Q1 2020 Earnings Call
Greetings and welcome to the Belmont Industries first quarter 2020, <unk> earnings Conference call. At this time, all participants are any listen only mode. A question answer session will follow the formal presentation.
See you ask one question one follow up the return to acute that's all right.
Fred and wondered acquire operator assistance during the conference. Please press Star Zero Wonder telephone keypad.
As a reminder, this conference is being recorded its all my pleasure to introduce your host relay capital. Please go ahead.
Thank you Kevin Good morning, and welcome to them on industries first quarter 2020 earnings call with me on today's call, our Steve Kaniewski, President and Chief Executive Officer.
Under Appelbaum Executive Vice President and Chief Financial Officer.
Mark Jaksich, Vice President Finance, and Jim Francis Senior Vice President and corporate controller.
This morning, Steve will provide a brief summary of our first quarter results Cobot 19 business update and commentary on our strategy and long term business outlook, Mark will review, our first quarter financial performance provide an update on our second quarter outlook and our assumptions for the remainder of 2020.
Abner will give additional segment commentary for the second quarter with closing remarks from Steve This will be followed by key Wednesday.
A live webcast of this slide presentation will accompany today's discussion and is available for download from the webcast or on the investors page it sound like Dot com.
A replay of today's call will be available for the next seven days instructions are included in the press release that was distributed yesterday.
Please note that this conference call is subject to our disclosure on forward looking statements, which applies to today's discussion and as outlined on slide two of the presentation and we'll be right in full at the end of this call.
I would now like to turn the call over to our President and Chief Executive Officer, Steve Kaniewski.
Thank you right [noise] good morning, everyone and thank you for joining us.
Before reviewing our first quarter results I'd like to start with a couple of comments.
First I want to say, thank you to our 10000 plus employees and their families for their enduring spirit and perseverance as we have been adapting to new ways of working and communicating through the covert 19 pandemic.
Every week I'm inspired by the responses I get from each of you following my email and video updates.
And these communications I speak off one of our core values resiliency and ability to come together as a team.
Since our company was found at nearly 75 years ago [noise].
I might has met the challenges that we face head on.
We continue to do so now through the talent of our teams and our focus on lean and standard work, which are so critical during times of crisis.
We will get through the situation together.
I also want to thank our customers suppliers and the shareholder an analyst community for their flexibility and understanding during these unprecedented circumstances.
Now I'd like to take a moment to introduce and welcome after appelbaum to the Belmont team.
I haven't or join Valmont as Chief financial Officer about three weeks ago.
I'm excited to have in water management team and look forward to his contributions I'll now turn the call over to him for a brief introduction.
Thank you Stephen Good morning, everyone I'm very excited to joint development team I was drawn to the Belmond for its people culture and growth potential and it's been great getting to know many of my passionate colleagues and team over the past few weeks I look forward to driving continued financial improvements for the company in our stake holders and look forward to speaking with our analysts.
Then investors over the coming quarter.
Thank you Abner.
I would also like to thank Mark Jaksich for extending his retirement date to the ended the year [noise].
Provide support and ensure a seamless transition.
With that let me turn into a brief recap of our first quarter. Some are summarized on slide three of the presentation.
Net sales of $674.2 million declined $18 million or 2.6% compared to last year.
This decrease was in line with our expectations as we had indicated last quarter that we expected revenue in the international utility business to be approximately 30 million below last year.
I'm favorable currency translation impacts of approximately $10 million also impact sales this quarter.
We were very pleased with the strong north American sales across most of our businesses.
Turning to the segments and starting with the engineered support structures sales of $230.7 million were flat with last year.
We had a solid quarter of sales growth in North America of lighting and traffic products.
Why we expected a favorable comparisons given last year's spring flooding event continued investments by state and local government strengthened demand in transportation markets.
Globally [noise].
Wireless communication sales were lower as expected in part due to a very strong first quarter last year.
Sales were also impacted by slow down a carrier spending ahead of the T mobile sprint merger.
Impacts from the government mandated facility closures in China related to covert 19 contributed to approximately $2 million or the sales decline.
Sales of access systems products were also lower primarily due to a continued challenging construction environment in Australia.
Turning to utility support structures sales of $225.5 million decreased 7.6% compared to last year.
As we expected.
Early due to lower sales in the international business as mentioned earlier.
In North American markets sales were higher driven by continued strong market demand across all structure types.
International markets lower volumes and offshore wind and a large solar tracker project in 2019 that did not repeat led to lower sales.
During the quarter, our global backlog increased to $689 million up 12% from the end of 2019, including receipt of a large transmission order in Europe.
Moving to coatings sales of $88.1 million were 1.5% higher than last year.
Higher volumes in North American markets were offset by lower volumes in international markets, mostly driven by the closure of eight facilities late in the quarter as mandated by local governments.
[noise] moving to irrigation segment sales of $156.7 million were 2.6% higher than last year.
In North America sales were down 1.8%.
Higher sales of systems, including from regions outside of the traditional corn belt and growth of aftermarket parts and advanced talk technology solutions were offset by lower industrial tubing sales led by steel price deflation.
International sales were 13.1% higher than last year due to higher volumes across most regions.
We were very pleased with record sales in Brazil in local currency during the quarter and signs of a market recovery in Australia. After a very difficult year in 2019.
I'll now turn to slide four for an update of the covert 19 situation and specific actions, we have taken to help mitigate business impacts.
First and foremost the safety of our employees continues to be our number one priority.
Weeks ago, we proactively started implementing our global pandemic plan to ensure the safety of our teams across all global locations, including standard work and measures aligned with CDC Whrrl and local guidelines.
We have enhanced the number of our safety protocols across our facilities.
As noted on the slide. These include safe this is seeing procedures and processes and all of our facilities and work areas.
Remote work policy across our administration teams, where possible to limit the number of individuals at our manufacturing facilities.
And providing additional P.P. any equipment and supplies to our teams.
We believe these deliberate steps we've taken have helped limit the number of positive cases to only seven out of our 10000 plus global employees.
I'm very happy to report that these colleagues are all recovering at home and doing well.
Turning to slide five our products and solutions are considered essential as they support critical infrastructure say sectors and food security as defined by many global government agencies.
This has helped the large majority of our manufacturing facilities to continue regular our regular operations.
Certain facilities have temporarily ceased operations due to preemptive government mandates.
The primary revenue impacts for these closures affected our E S S and coating segments, mostly beginning the second quarter.
At present, it's anticipated that all these factories will resume operations by early may.
From a macro standpoint, we expect favorability from lower costs of steel energy freight and other raw materials improved labor availability and lower turnover.
We also recognize that potential longer term economic kid headwinds in the markets, we serve could impact our business and we're working with our global teams to anticipate and plan for these potential changes.
Turning to slide six as we outlined in our March 26 market communication overnight impacts to our business very across the portfolio and our the basis for which we are assessing the balance of 2020.
One change from our March outlook is the risk profile for irrigation.
We now have you this segment as having a moderate risk profile as recent disruptions in foodservice supply chains and ethanol prices have changed our view in the near term.
It's very important to remember that our businesses have always been cyclical in nature like many others. We're currently managing through unprecedented times.
But managing through cyclicality is not a new concept for us for our management teams.
One of the ways. We do this is by implementing cost management measures when necessary.
Which we have already done across the company.
Discretionary spending has been curtailed.
We have reduced current and planned capital expenses reduced overtime hours as needed restricted all non essential business travel and are using discretion and all hiring decisions.
Our experienced teams have withstood market challenges before.
We are confident in the actions and adjustments that need to be made in times like these and we'll execute accordingly in the coming months as conditions dictate.
Turning to our operations on slide seven it's important to note that the type of production work, we perform in our facilities already facilitate safe this syncing within our plants.
For example, welders typically have their own workstations limiting close contact with others.
Many of our products are very large which naturally increases the distance between people.
Automation, our factories also helps reduce the amount of contact between our employees.
We have taking additional steps to ensure the safety of our teams such as closing cafe areas limiting breakroom attendance and staggering workers.
Our strategic capacity additions that we announced last year are currently on track to support the solid backlogs in our infrastructure businesses, particularly in the utility segment.
Because we have been very selective and adding capacity it places us in a better position to manage the volume price paradigm as compared to previous cyclicality.
Our flexible cost structure, particularly in irrigation helps us control cost to adjust to volume fluctuations.
Over the past five years, we have deliberately diversified our supply chain and taken significant cost out of our business through the transformation and restructuring of our operations.
Actions taken include the elimination of subscale plant locations, reducing our global manufacturing footprint from over 100 locations.
87, even including with the acquisitions.
As strategically, reducing our manufacturing footprint in China and Australia.
We have consolidated IC business systems divested the grinding media business and our continuously evaluating product lines against corporate ROI see targets.
We believe these actions along with our conservative balance sheet will benefit us greatly in the current market environment.
Before I turn the call over to Mark I'd like to comment on our outlook for the access systems business.
Since we do not expect meaningful changes to the market demand environment in Australia, we initiated a focused restructuring plan in this business.
Pre tax cash restructuring expenses at this time are expected to be less than $5 million with an expected payback in 12 to 18 months.
Next quarter, we will provide an additional update on access systems and any additional focus restructuring activities planned for the company.
I'll now turn the call over to Mark for a first quarter financial overview and up like upload update to our 2020 outlook.
Thank you, Steve and good morning, everyone before I start. Please note that for comparison purposes references to 2019 operating income in earnings per share exclude the LIFO method of accounting for inventory, which was discontinued at the beginning of fiscal 2020.
Turning to slide eight first quarter operating income 66.9 million or 9.9% of sales was 22.5% higher than last year.
Comparable sales.
Values with all reportable segments contributing to the improvement.
The main driver was a 370 basis point improvement in gross profit margin due to improved sales volumes and operational performance in North American businesses, as well as law lower raw material costs.
As you May recall, we recognize that impact of 18 cents per diluted share in the first quarter of 2018 due to the effects of the Midwest flooding event last March.
Government directed closures of certain international operations due to Cobot night team led to a 2021st quarter estimated operating income headwind of $1 million approximately.
First quarter diluted earnings per share of $1.99 increased 21.3% compared to $1.64 and the first quarter tax rate of 25.2% was comparable to last year [noise].
Turning to turning to the segments on slide nine in the engineer support structure segment operating income was 15.9 million or 6.9% of sales an increase of 150 basis points over last year.
Stronger quality of earnings was driven by continued sales and margin strength in North American markets, which began improving in the second half in 2019 lower profitability in international markets was primarily due to an unfavorable comparison in access systems and the effects of government mandated site closures of some Belmont.
Facilities in Asia Pacific and Europe.
To access system first quarter losses were substantially less than what we recorded in the fourth quarter of 2018.
Due to improved cost and operational controls in this business and the absence of loss, making orders into detection systems product line.
Moving to slide 10 utility support structures segment operating income of 27.7 million or 12.3% of sales increased 200 basis points over to it.
20 night tape.
Stronger volumes and a favorable pricing environment in North America drove the profitability improvement.
53% or $29 million decrease in offshore as solar energy product sales led to or lower operating income there compared to 2019.
Turning to slide 11 in the coating segment operating income up 11.1 million or 12.5% of sales was 80 basis points higher than last year improved return of volumes in North America is stronger international productivity helped drive profitability gains.
Moving to slide 12 in the irrigation segment operating income of $23.7 million were 15.1% of sales increased 190 basis points due to higher volumes in both domestic and international irrigation markets, along with lower raw material prices as compared to 2009.
Pete.
Turning to balance sheet and cash flow highlights on slide 13, we delivered good operating cash flows of 62.4 million in the first quarter substantially ahead of 2019 and the best operating cash flow first quarter since 2016.
Our strong start to the Airbus a result of ongoing efforts to working capital process improvement. These include strategic actions to prove accounts receivable turnover, including negotiations of certain customer contracts and steady progress working with our key suppliers to optimize payment terms through our supply chain financed.
Graham in addition, a stable raw material cost environment and improved inventory management efforts helped cash flows.
Turning to capital deployment summary of first quarter is shown on slide 14 capital spending was 23 point sixmillion driven by a number of capacity investments. We previously mentioned mostly associated in the process and utility segments.
During the quarter, we paid an aggregate of $54 million to increase our ownership stakes. It makes sense and convert Italia and we deployed 8.8 million toward acquisitions and returned $28.6 million of capital to shareholders through share repurchases and dividends ending the quarter with 200.
84.6 million of cash.
In February we announced a 20% increase to our quarterly dividend the first increase since 2014.
It's important to note that given the decrease in the number of shares outstanding over the past several years at lower expected minority interest dividends going forward, the increasing the dividend rate will not significantly affect net net cash outflows.
Moving to slide 15.
In light of the growing cobot, 19 pandemic and related effects on the global economy, we undertook several actions towards the end with first quarter first we halted share repurchases to strengthen our financial liquidity second we've reduced our capital spending plans in 2020 to a range of 75 to 90 million may.
Mostly through delaying certain growth related and discretionary capital spend projects until later periods.
Third earlier this month, we drew down 75 million on or $600 million revolving credit facility as a proactive measure to help ensure liquidity to support business operations going into the second quarter.
Total cash as of at this time is approximately $350 million.
All of these actions were taken to bolster our liquidity and financial strength, given the amount of economic uncertainty at this time.
Our balance sheet is strong with no significant long term debt maturities until 2044.
Let me now turn to slide 16 to as an update to our outlook.
As demonstrated by a strong first quarter performance, we were on track to affirm our full year 2020 outlook as communicated in February however, as a result of evolving impact the cobot 19 on the global economy, we're anticipating and planning for a slowdown in customer demand increased business.
Disruption beginning in the second quarter.
At present, we are not able to quantify the extent or the duration of these impacts on our businesses as a result, we're withdrawing our full year guidance for 2020.
Before we review our second quarter outlook for modeling purposes, or a couple of nonrecurring items from second quarter 2018 that we'd like to highlight.
In the coating segment last year, we recognize $3 million of legal expense and then the utility segment last year, we recognized a 3 million dollar expense related to a customer accommodation.
Neither of these expenses are expected to reach to repeat this year.
Our current second quarter outlook, excluding any restructuring activities is for net sales to be between 645 to 665 million with operating margins between 7% and 8.5% of net sales.
Key assumptions supporting this outlook are summarized on this slide.
Regarding expected operating margins it should be noted that the 7% margins scenario is a conservative one.
And we would it would be driven by three primary factors first it assumes that the international facilities impacted by Cobot 19 closures would resume operations at a slower pace than we expect or that market demand will be lower than expected. Once those operations resumed second the coatings.
Business levels with decrease to levels, even lower than in previous recessions.
Third market conditions in the irrigation business would resemble the last significant global economic downturn.
Ill now turn the call over to Abner to speak to our market outlook by segment for the second quarter.
Thank you Mark.
Turning to slide 17 in engineered support structures the market drivers for transportation and wireless communication structures and components in North America, our solid our current backlog provides us with good visibility the second quarter lighting and traffic sale wireless communication sales within the quarter can be somewhat uncertain.
To to the timing of shipments international sales are expected to be down compared to last year as coven 19 measures have impacted demand within the quarter.
In the utility support structures segment, our strong backlog and the benefit of capacity additions are providing good visibility to the second quarter in North America.
As always project timing can impact sales during the quarter.
In international markets, we expect our businesses to be in line with recent market trends.
Encoding, we expect weaker demand driven by current global economic trends and lower expected industrial production level. A reminder, that coating sales tend to be highly correlated to industrial production level and will lever and de lever the most with changes to volume.
Moving to irrigation continued weakness in agriculture commodity prices is expected, especially corn and soybeans, which are the largest crops grown under mechanized irrigation.
Farm income levels are not expected to improve this quarter and this metric has historically been the best indicator of demand for this segment. In addition.
Food supply chain chain disruption bleak outlook, and ethanol market and a strengthening us dollars lead us to expect second quarter sales to be lower compared to last year with that I will now turn the call back over to Steve. Thank you avner.
Moving to slide 18, the fundamental market drivers of our business have not changed nor do we anticipate them changing over the long term.
Engineered support structures continue to government investments in infrastructure development across lighting and transportation markets is expected as past recessions and associated stimulus funding initiatives have shown.
Growth in wireless communication products and components, particularly in Fiveg are expected to accelerate and the current working and schooling at home environment is supporting that strategy.
In utility our record backlog is evidence of the ongoing demand and necessity for grid hardening and renewables.
Strong returns on equity for both public and private utilities support this growth.
As we mentioned earlier, our coatings business closely follows industrial production trends over the long term preservation of critical infrastructure and the increasing number of economies that are actively fighting cost of corrosion will drive the need to extend the life of steel products globally.
And in irrigation our products and technology are critical to help meet demand for increased food production and security around the world.
The optimization of water usage and other farm inputs mitigation of increased labor costs and the support of growers conservation efforts are just a few of the drivers the support demand for our business over the long term.
In international markets. The drivers can differ slightly particularly in developing countries, where governments increasing needs for food security in agricultural land development can create opportunities for large projects.
Our pipeline of project business continues to be very strong, but as we always say timing of shipments can be hard to predict based on local factors.
Turning to slide 19.
In summary, we know that these are unprecedented times for all of us.
The resilience of our people our business portfolio and our processes give us confidence in our ability to withstand the downturn.
Employee morale is positive our production teams are passionate about delivering results and continuing to serve our customers. During this pandemic. Our administration teams have quickly adapt it to working from home demonstrating our ability to be flexible while leveraging standard work to remain efficient.
Over the past five years, we have strategically taking cost out of our business.
Transformation and restructuring efforts positioning us well to withstand economic downturns.
Importantly, we can quickly implement cost management measures as needed our team has mobilized and we are analyzing the markets closely including scenario planning so that we can be better prepared.
Our global manufacturing footprint gives us a distinct strategic and competitive advantage, which allows us to ship supply in sourcing when needed.
Notably we have not wavered from our strategy to elevate our commitment to SD principles.
Last year, we established a global electricity goal to reduce consumption by 8% over the next two years.
We initiated in electric vehicle program to replace more than 100 gas powered vehicles at our largest facility by 2021.
And next month, we will break ground at our Valley, Nebraska campus to build a one megawatt solar field using our convert Italia solar tracking solution generating carbon free power for our own usage.
While the disruptions from covet 19 are creating short term business challenges the long term and during drivers for our business that I've mentioned earlier have not changed and are not expected to change once we get through this current crisis.
I'll now turn the call back over to Renee.
Thanks, Steve Kevin at this time, you may open up the call for questions.
Certainly will now be conducting a question answer session. We ask you. That's one question one follow up to return to the Q, if you'd like to be placed into question Q. Please press star one under telephone keypad, a confirmation Tony will indicate your line is in the question Q You Me Press Star Cube, if you'd like to remove your question from a queue for participants using space.
Equipment and may be necessary to pick up your handset before pressing star one and once again Thats. One question one follow up please return to the Q.
My first question today is coming from Chris Moore from CJS Securities. Your line is now live.
Hey, good morning, guys.
Hi, Chris Chris Good morning.
Maybe just talk a little bit about the ramp and U.S.S. capacity kind of how that's going on how that is being impacted.
Bye Bye Coakley 19.
Yes, so we had talked about a 5% volume ramp.
Going back in the fourth quarter and then again in February that is proceeding as planned and actually our productivity is probably a little bit better than we thought at this time. So we believe that will be on track as we said before by the end of the second quarter to be fully ramp to that rate.
Cove It has not had an impact on that at all.
Most of the things we are in process hiring was well along and it was really just the training curve.
And as we noted the.
Lower turnover.
And probably less absenteeism really at the end of the day have contributed to a better productivity level than we probably anticipated originally.
Terrific.
Just one of the things you talked about and long term lighting traffic structures demand could be impacted by a change to transportation by just close bank over 19 anything specific that you are hearing or seeing there or.
Just expand that a little bit.
Yes, no there's nothing specific at this time, but it does stands to reason that as tax receipts go down as you get into further budget cycles you could have.
Allocation of funds issues, whether they go towards social programs or infrastructure not infrastructure tends to be a fairly popular one but we just put it out there on the horizon as a caution if theres any kind of stimulus.
Or changes in gas taxes like there was in 15.
Then that could continue at current levels, but we're just putting it out there as a caution and a realistic potential based on how budgets work and the state levels.
Got it helpful I'll jump back in line thanks, guys.
Thank you next question is coming from Nathan Jones from Stifel. Your line is alive.
Good morning, everyone.
Why Nathan.
Maybe I'll just start with a couple of questions on that on the two Q outlook I would think to maybe you have pretty good visibility into USA.
I am pretty good visibility into it that maybe a little bit less visibility into irrigation and probably a lot less visibility into the coatings business can you talk about how you got to these 645 to 65, how you got to five to 10 data navigation 20 to 25 to adding coatings just any color you can give us that rad, what you're seeing into.
Market currently what your assumptions offer.
Good things get washing my was in June. So do you mean nice ending June and just color you can give us around those assumptions that you got in that.
Yes, sorry, so you're right with us and he has asked me a pretty good visibility so those two.
We feel pretty confident of the outlook and where our production levels are going.
In irrigation, we had a pretty good real first quarter order rate was pretty nice and then in the last few weeks, we saw drop off and so.
We're taking that kind of order rate over these last two to three weeks and basically surmising that for North America over the rest of the quarter.
In international order rates actually are holding up much better and actually have done pretty well all things considered.
Coatings has the most potential variability whether theres no backlog, it's only a couple of days out and what we've seen there is our custom order rates have dropped by about 20%.
And so we factored that in as well to that range. So the one variable of why it's $20 million in range really comes from the fact that we had.
Over 10 facilities globally that were restarting and may or late April may and we just don't know how all the backlog is going to be re phased bid on a customer level. So that's how we basically came up with the range that we came up with good visibility and infrastructure businesses irrigation, taking our last order rate.
And then coatings, assuming at least 20%.
Custom volume down.
I said the assumptions for irrigation and cutting center that ought to write kind of continue at the same level that there now that I'm getting was that I can do better.
That's correct.
Okay.
Just a question that liquidity died here.
75 million draw down on the revolver I mean, you guys have a very strong balance sheet you had a lot of cash on on the balance sheet to begin way can you just talk about why 75 million and why now.
Just the tons of.
Bringing on that liquidity.
Yeah sure Nice Nathan this is mark.
If you look at the first quarter, we did spend a fair amount of money in the in the buyout of AG cents, an increase in ownership interest in Cambridge Talya.
But then really when as we look at things.
There's a certain amount of caution that we're watching and managing very closely things like receivables.
As we do I do hear that from other people I talked to regarding slowdowns and payment terms. So it's really more of an a matter of an abundance of caution and I would say that of cash flows turned out to be as well as we hope they're going to be in barb.
Cautiously expecting it to be we always have to flexibility at a later date to pay down the debt because it's on the revolver and it could be drawn down or pay back at any given point in time plus the cost is.
Very economical and so it's not a big drag on the income statement. So it's really more of a matter of abundance of caution than anything else.
Makes sense. Thank you I'll pass it on.
Thank you next question is coming from Brian Drab from William Blair. Your line is that a lot.
Hi, good morning, Thanks for taking my questions and it's impressive how you guys are managing through this tough time.
Mark also I wanted to say, you're looking smarter than ever for establishing 30 and 40 year maturities on your on your debt.
It's better to be.
Oh I'm sorry.
So.
Yes, if you could maybe talk about the margin improvement I'm, a little bit and give a maybe a little bit more granularity in terms of.
You know maybe a breakdown of.
Factors that are contributing to the great no margin performance in the quarter and you know how much is lower prices steel and Ross.
Aiding that versus the the volume leverage versus the other components could you could kind of give us proportionately how each of those is affecting it.
Yeah, Brian.
The number one factor really was the improved operational performance.
The efficiency in our factories, we really had little to no hiccups.
We were able to produced steadily.
Through January and February March we did have some headwind, but still we're able to overcome it because we started to see the shutdowns at that point.
I think thats the number one factor on a global basis as we just had real good productivity levels.
Then you look at raw materials and pricing in combination is even though raw materials were dropping zinc was dropping aluminum was dropping.
We were able to hold onto that through the price discipline and the pricing advantage concepts that we really adhere to so that was probably the second biggest one and then just really overall volumes.
Were you know.
We had some currency and we had the expected.
Utility order, but our volumes and plants, where we were open was just higher across the board and those particular plants.
So that also helped the overall margin levels there.
Okay, Thanks and.
It's hard to choose just one more question here, but I I'm curious about this a utility project in Europe that you called out the size of that the timing of the delivery. There and then could you maybe just update us on how your what's the outlook is for utility in Europe and like how your share.
The market there compares to the North American market and how that's maybe change overtime.
Sure.
So it's it's a it's a mass order so it's around utility structure order that we can make out of valmont SM.
And it's north of $30 million. So it's a pretty significant utility order for that area of the world, It's really to bring power from the north sea into deeper parts of Europe.
There's a few of these that are out there. So there's some subsequent tenders that were also bidding on and it does help margins overall and it will it will be it's still not the dominant structured type from your perspective, thats still lattice and.
We are participating in some areas in Europe on that but in terms of the mast orders were in a very good position as there's really only.
Maybe to other manufacturers that have the capability to make the size of structures and round like that so it puts us in a nice competitive situation. We expect more of these it's a focus for us.
We have done a couple of these orders in the past, but we see a much more regular cadence as they move I think it's a 365 line.
Overall that will be utilized so again as Europe has gone through a lot more renewable generation, both offshore and solar.
They need to distribute that power and this is a part of those programs.
Okay. Thanks very much.
Yep.
Thanks for the next question is coming from Brent Thielman from D.A. Davidson Your line is alive.
Great. Thanks, good morning.
Morning, Brent.
On the degree from business I know that.
Historically than were more.
Profitable element pretty yet that segment I understand some of the cross currents and short run, but any more clarity.
Uh huh.
Hi, there clarity on the second half at all and anything but.
How customers are concerned about spending Baird American or upgrade their networks looks like.
Yes, some of the bigger participant therapies committed to their Capex plan love to get any thoughts there.
Yes.
T mobile sprint was the obvious delay or laggard in kind of getting through the merger and then when the state's ended again, so that kind of slowed things down.
We're hearing that that will now accelerate as we look at basically second quarter and beyond.
Horizon and their CEO have committed to.
Expediting their spend.
To move into Fiveg again, very choppy all these carriers tend to go up and down.
You have to look at the trend line more than the quarter by quarter, but.
But it looks like it will be strong the other thing that we're hearing which may.
Caused a small pause in their planning is the fact that the work from home in the school from home have really tested the capacity of some of the towers in suburban areas, where fiveg was anticipated to be a downtown event a lot more if work becomes more distributed they have to think about.
How they're going to do that and so the site planning is is kind of gone through a little bit of a re phase amongst all the carriers is the result of looking at their most recent traffic, but all of them are committing to basically second quarter and beyond we always said that this would be a build year and really the run rate pre co bid was 2021 so.
So at this point, that's still looks to be the way. It will run is you know, it's still going to be a build year.
Second quarter will still be a little bit choppy third and fourth quarter. The plans are in place. It's just a matter of them executing upon that and having no significant changes to their capex outlooks.
Okay.
And then what your outlook for solar Cracker work is that more susceptible call. Good color coded related issues given all the international exposure.
And you're going outlook there.
It's it's more of a rephasing.
So some of the projects we had in the first half of the here look to be moving through the second half of the air.
We're not hearing anything on projects being canceled as a result of co bid or that somehow natural gas or oil being as cheap as it is will affect that.
It really is with the with the mandates to go to carbon free those seem to be overriding some of the other economics that potentially could come into the mix. So at present, we don't see anything that's going to inhibit both solar or the wind.
We had said ask them and their order volume in the second half of this year would pick up that's true.
The way, we see it right now.
And then.
You know as we build into 2021 is theres really good when profiles there so.
You know it'll be a lot of talk at least about.
Whether they should change generation sources, but I think renewables are here to stay.
Yeah, Okay. Thank you.
Your next question is coming from Ryan Connors from bidding and Scattergood. Your line is now live.
Good morning, Ryan.
Good morning, So I I appreciate the comments on second quarter in second half but.
I mean, I think for US obviously, you playing some very late cycle markets, where you know ultimately this is whether or not this has an impact is really a story of 2021, even 2022 that you got backlog for a certain period, but the question is the next generation of projects and I understand.
You guys don't have any more of a crystal ball than anyone else, but I think the real decision to point about whether this is an opportunity in the stock is kind of based on the scenario analysis out there 21 and 22, so when it kind of just probe. What you guys are thinking in terms of scenarios and I'll use. The example, U.S.U.S. asked for example, I mean.
You mentioned, a strong are always but utilities are gonna base those decisions on load growth expectations and those are coming in which could push some projects out things like that so.
As you look at you talked about state and local USS.
Kind of obviously, you're not going to quantify anything, but what does the range scenario of expectations, you're thinking about beyond 2020, because I think really thats, where the the rubber is going to meet the road here.
Yes, so I'll start with irrigation Ryan.
Hi, Jason.
You know correlates to net farm income and so however that farm income goes in North America. So.
Most likely will go our business. So those projections are the ones that will follow and model from a North America perspective, we do see growth in aftermarket parts, we do see growth in our technology sales that help.
Not correlate as closely so to speak on that international has seen growth and we'll continue to see growth, albeit it'll be very chunky.
But the project work that's out there will continue its based on population growth.
And not necessarily the net farm income, particularly in the developing countries.
Coatings is usually pretty easy that correlates with industrial production. So however, those forecasts go.
We've modeled in scenarios that match going back to 2001 recession.
Well, we had a lot less plants so.
I'd say we're being.
Very conservative, but the fact is that the amount of material that gets galvanize now has grown over time because of the corrosion prevention in U.S. as.
While you're right the load growth in fact, I've seen things that it's been down 5% to 7% or encoded.
You know the grid hardening was a much stronger driver in the market and a lot of the rate cases that have gone to the policies have been around the hardening and replacement of existing infrastructure that I don't think will tail off all that much, albeit there could be some delays from one year to them.
Next.
The renewables as I just mentioned should also continue because those mandates seem to be not backing off unless legislation comes into change them.
The growth in our international business for US is more of a market share issue and not necessarily just the market.
Growth factor. So we think we will perform better that way.
And then yes again, it's the high variable here is infrastructure spend by governments.
And what we've seen.
Is that we'll probably have a pause of some sort as they look at their tax collections and maybe even miss a budget year, two or an opportunity to do that.
But.
All things said, so that's the what we'll plan for.
But all things said is that if gas is really low there's that's usually when they sneak in gas taxes for roads and road construction.
And in places like Europe, and Asia. It's the primary stimulus tool is usually infrastructure spend.
So we have to plan for the downside of it and that's what we're doing.
But overall U.S. as utilities should probably endure this the best.
Based on the levels it could come down somewhat but I don't think it'll be.
Significant based on that grid hardening, we just have old infrastructure that is still needs to be replaced.
And is susceptible and even during that the pandemic there was the tornadoes down south.
You know there's always.
A big part of the storm hardening grid hardening fire in California, those look to be multi year events.
Whether it's the southeast are out in California. So those are good underlying.
Kind of base loads on our business there.
Got it okay, no that's really helpful overview.
Then my follow on was just as it relates to you know you talked about.
In the press release and in your prepared remarks about cost levers and looking at district discretionary spending and so forth I mean, it into more negative scenario.
How how much of the.
SG in a for example is do you feel like.
Is that a would you be able to to to move into without cutting into bohn you as it is it 510, 20% I mean, what kind of ability do you have to flex costs down in a more negative scenario you just order of magnitude.
Well, it's hard to give us right off the cuff kind of answer but I'll tell you. This from a commissions and sales perspective.
That comes off very simply and easily.
You know.
Could we take out 5% or SDMA without even blinking and I, probably just based on the volume.
Anything be above and beyond that we probably have to.
Truly change the nature of the business, a little bit restructured a little bit.
We did talk about looking at our product lines and the return on invested capital.
So that each product line that each business, but each product line brings.
And that's probably where the the second lever would go to is.
So does our long term outlook for the return on invested capital change with this pandemic and if so we probably make some adjustments and organizational structure related to that.
Got it okay, well I think that's great information thanks for your time.
Thanks Ryan.
Thank you as a reminder, that star one to be placed under question Q1. Next question today is coming from Jon Braatz from Kansas City Capital. Your line is now live.
Good morning, Steve Mark and.
Abner and welcome aboard and look forward to a working with you in the future.
Thank you I'm here.
Steve Steve.
One of the reason is one of the reasons for the improve margins you mentioned raw lower raw material prices and you were able to hold onto a pricing as as you look forward and as you know economies weekends and so on what's what's your thoughts on the ability to hold prices and and.
Oh retained the benefits of the lower raw material prices.
Well I can tell you this John and all of my team knows this our default is we're holding the price. Okay. We do tend to be the price leader. So if we move usually our competitors will move.
Fairly close to us so.
Knowing that Theres a lot of turmoil there is lot of issues theres lot of competitors, who may not actually make it.
With with cash being King.
We have no impetus or reason to have to chase volume at this.
The one thing that our restructuring over the last couple of years has done is really allowed us to make our cost structure a lot more variable <unk> and so.
Being able to use let's say an infrastructure plan for both utility and engineers support structures, we're not having to chase one volume in one segment to keep it full we can balance the load across the two.
In irrigation, we've always been able to pull out cost.
Going back for a very long period of time and because it's always been a cyclical even during the year business and in coatings.
Temp labor overtime, and then looking at shifts and cycle times, we feel that we can adjust those pretty simply so we don't have to go to the price lever in order to get the kinds of returns we want to get okay, great and then.
Secondly, see are you seeing any movement and the big transmission projects.
That have been sort of on the drawing board or as the business still mostly a sort of a small to medium size a work any any any thoughts on the big big transmission projects.
Yes, we've had we've enjoyed a couple of those big projects that have been out there we do not see any change in those at least from a a schedule or timing perspective, but your question about the number of them is still about the same they're mostly small to medium.
When you're talking about grid hardening and renewables those projects tend to be of those sizes to begin with.
So we don't anticipate a lot of large transmission projects.
Europe is one example, where there is one yeah.
So as we participate outside the U.S. those are probably tend to be a little bit bigger.
In nature, but overall, they still are that the smaller kv and smaller structure types. So are we anticipate our mix kind of staying where it has been.
Even as we look out over the next two to three years, Okay. Alright. Thank you see.
Thanks, Don. Thank you we reach of our question answer session ought to turn the floor back over to management for any further for closing comments.
Thank you everyone for joining us today as mentioned on today's call will be available for playback of my phone for the next seven days or on our website and we look forward to speaking with you again next quarter.
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 is made in light of experience.
Street.
Offerings as well as management perceptions of historical trends current conditions expected future developments and other factors believes to be appropriate under the circumstances.
As you listen to consider these comments.
I understand that these statements are not guarantees or performance results.
They involve risks uncertainties.
Some of which are beyond 12 months control and assumptions, although management believes that these forward looking statements are based on a reasonable assumptions you should be where that many factors could affect valmonts.
Actual financial results.
Of course, it to differ materially from those anticipated forward looking statements. These factors include among other things the continuing in developing effects of Copel 19, including the effects of the outbreak of the general economy of the specific economic effects on the company's business and out of its customers and suppliers risk factors described from time.
I just haven't felt much reports of Securities and Exchange Commission has moved future economic and market circumstances industry conditions company performance and financial results operating efficiencies availability and price raw material availability and market acceptance of new products product pricing domestic and international.
Competitive environments.
She is a policy changes that domestic and foreign governments. The company cautions that any forward looking statement included in this discussion is made as of the data this discussion.
He does not undertake update any forward looking statement.
Thank you that does conclude today's teleconference. Webinar you may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.