Good morning. My name is Kathy. I will be your conference operator today. At this time, I would like to welcome everyone to the Valmont Industries, Inc. Third Quarter Earnings Call. [Operator Instructions]. I would now like to turn today's conference over to Mr. Jeff Laudin, Manager, Investor Relations. Please go ahead, sir.

Thank you, and welcome to the Valmont Industries' Third 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 and Renee Campbell who has just joined our Investor Relations team. 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 you will find in the Media Room link on our website. Now I would like to turn the call 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 all have read the press release and review of the earnings slide deck website on our website. On today's call I'll give a high level summary of the quarter, Steve will provide the segment performance update and Mark will review the financial aspects of the quarter. The main drivers of our results were higher utility sales and profitability and improved performance in irrigation and coatings. The health of most of our markets has improved over the last year, utility demand is robust, coatings volume has stabilized and we have seen growth in wireless communication product demand. Irrigation demand has stabilized in North America and international markets are strong. The major challenges in the third quarter where primarily working through prior raw material price increases particular the spike in zinc and China steel. The shipping and production delays caused by the two hurricanes which impacted 10 of our facilities and numerous customers cost us about $0.10 a share. I will now turn the call over to Steve who will review the segment performance in greater detail.

Thank you Mogens and good morning everyone. At a high level our operational results this quarter was similar to second quarter, with increased sales and needed leverage. In certain cases the cost structure was in sharp contrast with last year when steel costs were lower. Starting with the engineered support structure segment we saw continued firm demand in global wireless communication in lighting and traffic the markets in Europe show signs of truth. Asia Pacific Highway Safety markets have been robust all year and supported segment results. This strength more than offset moderately low North America lighting and traffic demands. Our plants in India a green field start up a few years ago is growing into a good sized business and highlights the need for quality infrastructure as India's economy develops. Operating income was 7.3% of sales and was negatively impacted by under recovery of raw material inflation and an unfavorable sales mix. In utility support structures sales improved 19% year over year, pricing has firmed and lead times are expanding. The markets continue to be supported by investments in grid reliability and ongoing renewable generation projects. Our results were impacted by the hurricanes in Texas and Florida as our customers focused more on restoration efforts versus new construction. As can be expected some project timelines in the fourth quarter could be moved around as a result of the disruption from the hurricanes. While the hurricanes may weigh on our near term results over the medium to long term they help drive overall demand. As one customer in Florida pointed out not one Valmont structure failed during the hurricane. It is this kind of performance that will continue to drive hardening efforts not just in hurricane prone areas but anywhere that nature could impact reliability. Operating income for the segment…

Thank you, Steve. Good morning everyone. Before I begin I'd like to draw your attention to the Reg G tables at the end of the press release and slide deck as my comments on the third quarter are based on the adjusted financials. Third quarter earnings per share were $1.56 up 5.4% from the adjusted EPS of a $1.48 last year. The 11% sales increase over 2016 was equally due to improved volume and also to pricing and sales mix with a small positive effect for currency translation. Most of the volume increases were realized in irrigation and engineer support structure segments with a decrease in the energy and mining segment volumes. The gross profit margins for the company decreased by 170 basis points compared to last year. On a segment basis the most notable margin compressions were in the energy and mining and engineered support structure segments, the energy and mining a much less favorable steel cost environment and mining consumables contributed to most of the decrease in that segments profitability. In engineered support structures comparative pricing environments and unfavorable sales mix contributed to lower gross profit margins. At our other segments productivity and improvements and higher selling prices helped offset rising input cost. SG&A spending was comparable with 2016 and despite the top line growth we realized 100 basis points of improvement in SG&A as a percentage of sales. Third quarter operating income was 59.9 million 3% over the same period in 2016 and our operating income percentage was down about 80 basis points from last year. Our income tax rate of 27.5% for the quarter was comparable with last year's adjusted third quarter rate of 28.3%. Turning to cash flows year to date operating cash flows totaled 134 million compared with a 127 million last year. We…

Thank you, Mark. Our challenge this year has been getting margin performance to commensurate with sales growth primarily in the engineered support structure side. Steel costs remain stubbornly firm, zinc moved dramatically higher and even aluminum is up over last year, materials that are critical to our business. Given that inflationary pressures are muting sales growth leverage we have taken proactive pricing actions across all of our segments to recoup these costs and enable better performance as we go forward. Our revised guidance is for the full year diluted earnings per share in the range of $6.90 and $7.04, supporting this outlook our expectations for a strong fourth quarter in utility, we had 130 trucks loaded and ready to go before the hurricanes interrupted shipment. Some of that product is now shipping but project volatility will remain for some time. Our backlog supports a positive outlook in the engineered support structure segment we expect the improving trends in international to continue into the fourth quarter yet sluggish North American Lighting results may persist. The coatings outlook is for similar results to last year. We expect unfavorable comparisons in energy and mining as recovering the steel costs will take time based on customer pricing arrangements. The beginning of harvest in North America will preoccupy farmers for most of the quarter but we expect continued solid international demand. Our M&A have been active and our pipeline of appropriate candidates is robust. That said it is always difficult to predict the timing of acquisitions. We do believe our discipline and process will result in acquisitions with solid business rationale and good returns on the invested capital deployed. At this time I would like to turn it over to the operator to take your questions.

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

This is actually Lee Sandquist, Regarding the hurricanes what was the top line impact and also in addition could you give us a sense of the Queen incremental margins in the quarter adjusting for the impact of the hurricanes?

Well the amount of revenue that we saw was approximately around the $12 million range in terms of the overall margins we said that it impacted us by about $0.10 a share with the majority of that being in the utility supports segment and then ESS and coatings also effects saw to that due to having plants and customers in those areas.

Understood. And the top line guidance was increased from mid to high single digits up to low double digits but just adjusting for the hurricane [indiscernible] essentially unchanged so it's just a function of energy and mining, being a little bit weaker than expected but also the input costs headwinds?

That's correct.

And in terms of utility lead times are extending. So can you just touch on the volume outlook for this segment as we head into the next year?

Sure. Yes so the lead times right now we're looking at are roughly around 26 weeks and that is due to a number of customers with good activity as we look into the first quarter we have pretty good visibility obviously to that and it looks like it's pretty firm and comparable to this year as we look beyond that it's still a pretty unknown as the utilities have to kind of reload into the New Year for their spend and their projects and their capital expenditures. So we don't anticipate a significant drop off and we don't know yet if there's going to be a significant upturn. We just know that our quoting activity remains about where it's been.

Your next question comes from the line of [indiscernible] with Seaport Global.

I guess can I get a more of a holistic assessment on your margins for the quarter and when you think about the prices of the metals they did good impact two segments on the margins but you were able to kind of offset on the other three segments. Kind of in total for Valmont, were metal prices a overall headwind for the company in the quarter or is you net-net kind of make it all work when all five segments are kind of taken into account?

Yes, Mike it was a headwind as you look in the ESS side of the business you know material is a significant piece of cost, our utility business it's more significant but there we do have pricing mechanisms with our customers. So ESS then is the next segment that there is more impact due to raw materials and so therefore that's a big piece and then in the energy and mining segment it's very significant and so any movement in those pricing will affect our profitability much more substantially.

Okay. I also want to touch briefly on irrigation as well. Kind of one of your big competitors on their call asked said there was a kind of modest growth outlook for irrigation for the next 12 months, I guess starting in September it's a different schedule, a different calendar but is that growth outlook kind of broadly speaking and of course large projects excluded is that kind of in-line with your response right now as to how that might trend next year?

You know we don't really know let's say from a North America perspective how yet the market will shake out. We do believe that the market has kind of bottomed out and we've seen commodity prices and net farm income be within a certain range. So we would expect that to continue into next year, in our international markets the pipeline and the markets that we serve look to be pretty good and we would expect that to continue as we move into next year.

Your next question comes from the line of Jon Braatz with Kansas City Capital.

Steve, coming back to the irrigation business the North American market has been soft for a number of years and the international market has been pretty good and I think historically you're sort of 2/3rds, 1/3rd international, I mean domestic international. Is that percentage? Is that mix changing much? Are we approaching 40:60 and if it continues will it be that way, or do we continue to see incremental movement towards the higher mix of international business?

Yes we do believe over time the international business will frankly outgrow and be much more substantial than the domestic business. As commodity prices and as the cycles go we may see that from time to time switch back but the long term prospects and the good drivers are in the international markets but we would expect that to move towards 50% and then push it over as time goes on.

Okay. And as the international business grows, the international business is less profitable has less margin, would you see any change in that margin?

Well our operational efficiencies in the international space we've been becoming much more adept at serving that market and utilizing our footprint very effectively so while it does have different margin pressures on a cost side we're able to utilize plants in China, the Middle East and elsewhere to help offset some of that. So the more you value it the more leverage.

Your next question comes from the line of Nathan Jones with Stifel.

I would like to go to that ESS and the price cost pitch of the - clearly that's the big segment that has the most problems passing through the higher raw material cost. I know you guys at times have gone out to the market with price increases, ahead of everybody else, been willing to maybe sacrifice a little share. Can you just talk about the dynamic in ESS particularly there? Is it more difficult to push price through because that business is more fragmented, just how you're thinking about balancing the raw material increases with price.

Sure. It is much more fragmented and there is more diversity in the product line itself, that said we are pushing out in front with price increases broad-based global perspective. It takes us longer to recover those costs and particularly in North America the balance between supply and demand is in favor of supply and not by a terrible amount because the markets have been pretty good and pretty elevated but it's just enough that it keeps the pricing environment more muted. In Asia Pacific and particularly for some of the road safety, we've entertained some product lines that have a different margin profile as well that's contributing you'll see the sales growth but not necessarily the same quality of earnings but it is the right thing to do for both our customers and to gain some incremental margin. So long story short we're working very diligently on prices and as you know we're more than willing to push out in front on the price even if it means short term market share loss.

I wondered if I could be a little more blunt on the point I mean, how should we think about the margin progression in that business as you look to recapture the steel price increases?

Well it's hard to be completely clear I think as we look at quarter by quarter you will see incremental improvement as we recover the steel costs. It takes time and you know as we have new product introductions that will also help the margin profile those are things like smart polls, small cell, camouflaged which we think the market is moving towards in a pretty aggressive way. So the drivers for the market are that the product lines will change over time and that will help the margin profile and then really it just comes down to our quality, our delivery and overall value for the customer and making sure that we don't lose ground on any of those fronts.

[Operator Instructions]. Your next question comes from the line of Craig Bibb with CJS Securities.

You guys are starting to have a quite a lot cash on the balance sheet, you have not done any share repurchase thing this year. I guess you highlighted the M&A pipeline is robust. Is that what you are saving the cash for or?

Yes. It's two fold, we're really pushing an organic growth agenda internally looking at new products and services that we can offer and meeting the cash for those purposes as well as the M&A activity and as mentioned in my comments the funnels in all of our business are pretty strong and international in scope as well and so therefore we believe that that's where we can utilize our cash best.

And this would be tuck in or something larger?

I'm sorry?

So the M&A you're looking at would be more bolt-on or something larger?

It's more bolt-on in nature but again the size and the scope of the acquisitions could grow in size as we look at international opportunities.

But could you maybe give us a little bit more detail on the hurricane impact like where it cost you, what it cost you and then when do you think you'll see the positive side of the hurricane?

Well in the short term and I think kind of touch on this needs business utility you immediately see all of our customers stop taking any product can simply work on using their own storm stock that they had in place to begin to do restoration and so you get a major interruption and then replanting cycle that goes on with the projects and save this quarter once restoration activities. What we will see from that are certain lines to get rebuilt, we will see storm stock inventory replenished, and you will see the hardening efforts probably take on a much more significant piece of the psyche of those utilities that were affected so we feel good medium to long term there is nothing but positive drivers to come out of the hurricanes. In the ESS segment particularly in the Houston area we have a very strong customer base there that does lighting, but it's also the there's a major amount of interruption in that market book from the customers that are willing and able to take product as well as to install until other infrastructure is fixed and again we should see some activity out of that. In coatings it's much more of an immediate effect of lost opportunity. So you have an opportunity cost loss because your plants were one you couldn't absorb your labor and most of the fabricators that we deal with in kind of the broad market perspective they don't ramp up and run over time to catch back up and so you don't see a commiserate spike of dipping activity thereafter. So we really look at that as more of an opportunity cost whereas we just lost the potential revenue and OP that went with.

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

On the consumables business, I guess close to divesture can you remind us what's going to be kind of the key drivers of what's left in energy and mining going forward and also kind of how to the dynamics of raw material prices fluctuations are going to impact what's leftover?

You know the energy and mining is a mix of a number of our business, Access Systems, our wind business in Denmark as well as then the mining consumables business and mining consumables particularly is especially graded steel that is used because it's long lasting inside of the mills and so that price increase or increases that we saw this year our customer dynamic is that we have fixed agreements for a period of time and they can vary anywhere from a couple of months to close to a year. Those will be reset at given point in time from a revenue perspective we were fairly flat and so the demand overall is pretty good. It's just that the cost profile has changed significantly.

Okay. And then on irrigation were there larger projects on the international side that moved the needle this quarter or is this sort of the results more indicative of the broader base demand outside of the U.S.?

It was much more of a broad based market so we saw good performance in all of our international markets as well as well as the ones we've called out previously continuing to do well and projects do make up a piece of the international component and so we've had projects and will continue to have projects but there is nothing overly significant there.

Your next question is a follow-up from [indiscernible] with Seaport Global.

I wanted to check with you also on the ESS, I checked with a bunch of different road building firms kind of suggested in their cases their backlog and bids are kind of rising very rapidly here and it seems mainly on state level funded projects like in California and Texas. So are there are studies that as people have a way to kind of federal dollars out of DC, that some of states are stepping in here with their own projects and is it possible to kind of turn to a solid growth outlook next year for your domestic ESS business?

We have seen the states doing this over the last couple of years and California and Texas have led the way. Florida is also a pretty strong market that funds things on their own. So that part has already been kind of baked into our run-rate and really to see the top it's really this clarity at a federal level and who's going to fund particularly projects that go multi-year and in one giving year they see it, they may have the funding but they're very reluctant to take on the larger projects that last multiple years unless they have some idea that it's going to be funded there and so if we see an infrastructure build of significance then that should help us.

To just remind you as well when you talk about a pop and building, our types of products tend to go in towards tail end of projects so there's always a bit of a lag effect because the last thing that goes in on a road or highway project typically sliding in traffic structures and alike so it would be a case of errors if we saw a pop and we would realize it later than some of the other players in the market.

Your next question is a follow-up from the line of Nathan Jones with Stifel.

Steve you said utility [indiscernible] about 26 weeks, if I remember correctly that's kind of the range that they were at in back in the good times in the '11, '12, '13 kind of timeframe and you appear to have more than covered increased steel cost in utility and I know some of that's contractual, is there an opportunity here with supply and demand tightening for you to continue to improve pricing in that business and drive margins up?

Yes absolutely. You know the 26 weeks now versus then to take into account was much more added capacity into the marketplace and so all that capacity has been absorbed up and so we do see particularly in our bid work where there's opportunity to take up price and we're taking advantage of that.

Okay, and one for Mark. The tax rates being on a pretty steady decline over the last few years, how should we think about your tax rate going forward?

Yes, Nathan, I would still say that over the course of time depending on the mix of course of where the earnings are made and assuming no change in tax rates we would be around that 30% rate and certainly if we see something come out of Washington that's favorable we will certainly be all over that whenever that's being able to possibly bring money back or to take advantage of that anyway we can.

Your next question is a follow-up from the line of Craig Bibb with CJS Securities.

Just maybe curving back to the ESS margins, I mean you guys would have blown out of the upside if the margins were down there, it sounds like margins are down because you have higher steel prices that you can't pass through that easily but also you have increased competitive pressure and your mix is changing. So we are not - will we get a full recovery in ESS margins overtime or are we looking at a kind of a lower level because of the competitive issues in that mix?

Well, we believe firmly that over time we will see the recovery. This is just part of the cycle that you go through in this business. And if it tips in favor of demand it tends to accelerate pretty quickly. So we're pretty confident with both our actions and the new products that we're introducing to keep our product line fresh, that it will have an impact.

So the lynchpin is really you need stronger North American lighting demand for the margins to recover?

Yes, that's a considerable piece of the segment. So that's true.

Okay, great.

Your next question is a follow-up from the line of Brent Thielman of D.A. Davidson.

Steve, some of the events down in Puerto Rico, pretty disastrous in terms of the impact on the grid. Is that a market you guys would serve potentially?

We do serve that. We're one of a couple of people that service, let's say, PREPA, the local utility there, so, yes. And we don't yet know what that means. I don't think any of the agencies that are working on the reconstruction know what that yet means. But we're in a good position that when there's some clarity on that that we should see something out of Puerto Rico.

All right. And then on Coatings, appreciate the commentary thus far. I guess I'm trying to understand. I mean, there's another lift kind of in zinc prices through the third quarter, thus far into the fourth quarter, yet good signs of profitability there. I know there's some lag in this, but do you think you can kind of sustain these improved margins in light of that continued lift in input prices?

Yes. I think with the restructuring activities that we undertook last year for Asia-Pacific, for the operational excellence piece that we're working across the system, and being aggressive in the zinc recovery, that we should see profitability maintained.

Okay. Thank you.

[Operator Instructions]. And at this time there are no questions.