Q4 2020 Valmont Industries Inc Earnings Call
Greetings and welcome to the Valmont industries fourth quarter and full year 2020 earnings call.
At this time all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host Renee Campbell, Vice President of Investor Relations and corporate communications.
Thank you and good morning, welcome to them on industries fourth quarter and full year 2020 earnings call with me on today's call are Steve Kaniewski, President and Chief Executive Officer.
On your Appelbaum Executive Vice President and Chief Financial Officer, and Tim Francis Senior Vice President and corporate controller.
This morning, Steve will provide a brief summary of our fourth quarter and full year results and comment on our strategy and long term business outlook.
Avner will review, our financial performance and provide trends and key assumptions for 2021 with closing remarks from Steve This will be followed by Q&A.
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 Belmont Dot Com AR.
A replay of today's call will be available for the next seven days. Please.
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.
It will also be read 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 Renee.
Morning, everyone and thank you for joining us.
Before reviewing our fourth quarter highlights I want to acknowledge and thank our global team of over 10000 associates for their noteworthy performance throughout this past year.
I could not be more proud of their efforts as they work hard in the face of the pandemic to provide our customers with essential products and services, while prioritizing safety in our workplace and our communities.
Our team's dedication and focus has positioned us very well for success in the future.
With that let me turn to a brief recap of our fourth quarter summarized on slide four of the presentation.
Net sales of $798 $4 million increased $115 million or 16, 8% compared to last year.
As a significantly higher sales in the irrigation and utility support structures segments.
Starting with utility.
Sales of $271 million grew 16, 9% year over year led by significantly higher sales of global generation products as expected.
<unk> demand for renewable energy generation is increasing and utilities continue to invest in a more resilient grid.
Moving to engineered support structures sales of $256 $1 million were similar to last year favor.
Favorable pricing and currency impacts were offset by lower volumes, primarily due to lower international sales as COVID-19 impacts continued to affect end market demand, mostly in France and India.
Sales of transportation products were higher in North American markets, driven by States continued investments in road and construction projects.
Wireless communication structures and components sales were similar to last year's record fourth quarter led by continued strong demand and favorable pricing in all regions.
Turning to coatings sales of $89 $3 million were similar to last year, but improved sequentially from third quarter as demand continues to recover.
In irrigation.
Sales of $199 $3 million grew nearly 50% compared to last year with growth growth across all global regions.
In North American markets farmer sentiment has improved significantly as recent increases in agricultural commodity prices are leading to multi year highs for soybeans, corn cotton and wheat.
International sales growth was led by higher sales in the Middle East European and South American markets, particularly in Brazil, where we recognized another record quarter of sales in local currency.
Deliveries of the multiyear project in Egypt also began during the quarter and we are pleased that how the project is progressing.
This project and others like it are helping nations conserve water strength in their local economies enhanced food access and availability and support our commitment to improve life across the globe.
During the quarter, we purchased the remaining 40% stake of torrent engineering and equipment, a global designer and integrator of high pressure water systems for the agricultural and industrial sectors.
This acquisition supports our strategy to deliver full service engineered turnkey water management solutions to our growers and is critical to large scale agricultural products projects.
Overall sales and profitability were better than expected across all segments as we continue to successfully manage pricing and operational performance.
Turning to the full year summary on slide five net sales of $2 $9 billion grew four 6% compared to last year and five 4% excluding currency impacts.
Earlier in the year visibility of the pandemic impacts on our global end markets was somewhat unclear.
However, we exited the year with a more confident view of the tailwind across the majority of our markets.
I'm very pleased with our performance and our focused execution throughout the year.
Turning to the segments.
<unk> sales growth in the utility support structures was led by continued robust demand driven by renewables and grid resiliency and higher sales of global generation products.
In engineered support structures, our pricing actions and improved operational performance benefited us throughout the year.
In North America strong demand in transportation markets, and an increasing number of site build outs ahead of <unk> Rollouts offset lower international end market demand.
Access system sales were down 23% compared to last year due to our strategic decision to exit certain product lines.
Turning to coatings sales were down six 1% for the year, but improved sequentially in the second half of the year tracking inline with improving industrial production levels.
Turning to irrigation.
2020 began.
Is the sixth consecutive year of an off cycle in North America.
Low grain prices and food supply disruptions from Covid affected demand earlier in the year, but strengthening demand during the second half of the year led to a strong finish to 2020.
In Brazil, very strong demand led to record sales with sales in local currency growing 32% year over year.
Additionally, sales of advanced technology solutions globally grew nearly 20% year over year to $67 million.
These proprietary solutions now connect over 110000 of our growers machines.
<unk> them to maximize yields improve water efficiency and optimize input costs.
Turning to slide six.
In 2020, we made significant progress in many key areas.
We elevated our commitment to ESG throughout the organization and set a solid foundation to share more in 2021 of what we're doing to conserve resources and improved life.
We accelerated innovation through new products and services, including our spun concrete distribution poles and small cell solutions as well as technology advancements and our valley 365 platform for connected crop management.
In all segments benefited from disciplined pricing strategies throughout the year.
We secured the largest irrigation order in the industries history to supply $240 million of products services and technology solutions to the Egypt market.
And we generated over $200 million on free cash flow through our continued intense focus on working capital management.
We quickly responded to inflationary pressures, which occurred late in the year by implementing price increases in all four segments and have implemented additional increases in early 2021.
We believe that our persistent focus on price and delivering customer value is the primary way to deliver strong operating performance and generate shareholder value.
Turning to slide seven.
Last month, we announced a collaboration with the Republic of Kazakhstan to develop the first in country Center pivot manufacturing facility that will take advantage of the region's growing agricultural potential.
Working with our joint venture partner Cousteau group. This multi year agreement is helping and enhance mechanized precision agriculture, creating a network of farms that will accelerate efforts to address food security resource conservation and increasing export demand.
<unk> group is a recognized leader in agribusiness and the application of innovative technologies in the region.
Together, we have committed to build a local facility with an annual production capacity of up to 1000 pivots.
Groundbreaking is planned to begin in the second half of 2021 with production ramping by 2024.
As the largest economy in the region Kazakhstan is rapidly embracing agriculture is a key economic contributor with a national plan to more than double the number of irrigated acres over the next 10 years.
Growing regional demand coupled with excellent infrastructure will allow us to quickly and efficiently serve the greater market <unk>.
Starting with the multi year agreement to supply a minimum of 4000 pivots.
We are excited for the partnership and potential growth in the region and we will provide further updates on our progress in future quarters.
With that I will now turn the call over to Avner for our 2020 financial review and 2021 outlook and key indications.
Thank you, Steve and good morning, everyone turning to slide nine and fourth quarter results. My comments will focus on adjusted results as outlined in the press release and in the.
<unk> G disclosure 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 inventory, which was discontinued at the beginning of fiscal 2020.
Fourth quarter operating income of $68 $8 million or eight 6% of sales grew 180 basis points or 36% compared to last year, driven by improved operational efficiency in all segments higher volume and utility and irrigation and the non recurrence of last year's losses.
In the access system product line.
Fourth quarter diluted earnings per share of $2 20.
Grew 46% compared to last year, driven by higher net earnings and non recurrence of losses in the <unk> system business and a more favorable tax rate.
Fourth quarter tax rate was 24, 4% on an adjusted basis. This excludes a nonrecurring $1 million benefit or <unk> <unk> per share from the adoption of U S tax regulations finalized in 2020, which allows for more favorable treatment of tax payments by our foreign subsidiaries.
Turning to the segments on slide 10.
Utility support structures operating income of $28 million or 10, 3% of sales decrease of 110 basis points compared to last year, while strong volumes and improved operational performance drove higher profit quality of earnings was impacted by higher mix of offshore and other complex deal structures.
Moving to slide 11 in engineered support structures operating income of $24 $4 million or nine 5% of sales increased 540 basis points over last year.
Overall, we were very pleased with the results from the actions, we took to enhance pricing strategies and improved operational performance, which helped to offset lower volumes in international markets as COVID-19 impacted market demand, mainly in France and India.
Turning to slide 12 in the coatings segment operating income of $11 8 million or 13, 2% of sales was similar to last year higher volumes, primarily in Australia, and New Zealand and a continued focus on operational excellence and standard work on.
Offset lower external volumes in North American markets.
Moving to slide 13 in the irrigation segment operating income of $25 3 million or 12, 7% of sales was 380 basis points higher compared to last year strong volumes across all global markets and improved operational efficiency were partially offset by higher R&D expense for strategic.
Technology growth investments.
Turning to cash flow on slide 14.
Our rigorous focus on working capital management helped us deliver solid operating cash flow of $316 $3 million. This year, an improvement over last year's strong performance and despite an early payment of approximately $80 million for the required 2021 annual UK pension plan.
<unk>.
Turning to capital deployment, the full year summary, as shown on slides 15 capital spending for 2020 was $107 million, which includes approximately $42 million of investment in strategic growth opportunities and approximately $60 million of maintenance capital in line with historical levels.
Growth investments include expansion of existing North American infrastructure operations to meet strong market demand a new startup coatings facility in Pittsburgh is expected to come on line at the end of first quarter 2021, and technology investments in our factory.
Our products as mentioned last quarter, we resumed our share repurchase program in September returning approximately $93 $4 million of capital to shareholders through dividends and share repurchases in 2020, ending the year with approximately $400 million of cash we continue to have an active acquisition pipeline and our <unk>.
Prioritizing strategic invasive investments in higher growth products and markets and business solutions that align with ESG principles, while meeting our return on investment capital goals.
Moving now to slide 16 for balance sheet highlights our balance sheet remains strong with no significant long term debt maturities until 2044, our leverage ratio of total debt to adjusted EBITDA of two two times remains within our desired range of one and a half to two five times and.
Our net debt to adjusted EBITDA is at one time.
Let me now turn to slide 17 for an update to our 2021 financial outlook, including key metrics and assumptions for first quarter and full year.
For the first quarter, we estimate net sales to be between $740 million and $765 million and operating income margins between 9% to 10% of net sales.
For the full year net sales are estimated to increase 9% to 14% year over year, which assumes a foreign currency translation benefit of 2% of net sales.
Earnings per share is estimated to be between $9 and $9 70, excluding any restructuring activities.
Other metrics and key assumptions supporting this outlook are summarized on this slide and in the press release.
Before we move to the segments, let me briefly comment on operating margins for the first half of 2021.
With unprecedented raw material cost increases and higher freight costs, we have taken quick deliberate steps to implement pricing across all our segments. In some cases, we have implemented multiple increases since the beginning of 2021 and are maintaining these strategies across our served markets.
Turning to our segment outlook on slide 18 in utility support structures are strong global backlog is providing good visibility.
As I mentioned, we have been aggressively adjusting prices due to rapidly escalating raw material costs are on.
Minder that pricing actions in response to rapid inflation and this segment historically take one to two quarters to recover. So we expect unfavorable gross margin comparisons of approximately 220 basis points in the first half of the year when compared to 2020. However, we do expect gross profit contribution.
<unk> for the full year to be favorable year over year as higher steel costs industries are reflected in selling prices.
Moving to engineered support structures, we have entered the year with a solid global backlog of $247 million.
We anticipate some short term softness in transportation markets as state and local tax revenue have been impacted by Covid along with delays in approving the fast Act extension, we expect demand for wireless communication products and components remained strong and anticipate carriers investment in five G.
To accelerate throughout 2021 with sales expected to grow approximately 15% this year.
Moving to coatings and market demand tends to correlate closely to industrial production levels, and we expect to see modest sequential growth as the economy continues to improve.
Moving to irrigation, we are providing additional details on our expected sales growth in this segment based on estimated timing of deliveries of the large Egypt project strong net farm income driving positive farmer sentiment and a robust Brazilian market full year sales our full year sales are expected to substantially increase.
27% to 30% year over year.
We expect another quarter of solid operating cash flows driven by our continued emphasis on working capital management and ongoing footprint initiatives.
Raw material inflation can also create short term impacts on cash flows and as previously mentioned, we have enacted strategies to manage these impacts, including some raw material financial hedges to cover backlog.
Finally, as part of our ongoing strategic portfolio review, we have decided to divest the excess system product line, which generated $88 million of sales in 2020 and serves the Australia and Asia Pacific markets, We do not see a path for this business to fit our long term strategy of global product expansion and it will.
Further reduce our exposure to mining and oil and gas end markets. Further updates will be provided in future quarter with that I will now turn the call back over to Steve.
Thank you Avner move.
Moving to slide 19 as.
As we have consistently stated over the past year, the fundamental market drivers of our business remain intact and we are seeing a solid set up for 2021 across all end markets as evidenced by a record $1 $1 billion backlog at the end of the year.
And utility our strong year end backlog of nearly $565 million remains at elevated levels and demonstrates the ongoing demand and necessity for renewable energy solutions and grid hardening.
We are pleased to announce that in the first quarter. We were awarded the third purchase order of approximately $70 million for the large project in the southeast U S.
Firming, our customers' confidence in our execution quality and value.
We are well positioned to be a preferred strategic partner with utilities and developers for their renewable energy goals and the expanding ESG focus in the utility industry is providing us with market opportunities.
In engineered support structures, we expect a solid year with some short term market softness in transportation.
As delays in last year's Fast act renewal begin to flow through state budgets.
We have been getting many questions about the impact of an infrastructure bill.
One is passed this segment will experience upside growth approximately nine to 12 months after enactment.
The long term market trends for both transportation and wireless communication structures and components remains solid and the critical need for infrastructure investment provides very good economic stimulus for nations.
Given the record purchase price of the recent <unk> spectrum auction in the U S. We expect growth in wireless communication structures and components to accelerate in 2021.
Carrier's investments are increasingly supporting work and school at home and macro build outs in suburban and rural communities aligning with recent favorable trends in residential construction.
Our coatings business closely follows industrial production trends and general economic activity.
The drivers remain solid and the preservation of critical infrastructure and extending the life of steel fits well within our ESG principles.
And in irrigation recent improvements in net farm income have improved grower sentiment and tighter ending stocks have driven corn and soybean prices to six and seven year highs.
This improved demand along with strength across international markets and the large scale multiyear project in Egypt is providing a good line of sight for 2021 as evidenced by our year end global backlog of $328 million, an increase of five times the level from one year ago.
Our investments in technology remains a priority and this past year, we expanded our valley insights anomaly detection solution into more regions across North America.
As we enter the third year of offering this innovative solution I am excited to share that the number of monitored acres more than doubled to $5 million in 2020, leading to twice as many growers using the service as compared to 2019.
This critical milestone on the path to autonomous crop management is expected to double again in 2021, and we look forward to sharing more of this exciting journey with you later this year.
Turning to slide 20.
When analyzing the demand drivers across our business portfolio. One of the early findings of our ESG Task force is how well our products and solutions align with ESG principles and themes.
Altogether I am very proud that approximately 90% of Val <unk> net sales support ESG efforts.
As the World continues to transition to a clean energy economy, approximately 90% of our utility support structures sales are tied to ESG, including 45% to renewable energy initiatives and 45% to greater resiliency and critical reliability efforts.
Approximately 90% of engineered support structures sales are also attributable to ESG.
<unk> products improved traffic flow within roads and cities, while promoting public safety through our lighting solutions.
Further the need for a connected world is now as pressing as ever before.
Whether it's expanding wireless connectivity to rural communities are strengthening the smart city of the future are wireless communication products support these initiatives.
In coatings, nearly 100% of our sales helps preserve and extend the life of metals up to three times longer zinc.
Zinc and steel are both 100% recyclable and hot Hot dip galvanizing is approving corrosion protection system and has one of the lowest carbon footprints of any coatings application.
And in irrigation nearly all of our sales are tied to sustainability and conservation.
Warming climate drives the need for more efficient use of freshwater and the need to produce more food for a growing global population using sustainable farming techniques. It is critical imperative that is highly supported by our business.
In terms of our own sustainability efforts I am very pleased that at the end of 2020, we exceeded our global electricity conservation goal set in 2018, resulting in a 14% reduction in normalized electricity consumption.
Well ahead of our 8% goal.
As a further benefit we also reduced our scope to carbon footprint by approximately 10000 metric tons in 2020 on.
A notable accomplishment by our green teams.
We recognize the increasing focus by many of our stakeholders on addressing ESG and climate change.
Next month, we will publish our annual sustainability report highlighting the ESG benefits of our products and solutions.
Additional metrics employee well being and our goals and leadership and key ESG elements.
We're excited to highlight our commitments throughout the organization along with our plans to conserve resources and improve life in 2021 and beyond.
Turning to slide 21 in summary.
We are expecting solid operating performance and strong EPS accretion and are encouraged that sales growth is expected to exceed our stated long term financial goal.
We are focused on profitable growth and return on invested capital improvement, while keeping our employees and communities safe and investing in our business for growth.
Our strategic framework remains fully intact as we position Belmont for success now and in the future.
Finally, we are excited to announce our plans to host a virtual investor day in May 2021, and we will share more details in the coming weeks.
As we prepare to celebrate our 70 <unk> anniversary as a company in March I want to again recognize our 10000 global employees at.
It is because of your dedication and hard work that we were able to exceed our commitments in 2020.
And why I remain confident in our ability to create long term shareholder value and deliver on our expectations moving forward.
I will now turn the call back over to Rene.
Thank you Steve at this time, the operator will open up the call for questions.
Thank you.
At this time, we'll be conducting a question and answer session.
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One moment, please while we poll for questions.
Our first question today is from Brian Drab of William Blair. Please proceed with your question.
Hi, Good morning, Thanks for taking my questions first just wanted to ask about operating margin and the guidance for 2021.
You said that operating margins should be in the 9% to 10% range in the first quarter and I'm just wondering if the assumption that that improves in the second half of the year, which it sounds it sounds like it does given the steel headwind.
If that if that gets better as we move through the year I'm, just struggling a little bit with the Rex.
A reconciliation of net revenue operating margin EPS here.
I'm, putting in my model right now.
Midpoint of the range for revenue.
And 10% operating margin and it's spitting out something north of a little bit north of <unk>.
$10 and.
I'm just wondering is there.
How do you expect operating margin to trend throughout the year.
And what might I be missing that putting in the kind of the midpoint of the range for revenue and modestly improving operating margin would give me something above your EPS range.
Yeah, Hi. This is on here, let me, let me take that one.
So right. So first of all yeah right. We are as we said we are getting pinched during the first half of the year and we are.
Again recover throughout the year with the incremental.
Gross profit.
When you do kind of look at your modeling right.
But you are taking into consideration right that on our growth we have the 2% FX.
Effects and then we do have a the price component, but if you want to model I'd say between 2% to 4% of the growth is coming from pricing and a lot of that will actually be.
Pass through.
So definitely take that into consideration right and some of the growth is coming from.
Egypt and as we mentioned in irrigation is we mentioned that have <unk>.
The international type of margins.
Factoring some of the other growth that could come from areas like solar as well. So thank you factor all that in hopefully that kind of helps you get there.
And Brian I'll, just add that.
No.
We don't know the extent to which when steel will actually abate.
So we're taking a little bit of a conservative line around when steel will actually back off right. Now features of hot rolled all the way through July are over 1000, and so it will take some time for us to get some of the pricing through.
But as is avner said, 2% FX, 2% to 4% really price recovery or cost recovery.
Leaving you with about I think 5% to 8% of.
Quote unquote.
Volume growth.
So my follow up on as well.
There will be a true follow up on the same topic here.
It was margin expected to be operating margin expected to be somewhat.
However, in the second half on a year at this point and.
Where do you expect where do you hope to exit the year in terms of operating margin.
So we will see improvement I mean, just bear in mind kind of take in mind to kind of the seasonality that hits us in Q3, especially when you kind of look at the at the irrigation business.
So I would kind of take that into consideration as well, yes. It will improve slightly as we go through the year.
And again irrigation has typically a softer third quarter, because theres not really a lot of sales. There then recovering more in the fourth quarter, assuming moderation of steel in the second half part of the year.
Okay. Thanks, I'll follow up more later thank you.
The next question is from Chris Moore of CJS Securities. Please proceed with your question.
Hey, good morning, guys. Good morning, maybe just state.
With irrigation so.
<unk>.
Looking at very strong growth close to 30% for the year that's true.
Trying to get a feel on the north American irrigation side.
Does that imply kind of high single digit growth in the north.
Mark in irrigation.
Low double digit or high.
And then look at that.
Yes, when you look at the the growth we're assuming about half comes from international on about half from domestic so the domestic number will be higher than.
The single digits.
More like 15%, 12% to 15% is what we baked into our assumptions.
Got it thank you.
And just a.
A quick question on the on the access systems. So in terms of the.
It could be a sales it could be just.
Kind of shut down parts of the business.
First we would.
Alright go ahead, Chris.
No no I was just yes, I was just going to say that the.
We will likely sell the business.
We've already taken the actions to exit some of the less profitable product lines all throughout 2020.
Again, the business will make money for the year and so it's trending in a decent way, but it really just doesn't fit strategically and so thats why we will look for a buyer.
It's hard for us to grow outside of the regions that is currently in as we speak or to gain leverage through the rest of the portfolio with it so that's or.
A reason to look to divest of that.
Got it and is the sales.
The business assumed at any point in your guidance.
No not right now so.
Access systems is included in our full year guidance.
Not any sales went in.
That would come about we would obviously do a separate release to discuss how that would impact us.
Thanks, so much I'll jump back in line.
The next question is from Nathan Jones of Stifel. Please proceed with your question.
Good morning, everyone.
Thanks Steven.
I'd just like to ask about the USA.
Business in the gross profit gross margin.
Grades are expected in the first half it's my understanding in that business a lot on the contracts you have day.
Escalators and de escalators for steel price day, this must be coming out of that spot market.
We have a situation here where <unk>.
You took some fixed price or what is in the spot market still ran I mean, we all know steel ran very quickly in the second half of the year. That's kind of left you wished and price cost mismatch I see that you have to work through in the first half.
Before you can.
Start running through more appropriately price projects as we get into the second half.
Yes, there was definitely some spot orders.
Net are included into that but also even with our alliances. The steel move was so dramatic if you take December alone I think on slide 10.
26, we have a graph there December alone moved up 45% and so even work that we would have adjusters. The adjusters can't operate that quickly they are usually quarterly adjustors and therefore.
Even our physical hedges and financial hedges Couldnt cover what was there. So that is the pinch that we're predicting around 220 basis points.
For the first half of the year and then the cost indices will recalibrate themselves and we've modeled that and we've looked at it every which way.
Over the second half of the year between that and some of the financial instruments that we've put in place.
We feel confident that gross margin dollars for.
For the second half of the year will definitely increase to recover.
Okay would also save debated demand in that business is extremely strong at the moment.
There shouldn't really be an issue with having the market bear those those price increases.
Timing mismatch.
That's right. It's the volume is very strong obviously with some of the issues that are going on as we speak in Texas and other places. It just again further as the need for the grid resiliency.
And then the renewables push will remain unabated.
<unk> a matter of <unk>.
Getting the cost recovery with the mechanisms that are in place.
Again for reference.
Our products are only 10% of an overall project cost so even if they have seen a doubling of that it's still a very small piece of the overall project cost.
Got it and then my follow up on ASF, which is where I would have actually expected to hear you talk about some gross profit.
That business.
Excuse me has typically had a little bit more difficulty passing through steel process. There maybe you can discuss the price cost dynamics there.
And I guess, maybe why you're not seeing simple price cost headwinds in that business.
Yes, there's a couple of reasons first off our lead times on that area due to our operational improvements last year allowed us to not have to.
Let's say book orders ahead of where we would actually have inventory and so therefore, we've been able to rapidly increase price to not create the same mismatch that we would've had in the past.
Additionally, some of our steel hedges and physical hedges there cover us through that lead time period.
So there is a nominal impact, but not one that's significant enough as compared to the utility industry, where steel is <unk>.
Such a dominant piece of the cost equation.
Maybe just one more point Theyre right. On this also has a lot more international presence and we're not seeing that much pressure in the other regions of the world.
Helpful. Thank you I'll pass it on.
Yeah.
The next question is from Brent Thielman of D. A Davidson. Please proceed with your question.
Hey, Thank you good morning, congrats on a great quarter. Thank.
Thanks Brent.
Hey, Steve.
You talked about the really strong utility backlog and then I guess, coupled with its first quarter water.
So on a two parter.
I'd just be curious what the pipeline looks like beyond that and I guess second is whats your capacity to take on more business here.
So I'll answer the first part.
The pipeline itself remains very strong.
There's a lot of <unk>.
Pending projects out there not again to the size and scale of the one in the southeast, but just a lot of grid resiliency and renewable projects.
When we look at all the trade publications, when we talk to our customers.
And with those return on equities around transmission it looks strong.
From a capacity perspective, if you recall, we added capacity in the first half of 2020.
That capacity is now even more efficient than it was as it came on line our lean efforts allow us to define quote unquote more hours available for production.
And we've really looked at the way that we're utilizing our footprint for various parts of product lines underneath of that.
To allow us to be able to meet what is out there on the marketplace. So right now we don't have any kind of capacity constraints.
And with the pipeline that's out there we remain confident that we are striking the right balance.
Of capacity versus price.
We're we're very careful to not repeat what occurred backing off of 2013 into 2014, whereas the industry overbuilt.
Got it and then.
And then it sounds like communications.
Outside of irrigation could be one of your fastest growing product lines. I think you said, 15% growth through the year.
Honestly, we didn't didn't see it here on this.
Quarter and understand the spectrum auctions are going on.
You know what sort of visibility.
Any any sort of background you can offer that supports that ramp up in 'twenty, one I'd be really interested to hear that.
Sure.
Even through the early part of the first quarter here, we've seen the order rates increase amongst all of our different customers. So as they finished the spectrum auction and obviously play an $80 billion.
They have to put that $80 billion to use and so we have quickly been able to see.
Quote rates and our own.
Order rates in their increase through the first part of the year and we've talked to many of our customers and Theyre all moving forward aggressively.
To address the <unk> rollouts.
Whether that's our components business or even our small cell solutions.
The order rates are very favorable.
And that includes the macro towers.
Alright, yes macro towers.
They were a little slow at the end of last year, but we've seen them bounce back as well through the first part of the first quarter here.
Okay. Thank you.
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Our next question is from Jon Braatz of Oppenheimer. Please proceed with your question.
Good morning, everyone.
For examining Steve and in the <unk>.
This release, you mentioned that you saw significantly higher.
Renewable energy product revenue and I know, it's a small piece of the business on I think you might be referring to solar track what can you tell us a little bit about developments on that area.
Yeah. Thanks, John It was actually both parts of the generation. So we saw more wind towers out of our FM facility in Denmark, as well as solar trackers.
Which is again, a global product line and a lot of shipments in South America during the fourth quarter and so.
That was the increase that we were able to see as we look into 2021 the pipeline is very strong.
CAGR in that market are anywhere from 15% to 20%.
And we really are working on gearing up our north American part of that business.
It was mostly in international business prior to that so.
Everything they are points to a multi year.
Kinds of build outs around renewables and obviously the Biden administration has some aggressive plans in that area as well that if enacted will just continue.
That growth going forward.
Steve I think on the wind tower business in Europe, I've been reading about a lot more activity in offshore wind development, but I think in the past there has been pressures from Chinese competitors has that competitive environment changed at all.
No it's not.
It is still a very aggressive price.
Market around the wind tower business.
Again volume has picked up which is good but pricing has yet to recover.
Simply because of the pressure from the Chinese and also the Koreans coming into particularly in North Europe, Yes, Okay. Alright. Thank you very much day. Thanks.
Thanks, John.
There are no additional questions at this time I would like to turn the call back to Renee Campbell for closing remarks.
Thank you for joining us today as mentioned today's call will be available for playback on our website or by phone for the next seven days.
We look forward to speaking with you again next quarter.
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Okay.
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