Valmont Industries, Inc.

higher returns. For example, this quarter we grew our transmission business while also successfully increasing the production of distribution and substation products. Stable demand and lighting and transportation markets continue even as IIJA funding has yet to benefit our business. As expected, demand in telecommunications markets remains muted as carrier investments normalize to support network expansion. Turning to agriculture, demand in North America continues to be soft but stable and generally in line with our expectations. We are encouraged by the trend of higher order rates during the spring selling season compared to last year as center pivots continue to be a compelling investment for growers. In Brazil, we continue to see muted grower sentiment and general market softness. Lower crop prices are weighing on growers' profitability, causing them to defer certain capital investments, including irrigation equipment. International project shipments this quarter were lower, largely due to challenging conditions in Egypt. We effectively navigated these delays and are pleased to report that shipments have resumed in the second quarter. Turning to slide six, and shifting our view from near-term dynamics to long-term fundamentals. Our end markets have several multi-year demand drivers. In our infrastructure segment, the energy transition, replacement of aging infrastructure for enhanced resiliency, and rising consumption of data and technology are all multi-year megatrends driving increased demand for our products. Investments in grid infrastructure are increasing to support these megatrends with projections for U.S. electricity demand growth over the next five years doubling from last year's estimate. This growth is driven by both expansion of data centers to manage AI's extensive data needs and by increased manufacturing for high-demand industries such as chips, batteries, and electric vehicles. Requested rate increases by utilities set a record in 2023 for the third consecutive year supporting their capital investment plans. While high interest rates and the approval timing of rate increases can lead to project movement for certain customers, we have built flexibility in our footprint to be agile and adjust quickly to evolving customer needs. Transmission demand continues to grow at high rates, and all of TVNS is supported by compelling global megatrends. Lighting and transportation products, typically delivered in the latter stages of projects financed by IIJA funding, along with coating services, which protect steel from corrosion in harsh environments, also stand to benefit from these enduring multi-year drivers. In telecom markets, our customers expect carrier capex spending to remain muted this year, following record years in 2021 and 2022. we stand ready to quickly respond to the anticipated uptick in demand driven by spectrum deployment and continued 5G expansion. Turning to agriculture, projected NIF farm income levels and lower crop prices plus natural variation in weather patterns all impact grower sentiment, especially in larger markets such as North America and Brazil. While global ag market conditions remain soft in the near term, Several factors are poised to drive demand growth in the global irrigation market beyond 2024. Climate change, water scarcity, and sustainability consideration are key drivers. Food security concerns and population growth will further bolster demand for irrigation products. North America and Brazil both remain key geographic regions for our business, each projected to a favorable long-term growth trend. Our international project pipeline remains strong. I'm pleased to share that we have recently secured over $50 million in new projects for Middle East markets. We expect to complete most of these shipments in 2024. This specific region is seeing an overall strategic shift from flood to center pivot irrigation. The drivers for this shift include water conservation, increasing land productivity, and reducing crop inputs, key aspect of sustainable agriculture and improving resource efficiency. Valley Irrigation is well positioned to support these significant projects utilizing our advanced technology, manufacturing footprint, and strong dealer network. As you can see, even with softness in certain markets, our broad and diverse revenue streams are paying off. We have strategically built our end market exposure around our core capabilities. Our growth strategy is aligned with multi-year demand drivers across these markets. This diversification makes us less susceptible to a downturn in any single market, enhancing the stability and consistency of our profitability and growth. Turning to slide seven, I'd like to highlight our strategic priorities for this year. These are grounded in the Valmont business model, which we shared last quarter, and are the foundation to value creation. Each priority ties back to our key focus areas, starting with our people. This quarter's accomplishments underscore the high-performance culture we're building, one that drives market leadership and fosters innovation. We continue to live our core values of passion, integrity, and continuous improvement as we deliver results on our journey towards excellence. I want to thank our team for their extraordinary efforts. Next is return on invested capital. We are sharpening our focus on core competencies to enhance ROIC. This ensures we are maintaining our competitive edge, allocating resources where they generate the highest returns for maximum value creation. Finally, sustainability is embedded in our operation and the innovative solution we offer to our customers. infrastructure as a trusted leader across our markets we're advancing sustainable products that can endure a changing climate conserve resources and last long into the future our concrete utility pole facility in Bristol Indiana demonstrates this commitment it produces transmission and distribution poles using low-carbon processes and materials to support the growing need for of our utility customers while aligning with their own sustainability goals. A 500 kilowatt solar array with our award-winning solar trackers was built to fully offset the facility's annual electricity usage, highlighting our commitment to sustainable operations. In agriculture, technology enhances efficiency on the farm by reducing inputs, increasing lab productivity, and lowering labor costs. our fully integrated tech teams have developed a roadmap to deliver exceptional value to our customers. We are actively engaging our core engineering teams with AI and machine learning capabilities to embed predictive analytics into our products. This strategic integration positions Valley Technology at the forefront of the industry, delivering a distinct competitive edge by enabling smarter, more efficient irrigation solutions. I'm very pleased with our progress and excited about our future. To summarize, we've had a strong start to 2024, delivering impressive results despite demand headwinds in some markets. I am confident that our focus on operational excellence and value creation for our stakeholders will continue to drive positive outcomes. Now, I'll turn it over to Tim for our first quarter financial review and an updated 2024 outlook. Thank you, Abner, and good morning, everyone.

Turning to slide 9 and first quarter results, net sales of $977.8 million decreased 8% year over year. Operating income increased 11% to $131.6 million, and operating margins improved meaningfully to 13.5%. diluted earnings per share of $4.32 increased nearly 25% year-over-year. The steps we have taken to control expenses and reduce our cost structure are clearly having a favorable impact on our profitability. Turning to the segment in slide 10, infrastructure sales of $723.6 million decreased 1.7% year-over-year. Higher volumes in DD&S and solar supported by continued strong utility market demand and favorable pricing across the portfolio, were more than offset by significantly lower telecommunications volumes. Operating income increased to $117.9 million, or 16.4% of net sales. The improvement in operating margins was driven by successful commercial execution, including pricing strategies, deliberate actions to improve cost of goods sold, and lower SG&A expenses. We also realized benefits from strategic investments in our manufacturing facilities, enabling us to increase production of higher margin products. Moving to slide 11, agriculture sales of $258.7 million decreased 22.1% year over year. In North America, irrigation equipment volumes were lower at the first quarter of 2023 benefited from the ongoing delivery of elevated backlog. Average system selling prices were slightly lower compared to last year. International sales decreased, primarily driven by lower sales in Brazil due to more normalized backlog levels as compared to the first quarter of 2023 and softer soybean prices impacting grower sentiment. Middle East project sales were also lower. the sales contribution from the HR products acquisition partially offset the lower sales. Operating income decreased to $41 million, or 15.9% of net sales. Improvement in gross profit margins and the benefit of lower SGN expenses were more than offset by the impact of lower volumes. Turning to cash flows and liquidity on slide 12, First quarter operating cash flows were $23.3 million and we ended the quarter with approximately $169 million in cash. We expect strong cash flow throughout 2024 through earnings growth and diligent working capital management. Total debt to adjusted EBITDA of 1.82 times was within our desired range of 1.5 to 2.5 times. Our cash balances Available credit and flexible balance sheet provide us with ample liquidity to execute our capital allocation strategy. Turning to slide 13 for a summary of first quarter capital deployment. Capital spending was $15 million. Strategic CapEx spending is a cornerstone in elevating the performance and resilience of our businesses. A standout initiative in response to rising customer demand is increasing capacity at multiple sites for concrete transmission and distribution structures. We have strategically increased the flexibility of our operations, leading to improved and more consistent performance across our product lines. These targeted investments underscore our dedication to maintaining a competitive edge and meeting our long-term financial goals. Our acquisition strategy this year is sharply focused on natural adjacencies to our core capabilities that would enhance our portfolio or expand our addressable markets. This targeted approach ensures that our investments strengthen our existing market presence and promote sustainable, profitable growth. Our capital deployment approach balances growth investments with returning cash to shareholders. This quarter, we returned approximately $12 million of capital to shareholders through dividends and completed the $120 million accelerated share repurchase program that commenced in the fourth quarter of 2023. I will now share our updated 2024 outlook as shown on slide 14. We expect next sales to be down 2% to up 0.5% in improvement from our previous guidance of down 3% to plus. Turning to the segments, our outlook for infrastructure is unchanged, as we expect volume growth approaching mid-single digits this year. In agriculture, we expect continued market softness this year due to lower grain prices and current farm income projections. However, we now have better visibility into international projects and anticipate segment sales to be down between 10% and 15%, compared to prior year, an improvement from our previous forecast of a 15% to 20% decline. We remain focused on targeted pricing strategies and increasing adoption of our technology solutions. Our updated outlook expects diluted earnings per share to be in the range of $15.40 to $16.40. We also expect second quarter earnings per share to be slightly below first quarter 2024 results. Doing the math, this implies a lower quarterly EPS during the second half of this year.

Let me walk you through the moving pieces.