Valmont Industries, Inc. 2026 Q3 Earnings Call

Good morning, everyone, and thank you for joining us. With me today are Avner Applbaum, President and Chief Executive Officer; John Schwietz, Executive Vice President and Chief Financial Officer; Eric Johnson, Chief Accounting Officer, and Casey Meyer, Vice President, Treasury and Investor Relations. Earlier this morning, we issued a press release announcing our third quarter 2026 results. Both the release and the presentation for today's webcast are available on the investors page of our website at valmont.com. A replay of the webcast will be available later this morning. To stay updated with Valmont's latest news releases and information, please sign up for email alerts on our investor site. We will begin today's call with prepared remarks and then open it up for questions. A reminder that today's presentation and Q&A includes forward-looking statements about Valmont's expectations, plans, and future performance. Actual results may differ materially from those expressed or implied.

Important factors that could cause those differences are described under forward-looking statements, which is outlined on slide 2 of today's presentation and in the risk disclosures in our most recent Form 10-K and subsequent Forms 10-Q available on our investor relations website and sec.gov. With that, I would now like to turn the call over to Avner.

Thank you, Renee. Good morning, everyone, and thank you for joining us. Turning to slide 4. I would like to start by highlighting three important takeaways from the quarter. First, we delivered another quarter of sales and earnings growth. Net sales increased 5.5%, and operating margin expanded 220 basis points. Earnings per share rose 25.3%. The progress we are making reinforces our confidence in achieving our long-term financial objectives. Second, infrastructure growth continues to be anchored by markets where we have strong positions and see significant long-term opportunity. North America utility sales increased 23% as customers are modernizing the grid, adding capacity, and improving resiliency as power demand grows. North America coating sales grew 14%, supported by utility construction projects, including data centers. These businesses are delivering on our Investor Day priority to capture above-market growth in utility.

Finally, North America agriculture sales increased 16%, a notable result given the challenging broader market. When storms disrupted growers' operations during their peak season, our Valley dealers and teams were ready to help get their systems back up and running as quickly as possible. Storm replacement activity contributed to the quarter's growth and demonstrated the value of the dealer network. These relationships also support our strategy to grow aftermarket parts and technology, strengthening the business even before a broader market recovery. Turning to slide 5, I'll review our infrastructure businesses, starting with North America Utility. Demand is exceptionally strong. Our alliance relationships give us visibility into customers' multi-year plans before projects become firm orders and enter the backlog. That pipeline continues to strengthen. This quarter, more of those opportunities converted into orders, bringing the infrastructure backlog to $1.8 billion.

The projects ahead and orders in hand support our confidence in utility growth behind our path to $35 in earnings per share by the end of 2029. My recent conversations with key utility customers reinforce our view that we are still early in a multi-year investment cycle. One customer told me it has tripled its project management and field teams over the past two years to support its expanding investment program. That same company asked us to evaluate structural alternatives and total installation costs for a higher voltage transmission project. Customers rely on our engineering expertise to make informed decisions early in their projects. They have also made clear that dependable delivery is essential to their construction schedules. That's why we are focused not just on adding capacity, but also on improving throughput and meeting delivery commitments.

Through the third quarter, we've installed and commissioned approximately 20% of the incremental utility steel production capacity required to support our 2029 plan. Lead times across the industry have extended as demand grows and new capacity ramps up. To support utility and coatings, we are increasing our expansion and expect to double our growth capital investment in 2027 compared with this year. These investments are aligned with visible customer demand and our capital framework presented at Investor Day. North America Coatings is also benefiting from the infrastructure investment supporting utility and other end markets. With one of the largest galvanizing networks in the industry, our coatings business plays an important role in improving the durability and life cycle performance of critical steel infrastructure. With galvanizing demand outpacing industry supply, we expect to shift more of our existing capacity towards growing internal volumes as we bring expansion projects online.

This will help us maintain reliable delivery for our utility customers. In lighting and transportation markets are healthy, while lighting continues to be affected by softer residential and commercial construction activity. We're pursuing targeted growth, including expanding our presence in Texas. Our work with utilities and municipalities is translating into new orders and product approvals, supporting our growth in this important market. Our priorities remain improving on-time delivery, manufacturing reliability, and overall operating performance. In telecom, carrier capital deployment remains selective following the peak of the 5G build-out. Several carriers are delaying site modification work to align with future technology and spectrum deployments. This impacted demand this quarter, and we expect market conditions to remain soft in the near term. This does not change our view of the longer-term need for network investment. We are well-positioned to support long-term growth in data consumption and network capacity needs.

Across our international infrastructure markets, we are advancing initiatives to strengthen commercial execution and operational performance across these businesses. A good example this quarter is in Europe, where we secured a new contract to supply distribution poles to a major utility, expanding our participation in grid investment. Turning to agriculture on slide 6. Global ag market conditions remain challenged. In North America, higher input costs and lower grain prices continue to pressure farm economics and constrain capital spending. Recent industry reports indicated a decline in grower sentiment and capital investment expectations, reinforcing our view that this quarter's sales growth does not suggest a broader market recovery. The landscape is similar in Brazil. Interest rates and input costs remain elevated while grain prices have not kept pace. We remain confident in the long-term fundamentals of the Brazilian market.

In the Middle East, the ongoing conflict in the region continues to affect our operations and the timing of certain customer projects, with high shipping costs adding to the delays. We do not expect a near-term return to normal activity in the region, and recovery will take time. At the same time, we are very pleased to have been awarded a $100 million project in North Africa supporting food security in the region. The project includes our full suite of technology and water management solutions to improve farm productivity and water efficiency. We expect shipments to begin in the first half of 2027, and our diverse global manufacturing footprint provides the flexibility to reliably serve this customer. While the underlying dynamics differ across regions, we expect the overall operating environment for ag to persist through year-end. We are investing in higher-value aftermarket and technology solutions to help growers improve productivity.

These areas continue to gain traction and strengthen the quality and resilience of the business through the cycle. Across Valmont, our priorities as we look ahead are clear: efficiently ramp the capacity we are adding, align our operations with demand across the portfolio, and recover higher input costs through disciplined pricing. I will now turn the call over to John to review our third quarter financial results and updated 2026 outlook.

Thank you, Avner, and good morning, everyone. Turning to slide 8. I will begin with our consolidated results. Net sales of $1.1 billion increased 5.5% year-over-year, driven by growth in infrastructure, notably North America utility and coatings. Operating income increased to $172.8 million, and operating margin expanded 220 basis points to 15.7%. Our tax rate was approximately 26%. Diluted earnings per share was $6.24, a 25.3% increase from prior year. Moving to our segment results on slide 9. Beginning with infrastructure, sales of $882.1 million grew 9.1% year-over-year. North America utility sales increased 23%, driven by higher pricing and volume growth, supported by a robust market environment. Sales in North America Lighting and Transportation declined 2.2% due to lower volumes. North America Coating sales increased 13.8%, supported by healthy infrastructure and data center demand.

North America Telecom sales decreased 33.8%, reflecting lower carrier spending as customers shifted capital allocation priorities. International sales increased 5.5%, driven by pricing actions and favorable foreign exchange impacts. Operating income increased to $154.8 million, or 17.6% of net sales, compared to $143.4 million, or 17.8% of net sales. Higher pricing and volumes in utility and coatings helped offset higher material costs, the cost of ramping utility capacity, and lower telecom contribution. We are addressing the margin pressure through contractual pass-throughs and broader pricing actions. As capacity ramps, we are focused on strategic sourcing, productivity enhancements, and improving material flow. Let me provide some context on the price cost timing we are experiencing. Average steel prices on the third-party index we use for contractual pass-throughs were approximately 50% above prior year levels. This increase is visible in the chart we have in the appendix.

Because of the size and duration of our utility backlog, these costs affect results before the related pricing adjustments reach revenue. When input costs stabilize, we expect pricing will catch up and support infrastructure margin expansion. This usually takes 2 to 3 quarters to fully realize. These near-term pressures do not change our view of the long-term earnings potential of this business. Turning to slide 10. Third quarter agriculture sales decreased 6.4% year-over-year to $226 million. North America sales increased 15.8%, led by storm replacement orders and favorable pricing. International sales decreased 25.3%, driven primarily by lower Middle East and Brazil volumes. We also saw continued growth in our higher value offerings, with aftermarket part sales increasing approximately 12% and technology services growing 7%, despite softer equipment demand. Operating income increased to $40.1 million, or 17.9% of net sales, compared to $23.2 million, or 9.7% of net sales.