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Infrastructure and agriculture equipment manufacturer Valmont Industries (NYSE:VMI) reported results in line with analysts' expectations in Q2 CY2024, with revenue flat year on year at $1.04 billion. It made a GAAP profit of $4.91 per share, improving from its profit of $4.21 per share in the same quarter last year.
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Valmont (VMI) Q2 CY2024 Highlights:
- Revenue: $1.04 billion vs analyst estimates of $1.04 billion (small miss)
- EPS: $4.91 vs analyst estimates of $4.08 (20.3% beat)
- Gross Margin (GAAP): 30.8%, down from 31.5% in the same quarter last year
- Free Cash Flow of $112.5 million, up from $8.32 million in the previous quarter
- Market Capitalization: $5.59 billion
Credited with an invention in the 1950s that improved crop yields, Valmont (NYSE:VMI) provides engineered products and infrastructure services for the agricultural industry.
Building MaterialsTraditionally, building materials companies have built competitive advantages with economies of scale, brand recognition, and strong relationships with builders and contractors. More recently, advances to address labor availability and job site productivity have spurred innovation. Additionally, companies in the space that can produce more energy-efficient materials have opportunities to take share. However, these companies are at the whim of construction volumes, which tend to be cyclical and can be impacted heavily by economic factors such as interest rates. Additionally, the costs of raw materials can be driven by a myriad of worldwide factors and greatly influence the profitability of building materials companies.
Sales GrowthExamining a company's long-term performance can provide clues about its business quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Luckily, Valmont's sales grew at a decent 8.1% compounded annual growth rate over the last five years. This shows it was successful in expanding, a useful starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Valmont's recent history shows its demand slowed as its annualized revenue growth of 1.7% over the last two years is below its five-year trend.
This quarter, Valmont's $1.04 billion of revenue was flat year on year and in line with Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 3.5% over the next 12 months, an acceleration from this quarter.
Operating Margin
Valmont has done a decent job managing its expenses over the last 5 years. The company has produced an average operating margin of 8.9%, higher than the broader industrials sector.
Looking at the trend in its profitability, Valmont's annual operating margin might have seen some fluctuations but has remained more or less the same over the last 5 years. Shareholders will want to see Valmont grow its margin in the future.
This quarter, Valmont generated an operating profit margin of 14.2%, up 1.4 percentage points year on year. This increase was encouraging, and since the company's operating margin rose more than its gross margin, we can infer it was recently more efficient with its general expenses like sales, marketing, R&D, and administrative overhead.
EPSAnalyzing long-term revenue trends tells us about a company's historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth–for example, a company could inflate its sales through excessive spending on advertising and promotions.
Valmont's EPS grew at a remarkable 14.1% compounded annual growth rate over the last five years, higher than its 8.1% annualized revenue growth. However, this alone doesn't tell us much about its day-to-day operations because its operating margin didn't expand.
Diving into the nuances of Valmont's earnings can give us a better understanding of its performance. A five-year view shows that Valmont has repurchased its stock, shrinking its share count by 7%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.
Like with revenue, we also analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business. For Valmont, its two-year annual EPS declines of 7.5% show its recent history was to blame for its underperformance over the last five years. We hope Valmont can return to earnings growth in the future.
In Q2, Valmont reported EPS at $4.91, up from $4.21 in the same quarter last year. This print easily cleared analysts' estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Valmont to grow its earnings. Analysts are projecting its EPS of $8.62 in the last year to climb by 92.9% to $16.63.
Key Takeaways from Valmont's Q2 ResultsWe were impressed by how significantly Valmont blew past analysts' EPS expectations this quarter. Overall, we think this was a really good quarter that should please shareholders. The stock remained flat at $270.90 immediately after reporting.
