Item 1. Business
ITEM 1. BUSINESS
Valmont Industries, Inc., along with its subsidiaries (collectively, the “Company”, “Valmont”, “we”, “us”, or “our”), is a diversified manufacturer of products and services for infrastructure and agriculture markets. We were founded in 1946, went public in 1968, and our shares trade on the New York Stock Exchange under the ticker symbol “VMI”. We are headquartered in Omaha, Nebraska. Our purpose as a company is to conserve resources and improve life.
Segments
We have two reportable segments based on our management structure. Both reportable segments are global in nature with a manager responsible for operational performance and allocation of capital. Corporate expense is net of certain service-related expenses that are allocated to business units generally based on employee headcounts and sales dollars.
Customers and end-users of our Infrastructure products include utility and telecommunication companies, municipalities and government entities, manufacturers of commercial lighting fixtures, and contractors. Customers of our Agriculture segment are primarily dealers who resell mechanized irrigation equipment to their end-customer, the farmer. Both segments service the general manufacturing sector as well. In fiscal 2023, approximately 31% of our net sales were either sold in markets or produced by our manufacturing plants outside of North America.
Our reportable segments are as follows:
Infrastructure: This segment consists of the manufacture and distribution of products and solutions to serve the infrastructure markets of utility, solar, lighting, transportation, and telecommunications, along with coatings services to protect metal products.
Agriculture: This segment consists of the manufacture of center pivot components and linear irrigation equipment for agricultural markets, including parts and tubular products, and advanced technology solutions for precision agriculture.
In addition to these two reportable segments, we had a business and related activities that were not more than 10% of consolidated sales, operating income, or assets. These activities comprised the offshore wind energy structures business until its divestiture in the fourth quarter of fiscal 2022.
Information concerning the principal products produced and services rendered, markets, competition, and distribution methods for each of our two reportable segments is set forth below.
Infrastructure Segment
Products
● Transmission, Distribution, and Substation (“TD&S”): We engineer and manufacture steel, pre-stressed concrete, and composite structures to support the lines and equipment that carry and transform power for electrical transmission, substation, and distribution applications for the utility industry. Transmission refers to moving high-voltage power from where it is produced to where it is used. Substations transform the electricity from the generation source so that it can be carried on the transmission lines. A substation is then required to transform the high-voltage electricity from the transmission lines to low voltage so it can be distributed to the end-user. These innovative structures are offered to meet the growing demand for reliable energy. These solutions also support grid hardening across the globe, where fires, storms, and floods are occurring with increasing regularity.
TD&S projects are often complex and include large structures, therefore product design engineering is important to the function and safety of these solutions. Our engineering process considers weather and loading conditions, such as wind speeds, ice loads, and power line requirements, to arrive at the final design.
● Lighting and Transportation (“L&T”): We design, engineer, and manufacture steel, aluminum, wood, and composite poles and structures for a wide range of lighting and transportation applications. The demand for these products is driven by infrastructure, commercial, and residential construction and by consumers’ desire for
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well-lit streets, highways, parking lots, and common areas. Beyond technical and engineering needs, customers also want product designs that are visually appealing and meet local aesthetic requirements.
Our traffic and sign structures contribute to the orderly flow of automobile traffic. These structures support traffic signals and overhead signs. They are engineered to meet customer specifications to ensure the proper function and safety of the structure. Product engineering considers factors such as weather (e.g., wind, ice) and the products loaded on the structure (e.g., lighting fixtures, traffic signals, overhead signs) to determine the design. We have expanded our capabilities in the traffic market with the development of patented vibration mitigation technology which continuously improves the safety of traffic and roadway structures by reducing the effects of wind and fatigue. Our L&T product line also includes highway safety system products that are designed and engineered to enhance roadway safety. These systems include guardrail barriers, wire rope safety barriers, crash attenuation barriers, and other products which primarily serve the Australian and Indian markets.
● Coatings: We provide finishing services that inhibit corrosion, extend service lives, and enhance the aesthetics of a wide range of materials and products. With a variety of finish options, including galvanizing, anodizing, and painting, we can meet customer-specific requirements for a variety of applications. Hot-dip galvanizing is a process that protects and prolongs the life of steel with a zinc coating that is bonded to the product surface to inhibit rust and corrosion. CorroCote ® adds protection to steel against the corrosive effects of soil and underground moisture for those products that are anchored below ground. Anodizing is a process applied to aluminum that oxidizes the surface of the aluminum in a controlled manner, which protects the aluminum from corrosion and allows the material to be dyed a variety of colors. We also paint products using powder coating for certain industries and markets.
● Telecommunications: We engineer, manufacture, and distribute products including towers, small cell structures, camouflage concealment solutions, passive intermodulation (“PIM”) mitigation equipment, and components serving the wireless communication market. These solutions support expanded 5G requirements and the ever-growing demand for data. A wireless communication cell site mainly consists of a steel pole or tower, shelter (enclosure where the radio equipment is located), antennas (devices that receive and transmit data and voice information to and from wireless communication devices), and components (items that are used to mount antennas to a structure and to connect cabling and other parts from the antennas to the shelter). Small cell applications are utilized to enhance signal densification in urban environments and enhance the signal from the tower. Concealment solutions, such as faux trees, convert traditional telecommunication structures and camouflage them to fit seamlessly into the surrounding environment. PIM mitigation solutions are provided to solve issues with signal interference. Our telecommunication structures are engineered and designed to customer specifications, which include factors such as equipment and antenna requirements, wind and soil conditions, and aesthetic standards, all while ensuring that they meet safety specifications.
● Solar: Our solar single-axis tracker product is an integrated system of steel structures, electric motors, and electronic controllers. Trackers move solar panels throughout the day to maintain an optimal orientation to the sun, which materially increases their energy production. Our trackers utilize a simple, modular design allowing ease of installation and low operational maintenance. Further, the flexibility of our trackers’ design allows for improved site utilization, which is especially valuable to our customers considering that solar projects are being constructed on increasingly challenging sites. We sell our products to engineering, procurement, and construction firms that build solar energy projects as well as solar developers, independent power producers, and utilities.
Markets
The key markets across the Infrastructure product lines have a portion of their funding supported through local, state, and federal government programs. Currently, the United States of America (“U.S.”) government is supporting infrastructure improvement through the Infrastructure Investment and Jobs Act (“IIJA”) and the Inflation Reduction Act (“IRA”). These acts will allocate funding to reinforce the nation’s bridges, increase safety for the traveling public, update vital infrastructure, improve highway safety, and harden the electrical grid.
The utility industry in North America is a significant market for the Infrastructure segment. The key drivers are significant upgrades in the electrical grid to support enhanced reliability standards, policy changes encouraging more generation from renewable energy sources, and increased electrical consumption, which has outpaced transmission investment in the past decades. According to the Edison Electric Institute, the electrical transmission grid in the U.S. requires significant investment in the coming years to respond to compelling industry drivers and lack of investment prior to 2008.
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Electrical consumption is also expected to increase within international markets. This will require substantial investment in new electricity generation capacity and growth in transmission grid development. We expect these factors to result in increased demand for electrical utility structures to transport electricity from source to user, as is used in U.S. markets today.
We also serve the transportation, construction, and industrial markets. Many products from our transportation product portfolio will be utilized when making enhancements to traffic structures, bridge systems, roadway and street lighting, and high-mast lighting. A combination of state and federal funding, including the IIJA, supports transportation projects throughout the U.S. Public and private partnerships have also recently emerged as an additional funding source. In the U.S., there are approximately four million miles of public roadways, with approximately 24% carrying over 80% of the traffic. Accordingly, the need to improve traffic flow through traffic controls and lighting is a priority for many communities. The commercial construction market is mostly privately funded and includes lighting for applications such as parking lots, shopping centers, sports stadiums, and business parks. This market is driven by macroeconomic factors such as general economic growth rates, interest rates, and the commercial construction economy. We have many long-standing relationships with lighting and equipment manufacturers who also serve this market. Industrial markets are typically driven by infrastructure, industrial, and commercial construction spending.
Markets for our Coatings products are varied and our profitability is not substantially dependent on any one industry or external customer. However, a meaningful percentage of demand is internal, driven by our other product lines and their market demand. Demand for coatings services generally follows the local industrial economies. Galvanizing is used in a wide variety of industrial applications where corrosion protection of steel is desired. While markets are varied, our markets for anodized or painted products are more directly dependent on consumer markets than industrial markets.
The market for our Telecommunications products is driven by demand for wireless communication and data. Our customers are wireless network providers and companies that own and maintain cell sites. We also sell products to state and federal governments for two-way radio communication, radar, broadcasting, and security applications. We believe long-term growth should mainly be driven by increased data usage and technologies such as 5G, which demands higher network density. Improved emergency response systems, as part of U.S. Department of Homeland Security initiatives, create additional demand.
The solar market is driven by the transition to clean energy sources globally and incentives for renewable energy investment. As utilities increase the development of large-scale solar power and micro-grid applications, single-axis solar tracker solutions will be an essential tool for achieving higher energy production.
Competition
Our competitive strategy is to provide high-value solutions to the customer at the appropriate price. We compete based on product quality, engineering expertise, high levels of customer service, and timely, complete, and accurate delivery of the product. We leverage the production capacity at our network of plants to ensure that the customer receives quality and timely service. There are numerous competitors in North America as well as in international markets. Pricing can be very competitive, especially when demand is weak or when strong local currencies result in increased competition from imported products. Infrastructure sales are often made through a competitive bid process, whereby the lowest bidder is awarded the contract, provided the bidder meets all other qualifying criteria. We also sell on a preferred-provider basis to certain large customers. These contractual arrangements often last between three and five years and are frequently renewed.
The Coatings product line markets have traditionally been very fragmented with a large number of competitors. Most of these competitors are relatively small, privately held companies that compete based on price and personal relationships with their customers. Our strategy is to compete based on the quality of the coating finish and timely delivery of the coated product to the customer.
The Solar product line offers solutions that are specific to the solar industry. We primarily compete with other mid-sized market participants and differentiate ourselves based on the quality of service and ability to combine offerings from the TD&S product line to provide full-grid solutions.
Distribution Methods
Infrastructure sales and distribution activities are handled through a combination of a direct sales force and commissioned agents. Working with end-users and distributors, our sales force represents Valmont as well as light fixture and traffic-signal manufacturers. This enables our agents to provide the pole, fixtures, and other equipment to the end-user as a complete package. Commercial lighting, wireless communication products and components, access systems, and highway
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safety sales are normally made through our sales employees, although some sales are made through independent commissioned sales agents. Our TD&S and Solar products are normally sold directly to electrical utilities, developers, or energy providers with some sales sold through commissioned sales agents.
Due to freight costs, a galvanizing location has an effective service area of an approximate 300-to-500-mile radius. While we believe that we are globally one of the largest custom galvanizers, our sales are a small percentage of the total market. Sales and customer service are provided directly to the user by a direct sales force, generally assigned to each specific location.
Agriculture Segment
Products
● Irrigation Equipment and Parts: We manufacture and distribute mechanical irrigation equipment and related service parts under the Valley ® brand name. A Valley ® irrigation machine is powered by electricity (via a grid, solar, or diesel generator), propels itself over a farm field, and applies water and chemicals to crops. Water and chemicals are applied through sprinklers attached to a pipeline that is supported by a series of towers, each of which is propelled via a drivetrain and tires. A standard mechanized irrigation machine (also known as a center pivot) rotates in a circle, although we also manufacture and distribute center pivot extensions that can irrigate corners of square and rectangular farm fields as well as conform to irregular field boundaries (referred to as a corner machine). Our irrigation machines can also irrigate fields by moving up and down the field as opposed to rotating in a circle (referred to as a linear machine). Irrigation machines can be configured to irrigate fields in sizes from four acres to over 500 acres, with a standard size in the U.S. configured for a 160-acre tract of ground. The irrigation machine used in international markets is substantially the same as the one produced for the North American market. We also manufacture tubular products for industrial customers primarily in the agriculture industry as well as in transportation and other industries.
● Technology Products and Services: Through over 100,000 connected devices, Valley ® has paired sustainable infrastructure with technology to help growers see crop production issues before they become problems. Our suite of advanced technology solutions offers capabilities to assist in reducing water and energy use as the center pivot is the only infrastructure on the farm that is continually in the field every day of the year. During fiscal 2021, we purchased Prospera Technologies, Ltd., a leading global artificial intelligence and machine learning provider of advanced agronomy monitoring solutions. Our crop anomaly detection can alert growers of pivot-related water issues with artificial intelligence and machine learning (in select markets) to help farmers determine where and how much to irrigate.
Markets
Market drivers in North American and international markets are essentially the same. Since the purchase of an irrigation machine is a capital expenditure, the purchase decision is based on the expected return on investment. The benefits a grower may realize through investment in mechanical irrigation include improved yields through better irrigation, cost savings through reduced labor, and lower water and energy usage. The purchase decision is also affected by current and expected net farm income, commodity prices, interest rates, the status of government support programs, and water regulations in local areas. In many international markets, the relative strength or weakness of local currencies as compared with the U.S. dollar may affect net farm income, as export markets are generally denominated in U.S. dollars. In addition, governments are sponsoring irrigation projects for self-sufficiency in food production to help alleviate food security concerns.
The demand for mechanized irrigation comes from the following sources:
● conversion from flood irrigation;
● replacement of existing mechanized irrigation machines; and
● converting land that is not irrigated to mechanized irrigation.
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One of the key drivers in our Agriculture segment worldwide is that the usable water supply is limited. We estimate that:
● only 2.5% of the total worldwide water supply is freshwater;
● of that 2.5%, only 30% of freshwater is available to humans; and
● the largest user of that freshwater is agriculture.
We believe these factors, along with the trends of a growing worldwide population, improving diets, and governments’ efforts to address food security, reflect the need to use water more efficiently while increasing food production to feed the growing population. We believe that mechanized irrigation can improve water application efficiency by 40% to 90% compared with traditional irrigation methods by applying water uniformly near the root zone and reducing water runoff. Furthermore, reduced water runoff improves water quality in nearby rivers, aquifers, and streams, thereby providing environmental benefits in addition to the conservation of water.
Competition
In North America, there are a number of entities that provide irrigation products and services to agricultural customers. We believe we are the leader of the four main participants in the mechanized irrigation business. Participants compete for sales based on product durability and reliability, price, quality, and service capabilities of the local dealer. We continue to innovate and expand our technology offerings as growers continue to seek more solutions to increase their crop yields. Pricing can become very competitive, especially in periods when market demand is low. In international markets, our competitors are a combination of our major U.S. competitors and privately owned local companies. Competitive factors are similar to those in North America, although pricing tends to be a more prevalent competitive strategy in international markets. Since competition in international markets is local, we believe local manufacturing capability is important to competing effectively in international markets and we have that capability in key regions.
Distribution Methods
We market our irrigation machines, technology offerings, and service parts through independent dealers. There are approximately 250 dealer locations in North America, with another approximately 400 dealers serving international markets in over 60 countries. The dealer determines the grower’s requirements, designs the configuration of the machine, installs the machine (including providing ancillary products that deliver water and electrical power to the machine), and provides after‑sales service. Our dealer network is supported and trained by our technical and sales teams. Our international dealers are supported through our regional operations in South America, South Africa, Western Europe, Australia, China, and the United Arab Emirates, as well as our manufacturing facility in Valley, Nebraska.
General
Certain information generally applicable to our two reportable segments is set forth below.
Business Strategy
Our strategy is to pursue growth opportunities that leverage our existing product portfolio, knowledge of our principal end-markets and customers, and engineering capabilities to increase our sales, earnings, and cash flow, including:
Increasing the Market Penetration of Our Existing Products: Our strategy is to increase our market penetration by differentiating our products from our competitors through superior customer service, engineering proficiency, technological innovation, and consistent high quality. Our Agriculture segment experienced international sales growth in fiscal 2023 which we believe was partially due to the continuing importance of our precision agriculture and technology offerings.
Bringing Our Existing Products to New Markets: Our strategy is to expand the sales of our existing products into geographic areas where there is market opportunity, where we do not currently serve, and where end-users do not currently purchase our type of products. For example, we have a manufacturing presence in Poland and India to expand our offering of structures for L&T, TD&S, and Telecommunications to these markets and we have expanded our manufacturing presence in the United Arab Emirates to serve growing Middle East markets. Our Agriculture segment has a long history of developing new emerging markets for mechanized irrigation around the world. For example, in January 2023, we secured an approximately $85.0 million multi-year agreement for projects in Africa.
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Developing New Products for Markets That We Currently Serve: Our strategy is to grow by developing new products for markets using our comprehensive understanding of end-user requirements and leveraging longstanding relationships with key distributors and end-users. In recent years, in North America, we developed and sold structures for spun concrete distribution poles and steel bridge girders. Additionally, we began offering concealment solutions for the wireless communication markets.
Developing New Products for New Markets or Leveraging Core Competencies to Further Diversify Our Business Is a Path to Increase Sales: For example, the establishment and growth of our Coatings product line was based on using our expertise in galvanizing to develop what is now a global product line. We have grown sales through expanding our presence in the decorative lighting market, which has different requirements and preferences than our traditional transportation and commercial markets. Acquisitions are a key component of our strategy to expand the markets we serve through new products and services. In fiscal 2023, we acquired HR Products, a leading wholesale supplier of irrigation parts in Australia, expanding our geographic footprint and growing our parts presence in a key agriculture market. In fiscal 2022, we acquired a majority interest in ConcealFab, a 5G infrastructure and passive intermodulation mitigation solutions company, expanding our portfolio of telecommunications products that support 5G technology.
Acquisitions
We have grown organically and by acquisition. Our significant business acquisitions during the past two fiscal years include the following (including the segment in which the business reports):
2023
● Acquisition of HR Products, a leading wholesale supplier of irrigation parts in Australia (Agriculture)
2022
● Acquisition of 51% of ConcealFab, a 5G infrastructure and PIM mitigation solutions company in Colorado (Infrastructure)
● Acquisition of the remaining 9% not previously owned of Convert Italia S.p.A. (Infrastructure)
● Acquisition of the remaining 20% not previously owned of Valmont West Coast Engineering, Ltd. (Infrastructure)
Divestitures
Our business divestitures during the past two fiscal years include the following (including the segment in which the business reported):
2023
● Divestiture of Torrent Engineering and Equipment, an integrator of prepackaged pump stations in Indiana (Agriculture)
2022
● Divestiture of Valmont SM, an offshore wind energy structures business in Denmark (Other)
Suppliers and Availability of Raw Materials
Hot rolled steel coil and plate, zinc, and other carbon steel products are the primary raw materials utilized in the manufacture of finished products for all segments. We purchase these essential items from steel mills, steel service centers, and zinc producers where these materials are usually readily available. While we may experience increased lead times to acquire materials and volatility in our purchase costs, we do not believe that key raw materials would be unavailable for extended periods. We have not experienced extended or widespread shortages of steel in the past several years, due to what we believe are strong relationships with some of the major steel producers. In the past several years, we experienced volatility in steel, zinc, and natural gas prices, but we did not experience any disruptions to our operations due to availability.
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Patents, Licenses, Franchises, and Concessions
We have a number of patents for our manufacturing machinery, structures, solar trackers, highway guardrails, and irrigation designs. We also have a number of registered trademarks. We do not believe the loss of any individual patent or trademark would have a material adverse effect on our financial condition, results of operations, or liquidity.
Seasonal Factors in Business
Sales can be somewhat seasonal based on the agricultural growing season and the infrastructure construction season. Sales of mechanized irrigation equipment to farmers are traditionally higher during the spring and fall and lower in the summer. Sales of infrastructure products are traditionally higher in the summer and fall and lower in the winter.
Customers
We are not dependent upon a single customer or upon very few customers for a material part of any segment’s business. The loss of any one customer would not have a material adverse effect on our financial condition, results of operations, or liquidity.
Backlog
As of December 30, 2023 and December 31, 2022, the backlog of orders for our principal products manufactured and marketed was $1,465.5 million and $1,656.4 million, respectively. An order is reported in our backlog upon receipt of a purchase order from the customer or execution of a sales order contract. We anticipate that most of the fiscal 2023 backlog of orders will be filled during fiscal 2024. The total backlog by segment as of December 30, 2023 and December 31, 2022 was as follows:
December 30,
December 31,
Dollars in millions
2023
2022
Infrastructure
$
1,299.6
$
1,339.1
Agriculture
165.9
317.3
Total backlog
$
1,465.5
$
1,656.4
Environmental Protection
We are subject to various federal, state, and local laws and regulations pertaining to environmental protection and the discharge of materials into the environment. Although we continually incur expenses and make capital expenditures related to environmental protection, we do not anticipate that future expenditures will materially impact our financial condition, results of operations, or liquidity.
Number of Employees
As of December 30, 2023, we had 11,125 employees.
Human Capital Resources
Our policies and practices with respect to human capital resources are generally set forth in our Code of Business Conduct, our Human Rights Policy, and the principles described on our website at www.valmont.com. Essential to our success is a company-wide commitment to customer service and innovation and the ability to provide the best value to our customers for our products and services. Our employees are the cornerstone of our accomplishments, and we pride ourselves on being people of passion and integrity who excel and deliver results. Our Code of Business Conduct and our culture require each employee to act responsibly and to treat each other fairly and with the utmost respect.
Our businesses require skilled workers and management in order to meet our customers’ needs, grow our sales, and maintain competitive advantages. We require employees with skills in engineering, welding, equipment maintenance, and the operation of complex manufacturing machinery. Management talent is critical, as well, to help grow our businesses and effectively plan for the succession of key employees upon retirement.
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As of December 30, 2023, we had 6,356 employees in the U.S. and 4,769 employees in countries outside the U.S. We place a high value on diversity and inclusion, seeking employees with diverse backgrounds and experiences who share a common interest in profitable development, improving corporate culture, and delivering sustainable business results.
We have adopted a Human Rights Policy which is published on our website. We expect our employees, suppliers, vendors, dealers, and distributors to share our commitment to human rights. We prohibit discrimination based on age, race, disability, ethnicity, marital or family status, national origin, religion, gender, sexual orientation, veteran status, gender identity, or any other characteristic protected by law.
We are committed to voluntary employment, and we strictly prohibit all forms of compulsory labor, including child labor, forced labor, slavery, and human trafficking. We respect internally recognized human rights standards, and this policy is guided by the United Nations Guiding Principles on Business and Human Rights.
We require full compliance with applicable wage, work hours, overtime, and benefits laws. We are committed to creating a culture where a healthy and safe workplace is recognized by everyone as essential to our success. Any employee can always contact our compliance officer, and confidential reporting of a situation or the ability to ask a question is available on a secure website maintained by a third party. Employees are eligible for health insurance, paid and unpaid leaves, retirement plans, and life, disability, and accident coverage.
When positions come open at Valmont, we try first to fill them from within. We like to reward the hard-working members of our Valmont community with new opportunities that are not only a chance to expand their worlds but to also recognize and reward their dedication. We have found them to be our richest talent resource.
Our program for succession and management development has our highest level of attention with our Chief Executive Officer (“CEO”) responsible for reporting on the program directly to our Board of Directors.
For additional information, please see the “Governance” and “Sustainability” pages on our website and the section titled “Governance, Human Capital and Sustainability Highlights” in our 2024 Proxy Statement.
Available Information
We make available, free of charge on the “Investors” page of our website at www.valmont.com, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (the "SEC"). Additionally, we use our website, through the “Investors” page, as a channel for routine distribution of important information, including news releases, analyst presentations, and financial information. The information on our website is not, and will not be deemed to be, a part of this annual report on Form 10-K or incorporated into any of our other filings with the SEC.