Valmont Industries Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 2, 2024

There are 10 speakers on the call.

Operator

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.

Speaker 1

Thank you, and good morning. Welcome to Valmont Industries' Q1 2024 earnings call. With me today are Avner Appelbaum, President and Chief Executive Officer and Tim Francis, Interim Chief Financial Officer. This morning, Avner will provide a brief summary of our Q1 results, current market dynamics and strategic priorities for 2024. Tim will review our Q1 financial performance and provide our updated outlook and indications for the year with closing remarks from Avner.

Speaker 1

This will be followed by Q and 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 belmont.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, is outlined on Slide 3 of the presentation and will be read in full at the end of today's call. Finally, to stay updated with Valmont's latest news releases and information, please sign up for e mail alerts on our Investors site.

Speaker 1

We also invite investors and other interested parties to follow Valmont and our brands on the social media channels linked on our website. With that, I would now like to turn the call over to our President and Chief Executive Officer, Avner Asploff.

Speaker 2

Thank you, Renee. Good morning, everyone, and thank you for joining us. Before discussing Q1 results, I'd like to address the recent severe weather in the Central U. S, including Nebraska. I'm relieved to report that our employees are safe, our facilities are undamaged and our operations have not been disrupted.

Speaker 2

The extent of the damage to local irrigation system and utility infrastructure throughout the area is not yet clear, but we're ready to support our dealers and customers with any need repairs and replacements. We extend our heartfelt concerns to everyone impacted by these events. Now turning to Slide 5 and first quarter results. We've had a strong start to 2024, delivering results that exceeded our expectations with significant commercial and operational achievements and solid financial performance. Our success this quarter demonstrates the strength of our organization and the value we create through the Valmont Business Model.

Speaker 2

Guided by our core values and aligned around our focus areas, for a more resilient company and are more adaptable to dynamic market conditions. Through this strong performance, we expanded operating margins 240 basis points and grew diluted earnings per share nearly 25% despite sales decreasing 8%. Our focus on commercial execution, operational excellence and reduced SG and A expenses has allowed us to improve profitability in an environment of lower demand from some end markets. This was a true team effort across the organization. I am very proud of what we were able to accomplish.

Speaker 2

Overall, I'm encouraged by our ability to execute and drive profitability. Our success reflects our shared core capabilities across the organization, including product innovation, talent development and operational excellence. Our legacy was built on leveraging these core competencies to build a resilient company with a broad market exposure. The strength of our portfolio diversity is evident in our Q1 results as the size and strength of our infrastructure segment is helping to balance soft demand in agriculture. This quarter saw continued strong demand in infrastructure, notably in our TD and S business, driven by the multiyear energy transition and needed investment to build a more resilient grid.

Speaker 2

Our strategic investments to enhance flexibility in our footprint are helping to drive favorable product mix and generate higher returns. For example, this quarter, we grew our transmission business, while also successfully increasing the production of distribution and substation products. Stable demand in lighting and transportation markets continue even as IIJA funding has yet to benefit our business. As expected, demand in telecommunications markets remains muted as carrier investments normalize to support network expansion. Turning to agriculture.

Speaker 2

Demand in North America continues to be soft, but stable and generally in line with our expectation. We are encouraged by the trend of higher order rates during the spring selling season compared to last year as center pivots continue to be a compelling investment for growers. In Brazil, we continue to see muted grower sentiment and general market softness. Lower crop prices are weighing on gross profitability causing them to defer certain capital investments, including irrigation equipment. International project shipments this quarter were lower, largely due to challenging conditions in Egypt.

Speaker 2

We effectively navigated these delays and are pleased to report that shipments have resumed in the second quarter. Turning to Slide 6 and shifting our view from near term dynamics to long term fundamentals. Our end markets have several multiyear demand drivers. In our infrastructure segment, the energy transition, replacement of aging infrastructure for enhanced resiliency and rising consumption of data and technology are all multiyear mega driving increased demand for our products. Investments in grid infrastructure are increasing to support these megatrends with projections for U.

Speaker 2

S. Electricity demand growth over the next 5 years doubling from last year's estimate. This growth is driven by both expansion of data centers to manage AI's extensive data needs and by increased manufacturing for high demand industries such as chips, batteries and electric vehicles. Requested rate increases by utilities set a record in 2023 for the 3rd consecutive year, supporting their capital investment plan. While high interest rates and the approval timing of rate increases can lead to project movement for certain customers, we have built flexibility in our footprint to be agile and adjust quickly to evolving customer needs.

Speaker 2

Transmission demand continues to grow at high rates and all of TVNS is supported by compelling global megatrends. Lighting and transportation products typically delivered in the latter stages of projects financed by IIJA Funding along with coating services, which protects steel from corrosion and harsh environments also stand to benefit from these enduring multiyear drivers. In telecom markets, our customers expect carrier CapEx spending to remain muted this year, following record years in 2021 2022. We stand ready to quickly respond to the anticipated uptick in demand driven by spectrum deployment and continued 5 gs expansion. Turning to agriculture.

Speaker 2

Projected net farm income levels and lower crop prices plus natural variation in weather pattern all impacts grower sentiment, especially in larger markets such as North America and Brazil. While global ag market conditions remain soft in the near term, several factors are poised to drive demand growth in the global irrigation market beyond 2024. Climate change, water scarcity and sustainability consideration are key drivers. Food security concerns and population growth will further bolster demand for our irrigation products. North America and Brazil both remain key geographic regions for our business, each projected to a favorable long term growth trend.

Speaker 2

Our international project pipeline remains strong. I'm pleased to share that we have recently secured over $50,000,000 in new projects for Middle East market. We expect to complete most of these shipments in 2024. This specific region is seeing an overall strategic shift from flood to center pivot irrigation. The drivers for this shift include water conservation, increasing land productivity and reducing crop inputs, key aspects of sustainable agriculture and improving resource efficiency.

Speaker 2

Valley Irrigation is well positioned to support these significant projects, utilizing our advanced technology, manufacturing footprint and strong dealer network. As you can see, even with softness in certain markets, our broad and diverse revenue streams are paying off. We have strategically built our end market exposure around our core capabilities. Our growth strategy is aligned with multi year demand drivers these markets. This diversification makes us less susceptible to a downturn in any single market, enhancing the stability and consistency of our profitability and growth.

Speaker 2

Turning to Slide 7. I'd like to highlight our strategic priorities for this year. These are grounded in the Valmont business model, which we shared last quarter and are the foundation to value creation. Each priority ties back to our key focus areas. Starting with our people, this quarter's accomplishments underscore the high performance culture we're building, one that drives market leadership and flusters innovation.

Speaker 2

We continue to live our core values of passion, integrity and continuous improvement as we deliver results on our journey towards excellence. I want to thank our team for their extraordinary efforts. Next is return on invested capital. We are sharpening our focus on core competencies to enhance ROIC. This ensures we are maintaining our competitive edge, allocating resources where they generate the highest returns for maximum value creation.

Speaker 2

Finally, sustainability is embedded in our operation and the innovative solution we offer to our customers. In infrastructure, as a trusted leader across our markets, we are advancing sustainable products that can endure a changing climate, conserve resources and last long into the future. Our concrete utility pole facility in Bristol, Indiana demonstrates this commitment. It produces transmission and distribution poles using low carbon processes and materials to support the growing need of our utility customers while aligning with their own sustainability goals. A 500 kilowatt solar array with our award winning solar trackers was built to fully offset the facility's annual electricity usage, highlighting our commitment to sustainable operations.

Speaker 2

In agriculture, technology enhances efficiency on the farm by reducing inputs, increasing lab productivity and lowering labor costs. Our fully integrated tech teams have developed a roadmap to deliver exceptional value to our customers. We are actively engaging our core engineering teams with AI and machine learning capability to embed predictive analytics into our products. This strategic integration positions Valley Technology at the forefront of the industry, delivering distinct competitive edge by enabling smarter, more efficient irrigation solutions. I'm very pleased with our progress and excited about our future.

Speaker 2

To summarize, we've had a strong start to 2024, delivering impressive results despite demand headwinds in some markets. I am confident that our focus on operational excellence and value creation for our stakeholders will continue to drive positive outcomes. Now I'll turn it over to Tim for our Q1 financial review and an updated 2024 outlook.

Speaker 3

Thank you, Ebner, and good morning, everyone. Turning to Slide 9 and first quarter results. Net sales of $977,800,000 decreased 8% year over year. Operating income increased 11% to $131,600,000 and operating margins improved meaningfully to 13.5%. Diluted earnings per share of $4.32 increased nearly 25% year over year.

Speaker 3

The steps we have taken to control expenses and reduce our cost structure are clearly having a favorable impact on our profitability. Turning to the segments in Slide 10, infrastructure sales of $723,600,000 decreased 1.7% year over year. Higher volumes in TD and S and solar supported by continued strong utility market demand and favorable pricing across the portfolio were more than offset by significantly lower telecommunications volumes. Operating income increased to $117,900,000 or 16.4 percent of net sales. The improvement in operating margins was driven by successful commercial execution, including pricing strategies, delivered actions to improve cost

Speaker 2

of goods sold

Speaker 3

and lower SG and A expenses. We also realized benefits from strategic investments in our manufacturing facilities, enabling us to increase production of higher margin products. Moving to Slide 11, agriculture sales of $258,700,000 decreased 22.1% year over year. In North America, irrigation equipment volumes were lower as the Q1 of 2023 benefited from the ongoing delivery of elevated backlog. Average system selling prices were slightly lower compared to last year.

Speaker 3

International sales decreased primarily driven by lower sales in Brazil due to more normalized backlog levels as compared to the Q1 of 2023 and softer soybean prices impacting grower sentiment. Middle East project sales were also lower. The sales contribution from the HR Products acquisition partially offset the lower sales. Operating income decreased to $41,000,000 or 15.9 percent of net sales. Improvement in gross profit margins and the benefit of lower SG and A expenses were more than offset by the impact of lower volumes.

Speaker 3

Turning to cash flows and liquidity on Slide 12. 1st quarter operating cash flows were $23,300,000 and we ended the quarter with approximately $169,000,000 in cash. We expect strong cash flow throughout 2024 through earnings growth and diligent working capital management. Total debt to adjusted EBITDA of 1.82 times was within our desired range of 1.5 times to 2.5 times. Our cash balances, available credit and flexible balance sheet provide us with ample liquidity to execute our capital allocation strategy.

Speaker 3

Turning to Slide 13 for a summary of 1st quarter capital deployment. Capital spending was $15,000,000 Strategic CapEx spending is a cornerstone in elevating the performance and resilience of our businesses. A standout initiative in response to rising customer demand is increasing capacity at multiple sites for concrete transmission and distribution structures. We have strategically increased the flexibility of our operations leading to improved and more consistent performance across our product lines. These targeted investments underscore our dedication to maintaining a competitive edge and meeting our long term financial goals.

Speaker 3

Our acquisition strategy this year is sharply focused on natural adjacencies to our core capabilities that would enhance our portfolio or expand our addressable markets. This targeted approach ensures that our investments strengthen our existing market presence and promote sustainable profitable growth. Our capital deployment approach balances growth investments with returning cash to shareholders. This quarter, we returned approximately $12,000,000 of capital to shareholders through dividends and completed the $120,000,000 accelerated share repurchase program that commenced in the Q4 of 2023. I will now share our updated 2024 outlook

Speaker 2

as shown

Speaker 3

on Slide 14. We expect net sales to be down 2% to up 0.5%, an improvement from our previous guidance of down 3% to flat. Turning to the segments, our outlook for infrastructure is unchanged. As we expect volume growth approaching mid single digits this year. In agriculture, we expect continued market softness this year due to lower grain prices and current farm income projections.

Speaker 3

However, we now have better visibility into international projects and anticipate segment sales to be down between 10% 15% compared to prior year, an improvement from our previous forecast of a 15% to 20% decline. We remain focused on targeted pricing strategies and increasing adoption of our technology solutions. Our updated outlook expects diluted earnings per share to be in the range of $15.40 to $16.40 We also expect 2nd quarter earnings per share to be slightly below Q1 2024 results. Doing the math, this implies a lower quarterly EPS during the second half of this year. Let me walk you through the moving pieces.

Speaker 3

In Infrastructure, we anticipate full year gross profit margins to be improved compared to full year 2023, but likely not as high as the Q1, which benefited from favorable product mix and an opportunistic steel purchase. While we are always striving to drive margins higher, our guidance assumes these positive factors will not recur at the same level we experienced in Q1. In agriculture, a higher mix of international projects during the second half of the year is expected to pressure segment margins, although this will be partially mitigated by reduced SG and A expenses compared to last year. We expect second half segment operating margins to be similar to the Q4 of 2023, which was 10.3 percent on an adjusted basis. Our outlook also assumes consolidated A

Speaker 2

as a percentage

Speaker 3

of net sales will be better than last year, reflecting meaningful process changes we've implemented to ensure effective cost management moving forward. With that, I will turn the call back over to Aftar.

Speaker 2

Thank you, Tim. Turning to Slide 15. In closing, I want to once again highlight the effectiveness of the Valmont team in navigating current market dynamics. We're actively managing what we can control through commercial excellence and focusing on our core competencies. We are proactively taking steps across our global operations, investing in our footprint to support growth, enhance productivity and maximize returns while driving strong cash flow generation.

Speaker 2

This strength across our portfolio demonstrates a level of resilience and forward momentum that was not achieved in previous agriculture down cycles, demonstrating the progress we've made on creating a high performance culture and positioning us for sustained financial success. With these ongoing actions, we are primed to further expand margins as volume recover in agriculture and telecom markets. Supported by long term megatrends in infrastructure and agriculture, our diverse portfolio positions us well to meet our long term financial target and deliver lasting value to our shareholders. I will now turn the call back over to Renee.

Speaker 1

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

Operator

Thank you. At this time, we will be conducting a question and answer session. Thank you. Our first question comes from the line of Chris Moore with CJS Securities. Please proceed with your question.

Speaker 4

Hey, good morning guys. Thanks for taking a couple of questions. Maybe you start on the ag side. So Brazil was roughly, I think, 50% of international ag in 2023. What's a reasonable estimate for 2024?

Speaker 4

And is are you looking at 2024 as an anomaly or fair to think that Brazil might be smaller in 2025 as well?

Speaker 3

This is Tim. I will take that one. We typically don't comment on how much Brazil is as a percentage of the total segment. But we do see it down as a percentage of the total. That's partially attributed to the fact that for the full year of 2024, we are expecting more project work in the international markets.

Speaker 3

But overall, from a long term perspective, we're very bullish on Brazil. The main thing we're watching right there is soybean prices. They're the item that correlates the best to the outlook for what we expect for sales in that market. And we'll continue to watch that. And as those prices improve, we'd expect the Brazil market to rebound for us.

Speaker 4

Helpful. Thanks, Tim.

Speaker 5

Yes. Chris, this is Adeel.

Speaker 2

Let me just add to that as well. So for actually we're just coming off the AGRA show now in Brazil and we're 3 days into that show. So the initial indication are we're actually seeing a lot of current and new customers at the booth, which is encouraging. And a lot of the feedback that we are getting from our team there. And maybe the biggest takeaway is the feedback that we're getting from the customers.

Speaker 2

They understand the ROI that they are getting from the Pivot and the value that our products to that we're getting to them. So overall, when we look at the long term, we're very much encouraged by the opportunity in Brazil. There's a lot of land to be irrigated. The pivot has there's great growing conditions there and the pivot has a strong ROI. So we will see softness this year based on what Tim just said.

Speaker 2

The soybeans has an effect on their EBITDA margins coming off a year backlog. But overall, the long term outlook for Brazil is very strong for us.

Speaker 4

Got it. Very helpful. Maybe you stay with Ag. So Ag expected to be down 10% to 15% at this point. How do you look at parts in that equation?

Speaker 4

And is the parts much different internationally versus North America?

Speaker 2

Yes, Chris, I'll continue. So at this point, I would say that the North America would be at the lower end of the range and then that the international part would be at the higher. So North America closer to 10%, international overall at 15%. And as we said early in the conversation is that North America overall, we're actually we're pleased to see that our orders are stronger than they've been last year. And the market has underlying strong fundamentals around the North America market.

Speaker 2

So we'll continue to watch the crop prices. Clearly corn is at lower levels. We'll keep watching the USDA projection. But we are encouraged by the order rates that we're seeing right now. And we'll just keep our pulse on the market.

Speaker 4

Got it. On the specifically on the parts piece of that, is the revenue parts revenue, is that going down less than the overall revenue? Or how should I look at that?

Speaker 2

I'd say that overall, it's around Spain.

Speaker 4

Okay. All right. I appreciate it, guys. I'll jump back in line.

Operator

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

Speaker 6

Hey, thanks. Good morning, Avner, Tim, Renee. I guess just I wondered if you could unpack the moving pieces on the infrastructure margin this quarter. How much did the opportunistic steel purchase sort of positively impact the margin versus favorable mix? And I guess I'm also wondering just around the mix, wouldn't a weaker telecom business be a net negative to margin in that segment?

Speaker 3

Brandon, it's Tim. I'll take that one. First of all, we are very pleased with the Q1 infrastructure gross profit margin of 31.3%. In terms of force ranking the 2 items, as it pertains to Q1, the opportunistic purchase of steel did have the most effect on the improvement in that margin. In terms of the second factor that drove the better gross profit margins, it's really a shift in product mix within TD and S.

Speaker 3

And we saw an acceleration of our strategy to be able to design and produce more distribution and substation structures, where we're seeing demand is strong and pricing is favorable right now. I'm very pleased with the work of all of our teams that required our engineering resources to modify some of their processes. And of course, it required some strategic investments we've been making in the last few years to add that flexibility in our manufacturing facilities. So that you are right in terms of history would say that our telecommunications product line is more favorable or helps adjust up the total Infrastructure segment margin. But what we saw here in the Q1, that second factor and we expect to see for the rest of the year is this shift to more distribution substation structures is going to help the margin profile out of that segment.

Speaker 2

And this is Avin, but I just brought in it kind of you're like Tim said, you're exactly right about telecom has accretive margin. But when you look at Valmont overall, when you look at agriculture down and telecom down and the fact that we've been able to increase our earnings year over year is a testament to what we said earlier today is the strength of our portfolio are able to execute against these market dynamics. So we're very pleased with our Q1 results.

Speaker 6

Yes, impressive for sure. I guess the second question would just be back on agriculture. So you secured the new awards in the Middle East. Is the better outlook contingent on winning other project awards you may pursuing, BB pursuing? And maybe, Avner, if you could just talk about the project pipeline out there and other opportunities to book new awards on the international piece?

Speaker 2

Absolutely. So overall, when I look at our project work, we continue to have a very strong pipeline. And we've been mentioning this over the last several quarters and we were very pleased with the award of the $50,000,000 project in that region, which shows or solidifies a strong position in that region, the compelling ROI of the pivot and the focus on food security and sustainability in that region. But when I look specifically at your question, there's always project timing. We don't need to bank on any additional large awards.

Speaker 2

It's just normal course of business. We're pleased the fact that we continue our shipments on the Egypt project and some of that could be pushed into 2025 at this point. But We factored that into our guidance. So we're comfortable with our overall guidance for agriculture of the 10% to 15% down and very confident with our ability to execute on that forecast.

Speaker 4

Okay.

Speaker 6

Very good. I'll pass it

Operator

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

Speaker 5

Hey, good morning. Thanks for taking my questions. On the margin dynamics for the year, I'm just wondering if you could put a finer point on this or maybe repeat what you some of what you said. So 31.3% gross margin in the first quarter, is the expectation that it sounded like that might step down slightly in the second quarter and then maybe we're down back into what the 28% range in the second half of the year? To the extent you can, can you put a finer point on what we should expect for gross margin for the year?

Speaker 3

Brian, it's Tim. I'll take that one. Yes. So in total, we expect the Infrastructure segment to see an improvement in its full year gross profit margin when compared to the full year of 2023. So, what that means is the opportunistic purchase of steel that we saw in the Q1 doesn't the effect of that is less in the second quarter.

Speaker 3

So we'll see a slightly reduced gross profit margin in Q2. And then we will see slightly reduced gross profit margin in the second half of the year to make the math work for why the gross profit margin is better for the full year versus 2023.

Speaker 5

Okay. All right. Thanks. And then you gave us some directional commentary on the volumes for TD and S, L and T or I guess you gave TD and S, but you didn't give L and T. And can you I guess to the extent that you are willing to, can you tell us how much volume change for some of these sub segments and what was L and T?

Speaker 5

Because I'm looking at L and T up or sorry, that one was down, I think. What I have no idea how much pricing affected L and T. I don't know what to think here with total revenue down 3% for the sub segment. What did volume do there?

Speaker 3

Sure. So as it pertains to Q1, for L and T pricing was flat. We did have a little bit of unfavorable currency. That was about $2,000,000 of the decrease. And then we did do some very selective deselection of some very small subproduct lines.

Speaker 3

And that's really tied to Valmont being focused on the profitable growth. That deselection won't continue for the rest of the year, but really that's the main driver of why volume was down slightly for Q1 is as we look at some of our international markets, we chose to exit some very small product lines.

Speaker 2

Yes. And let me just add a little bit more color to kind of overall our segments. So L and T specifically, it's following the macro trends that we're seeing in the market. So if you look at the transportation, it's trending in conjunction with the infrastructure and road spend. So we're seeing strength in that market.

Speaker 2

On the lighting side, we are seeing some areas where it's not growing at that level. We mentioned that also in the past. Some of the residential build does impact our business and we tracked that and we expected some softness in that space. But overall, the L and T has strong drivers and we expect that throughout the year. Telecommunication, we addressed that as well.

Speaker 2

Telecom will be soft following some of the CapEx spending by the large carriers. You listen to both Verizon and AT and T, they reduced their CapEx spend in Q1 just in their earnings 27%, 28%. So they're going to go back to business as usual. That's impacting our telecom business. But we're going to control what we can control.

Speaker 2

We continue to enhance our geographic reach, work with our partners such as Ericsson, increase our product offering. And again, the telecom market has the long term is very positive. If you just look at some of the stats expecting 5 gs to cover over 85% of the population in the future. So telecom this year will be soft. L and T positive on the transportation side.

Speaker 2

So hopefully that gives you additional color. But overall, when you look at infrastructure, getting close to that at that mid single digit range is where we're expecting that to be.

Speaker 5

Okay. Thank you very much.

Operator

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

Speaker 7

Good morning, everyone.

Operator

Good morning.

Speaker 7

Avner, you mentioned that or maybe Tim mentioned that pricing was down a little bit in irrigation. And I'm trying to get a better eye better sense between pricing in Brazil versus North America?

Speaker 2

Okay. So when I'll take that question. So when I look at the pricing in North America, what we're doing there, it's very strategic. It's in very few targeted markets that we're taking some actions to maintain around our strategy to maintain our market share overall. So very strategic in North America.

Speaker 2

In Brazil, I would say, the approach that we're taking is the pricing is better in Brazil. But right now, as you do more larger scale projects that could just impact some of your mix and you'll get less pricing per pivot there. But overall, that is the dynamics around the markets. And like I said earlier, we're pleased with what we're seeing on the order intake on both regions and we'll continue monitoring. And like I said, the long term on both of these regions is very positive for us.

Speaker 7

Avner, in this in the current market conditions maybe being a little bit tighter, are you seeing buyers purchase the full complement of technology solutions when they purchase a pivot?

Speaker 2

So when we overall, I would say the answer to that is yes. I said the tech actually is what gives the Pivot a stronger value proposition and our sophisticated buyers and dealers and growers, they see that and we are selling the full suite of technology.

Speaker 7

Okay. And last question. SG and A costs have been controlled nicely. And how much of that goes beyond maybe what we saw the actions that you took last year from Prospero? How much of it goes beyond the cost savings because of the actions you took with Prospero?

Speaker 3

Well, it was this is Tim. Let me try answering that. It was beyond Prospero, right? It was we did a full realignment program that touched infrastructure, agriculture and corporate. So that was approximately $36,000,000 of cost.

Speaker 3

What we're seeing right now is that our SG and A savings this year will be beyond that. And another way to think about it is our SG and A as a percentage of sales will be lower this year than it was in fiscal year 2023 on a consolidated basis.

Speaker 2

Okay. And let me just add. Yes, I'll just add to that. We're very pleased with the SG and A savings. But another what's very important here or more important is actually we have a organization

Speaker 8

that is leaner and we've been able to execute and we see that in our Q1 results that we have an organization that

Speaker 2

is it's a double benefit,

Speaker 3

one, we get the reduction in the P and L,

Speaker 2

but we also get it's a double benefit, one we get the reduction in the P and L, but we also get a more focused and lean organization and we're able to execute well on our strategy.

Speaker 5

Okay. Thank you, Evan. Thank you.

Operator

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

Speaker 5

question. I was wondering if I can just ask one follow-up on the TD and S business. And again, sorry if I missed this, I'm trying to take notes as fast as I can, but total sales for TD and S was up 3% and you said pricing was favorable there. So how is I'm trying to reconcile that this business I would expect is one of your stronger growing businesses in 2024, but if pricing is up, I mean volumes up less than 3%. And then you also mentioned that this distribution and substation business is doing quite well.

Speaker 5

So just trying to get some insight into like what we should be expecting for the core large transmission structures business in 2024 in terms of volume and pricing?

Speaker 3

Sure. So, you're right, Brian, on what you heard. A couple of things there. Because of the mix shift to the smaller structures, that smaller transmission structures as well as the distribution and substation, We saw favorable pricing mix from that. But we also saw a negative on pricing from the steel deflation tied to the steel index in the pricing contracts with our alliance customers.

Speaker 3

So we were able to overcome that steel deflation and still see higher pricing. As we continue through the year, we will see an increase in our volumes in TD and S. Again, we're very pleased with how quickly we were able to adjust and get more of the smaller structures produced. And we expect that to accelerate through the rest of the year, while we still see good demand for the transmission structures as well.

Speaker 2

So you know, I'll just add a little bit more color. And I'm actually glad you asked about TD and S. That business is doing very well for us, and we're seeing growth in all areas of that business. Transmission is growing nicely, but the focus also been on distribution, growing our market share there, substations with all the data centers that are coming up, the use of AI, very strong demand in that area and we've been able to utilize our footprint and the flexibility to support the strong demand. And on top of that with our product offering that there's no one else in the industry that can do around our steel structures, our concrete structures, basically give the whole suite of products.

Speaker 2

And we are supporting our customers and very favorable in that market and we're going to see that market continue to grow for us in the high single digits and we're very excited about what we're seeing in that market.

Speaker 5

Okay. Thanks for that detail. Can I just ask that it sounded there's a lot of moving parts here? So for the larger structures in the Q1, the larger transmission structures, pricing was down, but I guess volume was up in that business specifically. Is that fair to conclude?

Speaker 3

We don't break that out. I mean, I will tell you that volume is up tedious in totality.

Speaker 2

Yes. And the pricing specifically is around the pricing mechanism. I want to make it clear, right? We're not reducing pricing. We're pricing for the value that we provide to our customers and there's significant value that we're providing there.

Speaker 2

So all around the mechanism around the pricing is what's pressuring them.

Speaker 5

Yes. Understood about the deescalators in the contracts.

Operator

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

Speaker 1

Thank you for joining us today. As mentioned, today's call will be available for back on our website or by phone for the next 7 days. We look forward to speaking with you again next quarter.

Speaker 9

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, 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, as well as future economic and market circumstances, industry conditions, company performance and financial results, operating efficiencies, availability and price of raw materials, availability and market acceptance of new products, product pricing, domestic and international competitive environments, geopolitical risks and actions and policy changes of domestic and foreign governments. 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.

Speaker 9

This concludes today's teleconference. We thank you for your participation and you may disconnect your lines at this time.

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Earnings Conference Call
Valmont Industries Q1 2024
00:00 / 00:00