Valmont Industries, Inc. - Gabelli 16th Annual Omaha Value Investor Conference

All right. So, we've got that third terrific Omaha based company, Valmont, with us today. Again, rejoining us. They've been a fixture here for many years. Again, I'm Chris Morani, co-CIO for value at Cabelli Funds. And we're very pleased to be joined today by three individuals from that company. We've got Avner Applbaum who's president and CEO. He joined as CFO in 2020. And before that he was CFO of a number of private companies and some compounders like Emotech and Beldin and TE connectivity. Tom Lori on the end who's been CFO since 2024. He was CFO at a number of public and private equity backed companies as well. And Renee Campbell making a visit with us. She not only handles IR but treasury for the company. So again, really glad to have them here. Valmont has about 20 million shares. Stock is happening pretty strong today, 308. So it's about a six billion equity cap, about 500 million of net debt. So we heard earlier from one of your peers, Lindsey Corp. They talked about some of the mega trends impacting their irrigation and infrastructure business. Maybe you could just talk a little bit about what you do, echo some of those mega trends, and maybe even highlight some of the differences.

Anyway, we'll come back to technology in a little bit. But after you're coming up on your two-year anniversary as CEO, you set out a number of priorities when you joined, obviously knowing the company well as CFO. How do you think you've executed on those? How have they changed?

Sure. For everybody, I joined Valmont and I'm honored to be here. I joined on Labor Day of last year. So thank you Avner for having me part of the team. But ROIC is really important and what I've learned at Valmont is it's really embedded in the culture. If you go to any plant, any department, people are talking about how to use capital more effectively. Last year our ROIC was 16.4% I believe. The I part is really important as we go forward. Avner just talked about growth. When we look at how we're going to deploy our capital and what we're investing in going forward, it's really about investing in revenue growth and margin expansion. With revenue growth, today the utility infrastructure market is booming and we really can't meet the demand. In fact, our backlog keeps getting larger and larger. So we're on a three-year program to invest in capacity to expand our plants which will grow our revenues. We've said that for the next three years we'll be investing about a hundred million of capex just in growth. We know if we invest a hundred million of capex, we'll get over a hundred million annual new revenue and we'll get over a 20% operating margin from that. On a cash basis, we actually get $30 million or more from that. But it's also about investing in people and processes, what Avner touched on. If you came into one of our factories, we're a metal company. We're diversified industrial. We take plate, we cut it, we bend it, we weld it, we put attachments, and that's a utility structure. When you think about capacity and throughput, yes, it is about adding press brakes and welding stations, but it's also about getting more throughput from the factories that we have today. So we're investing in people, in AI, in scheduling. The whole concept is very simple. If we can always have material at the right time, right place, more poles are going to be going through our factories and we'll get a lower cost per unit. The second thing we're investing in is for margin expansion. Very simply, you invest in your higher margin products. Brandy and Brian talked earlier about technology. Avner touched on it. We're investing quite heavily in the technology in our company and it's both in agriculture and infrastructure. On the agriculture side, Randy and Brian talked about controlling your pivot from your phone, but it's really much more than that. We're going downstream. We're investing in e-commerce. Why is that? I'm a farmer. I'm in the field. My pivot is down. I need a part. I need to get it up immediately. We have an e-commerce site where now they can go on their phone, they can see the part they need, they can see if it's in stock, they can order it and they'll have it there the next day. The third thing we're investing in is just simply our value proposition. How do we invest so that we're more important to customers? The best example is our telecom business. Our telecom business grew 30% year-over-year last quarter. It's really one of our highest margin businesses. The reason it is is because we put capital behind the inventory in the distribution system. In our telecom business, we are supplying a lot of the smaller parts that might be at a 5G tower that you'll see down station. Our value proposition is we can get you the parts in two to three days and because of that people are willing to pay more. So ROIC is really important. We have a great track record, but really our investments going forward are going to have revenue growth, margin expansion, which will further improve our ROIC.

Great. You've identified a number of mega trends obviously that are independent of what happens in Washington or state capitals, but obviously you are somewhat impacted by government spending particularly in the infrastructure business. Maybe you could talk a little about areas where you're seeing strength, where the opportunities, where are you focusing your attention?

So trade remains the elephant in the room. There was a lot of consternation a month ago about how American steel sent to Mexico for assembly and sent back across the border would be treated. I think you surprised some people last week with just how well you've come out so far and your belief that you can be cost neutral with the current set of tariffs. Take us behind the curtain. How are you managing the business in this time of uncertainty? And maybe elaborate more a little bit on your tariff exposure. Tom, you want to take that?

Yeah. So we did come out, we said cost neutral, earnings neutral. Valmont team did a great job of mitigating tariffs. We have a few advantages. First of all, we are global but the supply chains are localized. If you're in AMIA, we're making parts in AMIA for the AMIA market. If you're in APAC, we're making product in APAC for APAC. In the US, the vast majority of the products that are going to our US customers are from one of our 24 plants. So we're very well set up. I think what people got worried about with us is we have a facility in Monterrey. But what everybody needs to understand is that is our most cost effective plant that we have. We are actually investing in it and we got good news last week. We think we're going to get 10% more revenue out of it this year. We want that because if we can keep improving Monterrey, we can get to a point that even if there was a tariff, we'll be cost neutral coming into the US. What the Valmont team did was, when we first looked at this, it was $80 million expense potentially in the year. The commercial teams working with our customers, we have products that are in demand. This is utility structures, hardening of the grid. People need our product. Our commercial teams worked with our customers to have fair price increases. Fair is really important. We're a partner to all of our customers, but we're passing them on. In agriculture, we had a price increase. Again, people want our pivot. Not to take anything away from what Brian and Randy said, but they followed us with a price increase. More importantly, the work was on the supply chain and making sure that we could get even more localized. I'll give you a few examples. You mentioned US steel. As long as your steel and your product is US poured and melted, it will not be tariffed when it comes back. Our supply chain teams worked with all of our steel suppliers and we now buy US poured and melted steel. We ship it over to Monterrey. We make the structure. It comes back. Our Monterrey facility is USMCA compliant. There's no tariff. There were also things that we were buying like base plates on these towers. We just changed the sourcing. The team has really shown a lot of agility, really shown a lot of capability in managing this. We feel very confident that this year we're going to be earnings neutral and we really think we'll surprise people in the second half of the year of how we come out of this once we get a little more certainty in our customers and macro.

Well, we look forward to that. Look forward to more stability in the economy. Avner, when you and I spoke when you became CEO, I was struck by how numerate and explicitly returns driven you are. Maybe that's your private equity training. You've got a lot of private equity experience amongst you. Talk a bit about your capital allocation procedures and whether that's changing given what's happened with rates.

Yeah, capital allocation is invest in the highest return opportunities. Right after putting it into our factories is our share price. We think we have a very great opportunity over the next few years to grow our earnings per share, our ROIC, our revenue. Therefore, the board approved for us a 700 million share repurchase authorization, which is a little bit over 10% of our market cap. This is going to be programmatic over three, four, maybe five years. We're going to be leaning in when we think our share price is undervalued. But it'll be a regular return of capital to shareholders. We kicked it off in Q1. On our Q2 call, because our share price was down, we did lean in. In the first two or three weeks, we already purchased $75 million of our stock and more to come. This is our plan. But also our dividend. I like the way Jennifer described it. She had a 17% CAGR dividend. That's fantastic. We thought ours was good. If you look at our dividend over the last five years, we had a 10% CAGR, but it wasn't every year. So Avner, Renee, we gave this a lot of thought. When we announced our updated capital allocation a couple of months ago with our dividend, we did increase it 13% and we said we're a company that generates a lot of cash and what we want to do is every first quarter increase our dividend. We think we're off to a good start. So capital allocation equally balanced, put it back in the business, but also return it to shareholders.

Those are some great examples. I think we have time for a few questions. If you raise your hand and give your name, we'll have a mic come to you. Looks like we've got one in the back here.

My name is Steve Frightenberg from Nebraska. Do you have any excess industrial capacity? Do you see any benefit in the onshoring of industry for Valmont from the onshoring with your excess capacity if you have any?

Are you having any issues with labor like welders or engineers, as far as your labor base?

So with the stock at 307, 308 whatever it is at this moment, still undervalued in my view at least. What do you think is least well appreciated or what misconception do you want to correct in the market today?

Well, we're ready to watch and participate in that growth. So again, really appreciate you joining us again this year. It was a great overview. Thank you.