Good morning. My name is Kayla, and I will be your conference operator today. At this time, I would like to welcome everyone to the Valmont Industries, Inc. Second Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn today's conference over to Mr. Jeff Laudin, Manager, Investor Relations. Please go ahead, sir.

Thank you, Kayla, and welcome to the Valmont Industries’ Second Quarter 2017 Earnings Conference Call. With me today are Mogens Bay, Chairman and Chief Executive Officer; Steve Kaniewski, President and Chief Operating Officer and incoming CEO as of 12/31/2017; Mark Jaksich, Executive Vice President and Chief Financial Officer; Tim Francis, Vice President and Corporate Controller. Before we begin, please note this conference call is subject to our disclosure on forward-looking statements, which applies to today's discussion and will be read in full at the end of the call. The instructions for accessing a replay of the call can be found in our press release, which can be found in the Media Room link on our website. Now I would like to turn the call – turn the floor over to our Chairman and Chief Executive Officer, Mogens Bay.

Thank you, Jeff, and good morning, everyone. Thank you for joining us. I trust you've all read the press release and reviewed the earnings slide deck on our website. I'd give a brief overview of the second quarter results, Steve will provide the segment performance update, and Mark will review our quarterly performance in detail. Before we begin, last month, we announced the succession of Steve Kaniewski as Chief Executive Officer of Valmont effective at the end of the year. Let me take a minute to repeat what I said about Steve at the time. Steve is very well prepared to lead Valmont into the future. His broad experience with Valmont and information technology, operations and general management gives me great confidence in handing over the ranks to him. He is a team-oriented effective leader and is greatly respected throughout our organization. Steve is a result-oriented executive with a keen sense of what needs to be done to continue to provide profitable growth for our company. Our company would be in good hands. With that, let me highlight the important takeaways from the second quarter. We are pleased to see continued revenue growth for the company, even though a number of our markets are still fairly weak. We did not as a company get the leverage we would have liked to see from the revenue increase translated into a better quality of earnings than what we show. And whereas, we're pleased with the 9% increase in earnings per share, we're disappointed that we weren't more successful in recovering raw material price increases in the marketplace. We expect improvement in that area as we move into the second half of the year, and we are confident reaffirming our guidance for the year of earnings per share slightly above $7. And I’ll now turn the call over to Steve, who will review the segment performance.

Thank you, Mogens, and good morning, everyone. At a high level, the primary driver of our operational results this quarter were sales increases in Utility Support Structures and Irrigation. Gross margin and operating income percentages for the company were impacted by higher raw material costs not being fully recovered, mostly in Engineered Support Structures and Coatings segments. Global steel prices maintained strength longer than we had anticipated. This is in contrast to last year, where low steel purchased in the first quarter helped margins in the second quarter. Despite continued challenges, Energy and Mining results were essentially flat with last year. In summary, we saw solid revenue growth and some margin pressure from higher raw material costs. In the Engineered Support Structures segment, sales grew 7%. Wireless communication product demand remained robust, driven by provider and public safety initiatives to improve coverage in North America and continued network expansion in China and Australia. The North American commercial lighting markets remained firm. The transportation markets are stable, but we have not seen a measurable pickup in demand. We believe market participants maybe waiting for clarity on infrastructure policy from Washington before investing in large and long-term projects. Based on this and the larger – the longer project cycle time, our expectations for growth this year are tempered in ESS. Still, we believe infrastructure spending will hold up well and continue to grow over the midterm. In EMEA, lighting sales fell mostly due to lower export sales and continued sluggishness in Europe. Geopolitical tensions have delayed some orders and shipments into the Middle East. In Utility Support Structures, sales improved 22%. Growth was supported by volume increases and partly by minimal movement in Utility project schedules. The markets remained robust, amid greater reliability requirements and increased renewable project additions to the grid.…

Thank you, Steve, and good morning, everyone. Second quarter earnings per share were $2.01 up nearly 9% from $1.85 in the same period last year. The effect of currency translation on quarterly results was not significant. Of the 11% sales increase over Q2 2016, 8% related to improved volume and 3% was associated with increased pricing. On a segment basis, most of the volume increases were realized in Utility Support Structures and the Irrigation segments. The increases in Engineered Support Structures and Coatings sales were mainly due to increased internal sales to other Valmont segments. Gross profit margins for the company decreased by 160 basis points compared to last year, but were comparable with the first quarter of this year. In the second quarter of 2017, we experienced a higher raw material cost environment as compared with the same quarter last year, particularly as it pertains to steel and zinc. In addition, there were some unfavorable mix effects in the Utility Support Structures segment. Productivity improvements and partial recovery in the form of higher prices helped to mitigate some of these inflationary and mix effects. While steel prices started to slowly drift down during the quarter, the decline was slightly slower than we originally anticipated. SG&A spending was comparable to 2017 and despite top line growth, we saw leverage of 130 basis points of SG&A as a percentage of sales. Second quarter operating income was $78.3 million, 9% over the same period in 2016, and our operating income percentage was comparable with last year. Our income tax rate of 30.8% was in line with last year and our expectations. Turning to cash flows. First half operating cash flows totaled $68.3 million compared with $79.9 million last year. We increased our cash balance by about $48 million over year-end 2016. Operating…

Thank you, Mark. The challenge in the second quarter was in achieving improved profitability commensurate with sales growth. On balance, we anticipate better cost recovery during the third quarter as pricing adjustments flow through the businesses. Our outlook for the year remains in line with our prior guidance. We expect strength in the Utility Support Structures segment to continue, a positive second half outlook for Engineered Support Structures and generally stable Coatings demand. We expect unfavorable comparisons in Energy and Mining. For Irrigation, we expect good performance from our international operations. In North America, we anticipate traditional third quarter seasonality and the fourth quarter to be influenced by harvest and net farm income. Presently, the market seems to have flattened out in North America, despite challenging fundamentals. At this time, I would like to turn it over to the operator to take your questions.

[Operator Instructions] Our first question comes from the line of Julian Mitchell from Credit Suisse.

Hi, good morning. This is actually Lee Sandquist on for Julian Mitchell.

Good morning.

If you are fully able to pass on increased raw materials in the second half, what level of incremental margins should we think about?

Well, it's hard to say that in its entirety because we do predict it to go up. But, however, the market and where we can get the price increases still remains challenging due to the competitive nature of our markets. In international and some of the ESS segments, particularly in the transportation area, it is highly competitive. But in our Utility Support Structures segment, we're typically able to pass those along. In Irrigation, we raised prices during the quarter as a way to get cost recovery as well as the Coatings market. So we believe, we'll have good pass-through. We probably will get somewhere in the lines of about 1%.

Understood. And I didn't hear any mention of the highway funding bill on the call. Was there any impact of increased spend from that initiative this quarter? And how do you think about that for the balance of the year?

Yes, in our comments, we talked about the lack of real clarity from Washington in terms of how it effects the projects that are out there and are led. So as we have seen and some other people have seen, the larger projects, which are typically long-term over multiple years, have really not come through at this point. So we are kind of tempering our view that this year we will see any kind of impact from that. However, generally, there is a good public support and political support for moving infrastructure spending in the future, and so we remain optimistic that in the near – or the near to midterm, we should start to see that demand.

Understood. I will pass it along. Good luck with the ramp up.

Thank you.

Our next question comes from the line of Craig Bibb from CJS Securities.

You guys blew a hole in the [indiscernible] with Lindsay's irrigation revenue. Can you provide more color, particularly on the increased demand from outside the corn-belt, is that new acreage? And then maybe discuss the business flattening so far in Q3, if I understood that correctly?

Sure. So we saw very good demand from our parts business. Machines were running pretty well with the heat, so that was a good area for us. We also had a good area of the non- corn-belt, typically the grass growers is where we've seen some increased demand, over time, although, it is spotty. And then we did have a large project in North America, which we do not expect to repeat on a go forward basis.

Okay. And then the business was flattening so far in the second half?

No, we would expect, as we mentioned there, to see more traditional demand, at least right at this point, that's the kind of clarity we would have right now. And then internationally, we expect continued good demand to continue throughout the year.

Okay. And then as my second question, that – your share count increased quarter-to-quarter, that was actually the first time that's happened since 2013. You were not paying down debt with the extra cash. Are you guys building dry powder?

Craig, this is Mark. You're talking about the cash balances, right?

Right. So, your CapEx wasn't really changed and you weren't paying down debt.

No, we did. Some of that cash increase came out of translation because the dollar weakened a little bit. But yes, I mean, with positive free cash flow, we paid out some of that in dividends, but certainly, there was a buildup in cash. And it really relates to how we approach capital allocation. So share repurchases are opportunistic in nature, and we just want to make sure we have liquidity to take advantage of opportunities as they present themselves.

I think last quarter, you guys talked about the potential for an increase in M&A, is that still on the pipe?

And Craig, we are continuing to look very actively in the market. And as we say often, they're very hard to predict. But we do believe that there are some good opportunities out there that – through cultivation and through our strategy, we will be able to find as we look forward to continue our growth.

Thank you.

Our next question comes from the line of Nathan Jones from Stifel.

Good morning, everyone.

Good morning, Nathan.

Good morning, Nathan.

And if I could follow-up a little bit on the pricing side here. You guys talked about not being able to fully recoup pricing in ESS, in Coatings and in Irrigation. I was a little bit surprised about the commentary on not being able to pass it through on Irrigation given that, that's short cycle, given that you can raise prices fairly easily through the distribution channel. Can you maybe talk a little bit more first on Irrigation, about why it was you couldn't fully recoup the increased steel prices in the quarter?

There is a couple of items there. Last year, we benefited from a very good steel purchase, so we were facing just a tough comparable in that sense. And you mentioned the dealer network, it's not that elastic that we can go ahead and push through prices, we're dealing with typically competitive spreads against other competitors, and so that activity was delayed. Also, last year, you saw steel pricing, and this applies to most of our businesses, rise very substantially, very quickly. And so it forced the marketplace to adjust very quickly. This year, the rise was slow in nature, but consistent, and so people were holding on before making the price increases. So we did raise price during the quarter in Irrigation, and we expect that to help us as we go particularly into the next couple of quarters.

Okay. Then on ESS and in Coatings, where you haven't got demand that strong there, it might be a bit more difficult to push prices through. I think you commented in your prepared remarks that you have put through some price increases there. Can you talk about how sticky those price increases are? Where you see – if you're seeing any real challenges in passing that through? And how we should expect that to impact margins as we get into the second half in those two segments, specifically?

Yes, it is still a very competitive environment. As we mentioned in Coatings, the external demand profile still remains challenged, particularly from oil and gas. Last year, we had a very good solar market up until about midyear. So in that market, it's going to be a slow to recover. In ESS market, to your point, we definitely see the competitive nature to be quite difficult. However, we remain resolved to push this through. And as I answered earlier, for the company about 1%, we believe would be the impact.

You guys do have a pretty good track record and you've cited before that at some point here you'll push prices through and maybe sacrifice a little bit of share if that's necessary. Is that how you're approaching it at the moment? Or are you being a bit more cautious with the price increases?

No, I would say that all of our business units remain committed to that philosophy of pushing through what is the real cost. Although, to get it through the markets, based on bid cycles and how long some of those can be, quarter-to-quarter, it takes a little bit of time. As we mentioned, the price increases we anticipated were stronger and more durable in terms of the length of steel prices stayed up. And so it just takes us more time to adjust to – against that initial assumption.

And then could you just maybe give us a little bit more clarity on Irrigation in terms of what the impact of the projects, where you said there've been some active projects internationally and you did talk about one large project domestically. Those kind of discrete projects, could you – is there a number you could give us for what impact that had on the growth rate in the quarter?

No. I would tell you this that, internationally, we always have project work, and we expect the project work through the third and fourth quarter will remain very firm. However, as I mentioned in my prepared comments, projects tend to be volatile. And so, while it looks good right now, there could be a push out or a move out in that sense. In North America, the bigger projects are few and far between, it's much more of a run rate type of business. So that's why we called that out separately.

Can you talk about the impact that domestic one had on growth?

Nathan, I think we should let someone else get in queue and come back to you.

Our next question comes from the line of Brian Drab from William Blair.

Good morning, Brian.

Brian, your line maybe on mute. Brian, are you with us? Our next question comes from the line of Jon Braatz from Kansas City Capital.

Good morning, everyone.

Good morning, Jon.

Just back to the Irrigation segment. Your maintenance revenue, maintenance and repair revenue looked to be pretty strong in the quarter. And correct me if I'm wrong, was it a little bit soft last year? I think the rains were a little bit better where the system is not operating as frequently as they were and maybe you had a little bit easier comp?

Yes, that's definitely be the case. Last year, was – rain came at the right time consistently through the growth season. And this year, it turned hot very quickly and so we had just a lot of good hours on the machines.

Okay, okay. And then secondly, as you look at the Utility business, are some of the – what kind of insight can we get – can you give us in terms of some of the bigger transmission projects? Are they coming to fruition? Or are we looking at some of the smaller projects as we look ahead?

No, I think what you're seeing and we have seen now for probably the past couple of years is the utilities out there really capitalizing on the small projects and getting better at the small project work. The improvements in grid reliability, the bigger ones really from a CREZ kind of perspective were done. And now they find pockets, it maybe five miles here, 10 miles there, where they have the improvements. Solar and wind fit into that profile as well, because typically, it's a shorter run to get the project on to the grid. And so we really rebalanced ourselves to adjusting to that market and getting very good at moving the smaller projects through. Whereas, traditionally, bigger projects were easier to handle, that probably still remains true, but we've gotten very good at handling the smaller projects.

Okay. Thank you, Steve.

Thank you.

Our next question comes from the line of Brent Thielman from D. A. Davidson.

Hi, good morning.

Good morning, Brent.

On Utility, can we come back at what have you seen specifically change in the last few months that kind of leads you to be more upbeat on the outlook for the business this year? Are the orders and bid environment changing rapidly? Are the customers telling you something that they hadn’t heard previously, earlier this year?

I think what it is, is you typically see the Utility's forecasts as well as some of the outside analysts that cover the industry based on an overall growth rate. And then as they ramp up through the year, they can look at spending, they can look at where the returns are. And frankly, also where they're at with permitting and access. And so we just had a good year where most of that opened up. And particularly with our customers, they have better clarity now into the remainder of the year. And so that's why we made the adjustment and have seen the adjustment in the demand profile.

Okay. And is all of this having a meaningful impact on, I guess, the bid environment and pricing at this stage?

Yes, as we've been doing for the last couple of years, we continue to try to push up price looking at our overall capacities. We are and we believe others are probably bringing on additional associates to meet some of that. So lead times have been fairly, I'd say, pushed out, let's say, north of 20 weeks for kind of a sustained period of time. And so we remain cautiously optimistic that, that will move that way as we look at 2018.

Thank you.

Our next question comes from the line of Brian Drab from William Blair.

Hi, can you hear me?

Yes, Brian we can hear you.

All right. I was not on mute, I don't know what was happening. I had a witty comment about Nathan's 20 follow-up questions that no one heard. First of all, I wanted to say congratulations to Mogens, obviously a long track record of accomplishment and I've enjoyed following it for almost the last decade; and Steve, looking forward to working with you more.

Thank you, Brian.

So a lot of the questions have been asked here, but just a couple of follow-up questions on Irrigation. Is there any way you could give us a sense for a couple other factors that might have contributed or not contributed in the quarter? I'm wondering about may be percent replacement? Or was that higher or lower than normal? And then also, can you give us a sense for the split between international and U.S. and maybe not percentages, but was it different than normal? And then also, are you seeing this – the connectivity and new technology contributing to the growth?

Okay. So I'll start with upfront just with the – kind of the other factors that are there. One factor that I could probably mention is that the storm season last year was very, very low, so it was below what we would typically see and this year, we probably saw just a much more normal run rate of storms, not significant, not blowing it away, but just kind of a normal year, so that would be a factor there. So on the tech side, the technology has created a buzz, and we've had very good product releases with our ICON panel as an example, that really has, we believe, gotten people into the showrooms to get in there and take a look. Obviously, when they do that, if they're thinking about new parts and some wear and tear on the machines, that's another opportunity for our dealer network to touch base. So – but in terms of the split internationally versus domestically, we saw good growth in both. So it wasn't lopsided necessarily one way or the other. And again, for the factors that we mentioned earlier.

Brian, this is Mogens. I would just add a couple of comments on the Irrigation business. When you look at international versus North America, in this last quarter, from a dollar standpoint, both segments within Irrigation grew at the same rate, same number of dollars increased. So obviously, international, still being smaller than North America as a percentage, grew faster. Now it had some effect on margin because the profitability of international is slightly below in North America. So that had some effect on the overall margin profile for Irrigation. Now in North America, it's not like one thing made the big difference, but it was one of those quarters where a lot of things came together. You had business improvement in outside the corn-belt, you had one project, even though it wasn't huge, it was significant. And you had part sales, et cetera, et cetera, and new technology sales so all of these things came together. Internationally, you kind of have two type of markets. You have established markets that look a lot like North America, Western Europe, Brazil, Australia and New Zealand, et cetera. And then you have all the developing markets. And those are becoming more and more significant. And they tend to be project-oriented. Now the more they grow in significance within our business the less variability there's going to be. But as they grow, you can have quarters were a number of projects very far dispersed geographically come together on one quarter, and you can have a quarter where they don't happen, so that's difficult to predict. But that's kind of the dynamics we're dealing with in the Irrigation business.

Okay. Thanks for that extra color. It's really helpful. Just on the Utility and I think you may have been speaking of this as I was trying to dial back in, but can you talk about this 11% margin level that we saw, obviously, there's pressure from raw materials. But you've taken 200 basis points or so out of – in costs out of this business recently. And 11% is, I think, that's a little bit lower than where you expect to be longer term. And I'm just wondering, do you – can you get that 11% up what does the second half of the year look like in terms of Utility margins? And is the overall competitive environment different today than it was six months or a year ago? Thanks.

Yes, the margin profile, we did mention productivity as we added in employees. So that has a drag on productivity, particularly to meet what was a substantial increase in volume. We expect that over the third and fourth quarter to moderate. And we've always said that the business can run anywhere from 10% to 15% based on the mix that comes through, the types of projects versus bid work versus the alliance work. And so, yes, it doesn't have legs to run potentially up towards 15%. Yes, it does. But over the next couple of quarters, we just expect an improved mix, not necessarily to the 15%, just an improved mix overall and better productivity.

Okay, thank you very much.

You’re welcome.

We have a follow-up question from the line of Craig Bibb from CJS Securities.

It looks like manufacturing is picking up in Europe and economies are strengthening there. Are – and it's been a moribund part of your mix for a while. Are you seeing any green shoots in Europe other than wind power?

At this point, we are not. The infrastructure spending that would affect us has not really picked up in terms of government funding. We do see sentiment starting to pick up like you mentioned, but that has not yet translated into a better environment within the European continent.

Okay. And last one. With USS, it sounds like – you have visibility through year-end. Does that extend into 2018? And are you starting to see any of the large – long distance renewable project connection projects coming into the mix or going up for bid?

We are always bidding and quoting well into the future. And just our hit rates on those and when they get permitted and when the utilities decide to pull the trigger is always anyone's guess. So we do see good activity through the remainder of the year. It won't go away, but we just – we have to go through typically the budget cycles with the utilities, which happens in the fall and then we have better clarity as we look into 2018 at that point.

All right. Thanks a lot.

We have another follow-up question from the line of Nathan Jones from Stifel.

Sorry, Brian, I had to hack your phone to take your time. So in Utility, you talked about lead times getting out to about 20 weeks. If I remember correctly, back in 2013, at the peak, lead times were at or about six months to 26 weeks. Do you need to see lead times stretch out a little bit further before you can really start pushing pricing up? Is 20 weeks long enough for you to start pushing pricing up? Or how are you thinking about raising pricing to increase the margins in that business at this point?

Yes, I'll clarify, I just said north of 20 weeks. It varies based on the size and the class. So we're really more in – closer to the mid-20 range right now, particularly in the transmission area. So we have used that as a mechanism. We've been raising price where possible, where we can be opportunistic and we continue to look at it that way. There – it's not a list business because these are all custom constructions. And so it's more of – as we go through – remember, that our alliance business, of which we have a number of them, are done on a fixed basis. And so they have escalators and de-escalators for steel. So those tend to be very fixed in nature, but they help us over the long run and they're more profitable over the long run. In the bid market, that's where you see the opportunity potentially to continue to raise price.

Okay. So it sounds like you think there is some further opportunities to raise prices here?

Yes, as we can find those opportunities, we'll take advantage of them.

And then could you give us the impact that the U.S. project had on growth in Irrigation?

No, we're not going to specifically call that out.

Okay, fair enough. Thank you, guys.

Thanks.

And there are no more questions at this time.

Thank you, Kayla. This concludes our call and we thank you for joining us today. This message will be available for playback on the Internet or by phone for the next week. We look forward to speaking to you again next quarter. And now, Kayla will read our forward-looking statements.