Valmont Industries, Inc.

Greetings and welcome to the Belmont Industries third quarter 2020 earnings call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If you would like to ask a question, you may press star 1 on your telephone keypad. If anyone should require operator assistance during the conference, please press star 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Renee Campbell, Vice President of Investor Relations and Corporate Communications. Thank you. You may begin.

Thank you, Donna. Good morning, and welcome to Valmont Industries' third quarter 2020 earnings call. With me on today's call are Steve Kanyeski, President and Chief Executive Officer, Avner Appelbaum, Executive Vice President and Chief Financial Officer, and Tim Francis, Senior Vice President and Corporate Controller. This morning, Steve will provide a brief summary of our third quarter results and commentary on our strategy and long-term business outlook. Avner will review our third quarter financial performance and provide an update on our fourth quarter outlook, with closing remarks from Steve. This will be followed by Q&A. A live webcast of the slide presentation will accompany today's discussion and is available for download from the webcast or on the Investors page at valmont.com. A replay of today's call will be available for the next seven days. Please note that this conference call is subject to our disclosure on forward-looking statements, which applies to today's discussion and is outlined on slide two of the presentation. It will also be read in full at the end of this call. I would now like to turn the call over to our President and Chief Executive Officer, Steve Konieski.

Thank you, Renee. Good morning, everyone, and thank you for joining us. Before reviewing our third quarter results, I'd like to start with a couple of comments. First, I'm extremely proud of our 10,000 employees globally for delivering another quarter of solid operational and financial results. While the impact of the pandemic on our businesses this quarter was minimal, our teams have continued managing through these uncertain times with focus and perseverance, executing on our strategies while continuing to serve our customers. Importantly, the safety of our employees and the communities were in continue to be our number one priority. Our remote work policy remains in place for our administration teams where possible to limit the number of individuals at our manufacturing facilities. We remain vigilant in adhering to safe distancing procedures in all our facilities and work areas. Our employees remain the backbone of our company, serving our customers and keeping our factories operational. I'm extremely grateful for their support and dedication to each other To Valmont and to the communities we operate in. With that, let me turn to a recap of our third quarter, summarized on slide four of the presentation. Net sales of $734 million increased $44 million, or 6.3% compared to last year. Significant growth in the utility support structure segment was partially offset by lower sales in the engineered support structures and coding segments due primarily to end market disruptions, from COVID-19 impacts, and lower irrigation segment sales due to unfavorable currency impacts. Overall, revenue and profitability were better than expected across all segments as we continued to successfully manage pricing and operational performance. Turning to the segments and starting with utility support structures, robust sales of $274.4 million grew 33.9% compared to last year, led by higher volumes across all product lines. Growth in global transmission sales, which includes transmission, distribution, and substation products, was led by ongoing grid hardening efforts by utilities and strengthening demand for renewable energy sources that require additional substations and pole structures. Volume growth was also driven by the strategic capacity additions in North American operations that were completed earlier this year. Global generation sales, which include solar trackers and offshore wind products, were also higher, led by significantly higher project sales of solar tracker products. Higher sales in northern Europe from the large utility project that we announced earlier this year also contributed to sales growth. Turning to engineer support structures, sales of $255.7 million declined 4.6% compared to last year. Sales of lighting and traffic products were down 5.1%. In North America markets, lower volumes in transportation and commercial lighting markets led to lower sales. In international markets, end market disruptions from COVID impacts continue to affect sales this quarter, primarily in India. Wireless communication sales grew 4.8% compared to a very strong quarter of 30% growth last year. Sales growth was due to higher project sales in Europe, and favorable pricing. Capital spending by wireless carriers in North American markets continues to drive demand for structures and components, and the ramp of 5G build-outs is tracking in line with our expectations. Access system sales were lower compared to last year, primarily driven by our strategic decision to exit certain product lines. Moving to coatings, sales of $87.9 million decreased 5.5% compared to last year, which was better than our initial expectations. Higher internal volumes, pricing, and higher international market volumes were more than offset by lower volumes in North America due to economic impacts from COVID on end customers, particularly in oil and gas, bridge and highway, and commercial building markets. Moving to irrigation, segment sales of $139.2 million Declined 3.4% compared to last year. Excluding unfavorable currency impacts, sales were flat. In North America, sales were down 8.5%. Higher irrigation system volumes were more than offset by lower volumes of other products including lower industrial tubing sales which was driven by lower steel costs. International sales grew 3.3% compared to last year and grew 13.7% in local currencies. Strong sales in Brazil, improved market conditions in Australia and higher sales in European markets all contributed to sales growth, as well as our recent strategic acquisition of Solbras, which, as Valmont Solar Solutions, strengthened our product offerings to include a sustainable, low-cost energy source to provide power to pivots and furthering our commitment to ESG. In Brazil, we delivered another record quarter of sales. We have been strengthening our dealer network there, investing in technology, aftermarket parts, and expensive training programs, while expanding dealer locations across the country by more than 20% since the start of this year. We expect market demand to remain strong, particularly as sugarcane is being used in food, and expanded corn production is now a viable ethanol input. We are very excited to have secured a $240 million multi-year agreement with a progressive, long-standing customer to provide irrigation, technology, and other ancillary equipment for a 500,000-acre agricultural project in Egypt, which we announced last month. To give context, the scale of land under pivots will be more than one and a half times the size of the city of Los Angeles. Working together with our experienced local dealer, we are delivering solutions that help address two critical issues, water conservation and food security. Minimizing the use of natural resources and freshwater conservation are critical for projects of this size and complexity. Our customer has recognized the importance of utilizing the most advanced technology, including sensors, which will maximize the use of freshwater. The current pandemic has created an urgent need for nations to invest in agriculture to address food security concerns. Our customer is taking aggressive steps to strengthen their local economy and enhance food access and availability. And we are grateful to be a part of that solution. When completed, this farm will become the largest connected farm of engaged acres in the world. Projects like these are highly transformative and our pipeline of opportunities is robust. As the market leader, the strength and flexibility of our global supply chain, strong supplier relationships, advanced technology solutions, and local commercial market presence uniquely positions us to execute and deliver projects of this scale. Deliveries have just started in the fourth quarter and are expected to continue to ramp through the first quarter of 2021. Avner will speak more about this order and fourth quarter expectations for the segment later in the call. Turning to slide five, as we had mentioned in prior quarters, future potential COVID impacts to our businesses vary across the portfolio and are the basis for which we continue to assess the business. We are making two changes from last quarter's outlook by decreasing the risk profiles for irrigation and coatings. We now view irrigation as having a lower risk profile given that food service supply chain disruptions have moderated and been accounted for, along with a less dire ethanol supply outlook, as well as the announcement of our large multi-year international order and growing optimism that grower sentiment in North America may improve with recent increases in commodity prices. Our view on codings has improved to a moderate risk profile, as industrial production levels have been stabilizing and the impacts of economic disruptions in many end markets due to COVID are becoming more clear. Avner will speak specifically to our fourth quarter indications and assumptions later in the call. Turning to slide six, as a company, we have elevated our commitment to being a more sustainable organization by advancing ESG as a strategic priority. Our tagline of Conserving Resources, Improving Life is a constant reminder to us of our purpose and inspiration. Since our company was founded nearly 75 years ago, we have been focused on important ESG principles, providing products and solutions that support sustainable infrastructure development and the efficient use of water for agriculture, enhancing quality of life globally and supporting the communities where we work and live. In our 2020 Sustainability Report, we highlight these and other efforts on conservation, including progress on our global electricity goal, more disclosures on the energy and resource usage in our operations, and the Scope 1 and 2 carbon emissions they generate. We recently joined over 200 companies in becoming a program partner in the U.S. Department of Energy's Better Plants Program, increasing our commitment to energy efficiency and savings across our facilities. On the governance front, I'm pleased to highlight two recent appointments to our Board of Directors, Ms. Ritu Favre and Ms. Joan Robinson-Berry. Ritu is a seasoned high-tech industry leader and the Senior Vice President and General Manager of the Semiconductor Business at National Instruments Corporation. We look forward to leveraging her technology industry perspective and IoT experience at the Board level. as Valmont continues its digital journey. Joan recently retired from a 35-year career at the Boeing Company, most recently a Senior Vice President and Chief Engineer for Boeing Global Services. Her strong track record of spearheading operational excellence for a world-class industrial company will aid in advancing Valmont's future growth strategies. These appointments further enhance our board's technological focus Thank you, Steve, and good morning, everyone. Turning to slide eight.