Q1 2021 Valmont Industries Inc Earnings Call
Greetings and welcome to the Belmont Industries first quarter 2021 earnings conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation, if you'd like to ask a <unk>.
Question, You May press Star one on your telephone keypad.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder of this conference is being recorded it is now my pleasure to introduce your host Ms. Renee Campbell, Vice President of Investor Relations and corporate communications.
Thank you ma'am you may begin.
Thank you Donna and good morning, everyone welcome to Valmont industries first quarter 2021 earnings call.
With me on today's call are Steve Kaniewski, President and Chief Executive Officer Avner.
Avner 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 first quarter results and comment on our strategy and long term business outlook.
Avner will review, our financial performance and provide trends and key assumptions for the second quarter and full year 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 Valmont dotcom.
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.
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 and good morning, everyone and thank you for joining us.
Before we recap our first quarter results I would like to share some opening comments on.
On March 8th we recognize our 70 <unk> anniversary as a company.
We've come a long way since $19 46, when our founder Robert B Dougherty the young Marine coming home. After World War, two started of fabrication shop in the small community of Valley, Nebraska.
Our business has certainly evolved over the past 75 years.
But over this time, we of remains centered on serving our customers and delivering value through our focus on execution and our commitment to conserving resources and improving lives.
As we reflect on our history, we're very proud of the impact we've had on the lives of employees customers suppliers business partners communities and all of those we have touched.
As we look forward, we are energized by the opportunity to continue expanding this impact long into the future we.
We are also excited to host our virtual Investor day coming up in May.
Where we will share more about our strategic vision for the company and have several of our business leaders provide greater insight into their businesses and markets.
Now, let me take a moment to acknowledge our commercial teams for their quick and deliberate actions to adjust market prices in response to rapid inflationary pressures beginning in the fourth quarter of 2020.
Our disciplined and deliberate strategy to be the price leader in all our markets enabled by our strong product portfolio has served us well in this unprecedented inflationary environment.
I also want to recognize our operations teams, who have been working hard since the onset of the pandemic and redoubled their efforts this past quarter to secure our supply chain.
Through the diligent and focused efforts, we were able to avoid material disruptions in our operations and deliver solid operating income growth for the company.
Yes.
With that let me start with a brief recap of our first quarter summarized on slide four of the presentation.
Net sales of $774 $9 million increased $107 million or 14, 9% compared to last year due to significantly higher sales in the irrigation and utility support structures segments.
Starting with utility sales of $253 $1 million grew $27 7 million.
Or 12, 3% compared to last year.
Strong demand for renewable energy generation and utilities, increasing investments in grid hardening and resiliency continued to drive sales growth.
Moving to engineered support structures sales of $222 $3 million decreased $8 4 million or three 6% compared to last year.
Favorable pricing growth in wireless communication sales and favorable currency impacts were more than offset by anticipated lower transportation market volumes as delays in the fast Act approval during 2020 and the impacts from COVID-19 continued to affect the timing of road and.
<unk> projects.
Wireless communication structures and components sales grew 26% compared to last year.
Strong demand was led by carriers, increasing their capital spending in support of <unk> build outs as evidenced by significantly higher sales of our new small cell product offering and existing component sales.
Favorable pricing in all regions also contributed to sales growth.
Turning to coatings.
Sales of $93 $3 million grew $5 1 million or five 9% compared to last year and improved sequentially from last quarter, primarily from more favorable pricing and improving end market demand.
In irrigation sales of $229 $7 million grew $72 $9 million or <unk> 46, 5% compared to last year with growth across most global regions, including 34% growth in our technology sales this quarter.
In North America sales grew 15% year over year.
Farmer sentiment has improved significantly and the positive market drivers, we mentioned last quarter are generating strong order flow.
Agricultural commodity prices remain at multi year highs and net farm income levels are expected to remain elevated.
Overall world market demand for ethanol and very low feed and protein stocks in the U S and China are driving significantly higher demand for grain exports.
International sales growth more than doubled compared to last year and was led by higher sales in the middle East European markets and in Brazil, where we recognized another record quarter of sales in local currency.
Deliveries of the multiyear project in Egypt continued during the quarter and the project is tracking well.
Sales in this segment were slightly below the range that we guided to last quarter, mainly due to a series of supply constraints of certain irrigation components.
The strength of our global supply chain and the agility of our global footprint helped mitigate the impact and others across our businesses and these constraints have improved as we've entered the second quarter.
This is just timing and we expect the sales to be recognized in the second quarter.
Scalability is one of the benefits of our portfolio, enabling us to purchase mill direct steel and minimizing disruption in the procurement of steel zinc and other metals to meet customer order commitments.
Turning to slide five.
Last month, President Biden revealed the American jobs plan valued at more than two trillion.
This multi year stimulus package includes approximately $620 billion to modernize roads bridges and highways.
$100 billion allocated to electrical grid investments.
And $100 billion.
Focus on high speed broadband investments.
We recognize that additional details and approvals must be worked through so the timing of these benefits are uncertain. However.
However, we believe the administration's increased emphasis on upgrading aging infrastructure on our nation's roads and highways, reducing traffic congestion and carbon emissions hardening, the electrical grid and increasing access to wireless connectivity across the country will provide longer term funding stability.
We will have a positive impact on our infrastructure businesses.
Moving to slide six.
Last month, we released our annual sustainability report highlight.
Highlighting the contributions of our products and services to conserve resources improved life and build a more sustainable world.
I am proud to have also announced our 2025 sustainability goals for carbon intensity global electricity and global combustion fuel along with setting water standards across the enterprise within this report.
Later today as a part of our Earth day activities, we will commemorate the installation of our one megawatt solar field in our Valley, Nebraska campus.
We are proud to be operating the largest privately owned behind the grid solar field in the state of Nebraska.
Covering more than four acres it will provide our campus with 6% of its electricity needs.
I want to congratulate our team and our business partners, who work diligently on this project strengthening of our commitment to innovation with sustainability in mind.
We look forward to providing more updates on our ESG initiatives and our virtual investor day and throughout the year.
With that I will now turn the call over to Avner for our first quarter financial review and 2021 outlook.
Thank you, Steve and good morning, everyone.
Turning to slide eight and first quarter results operating income of $77 2 million or 10% of sales with similar in quality of earnings to last year, driven by higher volumes in irrigation and utility favorable pricing, which helped to offset the impact of rapid raw material cost inflation and improved.
<unk> efficiencies.
First quarter diluted earnings per share of $2 57, and <unk> grew 29, 1% compared to last year, driven by higher operating income and a more favorable tax rate of 21, 9%, which was primarily due to a onetime incremental tax benefit associated with employee stock option.
Sizes.
Turning to the segments on slide nine and the utility support structures operating income of $221 7 million.
Or eight 6% of sales decreased 380 basis points compared to last year.
Volumes and improved operational performance were more than offset by the impact of rapidly rising raw material costs, which could not yet be recovered through pricing.
Moving to slide 10, and engineered support structures operating income of $19 $9 million or 9% of sales increased 210 basis points over last year.
Overall, we were very pleased with the results from the actions, we took to improve performance through proactive pricing strategies and reduced SG&A expense to offset inflation and the lower volume.
Turning to slide 11.
In the coatings segment operating income of $12 9 million or 13, 8% of sales was the 130 basis points higher compared to last year.
The favorable pricing offset lower external volumes due to COVID-19 impacts on end markets and of one time natural gas expense of approximately $800000 related to the February winter weather event in Texas.
Moving to slide 12 in the irrigation segment operating income of $38 7 million or 16, 9% of sales was 180 basis points higher compared to last year strong volumes and improved operational efficiency were partially offset by higher R&D expense for strategic techs.
Knowledge of growth investments.
Turning to cash flow on slide 13, we are focused on inventory optimization and overall improvement of the cash conversion cycle across our businesses. These efforts helped us deliver operating cash flow of $33 2 million and positive free cash flow this quarter, despite extraordinary inflationary pressures.
Inventory levels are expected to remain elevated this year due to higher steel costs.
Turning to slide 14 for a summary of capital deployment.
Capital spending of first quarter was approximately $28 million and we returned $21 million of capital to shareholders through dividends and share repurchases ending the quarter with $391 $5 million of cash.
We continue to have an active acquisition pipeline.
We are prioritizing strategic investments in technology, especially in irrigation higher growth products and markets and business solution that align with ESG principles, while meeting our return on invested capital goals.
Moving now to slide 15, our balance sheet remains strong with no significant long term debt maturities until 2044.
Our leverage ratio of total debt to adjusted EBITDA of $2. One times remains within our desired range of one 5% of two five times and our net debt to adjusted EBITDA is at one time.
Let me now turn to slide 16 for outlook, including a few key metrics and assumptions for.
For the second quarter, we estimate net sales to be between 805 and $830 million and operating income margins between nine five to 10, 5% of net sales the tax rate for second quarter is expected to be between 23, and 24% due to the execution of certain U S tax strategies, we are.
Also reaffirming our outlook for the full year net sales are estimated to grow 9% of 14% year over year, which assumes the foreign country currency translation benefit of 2% of net sales, earning.
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 the slide and in the press release.
As mentioned last quarter with unprecedented raw material cost increases and higher freight costs. We continue to take quick and deliberate steps to implement pricing actions across all our segments, including multiple increases since the beginning of 2021 and are maintaining the strategies across our served markets.
We are already seeing the benefit of most of our businesses with an improvement in utility support structure expected in the second half of the year.
Turning to our segment outlook on slide 17.
In the utility support structures are record global backlog is providing good visibility for 2021 and beyond.
Although steel costs remain at elevated levels. We believe the biggest challenges are behind us we expect the quality of earnings to improve beginning in the second quarter contractual increases in selling prices will begin offsetting steel cost inflation and we expect a meaningful improvement in gross profit margin to accelerate in the second half of the year as higher steel.
Of course indices are reflected in selling prices.
Moving to engineered support structures, we continue to expect some short term softness in transportation markets as projects have been delayed due to the delays in 2020 Fast Act extension approvals and continued COVID-19 impacts, especially in France and India.
And for wireless communication structures and components remains strong we believe sales will grow 15% to 20% in 2021 in line with market expectations as carriers of investment in five G are expected to accelerate throughout this year.
Moving to coatings end market demand tends to correlate closely to industrial production levels, we expect to see modest sequential growth as the economy continues to improve and benefit from government stimulus initiatives in certain international markets, including Australia.
Moving to irrigation, we expect favorable comparisons based on the estimated timing of deliveries of the large Egypt project strong net farm income driving positive farmer sentiment and a robust Brazilian market.
We expect another quarter of positive free cash flow driven by our emphasis on improving the cash conversion cycle and strategic inventory management.
Raw material inflation can create short term impacts on cash flows and as previously mentioned, we have enacted strategies to manage these impacts including certain raw material financial hedges to cover backlog with that I will now turn the call back over to Steve.
Thank you avner.
Moving to slide 18, we are off to a great start in 2021 across all end markets as evidenced by a record $1 $3 billion backlog at the end of the first quarter.
And utility our record backlog global backlog of nearly $720 million demonstrates the ongoing demand and necessity for renewable energy solutions grid hardening and expanding ESG focus within the utility industry.
We are very pleased to announce that in the first quarter. We were awarded the third and fourth purchase orders totaling $220 million for the large project in the southeast U S extending our backlog through the beginning of 2023 with that project and Reconfirming, our customers' confidence in our performance we.
Continue to strengthen key alliances with utility customers and with our broad portfolio of products and manufacturing capabilities, we are well positioned to be the preferred strategic partner with the utilities and developers for the renewable energy and grid hardening goals.
In engineered support structures, we expect a solid year with some short term softness in transportation, but the longer term market trends, especially for road construction and single family housing support future growth.
Further the critical need for infrastructure investment globally gives us confidence that these trends will remain strong.
We expect demand for wireless communication structures and components to accelerate throughout 2021.
Bringing reliable high speed broadband connectivity to people around the world is vital to elevating standards of living safety and opportunity.
Our broad portfolio of towers and components positions us well to support rural broadband connectivity connectivity initiatives working with groups such as the wireless Internet service providers Association and the American connection broadband project coalition to help bridge the debate.
Digital divide.
We are encouraged that both current and proposed legislation is allocated funding to support these efforts.
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 improve grower sentiment and tighter ending feed and protein stocks are keeping grain prices at sustained six and seven year highs.
As evidenced by our global backlog of over $350 million. This improved demand along with the strength across international markets and the large scale multiyear project in Egypt is providing a good line of sight for this year.
Building on our strategy as the technology leader earlier. This week, we announced the acquisition of pivot track of Texas based AG technology company with products focused on telemetry and control.
This acquisition strengthens our footprint in the Texas Panhandle region and adds more than 9000 connections to our portfolio.
Growing our total connected machines to more than 123000 the.
This technology will integrate well with our <unk> platform going forward and each connected device adds to the cumulative positive effect of the recurring revenue stream that these solutions provide.
We would like to welcome the pivot track team development.
Turning to slide 19 in summary, our focus on execution and the benefit of positive market tailwind across our businesses have led to a great start this year and these look to extend into 2022.
We expect solid operating performance and strong EPS accretion in 2021, and our teams are managing through the challenges of the current inflationary environment very well.
Through proactive pricing actions and the strength of our global supply chain.
We remain focused on profitable growth and return on invested capital improvement, while keeping our employees and communities safe and investing in our businesses for growth.
And as a reminder, we are hosting a virtual investor day on May 20th where our leadership team will provide a deep dive into our businesses and an update on our strategies to drive growth and long term shareholder value creation.
We encourage you to register in advance using the link on our investors page.
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.
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The first question is coming from Nathan Jones of Stifel. Please go ahead.
Good morning, everyone.
Hey, good morning.
I guess I'll start with the obvious one of the first quarter base, the second quarter guidance as the ahead of consensus.
And there is no guidance range raise for the full year is this just.
<unk>, we've only done one quarter or do you see any headwinds in the back half of the year of just any commentary you have got around that.
Sure.
Let me start off by saying, we really feel good about the with the.
For the year, how we started the year of the Q1 performance.
Going into Q2, even have more confidence with the increased backlog the pricing actions. We took so far having said that as the state of the right. We're only one quarter of the year.
We're being conservative due to the inflationary pressures on raw material waiting for that the stabilized the results from some uncertainty around COVID-19, specifically in France, India potentially Brazil. So overall, yeah, we feel really good about the year, some uncertainty and as we gain better visibility we will we will update the guidance.
Fair enough then.
On price cost.
I wanted to just particularly look at USA. So I know you guys had.
Has signaled that you were going to have some margin pressure there in the first quarter or is it takes time for <unk> contracts to reset.
Maybe a little bit surprised to say the price mix line the actually negative can.
Can you talk about that and when the contract times will reset when youll be able to get that pricing through and how we should think about the progression of margins as we go through the rest of the year.
So really where that's coming from.
Going into the year, it's the pricing we had in the backlog, so thats, where you see the negative pricing.
Because you raise the pricing, but you won't see the impact as we said until the second half Thats why youre seeing the kind of the negative pricing. If you will but as we go into the second half we will see that you will see that turnaround there with the pricing higher than the cost and that's where we'll get the improvement on the on the op side and the Nathan this.
As Steve most of that backlog was priced prior to the indices moving up.
And then probably the second quarter and third quarter of 2020. So it was before the steel moved up the indices were actually down.
So as our volume that really made the difference in the quarter.
As we go forward, we would expect.
Somewhere in the lines of 200 to 300 basis points improvement on the backside of the year.
When you look at utility.
So we should think about the second quarter margin for utility kind of in a similar range to where it was in the first quarter and then we'll see the step up from the increased pricing running out of the backlog as we get into the second half.
Yes.
Towards the end of the second quarter, we'll already start seeing the improvement there and the margins.
It'd be better in the second quarter, and then better in the second half Okay. I'll pass it on and then let some of the paper dig in.
Thank you.
Thank you. Our next question is coming from Brian Drab of William Blair. Please go ahead.
Good morning, I'm going to take Nathan's first question and build on that to begin.
I'm just.
Wondering.
Are you at least willing to concede that you're trending towards the high end of the guidance range that you're stuck with because I'm just looking at the we did over $2 50 in the first quarter you would have to do.
Like $2 10 in the next three quarters.
When you just clearly told us that things are getting better in so many different ways.
Sure.
Would you say you're trending towards the high end of the range.
Yes, I mean coming out of the gate with the non.
That we did that's where we're trending.
Avner pointed out some of the hesitation is just around.
The fact that raw materials have not really stabilized.
And as you can see in the utility segment, depending how quickly they rise.
Don't always get it back in price and then you take just the project nature of the business.
And we have a couple of big projects. If there is any movement in those.
Yes that that will have an outsized effect on us. So we're just being cautious only being one quarter and as we get to the end of the second quarter, we will obviously have a much better.
Look at the rest of the year and being able to update guidance at that point.
Right and I know you are talking to us again soon.
May as well I guess, it's probably something else that goes into your.
The calculation there.
I'll have a little more visibility at the analyst day as well.
And <unk>.
Just the.
Follow up on this as you look at the.
The year, where could the upside.
Come from.
If we end up.
Looking back at 2021, and we did over.
This is my number I'm throwing out the let's say, we end up in over $10 in EPS.
Where do you think that upside would come from.
There's a couple of areas, obviously continued strong performance in irrigation.
As a very large effect on us the <unk>.
Telecom area is as we said.
Ted is trending upwards of 15% to 20% growth if the.
That accelerates, that's very margin accretive for us.
And.
Even in the rest of EHS, if the delays that we've seen around the construction projects and this is global not just the U S.
If the Covid impacts were to go away a little quicker.
Then we would see in places like Europe.
In India, where we do have some nice backlog is just not shipping because of the issues there and those are things that would tend to move us towards the top side.
Of the range.
Okay. Thanks very much.
Thank you. Our next question is coming from Chris Moore CJS Securities. Please go ahead.
Hey, good morning, guys.
Yes.
Good morning, following up on what you just talked about on the Es side.
Talking about short term market softness in transportation.
As you sit now is that over the next couple of quarters or.
We're not sure that's kind.
B until mid fiscal 'twenty, one until sort of improvement there.
No we had expected so seasonally Q2 is usually stronger than Q1.
Just because thats when a lot of projects to get started.
But even the market softness we kind of anticipated from the first part of the year here the <unk>.
Half and we expected to improve.
In the second half of the year the timing that we saw kind of in the third and fourth quarter delays really just translate into that kind of first half for us.
And then with vaccination rates with budgets kind of being made whole by some of the.
The earlier action towards the state Scott replenished due to the stimulus spend we feel that the second half of the year lines up well.
For a lot of road construction projects.
Got it and maybe just shifting gears real quick.
Talk about solar in North America on the utility side so.
Honestly you.
You kind of talked about it takes a while to get these approvals in place with the utilities for the most part of it looks like Youre in good shape. There just trying to understand kind of the the sales cycle at this stage on the utility side.
Yes, the projects have a long gestation.
They take some time to develop.
As developers get their own approval they get bid. They go back it kind of goes back and forth.
There is some supply chain disruptions overall around micro chips and the.
The PV panels, and how that fits in and then you had the whole change in the tax credit.
Situations. So there are some delays in some projects.
That we would expect more towards the back end of the year to move forward, but you are talking of six to nine months kind of sales cycle really to secure backlog in that area now.
Once the chips authentic the ship pretty steadily because of the construction angle.
It doesn't go through the kind of the same permitting changes that you may see on the traditional.
<unk> utility line so.
Once we have confidence in the project moving forward. They tend to just go and ship complete so maybe a long winded answer but.
Again six to nine months.
Very much.
<unk>.
The impacted by.
<unk> and tax credits and some of the supply chain issues at least in the early part of this year and that's what we've seen and heard from others in the space as well.
Got it that's helpful I'll jump back in line. Thanks, guys.
Thank you. Our next question is coming from Brent Thielman of D. A Davidson. Please go ahead.
Hey, Thank you good morning.
Good morning, Brian.
The two new orders in the utility do you start to execute on those immediately.
Steve I'm kind of wondering where you sit from a capacity perspective, an analysis of how we think about the burn rate at this it's large utility backlog.
Yes, those orders are actually out there into 2022 and 2023.
So those were given just the confidence in our performance to date and our ability to hit their shipping schedules.
Our backlog right now is already set from what we had received earlier. So this doesn't impinge our impact our capacity at this point.
Okay.
And I mean.
During that.
And some other activities that are going on behind the scenes in terms of new work coming.
I mean do you do you look at this business over the next.
Two to three years is the $1 billion plus sales business unit.
Not much visibility out there right now of it.
You can achieve that.
Yes, absolutely.
We are very confident it'll be north of $1 billion over the next few years.
Okay.
Great. Thank you.
Thank you. Our next question is coming from Ryan Connors of Boenning and Scattergood. Please go ahead.
Great. Thanks for taking my question.
Got a couple of Big picture question, but first just wanted to circle back.
On the issue of guidance. So you know I mean, obviously.
It seems like Youre pretty clearly telegraphing.
A bit of an upside there and I think if you look at.
Historically I mean, the way people will look at guidance as that I'd say at least the midpoint is a fair reflection of.
Risks being balanced up and downside of their quant models, the kind of price and value stocks based on that so I mean are you sort of telling us that that's not how we should look at the midpoint the midpoint of guidance isn't really your.
The point estimate of really where you think the the risks arent balanced up of downside to that is that a fair statement.
Ryan I would say that the midpoint is full of good proxy an indication of our balance of looking at on the downside of the raw materials and the inflation just because it's so uncertain and it tends to have an outsized effect.
One.
Our various businesses.
And you take India, and France, and potentially Brazil, and that's why we're a little bit hesitant.
To say, let's move up.
On the top side there are drivers that are in place.
<unk> talked about on the earlier question that.
That could be.
Balanced upside.
As he talked about getting towards maybe somewhere in that.
The north of 970 number so it really depends and it's early.
Again, I think after we get another quarter and then we would have a more.
The firm backlog as we look at the back half of the year to nowhere it was priced in relation to our cost models. So.
Yes.
Theres positive tailwind to our businesses.
And I think that's what we're projecting is that there is at least positive tailwind, but it's not solely on Appalachia, our execution risk.
Sure.
Yes, it will start opening up a little lower after what's really a pretty good quarter. Overall I think that guidance lack of an upward revision is the big part of that so I think it's a really important point.
A couple of big picture of bigger picture questions first on.
You talked a lot about precision AG precision irrigation.
And obviously a lot of big value proposition there, but we've been following this issue of these this quote unquote the quote.
To repair legislation that theres, more and more farmers and others, saying theres too much check of embedded in the products and they are actually trying to make sure that they are able to fix things without having the consult the deal or in your case. For example, do you of any comments on that and how it impacts the.
Sort of adoption of precision AG and wood Val months' doing to address those issues with customers.
Yeah, I mean first off we're very open platform.
So everything that we do is built with the.
The serviceability of the fact that it's off the shelf kind of technology and easy to maintain and upgrade is kind of of driving R&D principle for us. So we believe we're on the right path with the grower in that sense.
That if it needs to be self service it could be and if it's easier for them to bring in the dealer they make that choice.
In terms of the overall big picture of adoption.
We saw this in cars.
We've seen it in other type of capital goods as well.
Where.
Tooling of specialized and it's not easy to work on things that are computer based.
Think thats, just a function of technology and I think while there is some initial pushback because people are used to hop on under the Hood of.
Ultimately.
The technology benefits outweigh the fact of being able to service it yourself.
We're going to try and air on the side of making it easy.
So that as long as we can because the value proposition for our grower is that they can go out and do it themselves. So we're going to stick with that is of the guiding principle, but node, but know that the market eventually will probably succumb to the fact that.
If there's people out there that are making it.
A closed system.
We'll see how that goes I think only legislation would change that at this point.
Yes, Okay. That's the useful perspective, and then my last one was just the big real Big picture and I know you don't know the crystal ball any more than anyone else, Steve, but I mean in terms of the cycle. The duration of this cycle has reshaped this up.
We've obviously been through a pretty length. The hangover after things got maybe too good for a while.
There was some fallout that lasted from that and now we've got corn up above $6 20 of Bushnell yesterday and things just seem to be really taking off I mean, what's your view on.
The duration of this one.
Can we can we be in for a multi year cycle or is there a risk of things kind of overheating and.
Getting too good too soon.
Well our perspective is that the government payments.
Last year, and frankly, even the year before really help shore up the balance sheets of the growers.
And now that Theyre getting I'll call it real quote unquote net farm income.
And it's coming from the fact that the supply demand ratios are where they're at if you look at protein stocks very low if you look of grain stocks very low.
That sets up at least for a multi year event when we look back at our history. The way we've seen our cycles as we get about seven years of up followed by seven years of kind of a declining market. That's what played out if he came off of the 13th Super cycle as we trended down and now it turns the.
Move back up.
If you throw another weather event that gives you more.
The confidence that that duration will last even longer.
But right now.
Again, all of the fundamentals are there to support the higher price of the range.
At least well into next year.
Beyond that obviously it is more of a little bit of the crystal ball, but.
No.
There are just low stocks and theres a lot of use so we feel like it's.
It should be at least the good duration here.
Great. Thanks for your time this morning.
Thanks, Brian.
Once again, ladies and gentlemen, if you do all of a question. Please press star one on your telephone keypad at this time.
Our next question is a follow up coming from Nathan Jones of Stifel. Please go ahead.
Hey, guys I just wanted to ask one on cash flow just given the inflation the likely increasing the inventory I can.
Can you just talk about what youre expecting from of conversion standpoint, this year, our investment in working capital standpoint.
Yeah. So on over the last couple of years, we actually had really strong conversion of 1314.
This year, it's possible, we'll go a little bit below one just due to the inflationary pressures the combine the two years it will definitely be over that one.
As always with inflation that will put pressure on.
Inventory receivables et cetera, we are taking a lot of initiatives to optum.
Optimize our inventory to manage our whole conversion cycle, which will have a strong benefits on our cash flow. So we will have a strong year on cash flow.
With some pressure from from steel.
The bank.
Kind of 90% conversion, 80% conversion somewhere in that kind of range.
'twenty one.
Yes, we'll have a range between 80 to one.
Yes.
Okay. Thanks very much.
Thank you at this time I would like to turn the floor back over to management for any additional or closing comments.
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.
Included in this discussion are forward looking statements within the meaning of the private Securities Litigation Reform Act of 995.
Forward looking statements are based on assumptions that management has made in light of experience in the industries in which valmont operates as well of management's perceptions of historical trends current conditions expected future developments and other factors believed to the appropriate under the circumstances.
As you listen to and consider these comments you should understand that these statements are not guarantees of performance or results.
They involve risks uncertainties, some of which are beyond the Belmont control and the assumption.
Although management believes that these forward looking statements are based on reasonable assumptions you should be aware of that many factors could affect valmont actual financial results and cause them to differ materially from those anticipated in the forward looking statements.
These factors include among other things risk factors described from time to time in Valmont reports to the Securities and Exchange Commission as well of future economic and market circumstances industry conditions company performance and financial results operating efficiencies availability and price of raw material.
Availability and market acceptance of new products product pricing domestic and international competitive environments and actions and policy changes of domestic.
And foreign governments the company cautions that any forward looking statements included in this discussion is made as of the day of this discussion and the company does not undertake to update any forward looking statements.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Yeah.
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