Why Is Valmont (VMI) Down 31.6% Since Last Earnings Report?

It has been about a month since the last earnings report for Valmont Industries (VMI). Shares have lost about 31.6% 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 the most recent earnings report in order to get a better handle on the important catalysts.

Valmont's Earnings & Revenues Miss Estimates in Q4

Valmont registered profits of $35.7 million or $1.66 per share in fourth-quarter 2019, up from $17.7 million or 80 cents per share in the year-ago quarter. Earnings per share, however, lagged the Zacks Consensus Estimate of $1.86.

Revenues in the quarter were $683.6 million, down 2% year over year. The figure missed the Zacks Consensus Estimate of $705.8 million. Lower sales in international markets were mostly offset by gains in North American markets.

Segment Highlights

Infrastructure-Related

Sales in the Engineered Support Structures segment totaled $255.2 million, down 1.7% year over year, as higher wireless communication sales and revenues from the recent buyout were offset by lower revenues from Access Systems and unfavorable currency impact.

Sales in the Utility Support Structures segment fell 0.6% year over year to $231.9 million, as favorable pricing was offset by modestly lower production levels due to a plant closure in North America in early 2019.

Sales in the Coatings segment rose around 3.8% year over year to $89.7 million. It was supported by recent acquisitions and sustained pricing discipline, offset by lower volumes to external customers.

Agriculture-Related

Sales in the Irrigation unit amounted to $133 million, down 6.7% year over year. Sales in North America were $84.5 million, in line with the year-ago quarter figure. Per the company, higher sales of systems, aftermarket parts and advanced technology solutions were offset by lower industrial tubing sales.

International irrigation sales fell 16.1% year over year to $48.5 million. Significantly lower project sales in the EMEA region offset increased sales in Brazil.

2019 Highlights

For 2019, profits were $153.8 million or $7.06 per share, up 62.9% from $94.4 million or $4.20 per share recorded in 2018.

Net sales for the year inched up 0.4% year over year to roughly $2,767 million.

Financial Position

Valmont ended 2019 with cash and cash equivalents of $353.5 million, up 12.9% year over year. Long-term debt stood at $764.9 million at the end of 2019, up 3.1% year over year.

Cash flows from operating activities were $307.6 million for the year, up from $153 million a year ago.

The company returned $95.5 million to shareholders through share repurchases and dividends in 2019.

Outlook

Valmont expects earnings per share of $7.30-$8.00 for 2020. It also envisions revenue growth of 4-7% year over year in 2020. Capital spending for the year has been forecast to be $100-$125 million. Valmont expects sales and earnings growth to be driven by infrastructure businesses.

Per the company, growth at the Engineered Support Structures segment will likely be supported by transportation market demand from continued government investments in infrastructure development.

Valmont anticipates wireless communication sales to reach 10% growth rate in 2020. Construction end-markets in Australia are not expected to substantially improve in 2020, thus impacting its Access Systems business.

Utility segment sales are forecast to be driven by strong market demand from ongoing investments in grid hardening and renewable energy sources. Moreover, coatings segment revenues are expected to be similar to 2019 due to a relatively stable global industrial production levels.

The company also noted that in the Irrigation segment it does not anticipate a meaningful turnaround in demand as net farm income levels remain muted. It envisions segment sales to be flat to down around 3% from the level reported in 2019.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -18.54% due to these changes.

VGM Scores

At this time, Valmont has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. 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 this revision 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.