Q4 2024 Valmont Industries Inc Earnings Call
Speaker Change: Greetings. Welcome to Valmont Industries Inc. fourth quarter and full year 2024 earnings conference call. At this time, all participants are in the 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.
Speaker Change: I will now turn the conference over to your host, Renee Campbell, Senior Vice President and Vesta Relations and Treasurer. Ms. Campbell, you may begin.
Speaker Change: Good morning, everyone, and thank you for joining us. With me today are Avner Applbaum, President and Chief Executive Officer, Tom Liguori, Executive Vice President and Chief Financial Officer, and Tim Francis, Chief Accounting Officer.
Speaker Change: Earlier this morning, we issued a press release announcing our fourth quarter and full year 2024 results, along with a separate announcement on our capital allocation priorities.
Speaker Change: Both press releases and the presentation for today's webcast are available on the investors page of our website at falmont.com. A replay of the webcast will be available later this morning.
Speaker Change: We'll begin today's call with prepared remarks and then open it up for questions.
Speaker Change: Please note that this call is subject to our disclosure on forward looking statements, which is outlined on slide two of the presentation and will be read in full after Q&A.
Avner Applbaum: With that, I'd now like to turn the call over to Avner.
Thank you, Renee.
Good morning, everyone, and thank you for joining us.
Avner Applbaum: I'd like to start with a few key highlights of 2024 summarized on slide 4.
Our strong performance reflects our focused approach to value creation.
Avner Applbaum: We have prioritized returning to our core and embracing what Valmont does best.
Overall, our Fourier results were in line with our expectations.
Avner Applbaum: Despite top-line headwinds, we leverage our strength to capture opportunities and deliver strong outcomes.
Avner Applbaum: Earlier this year, I shared the importance of commercial and operational excellence in driving value creation and our team delivered in meaningful ways.
Avner Applbaum: Our commercial teams deepened customer relationships, drove pricing excellence, and captured high return opportunities.
Avner Applbaum: We also invested in customer-driven innovation, providing solutions to their critical challenges.
Avner Applbaum: Our operations and production teams are adapting to changes in demand and product mix.
Avner Applbaum: In infrastructure, we created flexibility in our footprint to increase capacity for distribution and substation structures.
Avner Applbaum: In agriculture, we quickly fulfilled storm replacement orders to support our dealers and growers.
Avner Applbaum: Our focus on profitable growth, along with an improved cost structure, have led to margin expansion, something we did not achieve in past agriculture down cycles.
Avner Applbaum: At the same time, we generated outstanding operating cash flow through disciplined working capital management, further reinforcing our financial position and balance sheet.
Avner Applbaum: We strengthen our executive team by bringing on experienced, driven leaders committed to delivering on our strategic objectives.
Avner Applbaum: While organizational change takes time, the entire team's embrace of our core values and focus areas is already translating into stronger financial performance and sustainable improvements.
Avner Applbaum: I'm incredibly proud of what we've accomplished, a testament to the dedication and collaboration of our entire global Valmont team.
Avner Applbaum: Turning to slide five. I'd like to share our critical objectives for 2025, starting with catching the global infrastructure wave.
Avner Applbaum: We're optimizing capacity across our footprint to meet growing demand with our largest opportunities supporting the utility market.
Avner Applbaum: Unlike past investment cycles driven by large one-time utility projects, today's market drivers are diverse and sustainable, supporting long-term growth expectations.
Avner Applbaum: To capture our share of these opportunities, we're investing in new capabilities and capacity across our footprint.
Avner Applbaum: A great example is our Brennan Texas factory expansion to serve utility customers, which is expected to be operational by the end of this year.
Avner Applbaum: We're also increasing efficiency and optimizing workflow with significant upgrades just getting started in our Tulsa, Oklahoma plant.
Our second objective is to position agriculture for growth.
Avner Applbaum: We've managed the down cycle well by using this time to reinforce our market leadership.
Avner Applbaum: We've strengthened our foundation through process improvements while developing and implementing the tools that will drive us forward in the next growth cycle.
Avner Applbaum: For example, to advance our aftermarket parts strategy, we launched a new e-commerce platform in late 2024 to streamline the purchasing experience for our dealers.
Avner Applbaum: We also recently introduced AgSense 365, a new app designed to simplify irrigation management for grower and dealers, while creating new growth opportunities and efficiencies for a valley irrigation business.
Avner Applbaum: Other initiatives to optimize our supply chain and improve working capital will further enhance profitability when agriculture markets recover.
Avner Applbaum: Third, we are also seeking ways to improve outcomes and will take a disciplined approach to resource allocation to advance our journey.
Avner Applbaum: This means finding better ways to work smarter and more efficiently.
Avner Applbaum: This focus also aligns with our capital allocation priorities, which Tom will cover later on the call.
Avner Applbaum: Our people are at the center of everything we do. Employee safety is a fundamental commitment ensuring every team member returns home just as they arrived.
Finally, our investment in talent development.
Avner Applbaum: equips employees with the skills and opportunities they need to grow, fostering a high-performance culture that drives innovation and long-term business success.
Avner Applbaum: Supporting our employees is good for business and is the right thing to do.
Avner Applbaum: I'm excited about the progress we made last year and confident our team will carry this momentum into 2025.
Now, turning to slide six for an infrastructure market update.
Avner Applbaum: Utility markets remain very strong, driven by several megatrends that are elevating capex spending to meet increased energy demand.
Avner Applbaum: In the past couple of years, we've seen how the energy transition, electrification and advanced technologies like AI are driving demand for our transmission, distribution and substation products.
Avner Applbaum: Belmont supports new build-outs while also assisting with replacement efforts to address aging infrastructure and the impacts of extreme weather.
Avner Applbaum: As a trusted partner to utilities, we are well positioned to capitalize on these drivers and deliver customer-focused innovation.
Avner Applbaum: For example, we offer substation packaging to streamline construction for our customers.
Avner Applbaum: We ensure all components are optimally designed, sourced, and delivered, adding significant value by reducing costs and minimizing delays.
Avner Applbaum: We also provide substation protection solutions, a durable barrier that enhances safety and security.
It protects equipment from vandalism.
wildlife, and unwanted disability.
Avner Applbaum: At the same time, our North America lighting business is beginning to recover following its typical 12-month lag behind single-family housing starts.
Turning to telecommunications.
Avner Applbaum: After a slow start in 2024, carrier spending has returned to more normalized levels.
Avner Applbaum: Growing data consumption and the increasing number of connected devices will drive multi-year investments.
Avner Applbaum: Our differentiated products and technologies align well with various carrier spending programs positioning us for growth.
We're excited about the global opportunities ahead in this sector.
Avner Applbaum: In solar, we expect a mix of puts and takes as markets adjust to evolving government policies.
Avner Applbaum: While regulatory changes can introduce uncertainty, others create new growth prospects.
Avner Applbaum: In Europe, land use regulations are driving demand for agribotaics, which integrates solar with farming to optimize land use.
Avner Applbaum: Looking ahead, these multi-year infrastructure megatrends will continue to drive sustained demand.
Avner Applbaum: Additionally, our extensive factory footprint enables us to respond quickly to customer needs.
Turn to slide 7 for an Agriculture Market Update.
Avner Applbaum: In North America, market conditions are expected to remain relatively stable in the near term.
Avner Applbaum: However, cash receipts for corn and soybeans, key drivers for our growers, are projected to decline 4.3% and 6.6%, respectively, due to lower expected crop prices.
Avner Applbaum: Despite these conditions, our Valley Dealer Network sees brighter days ahead, driven by a strong brand and continuous opportunities from large farm expansion and strategic account growth.
Shifting to International Markets.
Avner Applbaum: Farm income in Brazil remains pressured due to lower soybean prices.
Avner Applbaum: However, order rates have been stabilizing, an encouraging sign as we enter 2025.
Avner Applbaum: Much like in North America, our irrigation solutions offer growers a compelling investment opportunity
Avner Applbaum: especially since Brazil's multiple growing seasons per year increase the benefits of irrigation.
Avner Applbaum: Across many of our international markets, a more supportive policy environment is fostering improved market conditions, creating new growth opportunities for our business.
Avner Applbaum: Our international projects are making strong progress, notably in the Middle East with a robust pipeline ahead.
Avner Applbaum: By helping nations build more sustainable and resilient food systems, we create long-term economic benefits while delivering strong returns.
Avner Applbaum: Our irrigation solutions play a critical role in addressing global agricultural challenges.
Avner Applbaum: With our global footprint and advanced technology, we help growers optimize water use, improve yields, and reduce waste.
Avner Applbaum: They also drive sustainability and productivity, delivering a compelling return on investment to growers.
Avner Applbaum: Backed by industry leadership and a trusted brand, we are well positioned to meet demand as the market eventually recovers.
In summary,
Avner Applbaum: 2024 was an excellent year for Velma. We look forward to building on our achievements while staying true to the principles that define us.
Avner Applbaum: I'm extremely proud of the Valmontine and confident in the future we are shaping together.
Avner Applbaum: Now, I'll turn it over to Tom to review our financial results, 2025 Outlook, and capital allocation priorities.
Tom Liguori: Thank you, Avner. Good morning, everyone. We are pleased with our financial performance and the progress we've made over the past year.
I want to congratulate the Valmont team for their effort.
Tom Liguori: While there is still work ahead, I'm excited to share some key highlights.
Tom Liguori: My comments this morning will focus on our fourth quarter and full year results.
Tom Liguori: comparing results to last year, which are on an adjusted basis, excluding non-recurring items.
Turning to slide 9.
Fourth quarter net sales of $1.0 billion increased 2.1%.
while operating income increased nearly 20% to $120 million.
Tom Liguori: Operating margin increased 170 basis points, reaching 11.6% of net sales.
Earnings per share of $3.84 improved nearly 21%.
driven by higher operating income and lower interest expense.
The $3.84 includes approximately $4.5 million in other expense.
Tom Liguori: related to the divestiture of two small underperforming operations in the infrastructure segment.
Turning to the segments of slide 10.
Tom Liguori: Fourth quarter infrastructure sales increased 2.1% and operating income grew 24% to $122 million.
Tom Liguori: Growth in utility and telecom was largely offset by lower sales and lighting and transportation as well as solar.
Utility sales increased nearly 6%.
Tom Liguori: Higher average selling prices for utility products contributed to improved operating margins.
Tom Liguori: Lighting and transportation revenues declined by 2.5% primarily due to lighting market softness.
Coding sales increased 3.4 percent.
Tom Liguori: with growth in North America, partially offset by lower sales in international markets.
Tom Liguori: Our telecommunications business saw a strong sales growth of nearly 31%. Has carriers returned to more normalized capital spending?
Tom Liguori: Solar sales declined by approximately 35%, largely driven by our decision to action lower-margin projects earlier in 2024.
Tom Liguori: Operating income increased to $122 million or 16% of net sales.
reflecting a 280 basis point improvement.
This was driven by volume growth in utility and telecom.
Improved pricing and lower steel cost.
Moving to slide 11.
Fourth quarter agriculture sales increased 2.3%.
In North America, irrigation equipment volumes were slightly lower.
Tom Liguori: As increased sales for store replacement were offset by continued market softness.
Tom Liguori: Average irrigation selling prices were slightly lower compared to prior year.
International sales increased nearly 10%.
Tom Liguori: led by strength in the EMEA region and slightly higher sales in Brazil.
Tom Liguori: These sales gains were partially offset by $6.3 million of unfavorable foreign currency impacts.
Tom Liguori: Operating income increased to $28.5 million, or 10.3% of net sales.
Lower SG&A expenses contributed to the improvement.
Turning to 2024 full-year results on slide 12.
Well, net sales decreased 2.4% to $4.1 billion.
Operating income increased 10.9% to $525 million.
Tom Liguori: Operating margins increased 160 basis points to 12.9% of net sales.
Tom Liguori: Earnings per share of $17.19, a record for Valmont, improved nearly 15%.
Speaker Change: driven by improved operating income and a reduction in the share count due to share repurchases.
Speaker Change: Delivering record earnings despite a challenging agriculture market reflects resiliency of our business.
Speaker Change: With margin expansion, disciplined cost management, and a focus on working capital, we're more agile and better positioned to drive long-term value.
Speaker Change: We deliver strong fourth quarter operating cash flows of $193 million.
bringing our full year total to $573 million.
Speaker Change: During 2024, our team deployed $393 million to fully repay our revolving credit line.
Speaker Change: We ended the year with approximately $164 million in cash, and our net debt to Adjusted EBITDA is 1.0 times.
Moving to our 2025 Outlook at slide 13.
Speaker Change: We expect net sales to be between $4.0 to $4.2 billion.
Speaker Change: Diluted earnings per share is projected to be in the range of $17.20 to $18.80.
representing 5% growth at the midpoint compared to 2024.
as well as imported steel and aluminum.
Turning to slide 14.
These graphs illustrate the major drivers of our 2025 guidance.
Starting with Ned Sells.
We expect growth in infrastructure volumes, primarily in utility.
Speaker Change: Lower pricing of utility products due to expected lower steel cost.
A net volume decline in agriculture.
Speaker Change: with international sales growth offset by market softness and fewer storm orders in North America.
Speaker Change: A slight revenue headwind from our strategic exit of lower-margin projects.
and the impact of two divestitures completed in late 2024.
Speaker Change: and Unfavorable Currency Translation Rates affecting reported revenue in both segments.
Speaker Change: Our anticipated growth in EPS is primarily due to increases in operating profit, lower interest expense, as we have fully paid down our revolver.
Speaker Change: and a lower share count due to expected share repurchases during 2025. Regarding tariffs, our outlook includes the recently announced additional 10% tariff on China imports
Speaker Change: as well as the 25% tariff on steel and aluminum imports.
Speaker Change: We have not included other potential tariffs, such as those on all imports from Mexico and Canada, nor reciprocal tariffs, as many details are unknown.
Always keep in mind, for our U.S.-based customers,
Speaker Change: The vast majority of our products shipped to them come from one of our 24 manufacturing facilities in the United States.
Speaker Change: Finally, in 2025, we expect strong operating cash flows driven by earnings growth and disciplined working capital management as part of our guidance.
Speaker Change: It's important to note that our solar business faces a challenging first half revenue comparison.
Speaker Change: but is expected to return to growth in the second half.
Speaker Change: Additionally, a reminder that first-quarter infrastructure sales are typically lower due to normal seasonality.
Turning to slide 15.
Speaker Change: Earlier this morning, we issued a press release outlining our long-term capital allocation priorities.
Our commitment to delivering shareholder value remains strong.
Guided by a balanced capital allocation strategy.
as part of this approach.
Speaker Change: We plan to allocate 50% of operating cash flows toward growth investments.
and 50% to shareholder returns.
Speaker Change: I'd like to take a moment to discuss how this strategy
will drive long-term value creation.
We're increasing our annual CapEx to approximately $150 million.
of which about two-thirds is for growth initiatives.
Speaker Change: The growth investments will mainly be tapbacks for production equipment to increase manufacturing output, primarily in infrastructure, while driving innovation to better serve customers.
Transcription by CastingWords
Our M&A strategy will be disciplined and highly selective.
Targeting opportunities that align with our core.
Speaker Change: expand into adjacent markets and geographies, and add new products and services.
all to reinforce the value we deliver to our customers.
Speaker Change: Our M&A focus will be on growth and earning a healthy return on invested capital.
Speaker Change: Share repurchases remain a key pillar of our capital return strategy.
Our board approved a new $700 million buyback authorization.
representing approximately 10% of our current market cap.
We will follow a disciplined approach.
with regular quarterly repurchases.
while opportunistically increasing buybacks when we see strong value.
Speaker Change: Additionally, our board approved a 13% increase to our quarterly dividend.
Speaker Change: We anticipate annual dividend increases, typically announced in the first quarter, in line with expected longer-term earnings growth.
Speaker Change: Finally, we remain committed to maintaining an investment-grade credit rating with long-term net debt leverage below 2.5 times.
Ensuring flexibility for organic and inorganic growth investments.
Speaker Change: In summary, our fourth quarter and full year 2024 results were in line with our expectations.
We are proud of our team's efforts.
Speaker Change: to manage market headwinds and deliver solid growth and operating margins and diluted EPS.
Well, market uncertainties are expected in twenty twenty five.
Speaker Change: We believe we will deliver another year of operating profit and EPS growth.
The strength of our business.
Speaker Change: and our team's performance enabled us to find a capital allocation path to both grow our business and deliver shareholder returns.
We have an exciting future.
I will now turn the call back over to Renee.
Renee Campbell: Thank you, Tom. At this time, the operator will open up the call for questions.
Thank you.
Speaker Change: We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.
Speaker Change: For participants using spear equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: To allow for as many questions as possible, please limit yourselves to one question and one follow-up.
One moment, please, while we poll for questions.
Speaker Change: Thank you. Our first question comes from a line of Chris Moore with CJS Securities. Please proceed with your question.
Chris Moore: Hey, good morning guys, and congrats on a very nice quarter, great year.
Chris Moore: Can you just talk a little bit more about, you know, North America versus international or, you know, is there less certainty in one of the subsegments, you know, that nine and a half, three and a half ranges? Are they both in that same range? Or is one the bigger driver?
Tom Liguori: Hi, good morning, Chris. I'll start off and then Tom can add some more detail. Overall, you know, the markets both in North America and Brazil
Tom Liguori: will be pressured by corn and soy prices, which have the largest impact on their profitability.
So, based on the current indication, the prices...
stock-to-use ratio.
Tom Liguori: with Net Fire Income, we will expect those markets to be challenging for us this year. Having said that, on the project side in the North Africa and EMEA region, we're very pleased with our results.
Tom Liguori: activity in that region. We have a very strong backlog, strong pipeline, all driven by
Tom Liguori: the drivers around food security, and that will have a strong impact on our business. And Tom, maybe you want to add some, share a little bit about the North America and Brazil. Yeah, I would just say, you know, the agriculture team is really focused.
Tom Liguori: on improving their business so as we do return to growth.
Tom Liguori: Maybe end of twenty five, twenty six, that we're in a really good position for higher, higher operating margins. You know, they're doing a lot of work on their product cost, the cost of a pivot.
Avner Applbaum: They're really focused on investing in their aftermarket growth, as Avner said, with spare parts and services like e-commerce and accents. And, you know, we'll see how it goes this year. I think they're controlling what they can control.
We're pleased to see the international growth.
Got it. Very helpful. Maybe just my follow-up.
on the Operating Mortgage side that you used.
Avner Applbaum: a little bit. The goal is to approach mid-teens, margin, longer term. Maybe just the puts and takes for Y25 operating margin could be, you know, a little bit different.
Well,
Avner Applbaum: You know, we have a lot of opportunity in our margins.
Avner Applbaum: and I just mentioned, you know, ag really in the gross margin side with aftermarket and product costs. I think when you look at infrastructure, we are adding capacity, but we're also adding automation.
Avner Applbaum: So while you'll see depreciation expense go up, we do expect improved efficiencies and lower cost over time.
Avner Applbaum: In SG&A, we believe we can do more, lowering it as a percent of revenue. I think you'll see this year that our headquarter cost will be flat to down, and all of these will help us get to the goal of mid-teens.
Avner Applbaum: I think what's important to know when you look at our margins through the year is that this first quarter will be relatively clean. We'll have some terrorists, probably Q2, Q3. We'll...
Avner Applbaum: probably have our mitigation effects in place the second half of the year. And let me give you a little insight into the tariffs in our guidance. You know, at midpoint it's a 20 percent, 20 cents, sorry, 20 cent headwind.
At the low end,
Avner Applbaum: It's about 40 sets and that would be assuming that it takes more time to mitigate.
Avner Applbaum: at the high end is virtually no tariffs, meaning that things go well.
Avner Applbaum: So, Chris, you know, I think we have good margin upside through the year, excellent margin upside going through 2026.
Avner Applbaum: Terrorist are disruptive and we'll see how that goes, but I think we're we're on it and I think we're taking all the steps today to really
Manage and Mitigate.
Avner Applbaum: And Chris, I'll just add, you know, one point is we're really pleased with what we've done over the last several years on expanding our operating margins, growing our diluted EPS and a mix and market dynamics.
Avner Applbaum: You know, we've really been focusing on our commercial pricing strategies, operations efficiencies, reducing our SG&A, and just focus on the core and what we do very well. So we will continue that journey this year towards our goal of achieving our mission.
Target
Very helpful, guys. I will leave it there. Thank you.
Speaker Change: Our next question comes from the line of Nathan Jones with Stiefel. Please proceed with your question.
Good morning, everyone.
Nathan Jones: Just a question on how you've approached that in the guidance. I mean, if you look at coil steel prices, they're already gone up 25%.
Nathan Jones: In the US, so it probably doesn't really matter where you're sourcing it from. It's still going to end up being the same price, which at the moment looks like about 25% higher. Is that how you accounted for tariffs in your guidance? And then can you talk about how you pass that on to the market? I know.
Nathan Jones: There's some structural mechanisms to pass it on. Some of it will be determined by the market. I mean, infrastructure businesses are generally pretty strong and might be a bit easier, but the ag business is a bit weak and might be a bit harder to pass on pricing. So just any color you can give us there, please.
Tom Liguori: Nathan, I'll start off. So just broader around how we're addressing the tariff. So, you know, like everyone else, we're keeping a very close eye on the changes to the trade policy. And, you know, Tom touched on this in his remarks, you know, we do have a solid handle on the impact of the China tariffs, and that is factoring to our guidance.
Nathan Jones: along with our best estimate on the steel and the aluminum import tariffs.
Speaker Change: Now, when it comes to the potential tariffs on imports from Canada and Mexico, you know, there's still that a lot that we don't know. Here's what I can tell you, though, is our main focus is on Mexico.
Speaker Change: You know, we've been very intentional on how we built our global footprint to serve best our customers.
Speaker Change: So most of our U.S. customers are being supplied from our U.S. plants.
Speaker Change: And, you know, we're doubling down on that, you know, most of our infrastructure capacity investments that we're doing right now are here in the U. S.
Speaker Change: And, you know, just to put it all in perspective, you know, the production out of Mexico, it's less than 10% of our overall infrastructure revenue.
Speaker Change: Now, that said, you know, our team, our team is all over it. We're using our well-established playbook, you know, how we manage these potential impacts.
Speaker Change: And, you know, as you know, it's not the first time that we're dealing with tariffs. So we're looking at
Speaker Change: at pricing and commercial strategies. And to your point around, you know, when we see the tariffs and when we see steel going up, we
Speaker Change: We address that, and I'll go into a little bit more details in a bit. You know, working with our suppliers on, you know, how do we make operational adjustments.
Speaker Change: We use financial instruments as well. And of course, we consider other steps to mitigate the total impact. So, you know, the bottom line is, you know, our team will go over great lengths to make sure we're covering all our bases.
Speaker Change: and I'll, you know, specifics, you know, how we look at these markets, you know, it's no different than any other cost increases we've seen this.
Speaker Change: through COVID. Pricing went up. We were already having conversations with our customers and they
Speaker Change: they understand it. You know, there's really not a lot of pushback. They need our products. They see the value proposition we have in these industries in these industries. Um, and right now it's being, um
Tom Liguori: They're dealing with it with, like I said, not a lot of pushback. I don't, Tom, if you have any specifics you want to want to add to that.
Nathan Jones: Regarding the guidance, Nathan, we're a diversified industrial company and we use a lot of steel. So we thought it was very important to shareholders and potential shareholders to make sure you understand the impact. So, in the guidance, and it's in our assumptions, we're assuming the steel cost
Nathan Jones: As of what's in the future markets as of Friday, so everything you just talked about that is reflected in our guidance
Nathan Jones: and then we also felt it was important to quantify the best we could the impact on the China imports and the steel and aluminum inputs. So we feel good that we're you know I think we got a handle on this and and everything you just said Nathan is addressed in the guidance.
Nathan Jones: I appreciate that. I think you're about the first company we've had so far that's put it into the guidance. I guess my second question, I'd like to ask a question on the capital allocation priorities and specifically the 50% of operating cash flow allocated to growth opportunities.
Nathan Jones: Pretty big step up in the expectation for CapEx from, you know, just under 100 to like 150 million. Can you talk about
Nathan Jones: what you're adding in terms of capacity, how much capacity that will add just in terms of revenue dollars over the next few years, and then what the financial and strategic criteria are for M&A, and I'll pass it on. Thanks very much.
Thank you.
Nathan Jones: You know, as it relates to CapEx, we're fortunate to have the opportunity with very strong market demands across our portfolio. And we are elevating our CapEx spend to around $150 million this year, will continue to be elevated next year, as a lot of these projects do take time, you know, some of them are multi-year projects.
Nathan Jones: We're right now we're focused on our North America plans. We have around
Nathan Jones: 13 core plans that we're increasing our capacity and then we're increasing our capacity.
Nathan Jones: to make sure we could support the demand. But the highest level I'd look at it is our long-term targets are, you know, the mid-single-digit-plus growth in specifically now infrastructures where we're investing. And we're going to invest to make sure we have enough capacity to support that demand. Now,
Nathan Jones: We're talking about capital, but but of course, we're also investing in in people, process improvements and lean. We're actually investing in an R&D center to make sure we could support all these increases. And we're also looking at investing in our engineering, in our IT systems.
Nathan Jones: We're using we're using data science to make sure we have better throughput throughout our plans, investing on our supply chain. So it's a multifaceted approach to investing in our capacity.
Nathan Jones: and the way I see it is we're going to invest to make sure we could support our customer needs over the next three to five years to achieve our long-term targets.
Nathan Jones: So that's on the capital side. And when you look at the M&A,
Nathan Jones: We're going to very much be focused on the core, on what we do at Valmont very well, linked directly to our strategic priorities. It's going to be areas where we or the target can bring synergies around our products, our markets, our capabilities. So it's going to be areas that we are very familiar with, that Valmont is a clear, natural
Nathan Jones: is three. And then there are other areas that we look at. You know, we want to make sure the companies that we look at have long term enduring, uh, growth drivers. We look at the management team, make sure they're aligned well with our culture. Eso we think a broad approach to acquisitions.
Nathan Jones: You know, and as it looks to the financials, you know, ideally, we're looking at a company that will have a meaningful impact to to Valmont, each, each one of these acquisitions to take significant resources, they need to have meaningful synergies, and they will have since they're aligned with our core.
Nathan Jones: You look at ROIC, we need to beat cost of capital by year three.
Nathan Jones: and typically they will be a creative year one since they are very synergistic. So at a very high level, it's part of our strategy, organic and inorganic growth, and we will make sure that these acquisitions are tied very closely to our core and synergistic to us.
Thanks for taking my questions.
Thank you.
Speaker Change: Our next question comes from Brian Drab with William Blair. Please proceed with your question.
Brian Drab: Thanks for taking my questions. I just wanted to first start on gross margin. And you did mention on the call that despite tariffs and whatever happens with tariffs, your expectation is, I believe that you'll have overall lower steel prices in 2025.
Brian Drab: I think the way to view it is through the quarters, you'll see revenues increasing as we bring out capacity.
Brian Drab: You'll probably see EPS relatively constant through the year as, you know, later in the year we'll get more revenues from capacity, potentially have more tariffs.
Brian Drab: I'll take this opportunity now to also say, Brian, you know, our Q1, this is a lot of moving parts here, our Q1, we expect revenues to be very similar to Q1 of 2024, but we expect higher, slightly higher EPS because of lower SG&A cost.
Speaker Change: As you're bringing on the capacity, is there anything that we should keep in mind with respect to gross margin and incremental costs or startup costs and the timing of that?
Speaker Change: Capacity will be coming on through the year, but more on the second half. You should expect higher depreciation expense, and as it comes online, we anticipate improved efficiencies, and hopefully the net effect of that is lower cost.
for today.
Speaker Change: I'll get back in line for now. Thank you very much.
Speaker Change: As a reminder, if you would like to ask a question, press star one on your telephone keypad.
Speaker Change: Our next question comes from the line of John Brotz with Kansas City Capitol. Please proceed with your question.
Good morning, everyone.
John Brotz: You mentioned new capabilities. What else are you bringing online in the utility sector that maybe is new and different from what you have done previously, new services, new products? Can you give us an idea?
John Brotz: Yeah, happy to. So, you know, overall, we're seeing very strong demand in utility across the board from all of our products and solutions.
John Brotz: We talk a lot about our transmission, distribution, substation, we're seeing a lot more strength in the substation and distribution area. You know, some of the specifics that I
John Brotz: address that we're looking at is, you know, using some of our composite solutions as well.
John Brotz: to help with a specific example I gave is around a product called SafeFence where it really helps to support the substations and to protect them.
John Brotz: and we're seeing we're seeing nice and strong growth in that area.
John Brotz: You know, the other example was around substation packaging where, you know, instead of, you know, instead of building it on site and it could create delays and an additional cost, we can, we can build it all in a closed environment, test it and bring it.
John Brotz: right to the field. And you know, it's part of part of what we do on a day to day basis is we keep on innovating, right, you know, not not every steel, not every pole, while it may seem the same, it is not there's a lot of engineering that goes into every one of our products. So we keep on on innovating to make sure they're more sustainable, they perform provide more value, etc. So yeah, we're excited. We have a very strong engineering organization and they keep on
looking at opportunities to support our customers.
Avner Applbaum: Okay, thank you. Avner, in the telecommunications area, that is ramped up nicely. Are you expecting that ramp up to continue at sort of an accelerated pace?
Avner Applbaum: Overall, you know, we mentioned this last quarter, we've seen, we've seen the increase by the carriers and that continued into Q1, right? When we look at the large U.S. carriers in the U.S., you know, they are expected to show some
Avner Applbaum: throughout the year, you know, low single digits, you know, their CapEx.
Avner Applbaum: from flat to high 5%. And that supports our business. So I wouldn't say it's a rapid growth. It's more back to normalize business. Our technologies, solutions, products, supports all aspects of these builds from
Avner Applbaum: from 5G to C-band and even fiber built out. So we're well positioned to continue the growth. I wouldn't expect rapid growth. We're back to more normalized and we will see growth in telecom this year. Avner, thank you.
Speaker Change: Our next question comes from the line of Brent Thielman with DA Davidson. Please proceed with your question.
Brent Thielman: Thanks, good morning. Avner, just in regard to the capital allocation mix, I guess, specifically on M&A, could you talk about the potential size of pursuits you're looking at? Is there even an interest?
Brent Thielman: and something more transformational at Valmont after all the kind of work you've done internally the last couple of years. I'd just be curious around that.
Yeah, so at this point
Brent Thielman: We're not looking at anything transformational. We're looking at businesses that tie directly to our core We have strong drivers in our business driven by multi-year secular megatrends
Brent Thielman: And this is really going to be something that is going to supplement.
Brent Thielman: Supplement our growth. Like I said, you know, we don't have a specific size we'll look at. If it's small, that means it has a real significant capability that it's adding to the organization. But ideally, once you're going to do acquisition, you want to have you want to make sure it's going to have meaningful EPS, meaning contribution to our overall performance, provide us with more growth opportunities. So no specific targets, but overall, part of our strategy to keep on helping to drive.
of value to our stakeholders.
Speaker Change: Okay and I apologize if you've answered this already I got on a bit late but on the on the Ag side
Speaker Change: here. Could you talk about maybe just the pricing environment, either domestically and internationally, what you're seeing today, what you're seeing on sort of incoming orders? Is it
Speaker Change: Stabilized or is there some pressure still given some of the the volume pressure seen on the North American business?
Speaker Change: Overall, you know, in the markets in North America and Brazil, which are pressured, but we're not seeing any pressure around pricing specifically. I mean, it's always more challenging, of course, but being the leaders in this industry, we make sure we take pricing leadership and really focus on the value proposition. And you know, Tom touched briefly about it, but, you know, I just came back from the national
local couple of years.
very much focused.
Speaker Change: on our core, strengthening our position, on our technology. There was a lot of excitement during this meeting around our new technology offering. If you think about our Accent 365, taking four platforms, putting them on one, ease of use, better,
Speaker Change: user experience providing them with our other new product we're coming out with. There were icon plus, which is basically the irrigation controller for the pivot at a very competitive.
Price,
Speaker Change: allowing them to drive more connectivity to support areas like Middle East Africa and emerging markets. That's another one that there's a lot of excitement. And even around the machine diagnostics, which we're bringing to this industry, where it is so important to have the pivot running when you need it. And if it fails,
Speaker Change: then that is a very costly proposition to help around machine diagnostics.
Speaker Change: Overall, the value proposition we are offering to our growers is significant and we don't feel and we're not seeing any need to Reduce pricing. So overall there's strong value proposition
Speaker Change: Challenging year in North America, Brazil, but as we look into the future all these secular demands around population growth, productivity, sustainability, and of course our strength in Middle East Africa, we're excited about the future.
Thank you.
Okay, thank you.
Speaker Change: Our next question is a follow-up from Brian Drabb with William Blair. Please proceed with your question.
Brian Drab: Hi, thanks. I just wanted to ask about the substations within the utility segment in that product line.
Brian Drab: We're talking much more about that lately, I feel, than we have in the past. And can you just spend another minute, you know, talking about the dynamics that's driving that? Is it related to data center expansion in part? And how do your margins in that business compare with margins for the utility business overall? Thanks.
it back to us.
Brian Drab: It also helps us, you know, you look at these data centers, they need lighting solutions, there are a lot of galvanizing that goes into data centers and telecom, it really supports all aspects of our business.
Brian Drab: It's still a smaller part of utility, but it is growing. It has very strong margins due to the complexity and not many companies can do the sizes that we can do and the complexity that we do. And then we'll, we'll,
Brian Drab: will price it based on the value that we provide, which is significant. So it's growing, and we're excited about where this thing can go.
Brian Drab: It is a country that we have been doing work for quite a while.
Okay, thank you very much.
Brian Drab: We have reached the end of the question and answer session. I will now turn the floor back over to Renee Campbell for closing remarks.
Renee Campbell: Thank you for joining us today. A replay of this call will be available for playback on our website and by phone for the next seven days. We look forward to speaking with you again next quarter.
Renee Campbell: This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Renee Campbell: These statements are based on assumptions made by management considering its experience in the industry where Valmont operates, perceptions of historical trends, current conditions, expected future developments, and other relevant factors.
Renee Campbell: It is important to note that these statements are not guarantees of future performance or results.
Renee Campbell: They involve risks, uncertainties, some of which are beyond Valmont control, and assumptions.
Renee Campbell: Future Economic and Market Circumstances, Industry Conditions, Company Performance and Financial Results
Renee Campbell: Operational Efficiencies, Availability and Price of Raw Materials, Availability and Market Acceptance of New Products.
Renee Campbell: Product Pricing, Domestic and International Competitive Environments, Geopolitical Risks and Actions, and Policy Changes by Domestic and Foreign Governments.
Speaker Change: The company cautions that any forward-looking statements in this release are made as of its publication date and does not undertake to update these statements except as required by law.