Valmont Industries, Inc. (VMI) Q1 2018 Earnings Report, Transcript and Summary

Greetings, and welcome to the Valmont Industries, Inc., First Quarter 2018 Earnings Call. [Operator Instructions] As a reminder this conference is being recorded. It is now my pleasure to introduce your host Mr. Renee Campbell, Director of Investor Relations and Corporate Communications. Thank you. You may begin.

Thank you, Michelle. Good morning, and welcome to the Valmont Industries' first quarter 2018 earnings conference call. With me today are Steve Kaniewski, President and Chief Executive Officer; Mark Jaksich, Executive Vice President and Chief Financial Officer; Tim Francis, Vice President and Corporate Controller; and Jeff Laudin, Manager of Investor Relations. This morning Steve will discuss highlights of our first quarter performance and a strategic overview of our business. Mark will then provide a detailed review of our financial and operating results followed by Q&A. Our press release was issued yesterday after the market closed and we prepared a slide presentation to accompany our results both of which are available on the Investor Relations page at valmont.com. An archive of today's call will be available for the next 7 days and instructions for accessing the replay are included in our press release. 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 this call. I would now like to turn the call over to our President and Chief Executive Officer, Steve Kaniewski.

Thank you, Renee. Good morning, everyone, and thank you for joining us. I'd like to begin today's call by recapping our first quarter highlights. 2018 is off to a good start. Net sales were $699 million, an increase of 9.6% over last year. We saw revenue growth across all of our reportable segments with double-digit growth in coatings and irrigation. Overall for the company, first quarter adjusted operating income was $68.4 million, an increase of 5.7%. On a GAAP basis, operating income results were $64 million, a decline of 1.1%. Favorable price and volumes more than offset inflation and restructuring costs during the quarter also impacted GAAP profitability. Steel cost volatility carried into the first quarter. Our historical experience has shown that over time we recover inflationary costs as all market participants face the same cost increases. We have been proactive in raising prices in all of our business and have remained disciplined in the quality of orders that we've set. Moving to the operational side of our business, in support of our stated goals to transform our operations and optimize our instructions, we closed Access System facilities in the Asia-Pacific region during the quarter, redeploying capacity into lower cost geographies. We also expanded our shared service model for back-office functions in finance and procurement and completed various actions to streamline cross regional management teams. Along those same lines, we brought our composite facilities in North America under the central led operations management team supporting our commitment to operational excellence and lean deployment across our sites. Further, after hosting several lean Kaizen events, we recognized an opportunity to consolidate two manufacturing facilities in Hazleton, Pennsylvania. Doing so enables full utilization of one location with cost savings from overhead and labor efficiencies. We redeployed critical process equipment to the sold facility reconfiguring the site to improve material flow and productivity which will also better serve our customers now through cross segment production opportunities. I will now move on to the first quarter segment highlights. Starting with the Engineered Support Structures segment, revenues grew from increased sales of structures and highly safety products and favorable currency translation impacts. In North America, lighting sales increased from improved spending in the transportation market and a more favorable environment. We are encouraged to see that others in the market are following our lead and becoming more disciplined in their pricing actions. Over the past couple of years, we've increased our investment in highway safety through acquisitions in Australia and India. These investments are now producing measurable results which we expect will continue with government's ongoing demand for safer roads. We are also encouraged by signs of economic recovery across Europe which contributed to revenue growth in that region. In wireless communications and an anticipation of 5G, we are now seeing all four major U.S. wireless carriers building out their networks at the same time contributing to our sales growth. Wireless communication sales in the Asia-Pacific region however remain challenged from decreased demand particularly in the domestic China market as the major telecom companies have reduced spending of our new tower construction to focus on co-location opportunities. Access System sales were also lower as a result of project business that did not repeat this year. Turning to the utility segment, sales were driven by consistent market demand as utilities continue to invest in renewable, transmission, substations and distribution infrastructure. Ongoing efforts to prioritize grid hardening also contributed to sales growth especially given the impact of last year's hurricanes and wildfires. Lead times continue to be elevated and are now between 28 and 32 weeks. Indication from industry sources and feedback from our customers support our continued positive outlook. Last month in our Investor Day, we highlighted a focus on new product introductions for growth and to meet customer needs. One example is PyraMax, a highly engineered complex custom structure. We shipped our first international order into Southeast Asia during the first quarter and expect additional sales of this and other new products throughout the year. The coatings segment had strong performance across all regions leading to a 15.5% increase in sales. Internal base loads and better external volumes led to higher sales driven by economic growth across the U.S. and Asia-Pacific markets. During our Investor Day, we highlighted a new proprietary factory management tool called GalvTrac which calculates precise and repeatable recipes specific to customer's products improving quality, minimizing material usage and optimizing available process time. GalvTrac has been fully implemented in 27 galvanizing sites across North America and Australia, allowing sharing of best practices, providing standardized work, enhancing productivity and driving continues improvement. Overall, while better serving our customers, we expect GalvTrac to be fully rolled out to all global locations by year-end. Turning to irrigation. The 12.4% improvement in sales was led by strong international performance including significant project business in the EMEA region. International penetration has been a key strategic imperative and we're encouraged by the progress we're seeing supported by secular trends such as growing populations, the need for efficient and précised water management and government's ongoing desire for self sufficient poll production. Keep in mind, the project size and timing can be somewhat unpredictable from quarter-to-quarter. In North America farmer sentiment was muted by continued low net farm income projections of delayed start to the planting season and uncertainty around the impact of tariffs particularly later in the quarter. Sales were supported by the ongoing demand from precision irrigation technology solutions which helped to offset some of these impacts. In January, we acquired a majority stake in Torrent Engineering, a global designer and integrator of high-pressure water systems for the agricultural and industrial sectors. A key component of Torrent's design and engineering expertise includes building pump stations and motor controls for irrigation and other customized specialty applications. Torrent partnership supports our strategy to deliver full-service engineered turnkey water management solutions to our growers. A number of coming earnings calls, I would like to do a deeper dive into some of our market-leading solutions. This quarter I'm going to talk about AgSense which is a technology we acquired a few years ago to advance our market leadership position and precision irrigation. AgSense allows growers to monitor and control their irrigation equipment remotely from a computer or smartphone and controls additional applications around the farm such as soya moisture levels, grain temperature and energy usage. It also works seamlessly with most competitive machines around the world. AgSense is a transformational technology and is connected to three times a number of machines than any other brands. From an irrigation perspective, connectivity of machines is the absolute prerequisite that all other technology solutions build-on. Without a connection, selling additional products and services is much harder. AgSense drives efficiencies and labor, time, water and energy usage and allows growers to make informed decisions about their operation, saving them money. Since 2014, Valmont has seen a 20% annual growth rate in the number of connected devices leading the market with over 60,000 connected machines today. The success of our icon family of control panels with built-in AgSense or BaseStation 3 technology has contributed to this growth. As other players in Ag technology advance their offerings, we believe growers won all their products to speak to each other through API links. The open architecture of value irrigation exchange enables standardizing API links with over 13 different partners including some of the most prominent players in the AgTech industry. For example, personalized recommendations for crop management and economy prescriptions can be generated to the AgSense and partner platforms. We believe this model facilitates growers ability to choose their preferred floor management partners and as a game changer. Most of our success thus far has come from North American markets and we are now focusing and directing resources towards international market with just sustained growth well into the future. It's a very exciting time in this age-old industry and our investments and innovated technology solutions should keep us as a leading edge and the evolution of precision agriculture. I will now turn the call over to Mark for an overview of our financial results.

Thank you, Steve and good morning everyone. As I begin my commentary on first quarter, please refer to the table at the beginning of the press release and the Reg G disclosures at the end of the press release. My comments will focus on the adjusted results and I will talk more specifically on the restructuring actions a bit later. I would also like to point out that the other category in the segment detail represents our grinding media business. In the first quarter, this business reported lower sales at $2.7 million less operating income as compared to 2017. Now that the regulatory hurdles have been cleared, we expect the previously announced sale of this business to close by April 30. The 9.6% increase in sales, and 10% exclusive of the grinding media business reflects improved topline growth across all reportable segments. Unit volume growth contributed 3% of this growth, pricing a mix added 5%, and positive foreign currency translation added 2%. Operating profit increased 6% or 11% excluding the grinding media business on the 3% year-to-sales growth. Despite an inflationary raw material cost environment, we were able to mitigate much of this pressure through a combination of affected supply chain and factory management, as well as pricing actions. Our income tax rate for the quarter was 23.8% driven by favorable geographic mix and the effect of the 2017 U.S. tax legislation. 2018 earnings per share of a $1.87 was an 8.7% increase over 2017. We began to execute on our plan 2018 restructuring actions during the quarter which Steve covered in his opening remarks. Total expenses incurred were $4.4 million or $0.15 per diluted share after tax, $3.6 million was related to the ESS segment and $0.8 million to the Utility Support Structures segment. These actions will generate annualized cost savings in excess of the charges taken with an initial payback period 12 to 18 months. Turning now to segment results, sales in the Engineered Support Structures segment increased 9.8% with operating income up 11.6% over 2017. The profitability improvement was driven by the sales growth and associated operating leverage partly offset by inflationary impacts not yet fully recovered through pricing actions. As you know, due to the fragmented and price competitive nature of this business and certain fixed price contracts, it takes a bit longer to recover inflationary cost in this segment. The pricing actions Steve discussed should lead to improved profitability in the third and fourth quarters of this year. Turning to the Utility Support Structures segment, the sales increased 4.8% due to pricing net of slightly lower volumes. Operating income was essentially equal to last year and profitability for the quarter was somewhat impacted by a less favorable sales mix. In the coatings segment, significantly higher sales drove the operating income increase of 26.6%. The broad based volume growth realized with the other segment and external custom demand, better price and cost management of zinc, and improved operational performance all contributed to favorable results. Turning to the irrigation segment. We were pleased with the double-digit sales improvement over 2017. Segment profitability increased in line with the sales increase. Despite higher raw material prices, we were able to meet a very good quality of earnings through effective sales price management and ongoing supply chain and operational initiatives to improve our cost structure. Turning to cash flows. 2018 operating cash flows were $33 million compared with $23.4 million last year and capital spending was $16.4 million as compared with $14.2 million in 2017. First quarter operating cash flows were typically weak compared to subsequent quarters during the year from seasonal working capital fluctuations at the infrastructure businesses, and to a lesser degree the effects of implementing the new revenue recognition accounting standards in the Utility Support Structures segment this year. We expect capital spending for the year to be approximately $70 million compared to $55 million last year. This includes an investment in a new modern poll manufacturing facility in Poland and increasing our manufacturing capabilities in our irrigation plant in the United Arab Emirates. Regarding other capital deployment activities, we purchased about 101,000 shares of company's stock for $14.8 million during the quarter and invested in aggregate of $10.3 million for the Torrent acquisition and the purchase of the remaining 10% of our Brazilian irrigation joint venture. Today we have about $108 million remaining under the current stock repurchase authorization. At this point, I'd like to turn to our outlook for the balance of 2018 fiscal year. Sales for 2018 are projected to be approximately $2.9 million which represents 7% increase over 2017 excluding the grinding media business. We expect to see improved sales across all segments with the strongest outlooks in North America utility and international irrigation. The outlook for North American irrigation is a bit unclear as we approach the end of the spring selling season but given relatively low but stable net farm income and trade policy uncertainties. Developments on these matters and the progress on the 2018 growing season will shed more light on demand later in the year. Continued economic growth is anticipated to drive sales growth in the coatings and Engineered Support Structure segments. We expect to see improved operating margin comparisons in the Engineered Support Structures segment in the third and fourth quarter from the effects of recent price increases on the quality of our backlog and a partial benefit from restructuring activities that are underway and planned. We're not anticipating any meaningful change in the current environment for raw materials in short run. Demand from economic growth and trade policy considerations will likely keep prices at current levels for commodities such as steel, aluminum and zinc. We will continue to manage these costs to mitigate the effects on operating results through supply chain and operational initiatives, as well as sales price increases. With respect to our operating income, we're looking for about a 50 basis point improvement in operating margins over 2017. We continue to expect our 2018 tax rate for the year to be approximately 25% subject to final IRS regulations. As a result of our share repurchases and acquisition completed in the first quarter, we are increasing our 2018 earnings guidance. GAAP EPS will increase will increase to a range of $7.70 to $7.80. On adjusted basis, EPS will increase to $8 to $8.10 per share. The adjusted numbers exclude the effects of the restructuring actions mentioned earlier and our guidance does not include the effects of getting future M&A activity. We expect full year free cash flow to approximate one time net earnings and our after-tax return on invested capital to exceed 10%. We have manageable leverage and solid cash flows which supports M&A and other capital deployment activities. Cash at the end of the first quarter was $480 million and we are in a good position to redeploy available cash to support growth initiatives and other capital allocation considerations. Our long term interest bearing debt is $755 million. We remain committed to an investment grade credit rating and our cash priorities have not changed. With that, I will now turn the call back over to Steve for closing remarks.

Thank you, Mark. In closing, we remain positive on our outlook for the rest of the year. As we’ve mentioned, we expect better second half performance in Engineered Support Structures from improved quality in our order backlog. We expect better product mix and improved productivity and utility for the balance of the year. Looking ahead, we have strong backlog and our hit rates are up in our bid business supporting our solid growth projections for the year. We are encouraged by improved external demand in our coatings business and while we remain cautious on the North American irrigation market due to farmer sentiment and a late planting season, we remain positive on international market opportunities. We get many questions from investors on the impact of tariffs. At this time, we don’t believe they will be disrupted because we don’t import gross deal for aluminum, and nearly 40% of our business is outside of U.S. Furthermore we have not seen any major delays or disruptions on securing supply and we have very good relationships with our vendors. As we outlined last month in our Investor Day, we are focusing on our long-term strategies of building pathways to growth through expanding our addressable markets, transforming our operations and back office functions, aligning our teams through talent development and improving velocity of bringing new products and services to the market through the voice of the customer. I’ll now turn the call back to Renee.

Thank you, Steve. At this time, I will turn the call back over to the operator to take your questions.

[Operator Instructions] Our first question comes from the line of Craig Bibb with CJS Securities. Please proceed with your question.

Could you talk about the rollout of the center led operating model where that stands and maybe some of the benefits that you realized in Q1 and will just see later in the year?

We were able to move a lot of the planned activities that we detailed at the investor meeting particularly in North America. So a number of the operations and plans that we had remaining in the steel side, as well as the composites moved were some of the things we got done in the first quarter and in terms of measurable result, those are the things that we’ll see now as we go through the balance of the year accelerating towards the end of the year itself. We also made some good progress in a number of regions on the back office consolidations particularly in Asia-Pacific and as well as some consolidation of operations over there in the Access Systems Group as well as our Structures Group.

Maybe a little more detail on the mix changes in Q1 and then if you could talk about the acceptance of PyraMax and timing on your [Lattice] acquisition?

Yes, so as far as mix is concerned, Q1 tends to have the most volatility in projects related to the build schedules. Obviously there is things like weather permitting and just a general start to the year. So we tend to see a little bit more movement of projects and that's basically what we experienced in the Q1 area. We expect Q2 and through the balance of the year to be as we have seen kind of previously to led with the strong performance. In terms of PyraMax, the PyraMax product has really gained wide acceptance. Again it's kind of a specialty custom product that really alleviates some problems for the utilities. And so, this first international project we did in Southeast Asia was a good representation of that. That's a market that is obviously very cost competitive and there are other alternatives, but they had to use this in order to help them get through the right of way. In terms of the market in North America, we're seeing a number of utilities move towards the PyraMax for these specialty applications. [Lattice], we're still continuing to look very diligently for an opportunity there, both inorganically and organically so that we can enter the market in a good way.

Our next question comes from the line of Nathan Jones with Stifel. Please proceed with your question.

I'm going to ask some questions about Steel and ESS which I'm sure is no surprise. It's always been my feeling that Valmont should have a structural profitability advantage over the Mom & Pop suppliers in ESS. It's probably at least 500 basis points. With margins getting down to this low, do you feel that most of your competition here in terms of those Mom & Pop shops are making no money at all and are going to have no choice, but to pass on increased steel costs, which should then make it easier for you to do so as well.

As we mentioned in our prepared comments, we have seen competitors filing suit with our pricing actions. So whether or not it's due to the assertion you made in terms of where they are on a profitability perspective, we’re just encouraged that they now have to make those moves just like everybody else in the market.

Then you guys, I think on the 4Q call said that you did pre-buy some steel in the fourth quarter and we have seen significant steel price increases in the first quarter of '18. Can you talk about whether or not you're getting any benefit from having pre-board ahead of price increases? And how that might play out as you need to reinvest in inventory going forward?

Nathan, this is Mark. I would say that's the case and that certainly was a contributing factor to inflation that we occurred and the fact that it really didn't have any impact on the operating income of the first quarter. As time goes on as we look at our backlogs, to the extent that we can determine what we need, we secure the material at the time to try to lock in margins and we are doing some other actions to try to at least tie down and solidify margins of things that we have in backlog, but that's a combination of purchases and some other things we're doing it from the operational side.

So there could be some drag going forward because you're going to have to buy higher priced steel and what you were running through in the first quarter is that correct?

No, I think what Steve mentioned, I think there is going to be some ongoing impacts through the second quarter in ESS. But our models show right now that our third and fourth quarter margin should be picking up, as a result of pricing actions as some things we've done on the material side to help at least control some of the material costs.

So it's more that it's giving you time to get price increases through?

I think that a good way to say it.

Our next question comes from the line of Brent Thielman with D.A. Davidson. Please proceed with your question.

Wanted to follow up on ESS and I guess the comment about recovery in cost increases in the second half to the extent that, we heard lead times and system mills continue to extend our prices continue to move higher. I guess I want to be clear even with what the mills are quoting you today, you can recover that and if prices continue to move higher what point does that outlook for margin expansion in ESS become less clear?

Just looking at the current situations where we are at, we feel that the price recovery is there based on the current market condition. Again the backlogs work it takes a little while for that to go through and that's why we say it's third and fourth quarter. But we definitely have taken that into account in our pricing decisions right now. In terms of the future outlook, again as long as these projects are slated, and as long as people want to continue to use steel, it will provide some inflation into the equation for them, but ultimately, we think that the steel market where it is, you start to bring more supply into the market with rising prices, that we feel good about kind of where our outlook is. If you look at steel really it's only back to about a 10-year historical average toward the steel price itself. So it's not like we're in uncharted territory, as it relates to steel. We've been through this before in 2004, 2008. So it's not unprecedented and I think we'll manage through it very well.

And then maybe on irritation and all that tariff situation perspective. China, I think I heard in your opening remarks that, maybe sentiments faded from what I think is probably already pretty low levels in the U.S. But any sense internationally that there's going to be more of a pickup in order activity or sentiment as a function of kind of what's happening in the U.S.?

Yes, I think it's uncertainty and anytime we have uncertainty, people tend to want to wait on their investments and so that's what we're seeing really from a U.S. market perspective. And as I mentioned that happen later in the quarter as more of the tariffs talk and the retribution talks kicked in. In terms of internationally, we're well poised if the market is going to move around a place like Brazil for an example, would stand to benefit from that although it may not be this year, it would be next year in terms of when they would see that tick-up. But you know there's drought in Argentina, tariff talk here, the supply will move to other places where our footprint allows us to capitalize.

Our next question comes from the line of Mike Shlisky with Seaport Global Securities. Please proceed with your question.

Hi, I want to first discuss the Access System. I did hear that one of your competitors - one of your few competitors has attached the system to the John Deere operations center, as far the effort to offer integrated offering. That's not an exclusive deal. And I was kind of wondering if you can tell us if you think you see value something like that, and I wonder John Deere or they case [indiscernible] system?

So, as I mentioned we have about 13 different API already linked with. John Deere happens to be one that we've already been working with for about three years. There's other players in the market like Climate Corp, that we've been working with. So we do see the value and again we believe that open architecture that we support, allows us to be a player in the market without forcing the farmer towards one solution or another. And so that's where we believe our real advantage lies. And we'll continue to look for opportunities both domestically and abroad, especially as we move Access into some of the international markets.

I also want to ask about irrigation in South America as well. There's definitely been a drought in China, I am wondering if you could tell us about your presence there? And then secondly more broadly in Brazil, there's been some low sentiment in buying equipment there because of interest rates. But there may be still in July a bit lower. Do you have kind of thoughts on, whether it’s going to be kind off holding off in the second quarter here in that area until we get some lower rates in the third and fourth?

As far as Argentina, we have a plant just outside of [indiscernible] and we've been there for about three years now. So, we're well positioned to capitalize on that market. There is more interest as it pertains to irrigation, as particularly the [Cordoba] region where you're seeing the effects there. Our Brazilian market has stayed pretty resilient throughout '17 and '18. And I think, the overall sentiment that you question about interest rates has been that there's still strong economics given where they are today to do these capital investments, particularly with the [indiscernible] program that occurred as a result of rate decrease last year [indiscernible] by about one point. And so we think there's still strong support for the market in those two areas. We're well positioned across all of South America with our dealer network and representation whether, that's Peru, Chile or other places. So we think that it will be a good market for us going forward.

[Operator Instructions] Our next question comes from the line of Brian Drab with William Blair & Company. Please proceed with your question.

My guess is just a quick clarification in the first quarter of '17 looking at those numbers that have come out now, it looks like 23 million in operating cash flow, previously it was 36 million. Is that a simple explanation for that?

This is Tim. I can answer that one. Yes we had to adopt some new GAAP that require their restricted cash be part of the totals that you see on a cash flow statement. So last year, we were able to show the release of some restricted cash which was tied to differed pension contribution as a source of operating cash flow. And now we had to remove that as a source of operating cash flow in 2017 and instead show it in the beginning AKA, the December 2016 balance of cash.

And did you say Torrent exactly what you expect in terms of EPS accretion over the first 12 months?

No, we didn't. We just said that, it's a part of the guidance building up to the $8 to $8.10 range.

Brian, this is Mark. The thing I will add to that as well. No, only the précised, but what we own a 60% of it. So what accrues to EPS is only going to be 60% of the net income. So you'll see there'll be some accretion to it, be fairly minor.

You can’t give us any more insight into the moving and there's a few moving parts of this to the core business excluding acquisitions and repurchase and others. The acquisition and there's the repurchase. Can you size or help it out there?

You're talking about the guidance, to some degree there's some reflection of the share repurchase activity which is going to be a bit of a tailwind of EPS. Of course and then not only the Torrent acquisition but also the fact we'll be picking up 100% of the earnings in the Brazilian joint venture will fall to the bottom line even though if the consolidated numbers. So those two things together collectively add up to around $0.10 on an annualized basis.

Sorry, it broke out, - what on annualized basis?

About $0.10 per share.

So that's including the share repurchase - all of those items you're seeing, is that right?

Yes, that is correct.

And then just one last one, any granularity you can provide within the irrigation segment as to how domestic debt is doing versus international. I know you said international is obviously robust but is domestic - did domestic grow in the first quarter?

We had said, it's basically flat from a year-over-year perspective domestically with the growth coming from international.

Our next question comes from the line of Jon Braatz with Kansas City Capital. Please proceed with your question.

Going back to North American irrigation, obviously with farmer seems to be in the crosshairs of all the tariff talk. When you speak to your dealership across the country, have this actually seen any - you talk maybe about a pause in sales, but have they actually seen any cancellations because of all this rhetoric we're hearing from Washington?

It's my cancellations, it's just the fact that they're not even going in and talking. And they're waiting on the investment. So we actually have seen order rates declined slightly as this talk and then you sort of the weather into effect as well. It's been a very cold and snowy start to the season. So I think once some uncertainty regarding NAFTA, as well as China were to come back into play, then you’re kind of more market fundamentals would kick in at that point.

Then when we look at the international side of the business, were there any - last year were there any big projects, irrigation projects that may or may not be repeated issue that might skew things little bit?

I think we've seen good project work as you mentioned 2017 and then we’re anticipating good project work through 2018. The caveat is always that they tend to be sometimes lumpy they can move et cetera. But in terms of the overall quantity of project work we’re seeing good signs of that as we look into 2018.

One last question in your press release during - in the restructuring comments you mentioned that there may be further actions to be considered. Is that more of a general statement or is it something that might suggest that there might be something, sooner rather than later?

Just that we're on track. We said 10 million at the Investor Day. We believe that that is still where we’re at right now but obviously as you start to look into operations and finalize plans that number could go up or down depending on what we see. So we’re going to look very intently for opportunities and if, we see more than we would inform the group.

Our next question is a follow-up from Craig Bibb with CJS Securities. Please proceed with your question.

At the Investor Day, you guys made the case - maybe the infrastructure opportunities bigger in emerging markets for things like microgrids. And in this quarter you highlighted India maybe for the first time ever on a quarterly conference call as I remember. Could you talk about the size of your operation there and what your plans are?

Well the operation is about six years old in India we are in Pune, India and what we’re seeing there is just based on the broad circumstances of India itself, there is - quite the infrastructure build out that’s related to the power grid, that’s lighting, that’s telecommunications and in particular highway safety. Road safety has been a very prominent political item in India particular over the last year to two years. So it’s a growing operation for us and we think that there'll be some continued opportunities within India for us to expand based on the broad market that’s there and our history of how we move into a country.

Are you putting more capital into the market?

Well from a working capital perspective for sure right now. And then from a fixed capital perspective we continue to do that on a more regular basis as the market dictates.

Our next question is a follow-up from Brent Thielman with D. A. Davidson. Please proceed with your question.

On Utility Structures it was expected that the storm in the South and Southeast last year is that – has that caused any delays in your work as utility sort of recalibrate where the priorities are in and I guess secondary thinking about the scale the blackout. Is that creating incremental demand and there will be some new projects for the market?

We don’t believe that the storms themselves caused any issue with the current project that we're coming through. The project lifecycle within Utility Support Structures is very long and these projections are planned and well in advance. So what you see through storms and fires is just the constant support to the case that the grid has to be hardened. And so where wood is in place today which is very susceptible they'll want to move towards either steel or concrete solution which we play in both. So we believe it just a good long-term driver for the market both in the U.S. and international.

And do you have any discussions within the utilities down there about - where you can bring to the table there. I mean are you thinking more about it is that your sense at all?

Absolutely. We believe there are new product opportunities for us in that space for sure. And we are constantly assisting our customers in the rate cases that they would have to bring forward to the PUC. And so that's where we really work with them well, because all of this has to get support ultimately by the rate there. And so that work tends to be upfront and then you get the project afterwards.

And just quickly the North American wireless business again it's smaller in the scheme of Valmont, but in the commentary it seems that caused there. Can you elaborate a little more in what you are seeing is the activity accelerating and then also is it the higher margin component to the ESS that we need to consider I mean if the momentum continues this year?

The broad market really has increased over the year because people are anticipating the 5G build-out. You saw the spectrum sales about a year, year and a half ago that slowed the market now that was cleared up you're seeing some investment in the market by all the carriers. It tends to be a slightly better margin overall then the lighting business for sure. And so as it grows it should provide more leverage opportunity then if we were just to grow in the one phase alone.

As lead times extended out there as well?

Lead times have been, I think relatively normal. They're not also aggressive and they’re not very extended, they’re just - it’s a good market and there is capacity in the market to address it and I think there is probably a good balance between supply and demand.

Our next question is a follow-up from Nathan Jones with Stifel. Please proceed with your question.

As a follow-up on irrigation here, you guys have said over the last couple of quarters domestic irrigation has been roughly flat. Your main competitor here has been putting up some very healthy growth rates in the 20s. Do you think there's any share shift going on here, is this just a timing or regional related to weather or how are you looking at the balance there competitively?

Well we look at it Nathan really over a long period of time and on an overall extended period of time the market shares don’t tend to move all that much. In a quarter-by-quarter basis there could be a region or timing that plays a factor in the comparison between us and them, others out there in the market et cetera. So we think that we have a very strong offering. We have the best dealer network that’s out there with the best product. And so we believe that it is and will continue to be the machine of choice for the grower. So we’re not overly concerned anytime we see some numbers go up or down, over time is what we tend to look at.

And secondly you brought up AgSense, Lindsey does have its new version of field net out called FieldNET Advisor which proposed to have data analytics and software capabilities that will actually help to grow or decide how much water to apply to what part of the field. Can you compare and contrast AgSense’s product capabilities against FieldNET Advisor?

Yes, so it’s not just AgSense we also have another group that does the advising of water called [Eraser] based on our Brazilian operations. That has expanded to other parts of the world right now does exact same thing that FieldNET Advisor does. And we don't believe that will there is any significant advantage from them being in the market versus us being in the market. What we do believe provides us an advantage of the fact that ours is open architecture we can go on any machine in the marketplace. You don’t have to first switch to a base product in order to get it on your machine. We could put it on competitor X, competitor Y or competitor Z. And so it’s something that we can talk more about but there is product that meet those needs throughout the market. And our VRI product at variable rate irrigation already provides the ability to adjust the rate of flow as it goes around the field up to maybe 3600 times. So based on the prescription that are generated through MBDI and other sources, soya moisture we can then provide prescriptions for that on the field itself.

Our next question is a follow-up from Brian Drab with William Blair & Company. Please proceed with your question.

I just wanted to ask on the progression of margins for the coatings segment going through the - I guess interest come down quite a bit little over 10% since you originally gave guidance in February. How do you see the margins in that segment as we move through the quarters this year?

I think we are expecting the margins in that business to maintain at a good level. I think the recent downturn in the zinc prices has a little bit has a very small impact on pricing by itself because that’s just part of the cost profile but the business - it fluctuate quite a bit and so indications are that prices are expected to recover and I guess we’ll wait and see what happens. But when the commodity prices go down you do your best to make sure you value proposition is there so you could maintain your pricing.

And then I guess, Nathan really just asked the question that I wanted to dig deeper on it, I feel I got little bit smarter in terms the compare and contrast but can you maybe more specifically talk about, does AgSense take data such as - and is taking moisture data, its taking data from the farm management systems, is it taking data around all the different seed that is planted different price of the farm, is it incorporating weather data. There is some of things that [Lindsey] is talking about with FieldNET Advisor and I think a lot of investors trying to understand in greater detail what the difference is between these systems and Lindsey highlighted on their call, you’re highlighting it here, one of the products and technologies that you want to highlight today. So if you can talk in more detail on to few of those specific things that I mentioned.

Simple answer is yes. And we can talk about it a little bit more, give more color to that maybe in subsequent calls and/or discussion. But at the end of the day the products we have AgSense and BaseStation combined. This any kind of different data from any different format and system, soya moisture et cetera put it together and then come back with the prescription of how that water then is delivered to the field and when you should water. So, it has all the same capabilities as the competitive product.

Thank you. There are no further questions at this time. I would like to turn the call back over to management for any closing remarks.

Thanks Michelle. This concludes our call. We thank you for joining us today. As mentioned today's message will be available for playback on our website or by phone for the next 7 days. We look forward to speaking with you again next quarter.