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Why Is Valmont (VMI) Down 8% Since Last Earnings Report?

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A month has gone by since the last earnings report for Valmont Industries (VMI - Free Report) . Shares have lost about 8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Valmont due for a breakout? 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 drivers.

Valmont's Earnings & Revenues Surpass Estimates in Q1

Valmont registered profits of $42.9 million or $1.99 per share in first-quarter 2020, up from $36.1 million or $1.64 per share in the year-ago quarter. Moreover, its earnings per share topped the Zacks Consensus Estimate of $1.41.

Revenues in the quarter were $674.2 million, down 2.6% year over year. The figure, however, surpassed the Zacks Consensus Estimate of $671.8 million. Strong sales in North America were more than offset by reduced sales in the Utility Support Structures segment.

Segment Highlights

Infrastructure-Related

Sales in the Engineered Support Structures segment totaled $230.7 million, in line with the year-ago quarter figure, as higher sales in North America markets were offset by reduced sales in the Asia Pacific region, mainly in the Access Systems product line.

Sales in the Utility Support Structures segment fell 7.6% year over year to $225.5 million largely due to a major solar tracker project in 2019 that did not repeat this year.

Sales in the Coatings segment rose 1.5% year over year to $88.1 million. It was supported by larger volumes in North American markets, partly offset by unfavorable currency translation impacts.

Agriculture-Related

Sales in the Irrigation unit amounted to $156.7 million, up 2.6% year over year. Sales in North America were $106.6 million, down 1.8% year over year. Higher sales of systems, aftermarket parts and advanced technology solutions were offset by lower industrial tubing sales.

International irrigation sales rose 13.1% year over year to $50.1 million. Higher sales in most regions offset unfavorable currency translation impacts.

Financial Position

Valmont ended the first quarter with cash and cash equivalents of $294.6 million, up 39.5% year over year. Long-term debt stood at $776.1 million, up 4.7% year over year.

Cash flows from operating activities were $62.4 million for the quarter, up from $7.9 million a year ago.

The company bought back 190,500 shares for $20.5 million in the reported quarter.

Outlook

Valmont has withdrawn its guidance for 2020 due to the unknown duration and impacts of the coronavirus pandemic.

The company expects net sales of $645-665 million for second-quarter 2020. It also expects operating margins to be 7-8.5% of net sales for the second quarter.

Valmont anticipates revenues from the Irrigation segment to be down 5-10% year over year for the second quarter as a result of recent disruptions to ethanol demand, food supply chains and unfavorable currency translation impacts.

The Coatings segment’s revenues are anticipated to be down 20-25% year over year for the second quarter due to GDP trends and recent industrial production levels.

Moreover, the company expects positive operating cash flows for the second quarter.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 180% due to these changes.

VGM Scores

At this time, Valmont has a strong Growth Score of A, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% 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 trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Valmont has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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