Q2 2023 Valmont Industries Inc Earnings Call
Greetings and welcome to Belmont Industries, Q2, 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. This conference is being recorded I will now turn the conference over to your host Renee Campbell Senior Vice President Investor Relations and Treasurer Ms. Campbell you may begin.
Good.
Thank you and good morning.
She got much industries second quarter 2023.
Thanks.
With me today.
President and Chief Executive Officer.
Jim Franson interim Chief Financial Officer, and Jean Paget, Senior Vice President and Chief accounting.
Good morning, I've known will provide a brief summary of our second quarter.
Commenting on our markets long term business strategy.
Knowing that Jim will review, our financial performance and provide our current outlook and indications for 2023 with closing remarks from Apple.
This will be followed by Q&A.
A live webcast. The presentation will accompany today's call and is available for download from the webcast or on the investors site.
Uh huh.
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.
Outlined on slide two of the presentation.
And will be read in full at the end of today's call.
Finally, if you would like to be notified.
It releases and other information please sign up for email alerts to our investors site.
We also encourage investors and others interested in our company followed by market our brands on our social media channels listed on our website.
With that I would now like to turn the call over to our President and Chief Executive Officer.
Yeah.
Thank you Renee and good morning, everyone and thank you for joining us.
Before discussing the results of the quarter.
Market dynamics I would like to spend a few minutes on my recent CEO appointment.
First I'm extremely humbled and honored to be addressing you today.
Oh yeah.
This is a great company that delivers products and solution.
Customer need to solve their most pressing challenges.
Our global team is dedicated to our purpose and United by our core values Torchy Barcodes.
The people at the Belmont, but one of the primary reason I joined the company in 2020.
I could not be more proud to be part of this outstanding team.
Having more coffee with the entire leadership team to develop and implement our strategy over the past three plus years I understand what is required in this role.
The executive team and board of directors are aligned around our long term strategy to accelerate our journey towards becoming a leading industrial technology company.
This strategic framework, which I will discuss in a few minutes.
Right approach to continuing the momentum we have built and provides a clear path to achieving our long term financial.
Right.
As CFO I led the transformation of the finance organization.
Using data advanced technology.
To try and better business decision and bell.
This focus has led to a more disciplined approach across the organization and using data and analytics to achieve our financial goals with an emphasis on our ROIC.
Pete.
As CEO I look forward to in Belmont, along the strategic path, we have been on over the past several years driving strong financial performance for the company and our shareholders, while remaining committed to our sustainability journey.
Finally, I want to thank Tim classes for stepping into the role of interim CFO .
I'm confident that the ability to lead our finance organization and contribute to the executive leadership team until we are prepared to name a permanent CFO .
Turning to slide five for a review of second quarter financial and key messages.
Our results this quarter were strong achieving adjusted operating margin of 13, 2%.
Adjusted diluted earnings per share grew to a record $4.37.
Building on the momentum from 2022, and the first quarter of this year.
I am very pleased with our growth and profitability and proud of the entire belmond team. So what we have accomplished.
Infrastructure demand globally remains robust benefiting from several secular long term growth drivers, including the global energy transition and ongoing investments in grid hardening.
We're seeing strong demand across nearly all of our markets.
Global agricultural market fundamentals are being influenced by uncertainty in North America as farmer sentiment is muted pending the outcome of this year's harvest, which I will expand on shortly.
We continue to be excited about the long term growth potential of agriculture, and our ability to transform the industry with disruptive technology that improves productivity and enables growers to do more with less.
In both segments, our disciplined and strategic pricing has ensured we are capturing the value we add to our customers, which has driven margin expansion amid lower cell and ongoing inflation.
Wrapping up our key messages, we're executing a run grilled transform strategic framework that we outlined at our recent Investor day.
Earlier this month, we announced an agreement to acquire HR products, a strategic bolt on that expands our irrigation aftermarket parts capabilities and drive international expansion.
This is an excellent example of harnessing our strong balance sheet to further our strategic initiatives.
Moving to slide six for an update on current market conditions, starting with infrastructure and utility markets.
Utilities have increased their capex spending to support grid hardening initiatives and in an evolving electricity generation portfolio.
Transmission demand is outpacing market capacity as indicated by industry lead times that exceed 40 weeks.
We are strategically adding capacity to meet the strong multiyear demand.
And lighting and transportation transportation market demand is being supported by increasing investment in road construction and we continue to see some increased quoting activity related to I I J a fun.
Commercial street lighting product demand globally is muted due to impacts of inflation and higher interest rates, leading to softness in single family housing and commercial construction markets.
And telecom markets, we are seeing capex spending by wireless carriers more aligned with historical trend following record level of investment.
At the onset of five G. The industry predicted this rollout to be more rapid than previous generation.
In reality, the Buildout timing is proving to be similar to past experiences.
Pauses in Capex spending are common during that work expansions.
Major carriers will continue to invest in wireless networks nationwide.
Our wireless communication structures and components business remains well positioned to meet this demand.
Our coatings business tracks industrial production level and has some near term strength from utility and transportation markets.
Turning to solar domestic pathic guidelines related to the inflation reduction that had been released.
Are you ready support is expected to provide strong market tailwind for the next several years.
Globally renewable energy investment in markets, such as Italy, and Brazil are supporting demand in those regions.
That one has a competitive advantage and the distributed generation solar market and we prioritize that niche market due to its attractive growth rates and accretive quality of earnings.
Turning to agriculture, and starting with North America.
This quarter was less robust than we and the industry originally anticipated.
Well U S. Net farm income is projected to decline year over year. It will still represent the third highest income level over the past 10 years.
Additionally, recent USDA data suggest improving drought conditions for much needed rain across key growing regions.
However, many areas of the country remain a severe or extreme drought levels.
We view these market tailwind is positive.
Growers have maintain a wait and see approach and purchasing decisions.
This is supported by recent Purdue University reports, which highlight pharma uncertainties around higher interest rates and volatile commodity prices.
We believe these uncertainty may continue to weigh on sentiment through this year's growing season.
Expect the outcome of this year's harvest to provide more clarity on order patterns for the remainder of the year.
Moving to international markets, we continue to see strength in Brazil supported by the financing program that was announced in late June .
The Brazilian government demonstrated their strong support of agriculture markets with an increase in irrigation funding of nearly 25% over last year.
With approximately $2 4 billion Brazilian real <unk> available to growers.
It turns out these loans are extremely favorable making this program in our control.
<unk> had the option to support continued irrigation investments.
In other international markets, our project pipeline remains robust not only driven by ongoing security concerns, but also the ability to produce goods for export which can help reduce trade imbalances and currency fluctuation.
In more developed region the demand for increased resource conservation to further and have planned productivity has been a demand catalyst for our products and technology solutions.
Project sales in EMEA region, this quarter were lower compared to last year.
We expected shipments up the people to see announced $85 million, Egypt project to begin in second quarter.
However, there was a slight delay in the project began shipping this month, we anticipate shipments will continue into 2020.
We have intentionally and strategically built exposure to diverse infrastructure end market and a growing pipeline of international agricultural projects.
This helps us to better manage cost me anyone end market across the portfolio delivering more consistent financial results.
I am pleased with our second quarter performance and proud of our entire teams that cheap.
Moving to slide seven and many many of you joined us either virtually or in person at the New York stock exchange for our Investor Day.
I would like to take a few minutes to elaborate on our new run grow transform strategic framework I mentioned earlier.
This framework will move us forward as we evolve into higher quality and more dynamic organization delivering shareholder value that is less dependent on cycle or any one end market.
It guides, our allocation of resources capital and time and effort.
Our frame framework begins with the run.
Is the idea that we have built for sustainable outperformance.
This solid foundation allows us to operate well.
Confirmed by a proven ability to deliver results and drive profitable growth, even when economic cycle are volatile and uncertain.
Our commitment to operational excellence.
That my business model and a continuous improvement mindset are critical.
Right.
With an established foundation, we can drive growth across our business says that exceed expected market growth rates.
This can be achieved through check geographic expansion, such as a robust pipeline of international irrigation projects.
Or through optimizing our best in class distribution channel by creating additional touch points to serve our global customer base.
When we speak to transform its making sure that we are being great stewards of the company's long term it.
It is the mindset, where we want it to be a disruptor in our markets.
We operate in capital in good markets, where high barriers to entry are common leveraging our industry, leading position, including extensive distribution networks.
Trusted reputation.
Innovative technologies to our customers and our focus on creating more stable and high value revenue true recurring revenue stream, while delivering proven ROI to our customers.
Earlier that earlier this month, we demonstrated our commitment to making investments that align with our growth strategy with an announcement to acquire HR products summarized on slide eight.
This Australian based wholesale supplier of irrigation products provides geographic footprint expansion in this key agriculture market, while enabling us to better serve our customers.
Expanded irrigation parts offering.
With our large installed machine base in the region, we have a path to grow recurring stable high value revenue streams perfectly aligned with our growing transformer objectives.
We expect the transaction to close in the third quarter and look forward to this great business joining our portfolio.
With that I will now turn the call over to Tim for our second quarter financial review and updated outlook.
Thank you avner and good morning, everyone.
Before I begin I would like to express my appreciation and excitement to be working with avner and the rest of the Belmont.
By way of background I have been with Belmont for over nine years.
First is the senior Vice President corporate controller, and most recently at the Chinese business partner Global operations.
During that time I worked closely with all of our lines of business segment leadership and our audit Committee.
We have an excellent global finance team and I'm honored to serve in this role during this transition period.
Turning to slide 10 in the second 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.
Second quarter net sales of $1 billion decreased seven 9% of sales growth and infrastructure was more than offset by lower agriculture sales.
Accounting for the 2022 divestiture of the offshore wind business.
Reported in the other segments sales decreased five 7% year over year.
Despite lower sales operating income grew 12% to 137 $6 million.
With operating margin, increasing to 13, 2%, surpassing our previous long term goal of 12%.
On the path to a new long term target of 14%.
Operating margin improvement reflects continued benefits from value based pricing cost optimization and operational efficiencies in both segments.
Diluted earnings per share grew 18, 1% to a record $4 37.
Turning to the segments in slide 11 infrastructure sales of $776 million grew four 2% year over year due to favorable pricing globally higher volumes in the solar and <unk> product lines and sales from the C O fab acquisition, partially offset by lower volumes.
Telecommunications.
Operating income increased to $116 million, resulting in strong operating margin of 15, 1% of net sales.
Deliberate actions to improve cost of goods sold and a favorable sales mix drove the margin improvement.
Moving to slide 12 agricultural sales of 279 $9 million decreased 25, 9% year over year.
The benefit of higher average selling prices of irrigation equipment globally was more than offset by lower volumes.
In North America sales were lower as the second quarter of 2022 benefited from the ongoing delivery of a record year end backlog.
And growers delayed capital investment decisions in the spring of 2023.
International sales were lower.
Sales growth in Brazil was more than offset by project delays in the EMEA region.
The lower volume of irrigation equipment affected sales of agricultural technology products and services, leading to a decline year over year.
Operating income decreased to $53 $2 million or 19, 1% of net sales higher.
Higher average selling prices and focused activities to improve cost of goods sold drove operating margin expansion despite lower sales.
Turning to cash flows on slide 13 second quarter operating cash flows of $88 $3 million were driven by strong earnings and diligent working capital management.
Turning to slide 14 for a summary of second quarter capital deployment Capex was $23 million as we continue to invest in strategic capacity expansions.
Through our balanced capital deployment framework, we are focused on enhancing shareholder value.
In the second quarter, we returned approximately $37 million to shareholders through dividends and share repurchases.
Ending the quarter with $167 million in cash.
Moving to slide 15.
Total debt to adjusted EBITDA of one six times well within our desired range of one five to two five times.
Our cash balance available credit and flexible balance sheet provide us with ample liquidity to execute our capital allocation strategy.
I would now like to review our updated 2023 outlook as shown on slide 16.
Given our second quarter results and continued near term softness in North America, Agriculture, and telecommunications markets. We now expect sales growth of zero to 2%.
We expect improved year over year operating margin in 2023, given our pricing strategies.
In certain markets and our ongoing continuous improvement initiatives.
<unk> second quarter results.
With an improved operating margin supports maintaining the full year earnings per share range, while updating the sales outlook.
Turning to the segments continued strength across infrastructure markets supports our expectation for higher sales this year.
We expect telecommunications sales to be lower.
More than offset by higher sales across the rest of the segment portfolio.
The spike in steel cost during the first four months of the year.
As expected slightly reduced our infrastructure operating income margin for the second half of the year compared to the strong second quarter results.
Turning to agriculture, we expect North America sales to be modestly lower in the second half of the year as compared to the first half.
Our assumption is that growers continued to delay capital investment decisions until they have more clarity on their crop yields and overall commodity prices.
A reminder, that the third quarter is typically a lower north America sales quarter compared to the rest of the year.
However, we expect much stronger international sales led by higher project sales and sales growth in Brazil to more than offset the North America seasonality impact.
A higher mix of international projects will reduce agriculture segment profitability in third quarter as compared to last year.
To summarize.
Our expectation for diluted earnings per share growth has not changed.
We are confident in our outlook and believe that it demonstrates the strength of our portfolio.
Those trends across most of our end markets and our strong competitive position in the marketplace.
We're leveraging our global scale to improve margins and drive strong cash generation.
It was really nice to support our growth strategies and achieve our long term financial targets driving sustainable shareholder value.
With that I will now turn the call back over to Albert Thank you Sir.
Continuing my comments on slide 17.
We have built and the competitive advantages that uniquely position us to win and infrastructure and agriculture.
We have a flexible and broad global footprint that allows us to efficiently manufacture products that our customers need while optimizing our supply chain to avoid unnecessary disruption.
And our breadth of product offering which is always expanding enables us to solve the various challenges our customers face.
Together these factors contribute to making Belmont the trusted partner of choice.
Not only do we have strong competitive advantages.
Also in great markets with multiyear demand drivers.
Infrastructure and agriculture, both have mega trend that will extend well into the future.
We are in great position to proactively capitalize on these trends and exceed market growth expectation.
Turning to slide 18.
As announced during our Investor day, we established a new five year financial targets based on a positive end market outlook and our ability to execute on the run grow transform framework.
Today, we remain committed to achieving these financial goals.
In summary, I'm extremely proud of our team's ability to execute our strategy and drive strong results, while navigating near term softness in some markets.
While recognizing broad macroeconomic challenges.
But I'm going demand strength across our end markets and remain focused on the things we can't control.
I'm confident that we are positioned for success and we continue to accelerate growth through investments in innovation and technology with a focus on disciplined capital allocation.
We have acted decisively to position our business for growth building momentum to drive long term stakeholder value through the second half of 2023 and beyond I.
I will now turn the call back over to run it.
Thank you and now at this time, the operator will open up the call for questions.
Thank you at this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad a.
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And one follow up one moment, please while we poll for questions.
Thank you. Our first question comes from Brian Drab with William Blair.
Please proceed with your question.
Hey, good morning, Thanks for taking my questions. The first question. It's a minor one I think but on slide 16 is this like a cut and paste error with the P. P S guidance.
Cause 15, 90 is that the high end I think theirs.
No change to the guidance right for a P S.
But yes, you're correct.
No change to the guidance.
Okay. So that's just an error on the side right.
Yes, it must be yep.
Yeah Okay.
So the gross margin.
I feel like should be discuss little more just given it was about like 400 basis points above what the street was expecting I know a lot of that is pricing coming through another you know actually.
So you could take them, but can you talk about.
Hmm why why we were up above 31% and gross margin and how sustainable is that going into the back half of the year.
Hey, Good morning, Brian This is Tim and I'll I'll take that question.
First off we're very pleased with the third quarter margins.
It was a result of the actions taken by our teams for value based pricing and operational excellence activities.
Over the long term.
These activities will drive an improvement to our average historical gross profit margins.
Some of these activities were.
Professionalizing our sourcing group.
Which has been really focused on leveraging the size and spend up consolidated about mine.
As well as operational efficiencies.
Starting with the activities on our plant floors plant floor, such as <unk>.
Getting those cost benefits, we expect from our automation investments as well as better labor and overhead management.
With that said.
We do not expect to sustain a 30% gross profit margin in the second half of the year, it's really for two primary reasons.
One as we talked about in our prepared remarks, we're going to see a sales mix more towards international projects in the agriculture segment.
That is typically at a lower profitability profile to the overall segment.
And then secondarily.
In the first four months of the year, we saw a meaningful increase in the cost of steel specifically hot rolled coil.
With the timing lag, meaning how that cost of steel goes through our income statement. Our average cost of steel will be higher during the second half of the year than what we saw in the second quarter.
Yeah, and Brian This is Bob I'll, just add to that but we're really pleased with what's happening with our gross profit improvement Q1, Q2, it's never going to be a linear line.
But we're on the track to 12% really happy about that and from that we'll get to our stated goal right now 14 per cent O'brien, it's never going to be linear, but really excited about that improvement in our margin.
Yeah, I mean, obviously you guys are and we've talked a lot about this and we've done an incredible job of managing through the volatility in steel prices over the last few years and and gross margins it's Ben.
You know really really stable and moving up and so can you.
Comment avner at all like it is like the second half should we expect gross margin more like the first quarter or was.
It was the first quarter unusually high also.
29%, 29% possible.
Yes, it's approaching 29 per cent, Brian that's how I'd answer it.
For the second half.
For the second half correct, okay. Okay I'll pass it on for now thank you.
Thank you. Our next question comes from Brent Thielman with D. D. A Davidson. Please proceed with your question.
Hey, great. Thanks, Good morning, Hey.
I guess Adam here, maybe just a question for you as you move into the.
The new role just your perspectives on M&A any different view from you on what Belmont should be focused on relative to some of the things the company has pursued.
<unk> completed over the last few years and I think just sort of similarly with that.
Do you do you take a different focus in terms of index investing internally in the business maybe relative to what the company's done over the last few years, just not begin to be any.
Broader view on capital allocation philosophy from here.
Sure well. Thank you for that well you know over the last three years I've been the integral part of the leadership team and working really closely with the board of directors on establishing the capital allocation.
Philosophy, and our strategy that really has not changed that will remain.
Same with really how could we drive the highest ROIC C and value to our shareholders still the number one is to invest in the business and with the strong markets that we're seeing across our portfolio, we have significant opportunities to invest in the business as we shared during investor day some of.
Our large pulled operations, where we shared with one example, so we will continue to invest in the business that was it relates to M&A.
We will continue with the same approach actually we have a very strong pipeline.
Ah you bring a lot of experience to that area from my background in prior areas that I've worked with in public companies and private equity. So there there will be continued to be a strong emphasis on acquisitions.
Acquisitions.
It can really help.
Propel our growth.
They will be there will be cost of capital within three years and will support our overall strategic goals. So short answer is no I'm not expecting.
Any changes, but continued focus on driving value through acquisitions as well.
Okay. Thanks for that Avner.
Maybe just I guess my second question I understand the implications of.
Can you kind of steel cost flowing through in the second half of the year. It seems like within the infrastructure segment.
It sort of feels like you're experiencing kind of some mixed demand trends in some respects at least on a short term basis telecommunications.
Lighting transportation, a little bit softer relative to utility solar et cetera, what are the implications to margins for that business segment, just because youre seeing a little bit of that maybe a shift in kind.
Contribution from these kind of sub verticals.
Yeah I'll take that one this is Tim.
The <unk>.
You are correct, our sales forecast expects a reduction.
In telecommunications.
And as Andrew said in his prepared remarks commercial lighting is a bit muted.
But with that said are still good margins for the infrastructure segments.
We expect them to be.
Closer to what we saw in the first quarter versus the near record results. We saw in the second quarter.
Yeah, and I'll add to that is you know overall the strength of our portfolio. So while you might see some softness in one area like we mentioned the commercial lighting.
We have very strong demand on AR and the G. DNS business that we're able to use our plants and our capacity to support that business, which helps us continue keeping our plants are busy driving business. It has very strong margins as we mentioned a lot of our businesses has a backlog of over 40.
So we're able to proactively manage our portfolio to make sure we both support our customers, but drive high margin business as well. So overall, we will continue to see strengthened so in those businesses.
Keep.
Keep on driving margin improvement.
Okay. Thank you.
Thank you. Our next question comes from Brian Wright with RA and King. Please proceed with your question.
Thanks, Good morning first of all congratulations avner.
Secondly, just wanted to think about.
Hum.
Are there.
I mean from the CFO position right and not having the final say in and things, but being a part of you remember but are there any areas of like cost improvement opportunities that that you know.
From you know coming from your your vantage point that might be on the table that they had kind of been held off until now.
Thanks for your question, So you know I.
Over the last several years, we've been a lock step here as a leadership team with the board really moving towards our strategy, which we presented during Investor day.
With those financial goals, so we put together the straw.
Our strategy together the framework.
And you know, it's coming from the CFO role I'm very I use a lot of data analytics.
Allergy to really drive value focused a lot of finance in the finance area I'll bring that get a larger to the organization. So we can both drive improvements internally and drive additional revenue to our customer.
Customers. So overall we.
We continue working on quality of earnings and as we've seen the improvement in a couple of quarters are continuing in this year and driving to our goal of a 14%. So quality of earnings is something that is is it's highly important for us and for our shareholders and we'll continue looking at every opportunity.
To streamline processes.
Improve the profitability of the company and overall and ultimately drive shareholder value. So the answer is yes, they'll they'll continue to be focused on driving profitability for the company.
Great. Thanks, and then I'm, just wondering to get a little more color on the EMEA.
Is that the rebound that you're kind of expecting there or is that pretty much the reference to the Egypt projects coming on and we Didnt July or was there anything else beyond that.
That is the are the vast majority are not different than any other projects. It's typical projects have movement movements and so it wasn't surprising a necessarily it just moved out from June to July we have started shipping already.
And our pipeline is very strong in that region.
So where we're going to expect to see continued strength in that region based on all the.
Our long term market drivers that support that region specifically.
Great. Thanks, and just one last one if I could one of your peers has kind of postulated you know kind of similar to on the irrigation side in North America that if if if the harvest comes out.
As expected here that the fourth quarter could be a strong quarter and I know you haven't given what we've seen it doesn't make sense for us to forecast that but just conceptually you know with the tax you know.
The advantages of ordering in the fourth quarter or do you. Just you know how you know how would you kind of view that.
Yeah, so that that is actually our expectation that a lot of it will depend on the actual harvest, which is always the case and we will have a lot more visibility as we get closer to September to see the yields et.
Et cetera.
Market drivers are strong if you kind of look at the net farm income as we mentioned it would be the third highest we've seen in the last 10 years corn prices at six five and a half to support high Rois and at the end of the years to growers are kind of got to look at their financials and as they do their tax planning.
I'll look at opportunities to invest in capital and our Pip is one of the highest rois. So the expectation is that in the Q4 there won't be.
A typical ordering patterns as we've seen in prior cycles.
But again well just have to wait in the for the yield in and see how that plays out and as.
As you know, that's that's very difficult or impossible to predict so we're just gonna see and how that how that all plays out.
Great. Thanks again, thank you.
Thank you.
Next question comes from Nathan Jones with Stifel. Please proceed with your question.
Good morning. This is Adam Farley on for Nathan Jones.
Wanted to start on the agricultural margins.
You showed really strong margin expansion despite the revenue headwind.
So how are these margins possible given the volume declines is it mainly just lower steel prices running through the P&L.
Hi, This is Tim good morning, I'll take that question I would tell you. It's multifaceted right as we continue to talk about we're doing a good job on pricing.
I talked about how we are really focused on operational efficiency.
That is contributing to the stronger margins in second quarter, and then thirdly, you see in our in our deck that.
International sales and in our prepared remarks, we talked about less projects in the second quarter.
Less projects.
It helped us see an overall better operating income margin.
Oh, okay.
Well I'll just add all the all the initiatives that we've been taking over the last several years right were masked by a by Covid, but as we came out where we're just getting much better productivity through our planned better labor utilization a lot of the operational excellence that we've done so as you mentioned, it's multifaceted it but the pricing the operational excellence.
We will continue to drive.
Strong much stronger margin.
Okay.
And then following up on on pricing within agriculture, mainly within the North American market.
Is there any risk to pricing given the lower demand.
Have you seen any evidence of aggressive pricing in the industry.
There is Uh huh, Howard Belmont and react to that.
Well.
I think that you kind of know our philosophy around pricing and you know, we we continue to take pricing leadership and it's all based on the value we provide to the to the growers and it has a very strong value proposition and there's really no intention on reducing pricing. There's no reason to reduce pricing when we provide a very.
Strong value in our ROI in the industry is kind of following the same same pet so they should not be on expectations on reducing pricing.
Okay.
Okay. Thank you for taking my questions.
Okay.
Thank you. Our next question comes from Jon Braatz with Kansas City Capital. Please proceed with your question.
Morning, everyone.
Could you characterize the Brazilian market in the second quarter. You said there there was a sales growth in Brazil, but there was a period of slowness house as the farmers are weighted financing.
Was it a was sort of weak in the first half of the quarter in U S and the volume has picked up in the in the second quarter I mean second half of the quarter.
Yeah. So thanks for that question, you know going going into the quarter going into the year. We know we also are additional factor that we had as you know we have backlog going into the year, which supported a lot of our sales throughout the throughout the first half, but as a financing comes through that provides a significant.
Tailwind for the business as we mentioned the interest rate is very favorable compared to what the what other options are there and there are some other benefits of some of these Oh. This program for instance, you a couple of years before you actually repay back.
Below and so we won't provide strong a tailwind then and again I would really focus on the long term right. The Brazilian market is very strong, but it is a very important part of the overall G D P and economy of Brazil, and and all those are strong market demands withdraws population.
Land productivity etcetera. So.
We're really excited about our Brazil.
Market and we do expect to see continued strength to support our long term goals.
Do the sales in Brazil, typically come with all the sort of you know.
Technology bells, and whistles or they are more plain vanilla.
Well you know what when I look at it overall, but we are you know we were in the journey of.
Adding technology to our overall irrigation sales.
Actually if you look at the the growers in Brazil are actually for the most part they're actually they're age profile there they're younger they're really more open to adopting our technology.
And the adoption rate is actually pretty high so as we continue our journey.
Really.
Productivity to the ER to the grower with a remote monitoring control irrigation optimization.
I'll make insights when you kind of look at the suite that we're providing.
There, there's a pretty good level of adoption and the Brazil market I'm pretty excited about.
The level of adoption, we're expecting to see there.
So that's where we're at the beginning of our journey and I do expect that we'll continue to add the technology suites too.
Where are the irrigation products. Okay. One last question the acquisition.
H arent in Australia is that type.
Type of business that Theyre in is that something that you can.
That you were looking for elsewhere globally, whether it be domestically or all the other countries that that similar type of business.
Overall, our aftermarket is a big part of our overall strategy for.
Val mine and we shared some information on that.
Yesterday.
What we like about the aftermarket.
Cars is you know it is complementary to our there irrigation business, where we could provide more to our.
Dealers and the growers overall it has more of a recurring base nature, which we like as well it can offset some cyclicality.
And it actually also has a high margin profile. So we are really excited about our aftermarket opportunities across actually both of our segments. We have a very strong Bob.
<unk> business and in telecom as well.
So overall I would say, we're really excited about this acquisition and we will continue with kind of focusing on.
Aftermarket is part of our overall strategy. Thank.
Thank you.
Yes.
Okay.
Thank you. Our next question is from Cree.
We see G. S Securities. Please proceed with your question.
Good morning, Thanks for taking the question two.
I know you don't always give backlog on a quarterly basis you did after Q1 that maybe maybe just Directionally you talk a talk about where it was at the end of the second quarter.
Yep.
Was that at a $1 5 billion actually we did put it on the.
Got it yeah. So.
So strong strong backlog overall really supporting kind of what we're seeing in our business at a majority of that is in the infrastructure part of the business.
And as you'll see what we're seeing kind of mostly in the U T. D. N S. Part of our part of our portfolio, which has very strong market drivers and stuff.
Strong market demand.
Got it helpful and maybe my second just.
On the on the telecom obviously.
The growth that you're looking for now.
He talked to that 20% range now the carriers are slowing down just a little bit longer term thoughts. There you expect it to be flat you know slightly down perhaps.
So over the next 12 to 18 months, just kind of get a feel for what you're thinking there.
Yeah.
The long term drivers.
Really didn't change right. If you kind of look at the real macro lever level, we see continue to see increased data consumption.
And when you look at specifically the five G network and you look at it at a global basis, we're expecting about 85% of the world population to be covered by five G. Over the next five six years or so.
So yes, there there is there Paul I think we didn't initially we thought just a network roll that would be a little different it turns out to be the same and always after the spectrum, they're going to take a pause there gonna look at big consumer at all.
They they adopt the network they'll look at their ROI and that was impacted as well by inflation and interest rates.
Pretty large impact on some of the carriers and when you actually look at the AT&T and Verizon are earnings, which they just reported earlier. This week it kind of supports exactly that that we will continue.
The build out they spend money on the spectrum that they need to get their rois. So they will continue to invest on densification.
So little little slower than we thought.
Expecting it will all kind of go back to a more of a normal cadence and we will start seeing more of that.
Double digit growth over the next.
Several years, so overall very positive just little bit of a hiccup there.
How they are slow down a little bit, but really excited about telecom and.
The fact that it will continue growing.
Got it I'll leave it there I appreciate it.
Yeah.
Thank you.
We have reached the end.
The question answer session.
I'll turn the call over to Renee Campbell for closing remarks.
Thank you all 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 and we look forward to speaking with you again next quarter.
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They involve risks uncertainties, some of which are beyond zelle months control and assumptions. Although management believes that these forward looking statements are based on reasonable assumptions you should be aware that many factors could affect valmont actual financial results and cause them to differ materially from those anticipated in the forward looking.
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