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Valmont (VMI) Up 6% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Valmont Industries (VMI - Free Report) . Shares have added about 6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Valmont due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Valmont Misses on Q3 Earnings & Sales, Lowers '19 View

Valmont registered profits of $40.1 million or $1.85 per share in third-quarter 2019, up from $4.4 million or 20 cents in the year-ago quarter.

Barring one-time items, adjusted earnings in the reported quarter came in at $2.09 per share, which trailed the Zacks Consensus Estimate of $2.28.

Revenues in the quarter were $690.3 million, up around 1.7% year over year. The figure missed the Zacks Consensus Estimate of $744.1 million.

Segment Highlights

Infrastructure-Related

Sales in the Engineered Support Structures segment totaled $268.1 million, up around 6.6% year over year. Sales were driven by higher volumes in North America, favorable pricing and acquisitions.

Sales in the Utility Support Structures fell nearly 6.1% year over year to $205 million, as favorable pricing was offset by lower volumes, particularly China. A plant closure in North America earlier this year also affected volumes. Profitability was hurt by modestly lower production levels in North American facilities.

Sales in the Coatings segment rose around 2.8% year over year to $93 million. It was supported by recent acquisitions and pricing discipline, offset by slightly lower volumes in external markets.

Agriculture-Related

Sales in the Irrigation unit amounted to $144.1 million, up around 2.9% year over year. Sales in North America were $82.8 million, up 6% from the year-ago quarter’s figure. Per the company, higher sales of systems, technology solutions and aftermarket parts were offset by lower industrial tubing sales.

International irrigation sales fell around 1% year over year to $61.3 million. Significantly lower volumes in New Zealand and Australia offset the benefits of solid demand from Brazil as well as higher Middle East project sales.

Financial Position

Valmont ended the quarter with cash and cash equivalents of $327.2 million, up roughly 10.7% year over year. Long-term debt at the end of the quarter was $764.5 million, up around 3.1% year over year.

During the first nine months of 2019, operating cash flow rose more than three-folds to $239.2 million.

The company bought back 126,700 shares for $16.8 million in the reported quarter.

Outlook

The company lowered earnings per share expectation for 2019 in the range of $7.05-$7.45 from its prior view of $8.10-$8.70.

Valmont now expects revenue growth of 1-2% year over year in 2019 (down from prior growth expectation of 6-7%).

Capital spending guidance for the year is unchanged from previous forecast of $90-$100 million.

Per the company, North American market demand in Engineered Support Structures and Utility Support Structures unit remains robust. However, Irrigation unit sales are trending roughly 10% below its earlier expectations for 2019.

Moreover, the company expects the recent slowdown in U.S. industrial production to hurt Coatings unit volumes in the fourth quarter. Considering shipment schedules, it does not expect wireless communication sales in the fourth quarter to grow rapidly. However, the company expects continued growth in 2020.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -14.89% due to these changes.

VGM Scores

Currently, Valmont has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Valmont has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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