Valmont Industries, Inc. (NYSE:VMI)‘ share-price performance so far this year hasn’t been impressive. The stock has appreciated just 2% while the S&P 500 is up 18% in 2013. However, Valmont’s making smart aquisitions and capitalizing on potentially powerful global trends — a strategy that could help its returns rise in the future.
A look at the previous quarter’s results shows that Valmont Industries, Inc. (NYSE:VMI)’s performance might be improving; it beat consensus estimates on both earnings and revenue. Driven by growth across all segments, with irrigation being the leader, Valmont witnessed an increase in profit.
Potential in the end market
Valmont Industries, Inc. (NYSE:VMI) caters to different end markets such as steel and aluminum poles and towers, steel and concrete pole structures for utilities, mechanized irrigation systems. In addition, its coatings business also provides metal coating services, including galvanizing, painting and anodizing.
Hot dip galvanizing is integral to Valmont Industries, Inc. (NYSE:VMI)’s manufacturing process, since the steel structures that the company produces for different end markets need protection against corrosion.
Global zinc consumption is estimated to grow at an annual rate of 2.5% between 2006 and 2017 . In 2004, galvanizing accounted for 45% of total zinc consumption. It is projected that by 2017, this will grow to 54%. Based on these figures, it would be safe to assume that the galvanizing market would grow at a decent pace. As a result, going forward, this segment can be a good growth driver for the company.
The demand for energy is growing at a good pace, much in line with the growth of the world population and advancement of technology. Global energy consumption is projected to increase 56 % between 2004 and 2030, according to the Energy Information Administration. China and India would account for half of the world’s total increase in energy use through 2040 .
Moreover, the global transmission tower market is expected to grow at a compounded annual rate of 7.9% from 2010 to 2020, with revenue growing from $7.3 billion in 2010 to $15.5 billion in 2020. The growth will be mainly driven by demand from emerging economies in the Asia Pacific region, in addition to the need for replacing aging transmission and distribution assets .
To respond to these opportunities, Valmont Industries, Inc. (NYSE:VMI) has been buying up smaller rivals, including a galvanizing company in Canada, , an Australian manufacturer of perforated and expanded metal, , and another manufacturing plant that it will modify to build utility infrastructure equipment starting in 2014.
Other growth drivers
Expansion in the power sector — including transmission and distribution — in China and India is expected to be a substantial growth driver for Valmont Industries, Inc. (NYSE:VMI) as it has manufacturing facilities in both countries.
In China, the company operates three steel pole manufacturing plants located in Shanghai, Guangdong, and Shandong through its subsidiary Valmont Industries (China) Ltd. In India, the company established a manufacturing facility in 2011. It is catering to diverse end markets through a rich product mix of poles, high mast systems, substation structures, telecom monopoles etc .
Manufacturing facility in India-Source: valmont.com
In India, Valmont Industries, Inc. (NYSE:VMI) is also planning to add new products such as quality international gratings and highway side bars into its manufacturing process. This would position the company to cater to new market segments that open up as different highway projects come up.
Due to the strength of its well-established manufacturing facilities both in India and China, the company is positioned to reap the benefits by participating in those countries’ huge efforts to expand their electrical infrastructure — which will require transmission poles and electric substation structures.
Competition
Along with Valmont Industries, Inc. (NYSE:VMI), the other prominent players in the similar end markets are MRC Global Inc (NYSE:MRC) and Lindsay Corporation (NYSE:LNN).
