Valmont Industries (VMI, Financial), a leading global provider of engineered products and services for infrastructure and mechanized irrigation equipment for agriculture recently reported results for the second quarter 2014. Its performance for the second quarter was primarily driven as sales for its Engineered Infrastructure Products Segment rose significantly due to acquisition growth. Also, this strong sales performance in this segment helped the company to compensate the lower sales in the other segments such as irrigation and coating and utility support segments.
A recovery cannot be ruled out
Valmont posted net sales of $842.6 million, a slump of 4.1% as compared to $878.7 million in the same quarter a year earlier. Its sales also failed to meet consensus estimates of $856.93 million in sales for the quarter. Its net profit for the quarter came in at $64 million or earnings of $2.38, compared to net income of $89.6 million or earnings of $3.33 per share in the corresponding period last year. However, its bottom line performance was in line with $2.38 earnings per share estimated by consensus for the quarter.
Looking ahead, the company has lowered down its earnings guidance for the full year. Valmont now expects its earnings for the full year to be in the range of $8.70-8.90 per share, down from the previously announced earnings guidance of $9.35-9.65 earnings per share. This slowdown in its earnings guidance resulted from the tough challenges in the utility structure business in the North America and relatively weak pricing for segments like irrigation. Also, it delayed about $40 million projects in its utility structures segment that were supposed to be launched in fiscal 2014. It expects its total operating earnings in the second half to decrease approximately 10% as compared to operating income for the fiscal 2013.
However, the shareholder and investors should avoid this near-term softness in its business and look for a healthy long-term growth prospects that the company has at its folds with its diversified business portfolio. The company has various value-adding products in most of its divisions that should drive its growth over the coming years. The infrastructure, irrigation, utilities and mining offers tremendous growth prospects for the company in the future as it leads each of these markets with relatively larger market share.
Gaining momentum
Its Engineered Infrastructure product segment is gaining a lot of traction in the market, benefitted through acquisition growth. The company expects positive sales and improved profitability in this segment in the second half. It offers various products under this segment comprising lighting, traffic, wireless communication, roadway safety, and towers for wind turbines. All of these markets certainly demonstrate tremendous growth for the company in the developing countries in the long run.
Also, Valmont provides various supplementary products such as street lights, stop lights, and road safety products along with large custom lighting systems utilized in venues and stadiums. It also manufactures cell towers that are gaining market with the growing networks and data connectivity should yield healthy returns to the company and drive its performance in the coming years.
Vermont however is seeing softness in its irrigation segment as the prices for the commodities remain low relatively and demand for agriculture machinery is deemed considerably. Nevertheless, the company should benefit from the growing irrigation market globally. Its sales in the international irrigation markets are growing. It has strong presence in the regions like Brazil, Pacific regions and Middle-East that should compensate its weakening sales in the home market.
The company has huge opportunity to further increase its international irrigation market as it is seeing favorable government programs and policies that are infusing investment in the agriculture segment should drive its growth in the long-run. This should also help the company to offset the impact of lower crop prices in various markets.
Conclusion
Valmont looks like a great pick as its future prospects look bright. It has fantastic product portfolio in various markets that should drive its growth in the long run. The company should benefit from the growing global trends including increased population, economic recovery and higher demand for infrastructure. Moreover, the analysts have estimated CAGR of 9.55% for the next five years. The analysts also forecasted CAGR of 13.90% for the next year that indicate strong return for the stock in the short as well as in the long-run.
Valmont is currently trading at the trailing P/E of 15.30 and forward P/E of 12.65 that signifies reasonable valuations for the stock that is expected to grow at a healthy rate in the future. Also, it has PEG ratio of 1.51 that makes it a good buy going forward.
