Prepared remarks
Greetings. Welcome to Valmont Industries, Inc. Second Quarter 2026 Earnings Conference Call. At this time, participants are in a listen-only mode. We ask that you please limit yourself to one question and one brief follow-up question and then return to the queue. Please note this conference is being recorded. I will now turn the conference over to your host, Renee Campbell, Senior Vice President, Capital Markets and Risk. Ms. Campbell, you may begin.
Good morning, everyone, and thank you for joining us. With me today are Avner Applbaum, President and Chief Executive Officer; John L. Schwietz, Executive Vice President and Chief Financial Officer; and William Eric Johnson, Chief Accounting Officer. Earlier this morning, we issued a press release announcing our second quarter 2026 results. Both the release and the presentation for today's webcast are available on the Investors page of our website at valmont.com. A replay of the webcast will be available later this morning. To stay updated with Valmont's latest news releases and information, please sign up for email alerts on our Investor site. We will begin today's call with prepared remarks, and then open it up for questions. Please note that this call is subject to our disclosure on forward-looking statements, which is outlined on Slide 2 of the presentation and will be read in full after Q&A. With that, I would now like to turn the call over to Avner.
Thank you, Renee. Good morning, everyone, and thank you for joining us. Turning to Slide 4. We delivered a strong second quarter that reflects the dedication of the global Valmont team and the execution of our strategy. Net sales increased 6.5%, adjusted operating margins expanded 130 basis points, and adjusted earnings per share grew 25.8%. Based on this performance, we are raising our full-year sales and earnings outlook. We delivered another high-quality quarter led by 34% growth in North America utility and 17% growth in coatings. Commercial execution, pricing discipline, and ongoing investments in capacity and throughput continue to translate to durable customer demand and profitable growth. Agriculture also performed well. Despite challenging market conditions, while sales remained under pressure, disciplined pricing and cost management drove another quarter of operating margin improvement, demonstrating the resilience of the business through this cycle. Overall, our results demonstrate that the investments we are making, the operational improvements we are implementing, and our capital allocation strategy are driving stronger financial performance and positioning the business for sustainable, profitable growth. Turning to Slide 5. The quarter we just delivered is a good example of how these value drivers are translating into stronger financial performance. We are investing where we see the greatest opportunities to create value, especially in utility, where capacity expansion and throughput improvements are supporting profitable growth. Across the rest of the portfolio, we are focused on improving commercial execution and operational performance to enhance returns through the cycle. At the same time, our approach to capital allocation ensures we are investing behind our highest-return opportunities while maintaining financial flexibility to create long-term shareholder value. These value drivers are embedded in how we operate the business every day. You will hear examples of each as we walk through our markets and financial results. Turning to Slide 6. I would like to review the current market environment and how our infrastructure businesses are performing within it, beginning with North America utility. The favorable outlook for our business is being driven by a robust market environment. Demand continues to be supported by investment in grid modernization, power demand, data centers, and electrification. Our conversations with customers reinforce that this is the early stages of a multi-year investment cycle. We are focused on delivering value through differentiated customer support, industry-leading innovation, and continued improvements in system throughput. North America coatings is benefiting from the same infrastructure investments driving our utility business. With one of the industry's largest galvanizing networks, we improve the durability, reliability, and life-cycle performance of steel infrastructure. This business is benefiting from higher internal volumes and growing third-party infrastructure demand. In North America Lighting and Transportation, transportation markets remain healthy, while lighting is impacted by softer residential and commercial construction activity. Our priority is improving on-time delivery for our customers and manufacturing reliability. In North America Telecom, customer investment activity has moderated as carriers take a more selective approach to capital spending following the peak of the 5G deployment cycle. We expect these conditions to persist through the balance of 2026. Our strategy is designed to strengthen performance across our portfolio, and telecom is a good example of that in action. Even with lower sales, we have maintained strong profitability through commercial execution, operational improvements, and disciplined cost management. Over time, we remain confident that increasing data consumption, spectrum deployment, and the need to expand network capacity will support future investment in wireless infrastructure. Turning to international. We continue to leverage our local manufacturing footprint, engineering expertise, and longstanding customer relationships to participate in infrastructure investment across our global markets. We are also executing on our strategic initiatives to strengthen these businesses. While it is still early in the process, we are encouraged by the progress we are seeing and expect these initiatives to continue supporting improved performance through the balance of the year. Turning to Slide 7. Global agriculture market conditions remain challenged. In North America, tighter farm economics remain a constraint on capital spending and are contributing to cautious grower sentiment. In Brazil, the recently announced government crop plan reduced financing rates for irrigation equipment, although overall funding allocated to irrigation is below last year's level. We are managing the business with discipline and remain confident in the long-term fundamentals of the Brazilian market. In the Middle East, the primary business impacts are timing delays of certain customer projects as a result of the ongoing conflict in the region. While the underlying dynamics differ across regions, we expect the overall operating environment for agriculture to persist through the balance of the year. We are managing the business with discipline while investing in higher-value opportunities including aftermarket and technology solutions that enhance grower productivity. That strategy is strengthening the quality and resilience of the business, with aftermarket parts sales growing approximately 6% and technology services increasing 7% in the second quarter despite softer equipment demand. I will now turn the call over to John L. Schwietz to review our second quarter financial results and updated 2026 outlook.
Thank you, Avner. Good morning, everyone. Our second quarter results reflect solid execution across the business, led by strong performance in North America utility and our focus on operational discipline. Before turning to the financials, my comments going forward will compare to the adjusted results for 2025 as outlined in the Reg G disclosures in the press release and presentation appendix. I will begin with our consolidated results before discussing our segment performance and updated outlook. Turning to Slide 9. Net sales of $1.12 billion increased by 6.5% year over year, driven by sales growth in infrastructure, notably North America utility. Operating income increased to $166.1 million and operating margin expanded 130 basis points to 14.8%, reflecting stronger operating performance across both segments. Our tax rate remained steady at approximately 26%. Diluted earnings per share was $6.14, a 25.8% increase from prior year. Moving to our segment results on Slide 10. Beginning with infrastructure, sales of $879 million grew 14.8% year over year. North America utility sales increased 33.9% driven by higher pricing and volume growth supported by a robust market environment. Sales in North America Lighting and Transportation declined 2.4% due to lower volumes. North America coating sales increased 16.6%, supported by healthy infrastructure and data center demand. North America telecom sales decreased 26.1% reflecting lower carrier spending as customers shifted capital allocation priorities. International sales increased 7.4%, due to favorable foreign exchange impacts and a slight increase in volume. Operating income increased to $154 million with operating margins expanding 130 basis points to 17.6%, driven by higher utility pricing and volumes. This strength was partially offset by higher inflationary input costs, primarily materials. Turning to Slide 11. Second quarter agriculture sales decreased 15.8% year over year to $244 million. North America sales declined 2.3% as reduced volumes were partially offset by favorable pricing. International sales decreased 28.9%, driven primarily by lower Middle East volumes. Outside of the Middle East, sales across our international markets were relatively flat. Importantly, operating margin was 16.5% in the quarter, improving 90 basis points year over year, supported by disciplined cost and risk management. These actions to improve efficiency and performance position us to expand margins when ag markets recover. Moving to Slide 12. For cash liquidity and capital allocation: we delivered another quarter of healthy operating cash flow of $148 million. We ended the quarter with approximately $139 million of cash, while net debt leverage remained close to 1x. We are deploying capital in line with our balanced capital allocation strategy. During the quarter, we invested $36 million in capital expenditures, primarily to support utility capacity expansion. We repaid the remaining $60 million outstanding on our revolving credit facility and returned $75 million to shareholders through $60 million of share repurchases and $15 million in dividends. At quarter end, approximately $451 million remained available under our current share repurchase authorization. This balanced deployment of capital reflects our focus on investing in the highest-return growth opportunities while maintaining financial flexibility and returning capital to shareholders. Turning to our 2026 outlook on Slide 13. We are increasing our full-year guidance. Net sales are now projected to be between $4.3 billion and $4.45 billion. At the midpoint, this represents approximately 6.7% revenue growth for the year. We are increasing our infrastructure sales outlook to be between $3.4 billion to $3.5 billion while maintaining our agriculture outlook. In infrastructure, the higher sales outlook is driven by continued strength in North America utility and coatings. We expect volume growth to remain healthy through the balance of the year. Pricing is expected to remain favorable, although the year-over-year contribution will moderate as prior contractual pricing actions are fully annualized. Our agriculture outlook remains unchanged and continues to reflect the normal North America seasonal pattern of lower sales in the second half of the year. We are increasing our diluted earnings per share outlook to a range of $22.25 to $23.50. At the midpoint, this represents nearly 20% growth in adjusted EPS. The higher EPS outlook reflects continued strength in North American utility and coatings, supported by volume growth and favorable pricing. While we expect raw material and freight costs to remain elevated through the balance of the year, pricing actions and operational execution are expected to support infrastructure operating margins at levels consistent with the first half of 2026. In agriculture, consistent with normal seasonality, we expect operating margins to moderate in the second half. Our capital expenditure outlook remains unchanged at $170 million to $200 million. Spending will be weighted towards the second half of the year as we continue investing in capacity expansion to support future growth. Moving to Slide 14. While it has only been a little more than a month since Investor Day, our second quarter results already provide tangible examples of the progress we are making against that roadmap. We are investing in our utility business through capacity expansion and operational improvements. Across the rest of the portfolio, we are advancing commercial initiatives, engineering excellence, and technology investments that improve productivity and support future growth. Combined with our capital allocation approach, our second quarter results demonstrate the early progress we are making against that roadmap. Turning to Slide 15. Our long-term financial framework outlines the outcomes we are working to achieve. Using 2025 as the baseline, we are targeting 7% annual sales growth, expansion of operating margins to 17%, double-digit annual EPS growth, and a return on invested capital of 21% by the end of 2029. The progress we have discussed today gives us continued confidence in achieving these objectives and creating long-term value for our shareholders. With that, I will now turn the call over to Renee.
Thank you, John L. Schwietz. At this time, the operator will open up the call for questions.
Questions and answers
Thank you. At this time, we will be conducting a question-and-answer session. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. To allow for as many questions as possible, please limit yourself to one question and a follow-up question. One moment while we poll for questions. Our first question is from Christopher Moore with CJS Securities. Please proceed.
Hey, good morning, guys. Congrats on another strong quarter. Maybe we'll just start with telecom. Obviously, a soft quarter. I am just trying to understand a little bit better on visibility here. For example, in January 2026, could you see that Q2 would be soft? I know you talked about, you are at the 5G peak. Could you see that Q2 would be soft as of January? And maybe as a follow-up: in terms of ag in the Middle East, I know you have the Dubai facility that is more of a distribution facility and was operating at really minimal levels. Can you just talk a bit more about what's happening there? It sounds like more project timing, but anything else you could talk about in terms of expectations within the Middle East?
Christopher, thank you for the question. The answer is this is a business that has low visibility. It is a quick-turn business and does not typically have a backlog. What we have seen from the carriers is that they have shifted their spending. We know there have been significant leadership changes within these carriers, and they are reviewing expenditures and navigating their financial situations, being disciplined around their spend. Having said that, we are embedded with these customers. We have daily conversations with them. We are aligned with their programs, and we have a strong value proposition for these carriers around our engineering expertise and our quick turn. So the short answer is no, we did not see this. We actually had expected to see the year down in the teens for the telecom business. We do know that the carriers will continue to spend. They will continue to build out spectrum and expand the network, and as they continue their build-out, we will continue to support them. As for the Middle East, to clarify, we do manufacture out of our Dubai facility. We have a very solid flexible model to ensure we can flex up and down as we need to scale for projects. Right now, we are seeing very little activity in the region due to the conflict. Customers are delaying projects. We continue to be in touch with them, but at this point, our expectations are that this will remain for the short horizon. We do believe these projects will take place; there is still strong demand for food security in the region. The long term is very compelling and we are well positioned within that region, but as of today, projects have been delayed. The cost to support these projects at this time is extremely expensive given the situation there. So our expectations for the year are minimal projects, and as things evolve, we will update accordingly.
Got it. Very helpful. I will jump back in the line.
Our next question is from Nathan Jones with Stifel. Please proceed.
Good morning, everyone. I will follow up on agriculture. Outside of the disruptions in the Middle East, I think you said other international markets were roughly flat. The domestic market was down low single digits. Is there any way you're seeing green shoots in the ag market or potentially hitting a bottom here? Any signs of anything good happening in any of those businesses?
I would not say that we are seeing green shoots today, but we are seeing stabilization within these businesses. Outside of the Middle East, our businesses are pretty much flat. Grower economics remain strained both in North America and Brazil based on current grain prices, input costs, and financing in Brazil. The market remains strained in the near term. What we are focusing on is our value proposition. We have the largest dealer network and a very large installed base to support our aftermarket and technology. As I mentioned earlier, we have seen single-digit growth in both our technology and aftermarket offerings and had a very good start to the year with increased technology connections and expanding our ecosystem with growers. It looks stable for us right now, and we are continuing to focus on the areas we control and continue driving value for our growers. The long term looks extremely positive for this business.
You have clearly seen some improvement and made progress on the margin side in the ag business this year despite the lack of volume. Can you talk about what you think a sustainable level of margin would be at this level of volume? And then given the improvements you've made to the business, what kind of incremental margins should we see in ag when we eventually see the next up cycle?
Thanks, Nathan. We were pleased with the Q2 result of 16.5% operating margin. Those Q2 margins reflected actions we have taken to remove structural cost and strengthen risk management. The year-over-year comparison benefited from the non-recurrence of some bad-debt expense in Brazil. For sustainability, we would consider a Q2-type margin around 16% to be sustainable. Looking ahead to the back half of the year, there is seasonality as mix shifts away from North America, so we expect compression in margins in the back half and expect to be in the low teens in the back half of the year. Regarding what this looks like once there's a recovery, we discussed this at Investor Day and targeted roughly a three-percentage-point margin improvement in a recovery scenario. We continue to hold that view.
Our next question is from Brian Drab with William Blair. Please proceed.
Good morning. Thanks for taking my questions. I wanted to focus on infrastructure for a moment and the split between volume and pricing in the quarter. If you can talk about the jump from first quarter infrastructure revenue closer to $800 million to almost $880 million in the second quarter, how much was price versus volume? And a related question: it looks like sequential incremental margins were a little lower than expected. You had a big jump in revenue but not the commensurate operating margin. Anything going on there related to the split between price and volume?
Thanks for the question, Brian. The sequential growth in infrastructure was driven mostly by price, but there was also a volume component. The bit of compression in sequential incremental margins reflects accelerating material cost inflation, and we saw that impact in Q2 and expect it into Q3 as well. From a year-over-year perspective, incrementals are very strong, and growth is strong in both price and volume.
Okay. Thanks. I'll follow up later.
Our next question is from Brent Thielman with Oppenheimer and Company. Please proceed.
Thanks. I had a follow-up on infrastructure margins. Could we still expect to see better second-half infrastructure segment margins even with the telecom business working against you right now? I know telecom contributes relatively high margins as well.
Thanks for your question. Our expectation is that back-half infrastructure margins will be consistent with the first half. Telecom is a modest headwind as you mentioned, but the more significant near-term impact is accelerated material cost inflation. For example, steel is up substantially year to date and diesel costs are higher. The teams are doing a good job offsetting cost increases with price and managing cost, but there is still significant short-term cost pressure. We remain of the view that the back half will look like the first half from a profitability perspective.
I would add two points. One, on telecom: yes, it is our most accretive business, but we've taken significant actions to improve profitability, and it remains extremely profitable even at lower volumes. That's part of the strength of our strategy. Second, while we are seeing inflationary pressure, it is manageable. There is timing between how we increase pricing and how costs impact P&L, but it is not changing customer demand or our competitive position or long-term margin trajectory. I see this as a short-term impact on our financials.
Okay. As a follow-up, should we think about the utility business typically seeing a material step-up in the second half versus the first half? Is there anything to consider like pull-forward in the first half or other factors that might influence that, or is that what we should embed in our models for the second half?
If you look at our increased midpoint guidance, that increase is broadly from the utility side, so the math would imply growth in the second half versus the first half.
I'll add: seasonality aside, right now the constraint is capacity—engineering to manufacturing. That will determine the level of growth. We are confident in the numbers John mentioned, but it's more a supply-side constraint rather than demand. Demand remains robust across transmission, distribution, and substations, as shown by our backlog. There's no material proportionate difference you should assume between transmission, distribution, and substation within that group in the second half.
Our next question is from Tomohiko Sano with JPMorgan. Please proceed.
Hi. Good morning, everyone. On second-half pricing for the infrastructure business: how are price realizations and input-cost timing working, including any tariffs? What is your base case for infrastructure margin trajectory in the second half, please?
Thank you for the question. Our expectation for second-half infrastructure margins is to be consistent with the first half. Q2 was an exceptional quarter for price, as you know—Q2 pricing benefited from a favorable mix of customers and contracts. Looking ahead, we expect pricing to remain positive and to continue contributing in the second half, but the year-over-year growth contribution from pricing will moderate as prior contractual actions annualize. Material-price inflation is present, and we expect to cover that with price increases such that net margins remain consistent in the second half compared to the first half.
One follow-up: you said international commercial and operational initiatives are beginning to improve performance in the infrastructure business. What is that like? Why is this showing up first? Which KPIs should we track next quarter—gross margin, win rates, lead times, utilizations?
We have just started the journey with our international businesses. During Investor Day we shared how we're focusing on strengthening parts of the business. Our approach is broad—from product-line management to operations and engineering. This will show up in two primary areas in financials: top-line improvement as we refine the value proposition and focus on markets that value what we offer; and bottom-line improvement in margins through operational execution. Those are the main KPIs to focus on. It's still early days; we're pleased with initial progress but expect more material benefits to appear into 2027.
We have reached the end of our question-and-answer session. I will now turn the call over to Renee Campbell for closing remarks.
Thank you for joining us today. A replay of this call will be available for playback on our website and by phone for the next seven days. We look forward to speaking with you again next quarter. These slides and the accompanying oral discussion contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 2000. These statements are based on assumptions made by management considering its experience in the industries where Valmont operates, perceptions of historical trends, current conditions, expected future developments, and other relevant factors. It is important to note that these statements are not guarantees of future performance or results. They involve risks and uncertainties, some of which are beyond Valmont's control and assumptions. While management believes these forward-looking statements are based on reasonable assumptions, numerous factors could cause actual results to differ materially from those anticipated. These factors include, among other things, risks described in Valmont's reports to the Securities and Exchange Commission, the company's actual cash flows and net income, future economic and market circumstances, industry conditions, company performance and financial results, operational efficiencies, availability and price of raw materials, availability and market acceptance of new products, product pricing, domestic and international competitive environments, geopolitical risks, and actions and policy changes by domestic and foreign governments, including tariffs. The company cautions that any forward-looking statements in this release are made as of this publication date and does not undertake to update these statements except as required by law. The company's guidance includes certain non-GAAP financial measures—adjusted diluted earnings per share and adjusted effective tax rate—presented on a forward-looking basis. These measures are typically calculated by excluding the impact of items such as foreign exchange, acquisitions, divestitures, realignment or restructuring expenses, goodwill or intangible asset impairment, changes in tax law or rates, change in redemption value of redeemable noncontrolling interest, and other nonrecurring items. Reconciliations to the most directly comparable GAAP financial measures are not provided as the company cannot do so without unreasonable effort due to the inherent uncertainty and difficulty in predicting the timing and financial impact of such items. For the same reasons, the company cannot assess the likely significance of unavailable information, which could be material to future results. Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.