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Text: Avner will review our financial performance and provide trends and key assumptions for the balance of 2021 with closing remarks from Steve.
This will be followed by Q&A.
A replay of today's call will be available for the next seven days.
I would now like to call over to our President and Chief Executive Officer, Steve Kaniewski.
Before we recap our second quarter results, I would like to share some opening comments.
Like many companies, we have faced unprecedented levels of cost inflation, especially raw materials and transportation since the beginning of the year.
These levels are pervasive and must be accounted for in-market pricing.
So, it has been an imperative for us to quickly increase prices globally across all of our businesses.
Current economic trends lead us to believe that inflation will not mitigate in the near term, especially for durable goods and we will continue to take additional pricing actions in all segments as needed while inflationary pressures continue.
For example, in North America, Irrigation, this year we've raised price five times on irrigation systems, totaling more than 30% inclusive of upcoming increases.
And then Utility, utilizing our pricing mechanisms, we've raised price seven times on steel monopoles.
As we have demonstrated over the past few years, price leadership is a strategic priority for us and will continue to be in all of our served markets.
I want to commend them on the improvement in ship complete and on-time metrics, even as our business is accelerating.
We're proud of our team's persistent focus and we expect to continue building on the strong momentum going forward.
Record sales of $894.6 million increased $205.8 million or nearly 30% compared to last year, an increase more than 26% on a constant currency basis.
Sales growth was realized in all segments, most specifically in Irrigation and Utility Support Structures.
Starting with Utility, sales of $267.9 million grew $36.5 million or 15.8% compared to last year.
Higher volumes were driven by strong broad-based demand from ongoing investments in grid hardening and modernization, as well as renewable energy generation.
Moving to Engineered Support Structures, record sales of $269.4 million increased $16 million or 6.3% compared to last year.
Favorable currency and pricing impacts as well as sales growth in wireless communication products and components were slightly offset by anticipated lower North American transportation market volumes.
Global lighting and transportation sales grew 3.3% as pricing improved in all regions, and international markets benefited from increasing stimulus and infrastructure investments, especially in Europe and Australia.
Wireless communication products and components sales grew 7.2% compared to last year.
Carrier spending and support of 5G build-outs continues to drive strong demand globally, as evidenced by significantly higher sales of our small cell integrated products.
Favorable pricing also contributed to sales growth.
I want to take a moment to congratulate our ESS team on delivering a record quarter of sales in operating income.
I'm especially proud of our commercial teams for their demonstrated price leadership during this inflationary environment.
Turning to Coatings, sales of $98.2 million grew $18.2 million or 22.7% compared to last year and improved sequentially from last quarter due to improving end market demand, favorable pricing and currency impacts.
During second quarter, we commenced operations at our new greenfield Coatings facility near Pittsburgh, Pennsylvania, built with enhanced processes to generate less heat and humidity and providing additional recycling opportunities.
This facility aligns well with our ESG principles while serving the growing demand for new infrastructure in this region.
Moving to Irrigation, record global sales of $282 million grew $131.3 million or 87.2% compared to last year with sales growth across all served markets, including more than 35% growth in our technology sales.
Higher volumes and favorable pricing were driven by the continued strength of Ag market fundamentals and deliveries for the large Egypt project.
In North America, sales of $156.1 million grew 57.6% year-over-year.
Strong market fundamentals and improved net farm income projections continue to positively impact farmer sentiment generating strong order flow.
Significantly higher volumes, higher average selling prices and higher industrial tubing sales, all contributed to sales growth.
International sales of $125.9 million grew 1.4 times compared to last year, led by the ongoing delivery of the Egypt project, strong European market demand and record sales in Brazil.
Our sales through the second quarter have exceeded full-year 2020 revenue, a testament to our market leadership in this region.
Regarding our project pipeline in Africa, we recently were awarded more than $20 million of additional projects from new customers in Egypt, Sudan and Rwanda demonstrating our market leadership, global operations footprint and project management capabilities.
Turning to Slide 5, during the quarter, we completed the acquisition of Prospera Technologies, an award winning global leader in AI and machine learning.
For those who attended our virtual Investor Day in May, you will recall how we outlined our strategic pillars for long-term profitable growth.
Accelerating innovation through investments in recurring revenue services is one of the critical components of our industrial tech growth strategy.
Through this acquisition, together Valmont and Prospera have created the most global vertically integrated AI company in agriculture, immediately providing highly differentiated solution focused on in-season crop performance that is able to go beyond traditional irrigated acres.
No one else in the industry can offer this kind of solution.
Prospera brings advance agronomy and unprecedented visibility to the field.
Their technology is currently being used on over 5,300 fields on a variety of crops including corn, soybeans, potatoes, wheat, onions, alfalfa and tomatoes.
Growers are very excited about this technology as evidenced by strong adoption rates and the critical need for growers to reduce inputs while increasing yields, aligning well with our ESG principles of conserving resources and improving life.
Through Prospera solution, vision and talented team, we are moving to the next stage of agricultural development.
Today, approximately half of our irrigation technology sales are generated from recurring revenue services.
With this acquisition, we expect those particular sales to grow more than 50% per year over the next three to five years.
We also expect this acquisition to be accretive to the segment beginning in 2023, as we continue investing in our in-season data services.
Integration is going well and we plan to share more on our accelerated market growth strategy in future quarters.
Additionally, in today's market, the war for talent is pervasive and competitive.
Prospera brings the strongest team in the industry and we are fortunate to have 100 highly talented and motivated employees on board, including experts in data science and machine learning.
As you can tell, I'm very excited about this acquisition.
It builds upon our demonstrated success over the past few years as we move forward together as one company.
We also completed the acquisition of PivoTrac, the subscription based AgTech company that provides remote sensing and monitoring solutions for the southwest U.S. market, helping grow our technology sales to $50 million year-to-date.
Turning to Slide 6, our solar business is another area where we are accelerating growth and new product innovation while supporting our sustainability commitments.
During Investor Day, we talked about solar growth opportunities in both utility and agriculture and I'm very excited to see our growing pipeline of projects in both end markets.
Our backlog of utility-scale and distributed generation projects has been increasing as we expand the solution globally.
In the second quarter, we were awarded projects totaling $47 million.
Additionally, over the past 18 months, we received more than 30 orders for the North American market.
With our industry-recognized class of one status and the benefits of our scale and global supply chain, we're uniquely positioned to help support global customers with their renewable energy goals.
Our Solar Solutions are also driving accelerated growth in agricultural markets.
In the second quarter, we were awarded three projects, totaling $25 million.
We've already completed several others in Sun Belt regions like Brazil and Sudan and our planning an official North American market launch this fall at the Husker Harvest Days farm event.
We are also partnering with large global food producers to help them achieve their own ESG goals.
Working together with our Utility Solar team and world-class Valley dealer network, we have formed a global cross-functional team committed to delivering integrated solutions to support Ag players in their markets.
We're very excited about this growth potential.
Turning to Slide 7.
At our Investor Day, I talked about several of our ESG initiatives and highlighted the many ways that our products and services conserve resources and improve life and help build a more sustainable world.
As we said before, ESG is a strategic priority for us.
Our environment and social quality scores have improved significantly this year from a 6 to a 2 for environment and from a 6 to a 3 for social, while governance has held steady at a solid 2.
While this is a continuous journey, we are proud of the progress we have made so far.
I want to congratulate our teams and business partners who are strengthening our commitment to grow and innovation as a company with ESG in mind.
Turning to Slide 9 and second quarter results.
Operating income of $90.9 million or 10% of sales grew $25.2 million or 38% compared to last year driven by higher volumes in irrigation, improved operating performance and a favorable pricing notably in Engineered Support Structures.
Diluted earnings per share of $3.06 grew more than 50% compared to last year, primarily driven by very strong operating income and a more favorable tax rate of 22.5%.
This rate was realized through the execution of certain tax planning strategies.
Turning to the segments.
On Slide 10, in Utility Support Structures, operating income of $21.2 million or 7.9% of sales decreased $4.1 million or 300 basis points compared to last year.
Strong volume, increased pricing and improved operational performance were more than offset by the ongoing impact of rapidly rising raw material costs during the quarter, which our pricing mechanisms did not allow us to recover.
Moving to Slide 11 in Engineered Support Structures.
Record operating income of $31.9 million or 11.9% of sales increased $9 million or 290 basis points compared to last year.
We're extremely pleased with the results from deliberate proactive pricing actions taken by our commercial teams to more than offset the impact of rapid cost inflation.
We are also recognizing the benefits of previous restructuring actions.
Additionally, our operations team continue to drive performance improvement across the segment through improved productivity and product quality and better ship complete and on-time delivery metrics.
Turning to Slide 12.
In the Coatings segment, operating income of $14.7 million or 14.9% of sales was $4.3 million or 190 basis points higher compared to last year.
Higher volumes, favorable pricing and operational efficiencies more than offset the impact of raw material cost inflation.
Moving to Slide 13.
In the Irrigation segment, operating income of $42.9 million or 15.2% of sales nearly doubled compared to last year and was 80 basis points higher year-over-year.
Significantly, higher volumes and favorable pricing were slightly offset by higher R&D expense for strategic technology growth investments, including product development.
Turning to cash flow on Slide 14.
We delivered positive operating cash flows of $37 million and positive free cash flow this quarter despite continued inflationary pressures, increasing our working capital needs.
This quarter we closed on Prospera acquisition for a purchase price of $300 million, funded through a combination of cash on hand and short-term borrowings on our revolving credit facility.
We also acquired 100% of the assets of PivoTrac for $12.5 million, funded by cash on hand.
As we stated in prior quarters, rapid raw material inflation can create short-term impacts on cash flows.
The current market outlook indicates that general inflationary trends may not subside in 2021, so we would expect some continued short-term impacts.
We expect working capital levels and inventory to remain elevated to help us mitigate supply chain disruptions and opportunistically lock in better raw material pricing.
Accounts receivable will also meaningfully increase in line with sales growth.
As our historical results have shown, we will see improvements in working capital as inflation subside.
Turning to Slide 15 for a summary of capital deployment.
Capital spending in first half of 2021 was $49 million and we returned $42 million of capital to shareholders through dividends and share repurchases, ending the quarter with just over $199 million of cash.
Moving now to Slide 16.
Our balance sheet remains strong with no significant long-term debt maturities until 2044.
Our leverage ratio of total debt to adjusted EBITDA of 2.3 times remains within our desired range of 1.5 times to 2.5 times.
We are increasing sales and earnings per share guidance for fiscal 2021.
Net sales are now estimated to grow 16% to 19% year-over-year driven primarily by very strong agricultural market fundamentals.
Further, we now expect Irrigation segment sales to grow 45% to 50% year-over-year and continue to assume a foreign currency translation benefit of 2% of net sales.
2021 adjusted earnings per share is now estimated to be between $10.40 and $11.10.
I want to take a moment to discuss the rationale for providing an adjusted earning outlook going forward.
As a technology company, the cost structure of Prospera is very different than any acquisition in Valmont's history, including a significant restricted stock grant for talent retention purposes.
We have also acquired intangibles technology assets.
We believe that by excluding Prospera's intangible asset amortization and share-based compensation in the adjusted financials, the metrics will provide a better comparison a future Irrigation segment performance as compared to historical results.
Other metrics and assumptions for 2021 are also summarized on the slide and in the release.
Turning to our second half 2021 Segment outlook on Slide 18.
In Utility Support Structures, we expect a meaningful sequential improvement to the quality of earnings, beginning in the third quarter driven by margin improvement as pricing becomes more aligned with steel cost inflation.
Moving to Engineered Support Structures, we expect continued short-term softness in North American transportation market and improved demand in commercial lighting.
Demand for wireless communication products and components remains strong and we expect sales growth in line with expected market growth of 15% to 20%.
Moving to Coatings, end market demand tends to correlate closely to general economic trends.
We are focused on pricing excellence and providing value to our customers.
Moving to Irrigation, we expect a very strong year 45% to 50% sales growth based on strength in global underlying Ag fundamentals, the estimated timing of deliveries of the large Egypt project and another record sales year in Brazil.
A couple of reminders that I want to mention for this segment.
The first is that the third quarter is a lower sales quarter compared to the rest of the year due to normal business seasonality.
Second, deliveries of the large Egypt project began in fourth quarter 2020, which will affect year-over-year growth comparisons, and as Steve mentioned earlier, we have been consistently raising prices to offset inflationary pressures.
Turning to Slide 19 and the long-term drivers of our segments.
Overall, we continue to see strong demand and positive momentum across all businesses, evidenced by backlog of more than $1.3 billion at the end of second quarter and the demand drivers are in place to sustain this momentum into 2022.
Like many others, we are closely monitoring the COVID Delta variant and continue to follow state and local regulations to keep our employees and customers safe.
At present, government mandated shutdowns in Malaysia, have led to the temporary closure of three of our small facilities there.
The expected impacts from these closures have been included in our full year financial outlook.
Turning to Slide 20.
In summary, I'm very pleased with our strong second quarter results and our team's ability to navigate and capitalize on challenging market dynamics.
We believe this demonstrates the strength and sustainability of our business and long-term strategy, favorable end market trends and strong price leadership in the marketplace.
As we discussed at our Investor Day, we remain focused on the execution of our strategy, which is fueled by our dedicated and talented team of 10,000 employees and our differentiated business model.
Through our acquisition of Prospera Technologies and PivoTrac, we are accelerating growth through investments in innovation, technology and IoT building on our strategy to grow recurring revenue services.
Finally, we're very positive on the year as demonstrated by our updated financial outlook and are poised and well positioned to capture growth and drive shareholder value in the future.

user
q2 revenue $894.6 million .
q2 adjusted earnings per share $3.06.
sees fy adjusted earnings per share $10.40 to $11.10.
now expects full-year net sales to increase 16% to 19%, and irrigation segment sales to increase 45% to 50%.
valmont - in utility support structures unit, sees meaningful sequential margin improvement in h2 as pricing aligns more with steel cost inflation.
q2 revenue $90.9 million.
valmont industries - expect meaningful sequential margin improvement in second half of 2021 as pricing becomes more aligned with steel cost inflation.

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