19 including the effects of the outbreak on the general economy and the specific economic effects on the Company’s business and that of its customers and suppliers, competitor responses to the Company’s products and services, the overall market acceptance of such products and services, the integration of acquisitions and other factors disclosed in the Company’s periodic reports filed with the Securities and Exchange Commission. Consequently such forward-looking statements should be regarded as the Company’s current plans, estimates and beliefs. The Company does not undertake and specifically declines any obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. 2 October 22, 2020 | Valmont Industries, Inc. | 3Q 2020 Earnings Presentation
STEVE KANIEWSKI PRESIDENT & CHIEF EXECUTIVE OFFICER 3 October 22, 2020 | Valmont Industries, Inc. | 3Q 2020 Earnings Presentation
3Q 2020 Segment Revenue and Segment Summaries TOTAL 3Q 2020 REVENUE: $734.0M $274.4M $255.7M $87.9M $139.2M Utility Support Engineered Support Coatings Irrigation Structures Structures N.A.: $75.8M | International: $63.4M 37.4% of Sales 34.8% of Sales 12.0% of Sales 19.0% of Sales SEGMENT SUMMARIES • Higher volumes across all product lines • Lighting and traffic product sales down 5.1% YoY • Higher internal volumes, pricing and higher • Higher irrigation system volumes more than offset by • Global Transmission sales growth driven by ongoing ‒ North America: lower volumes in transportation and international market volumes, were more than offset lower volumes of other products including tubing grid-hardening efforts by utilities and strengthening commercial lighting markets by lower volumes in N.A. as a result of COVID-19 • International sales grew driven by strong sales in demand for renewable energy sources ‒ International: end-market disruptions from COVID-19 economic impacts on end customers Brazil, improved market conditions in Australia and • Strategic capacity additions in existing facilities impacts, primarily in India higher sales in European markets in addition to • Wireless communication sales grew 4.8% from strategic acquisition of Solbras • Higher global generation sales led by significantly higher project sales in Europe and favorable pricing; higher project sales of solar tracker products • Brazil: another record quarter of sales in local capital spending from N.A. wireless carriers drove currency; expect continued strong market demand • Large utility project in Northern Europe drove sales demand and ramp of 5G buildouts in line with • $240M multi-year agreement for a 500,000-acre ag growth expectations project in Egypt – once completed, farm will become • Access Systems sales were lower YoY driven by largest Connected Farm of Engaged Acres globally strategic decision to exit certain product lines Solid Third Quarter Pricing and Operating Performance 4 October 22, 2020 | Valmont Industries, Inc. | 3Q 2020 Earnings Presentation
Future Impact of COVID-19 Varies Across Diversified Portfolio Valmont FY2019 Segment Operating Income ($M) Estimated Risk Profile Due to COVID-19 UTILITY ESS • Supports critical infrastructure sector (Energy) to help ensure • Variety of demand drivers across multiple product lines and uninterrupted electricity supply and power restoration geographies • 85% of segment revenue is from North American markets where • Increased demand for wireless communication structures and utilities are indicating that construction and generation projects will ESS components, as they support a critical infrastructure sector continue Utility (Communications) and emergency/first responders and at home • Renewable energy markets could be impacted due to uncertainty of $87.8 $65.6 work/school mandates debt funding and impact on return profiles • Long-term, lighting and traffic structures demand could be impacted by changes to transportation budgets caused by COVID-19 effects • Commercial and residential construction delays could reduce IRRIGATION commercial market demand Coatings • Mandated government closure of factories in France, India, Malaysia, • Supports critical infrastructure sector (Food and Agriculture) to meet and Philippines impacted 2Q but all have resumed operations to pre- ongoing demands of the global food supply $51.0 COVID levels • Disruptions to food supply chains have moderated; a less dire outlook Irrigation for ethanol supply $71.7 COATINGS • North American market is at trough-like levels and demand remains • Global correlation to industrial production levels and general highly correlated to net farm income levels economic indicators • No additional COVID-19-related risks are expected to impact • Mandated government closure of facilities in India, Malaysia, New international market demand at this time Zealand, and Philippines impacted 2Q but all have resumed • Mandated government closure of factories in Argentina and South operations to pre-COVID levels Africa impacted 2Q but all have resumed operations to pre-COVID Lower Moderate Increased levels Carefully and Strategically Plan for Different Scenarios and Focus on Execution 5 October 22, 2020 | Valmont Industries, Inc. | 3Q 2020 Earnings Presentation
Elevating our Commitment to ESG Conserving Resources, Improving Life® is at the Core of the Products and Service that we Provide to Support Sustainable Infrastructure Development and Efficient Use of Water for Agriculture 2019 & 2020 Notable Accomplishments • Established 1st global electricity goal to reduce our global electricity consumption by 8% over two years • Completed 2018 assurance of disclosures for Scope 1 and 2 Greenhouse Gas Emissions; combined reduction of 4.0% YOY • Awarded the Nebraska Recycling Council Member of the Year for outstanding efforts to promote recycling in Nebraska • Recognized our Jasper, Tennessee manufacturing facility with the 2019 Sustainability Award for dramatic improvements in key sustainability and employee engagement metrics • Launched an EV program to replace 100+ gas-powered vehicles at largest manufacturing facility by 2021 • Finalized plans to install a one-megawatt solar field at our Valley, Nebraska campus that will generate carbon-free power for on-campus usage utilizing our own TRJ tracker solution • Joined the U.S. Department of Energy’s Better Plants Program, increasing our commitment to energy efficiency and savings across our facilities 2020 Board Appointments RITU FAVRE JOAN ROBINSON-BERRY Senior Vice President & GM, Retired SVP & Chief Engineer, National Instruments Corporation The Boeing Company Dedicated to being a More Sustainable Organization by Advancing ESG as a Strategic Priority 6 October 22, 2020 | Valmont Industries, Inc. | 3Q 2020 Earnings Presentation
AVNER APPLBAUM EVP & CHIEF FINANCIAL OFFICER 7 October 22, 2020 | Valmont Industries, Inc. | 3Q 2020 Earnings Presentation
3Q 2020 Financial Summary $M, except for per share amounts Revenue Operating Income Diluted EPS 6.3% 0.7% | 9.9%1 5.1% | 13.7%1 $734.0 $67.1 1 $61.5 $61.1 1 $690.3 $1.99 $1.84 $1.75 2020 2019 2020 2020 Adj. 2019 2020 2020 Adj. 2019 • Significantly higher Utility Support Structures sales • Operating income improvement is attributed to • Adjusted tax rate of 25.0% comparable to last year and improved international market demand favorable pricing and improved operational efficiency • Lower sales in Engineered Support Structures and Coatings segments due primarily to end-market disruptions from COVID-19 impacts, and lower Irrigation sales due to unfavorable currency impacts 1 Results adjusted to reflect impact of non-cash impairment of goodwill and/or certain restructuring expense recognition. See reconciliation of GAAP results to adjusted results at end of document. 8 October 22, 2020 | Valmont Industries, Inc. | 3Q 2020 Earnings Presentation
3Q 2020 Results | Utility Support Structures ($M) Key Statistics Revenue Operating Income 2019 Revenue1 $ 204.2 Volume 83.2 $272.5 $29.2 2 Pricing/Mix (17.2) $204.2 $25.9 $20.4 Acquisitions/Divestiture 1.7 Currency Translation 0.6 2020 Revenue1 $ 272.5 2020 2019 2020 2020 Adj. 2019 COMMENTARY • Sales grew 33.9% YoY led by higher sales in the international businesses, including significantly higher solar tracker project sales while in the North American markets, sales growth was driven by continued robust market demand, strategic capacity additions and favorable pricing partially offset by deflation due to lower steel costs • Operating income was higher YoY driven by: ‒ Higher volumes ‒ Improved operational performance ‒ Pricing discipline 1 Net sales after intersegment eliminations. 2 Results adjusted to reflect impact of non-cash impairment of goodwill and/or certain restructuring expense recognition. See reconciliation of GAAP results to adjusted results at end of document. 9 October 22, 2020 | Valmont Industries, Inc. | 3Q 2020 Earnings Presentation
3Q 2020 Results | Engineered Support Structures ($M) Key Statistics Revenue Operating Income 2019 Revenue1 $ 266.5 2 Volume (17.2) $255.0 $266.5 $25.4 $26.3 $21.8 Pricing/Mix 2.5 Acquisitions/Divestiture - Currency Translation 3.2 2020 Revenue1 $ 255.0 2020 2019 2020 2020 Adj. 2019 COMMENTARY • Higher sales of wireless communication products more than offset by lower volumes of lighting and traffic products and lower Access Systems sales • Lighting and traffic sales decreased 5.1% YoY ‒ North America: lower transportation volumes and weak commercial lighting market demand ‒ International: economic disruptions from COVID-19 impacts, which impacted end-market demand • Sales of Access Systems products were lower YoY driven by volumes from strategically exiting product lines • Profitability improvement driven by favorable pricing, improved operations performance and non-recurrence of one-time losses in Access Systems business in 3Q19 1 Net sales after intersegment eliminations. 2 Results adjusted to reflect impact of non-cash impairment of goodwill and/or certain restructuring expense recognition. See reconciliation of GAAP results to adjusted results at end of document. 10 October 22, 2020 | Valmont Industries, Inc. | 3Q 2020 Earnings Presentation
3Q 2020 Results | Coatings ($M) Key Statistics Revenue Operating Income 2019 Revenue1 $ 76.9 $13.7 2 $13.9 Volume (8.9) $12.4 $76.9 Pricing/Mix - $68.7 Acquisitions/Divestiture - Currency Translation 0.7 2020 Revenue1 $ 68.7 2020 2019 2020 2020 Adj. 2019 COMMENTARY • Sales decreased 5.5% YoY • Higher internal volumes and favorable pricing were more than offset by lower external volumes in North American markets due to COVID-19 impacts on end customers • Operating margin improvement on an adjusted basis was due to improved operational efficiencies and favorable pricing, partially offset by lower volumes 1 Net sales after intersegment eliminations. 2 Results adjusted to reflect impact of non-cash impairment of goodwill and/or certain restructuring expense recognition. See reconciliation of GAAP results to adjusted results at end of document. 11 October 22, 2020 | Valmont Industries, Inc. | 3Q 2020 Earnings Presentation
3Q 2020 Results | Irrigation ($M) Key Statistics Revenue Total Operating Income 2019 Revenue1 $ 142.7 Volume 2.9 $74.4 $81.4 $63.4 $61.3 Pricing/Mix (2.1) $18.2 14.7 Acquisitions/Divestiture 0.6 Currency Translation (6.3) North America International 2020 Revenue1 $ 137.8 2020 2019 2020 2019 COMMENTARY • Global sales decreased 3.4% YoY primarily due to unfavorable currency impacts of $6.3M mostly from depreciation of the Brazilian Real, otherwise sales were like last year ‒ North American sales down 8.5% YoY; higher irrigation system volumes were more than offset by lower volumes of other products including industrial tubing sales ‒ International sales increased 3.3% YoY and increased ~13.7% excluding unfavorable currency impacts; sales growth led by higher sales in South American markets including continued strong demand in Brazil, higher sales in Europe and Australia, and sales from recent acquisitions • Lower profitability due to lower sales volumes, partially offset by pricing; higher SG&A expense included $1.2M of incremental R&D expense for technology growth investments • Announced a $240M, multi-year supply agreement to bring modern irrigation and technology solutions to the Egyptian market 1 Net sales after intersegment eliminations. 12 October 22, 2020 | Valmont Industries, Inc. | 3Q 2020 Earnings Presentation
3Q 2020 Cash Flow Highlights 3Q YTD Cash Flow | FCF Reconciliation Cash and Debt Highlights YTD ($M) 09/26/2020 $443.1M Net Cash Flows from Operating Activities $ 273.0 ($221.7M ex-U.S.) Net Cash Flows from Investing Activities (71.4) Cash at 09/26/2020 Net Cash Flows from Financing Activities (110.0) Net Cash Flows from Operating Activities $ 273.0 $779.8M Total Long-Term Debt at 09/26/2020 Purchase of Property, Plant & Equipment (71.0) Free Cash Flows $ 202.0 Strong Operating CF Driven by Higher Operating Income and Strategic Working Capital Management 13 October 22, 2020 | Valmont Industries, Inc. | 3Q 2020 Earnings Presentation
Balanced Approach to Capital Allocation ($M) 2020 YTD Capital Deployment: $142M • Working capital investment to support investments in Capital people, technology and systems Expenditures • 2020 CapEx expected to be $85M - $95M $71 • Strategic fit + market expansion Business Growing Our Growing Acquisitions • Returns exceeding cost of capital within 3 years • Amount excludes $56M purchase of non-controlling interest of AgSense and Convert Italia • Opportunistic approach, supported by FCF $28 $27 Share • Resumed share repurchases on September 10, 2020 Repurchases • $176M remains on current authorization as of 09/26/20 $16 • 20% dividend increase announced February 2020 Shareholders Dividends • Payout ratio target: 15% of earnings Capital Acquisitions Share Dividends to Cash Returning • Current payout: 21% Expenditures Repurchases 14 October 22, 2020 | Valmont Industries, Inc. | 3Q 2020 Earnings Presentation
Strong Balance Sheet and Liquidity to Endure COVID-19 Uncertainty AS OF SEPTEMBER 26, 2020 Cash ~$443.0M Available Credit under Revolving Credit Facility2 $543.0M Total Debt (Long-Term) $779.8M Cash ~$443.0M Shareholders’ Equity $1,189.7M Total Available Liquidity ~$986.0M Total Debt to Adj. EBITDA1 2.3x Net Debt to Adj. EBITDA1 1.0x ► Long-term debt of $779.8M, mostly fixed-rate, with long-dated maturities to 2044 and 2054 ► Capital allocation strategy has not changed, and the primary focus is to maintain liquidity to support operations and maintain investment grade credit rating − 2020E CapEx expected to be $85M - $95M − S&P reaffirmed BBB+/Stable credit rating during third quarter − FCF expected to be positive due to stable costs of energy and raw material, possibly offset by lower revenue − Share repurchases resumed on September 10, 2020 1 See slide 31 for calculation of Adjusted EBITDA and Leverage Ratio. 2 $600M Total Revolver less borrowings and Standby LC”s of $57M. 15 October 22, 2020 | Valmont Industries, Inc. | 3Q 2020 Earnings Presentation
Focus Areas of Our Finance Function Transformation 01 02 03 04 Using advanced Deploying data Improving working Developing Centers technology and science capabilities capital by executing of Excellence automation to and leveraging AI on strategic priorities focused on talent streamline processes, and ML to develop a development and redeploy capital and quantitative, research- expanding our use of people to more based approach to shared services strategic and forecasting and real- innovative time decision making opportunities Evolving Finance Function to Improve ROIC and Maximize Long-term Stakeholder Value 16 October 22, 2020 | Valmont Industries, Inc. | 3Q 2020 Earnings Presentation
4Q 2020 Outlook and Assumptions 4Q20 OUTLOOK1 KEY ASSUMPTIONS • Irrigation: revenue estimated to increase ~ 12% - 15% YoY due $715M – $735M to expected timing of international project deliveries Net Sales • Expect tax rate of ~25.0% • Expect positive operating cash flows 6.5% – 7.5% GAAP Operating Profit • Anticipate stable raw material costs and assume no Margin significant supply chain interruptions • Presume no closures of large manufacturing facilities or 8.0% – 9.0%1 significant workforce disruptions due COVID-19 Adjusted Operating Profit Margin 1 Excludes potential future restructuring activities. See reconciliation of GAAP outlook to adjusted outlook at end of document 17 October 22, 2020 | Valmont Industries, Inc. | 3Q 2020 Earnings Presentation
4Q 2020 Segment Market Trends and Potential Risks • Strong backlog and benefit of capacity additions provides good visibility to 4Q in North America USS • Mild risk associated with some international projects, which has been accounted for in guidance range • Backlog is providing good visibility to 4Q lighting and traffic sales • Solid long-term market trends for both transportation and wireless communication structures ESS • Expect normal 4Q seasonality, which can cause more uncertainty in timing of sales • International markets expected to be slightly down YoY due to ongoing economic effects from COVID-19, primarily across Europe and India • Access systems revenues expected to be similar to first three quarters of this year; profitability has improved during 2020, has been accounted in outlook COATINGS • End-market demand correlates closely to industrial production levels; expect a modest improvement in demand as those levels continue to recover • Encouraged by recent commodity price increases and optimistic trends will be positive for overall grower sentiment • Expect net farm income levels to not improve in the near term IRRIGATION • Expect segment sales to increase 12-15% compared to 4Q19 based on estimated timing of deliveries of the large Egypt project; project operating margins expected to be similar to previous larger international irrigation projects Consistent Solid Cash Flow Generation Expected in 4Q 18 October 22, 2020 | Valmont Industries, Inc. | 3Q 2020 Earnings Presentation
Fundamental Market Drivers Remain Resilient USS ESS COATINGS IRRIGATION • Robust backlog demonstrates • Continued government investments • Business closely follows industrial • Our mission-critical products and ongoing demand and necessity for in infrastructure development across production trends and general technology supports the demand for grid hardening and renewables lighting and transportation markets economic activity increased food production and • Growth supported by strong returns ‒ FAST Act and Highway Trust Fund • Global preservation of critical security to support growing populations globally on equity for both public and private ‒ Europe & Australia: recent infrastructure over the long-term announcements in infrastructure utilities • Increased number of economies • Increasing international demand for stimulus packages actively fighting costs of corrosion food security and agriculture land development creates opportunity for • Growth in wireless communication will drive need to extend life of steel products and components, products globally over the long-term large projects including recent multi- particularly in 5G; expected to year Egypt project • Fits well within ESG principles accelerate given work and school at • Long-term drivers supported by home environment ‒ Water usage and other farm input ‒ COVID-19 has elevated critical optimization need for wireless connectivity in ‒ Mitigation of increased labor costs rural areas ‒ Support of growers’ conservation ‒ Recently joined American efforts Connection Project Broadband Coalition No Change Anticipated in the Near- and Long-term 19 October 22, 2020 | Valmont Industries, Inc. | 3Q 2020 Earnings Presentation
Summary Strong performance through the first nine months of 2020 is a testament to our team’s 01 ability to remain positive, flexible and committed to delivering strong results despite current market environment Advancing adjacent market growth and technology leadership through strategic 02 investments and by leveraging long-term, enduring growth drivers across all segments Long-term strategic framework remains intact and is not expected to change despite 03 market uncertainty; continued focus on profitable growth and ROIC as we position the company for success now and in the future Outlook for Remainder of 2020 Reflects Strong Operating Performance and Resiliency of All Stakeholders 20 October 22, 2020 | Valmont Industries, Inc. | 3Q 2020 Earnings Presentation
Q&A 21 October 22, 2020 | Valmont Industries, Inc. | 3Q 2020 Earnings Presentation
APPENDIX 22 October 22, 2020 | Valmont Industries, Inc. | 3Q 2020 Earnings Presentation
Third Quarter and YTD 2020 Financial Summary $M, except for per share amounts Net Sales 2020 2019 Change YTD 2020 YTD 2019 Change Engineered Support Structures $ 255.7 $ 268.1 (4.6%) $ 739.8 $ 757.1 (2.3%) Utility Support Structures 274.4 205.0 33.9% 731.2 658.7 11.0% Coatings 87.9 93.0 (5.5%) 256.0 278.1 (8.0%) Irrigation 139.2 144.1 (3.4%) 446.5 452.2 (1.2%) Intersegment Sales (23.2) (19.9) NM (76.5) (62.7) NM Net Sales $ 734.0 $ 690.3 6.3% $ 2,097.0 $ 2,083.4 0.7% Operating Income $ 61.5 $ 61.1 0.7% $ 171.8 $ 177.1 (3.0%) Adjusted Operating Income1 $ 67.1 $ 61.1 9.9% $ 199.7 $ 177.1 12.7% Net Income (loss) $ 39.3 $ 38.0 3.4% $ 104.9 $ 113.9 (7.9%) Adjusted Net Income1 $ 42.7 $ 38.0 12.2% $ 128.4 $ 113.9 12.8% Diluted Earnings (loss) Per Share (EPS) $ 1.84 $ 1.75 5.1% $ 4.89 $ 5.22 (6.3%) Adjusted Diluted (EPS)1 $ 1.99 $ 1.75 13.7% $ 5.99 $ 5.22 14.8% 1 Please see Reg G reconciliation of non-GAAP financial measures to GAAP measures at end of the document. 23 October 22, 2020 | Valmont Industries, Inc. | 3Q 2020 Earnings Presentation
State Transportation Investment Funding Measures • Six states have approved 13 transportation investment measures to-date in 2020 • Highlights: − 38 bills have advanced beyond one chamber, while 133 bills are still in the introductory stage. − 13 states introduced legislation to increase their motor fuel tax, eight of which included a component to adjust or convert to a variable-rate formula. − One-time funding has been the most popular legislation (68 bills, primarily in Arizona and Minnesota), followed by local funding and recurring revenue measures (24 and 25 bills, respectively). − Road usage charge legislation has been proposed in six states, and new or increased electric vehicle fees have been proposed in five states. − Approved measures include bonds in Connecticut, Michigan and Minnesota, and a state gas tax increase in Virginia. • Funding Approved in 2020 Legislative Session: $5,098,012,304 24 October 22, 2020 | Valmont Industries, Inc. | 3Q 2020 Earnings Presentation Source: Transportation Investment Advocacy Center
State Transportation Investment Funding Measures Change in 2020 Gas Tax State Name Effective Date (cents/gallon) Kentucky $ 10.0 Proposal Pending New Jersey $ 9.3 10/1/2020 Alaska $ 8.0 Proposal Pending Arizona $ 6.0 Proposal Pending Massachusetts $ 5.0 Proposal Pending Virginia $ 5.0 7/1/2020 Georgia $ 4.0 1/1/2020 Nebraska $ 3.9 7/1/2020 California $ 3.2 7/1/2020 Wyoming $ 3.0 Proposal Pending Alabama $ 2.0 10/1/2020 Oregon $ 2.0 1/1/2020 South Carolina $ 2.0 7/1/2020 Utah $ 1.1 1/1/2020 Florida $ 1.0 1/1/2020 Indiana $ 1.0 7/1/2020 Illinois $ 0.7 7/1/2020 Washington $ 0.6 Proposal Pending North Carolina $ (0.1) 1/1/2020 Iowa $ (0.5) 7/1/2020 Maryland $ (0.7) 7/1/2020 25 October 22, 2020 | Valmont Industries, Inc. | 3Q 2020 Earnings Presentation Source: IHS Markit
Australia Infrastructure/Federal Budget 2020-21 Key Announcements “Long road back” Federal Budget 2020-21 sees additional and accelerated funding for all infrastructure sectors, targeting shovel ready projects Additional $4.5B in NBN for ultra-fast broadband services $250M to accelerate electricity transmission links (Marinus Link, Project Energy Connect, VNI West) $3B allocated to small scale road safety upgrades and local council road, footpath and street lighting programs $2B for new projects under the National Water Infrastructure Development Fund $250M, over four years, for the modernization of infrastructure to reduce waste and increase recycling $250M for the fuel security plan including onshore diesel storage Consistent with Federal Budget 2019-20, funding commitments include investments to optimize existing assets as well as funding for the planning to create a pipeline of future projects Access Deloitte Report Here 26 October 22, 2020 | Valmont Industries, Inc. | 3Q 2020 Earnings Presentation
U.S. Corn for Fuel Ethanol, Feed, and Other Use 14 5.43 5.38 5.61 Used for Ethanol 4.85 12 Feed and Residual Use 10 Produced for Other Uses 8 6 4 Domestic Use (BillionBushels) UseDomestic 2 0 Source: afdc.energy.gov/data – data from Tables 4 & 31, OCT2020 Years run from September through August Year Exports not included in above values 27 October 22, 2020 | Valmont Industries, Inc. | 3Q 2020 Earnings Presentation
U.S. Net Cash Farm Income by Year 28 October 22, 2020 | Valmont Industries, Inc. | 3Q 2020 Earnings Presentation
2010-2019 Historical Free Cash Flow1 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 ($M) Net cash flows from operating activities $ 152.2 $ 149.7 $ 197.1 $ 396.4 $ 174.1 $ 272.3 $ 232.8 $ 133.1 $ 153.0 $ 307.6 Net cash flows from investing activities (262.7) (84.1) (136.7) (131.7) (256.9) (48.2) (53.0) (49.6) (155.4) (168.1) Net cash flows from financing activities 269.7 (45.9) (16.4) (37.4) (136.8) (32.0) (95.2) (220.0) (162.1) (98.9) Net cash flows from operating activities $ 152.2 $ 149.7 $ 197.1 $ 396.4 $ 174.1 $ 272.3 $ 232.8 $ 133.1 $ 153.0 $ 307.6 Purchase of plant, property, and equipment (36.1) (83.1) (97.1) (106.8) (73.0) (45.5) (57.9) (55.3) (72.0) (97.4) Free Cash flows 116.1 66.6 100.0 289.7 101.1 226.8 174.9 77.8 81.0 210.2 Net earnings attributed to Valmont Industries, Inc. $ 94.4 $ 228.3 $ 234.1 $ 278.5 $ 183.9 $ 40.1 $ 173.2 $ 116.2 $ 94.4 $ 153.8 Adjusted net earnings attributed to Valmont Industries, Inc.1 N/A $ 162.3 N/A $ 295.1 $ 187.7 $ 131.7 $ 137.6 $ 158.4 $ 123.0 N/A Free Cash Flow Conversion - GAAP 1.23 0.29 0.43 1.04 0.55 5.66 1.01 0.67 0.86 1.37 Free Cash Flow Conversion - Adjusted N/A 0.41 N/A 0.98 0.53 1.71 1.27 0.49 0.66 N/A 1) Reconciliation of Net Earnings to Adjusted Figures Net earnings attributed to Valmont Industries, Inc. $ 94.4 $ 228.3 $ 234.1 $ 278.5 $ 183.9 $ 40.1 $ 173.2 $ 116.2 $ 94.4 $ 153.8 Change in valuation allowance against deferred tax assets — (66.0) — — — 7.1 (20.7) 41.9 — — Impairment of long-lived assets — — — 12.2 — 61.8 1.1 — 28.6 — Reversal of contingent liability — — — — — — (16.6) — — — Other non-recurring expenses (non-cash) — — 18.18.1 — — Deconsolidation of Delta EMD, after-tax and NCI — — — 4.4 — — — — — — Noncash loss from Delta EMD shares — — — — 3.8 4.6 0.6 0.2 — — Adjusted net earnings attributed to Valmont Industries, Inc. $ 94.4 $ 162.3 $ 234.1 $ 295.1 $ 187.7 $ 131.7 $ 137.6 $ 158.4 $ 123.0 $ 153.8 10 Year Average FCF is $144M; Last 5 Years Has Averaged $153M 1 Adjusted earnings for purposes of calculating FCF conversion may not agree to the adjusted net earnings. The difference is due to cash restructuring, debt refinancing, or other non-recurring expenses which were settled in cash in the year of occurrence. 29 October 22, 2020 | Valmont Industries, Inc. | 3Q 2020 Earnings Presentation
Strong Free Cash Flow Throughout the Cycle 1 2010 – 2019 Free Cash Flow ($M) Years of rapid raw material cost inflation 290 227 210 175 10-yr Avg. $144M 116 GAAP 1.31X 100 101 Adj. 0.91X 81 67 78 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Historical FCF Conversion by Year1 GAAP 1.23X 0.29X 0.43X 1.04X 0.55X 5.66X 1.01X 0.67X 0.86X 1.37X Adj. N/A 0.41X N/A 0.98X 0.53X 1.71X 1.27X 0.49X 0.66X N/A 1 We use the non-GAAP measure of FCF, which we define as GAAP net cash flows from operating activities reduced by capex. We believe that FCF is a useful performance measure for management and useful to investors as the basis for comparing our performance with other companies. Our measure of FCF may not be directly comparable to similar measures used by other companies. 30 October 22, 2020 | Valmont Industries, Inc. | 3Q 2020 Earnings Presentation
Calculation of Adjusted EBITDA and Leverage Ratio Certain of our debt agreements contain covenants that require us to maintain certain coverage ratios. Our Debt/Adjusted EBITDA may not exceed 3.5X Adjusted EBITDA (or 3.75X Adjusted EBITDA after certain material acquisitions) of the prior four quarters. See “Leverage Ratio “ below. ($000s) YTD 26-Sep-20 Net earnings attributable to Valmont Industries, Inc. $ 144,778 Interest expense 40,748 Income tax expense 50,613 Depreciation and amortization expense 83,361 EBITDA 319,500 Cash restructuring expenses 5,678 Impairment of goodwill and intangible assets 16,638 Impairment of property, plant, and equipment 2,811 Adjusted EBITDA $ 344,627 Debt $ 795,937 Leverage Ratio 2.31 Debt $ 795,937 Cash 443,055 Net Debt 352,882 Leverage Ratio 1.02 31 October 22, 2020 | Valmont Industries, Inc. | 3Q 2020 Earnings Presentation
2018-2019 Financials Retrospectively Adjusted from LIFO to FIFO Change Valmont Industries, Inc. Retrospectively Adjusted from LIFO to FIFO Change First Quarter 2019 Second Quarter 2019 Third Quarter 2019 Fourth Quarter 2019 Fiscal Year 2019 As Previously Retrospectively As Previously Retrospectively As Previously Retrospectively As Previously Retrospectively As Previously Retrospectively (in 000's, except earnings per share) Reported Adjusted Reported Adjusted Reported Adjusted Reported Adjusted Reported Adjusted Cost of sales 527,010 527,512 520,457 522,695 514,254 517,053 512,759 517,035 2,074,480 2,084,295 Operating income 55,104 54,602 63,712 61,474 63,863 61,064 55,041 50,765 237,720 227,905 Income tax expense 12,427 12,302 13,961 13,402 13,763 13,063 10,056 8,987 50,207 47,753 Net earnings attributed to Valmont Industries, Inc. 36,481 36,104 41,397 39,719 40,144 38,045 35,747 32,540 153,769 146,408 Net earnings per diluted share $ 1.66 $ 1.64 $ 1.90 $ 1.82 $ 1.85 $ 1.75 $ 1.66 $ 1.51 $ 7.06 6.72 First Quarter 2018 Second Quarter 2018 Third Quarter 2018 Fourth Quarter 2018 Fiscal Year 2018 As Previously Retrospectively As Previously Retrospectively As Previously Retrospectively As Previously Retrospectively As Previously Retrospectively Reported Adjusted Reported Adjusted Reported Adjusted Reported Adjusted Reported Adjusted Cost of sales 529,444 528,363 507,406 505,755 514,352 511,572 547,662 543,282 2,098,864 2,088,972 Operating income 63,960 65,041 63,670 65,321 38,360 41,140 36,290 40,670 202,280 212,172 Income tax expense 12,532 12,802 14,405 14,818 9,091 9,786 7,107 8,202 43,135 45,608 Net earnings attributed to Valmont Industries, Inc. 39,281 40,092 32,960 34,198 4,448 6,533 17,662 20,947 94,351 101,770 Net earnings per diluted share $ 1.72 $ 1.76 $ 1.46 $ 1.51 $ 0.20 $ 0.29 $ 0.80 $ 0.95 $ 4.20 $ 4.53 32 October 22, 2020 | Valmont Industries, Inc. | 3Q 2020 Earnings Presentation
Summary of Effect of Significant Non-Recurring Items on Reported Results ($000s) 33 October 22, 2020 | Valmont Industries, Inc. | 3Q 2020 Earnings Presentation
Summary of Effect of Significant Non-Recurring Items on Reported Results ($000s) 34 October 22, 2020 | Valmont Industries, Inc. | 3Q 2020 Earnings Presentation
Summary of Effect of Significant Non-Recurring Items on Reported Results ($000s) Engineered Support Structures • Cash restructuring expenses to exit product lines within Access Systems Utility Support Structures • An asset impairment charge for a steel utility facility that is held-for-sale • Valuation allowance against an international renewable energy account receivable Coatings • Severance and other cash expenses mostly attributed to closing a small galvanizing site in North America 35 October 22, 2020 | Valmont Industries, Inc. | 3Q 2020 Earnings Presentation