Q3 2020 Valmont Industries Inc Earnings Call
Greetings and welcome to Valmont Industries' third quarter 2020 earnings call at this time, all participants on a listen only mode.
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It is now my pleasure to introduce your host Mr., Nate Campbell, Vice President of Investor Relations and corporate communications. Thank you you may begin.
Thank you Donna good morning, and welcome to the <unk> industries third quarter 2020 earnings call.
With me on today's call are Steve Kaniewski, President and Chief Executive Officer.
They're off a bomb executive Vice President and Chief Financial Officer, and Tim Francis Senior Vice President and corporate controller. This.
This morning, Steve will provide a brief summary of our third quarter results and commentary on our strategy and long term business outlook.
I've never will review, our third quarter financial performance and provide an update on our fourth quarter outlook with closing remarks from Steve.
It will be followed by Q and eight.
A live webcast of the slide presentation will accompany today's discussion and is available for download from the webcast or on the investors page at del Mar Dot Com.
A replay of today's call will be available for the next seven days.
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.
Also be read in full at the end of this call.
I'd now like to turn the call over to our President and Chief Executive Officer, Steve Kaniewski.
Thank you Renee.
Good morning, everyone and thank you for joining us.
Before reviewing our third quarter results I'd like to start with a couple of comments first I'm extremely proud of our 10000 employees globally for delivering another quarter of solid operational and financial results.
While the impact of the pandemic on our businesses. This quarter was minimal our teams have continued managing through these uncertain times with focus and perseverance executing on our strategies, while continuing to serve our customers importantly, the safety of our employees and the communities.
Were and continue to be our number one priority.
Our remote work policy remains in place for administration teams, where possible to limit the number of individuals at our manufacturing facilities.
We remain vigilant in adhering to say this the same procedures in all our facilities and work areas.
Our employees remain the backbone of our company, serving our customers and keeping our factories operational I'm extremely grateful for their support and dedication to each other to valmont into the communities we operate in.
With that let me turn to a recap of our third quarter summarized on slide four of the presentation.
Net sales of $734 million increase $44 million or 6.3% compared to last year.
Significant growth in the utility support structure segment was partially offset by lower sales in the engineered support structures and coating segment due primarily to end market disruptions the cold at night, <unk> impacts and lower irrigation segment sales due to unfavorable currency impacts over.
Overall revenue and profitability were better than expected across all segments as we continue to successfully manage pricing and operational performance.
Turning to the segments, starting with utility support structures robust sales of $274.4 million grew 33.9% compared to last year led by higher volumes across all product lines.
Growth in global transmission sales, which includes transmission distribution and substation products was led by ongoing grid hardening efforts by utilities and strengthening demand for renewable energy sources that require additional substations and pole structures.
Volume growth was also driven by the strategic capacity additions in North American operations that were completed earlier this year.
Global generation sales, which includes solar trackers and offshore wind products were also higher led by significantly higher project sales of solar tracker products.
Higher sales in northern Europe from the large utility project that we announced earlier. This year also contributed to sales growth.
Turning to engineered support structures sales.
Sales of $255.7 million declined 4.6% compared to last year.
Sales of lighting and traffic products were down 5.1%.
In North American markets lower volumes in transportation that commercial lighting markets led to lower sales in.
In international markets and market disruptions from Covance impacts continue to affect sales this quarter, primarily in India.
Wireless communication sales grew 4.8% compared to a very strong quarter of 30% growth last year.
Sales growth was due to higher project sales in Europe and favorable pricing.
Capital spending by wireless carriers in North American markets continues to drive demand for structures and components and the ramp of Fiveg build that build out is tracking in line with our expectations.
Axis system sales were lower compared to last year, primarily driven by our strategic decision to exit certain product lines.
Moving to coatings sales of $87.9 million decreased 5.5% compared to last year, which was better than our initial expectations.
Higher internal volumes pricing and higher international market volumes were more than offset by lower volumes in North America due to economic impacts from Cove. It on end customers, particularly in oil and gas bridge and highway and commercial building markets.
Moving to irrigation.
Segment sales of $139.2 million declined 3.4% compared to last year.
Excluding unfavorable currency impacts sales were flat.
In North America sales were down 8.5%.
Higher irrigation system volumes were more than offset by lower volumes of other products, including lower industrial tubing sales, which was driven by lower steel costs.
International sales grew 3.3% compared to last year and grew 13.7% in local currencies strong.
Strong sales in Brazil improved market conditions in Australia, and higher sales in European markets, all contributed to sales growth as well as our recent strategic acquisition of Solaris, which as Belmont solar solutions strengthened our product offerings to include a sustainable low cost energy source to provide power.
Her to pivots and furthering our commitment to EPS G.
In Brazil, we delivered another record quarter of sales, we have been strengthening our dealer network, they're investing in technology aftermarket parts and extensive training programs, while expanding dealer locations across the country by more than 20% since the start of this year.
We expect market demand to remain strong, particularly as sugarcane is being used in food and expanded corn production is now a viable ethanol input.
We're very excited to have secured a $240 million multiyear agreement with progressive long standing customer to provide irrigation technology and other ancillary equipment for the fight for a 500000 acre agricultural project in Egypt, which we announced last month.
To give context, the scale of land under pivots, well be more than one and a half times the size of the city of Los Angeles.
Working together with our experienced local dealer, we are delivering solutions that help address two critical issues.
Water conservation and food security.
Minimizing the use of natural resources and fresh water conservation are critical for a project of this size and complexity.
Our customer has recognized the importance of utilizing the most advanced technology, including sensors, which will maximize the use of fresh water. It.
Additionally, the current pandemic has created an urgent need for nations to invest in agriculture to address food security concerns Mark.
Our customers, taking aggressive steps to strengthen their local economy and enhanced food access and availability and we are grateful to be a part of that solution.
When completed this farm will become the largest connected farm of engaged makers in the world.
Projects like these are highly transformative and our pipeline of opportunities is robust as nations address the need to feed growing populations.
As the market leader, the strength and flexibility of our global supply chain strong supplier relationships advanced technology solutions and local mark local commercial market presence uniquely positions us to execute and deliver projects of this scale.
Deliveries have just started in the fourth quarter and are expected to continue to ramp through the first quarter of 2021.
I've never will speak more about this order and fourth quarter expectations for the segment later in the call.
Turning to slide five as we had mentioned in prior quarters future potential cobot impacts to our business businesses vary across the portfolio and are the basis for which we continue to assess the business.
We are making to changes from last quarter's outlook by decreasing the risk profiles for irrigation and coatings.
We now view irrigation is having a lower risk profile given that foodservice supply chain disruptions have moderated and been accounted for a lot.
Along with a less dire ethanol supply outlook as well as the announcement of our large multiyear international order and growing optimism that grower sentiment in North America may improve with recent increases in commodity prices.
Our view on coatings has improved to a moderate risk profile as industrial production levels have been stabilizing and the impacts of economic disruptions in many end markets did a coated are becoming more clear.
Abner will speak specifically to our fourth quarter indications and assumptions later in the call.
Turning to slide six as a company, we have elevated our commitment to being a more sustainable organization by advancing SG as a strategic priority.
Our tag line of conserving resources, improving life is a constant reminder, to us of our purpose and inspiration.
Since our company was founded nearly 75 years ago, we have been focused on important yes de principles, providing products and solutions that support sustainable infrastructure development and the efficient use of water for agriculture, enhancing quality of life globally and supporting the communities, where we work and live.
Our 2020 sustainability report, we highlight these and other efforts on conservation, including progress on our global electricity goal.
More disclosures on the energy and resource usage in our operations and the scope, one and two carbon emissions they generate.
We recently joined over 200 companies and becoming a program partner.
In the U.S. Department of Energys better plants program.
Increasing our commitment to energy efficiency and savings across our facilities.
On the governance front I'm pleased to highlight two recent appointments to our board of directors maze.
These were to fiber and Ms., Joan Robinson, Barry Rich.
Two is a seasoned high tech industry leader and the senior Vice President and general manager of the semiconductor business and National Instruments Corporation.
We look forward to leveraging hurt technology industry perspective, and I O T O I O T experience at the board level as now my continues its digital journey.
Joan recently retired from a 35 year career at the Boeing Company. Most recently as senior Vice President and Chief engineer for Boeing Global services first.
Our strong track record of spearheading operational excellence for a world class Industrial company will aid in advancing valmonts future growth strategies.
These appointments further enhance our board's technological focus diversity and operational expertise and.
And and we welcome them both to the Belmont Board.
Additional highlights and progress of our SD journey will be shared in future quarters.
With that I will now turn the call over to Abner for our third quarter financial review and our fourth quarter outlook. Thank you.
Thank you, Steve and good morning, everyone.
Turning to slide eight and third quarter results My comments will focus on the adjusted results as outlined in the press release and then the Reg G disclosure in the appendix in the presentation Appendix. Please also note that for comparison purposes references to 2019 operating income and earnings per share exclude the LIFO method of accounting for inventories.
Which was discontinued at the beginning of fiscal 2020.
Third quarter operating income of $67.1 million or 9.1% of sales grew 9.9% compared to last year, driven by favorable pricing and improved operational efficiency.
Third quarter diluted earnings per share of $1.99 grew 13.7% compared to last year.
Third quarter tax rate on an adjusted basis of 25% was comparable to last year.
Turning to the segments on slide nine in the utility support structures segment operating income of $29.2 million or 10.6% of sales increased 70 basis points over last year stronger volume improved operational performance and improved profitability in international businesses drove operating income.
Improvement.
Moving to slide 10 in engineered support structures operating income of $26.3 million or 10.3% of sales increased 220 basis points over last year.
Overall, we were very pleased with continued pricing discipline and improved operational performance, despite lower international volumes from weaker market demand due to cobot, 19th impacts may bleed in India.
Turning to slide 11 in the coatings segment operating income of $13.7 million or 15.6% of sales was 70 basis points higher than last year higher volumes in international markets favorable pricing and continued focus on operational excellence and standard work led to a more favorable quality of earnings.
This year since.
Since the beginning of the pandemic, we have quickly been able to adjust our cost structure in anticipation of lower volume.
Moving to slide 12 in the irrigation segment operating income of $14.7 million or 10.6% of sales decreased 200 basis points compared to last year favorable pricing was more than offset by lower sales volume and higher R&D expense for strategic technology growth investments.
Turning to cash flow on slide 13, we delivered solid operating cash flow of $122.3 million this quarter, leading to a 14% improvement in year to date operating cash flows even with a strong performance last year third.
Third quarter operating cash flow include a receipt of a large customer down payment and the payment of current and deferred U.S. government tax payments, our relentless focus on working capital management is delivering results.
Turning to capital deployment, a year to date summer is shown on slide 14.
Capital spending this quarter was $22.1 million and we remain focused on strategically investing in growth opportunities, while ensuring optimal liquidity, we resumed our share repurchase program in September 10th as our cash position and outlook on business impacts related to the pandemic became more clear during the quarter, we returned a pro.
Maximally $17.1 million of capital to shareholders through dividends and share repurchases ending the quarter with approximately $443 million of cash.
Moving now to slide 15 for balance sheet highlights capital spending plans for 2020 are expected to range between $85 million to $95 million. We continue to have an active acquisition pipeline and are prioritizing strategic investments are bad.
Our balance sheet remains strong with no significant long term long term debt maturities until 2044, our leverage ratio of total debt to adjusted EBITDA of 2.3 times remains within our desired range of one and a half to two and a half times and our net debt to adjusted EBITDA is at one time.
Turning to slide 16 last.
Last quarter I spoke briefly about our opportunity to transform the finance function to be true partners and strategic enabler. So our business I would like to take a minute to highlight a few areas of focus and find it.
First we're using advanced technology and automation to streamline processes redeploying capital and people to more strategic in innovative opportunities in the company. For example, we are utilizing enhanced dashboard reporting and greater real time analytics, and we'll be implementing robotic process automation or RP to automate.
Certain repetitive transaction across the organization.
Second we're deploying data science capabilities, and taking advantage of AI and machine learning to develop a quantitative research based approach to forecasting and real time decision, making starting with our shorter cycle non backlog businesses.
We will continue to optimize the ERP system, while enhancing data management, starting with our coatings business.
Third we're driving execution of strategic priorities to further improve working capital we have reduced inventories through implementing standard work and operational improvement that have enhanced material flow and expanded our shipping capacity. We're also refining contract management processes and advance payment negotiation to help improve accounts Rusty.
Capable turnover.
Importantly, we are focused on talent as our most important asset providing opportunities for career growth and development across the organization. We're also expanding our use of shared services developing centers of excellence in key areas such as Treasury NSP anyway.
We are confident that these initiatives will improve return on invested capital accelerate the natural evolution of the finance function and maximize its effectiveness as a strategic partner and creating long term stakeholder value I looked.
I look forward to sharing further updates with you in future quarters.
Let me now turn to slide 17 for an update to our outlook, including key financial metrics and assumption for fourth quarter.
Sales are estimated to be between 715 and $735 million. This operating income margins between 8% to 9% of net sales, including excluding any restructuring activity.
Assumption supporting this outlook are summarized on the slide and in the press release.
Turning to slide 18 in the utility support structure segment, our strong backlog and the benefit of capacity additions are providing good visibility to the fourth quarter. There were some risk associated with some international parts it projects, which have been accounted for in our guidance range.
Moving to engineered support structures, our current backlog is providing good visibility to fourth quarter lighting and traffic sales and the long term market trends for both transportation and wireless communication structures and components remain solid we expect a normal fourth quarter seasonality, which can cause more uncertainty and the timing of sale.
Sales in international markets are expected to be down slightly compared to last year due to ongoing economic the effects from the pandemic, primarily across Europe, and India access system revenues are expected to be similar to the first three quarters of this year profitability for this product line has improved during 2020 and this and this has been.
Accounted for in our outlook moving to coatings end market demand tends to correlate closely to industrial production level and as those levels continue to recover we expect a modest improvement in demand move.
Moving to regain fashion, we are encouraged by recent increases in certain commodity prices and are optimistic that these trends will be positive for overall grower sentiment. We expect segment sales increased 12% to 15% compared to fourth quarter 2019 based on estimated timing of deliveries of the large project for each of the operating margin.
And are expected to be similar to previous large international irrigation projects, which tend to have a slightly lower margin profile than sales in more developed international markets.
Finally, we expect another quarter of solid operating cash flows driven by our continued strategic emphasis on working capital management with that I will now turn the call back over to Steve.
Thank you Avner moving to slide 19, as we have stated all year the fundamental market drivers of our business remain intact and utility our robust backlog of approximately $600 million remains at near record levels and demonstrates the ongoing demand and necessity for grid hardening and renewable energy.
Solutions independent of general economic trends.
In engineered support structures government investment in infrastructure development across lighting and transportation markets is expected on some level. The recent one year extension of the fast Act and increased funding for the Highway Trust fund are positive for our business, although we expect weak demand in commercial lighting markets to continue.
Looking ahead to 2021, we expect some near term impact to demand a state and local jurisdictions factor in lower tax receipts into their budgets and spending plans. We believe the impact will be relatively short term in nature.
This critical need for infrastructure investment also provides good economics, then stimulus for countries.
Recent announcements of infrastructure stimulus packages in Australia, and Europe will drive additional demand in those markets with potential upside in other markets. If similar stimulus measures are announced.
Growth in wireless communication structures and components, particularly in Fiveg are expected to accelerate in 2021 as carriers investments are supporting an increasing number of work and school at home environments and additional macro buildouts in suburban and rural communities.
Our coatings business closely follows industrial production trends and general economic activity.
The drug the drivers remain solid and the preservation of critical infrastructure and extending the life of steel fits well within our Sq principles.
An irrigation we are cautiously optimistic that recent improvements in commodity prices will lift grower sentiment and north American markets are into.
Our international business is doing well and the large scale multiyear project in Egypt is providing good momentum for us leading into 2021.
In summary on slide 20.
Our strong performance through the first nine months of this year. Despite macro disruptions is a testament to the agility of our team and our ability to manage well through uncertainty and change.
Our continued health and safety protocols will ensure the protection of our employees and communities and reinforce our supply chains.
We are advancing adjacent market growth and technology leadership through strategic investments. In addition to leveraging the long term and enduring growth drivers across all of our segments.
Our outlook for the remainder of this year reflects our solid operating performance, while keeping our employees and communities safe and making investments for growth.
We remain confident in our ability to execute in this dynamic environment delivering results and building long term stakeholder value.
Our strategic framework remains fully intact with a continued focus on profitable growth and return on invested invested capital improvement as we position valmont for success now and in the future.
And as we look to the future I want to personally recognize and thank those employees, who have chosen to participate in the early retirement program.
Valmont has an incredible history shaped by our tenured workforce and your dedication to our core values. Each and every day is an inspiration to all of us.
We appreciate your years of service and contributions that have truly made our company what we are today.
Thanks, again to each and every one of you for all you have done and we celebrate your success.
I will now turn the call back over to Renee.
Thank you Steve.
This time Donna you may open up the call for questions.
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First question is coming from Chris Moore of CJS Securities. Please go ahead.
Hey, good morning, guys.
Morning.
Good morning.
Talk a little bit on the solar side can you, perhaps talk a little bit about the the competitive positioning of your solar offering in North America versus some of the other players like array in Nextracker and then you know kind of longer term do you expect revenue within North America.
Outstrip to international revenue until there.
Yes, so just starting off with where we are competitively.
Against let's say the competitors you mentioned, we have a solution that is.
Very easily constructing in the field so.
It has a lot of tolerance is built into it.
That allow for easy construction to the contractors that often put this together really liked the product are scattered software that controls the farm.
It is also a plus against many of those other competitors as well as the fact that you do not have to level land, we can do.
More positioning of the trackers more easily with the software that we have in place and therefore from a cost perspective to the developer of the solar field our system presents.
As a very highly competitive product I would say the other thing that we have as an advantage as we build the solar market in the US is the fact that we have these longstanding relationships with utilities Theres no.
Theres not a utility in the U.S., we haven't done business with we have the majority of the alliance contracts that are out there and thus we're being invited in by those utilities to assist them with their solar developments. So we feel that as we look into 2021 the pipeline of.
Project and we already have a number of projects in the us now.
The pipeline will continue to build as we.
As we look into 2021 2022, and obviously the overall market for solar trackers is expected to grow on about a 15% CAGR over the next few years. So we feel this is a nice durable long term growth market for us with highly competitive advantages that we bring both in terms of the concern.
Suction obvious.
Obviously, our supply chain and then the relationships that we have with.
With different utilities that are out there.
Got you helpful.
Okay last one from me just in terms of the Cancun.
40 million dollar gain.
She order.
Just talk a little bit about expected cadence over the next two years.
Yeah. So so we're starting to ship in the fourth quarter.
Actually getting underway is always a slower event, then as you get to a run rate but.
But with the supply chain that we have in place we would expect really in the first quarter of next year to kind of hit a run rate and then ship for the next say 24 months thereafter so.
The shipping schedules can move around a little bit, but I think if you take a run rate and then kind of peanut buttered over the 24 months, it's probably a good indication.
Got it appreciate it I will jump back in one thanks guys.
Okay.
Thank you. Our next question is coming from Nathan Jones of Stifel. Please go ahead.
Good morning, everyone.
Good morning, Dave earning.
I'm going to follow up on that.
Egypt irrigation project I Wonder if you could talk a little bit more about some of the risks in their risk management that you can provide around that project yeah.
Not that stable part of the World can you talk about the financial safeguard deterring front I think I know talked about large down payment in the third quarter wondering if that's related to to that project.
Well kind of L.C. you had in play.
To ensure that.
You know like holding the bag here on some of that and then the logistics around how you're going to supply that.
Do you need capacity in different places, how you're managing the supply chain just those kinds of things that you're you're managing the risk around such a large project.
Okay sure. So let me let me address the first part of your question. So yes, the the down payment that we did receive that helped our cash flow in Q3 was related to this project. We do have additional progress payments throughout this entire project and we do have a confirmed letter of credits are real.
Really to manage our risk between the progress payments and the confirm don't see we feel pretty secure with with this project and pretty much pretty much minimize the risk.
Yeah, So Nathan there's very little that will be outstanding that we couldn't hold back from a shipment perspective based on we get a certain amount as it hits poor in another amount that hits as it gets to.
Closer to that project and then obviously once it's installed.
From a management of the supply chain, we are shipping this from multiple plants in our.
Portfolio.
And we have geared those up quite well a lot of this is coming out of the recently expanded Dubai facility. So the capital investment that we did last year will pay dividends for us. This year in that regard, we will not have to add capacity anywhere within it.
Irrigation to further supplement this order so everything is in place and we've worked quite diligently with our suppliers.
As well as taking on some inventory early or let's say in the third quarter that will now roll off as we begin to to ship that so I'd say from a.
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Overall perspective, we feel very good about the risk mitigation to this week.
We have.
Commercial presence that is based in Egypt.
Or works with the customer and the dealer on a regular basis.
We've.
We know the dealer quite well who asked to install.
And we will be providing technical assistance as it pertains to some of the technology deployments that are there. So overall, it's just a bigger project than we've ever had but not out of the realm of the large scale deliveries that we have done elsewhere in the world.
Elsewhere in the world. So we feel good about.
The risk mitigation piece.
Thanks, that's very helpful.
Then maybe on the margin side of these project I mean, I know historically you.
You guys had said that international projects, where maybe 500 basis points lower gross margins, but I think those had closed pretty significantly over the last few years.
Well I imagine that was probably only two bidders on this contract I would imagine that was it was fairly aggressive and that the customer has been power here. So is there any more color you can give us on kind of what kind of mix drag. This is likely to be as we go forward on your overall margin does.
Does that get offset largely with a lot of SG and leverage that you'll have from from higher from the higher revenue here just any any more color you can give us on the margin profile around this.
Yes, sure just to put it out there was there was actually more than the couple bidders that you mentioned there was a series of bidders from around the world.
And we obviously made it through that because of the large scale nature of the project the product quality and the ability to actually deliver on this all the way from a margin perspective.
Yes, it is slightly lower than let's say segment margins as they stand at this point.
[music].
With the factors that you mentioned, we gained leverage operating leverage both in the factories and on an EPS DNA.
And that will help offset some of the differences you see.
The gross margin side. So we ultimately expect this to be just.
I say slightly decreased from a operating margin percentage as compared to the segment.
Okay. That's helpful. Thanks, very much I'll pass it on.
Thank you.
Thank you. Our next question is coming from Brent Thielman.
But then please go ahead.
Hey, Greg good morning, great quarter.
Okay.
The 5.6 million in restructuring charges look to be sort of fairly spread across the segment. I guess two part question, maybe just talk a little bit about what got involved and should we see that stayed as we exit the fourth quarter and get their 2021.
Hey, good morning, Brent, It's Tim Francis I'll take that one.
The 5.6 million for.
For third quarter, you can see a detail of it by segment at the end of the press release as well as the end of the presentation.
The biggest component was.
I was in utility.
And it was related to an accounts receivable.
In international markets.
Related to renewable energy.
That we decided no longer probable will collect we will still actively try to collect on it but we had a set of evaluation allowance against it that is certainly nonrecurring in nature as we.
As we move into Q4, and what sort of restructuring we were going to see the biggest component is going to be.
$10 million, we referenced in the press release for the cost of the early retirement program. We have a few other things we're considering right now but they were.
But they will not be much bigger than what we've seen here in the last couple of quarters.
Yes, Okay, great and then yet decreasing had Rick.
On the transportation portion at the at the lighting segment that had been pretty good for you guys I recall ceding quarters. It looked like a little bit as slowed this quarter because of the U.S. I was wondering if you think that kind of just an air pocket in terms of timing and project timing or is this a bit of a function of some of the budget shortfalls.
You guys have talked about the talked about in the market the last few quarters.
Yes, we've used the term internally as.
Kind of a pothole census traffic.
It's related obviously to the the the budget uncertainty there were some projects that were put on hold.
And some key states as we mentioned last quarter projects were not getting approved because of open meeting laws.
And really not people working that's starting to come back but.
But we do expect kind of the same kind of level as we at least enter into next year.
But then.
The pipeline that's out there and all the the macro indicators are that we should start to see this come back to more normal levels as the year progresses.
Okay. Thank you. Thank you.
Thank you. Our next question is coming from Brian Drab of William Blair. Please go ahead.
Hi, good morning, Thanks for taking my question.
Hi, good morning.
On the utility segment.
Great number that you put up on the revenue line, there and I'm just wondering given the.
You made some positive comments on the backlog and what you're seeing in international.
I guess could be some risk there, but what are you forecasting going forward in terms of.
Our run rate for that business.
We look forward to the fourth quarter and 21, and that's a huge step up from the first half 20.
20 run rate in the third quarter.
Yes, and that's a function of really getting the approvals in the us.
As well as some of the projects that were delayed due to covance kind of moving over into that what we said the last half of this year. So if you were to look at utility in the fourth quarter, we would expect it to be up at least double digits on a year over year basis, and then as we look into 2021.
The pipeline is very active.
It will still be somewhat lumpy not nearly as lumpy as it was this year.
Because there are still some large international projects that are are in with that business and always will be.
But as the U.S. business comes more on line that will start to flatten that as we go kind of through 2021 and the 2022.
Okay. So this this level that you have in the third quarter, though this isn't going to nominally that this is.
The level that you and wasn't driven entirely by pandemic delays or was it to some extent and.
I'm just wondering if should sequentially does this come back down to more like a 250 ish.
Kind of level or do you want people to.
I assume you can kind of sustain this 275, which is like the best that you've done in.
In years in that segment. So yes, so that 250 ish kind of range would probably work as you as you think about that it was third quarter was a little bit heavier.
So we will see a little bit of moderation, but still a nice growth rate as we move forward.
Got it Okay and then.
Im just looking at it.
The momentum that you have now across the businesses, we view it as you've discussed in great momentum in irrigation.
And.
For the fourth quarter, you guided 8% to 9% operating margin.
And then if we go back in time, just a couple of years. You know were you were hoping to get this business to overall till 11.5% to 12% operating margin at the 2018 analyst.
And I'm just wondering with the momentum that you are carrying into two.
2021, Kim can we start to approach then I know you took some costs out related endemic and now the volumes coming back.
When can we get to that 11.5% to 12% goal.
Yes, I mean, yes, we were finally over 10% for the first time in about four years.
Now third quarter is seasonally one of our better quarters.
But the actions that we've taken there to restructure access systems, the exiting of certain product lines across the portfolio that we don't see a good return on invested capital all of those will help to move yes us up.
An approach that 10% overtime.
The utility segment, obviously is the international piece the generation piece continues to grow we get supply chain leverage we have the better pricing in North America on solar.
As well as a continued robust market, we feel that there's legs for that business overtime to get to 15%.
Irrigation encoding specifically as you see any rebound in the market the leverage that will get off of those businesses will be very strong. So if irrigation does.
Does trend up in North America, and we continue to execute well in the international markets, you'll start to see the.
The segment kind of margins that you are used to and all of those along with coatings coming back and getting the leverage should provide a path for us to get to our 12% operating margin.
As we build through 2021 and into 2022.
Okay got it thanks very much.
Thank you once again, ladies and gentlemen that is star one to register any questions. At this time. Our next question is coming from Jon Braatz of Kansas City Capital. Please go ahead good morning.
Good morning, everyone.
Steve returning returning back to Africa the.
The great Ethiopian right.
Renaissance Dam has been completed and the reservoirs are being filled.
What kind of irrigation opportunity is there.
And Ethiopia and Sudan.
As a result of this dam and.
You know given the heightened concerns about food security do you.
Do you have any particular insight as to what maybe Ethiopians Sudan might do in terms of bringing new land into production.
As a result of the stem.
Yes, Sudan itself.
Really just because of sanctions and being on the terrorist list for a long time.
Didn't develop their normal allocation of Nile water, even before the dam was in place. They have started over the last few years to do just that there are big pumping projects in place we.
We have delivered.
A number of pivots into Sudan already and.
And there is a good pipeline of projects as you look forward Sudan itself coming off of the terrorism list will really help open up banking, which has been the primary issue to really kind of accelerated development.
Ethiopia would be further behind that curve in terms of canals and pumps and and things of that but the reservoir will provide a tremendous opportunity for a place that has seen cycles, a famine and starvation to really kind of level that off.
And it's just a matter of what kind of public works, they're going to use to distribute the water from the dam overtime, I'd say first and foremost.
The agreement between Egypt, Sudan, and if you hope it probably has to be fully in place to see those kinds of opportunities.
But obviously recent rains record flooding in Sudan, and if youll be a damn filled up much quicker than most people expect that has eased a lot of the tensions and hopefully will provide.
A good impetus to get this thing settled the owner.
The only outstanding item right now is if theres times of drought in the future what is the release rate.
So.
You know I'd say, the tensions have come down, but they still have to get it worked out but the.
Denial itself.
With these kinds of feast and famine of rains, which is why the delta formed in the first place.
Really provide a great opportunity not dissimilar to the Columbia River in the northwest here.
You could see as many pivots along denial as you see along the Columbia River overtime. So we feel it's a good opportunity.
It's great for the country, and obviously with their populations in foods production necessities.
Pivots are the best way to get that large scale agricultural development, Steve I assume maybe that maybe you answered the question but.
When they bring in bringing on new arable new production in Africa is.
Is it almost always going to be irrigated with summer center pivots.
Yeah, I think that everyone knows that they have to conserve the water that comes off.
And so if you see any kind of production it will be with some type of irrigated.
Machinery, whether drip or pivot, but frankly, probably more pivot based on the type of crops that will grow and that he.
Okay. Okay, Oh, one last question on the on your solar front tracker project.
Is your solar tracker approved across the domestic utility industry.
For all I mean is it approved by all the utilities proved or certified if you want to call. It.
Yeah, I would say that each individual utility has their own search process, but what we had to get in place was when panel testing and accelerated aging testing that has been completed we are able to bid every utility at this point, okay, but some of them you know you get approvals as you bid.
So as we work with them on the first project that will take place, but there is nothing that is an inhibitor to us bidding in the U.S. at this point, okay. Perfect. All right. Thank you very much.
Thanks, John.
Thank you our next.
Brent Thielman.
Davidson. Please proceed.
Oh, great. Thank you Hey, Steve.
Hey, Steve back on the yen the wireless business.
Good night.
We will consider the segment can you talk a little more about Donna Karan between Europe, North America and.
In China, just to get to that 5% growth this quarter and then.
Now you're anticipating all three accelerate for you and 2021.
Yeah, I'll start with China, China has been down for us over the last couple of years. There is a number of players there the pricing is not nearly as attractive. So you would have seen a little bit of down.
Pressure and China, the U.S. market continued to have very strong performance.
It was ramping up because of the Timo and spectrum auctions. So that was starting to come back. It was it was very nominal in terms of.
Of sales growth, we really saw more in Europe and Peru.
And particularly in the UK and the Netherlands, where there are active projects.
To deploy fiveg throughout the cities and.
And because of our product line, we are able to provide not just the macro tower or poll, but also all the componentry to Mount the antennas and whether they're on a building whether they are on a poll the tower.
Were were included with a light pole, we have the entire offering across that is.
That is allowing us to capture some of that growth. It is something that we feel.
It's tracking completely in line with our expectations. We said the second half of this year, we'll start to see growth and then really a strong run rate in 2021 and 2022.
And whether us or other players in the industry that support it I think you see similar sentiment.
Yep and should that China impact the detrimental impact last couple of years, you expect kind of stabilizes.
Yeah, it's it's stable and it's a much smaller piece of the overall telecom.
Foleo at this point.
Okay and then the follow up was on access system.
No you're facing some year on year pressure is there, but it looks like sales are actually up sequentially do you feel like you've sort of stabilize that business at this point.
Yes, Hi, this is on there I would say, yes, we pretty much feel like we got it to a much better place it's pretty stabilized.
We're expecting to stay in the black.
And keep on working on kind of improving the business, but I'd say, it's pretty good spot right now and there are some macro drivers in Australia right now with mining.
That may provide at least a small tailwind.
Some of the things that we do there.
Really what you're seeing is we got it to a profitable place the Asia part of the business is always been very strong and our.
And Australia is just waiting for a basically a secular rebound.
But the product lines that we had the issue with our.
So to speak in the rear view mirror.
Okay, great. Thank you guys.
Yes, Brent.
Thank you at this time I would like to turn the floor back over to Ms. Campbell for closing comments.
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