Earnings Call Transcript - VMI Q1 2023

Operator, Operator

Greetings and welcome to the Valmont Industries' First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note, this conference is being recorded. I will now turn the conference over to your host, Renee Campbell, Senior Vice President, Investor Relations and Treasurer. Ms. Campbell, you may begin.

Renee Campbell, Senior Vice President, Investor Relations and Treasurer

Thank you and good morning. Welcome to Valmont Industries' first quarter 2023 earnings call. With me today are Steve Kaniewski, President and Chief Executive Officer; Avner Applbaum, Executive Vice President and Chief Financial Officer; and Gene Padgett, Senior Vice President and Chief Accounting Officer. This morning, Steve will provide a brief summary of our first quarter results, commenting on our market and long-term business strategy. Avner will review our financial performance and provide our current outlook and indications for 2023 with closing remarks from Steve. This will be followed by Q&A. A live webcast of the presentation will accompany today's call and is available for download from the webcast or on the investors site at valmont.com. A replay will be available on our website later this morning. Please note that this call is subject to our disclosure on forward-looking statements, which applies to today's discussion as outlined on slide two of the presentation and will be read in full at the end of today's call. Finally, if you would like to be notified when Valmont publishes news releases and other information, please sign up for email alerts through our investors site. We also encourage investors and others interested in our company to follow Valmont and our brand on the social media channels listed on our website. I will now turn the call over to our President and Chief Executive Officer, Steve Kaniewski.

Steve Kaniewski, President and Chief Executive Officer

Thank you, Renee. Good morning, everyone and thank you for joining us. We delivered another quarter of great results despite an economic environment that continues to be challenging. Our performance reflects the effective execution of our growth strategies and our deliberate actions to increase profitability. We have a great team and we are positioned to achieve another year of great results. Turning to slide four, there are a few highlights we want to share with you today. First, we've had a tremendous start to the year with record first quarter sales, operating income, and earnings per share. Net sales increased 8.3% with solid growth in both Infrastructure and Agriculture. Adjusted operating margin improved to 11.5%, reflecting benefits from strategic pricing, our ability to manage costs, and improved operational efficiencies that led to better factory performance. Adjusted earnings per share grew to $3.61. Avner will provide more details in a few moments, but I am extremely pleased with our results and proud of the entire Valmont team for these accomplishments. Demand for our products remains robust, and we are in markets and sectors that tend to be independent of the general economy and less correlated to macroeconomic cycles. Our participation in these markets is not by chance, but the result of a deliberate investment strategy. We have targeted expanding niche markets where we can add the greatest value through our recognized product leadership, flexible global footprint, and innovative technology to help solve customers' challenges. In both segments, our disciplined approach to strategic pricing helps ensure that we are capturing the value we deliver to our customers, while expanding margins. This helps offset inflationary pressures that are still present in our supply chain, notably the recent increases in steel costs. We remain vigilant in monitoring and responding to cost increases and we'll take actions when necessary to maintain the margins we have worked hard to achieve. In a few minutes, Avner will speak to our capital deployment framework and update you on the latest actions to drive shareholder value. This is an important part of our strategy and enhances our value creation initiatives. Turning to a market update on slide five and starting with Infrastructure, our markets are benefiting from several secular long-term growth drivers including the global energy transition. The infrastructure investment required to support the transition is in its early innings and utilities are increasing their spending to support grid hardening initiatives and an evolving generation portfolio. Recent reports from utilities indicate 2023 CapEx spending is expected to increase 10% over last year and total spending over the next three years is expected to continue growing. Overall, utility spending initiatives continued to show resilience to a higher cost of capital environment, inflation and general economic concerns. Our solar business is benefiting from the renewable energy transition and order rates have been increasing, leading to a record global backlog that is three times higher than one year ago. We expect further demand to come from US markets once the industry receives more clarity on how critical elements of the Inflation Reduction Act will be implemented. During the quarter, we continued to see solid order flow from transportation markets and additional quoting activity related to the Infrastructure Investment and Jobs Act. As a reminder, our lighting and transportation products are typically purchased nine to 12 months after funding appropriations are completed. So, we expect to benefit from this incremental demand beginning in 2024. In telecom markets, underlying multiyear demand for 5G deployment remains strong. We have seen some pullback in carriers' CapEx this year to more normalized levels. These spending patterns are typical within the industry as we've seen with previous generation rollouts. We remain well-positioned to help carriers achieve their 5G and densification goals. Across the Infrastructure segment, we continue to make strategic investments in capacity and technology solutions to meet strong multiyear demand. Turning to Agriculture. Underlying global market fundamentals remain positive, providing stability to overall demand trends. International ag markets remain very strong, led by Brazil and a robust project pipeline elsewhere. The Brazil market has continued to strengthen as the value of agricultural exports have expanded approximately 10% annually for the past 20 years, most recently to support lower expected yields in the EU and the Ukraine. Irrigated land acres in Brazil have increased over 40% annually over just the past three years. And this year, a second consecutive year of record corn output is expected there. Last year, we began investing in additional factory capacity within the country, which we fully expect to come online this year, allowing us to meet the increased market demand, while enhancing customer service levels. Additionally, our robust project pipeline is providing a multiyear line of sight, and we are well-positioned to benefit from these opportunities in 2023 and beyond. Turning to North America. As the first quarter progressed, we recognized some changes to typical order patterns as growers took a wait-and-see approach to buying decisions amid general economic uncertainty and a late planting season due to abnormal weather conditions. We also recognized a difficult comparison to first quarter 2022 when we delivered against an exceptionally elevated backlog. We expect the second half of the year to return to a more normalized order flow as commodity prices have remained resilient and projected 2023 net farm income levels are expected to remain above historical averages. Moving to slide six. Earlier this month, we were excited to host a Media Day event at our global headquarters to celebrate the commencement of our 2023 AgTech Tour. The half-day event included networking for media, community leaders and our expert Valley and Prospera staff; a fireside chat with Daniel Koppel, President of AgTech, and myself; as well as a roundtable of customer and dealer panelists that have experienced a tremendous return on investment from our technology solutions. We were honored to have Nebraska Governor, Jim Pillen speak at the event. Over the next six months, our team will travel the country, showcasing our suite of technology offerings, including remote control solutions, machine health diagnostics, and our featured release of plant insights to monitor crop health. With more than 60 plant stops across 20 states, growers are invited to have open discussions to learn how our technology solutions can provide unparalleled farm agronomy data and insights to maximize land productivity. Adoption rates of our AgTech solutions have been increasing and our investments in technology have uniquely positioned us in the market, while setting our agriculture business up for success through the cycles. Turning to slide seven. Next week, we will publish our 2023 sustainability report. For Valmont, sustainability is embedded in everything we do. Our tagline, Conserving Resources, Improving Life, is a testament to the work we do to help our customers do more with less. In the report, you will see an update on our ESG progress and commitment and multiple examples demonstrating that ESG is a part of our strategy, operations, and a competitive advantage. On the slide, we highlight our Champion Green team in Acacia Ridge, Australia. This team was selected from our more than 80 global green teams for the annual award to recognize the work they have done towards our ESG philosophy. I was proud to be able to acknowledge the achievements of this team and appreciate everything our global team does every day to demonstrate our commitment to sustainability. I encourage you to take the time to read the report when it is published. We also plan to host a dedicated ESG conference call later this year to expand on the key elements of the report and respond to your questions.

Avner Applbaum, Executive Vice President and Chief Financial Officer

Thank you, Steve, and good morning, everyone. Turning to slide nine and first quarter results, my comments will focus on the adjusted results as outlined in the press release and in the Reg G disclosure in the presentation appendix. As mentioned last quarter, the divested offshore wind business is now being reported separately in other. My comments today will focus primarily on our two reportable segments; Infrastructure and Agriculture. First quarter total net sales of $1.1 billion grew 8.3%, driven by sustainable pricing and volume growth in both segments. Excluding the Other segment, sales grew 10.4% year-over-year. Operating income grew 23.4% to $122.1 million, with operating margins increasing to 11.5%, approaching our long-term goal of 12% and reflecting execution of our disciplined pricing strategy, higher volumes, and improved fixed cost leverage. Diluted earnings per share grew 17.6% to $3.61, attributable to higher operating income, partially offset by a higher tax expense due to a change in the geographic mix of earnings compared to last year. Turning to slide 10, Infrastructure net sales of $736.1 million grew 11.2% year-over-year with sales growth across all product lines, including a record quarter for TDNS and double-digit growth in solar, which is the renamed renewable energy product line. Segment sales growth was led by higher pricing and strong underlying market demand. We continue to realize the benefits of our strategic capacity expansion and have responded to this demand through new product innovation and footprint optimization to drive volume increases across the segment. Operating income increased to $94.4 million or 12.9% of sales, driven by sustained pricing and volume growth. Moving to slide 11. In Agriculture, net sales of $332.2 million grew 8.3% year-over-year, led by sustained pricing, volume growth and higher sales of technology solutions. Strong growth in international markets, including another record sales quarter in Brazil, where volumes grew nearly 50% year-over-year and higher middle e-sales more than offset lower volumes in North America as first quarter 2022 benefited from the delivery of record year-end backlog. Operating income increased to $57 million or 17.2% of sales. The benefits of higher average selling prices and additional volume leverage were partially offset by higher SG&A, including incremental R&D expense for technology investment. Turning to cash flow on slide 12. First quarter operating cash flow of $21 million was driven by diligent working capital management and a more stable price cost environment. We will continue to focus on effective working capital management as we look to move free cash flow equal to or greater than net earnings. Turning to slide 13 for a summary of first quarter capital deployment. CapEx was $22 million as we continue to invest in capacity to support sales growth. We further demonstrated our commitment to return cash to shareholders with an increase to our quarterly dividend and continued share repurchases. The additional $400 million repurchase authorization announced in February gives us additional capacity to repurchase shares, while the increase in our dividend is reflective of our confidence in sustained earnings growth and strong cash flow generation. Through our balanced capital deployment framework, we are focused on enhancing shareholder value as the strength of our business continues. In the first quarter, we returned approximately $123 million to shareholders through dividends and share repurchases, ending the quarter with $173 million in cash. Going forward, we will continue our balanced capital allocation approach, although we expect a slower pace of repurchases for the remainder of the year. Moving to slide 14. Total debt to adjusted EBITDA of 1.7 times remains within our desired range of one and a half to two and a half times. Our cash balance, available credit and flexible balance sheet provides us with ample liquidity to execute our capital allocation strategy. During the quarter, Moody's reaffirmed our BAA3 stable credit rating. I would now like to review our 2023 outlook as shown on slide 15. We expect sales growth to remain at 4% to 7%, which accounts for the divestiture of the offshore wind structure business and assumes mid to high single-digit volume growth, approximately 1% price growth and no material foreign currency impact. We expect operating margin expansion this year given strong market demand, our pricing strategy and ongoing continuous improvement initiatives. We also assumed steady market demand, a more stabilized labor environment and continued growth in R&D investments. We expect continued strength across infrastructure markets this year as our healthy global backlog is providing good visibility. In Agriculture, as Steve mentioned earlier, underlying ag market fundamentals globally remain positive. International growth this year is expected to be very strong, driven by project sales in a robust Brazil market, where our backlog visibility extends into the second half of the year. Agrishow, the largest farm show in the region, will begin in a couple of weeks, giving us further confirmation of our full year expectations. We expect North America agriculture volumes in the second quarter to be similar to the first quarter due to difficult comparison to unusually high volumes in the second quarter of 2022 as we delivered an elevated backlog. We expect international sales in the second quarter to be up approximately 10% compared to the first quarter. Finally, a reminder that the third quarter is typically a lower sales quarter compared to the rest of the year. However, strong international sales, led by our growth in Brazil where they can produce two or three crops per year and higher project sales, are likely to mitigate seasonality impacts. We now expect adjusted diluted earnings per share growth of 12% to 16% for a range of $15.45 to $16. While our previous outlook to assume a more stabilized inflation environment, we are seeing recent increases in raw material costs, notably steel. We expect these costs to align with current price projections for the remainder of the year. Our total backlog of $1.6 billion at the end of the quarter remains near record levels and at solid margin levels attributable to continued market strength across the portfolio and multiple new projects awards. As a reminder, our backlog is firm with committed projects and typically experiences a few cancellations. We believe our backlog is an indicator of the strength of our core markets and the steady growing demand for products and solutions. To summarize, we are confident in our outlook and believe that it demonstrates the strength of our portfolio, favorable end market trends and strong competitive position in the marketplace. We are leveraging our global scale to improve margins and drive strong cash generation, enabling us to support our growth strategy and achieve our long-term financial targets driving sustainable shareholder value.

Steve Kaniewski, President and Chief Executive Officer

Thank you, Avner. Turning to slide 16 and expanding on Avner's summary, the fundamental long-term drivers of our markets remain resilient. Our end markets have true multiyear and, in some cases, multi-decade tailwinds, that set us up for a long runway of growth. Our Infrastructure business is supporting the global energy transition, critical infrastructure to support transportation markets, and mobile network upgrades. In the Agriculture market, the combination of land productivity and resource conservation needs are driving investment globally. Additionally, both segments are experiencing technological transition and we are solving customer pain points by integrating value-added innovation that will continue to deepen our competitive advantage. In summary, on slide 17, I am extremely proud of our team's strategic execution and ability to deliver sustained outperformance through challenging market dynamics. Our growing sales and strong backlog demonstrate our market leadership and we will continue to develop capabilities and centers of excellence across the organization to build on our momentum. We are investing in innovation, technology, and digitization that will accelerate our growth beyond market rates. Our focus remains on controlling the things we can control to achieve our financial targets and deliver shareholder value. This is enabled by a strategic framework that positions Valmont for success now and in the future. Finally, I look forward to meeting with you next month at our Investor Day on May 23rd as we provide a more in-depth review of the company and business segments, including growth strategies, capital allocation priorities, and financial objectives.

Renee Campbell, Senior Vice President, Investor Relations and Treasurer

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

Operator, Operator

Thank you. We will be conducting a question-and-answer session. Our first question comes from the line of Chris Moore with CJS Securities. Please proceed with your question.

Chris Moore, Analyst

Good morning. Thank you for taking my questions. You've mentioned Brazil quite a bit, and your comments are quite optimistic. However, I’ve been hearing mixed signals regarding demand strength and some election-related risks. Could you elaborate on the Valmont business model in Brazil? Are you implementing anything unique, or are you simply capitalizing on the strong growth you’re observing there?

Steve Kaniewski, President and Chief Executive Officer

Good morning Chris. There has been a real deliberate effort over the past five years to increase our dealer network throughout the country of Brazil to add more local capacity so that we're not as subject to some of the import issues with inventory. To create an aftermarket parts strategy, we're testing a lot of our technology down there even as a leading technology proof-of-concept. So, I think when you look at that in its totality, our efforts are paying off for us. I think the other big thing as compared to, let's say, North America or Europe is just the fact that you get two to three grow seasons. And you have corn really opening up in the West. And so because they're on a replenishing aquifer in the West, corn, because they now have a really robust cattle industry, the byproducts of some of the ethanol production from corn, it can be used to feed cattle, that's helping to drive business as well. And then obviously, FINAME has been very supportive in all growers participating in the market, which is why we see that if someone puts land in production, 40% of the time, they're going to put a pivot right on it right away. And that is significantly higher than you see in other parts of the world, including the North America market. So, Brazil is the market of the future and will really surpass our North American market in the not so distant future.

Chris Moore, Analyst

That is incredibly helpful. I have one more question regarding the bigger picture of agriculture. Over the next 12 to 18 months, when considering potential challenges, is there a difference by geography? Do you feel more or less confident in North America compared to international markets moving forward? You did mention how strong Brazil is, so I am curious about that.

Steve Kaniewski, President and Chief Executive Officer

Brazil has shown significant growth for us over the past three years, doubling each year, which gives us a lot of confidence in the market there. Despite government changes and other factors, agriculture contributes around 23% to the GDP, making it a vital sector that will remain stable. We see strength in the Middle East and Eastern Europe as well, thanks to food security and population growth. Australia and New Zealand faced challenges from severe weather recently, but overall agricultural fundamentals are strong, with soy prices around $14.60 and corn frequently above $6. After record farm incomes, farmers are understandably cautious before reinvesting. As opportunities arise, they may engage in favorable forward contracting. With these soy prices, we anticipate a quick return to investment, driven by the need to keep land productivity high and costs low. The last three years have been atypical due to COVID, inflation, supply chain disruptions, and labor issues, but we are moving towards a more normalized agricultural market.

Operator, Operator

Thank you. Our next question comes from the line of Nathan Jones with Stifel. Please proceed with your question.

Nathan Jones, Analyst

Good morning everyone.

Steve Kaniewski, President and Chief Executive Officer

Good morning Nathan.

Nathan Jones, Analyst

I'll go on the domestic ag market. You guys said the revenue in the quarter was similar to last year. I'd assume you have a few points of pricing there. So volume was probably down a few points. Can you talk about the difference just in the seasonality? I know there was demand pulled forward earlier in the season last year. Does that account for all of the volume decline? Or is there a farmer sentiment in there? And how do you expect that to normalize as we go through the year? Should we expect maybe a better second quarter than you had last year demand shifting from one quarter to the other?

Steve Kaniewski, President and Chief Executive Officer

Nathan, there was definitely some pull forward and negative farmer sentiment as we entered the year. Additionally, much of the area west of the Mississippi experienced abnormal weather conditions, causing delays in getting to the fields. We anticipate that the second half of the year will be more normalized. In the second quarter, we will still face some pressures, particularly in April as we are just beginning to see an uptick in order rates and an increase in farmer sentiment week by week. Our conversations with dealers and growers indicate that confidence is starting to build. This is why we've discussed the quarter's performance as we have. Avner, would you like to add to our thoughts on this?

Avner Applbaum, Executive Vice President and Chief Financial Officer

Yes. When we analyze the quarters, we observe that the North America volumes have remained essentially flat from Q1 to Q2, with similar sequential pricing. Additionally, we have noticed a 10% increase in international markets, attributed to the year-over-year comparisons.

Nathan Jones, Analyst

Okay. I understand you have mentioned that steel prices have risen quickly again, and you have discussed the need to raise prices to cover those increased costs. Are farmers still able to manage these cost increases? Is this affecting their outlook for irrigation spending? With the ongoing drought in the Midwest, how does this influence the farmers' decision to purchase irrigation? Any additional insights you can provide on this would be appreciated.

Steve Kaniewski, President and Chief Executive Officer

Yes, I would say, Nathan, the price increase we’re discussing now is likely our smallest in recent years. It is primarily meant to offset rising costs related to steel, labor inflation, freight, and oil. Essentially, it’s just a normal price adjustment in line with the market and our ongoing investments in technology. The pivot still offers significant returns. As you mentioned, considering the current conditions, the need to gather data from the field, conserve water, and ensure successful crops is crucial, especially for large-scale farms. If they have the resources, they will implement a pivot almost immediately. We don’t see this as creating any elasticity issues in the market. We are simply aligning our price-cost ratio to reflect what it would have been around 2013 or 2014.

Nathan Jones, Analyst

Great. Thanks very much for taking my questions.

Operator, Operator

Thank you. Our next question comes from the line of Brian Drab with William Blair. Please proceed with your question.

Brian Drab, Analyst

Good morning. I'd like to start by expanding on the previous question regarding steel prices and address it more generally. Steel prices have experienced significant fluctuations. From last summer until now, prices have decreased considerably and then increased nearly 80% year-to-date. What trends are you observing in terms of price changes across your various segments during this timeframe? Considering the recent decline in steel prices from last summer to now, where do we stand? Additionally, how has this significant fluctuation impacted sectors like irrigation? Some believe customers may have been postponing purchases in anticipation of a price drop, which could have slowed the market. Is that perception accurate, and did you observe this behavior?

Steve Kaniewski, President and Chief Executive Officer

Yes. Thanks Brian. Our steel price and irrigation as a percentage of the cost of goods sold is not as significant as it would be in the utility business. That said, it uses more of the coil, which has been more volatile than the other forms of steel, which we use like plate and bar and angle. And so it can have a more dramatic impact to your cost to get sold in a quicker time period. We've done a good job of protecting our customers and ourselves through hedging programs, through some physical hedging as well as some inventory management programs that we've kicked in place. And so it was really tough for a while to kind of figure out where steel was from the price/cost perspective. And that's why I think we've seen it enough stability even with the movements down and up, where this can be just a nominal tweak, so to speak, to the pricing that we need to make sure we're capturing what we are. Recall that in particular our utility business, we have pass-throughs. And so in the second half of the year, we know that some of our revenue and utility will go down, not the margin, but the revenue because we give that back through the form of steel pricing. Now, that uptick with a 40-week lead-time won't show up until next year in terms of some revenue increases that will then come through the mechanisms. Plate steel has been pretty resilient through all of this, and that's because a lot of plate goes into infrastructure. And infrastructure, whether it's bridges in highways or like our own utility business, has remained pretty strong. And so the dichotomy of coil to plate is still there, albeit not as significant as it was during the peak, but that normalized kind of $100 a ton difference is not something we've seen for a long time. So, long-winded answer, but I would say to you that steel and the recent movement, we've accounted for well and I think we've done a good job of being able to protect both ourselves and the customers and really has not dampened demand. Yes, there are some people that wait on the sidelines that always happens. But I think in today's inflationary environment, there's other points of inflation that really no one should be expecting a price decrease anytime soon or anything that's got steel or aluminum or zinc or metals involved with it.

Brian Drab, Analyst

Great. Yes. Thanks. That's really helpful. And then can you, Steve, just comment on any big international projects that might be out there, just that dynamic? Is the pipeline still as strong as it's been? In the past, you mentioned that even in Egypt, you're seeing the potential for maybe some add-on projects there. I know you announced some like $85 million in opportunity in Africa. Can you just comment on that pipeline?

Steve Kaniewski, President and Chief Executive Officer

Yes, I'd say that the pipeline over the last couple of years has been that there's one very significant order per year like the $85 million award we've received and there is a good number of projects that are, say, $30 million and below that are coming through that we don't announce, but that we're being awarded and they're from those regions, whether it's the Middle East, Africa, Eastern Europe, or Central Asia. And so the pipeline is still very good. Again, the market fundamentals around food and food production, food security, all the interruption with Ukraine, Russia still placed favorably to that pipeline. The long-term pipeline is Africa. They will definitely have development money that will flow into that area and just the pure need for political stability is foremost on the government's minds.

Operator, Operator

Thank you. Our next question comes from the line of Ryan Connors with North Coast Research. Please proceed with your question.

Ryan Connors, Analyst

Good morning. I appreciate the opportunity to ask my question. I wanted to approach the agriculture side from a different perspective, Steve. You mentioned a lot about the top-line revenue and demand outlook for international markets compared to North America. In terms of margin and mix outlook, if we assume that, at least in the short term, international markets will be the main growth driver—as we saw in the last quarter and likely for the rest of the year—how does that affect the margin story and the mix related to margins and irrigation? Additionally, can you provide insight into the bidding environment for those significant projects you mentioned? Is it becoming more competitive, less competitive, or stable? Any additional details you could share would be appreciated.

Avner Applbaum, Executive Vice President and Chief Financial Officer

Good morning. I can start with the mix as we look at our international agriculture businesses, where the margin has been consistently improving. Brazil, in particular, has a strong margin profile. As we mentioned earlier, there are two to three growing seasons, allowing farmers there to achieve good profits, resulting in a robust margin profile for Brazil. Additionally, as we integrate technology into our solutions, it enhances the margins, particularly as we expand into the aftermarket business. As this sector continues to grow and margins improve, its growth relative to North America will have a less significant impact on our overall margins going forward. While the margins in some international projects are not yet comparable to those in North America and may carry a lower margin profile due to project scale, we do not anticipate a substantial change in overall margins. In our first quarter, for instance, we achieved a strong margin of 11.5%, which we are proud of, and we aim for 12%. We expect our margins to maintain these higher levels and continue improving throughout the year.

Steve Kaniewski, President and Chief Executive Officer

And relative to your question about bidding, obviously, when there's an award like an $85 million award, that's going to be very competitive. It brings in players from Saudi Arabia, from Europe, it's not just our US competitor base at that point. So, they have the ability to utilize a global supply team. And thankfully, we've built a very strong global supply chain where we can source things throughout the world and bring it together in the project location and still make money that is favorable to the company at that point. But any time you're going to see a large project, it's going to be very competitive. But the projects that are more in that $30 million range, I'll say the midsize type projects not nearly as competitive. Usually, there's a lot more cultivation that went on with the deal, specification, maybe some land use work that was done ahead of time, pumping solution type of things. And I think you need to be able to bring together the entire package, if you want to be able to do these projects that have favorable margins to the company. And we've deliberately, over the years, set up a pumping solutions engineering group. We've worked on land use. We help bring development money to our customers and all of that together is why we can pull off the projects, whether they're small scale or large scale and make good money.

Ryan Connors, Analyst

Got it. Okay. And then my other one just was on the transmission side. Speaking of the supply chain you mentioned, Steve, any lead-time update there? I know you have been a constraint at one point, you'd indicated that lead-times have started to get better. We're holding around 40 weeks, I think, is what you mentioned. Any update there on lead-times in transmission, particularly?

Steve Kaniewski, President and Chief Executive Officer

We're still around and the market is still around that same 40-week lead-time. There's a few competitors that may be slightly below that. But as an industry, 36 weeks to 40 weeks depending on the construction is kind of holding at this moment. And that's with, as we mentioned earlier, the CapEx budgets being up a little bit more than we originally anticipated. We were thinking maybe 7%, 8%, more like 10% now. And so we've been able to keep our ship complete on time pretty strong at that level, but obviously looking for areas of growth from our operations team in ours. And if we can create the hours, we know that we'll be able to start to pull some of those lead-times down, which should be viewed favorably by the customer.

Operator, Operator

Thank you. Our next question comes from the line of Brent Thielman with D.A. Davidson. Please proceed with your question.

Brent Thielman, Analyst

Hey, thanks. Good morning. Steve or Avner, again, really impressive margin that this quarter investor has seen in years. I guess my questions, look, I mean, with the run-up in steel prices, you've seen so far this year, to what degree were those costs reflected in the first quarter? And then, I mean, shouldn't that have a more material impact on 2Q and 3Q margin just given the natural lag in pricing? I guess, where I'm confused because it sounds like you think your margins can sustain at these higher levels have been in the face of that.

Avner Applbaum, Executive Vice President and Chief Financial Officer

Thank you. I’ll respond to that. Good morning. Overall, as you mentioned, we achieved strong margins in the first quarter, and we anticipate that these margins will persist throughout the year. There is a delay between the increases in steel prices and their effect on our profit and loss statement as inventory purchases influence our pricing. Eventually, we will notice some fluctuations over the year due to this. Currently, we are not seeing the impact of higher steel costs in our profit and loss statement, and this will lag for several quarters. Thus, while there may be some variability in certain quarters, we have effective strategies for managing these increases through financial and physical hedges, as well as pricing adjustments. We do not view this as a concern. We manage it carefully, and while it may lead to some fluctuations within quarters, it should not affect our overall performance and margin profile.

Brent Thielman, Analyst

Okay. Thanks Avner. I guess the follow-up would be on the Agriculture segment. I'd just be curious your sort of high-level thoughts how we ought to think about for this evolving lending agreement or the access to capital, liquidity for farmers? Is that a concern as being lenders sort of across the country, tightening credit here? How do we think about that in the context of that business?

Steve Kaniewski, President and Chief Executive Officer

Brent, that's a great question. We've observed this quite a bit. Farmers generally have strong repayment capabilities due to their asset base backing loans. There are numerous programs available that offer discounts or reduced interest rates on machinery and equipment. As we have mentioned before, pivots provide the second-best return on investment for farms, following tractors, with a typical payback period of three to four years. Despite some increases in interest rates, around 400 to 500 basis points compared to last year, the financials still work, especially with higher crop prices. Soybeans priced at $14.60, nearing $15, reflect an excellent market. While input costs have risen, they are showing signs of stabilization and may have peaked last year. Farmers are taking the time to consult with their accountants to navigate this new environment, which has introduced some uncertainty. However, their confidence is increasing as time goes on. We haven't seen significant effects on land pricing yet, especially among larger growers who are actively seeking land. Regarding machinery, larger farms tend to buy pivots for cash anyway. Overall, if the current situation remains, farmers will adapt and make informed decisions. The investment opportunities such as tractors, land, and pivots continue to be strong for them. They should maintain a positive outlook, even with the prevailing interest rates.

Brent Thielman, Analyst

Okay. Thanks for that Steve. Appreciate it.

Operator, Operator

Thank you. Our next question comes from the line of John Braatz with Kansas City Capital. Please proceed with your question.

John Braatz, Analyst

Morning everyone.

Steve Kaniewski, President and Chief Executive Officer

Morning Jon.

John Braatz, Analyst

Steve, in your commentary, you talked a little bit about the increased R&D spending in the agricultural area. And I'm wondering if you could tell us how much maybe your spending and what the trend is like going forward? And maybe some of the things that you're working on give us an idea of what the opportunities are?

Steve Kaniewski, President and Chief Executive Officer

Yes, we have been increasing our R&D spending by approximately $4 million to $6 million annually. A significant portion of this investment is directed towards AgTech, notably Prospera, and the Insights product, which is experiencing strong adoption and providing excellent returns for the growers who use it. However, our focus isn't solely on AgTech; we've also been investing in other areas over the years. For instance, X-Tec is a continuous drive machine that operates electrically instead of hydraulically, enabling us to traverse the field in just two hours. This required considerable investment. We have also integrated icon panels into our linear machines, a development we had aimed for over several years. This approach involves enhancing both the pivot and its electronic systems along with introducing newer agronomy-related services.

Avner Applbaum, Executive Vice President and Chief Financial Officer

And I'll just jump in. Specifically to research and development, kind of the overall dollars that we spent last year, we're approaching $50 million and that's specifically R&D. Of course, we spend more on innovation and such, and we continue to increase. But just as a reference point, it was $46 million last year.

John Braatz, Analyst

Okay. Thank you, Avner. And Steve, last thing, last week, you announced this partnership with Control Module and guide some reading on the technology and what's happening in that area. And it sounded very interesting, but can you tell us a little bit more about what you see for that technology and that market opportunity and maybe how your partnership with Control Module might work? Now, I understand it's small at this point, but is kind of move the needle down the road?

Steve Kaniewski, President and Chief Executive Officer

Yes, when we examine our data acquisition and processing methods, we are exploring various technologies to enhance our capabilities. This partnership brings us a valuable component that we wouldn't have been able to access otherwise. We have consistently emphasized our intention to analyze the ecosystem and determine where to invest in developing our own technology versus collaborating with established companies that have already conducted extensive R&D and have a significant lead. Therefore, our technology growth will stem largely from these partnerships, which we are enthusiastic about. Additionally, during our Investor Day on May 23rd, we will provide more details about our infrastructure technology and how it aligns with our growth strategy and the transition of our business toward more recurring revenue streams.

Operator, Operator

Thank you. Our final question comes from the line of Brian Wright with ROTH MKM. Please proceed with your question.

Brian Wright, Analyst

Thanks. Good morning. Just was wondering with the Farm Bill going through its process, are there any things that we should be watching for or that you're hearing about that they can have an impact on the ag part of the business?

Steve Kaniewski, President and Chief Executive Officer

Good morning, Brian. The Farm Bill often goes through a lot of changes and political negotiations. Typically, the food stamp issue tends to be bipartisan, and since we come from a state that is heavily agriculture-focused, we don’t anticipate any major changes in that area. Currently, there are some environmental considerations becoming more prominent, which we are monitoring. If there are more regulations that require data collection, that could actually benefit our business because our technology solutions are assisting growers in meeting their ESG requirements. So, while we are keeping an eye on this, we don’t expect any significant shifts. It's worth mentioning that the equip program was renewed for $850 million but had previously expired, which has caused many of our growers to reapply and restart the process. This program has been in place since the mid-1990s, so this disruption is quite significant. If approvals are delayed, that could impact our business more than minor changes in the Farm Bill.

Renee Campbell, Senior Vice President, Investor Relations and Treasurer

Thank you for joining us today. As mentioned, today's call will be available later this morning for playback on our website or by phone for the next seven days. We look forward to speaking with you again next quarter.

Operator, Operator

Included in this discussion are 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 listen to, and consider these comments, 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, 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 discussion is made as of the date of this discussion and the company does not undertake to update any forward-looking statements. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.