Valmont Industries: Earnings Preview

Jul.13.11 | About: Valmont Industries, (VMI)

A leading producer of engineered products, Valmont Industries, Inc. (NYSE:VMI), announced that it would release its results for the second quarter of 2011 before the market opens on July 15, 2011.

Valmont kicked off the earnings season with its first quarter posting an EPS of 97 cents per share versus last year's 62 cents per share, an increase of 56.5% and surpassing the Zacks Consensus Estimate of 95 cents.

With respect to earnings surprises, the company outdid the Zacks Consensus Estimate in three out of four quarters. In one of the quarters, the company reported below the Zacks Consensus Estimate. This is reflected in the average earnings surprise of 3.415%, with positive surprises in three quarters and negative in one.

First Quarter Review

The company’s quarterly revenues, jumped 55% year over year to $568.0 million, modestly beating the Zacks Consensus Estimate of $540 million. The first quarter results were driven by a significant growth in Irrigation Segment sales and the contribution of the Delta businesses. Cost of sales climbed 61.8% to $431.5 million in the quarter.

Irrigation Segment: Sales surged 39% year over year to $151.0 million, generating 27% of total sales.

Utility Support Structures Segment: The segment, reported sales of $125.6 million, compared with $113.2 million in the prior-year quarter, driven by increased demand for utility structures in North America. Utilities increased during the quarter as they were used for the projects which resumed after having been deferred during the recession.

Engineered Infrastructure Products Segment: In the first quarter of 2011, segment sales were $168.9 million, up 58% year over year, largely attributable to the Delta businesses now reported in this segment, whose sales were $50.8 million.

Coatings Segment: Sales of $73.5 million jumped more than twice from last year’s sales.

As on March 26, 2011, cash and cash equivalents were $358.3 million versus $374.0 million at the end of March 27, 2010.

Agreement of Estimate Revisions

One out of the six analysts covering the stock for the second quarter of fiscal 2011 has made an upward revision in the last 7 days and none made a downward revision in the last 7days.

Magnitude of Estimate Revisions

The second quarter 2011 estimate increased by 4 cents per share to $1.46 per share in the last 7 days. The Zacks Consensus Estimate for the first quarter is 33.79% higher than the year-ago profit.

Our Take

We believe acquisitions will spur growth moving forward. Valmont acquired Delta Plc., a manufacturer of support structures for the lighting, wireless and utility industry, as well as industrial access systems and road safety systems in the U.K.

The company has operations in Australia, New Zealand, the U.S., China, South Africa and throughout Southeast Asia. Valmont believes that Delta's access systems and road safety businesses will bring new growth platforms. With leadership positions in the fast growing Asian markets and in Australia's strong resource driven economy, Delta should strengthen Valmont's base.

Valmont had previously forecast 2011 earnings per share to increase by 35-45%. However, based on the present scenario where the company is seeing significant strength in the irrigation market and an improving demand for utility transmission structure, it expects earnings per share to be at the higher end of that range in 2011.

In the Engineered Infrastructure Products Segment, the company expects to provide quality infrastructure.

In the irrigation business, the company expects to provide efficient irrigation equipment for agricultural practices in order to meet the growing demand for food.

The company expects to accomplish these ends by consistently improving its products and processes.

Currently, Valmont has a short-term (1 to 3 months) Zacks #3 Hold rating and a long-term (6 months) Underperform recommendation.

The company faces stiff competition from Lindsay Corporation (NYSE:LNN) and American Tower Corp. (NYSE:AMT).