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Valmont Poised on Strategic Actions Amid Industry Headwinds
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On May 30, we issued an updated research report on steel pipe and tube company Valmont Industries (VMI - Free Report) .
Valmont saw higher profits in the first quarter of 2016, aided by its restructuring, productivity improvement and cost-saving measures. Adjusted earnings topped the Zacks Consensus Estimate while sales missed expectations. The company reaffirmed its earnings per share outlook for 2016 which is expected to be 12%–15% higher than the adjusted earnings per share of 2015.
While the prevailing external environment continues to be challenging for Valmont, the company expects to benefit from restructuring actions, cost management and a focus on operational improvements moving ahead. Valmont should also gain from acquisitions and its efforts to boost its market position through investments towards developing its product line.
The restructuring actions, which the company executed last year, are expected to improve its overall cost structure, thereby supporting its earnings. The restructuring measures coupled with other cost-reduction actions are expected to deliver total annual savings of around $30 million. These measures allow Valmont to not only consolidate its operations, but also keep up its customer service, thus maintaining its position in the market.
Acquisitions will also support growth in 2016. The acquisition of leading Northern European engineered steel products maker – DS-SM A/S (rechristened Valmont SM A/S) – has enabled Valmont to cater to a wide range of industries. Moreover, the acquisition of a majority stake in South Dakota-based AgSense has broadened Valmont’s portfolio in remote monitoring and control technology for agriculture. The purchase of American Galvanizing Company, a market leader in hot-dip galvanizing in the Northeast U.S., also expanded Valmont Coatings' network to 33 facilities in 6 countries around the world.
However, Valmont faces certain near-term challenges across its operations. The company is seeing continued challenges in its irrigation business, in part, due to weak commodity pricing and large inventories of key crops such as corn and soybeans.
The results in the company’s North American irrigation business are expected to continue to be affected by lower commodity prices which are affecting farm income. Lower farm income, in turn, is expected to impact equipment purchases by farmers.
Valmont is also seeing challenges in its North American utility structures business, partly due to weak pricing and unfavorable project mix. Market conditions for this business are not expected to materially improve in the near term.
A weak Australian economy is also affecting Valmont’s Coatings segment. Moreover, demand for some of the company’s products remains weak in the oil and gas market.
Valmont currently sports a Zacks Rank #3 (Hold).
Stocks to Consider
Some better-ranked companies in the steel and metals space include Ryerson Holding Corporation (RYI - Free Report) , ArcelorMittal (MT - Free Report) and Commercial Metals Company (CMC - Free Report) . While Ryerson sports a Zacks Rank #1 (Strong Buy), both ArcelorMittal and Commercial Metals carry a Zacks Rank #2 (Buy).
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Valmont Poised on Strategic Actions Amid Industry Headwinds
On May 30, we issued an updated research report on steel pipe and tube company Valmont Industries (VMI - Free Report) .
Valmont saw higher profits in the first quarter of 2016, aided by its restructuring, productivity improvement and cost-saving measures. Adjusted earnings topped the Zacks Consensus Estimate while sales missed expectations. The company reaffirmed its earnings per share outlook for 2016 which is expected to be 12%–15% higher than the adjusted earnings per share of 2015.
While the prevailing external environment continues to be challenging for Valmont, the company expects to benefit from restructuring actions, cost management and a focus on operational improvements moving ahead. Valmont should also gain from acquisitions and its efforts to boost its market position through investments towards developing its product line.
The restructuring actions, which the company executed last year, are expected to improve its overall cost structure, thereby supporting its earnings. The restructuring measures coupled with other cost-reduction actions are expected to deliver total annual savings of around $30 million. These measures allow Valmont to not only consolidate its operations, but also keep up its customer service, thus maintaining its position in the market.
Acquisitions will also support growth in 2016. The acquisition of leading Northern European engineered steel products maker – DS-SM A/S (rechristened Valmont SM A/S) – has enabled Valmont to cater to a wide range of industries. Moreover, the acquisition of a majority stake in South Dakota-based AgSense has broadened Valmont’s portfolio in remote monitoring and control technology for agriculture. The purchase of American Galvanizing Company, a market leader in hot-dip galvanizing in the Northeast U.S., also expanded Valmont Coatings' network to 33 facilities in 6 countries around the world.
However, Valmont faces certain near-term challenges across its operations. The company is seeing continued challenges in its irrigation business, in part, due to weak commodity pricing and large inventories of key crops such as corn and soybeans.
The results in the company’s North American irrigation business are expected to continue to be affected by lower commodity prices which are affecting farm income. Lower farm income, in turn, is expected to impact equipment purchases by farmers.
Valmont is also seeing challenges in its North American utility structures business, partly due to weak pricing and unfavorable project mix. Market conditions for this business are not expected to materially improve in the near term.
A weak Australian economy is also affecting Valmont’s Coatings segment. Moreover, demand for some of the company’s products remains weak in the oil and gas market.
Valmont currently sports a Zacks Rank #3 (Hold).
Stocks to Consider
Some better-ranked companies in the steel and metals space include Ryerson Holding Corporation (RYI - Free Report) , ArcelorMittal (MT - Free Report) and Commercial Metals Company (CMC - Free Report) . While Ryerson sports a Zacks Rank #1 (Strong Buy), both ArcelorMittal and Commercial Metals carry a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>