Q1 2023 Valmont Industries Inc Earnings Call
Greetings and welcome to the Palomar Industries first quarter 2023 earnings conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. We ask that you. Please limit yourself to one question.
And one brief follow up question and return to the queue.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Please note that this conference is being recorded.
I'll now turn the conference over to your host Renee Campbell Senior Vice President Investor Relations and Treasurer Ms. Campbell you may begin.
Thank you and good morning, welcome to Belmont Industries first quarter 2023 earnings call.
With me today are Steve Kaniewski, President and Chief Executive Officer, Andrew.
I have no appelbaum executive Vice President and Chief Financial Officer, and Jean Paget, Senior Vice President and Chief Accounting Officer.
This morning, Steve will provide a brief summary of our first quarter results, commenting on our markets and long term business strategy.
And I will review, our financial performance and provide our outlook and indications for 2023 with closing remarks from Steve.
This will be followed by Q&A.
A live webcast of the presentation will accompany today's call and is available for download from the webcast or on the investors site at Belmont Dot com.
A replay will be available on our website later this morning.
Please note that this call is subject to our disclosure on forward looking statements, which applies to today's discussion.
As outlined on slide two of the presentation and we will be read in full at the end of today's call.
Finally, if you would like to be notified when Belmont publishes news releases and other information. Please sign up for email alerts through our investors site.
We also encourage investors and others interested in our company to follow Belmont and our brand on the social media channels listed on our website.
I will now turn the call over to our President and Chief Executive Officer, Steve Kaniewski.
Thank you Renee.
Everyone and thank you for joining us.
We delivered another quarter of great results, despite an economic environment that continues to be challenged.
Our performance reflects the effective execution of our growth strategies and our.
Our deliberate actions to increase profitability.
We have a great team and we are positioned to achieve another year of great results.
Turning to slide four there are a few highlights we want to share with you today.
First we've had a tremendous start to the year with record first quarter sales operating income and earnings per share.
Net sales increased eight 3% with solid growth in both infrastructure and agriculture.
Adjusted operating margin improved to 11, 5%, reflecting benefits from strategic pricing, our ability to manage cost and improve operational efficiencies that led to better factory performance.
Adjusted earnings per share grew to $3.61.
I've never will provide more details in a few moments, but I am extremely pleased with our results and proud of the entire Belmond team for these accomplishments.
Demand for our products remains robust and we are in markets and sectors that tend to be independent of the general economy and less correlated to macroeconomic cycles.
Our participation in these markets is not by chance.
But the result of a deliberate investment strategy.
We have targeted expanding niche markets, where we can add the greatest value to our recognized product leadership flexible global footprint and innovative technology to help solve customer's challenge.
And both segments, our disciplined approach to strategic pricing.
Alps ensure that we are capturing the value we deliver to our customers while expanding margins.
This helps offset inflationary pressures that are still present and our supply chain.
Certainly the recent increases in steel costs.
We remain vigilant in monitoring and responding to cost increases and we will take actions when necessary to maintain the margins. We have worked hard to achieve.
In a few minutes I've never will speak to our capital deployment framework and update you on the latest actions to drive shareholder value.
This is an important part of our strategy and enhances our value creation initiatives.
Turning to our market update on slide five and starting with infrastructure our markets are benefiting from several secular long term growth drivers.
<unk> the global energy transition.
The infrastructure investment required to support the transition is in its early innings and utilities are increasing their spending to support grid hardening initiatives and an evolving generation portfolio.
Recent reports from utilities indicate 2023 capex spending is expected to increase 10% over last year.
And total spending over the next three years is expected to continue growing.
Overall utility spending initiatives continued to show resilience to a higher cost of capital environment inflation and general economic concerns.
Our solar business is benefiting from the renewable energy transition and order rates have been increasing.
Leading to a record global backlog that is three times higher than one year ago.
We expect further demand to come from U S markets once the industry receives more clarity on how critical elements of the inflation reduction act will be implemented.
During the quarter, we continued to see solid order flow from transportation markets and additional quoting activity related to the infrastructure investment and jobs Act.
As a reminder, our lighting and transportation products are typically purchased nine to 12 months after funding appropriations are completed.
We expect to benefit from this incremental demand beginning in 2024.
And telecom markets underlying multiyear demand for five G deployment remains strong.
We have seen some pullback in carriers Capex this year to more normalized levels.
These spending patterns are typical within the industry as we've seen with previous generation Rollouts.
We remain well positioned to help carriers achieve their five G and densification goals.
Across the infrastructure segment, we continue to make strategic investments in capacity and technology solutions to meet strong multiyear demand.
Turning to agriculture underlying.
Underlying global market fundamentals remain positive.
Riding stability to overall demand trends.
International AG markets remained very strong led by Brazil, and a robust project pipeline elsewhere.
The Brazil market has continued to strengthen as the value of agricultural exports have expanded approximately 10% annually for the past 20 years.
Most recently to support lower expected yields in the EU and the Ukraine.
Irrigated land acres in Brazil have increased over 40% annually over just the past three years and this year, our second consecutive year of record corn output is expected.
Yeah.
Last year, we began investing in additional factory capacity within the country.
Which we fully expect to come online this year.
Allowing us to meet the increased market demand, while enhancing customer service levels.
Additionally, our robust project pipeline is providing a multi year line of sight and we are well positioned to benefit from these opportunities in 2020 three and beyond.
Turning to North America.
As the first quarter progressed, we recognize some changes the typical order patterns.
Growers took a wait and see approach to buying decisions are made general economic uncertainty and the late planting season due to abnormal weather conditions.
We also recognized the difficult comparison to first quarter 2022.
We delivered against an exceptionally elevated back.
We expect the second half of the year to return to a more normal normalized order flow as commodity prices have remained resilient at projected 2023 net farm income levels are expected to remain above historical averages.
Moving to slide six.
Earlier. This month, we were excited to host a media day event at our global headquarters to <unk>.
Celebrate the commencement of our 2023 AG Tech tour.
Have there been included networking for media community leaders and our expert valley impressed by our staff.
Our fireside chat with Daniel Copple, President of Amtech and myself.
Well as a round table of customer and dealer panelists that have experienced a tremendous return on investment from our technology solutions.
We were honored to have Nebraska Governor Jim Pilling speak at the event.
Over the next six months, our team will travel the country showcasing our suite of technology offerings, including remote control solution machine health diagnostics and our featured released a plant insights to monitor crop.
With more than 60 planned stops across 20 states growers are invited to having open discussions to learn how our technology solutions can provide unparalleled farm agronomy data and insights to maximize land productivity.
Adoption rates of our AG Tech solutions have been increasing and our investments in technology have uniquely positioned us in the market.
While setting our agriculture business up for success through the cycles.
Turning to slide seven.
Next week, we will publish our 2023 sustainability report.
For Philmont sustainability is embedded in everything we do.
Our tagline conserving resources, improving life is a testament to the work we do to help our customers do more with less.
In the report you will see an update on our ESG progress and commitments and multiple examples demonstrating that ESG is a part of our strategy operations and a competitive advantage.
One of the slide we highlight our champion Green team and Acacia Ridge Australia.
This team was selected from our more than 80 global Green teams for the annual award to recognize the work they have done.
Towards our ESG philosophy.
I was proud to be able to acknowledge the achievements of this team and I appreciate everything our global team does every day to demonstrate our commitment to sustainability.
I encourage you to take the time to read the report when it is published.
We also plan to host a dedicated ESG conference call later this year to expand on the key elements of the report and respond to your questions.
With that I will now turn the call over to Andrew for our first quarter financial review and updated outlook.
Thank you, Steve and good morning, everyone.
Turning to slide nine and first quarter results My comments will focus on the adjusted results as outlined in the press release and in the Reg G disclosure in the presentation appendix.
As mentioned last quarter, they divested offshore wind business is now being reported separately in other.
My comments today will focus primarily on our two reportable segments.
For structure and agriculture.
First quarter total net sale of $1 $1 billion grew eight 3% driven by sustainable pricing and volume growth in both segments.
Excluding the other segment sales grew 10, 4% year over year.
Operating income grew 23, 4% to $122 $1 million with operating margin increasing to 11.5% approaching our long term goal of 12% and reflecting execution of our disciplined pricing strategy higher volumes and improve.
Fixed cost leverage.
I noted earnings per share grew 17, 6% to $3.61 attributable to higher operating income, partially offset by a higher tax expense due to a change in the geographic mix of earnings compared to last year.
Turning to slide 10.
Infrastructure net sales of $736 $1 million grew 11, 2% year over year with sales growth across all product line, including a record quarter for T DNS and double digit growth in solar which is the renamed renewable energy product line.
Segment sales growth was led by higher pricing and strong underlying market demand.
We continue to realize the benefits of our strategic capacity expansion and have responded to this demand through new product innovation and footprint optimization to drive volume increases across the segment.
Operating income increased to $94 $4 million or 12, 9% of sales driven by sustained pricing and volume growth.
Moving to slide 11.
In agriculture, net sales of $332 $2 million grew eight 3% year over year led by sustained pricing volume growth and higher sales of technology solutions.
Strong growth in international markets, including another record sales quarter in Brazil, where volumes grew nearly 50% year over year and higher middle east sales more than offset lower volumes in North America.
First quarter 2022 benefited from the delivery of a record year end backlog.
Operating income increased to $57 million or 17, 2% of sale.
Benefits of higher average selling prices and additional volume leverage partially offset by higher SG&A, including incremental R&D expense for technology investments.
Turning to cash flow on slide 12, first quarter operating cash flow of $21 million was driven by diligent working capital management and a more stable price cost environment.
We will continue to focus on effective working capital management, as we look to little free cash flow equal to or greater than net earnings.
Turning to slide 13 for a summary of first quarter capital deployment.
Capex was $22 million as we continue to invest in capacity to support sales growth.
We further demonstrated our commitment to return cash to shareholders with an increase to our quarterly dividend and continued share repurchases.
The additional $400 million repurchase authorization announced in February gives us additional capacity to repurchase shares.
While the increase in our dividend is reflective of our confidence in sustained earnings growth and strong cash flow generation.
Through a balanced capital deployment framework, we're focused on enhancing shareholder value as the strength of our business continues.
In the first quarter, we returned approximately $123 million to shareholders through dividends and share repurchases ending the quarter with $173 million in cash.
Going forward, we will continue our balanced capital allocation approach, although we expect a slower pace of repurchases for the remainder of the year.
Moving to slide 14.
Total debt to adjusted EBITDA of one seven times remains within our desired range of one and a half to two and a half times.
Our cash balance available credit and flexible balance sheet provides us with ample liquidity to execute our capital allocation strategy.
During the quarter Moody's reaffirmed our b double H three stable credit rating.
I would now like to review our 2023 outlets that's shown on slide 15.
We expect sales growth to remain at 4% to 7%.
Which accounts for the divestiture of the offshore wind structure business.
And assumes mid to high single digit volume growth.
Approximately 1% price growth and no material foreign currency impact.
We expect operating margin expansion this year, given strong market demand, our pricing strategy and ongoing continuous improvement initiatives.
We also assume.
Steady market demand, a more stabilized labor environment and continued growth in R&D investments.
We expect continued strength across infrastructure markets. This year as our healthy global backlog is providing good visibility.
In agriculture, as Steve mentioned earlier underlying market fundamentals globally remain positive.
International growth. This year is expected to be very strong driven by project sales at a robust Brazil market, where our backlog visibility extends into the second half of the year.
Acura show the largest farm show in the region will begin in a couple of weeks, giving us further confirmation of our full year expectation.
We expect North America agriculture volumes in the second quarter to be similar to the first quarter due to difficult comparison to unusually high volumes in the second quarter of 2022, as we delivered on the elevated backlog.
We expect international sales in the second quarter to be up approximately 10% compared to the first quarter.
Finally, a reminder, that the third quarter is typically a lower sales quarter compared to the rest of the year. However.
However, strong international sales led by our growth in Brazil.
They can produce two or three crops per year and higher project sales are likely to mitigate seasonality impacts.
We now expect adjusted diluted earnings per share growth of 12% to 16% or a range of $15 45 to $16.
While our previous outlook assume a more stabilized inflation environment, we're seeing recent increases in raw material costs, notably steel.
We expect these costs to align with current price projections for the remainder of the year.
Our total backlog of $1 $6 billion at the end of the quarter remains near record levels and that's solid margin levels attributable to continued market strength across our portfolio and multiple new project Awards.
As a reminder, our backlog is firm with committed projects and typically experiences a few cancellations.
We believe our backlog is an indicator of the strength of our core markets.
And the steady growing demand for our products and solutions.
To summarize we are confident in our outlook and believe that it demonstrates the strength of our portfolio favorable end market trends and strong competitive position in the marketplace.
We are leveraging our global scale to improve margins and drive strong cash generation, enabling us to support our growth strategy and achieve our long term financial targets driving sustainable shareholder value with that I will now turn the call back over to Steve.
Thank you avner.
Turning to slide 16, and expanding on Avner summary, the fundamental long term drivers of our markets remain resilient.
Our end markets have true multi year and in some cases multi decade decade tail.
That set us up for a long runway of growth.
Our infrastructure business is supporting the global energy transition.
Critical infrastructure to support transportation markets.
And mobile network upgrades.
In the agriculture market the combination of land productivity and resource conservation needs are driving investment globally.
Additionally, both segments are experiencing technological transitions and we are solving customer pain points by integrating value added innovation that will continue to deepen our competitive advantage.
In summary on slide 17, I am extremely proud of our team's strategic execution and ability to deliver sustained outperformance through challenging market dynamics.
Our growing sales and strong backlog demonstrate our market leadership and.
And we will continue to develop capabilities and centers of excellence across the organization to build on our moment.
We are investing in innovation technology, and Digitization that will accelerate our growth beyond market rates.
Our focus remains on controlling the things, we can control to achieve our financial targets and deliver shareholder value.
This is enabled by our strategic framework that positions Belmond for success now and in the future.
Finally, I look forward to meeting with you next month at our Investor Day on May 23rd as we provide a more in depth review of the company and business segments, including growth strategies capital allocation priorities and financial objectives.
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.
Okay.
Thank you.
We will be conducting a question and answer session if.
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To allow for as many questions as possible. Please limit yourself to one question and one follow up.
Our first question comes from the line of Chris Moore with CJS Securities. Please proceed with your question.
Hey, good morning, guys. Thanks for taking a couple of questions.
Uh Huh, Yeah, maybe we can just you talked a lot about Brazil, obviously your remarks very bullish.
You know kind of been here ive been hearing mixed messages about the strength of demand you know things like election related risks things like that.
Can you maybe just talk to it a little bit further you know kind of the the Vermont business model within Brazil are you doing anything unique or just you know taking advantage of of what Youre seeing is to be kind of a you know really strong growth there.
Good morning, Chris.
You know there has been a real deliberate efforts over the past five years to increase our dealer network throughout.
Throughout the country of Brazil to add more local capacity, so that we're not as subject to some of the important issues with inventory to.
To create an aftermarket parts strategy, we're testing a lot of our technology down there even as a leading technology.
Proof of concept.
So I think when you look at that in its totality.
Our efforts are paying off for us I think the the other big thing as compare to let's say North America or Europe is just the fact that you get two to three grow seasons.
And you have corn really opening up in the west.
And so.
Because they are on a replenishing aquifer and the west.
Corn.
Because they now have a really robust cattle industry. The byproducts of some of the ethanol production from corn can be used to feed cattle, that's helping to drive business.
As well and then obviously phenomena has been very supportive.
You know in <unk>.
All growers participating in the market.
Which is why we see that if someone puts land and production.
40% of the time, they're gonna put a pivot right on it right away.
And that is significantly higher than you see in other parts of the world, including in the North American market. So you know, Brazil is the market in the future and will really surpass our north American market in the not so distant future.
That is incredibly helpful.
Maybe just one more on a bigger picture on agriculture over the next 12 to 18 months.
Is there when we look at the potential challenges is there any difference by geography, I mean do you do you have more or less confidence in in North America and international moving forward and I guess, obviously you can do by just saying how strong Brazil was so.
Yeah, I mean, you know.
Obviously over the last three years has doubled for us each of those last three years. So we have a lot of confidence in Brazil.
Even though despite some of the government you know a change of government and other things AG brings and I think 23% of GDP down there. So it is a significant piece, but they're not going to mess with.
You know the middle East we've talked about Eastern Europe is also strong regions for us and will remain so.
Food security and just pure population growth.
Australia, and New Zealand has been a market that for the last couple of years was affected by some.
Pretty severe weather events.
But overall fundamentals when you have soy at 14 60 or north.
Corn above six well above six most of the time.
I think as farmers have kind of settled in after a record net farm income.
Just human psychology, what it is.
Come off of the best earnings you've ever had.
When I stop and take a look where you start to reinvest and I think as people know good emergence. They can lock in some other forward contracting at very favorable rates.
You know the soy market in the World, obviously, Brazil being one of the biggest.
With these kinds of soy prices I think we will.
They'll get back into the game very quickly.
Because of the old I don't like tax and I need my land productivity to keep my my Costello. So the fundamentals are there.
But the past three seasons, we're not really indicative of what we would call a traditional AG market. Covid then it was kind of hyperinflation in metals and in supply chain issues labor issues last year. So I think we're really starting to finally get back to a more normalized kind of.
AG market.
Right.
That's perfect. Thanks, Steve I'll leave it there.
Yeah.
Thank you. Our next question comes from the line of Nathan Jones with Stifel. Please proceed with your question.
Good morning, everyone.
Good morning, Nathan Oh go on the domestic AG market.
You guys said revenue in the quarter was similar to last year I would assume you have a few points of pricing that volume was probably down a few points.
Can you talk about the difference just in the seasonality I know there was demand pulled forward early in the season last year does that account for all of the volume decline or is there a farmer sentiment in there and how you expect that to normalize as we go through the year should we expect maybe a better second quarter than you had last year I imagine.
Shifting from one quarter to the other.
You know Nathan.
Nathan It's there was definitely some pull forward and some negative farmer sentiment as we came into the year.
I think that plus the fact that much of the.
Let's say west of the Mississippi was.
Abnormal weather conditions and people really late to get out into the.
The fields.
No.
We expect that the really the second half of the year will be more normalized.
And that second quarter will still have some pressures on it problems.
You know the fact that.
Particularly in the April timeframe.
It was still we're just starting to see now.
Pick up of order rates and.
An increase in farmer sentiment literally week by week, we can talk to our dealers and growers.
And so the confidence is just starting to build.
And so that's why we've talked about.
The quarter kind of being the way it is or do you want to add into kind of a way we're thinking about it yeah. So when we kind of look at things. So when you when you look at the actual quarters, we're looking at kind of looking sequentially.
And really looking at.
Kind of in North America volumes being pretty much no.
Q1, Q2 to Q1, similar kind of sequential pricing as well and then we do see the impact of the international markets.
Sequentially being a 10% up.
Driven by a cut off of your comps a year over year.
Okay.
Okay. I know you guys have talked about and obviously you get a little closer close Dale has gone up very rapidly again, and you've talked about having you know needing to raise prices to cover those increased costs.
Our pharma is continuing to be out of bad those cost increases is that kind of having any impact on their outlook for irrigation spending.
There's still a drought moving across the Midwest. So how does that impact from his need to go out and buy irrigation just any more color you can give us around that.
Yeah, I'd say Nathan this is probably the price increase we're talking about now is probably our smallest price increase.
We've gone out with over the last couple of years.
It really is just to take.
Some of the edge off as it pertains to steal some of the labor inflation and then some of the.
Other you know freight and oil and some other things like that so it's really just kind of.
Put it back to what I would say is a normal price increase representative of the market and our continued investment in.
And technology that we're supporting.
You know the pivots still has an incredible payback and as you mentioned some of the conditions that are out there.
The need to get that data off the field.
To conserve water.
And to really ensure that theres, a crop and particularly the large scale farms as.
As we've mentioned before is if they have the rights, they're gonna put a pivot in almost immediately.
So we don't think that this is going to push the market to any kind of elasticity problem.
And we're just really getting ourselves back to a price cost ratio that we believe is indicative of where we would have been even back in let's say 2013 or 2014.
Great. Thanks, very much for taking my questions.
Okay.
Thank you our next question.
Comes from the line of Brian Drab with William Blair. Please proceed with your question.
Good morning, maybe I could just start by building on that last question around steel prices and just ask it more more broadly I.
I mean steel has just been on a roller coaster ride in.
And you know from last summer until where we are today and it's gone gone down dramatically and then it's up like 80% year to date so what.
What are you seeing in terms of the you know the.
The price change.
Your different segments over that time period kind of if you. If you look at this latest big dip in steel price from from last summer to now like where where are we in.
And then also how how is that maybe you know that big swing recent swing affected businesses like irrigation mm.
There was some thought that maybe you know some some customers might be had been waiting for a price decrease.
And you know that pause the market somewhat I don't know if that comment on is that dynamic real.
Did you see that.
Yeah. Thanks, Brian .
Well I feel price and irrigation.
As a percentage of the cost of goods sold is not as significant as it would be in this area utility business.
That said it uses more of the coil, which has been more volatile than other forms of steel, which we use like plate and bar and angle.
And so it can have a more dramatic impact to your cost of goods sold and a quicker time periods.
You know we've done a good job.
Protecting our customers and ourselves through hedging programs through some physical hedging.
As well as some inventory management programs that we've kicked in place and so you know it was really tough for a while to kind of figure out where steel was from.
From the price cost perspective, and that's why I think we've seen enough stability, even with the movements down enough.
We're this is can be just a nominal tweak so to speak to the pricing that we need to make sure. We're capturing what we are.
Call that in particular or utility business, we have pass throughs and so in the second half of the year. You know we know that some of our revenue in utility will go down and not the margin.
The revenue because we give that back.
Through the form of steel pricing now that uptick.
With a 40 week lead time won't show up until next year.
Revenue increases that will come through the mechanisms play.
Plate steel has been pretty resilient through all of this and that's because a lot of play it goes into the infrastructure.
In infrastructure, whether its bridge and highway.
Or like our own utility business as it remained pretty strong and so the dichotomy.
Of Hoyle to plate is still there.
Albeit not as significant as it was during.
The peak, but that normalized kind of hundred dollars a ton difference, it's not something we've seen for a long time so.
Long winded answer, but I would say to you.
That you know steel and the recent movement, we've accounted for well and I think we've done a good job of being able to protect both ourselves and our customers.
And really has not dampened demand.
Yes, there's some people that wait on the sidelines that always happens, but I think in today's inflationary environment.
There's enough other points of inflation, but really no one should be expecting a price decrease anytime soon or anything that's got steel or aluminum or zinc or.
Metals involved with it.
Great. Yeah. Thanks, that's really helpful. And then can you Steve just comment on.
Any big international projects that might be out there just that dynamic here as the pipeline still as strong as it's been in the past you mentioned that he even in Egypt, you're seeing.
Seeing the potential for maybe some add on projects. There I know you announced some like in the $85 million in.
Opportunity in Africa.
Can you just comment on that pipeline.
Sure.
Yeah, I'd say that the pipeline over the last couple of years has been that there is there is one very significant order per year like the $85 million Award we received.
And there is a good number of projects better say $30 million and below.
That are coming through that we don't announce.
But were being awarded.
And there from those regions, whether it's middle East Africa.
Eastern Europe , or Central Asia, and so the pipeline is still very good.
Again, the market fundamentals around food and food production good security all the interruption with Ukraine, Russia.
It still plays favorably to that pipeline.
The long term.
Long term pipeline is Africa.
They will definitely.
<unk> development money that will flow into that area.
And just the pure need for it for political stability is foremost on governments mines.
Got it thank you very much.
Thank you. Our next question comes from the line of Ryan Connors with North Coast Research. Please proceed with your question.
Good morning, Thanks for taking my question.
So I wanted to come at the AG side from a bit of a different angle. Stephen you talked a lot about the the top line you know the revenue outlook demand outlook international versus.
[noise] versus North America, but in terms of the margin and the mix outlook. If we if we if we go into the assumption as it seems like is the tone that international is going to at least in the short run be more of a growth driver.
That was the case in the quarter balance of the year, probably well how does that impact the margin story in the mix in terms of the margin story in irrigation and then and obviously underlying that is what is the bidding.
Environment looked like on some of those big projects you talked about has it gotten more competitive less competitive stable.
Any color you can add there would be helpful.
Hi, Good morning, I can start off with you know with the mix that is as we look at the international.
Egg business is for us actually the margin has consistently been improving and and our international businesses, Brazil, specifically has a very strong margin profile.
As we mentioned earlier there are two to two to three growing seasons. The farmer there has the ability to make some good profits and so the Brazil has had a really good margin profile and then when you look internationally as we embed technology into our into our solutions are that that increases the <unk>.
Margins as you if you get more into the aftermarket business. So as that business continues to grow and our margins continue to improve the the fact that that grows versus North America, well, how about with a prominent impact on our margins are growing part it's not quite yet at the North America level. Some of these projects just to.
But the magnitude of those projects well have some lower margin profile, but overall, we shouldn't expect a significant change in margin, but as we've seen in our first quarter. We have a very strong March and up a 11.
And a half percent, which we're really proud of and on our way to our 12% and we expect our margins to continue to stay at those higher.
Higher levels and improve throughout the year.
And relative to your question about the bidding.
Obviously, when there's an award like an $85 million award that's going to be very competitive. It brings in players are from Saudi Arabia from Europe .
It's not just started our U S competitor base at that point. So they have the ability to quote utilizing our global supply chain and thankfully, we've built a very strong global supply chain, where we can source things you know throughout the world.
Bring it together and the project locations and still make money.
It is favorable to the company at that point, but.
Anytime you're going to see a large project.
It's gonna be very competitive, but the projects that are more in that $30 million range I'll say the mid sized type projects.
Not nearly as competitive usually.
There's a lot more cultivation that went on with the deal specification, maybe some land use a work that was done ahead of time.
Pumping solution.
Type of things and I think you need to be able to bring together.
The entire package.
If you want to be able to do these projects.
You know that have.
Favorable margins to the company.
And we've deliberately over the years set up a pumping solutions engineering group.
We've worked on land use we help bring development money to our customers and all of that together is why we can pull off the projects, whether they're small scale or large scale and make good money.
Got it okay.
And then my other one just was on the transmission side, you know speaking to the of the supply chain you mentioned Steve.
You don't have any lead time update there I know you had been a constraint at one point you had indicated that lead times. It started to get better we're holding around 40 weeks I think is what you'd mentioned that any any update there on our lead times and transmission, particularly.
Where we're still around in the market is still around that same 40 week lead time.
There's a few competitors.
There may be slightly below that but as an industry.
36 to 40 weeks, depending on the construction.
<unk> is kind of holding at this moment and that's with as we mentioned earlier, the capex budgets being up a little bit more than we originally anticipated.
Where we were thinking maybe seven 8% more like 10% now and so are we.
We've been able to you know keep our ships complete on time.
Pretty strong at that level.
But obviously looking for areas of growth from our operations team and ours.
And if we can create the hours, we know that we'll be able to start to pull some of those lead times down.
It should be viewed favorably by the customer.
Got it.
Thanks for your time.
Thank you. Our next question comes from the line of Brent Thielman with D.
D. A Davidson. Please proceed with your question.
Hey, Thanks, good morning.
Steve Radnor again really impressive margin.
CT investment has seen in years.
Yes my question.
Look I mean with the run up in steel prices, you've seen so far this year.
To what degree were those costs reflected in the first quarter and then I mean shouldn't that have a more material impact on Q Q3, Q margin just given the natural lag in pricing.
I guess, where I am confused because it sounds like you think your margin sustain at these higher levels, even in the face of that.
Yeah, Thanks, I'll I'll take that one like morning. So.
Overall.
As you mentioned, we had we had strong margins in Q1.
And we do expect those margins to continue throughout the year. So there is there is a lagging between you know the steel increases and how that impacts our P&L as we buy inventory it does impact.
Our pricing, although eventually they they they kind of in that there. There is some fluctuations you'll see throughout the year. So that the higher steel cost, we're not seeing it yet on our P&L, we're not seeing it yet in our.
Backlog, that's going to have a lag.
Definitely for for several quarters.
So overall you know we might see there is some lumpiness you might see Toronto, a certain quarter based on the increased steel, but we did as Steve mentioned, we do have we do have a really good job of managing those increases through some financial hedges physical hedges.
Pricing. So overall, it's not a concern for us we just kind of manage it closely and it can create some movements within corridors, but but nothing that should impact our overall performance in our margin profile.
Yeah.
Okay. Okay. Thanks, Andrew.
I guess the follow up would be on.
The agriculture.
Segment I'd just be curious.
You sort of high level thought how we got to think about.
But in this evolving Wendy's agreement for the access to capital and liquidity for farmers is that a is that a concern it's dean.
Vendors sort of across the country tightened credit here, how do we think about that in the context of that business.
Yeah, Brian It's a good question. We are we have seen it out there quite a bit.
You know farmers have one of the best abilities to pay back because they have an asset base there back up the loan.
So I think there's a lot of programs out there that have discounts that are bought down points.
As it relates to machinery and equipment.
As we've talked about many times pivot is the second best payback on the farm compared to the tractor.
And that you know three to four years is a typical payback so even with some of the elevated rates.
Probably and then you know 405 hundred basis point increases from the same time last year.
That's still works financially, particularly given the elevated crop prices.
Soy.
Being at 14 60.
Anytime Youre close to 15 is unbelievable soy type price, yes, their inputs are up.
But I think that those inputs as they look out going further have come down and stabilize so maybe they like last year at a high rate this year.
That's what has been kind of the.
We went through the kind of first quarter that.
The farmer, just really needed to sit down with their accounting and kind of figure this all out.
And because it's a new environment for them.
Little uncertain, I think they're getting a lot more certain.
<unk> progress.
And we've not seen it affect land.
At this point too heavily.
More on the small growers side, but not the big grower side.
They're actually out hunting for land.
And on the machinery equipment perspective, as I mentioned earlier, if it's a large scale farms, they're gonna put a pivoted.
And they're typically buying cash anyway. So.
I think the overall environment.
This is where it is then the grower well digested and make their decisions and the answers are not very much different it's still the track there it's still land it's Phil.
A pivot are all good investments for the grower.
So that's you know I think they should remain fairly positive even despite the rates.
Yeah.
Okay. Thanks for that Keith I appreciate it.
Thank you. Our next question comes from the line of Jon Braatz with Kansas City Capital. Please proceed with your question.
Good morning, everyone.
Steve in your commentary you talked a little bit about the increased R&D spending in the agricultural area and and I'm wondering if you could tell us how much maybe your spending and you know what the trend is like going forward and and and and maybe some of the things that you're working on gives us.
Idea of and what the opportunities are.
Yeah.
You know we have been increasing R&D spend.
The tune of let's say.
$4 million to $6 million per year.
Kind of year over year.
And that has gone to a big portion of that is too high.
Tax.
<unk> and the insights product being one of it.
That's something that we're seeing very strong adoption rates real good paybacks for the growers that are utilizing it.
But we're.
We're not just working on Pure Act Act. We've also been investing over the years. If you think about our ex Tac drives ex Tac is a continuous drive machines. So there's only one other out in the marketplace does it hydraulically, we can do it electrically and so we can get around the field in two hours.
With that product that took some significant investment to do that we've now put icon panels onto our linear machines that was something that we've been wanting to do for a number of years. So it's a combination of upgrading both the.
The pivot and the electronics around the pivot and the functionality of the pivot and also these newer agronomy type of services that we've done out there.
Well I'll just jump in there specifically to our research and development.
The overall dollars that we spent last year were approaching $50 million and that's specifically the R&D of course, we spend more in innovation as such we continue to increase but just as a reference points. It was $46 million last year.
Okay. Thank you never know and see the last thing.
Last week, you you announced this partnership with control module and some reading on the technology and what's happening in that in that area and it sounded very interesting, but can you tell us a little bit more about what you see.
For that technology and that that market opportunity in and maybe how your partnership with control module Oh might work now I understand it's small at this point, but it was can it move the needle dumb down the road.
Yeah, I think when you look at our data acquisition and.
The way that we get that in in process the data.
We're looking at a series of technologies that are there to try and bring that forth.
And you know that company.
It gives us an element of that that we wouldn't have otherwise.
We've always said that we want to look at the ecosystem and decide where to invest.
And kind of own the technology versus where we want to partner with.
A company that already has done significant R&D is probably too big of a head start for us.
To get into there so.
Our ecosystem of the way, we're gonna grow technology will be done through a lot of these kinds of partnerships and so we're excited about them. It is something that down the line or infrastructure.
Technology, which we're gonna talk a lot more about at our May 20 Investor day.
So we will be able to give you a lot of good color as.
As to how that ultimately fits in with the growth strategy and the transformation of our business into some more recurring revenue.
Okay, Alright, thank you Steve.
Yeah.
Thank you. Our final question comes from the line of Brian Wright with Roth. Please proceed with your question.
Thanks. Good morning, just was wondering with the farm Bill you know going through its process are there any things that we should be watching for or that you're hearing about that they can have an impact on that part of the business.
Good morning, Brian .
The farm Bill always goes through a lot of Maturations and.
Political wrangling.
Usually the food stamp issue can kind of blends into there to some degree but you know.
It's it's typically very bipartisan.
The AG ministers from a state that.
It was very ASIC based.
We don't expect any significant kinds of changes to that there is some times.
And now as bleeding in more some of the environmental.
Considerations that go with it and so those are things that we're watching.
If there is more of a.
Regulated kind of data to be provided that actually is good for our business, because it's where our technology solutions are helping the growers today to meet their ESG needs.
So I think.
That's something that we're watching but we don't expect anything.
Overly significant be equipped program.
It just to make a note of it.
It was re upped for $850 million.
And but it has it actually had.
Expired and so it's forced our growers and this is a little bit about first quarter.
Of course, a lot of our growers to go back into the queue and restart the process. They didn't grandfather or any of the applications. That's a program that had been around since I think the mid nineties.
That was a major interruption.
If they don't approve things that's what we look at more.
Is impacting our business then.
Some of the little changes that you may see through the actual farm belt.
Okay.
Great. Thank you so much for the insight.
Thank you.
We have reached the end of our question and answer session I will now turn the call back over to Renee Campbell for any closing comments.
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Yeah.