Valmont Industries, Inc. ($VMI)

All right. Good mid-morning. It's a nice day to day, but we want to still continue the Intellectual Capital. Okay, I'm delighted to introduce another great American company. Valmont Industries is an industry leader in infrastructure products and advanced agricultural productivity. Some of my favorite products to see are the traffic light poles, I remind my kids where they come from and the pivot irrigation that we all know about those giant sprinklers that are just outside of town. The company was founded in 1946 with $5,000 investment and what I found interesting is Valmont actually comes from a combination of two neighboring Nebraska towns, Valley and Fremont. There's about 20 million shares trading over $500, so it means a $10 billion market cap, which is an extraordinary fee for this company. And I would just report that -- for their latest quarterly earnings were up 27.5% and a record for the company. So we know the they're executing and very well positioned to capitalize in global agriculture growth and more recently, the boom and the data centers. So joining me are CEO, Avner Applbaum; and Senior Vice President, Renee Campbell. And I just want to acknowledge one thing today about this conference partnership because we've been coming out to Omaha for 17 years, and we have grown from a road trip to your facilities to like your market cap, the audience that we've been involved with here. So it is a true honor to be on stage with you, and I thank you for that partnership.

Thank you for the opportunity.

All right. So Valmont, maybe we'll just start with you, Avner. You became CEO in 2023, and the company just had record quarterly results.

So how do you envision things going forward for the next 5 years? What are some of your goals after achieving some terrific results in the interim?

Thank you. And great to be here. Thanks for hosting us. And we're in exciting times at Valmont. Like you mentioned, we had record earnings, company is doing very well. And like you mentioned, I joined as -- became CEO a few years ago. And really, our focus was how do we set this company up for success. Aligning our portfolio where it needs to be, setting a strategy, putting extremely strong talent and leadership positions to execute on the next phase of growth. So overall, we set a pretty simple strategy, which we refer to internally as a path to 30. How do we get to $30 EPS? And what are our value drivers? And we look at it into 3 buckets. One of them is like how do we capture this growth ahead of us. And this is once in a lifetime growth that we're seeing in some of our areas like power generation, we'll talk about data centers, I'm sure a little later. So what are we going to do as a company? How do we capture putting the right resources, the right capital, utilizing our strength with our relationship, our core competencies to execute on that market. So that is one capture. The second part of our strategy is around strength and how do we strengthen these other businesses and positioning them for the next cycle of growth. If you talk about agriculture, that right now the market is in a trough, which is not -- which is typical for this environment, and other businesses. So we're working to focusing to strengthen the foundation. It could be around commercial, it could be around engineering, manufacturing, focusing on those businesses, so they will be ready to be our next growth engine. And the third part is enabled, like how do we enable the company to be successful. A key part of it is capital allocation. Putting the right capital in place, the right people in place on the top priorities, focusing on our people, our talent, how do we train, how do we develop providing digital tools, digital AI to support overall our strategy. So those 3 buckets, I would summarize as we have very strong secular tailwinds. We have a strategy to execute. We put the capital and the resources and that equals to strong value creation.

So we got the recent announcement about the new CFO, John Schwietz, but he's been at the company insider, since 2009. So not a total surprise on that. Maybe you could talk about him being elevated to this new leadership role. Does this signal any change in sort of the strategic views of capital allocation?

Yes. Thank you. So very excited about our new CFO, John Schwietz. He's been in the company for over 17 years, operated all parts of our business, infrastructure, agriculture, domestic, international, a lot of financial roles, business roles, which I find very important for CFO to have a deep understanding of the business. So John has a deep understanding of our business, great part of our culture and the organization, and it's going to really help us to execute on the next phase of strategy. We absolutely did not change any of our capital allocation philosophy, where we're first investing in ourselves and then we return money to our shareholders. And ultimately, we are well on our way to keep on performing towards our overall strategy. So no change, just the exciting part of having John joining our executive team.

So in the latest quarterly call, and as you mentioned, the ag cycle that we're in, a little more challenging for some of your farmer customers. And you talked about providing support to them. I'm curious how do you do that? What does that actually mean? And then how important is that in the longer-term relationships with those customers and retaining them?

Yes, thank you. So this is the absolute right time for us to be leaning in and supporting our growers. As you heard from our friends at Lindsay earlier today, and as Avner mentioned, it's a very challenging time right now for growers, particularly North America growers. Brazil, they're facing higher input costs, higher fertilizer cost, availability of fertilizer, as an example, higher fuel cost. Interest rates have remained elevated, especially in Brazil, very tight credit markets. And the price of key grains like corn and soybeans have not risen to the level where farmers are feeling very profitable. Their margins are pressured. And there's just a lot of headwinds. And as Adena mentioned, we're in year 3 or 4, I think of this current trough. So as the leader in this industry, and we founded the industry many years ago, we feel it's our responsibility to make sure that we are staying very close to our growers and supporting them during this time. It really starts with our dealer network. We have the largest dealer network in the industry, the most profitable dealer network. They are exclusive to the Valley brand. And we have over 600 globally serving more than, I think, 60 countries outside of North America. That dealer is the face of the Valley brand to that grower. And we need to ensure that they are equipped very well to help support in terms of aftermarket service, service and support, warranty support, and helping our growers be as efficient as they possibly can, especially in this environment. So it's really about farm productivity. And we heard Randy mention this a little bit earlier today. Water is still the #1 determinant of crop yield. And so we know that our growers can achieve at least a 25%, if not higher yield improvement, through pivot irrigation. So it really starts with that. And the ROI for a grower, even in a higher interest rate environment, is still very, very compelling. It's less than 5 years. In Brazil, it's even less than that because they can grow 3 crops a year, only though by using pivot irrigation. So it's about helping them become more efficient, but it's also about helping them reduce input cost. So paired with the machine is our technology solutions. And not only can we help them start and stop the pivot remotely, which saves on time and labor. But we also, through our tech offerings and our AgSense 365 platform, we can help them with irrigation scheduling. We can help them with variable rate irrigation, so that they are optimizing the amount of water that is put on the field at any given time. So that also saves cost or at least helps them become more optimized or efficient with their cost. And coupled with that as well, another form of support is parts. So when markets are challenging like they are now, that farmer may defer the purchase of a new machine for a period of time. But what that means is they're continuing to repair the machines that they have. So aftermarket parts service and support is critical. We launched an e-commerce platform, I think, about a year ago, maybe a little over a year ago, and we've rolled that out in the process of rolling that out globally. And what that allows our dealers to do is to be very present in the field, ordering parts directly from us or from one of our distribution centers around the country, very much real time. So it's really speed to market. And if you're a grower, and it's the middle of July and it's 100 degrees out and there's been no rain, you can't afford to have your pivot down for a very long period of time. So enabling the dealer to very quickly see what part is needed, order it and have it shipped and delivered direct to the field immediately is critical to them. How that translates for us then into revenue over time? It's -- it is -- we have a great base with our installed base of machines as well as new machine opportunities. But that recurring revenue and aftermarket parts, which are part of the value drivers that Avner mentioned just a few minutes ago, helps us remain very close to the grower. The stickiness with the grower is important and really strengthens that partnership that we have with them through the dealer.

And I guess there's some secular or more cyclical agricultural components. But obviously, the Middle East is a unique dynamic in itself. And I wanted to just place this question to you. I mean we're getting updates that it's moving along, but we'll have to see. Maybe you could just give us a little feedback on 2 scenarios. First, a more quicker or a quicker resolution to this and some normalcy. What is that? How do you feel about that in terms of the impacts and the flow-through getting back to some normalization? And then on the other hand, if we do get a more extended period of conflict there, are we breaking more things in terms of the global cycle, et cetera or supply chains and inputs and so on? What does that look like as we potentially deal with more long-term conflict?

Well we're very familiar with the situation. And the largest impact is the closure of the Strait of Hormuz. We have a plant in Dubai. Let me start off with what we're -- the safety of our employees is the most important part, right? That is our focus, all our employees in the Middle East are safe. It does impact our Dubai facility, our Dubai facility. We have paused our operation to support that region. However, we do have the largest global footprint in the industry. We have plants across the world. So we're able to continue to support that region out of our other locations. Although the sentiment in that area, there's a lot of uncertainty. So we are seeing delays in some projects and investments. We do know that food security is one of the top priorities for that region, but we are seeing delay. The secondary impact is inflation, and Renee talked about some of the cost with the farmers, right, or their usage, fertilizer, fuel pricing, solar. It does have an impact on the farmers, which is just putting more stress, more delay in making a decision around investing in capital. So this sentiment is really to be the #1 impact today with the addition of inflation. Now if this goes on for a while, I don't think it dramatically changes the situation. It just prolongs the period where they're not going to be investing in capital equipment. The large percent of fertilizer for the world comes out of that Strait. It is available today. It's just more expensive. They already secured this growing season next growing season will be more expensive. But right now, we're not seeing any disruption to the supply chain, just more of an increase. So right now, it just could extend a period of time until we get back to normalization and increase in the cycle.

And just I want to add 1 other thing to that. To the extent that we actually got actually a more pronounced piece in that area. Is -- do you think that could be a catalyst for growth? Are there any countries over there that are not necessarily served by you or...

Absolutely. I think, right, the more stable that the world is and the governance in that area, it -- fleet security is very critical for that whole region. It is important to them to grow food for the own citizens. In some cases, our project in one of those regions is so successful. And while they're -- [indiscernible] in deserts are actually even exporting, which we didn't predict happening. So absolutely, as there's more of this environment settles and there's more peace piece, then there's a lot of land available and water and financial to support that region.

I think it's important to add to, we've been operating in that region probably since the 70s, maybe even before that. So there's always been sort of a cycle of, I guess, disruption in that region. And we've lived through it. We understand sometimes there are certain markets that are available for a period of time and then there's a period of time when they're not. And that's really why our strategy of being diverse in terms of emerging markets, combination of emerging markets and more developed markets has worked well for us over time. So we know that there will be some disruption and there is in the near term, but there are other regions, other countries within that area that have opportunity for development based on what Avner mentioned, the food security, which are very different drivers than, say, more developed markets.

Okay. Switching to the infrastructure business before the data center. What are some of the rates -- key characteristics that run across your infrastructure business? And where are you seeing growth outside of the utility structures?

Yes. So it's a great question because we have a pretty diverse portfolio of products within and across our infrastructure segment. Obviously, utility is getting a lot of attention these days. And there's a lot of demand out there. The industry is basically out of capacity. But I think the common thread throughout what -- everything that we do starts with the markets that we're in. So we have strategically placed ourselves into markets with long cycle, durable secular demand drivers. So think about infrastructure, it's critical infrastructure. It is traffic structures, lighting structures, telecommunications, structures and support utility, obviously. So that is very much a common denominator across that segment. We also work hard with our -- a lot of what we do is engineered to order. So we worked very hard over the years to being very close to our customer in terms of understanding their needs and getting in some cases, spec'ed into specific projects over time. So not every structure is highly engineered to order, but that is a commonality that -- and a muscle that we've developed over time. That serves us well. And we work closely with our customers to understand what those needs are. We do believe it's a differentiator for us in the space. And as part of our portfolio, we also do coatings, hard galvanizing, which protects the life of steel because most of what we do across our infrastructure business is making things out of steel. So that's another commonality. Another one that I would mention is it's very -- these customers, these projects, it's very project-based type of work that we do. So we have developed knowledge and expertise across project management, and not only within our own 4 walls, but also understanding the construction cycle along with our customers so that we can ensure that we are shipping and delivering exactly when our customers need us to do that. Time is money in construction markets and cycles and across the infrastructure landscape. So shipping complete on time, high-quality, reliability, the trust that our customers put in us in order to -- they know that we will do what we say we're going to do, and we execute on that is the same across all customers, all of those markets globally. Where we're seeing growth, again, Utility is really the big attention shining star right now, but we are seeing growth across other parts of the business. I would start with our Coatings business because they are seeing the same benefits that the Utility business market drivers are providing. So a lot of investment in infrastructure, data centers, there's a lot within a data center that actually does require some galvanizing. There's a lot within a substation, and we produce substations that require steel to be galvanized. So our Coatings business saw a 13% year-over-year increase in sales in the first quarter. It's typically more of a GDP-type business. So they're clearly benefiting from that. We also, within our Lighting and Transportation business are seeing growth coming from just general infrastructure investments globally. And then we have a Telecom business, which these days is mostly telecom components. So think about a site build-out. And carriers that -- we have all 3 carriers as our customers, and they can fluctuate or change the direction and the focus of their capital spend from time to time. So it can be a little bit, I'll say, lumpy in terms of growth, but the trajectory that we have seen and that we're expected to see over the next several years is very positive there. And that's also very much a speed-to-market business for us with very accretive margins.

So coming back to the Utility business. The growth rate for the demand for these products supporting all its build-out, just keep surprising in accelerating. And my question to you is the about the strategy, and I'm sure it's evolving daily. But how do you think about the trade-off between building out enough infrastructure to support all those products but also getting into a cycle that could potentially be fairly steep and then fall off pretty dramatically as well? And so I guess, could you give us a little insight into your strategy there, the capital allocation and your approach to market share within that framework and trying to protect your own build-out as well?

Yes. So we look very closely at the market projections, the growth rate as well as our capacity and capacity in the industry. Now not only do we look at industry reports, we talk to our customers and being the leader in the markets that we play. And if you look at Utility with a 35% market share. We work with all the large IOUs with all the utility customers. We're very much tied into their plans. And there is very strong visibility to utility plans to data center plans for 2, 3 and even 4 years. So we have a very good idea on how much we need to invest. And typically, for us to invest in our businesses, it takes us about 2 years at the outer edge, so we can stay ahead of this at any given time to make sure we're staying ahead of demand, and we've done actually in Q1. We've done very well with 27% growth in this area. So we're staying ahead of it. Now we are looking at also a lot of their long-term plans, which, in many cases, go to 2035, and I really do not see at this point where there's going to be a steep decline or even decline because there are so many drivers that contribute to the growth that we're seeing now. And I'm sure we talk a lot about data centers, but if we continue to talk about the connectivity to the renewable sources, we look at electrification, near-shoring. The fact that a lot of the grid is aged, we need resiliency, reliability. There are so many additional drivers that give us confidence that we're not going to get ahead of ourselves and put too much capacity industry. So overall, our plans are very balanced. And right now, that is our #1 priority across the company. How do we capture this growth by investing in our facilities to ensure and that includes many areas anywhere from capital to people to technology?

So what are some of the capacity investments that you are making in the Utility structure, but...

Yes...

And also, are you -- I mean is there anything that there's a constraint for those, whether it's human capital or certain things that you have to put in place for your manufacturing? Anything on that level?

Yes. So really building on what Avner was just saying, we have -- we, as you said, see tremendous demand in front of us. And we have multiyear very detailed action plans for capacity additions over the next few years. And our strategy and our approach is to take advantage of the footprint that we have. So they're brownfield expansions. And maybe I'll take a step back. We think of capacity in 3 different ways. Avner speaks to it in 3 different ways. One is physical capacity, there's operational capacity and there's commercial capacity. So physical capacity we are doing brownfield expansions across around 20 or so sites that we have in North America. We're not doing exactly the same thing in every one of those locations, but we're listening to our customers, and we're understanding what they are going to need from us over the next several years. Projects are becoming bigger. They're becoming more complex. Load growth is driving so much of the demand, certainly in transmission, but also in substation. So as Avner said, we are the leader, market leader in transmission. We have a leadership position in substation as well, and they've kind of been going hand in hand. So we're adding things like press brakes. We're adding fit weld stations. We're pouring concrete and extending a building and putting up 4 walls and other types of equipment that can help us do more. And the beauty of a brownfield expansion is that Utilities have to approve your facility before they will accept product from that plant. With the new greenfield that can take up to maybe 18 -- 12, 18 months. With the brownfield the facility is already approved. So we can see the benefits of that pretty immediately. There's also operational capacity. So think about debottlenecking and just ways to increase throughput and get more out of the plant. We are using AI tools for example, to help us with material planning, getting steel or other materials at the exact facility at the right time, saves a lot of time. So much of the production process is moving large structures from one place to another to another. So how can we maybe relook at flow in any of our facilities and make some minor adjustments just to help that throughput. It doesn't require a ton of CapEx dollars that way. The third one is commercial. And this one I really like because it sort of ties everything together. Capacity is not just about any one of these, it really is the entire system. So when I say commercial, think of engineering and drafting. It starts with receiving a PO from our customer, but then there's a multiple week process where we are going back and forth with them on getting their specs just right because every one of these structures is highly, highly engineered. They all look the same, perhaps from the road, but they aren't. So having the ability to do more in that area, we're also using AI there to help us be more efficient and help our teams be more efficient. We are absolutely hiring engineers and drafters, just like we are hiring additional people to work in production. But if we can become much more efficient over time, then that benefits us and it benefits our customers. Some of the second part of your question was...

So about the constraints in human capital and getting all the other stuff you need to support.

So -- thank you. To that point, that is why some of this automation and technology that we're using is so important. We are actively always looking for people. We are many times in some of the towns and the cities that we are near, we're one of the larger employers. So we recognize that -- and we start early. So if we know that we are adding capacity because CapEx dollars spent today, we really won't benefit probably for another 9 to 12 months because of the ramp time that it takes. So we start the hiring process early and that might mean that we have a little bit of overlap as those individuals are getting trained, but that's okay because we know we need them. And we'll partner a lot with local colleges and high schools to ensure that we're getting out in front of labor availability. So we watch it very closely. Our teams come in every single day and ask themselves, how can we do more with what we have, and it's a top priority for the company. Investing in ourselves has very attractive returns. And as Avner mentioned, it's our -- in terms of capital allocation, it's one of our top priorities.

So we have time for one more question. Traditionally, there have been that many acquisitions. Recently, what would potentially change that? What areas of interest might you be looking at? And given all the innovation that we're seeing stuff to come ahead too as well, is that a catalyst for inorganic growth?

Yes. We're very disciplined around our capital allocation and acquisition specifically. Right now, there's so much opportunity ahead of us organically in our businesses, just capturing this growth, we have a very strong innovation pipeline as well. So we look at acquisitions very strategically. How can they add to either a market, capability, a channel? So can it be a significant strategic add to the company? And when we find the right one, we're going to go after it. It needs to be meaningful. We have a pipeline, we keep on looking at those opportunities. But right now, we're investing organically that's by far, the largest ROI, and it's really supportive of our strategy right now.

Terrific. On behalf of the Gabelli organization, thank you for being here today. And I'm going to turn it over to my colleague, Christopher Marangi. He's going to bring up John Rogers for our final segment. Thank you.