Valmont Industries Inc. (VMI) Q1 2021 Earnings Call Transcript

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Valmont Industries Inc. (VMI -1.44%)
Q1 2021 Earnings Call
Apr 22, 2021, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings and welcome to the Valmont Industries First Quarter 2021 Earnings Conference Call. [Operator Instructions]

It is now my pleasure to introduce your host, Ms. Renee Campbell, Vice President of Investor Relations and Corporate Communications. Thank you, ma'am. You may begin.

Renee L. Campbell -- Vice President of Investor Relations and Corporate Communications

Thank you, Donna, and good morning everyone. Welcome to Valmont Industries first quarter 2021 earnings call. With me on today's call are Steve Kaniewski, President and Chief Executive Officer; Avner Applbaum, Executive Vice President and Chief Financial Officer, and Tim Francis, Senior Vice President and Corporate Controller.

This morning, Steve will provide a brief summary of our first quarter results, and comment on our strategy and long-term business outlook. Avner will review our financial performance and provide trends and key assumptions for the second quarter and full year 2021, with closing remarks from Steve. This will be followed by Q&A.

A live webcast of the slide presentation will accompany today's discussion and is available for download from the webcast or on the Investors page at Valmont.com. A replay of today's call will be available for the next seven days. Please note that this conference call is subject to our disclosure on forward-looking statements, which applies to today's discussion and is outlined on Slide 2 of the presentation. It will also be read in full at the end of this call.

I would now like to call over to our President and Chief Executive Officer, Steve Kaniewski.

Stephen G. Kaniewski -- President & Chief Executive Officer

Thank you, Renee. Good morning everyone and thank you for joining us. Before we recap our first quarter results, I would like to share some opening comments. On March 8th, we recognized our 75th anniversary as a company. We've come a long way since 1946, when our Founder, Robert B. Daugherty, a young marine coming home after World War II, started a fabrication shop in the small community of Valley in Nebraska. Our business has certainly evolved over the past 75 years, but over this time we have remained centered on serving our customers and delivering value through our focus on execution, and our commitment to conserving resources and improving lives.

As we reflect on our history, we're very proud of the impact we've had on the lives of employees, customers, suppliers, business partners, communities and all those we have touched. As we look forward, we are energized by the opportunity to continue expanding this impact long into the future.

We are also excited to host our Virtual Investor Day coming up in May, where we will share more about our strategic vision for the company, and have several of our business leaders provide greater insight into their businesses and markets.

Now let me take a moment to acknowledge our commercial teams for their quick and deliberate actions to adjust market prices in response to rapid inflationary pressures beginning in the fourth quarter of 2020. Our disciplined and deliberate strategy to be the price leader in all our markets, enabled by our strong product portfolio has served us well in this unprecedented inflationary environment. I also want to recognize our operations teams who have been working hard since the onset of the pandemic, and redoubled their efforts this past quarter to secure our supply chain. Through these diligent and focused efforts, we were able to avoid material disruptions in our operations, and deliver solid operating income growth for the company.

With that, let me start with a brief recap of our first quarter, summarized on Slide 4 of the presentation. Net sales of $774.9 million, increased $100.7 million or 14.9% compared to last year, due to significantly higher sales in the Irrigation and Utility Support Structure segments.

Starting with Utility. Sales of $253.1 million grew $27.7 million or 12.3% compared to last year. Strong demand for renewable energy generation and utilities increasing investments in grid hardening and resiliency continue to drive sales growth.

Moving to Engineered Support Structures. Sales of $222.3 million decreased $8.4 million or 3.6% compared to last year. Favorable pricing, growth in wireless communication sales, and favorable currency impacts were more than offset by anticipated lower transportation market volumes, as delays in the FAST Act approval during 2020, and the impacts from COVID-19 continued to affect the timing of road and construction projects.

Wireless communication structures and components sales grew 20.6% compared to last year. Strong demand was led by carriers increasing their capital spending in support of 5G build-outs, as evidenced by significantly higher sales of our new small cell product offering and existing component sales. Favorable pricing in all regions also contributed to sales growth.

Turning to Coatings. Sales of $93.3 million, grew $5.1 million or 5.9% compared to last year, and improved sequentially from last quarter, primarily from more favorable pricing and improving end market demand.

In Irrigation, sales of $229.7 million, grew $72.9 million or 46.5% compared to last year, with growth across most global regions, including 34% growth in our technology sales this quarter. In North America sales grew 15% year-over-year. Farmer sentiment has improved significantly, and the positive market drivers we mentioned last quarter are generating strong order flow.

Agricultural commodity prices remain at multi-year highs, and net farm income levels are expected to remain elevated. Overall, world market demand for ethanol and very low feed and protein stocks in the U.S. and China are driving significantly higher demand for grain exports.

International sales growth more than doubled compared to last year, and was led by higher sales in the Middle East, European markets and in Brazil, where we recognized another record quarter of sales in local currency. Deliveries of the multi-year project in Egypt continued during the quarter, and the project is tracking well. Sales in this segment were slightly below the range that we guided to last quarter, mainly due to a series of supply constraints of certain irrigation components.

The strength of our global supply chain, and the agility of our global footprint helped mitigate the impact and others across our businesses. And these constraints have improved as we've entered the second quarter. This is just timing and we expect these sales to be recognized in the second quarter. Scalability is one of the benefits of our portfolio, enabling us to purchase mill direct steel and minimizing disruption in the procurement of steel, zinc and other metals to meet customer order commitments.

Turning to Slide 5. Last month, President Biden revealed the American Jobs Plan, valued at more than $2 trillion. This multi-year stimulus package includes approximately $620 billion to modernize roads, bridges and highways. A $100 billion allocated to electrical grid investments and $100 billion focused on high-speed broadband investments. We recognize that additional details and approvals must be worked through, so the timing of these benefits are uncertain. However, we believe the administration's increased emphasis on upgrading aging infrastructure on our nation's roads and highways, reducing traffic congestion and carbon emissions, hardening the electrical grid, and increasing access to wireless connectivity across the country, will provide longer-term funding, stability that will have a positive impact on our infrastructure businesses.

Moving to Slide 6. Last month, we released our Annual Sustainability Report, highlighting the contributions of our products and services to conserve resources, improve life and build a more sustainable world. I'm proud to have also announced our 2025 sustainability goals for carbon intensity, global electricity and global combustion fuel, along with setting water standards across the enterprise within this report. Later today, as a part of our Earth Day activities, we will commemorate the installation of our 1-megawatt solar field at our Valley, Nebraska campus.

We are proud to be operating the largest, privately owned, behind-the-grid solar field in the State of Nebraska. Covering more than four acres, it will provide our campus with 6% of its electricity needs. I want to congratulate our team and our business partners who work diligently on this project. Strengthening our commitment to innovation with sustainability in mind. We look forward to providing more updates on our ESG initiatives at our Virtual Investor Day and throughout the year.

With that, I will now turn the call over to Avner, for our first quarter financial review and 2021 outlook.

Avner M. Applbaum -- Executive Vice President & Chief Financial Officer

Thank you, Steve, and good morning, everyone. Turning to slide eight and first quarter results, operating income of $77.2 million or 10% of sales was similar in quality of earnings to last year, driven by higher volumes in irrigation in utility, favorable pricing, which helped offset the impact of rapid raw material cost inflation and improved operational efficiencies.

First quarter diluted earnings per share of $2.57, grew 29.1% compared to last year, driven by higher operating income and a more favorable tax rate of 21.9%, which was primarily due to a one-time incremental tax benefit associated with employee stock option exercises.

Turning to the segments. On Slide 9, in Utility Support Structures, operating income of $21.7 million, or 8.6% of sales, decreased 380 basis points compared to last year. Strong volumes and improved operational performance were more than offset by the impact of rapidly rising raw material costs, which could not yet be recovered through pricing.

Moving to Slide 10. In Engineered Support Structures, operating income of $19.9 million, or 9% of sales, increased 210 basis points over last year. Overall, we were very pleased with the results from the actions we took to improve performance through proactive pricing strategies and reduce SG&A expense to offset inflation and the lower volume.

Turning to Slide 11. In the Coatings segment, operating income of $12.9 million, or 13.8% of sales, was 130 basis points higher compared to last year. Favorable pricing offset lower external volumes due to COVID impacts and end markets and a one-time natural gas expense of approximately $800,000 related to the February winter weather event in Texas.

Moving to Slide 12. In the Irrigation segment, operating income of $38.7 million or 16.9% of sales, was 180 basis points higher compared to last year. Strong volumes and improved operational efficiency were partially offset by higher R&D expense for strategic technology growth investments. Turning to cash flow on Slide 13. We are focused on inventory optimization and overall improvement of a cash conversion cycle across our businesses. These efforts helped us deliver operating cash flow of $33.2 million and positive free cash flow this quarter, despite extraordinary inflationary pressures. Inventory levels are expected to remain elevated this year due to higher steel costs.

Turning to Slide 14, for a summary of capital deployment. Capital spending in first quarter was approximately $28 million and we returned $21 million of capital to shareholders through dividends and share repurchases, ending the quarter with $391.5 million of cash. We continued to have an active acquisition pipeline and are prioritizing strategic investments in technology, especially in irrigation, higher-growth products and markets, and business solution that align with ESG principles while meeting our return on invested capital goals.

Moving now to Slide 15. Our balance sheet remains strong with no significant long-term debt maturities until 2044. Our leverage ratio of total debt-to-adjusted EBITDA of 2.1 times remains within our desired range of 1.5 to 2.5 times and our net debt-to-adjusted EBITDA is at 1 times.

Let me now turn to Slide 16, for outlook, including a few key metrics and assumptions. For the second quarter, we estimate net sales to be between $805 million and $830 million, and operating income margins between 9.5% to 10.5% of net sales. The tax rate for second quarter is expected to be between 23% and 24% due to the execution of certain U.S. tax strategies. We are also reaffirming our outlook for the full year. Net sales are estimated to grow 9% to 14% year-over-year, which assumes a foreign currency translation benefit of 2% of net sales.

Earnings per share is estimated to be between $9 and $9.70, excluding any restructuring activities. Other metrics and key assumptions supporting this outlook are summarized on the slide and in the press release. As mentioned last quarter with unprecedented raw material cost increases and higher freight costs, we continue to take quick and deliberate steps to implement pricing actions across all our segments, including multiple increases since the beginning of 2021, and are maintaining these strategies across our served markets. We are already seeing the benefit in most of our businesses with an improvement in Utility Support Structure expected in the second half of the year.

Turning to our segment outlook on Slide 17. In Utility Support Structures, our record global backlog is providing good visibility for 2021 and beyond. Although steel costs remain at elevated levels, we believe the biggest challenges are behind us. We expect the quality of earnings to improve beginning in the second quarter. Contractual increases in selling prices will begin offsetting steel cost inflation and we expect a meaningful improvement in gross profit margin to accelerate in the second half of the year as higher steel cost indices are reflected in selling prices.

Moving to Engineered Support Structures. We continue to expect some short-term softness in transportation markets as projects have been delayed due to the delays in 2020 FAST Act. extension approvals and continued COVID-19 impacts, especially in France and India. Demand for wireless communication structures and components remains strong. We believe sales will grow 15% to 20% in 2021, in line with market expectations, as carriers investment in 5G are expected to accelerate throughout this year.

Moving to Coatings, end-market demand tends to correlate closely to industrial production levels. We expect to see modest sequential growth as the economy continues to improve and benefit from government stimulus initiatives in certain international markets, including Australia. Moving to irrigation, we expect favorable comparisons based on the estimated timing of deliveries of the large Egypt project, strong net farm income driving positive farmer sentiment, and a robust Brazilian market.

We expect another quarter of positive free cash flow, driven by our emphasis and improving the cash conversion cycle and strategic inventory management. Raw material inflation can create short-term impacts on cash flows, and as previously mentioned, we have enacted strategies to manage these impacts, including certain raw material financial hedges to cover backlogs.

With that, I will now turn the call back over to Steve.

Stephen G. Kaniewski -- President & Chief Executive Officer

Thank you, Avner. Moving to Slide 18. We are off to a great start in 2021 across all end markets. As evidenced by our record $1.3 billion backlogs at the end of the first quarter. In Utility, our record backlog -- global backlog of nearly $720 million demonstrates the ongoing demand and necessity for renewable energy solutions, grid hardening and expanding ESG focus within the utility industry.

We are very pleased to announce that in the first quarter, we were awarded the third and fourth purchase orders, totaling $220 million for the large project in the Southeast U.S., extending our backlog through the beginning of 2023 with that project and reconfirming our customers' confidence in our performance. We continue to strengthen key alliances with utility customers, and with our broad portfolio of products and manufacturing capabilities, we are well positioned to be the preferred strategic partner with utilities and developers, for their renewable energy and grid hardening goals.

In Engineered Support Structures, we expect a solid year with some short-term softness in transportation, but the longer-term market trends, especially for road construction and single-family housing support future growth. Further, the critical need for infrastructure investment globally gives us confidence that these trends will remain strong.

We expect demand for wireless communication structures and components to accelerate throughout 2021. Bringing reliable, high-speed broadband connectivity to people around the world is vital to elevating standards of living, safety and opportunity. Our broad portfolio of towers and components positions us well to support world broadband connectivity initiatives, working with groups such as the Wireless Internet Service Providers Association and the American Connection Broadband Project Coalition to help bridge the the digital divide. We're encouraged that both current and proposed legislation has allocated funding to support these efforts.

Our Coatings business closely follows industrial production trends, and general economic activity. The drivers remain solid and the preservation of critical infrastructure and extending the life of steel fits well within our ESG principles.

And in irrigation, recent improvements in net farm income have improved grower sentiment, and tighter ending feed and protein stocks are keeping grain prices at sustained six and seven year highs. As evidenced by our global backlog of over $350 million, this improved demand along with the strength across international markets and the large-scale multi-year project in Egypt, is providing a good line of sight for this year.

Building on our strategy as the technology leader, earlier this week we announced the acquisition of PivoTrac, a Texas-based Ag technology company, with products focused on telemetry and control. This acquisition strengthens our footprint in the Texas Panhandle region, and adds more than 9,000 connections to our portfolio, growing our total connected machines to more than 123,000. This technology will integrate well with our AgSense Platform going forward, and each connected device adds to the cumulative, positive effect of the recurring revenue stream that these solutions provide. We would like to welcome the PivoTrac team to Valmont.

Turning to Slide 19, the summary. Our focus on execution and the benefit of positive market tailwinds across our businesses have led to a great start this year, and these look to extend into 2022. We expect solid operating performance and strong EPS accretion in 2021, and our teams are managing through the challenges of the current inflationary environment very well, through proactive pricing actions and the strength of our global supply chain. We remain focused on profitable growth and return on invested capital improvement, while keeping our employees and communities safe and investing in our businesses for growth.

And as a reminder we are hosting a Virtual Investor Day on May 20th, where our leadership team will provide a deep dive into our businesses, and an update on our strategies to drive growth and long-term shareholder value creation. We encourage you to register in advance using the link on our Investors page.

I will now turn the call back over to Renee.

Renee L. Campbell -- Vice President of Investor Relations and Corporate Communications

Thank you, Steve. At this time the operator will open up the call for questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question is coming from Nathan Jones of Stifel. Please go ahead.

Nathan Jones -- Stifel Financial Corp. -- Analyst

Good morning, everyone.

Stephen G. Kaniewski -- President & Chief Executive Officer

Good morning.

Avner M. Applbaum -- Executive Vice President & Chief Financial Officer

Good morning.

Nathan Jones -- Stifel Financial Corp. -- Analyst

I guess I'll start with the obvious one, the first quarter based second quarter guidance is ahead of consensus and there is no guidance range raised for the full year. Is this just conservative, we've only done one quarter or do you see any headwinds in the back half of the year? Just any commentary you've got around that.

Avner M. Applbaum -- Executive Vice President & Chief Financial Officer

Sure. So let me start off by saying, we really feel good about the year, how we started the year. The Q1 performance going into Q2, we even have more confidence with the increased backlog, the pricing actions we took so far. Having said that, as you stated, right, we're only one quarter in the year, being conservative due to the inflationary pressures and raw materials, waiting for that to stabilize. There is also some uncertainty around COVID, specifically in France, India, potentially Brazil. So overall, yeah, we feel really good about the year, some uncertainty and as we gain better visibility, we'll update the guidance.

Nathan Jones -- Stifel Financial Corp. -- Analyst

Fair enough. Then on price cost, I wanted to just particularly look at USA. So I know you guys had signaled that you were going to have some margin pressure there in the first quarter as it takes time for some of these contracts to reset. And I was maybe a little bit surprised to see that price mix line there actually negative. Can you talk about that? And when these contract times will reset? When you'll be able to get that pricing through, and how we should think about the progression of margins as we go through the rest of the year?

Avner M. Applbaum -- Executive Vice President & Chief Financial Officer

Right. So really where that's coming from is going into the year is the pricing we had in the backlog. So that's why you see the negative pricing, because you raised the pricing, but you won't see the impact, as we said, until the second half. That's why you're seeing the kind of the negative pricing, if you will, but as we go into the second half, we will see that you will see that turnaround there with the pricing higher than the cost, and that's where we'll get the improvement on the LP side.

Stephen G. Kaniewski -- President & Chief Executive Officer

Yeah, Nathan. This is Steve. Most of that backlog was priced prior to the indices moving up in the -- probably the second quarter and third quarter of 2020. So it was before the steel moved up, the indices were actually down. So...

Nathan Jones -- Stifel Financial Corp. -- Analyst

Yeah.

Stephen G. Kaniewski -- President & Chief Executive Officer

It was our volume that really made the difference in the quarter. As we go forward, we would expect somewhere in the lines of 200 to 300 basis points improvement on the back side of the year when you look at utility.

Nathan Jones -- Stifel Financial Corp. -- Analyst

So we should think about the second quarter margin for utility kind of in a similar range to where it was in the first quarter and then we'll see the step-up from the increased pricing running out of the backlog as we get into the second half?

Avner M. Applbaum -- Executive Vice President & Chief Financial Officer

Yeah. And actually toward the end of second quarter we'll already start seeing the improvement there in the margins. Yeah.

Nathan Jones -- Stifel Financial Corp. -- Analyst

Okay. Bit better in the second quarter and then better in the second half. Okay. I'll pass it on and let some other people dig in.

Avner M. Applbaum -- Executive Vice President & Chief Financial Officer

Thank you.

Operator

Thank you. Our next question is coming from Brian Drab of William Blair. Please go ahead.

Brian Drab -- William Blair & Company -- Analyst

Good morning. I'm going to take Nathan's first question and build on that to begin. I'm just wondering are you at least willing to concede that you're trending toward the high-end of the guidance range that you stuck with, because I'm just looking at that you did over $2.50 in the first quarter. You'd have to do like $2.10 in the next three quarters, when you just clearly told us that things are getting better in so many different ways. Would you say you are trending toward the high end of the range?

Stephen G. Kaniewski -- President & Chief Executive Officer

Yeah, I mean, coming out of the gate with the number that we did. That's where we're trending. As Avner pointed out some of the hesitation was just around the fact that's raw materials have not really stabilized, and as you can see in the Utility segment, depending how quickly they rise, we don't always get it back in price, and then you take just the project nature of the business. We have a couple of big projects, if there is any movement in those, that will have an outsized effect on us. So we're just being cautious, only being one quarter in, as we get to the end of the second quarter, we will obviously have a much better look at the rest of the year, and be able to update guidance at that point.

Brian Drab -- William Blair & Company -- Analyst

Right. And I know you're talking to us again soon in May as well. I guess is probably something else that goes into your calculation there. We will have a little more visibility at the analyst day as well. And just a follow-up on this. As you look at the the year, where could the upside come from to if we end up looking back at 2021, and say we did over -- this is my number I'm throwing out there. Let's say we end up over $10 in EPS, where do you think that upside would come?

Stephen G. Kaniewski -- President & Chief Executive Officer

There is a couple of areas, obviously, continued strong performance in irrigation, has a very large effect on us. The telecom area is as we said is trending upwards 15% to 20% growth. If that accelerates, that's very margin accretive for us. And even in the rest of ESS, if the delays that we've seen around construction projects -- this is global, not just the U.S. If the COVID impacts were to go away a little quicker, then we would see in places like Europe and India, where we do have some nice backlog is just not shipping because of the issues there. And those are things that would tend to move us toward the top side of the range.

Brian Drab -- William Blair & Company -- Analyst

Okay, thanks very much.

Operator

Thank you. Our next question is coming from Chris Moore, CJS Securities. Please go ahead.

Chris Moore -- CJS Securities -- Analyst

Hey, good morning, guys. Yeah, so just -- good morning. Following up on we just talked about, Steve. So, on the ESS side, when we're talking about short-term market softness in transportation. As you sit now is that over the next couple of quarters or we're not sure if it's going to be till mid-fiscal '21 and until there is some improvement there?

Stephen G. Kaniewski -- President & Chief Executive Officer

Now we had expected -- so seasonally, Q2 is usually stronger than Q1. Just because that's when a lot of projects do get started. But even the market softness, we kind of anticipated from the first part of the year here, the first half, and we expect that to improve in the second half of the year. The timing that we saw kind of in the third and fourth quarter delays, really just translate into that kind of first half for us. And then with vaccination rates, with budgets kind of being made hold by some of the earlier actions were the states' got replenished, due to the stimulus spend. We feel that the second half of the year lines up well for a lot of road construction projects.

Chris Moore -- CJS Securities -- Analyst

Got it. And maybe just shift gears real quick. Talk about solar in North America, on the utility side. So, obviously, you kind of talked about it, it takes a while to get these approvals in place with utilities, for the most part, it looks like you're in good shape there. Just trying to understand kind of the sales cycle at this stage on the utility side.

Stephen G. Kaniewski -- President & Chief Executive Officer

Yeah, the projects have a long gestation. They take some time to develop as developers get their own approval, they get bids, they go back, it kind of goes back and forth. There is some supply chain disruptions overall around microchips and the PV panels and how that fits in. And then you had the whole change in the tax credit situation. So there are some delays in some projects that we would expect more toward the back end of the year to move forward. But you're talking a six to nine months and the sales cycle really to secure a backlog in that area.

Now once it ships, it tends to ship pretty steadily because of the construction angle. It doesn't go through the kind of the same permitting changes that you may see on a traditional utility line. So once we have confidence in the project moving forward, they tend to just go and ship complete. So, maybe a long-winded answer, but again six to nine months and very much impacted by changes in tax credits and some of the supply chain issues, at least in the early part of this year and that's what we've seen and heard from others in the space as well.

Chris Moore -- CJS Securities -- Analyst

Got it, that's helpful. I'll jump back in line. Thanks, guys.

Operator

Thank you. Our next question is coming from Brent Thielman of D.A. Davidson. Please go ahead.

Brent Thielman -- D.A. Davidson & Co. -- Analyst

Hey, thank you. Good morning.

Stephen G. Kaniewski -- President & Chief Executive Officer

Good morning, Brent.

Brent Thielman -- D.A. Davidson & Co. -- Analyst

The two new orders in utility, do you start to execute on those immediately and even kind of wondering where you sit from a capacity perspective and also how we think about the burn rate at this is large utility backlog?

Stephen G. Kaniewski -- President & Chief Executive Officer

Yeah. Those orders are actually out, they're into 2022 and 2023. So those were given just as confidence in our performance today and our ability to hit their shipping schedules. Our backlog right now is already set from what we had received earlier. So this doesn't impinge or impact our capacity at this point.

Brent Thielman -- D.A. Davidson & Co. -- Analyst

Okay. I mean, considering that as seen some other activities that are going on behind the scene in terms of new work coming. I mean, do you look at this business over the next two to three years as a $1 billion plus sales business? I mean, is there that much visibility out there right now that you can achieve that?

Stephen G. Kaniewski -- President & Chief Executive Officer

Yeah, absolutely. We are very confident it will be north of $1 billion over the next few years.

Brent Thielman -- D.A. Davidson & Co. -- Analyst

Okay. Thank you.

Operator

Thank you. Our next question is coming from Ryan Connors of Boenning & Scattergood. Please go ahead.

Ryan Connors -- Boenning & Scattergood -- Analyst

Great, thanks for taking my question. Got a couple of big picture question. But first just wanted to circle back on the issue of guidance. So, I mean obviously, it seems like you're pretty clearly telegraphing a bit of an upside there and I think if you look historically, I mean the way people will look at guidance, is that, let's say, at least the midpoint is a fair reflection of risks being balanced up and downside in their quant models that kind of price and value stocks based on that. So, I mean, are you sort of telling us that that's not how we should look at the midpoint, the midpoint of guidance, isn't really your point estimate of really where you think that the risks aren't balanced up and downside to that is that a fair statement?

Stephen G. Kaniewski -- President & Chief Executive Officer

Ryan, I would say that the midpoint is still a good proxy an indication of our balance of looking at on the downside of the raw materials and the inflation because it's so uncertain and it tends to have an outsized effect on our various businesses. And you take India and France and potentially Brazil, and that's why we're a little bit hesitant to say let's move up. On the top side, there are drivers that are in place that I talked about on the earlier question, that could be balanced upside as he talked about getting toward maybe somewhere in that north of 970 number.

So it really depends and it's early. Again, I think, after we get another quarter in, then we would have a more firm backlog as we look at the back half of the year to know where it was priced in relation to our cost models. So there is positive tailwinds to our businesses and I think that's what we're projecting is that there -- is at least positive tailwinds. And it's not solely on or operational -- executional risk.

Ryan Connors -- Boenning & Scattergood -- Analyst

Sure. Yeah. So the stocks opening up a little lower after what is really a pretty good quarter overall. I think that guidance lack of an upward revision is a big part of that. So I think it's a really important point. A couple of big picture, bigger picture questions. First on, you talked a lot about precision ag and precision irrigation and obviously a lot of big value proposition there. But we've been following this issue of this, quote-unquote right to repair legislation that there's more and more farmers and others saying and there's too much tech embedded in products and they're actually trying to make sure that they're able to fix things without having to consult the dealer in your case for example. Do you have any comments on that and how it impacts the sort of adoption of precision ag and what Valmont's doing to address those issues with customers?

Stephen G. Kaniewski -- President & Chief Executive Officer

Yeah, I mean, first off, we're very open platform. So everything that we do is built with the service ability. The fact that it's off the shelf kind of technology and easy to maintain and upgrade is kind of a driving R&D principle for us. So we believe we're on the right path with the grower in that sense. That if it needs to be self-serviced, it could be and it was easier for them to bring in a dealer they make that choice.

In terms of the overall big picture of adoption, we saw this in cars, we've seen it in other types of capital goods as well where tooling is specialized and it's not easy to work on things that are computer base. I think that's just a function of technology. And I think, while there is some initial push back because people were used to hopping under the hood, ultimately the technology benefits outweigh the fact of being able to service it yourself. We're going to try and -- on the side of making it easy, so that as long as we can, because the value proposition for a grower is they can go out and do it themselves. So we're going to stick with that is a guiding principle, but know that the market eventually will probably to succumb to the fact that if there is people out there that are making it a closed system, we'll see how that goes. I think only legislation would change that at this point.

Ryan Connors -- Boenning & Scattergood -- Analyst

Yeah. Okay. That's useful perspective. And then my last one was just a real big picture, and I know you don't have a crystal ball anymore than anyone else Steve, but I mean in terms of the cycle, the duration of this ag cycle as we shape this up, we've obviously been through a pretty lengthy hangover after things got maybe too good for a while, and that was -- there was some fallout that lasted from that, and now we've got corn up above 620 a bushel yesterday, and things just seem to be really taking off. I mean, what's your view on on the duration of this one? I mean, can we -- can we be in for a multi-year cycle or is there a risk of things kind of overheating and and getting too good, too soon?

Stephen G. Kaniewski -- President & Chief Executive Officer

Well our perspective is that the government payments last year, and frankly in the year before really help shore up the balance sheets of the growers, and now that they're getting of a real quote-unquote net farm income and it's coming from the fact that the supply demand ratios are where they're at. If you look at protein stocks, very low. If you look at grain stocks, very low. That sets up at least for a multi-year event.

When we look back at our history, where we have seen our cycles as we get about seven years of up, followed by seven years of kind of a declining market. That's what played out if we came off the 13 super cycle, as we trended down and now it tends to move back up. If you throw another weather event that gives you more confidence, that that duration will last even longer. But right now, again, all the fundamentals are there to support the higher price of the grains at least well into next year. Beyond that, obviously, it is more a little bit of a crystal ball, but there are just low stocks.

Ryan Connors -- Boenning & Scattergood -- Analyst

Yeah.

Stephen G. Kaniewski -- President & Chief Executive Officer

And there's a lot of use. So we feel like it's -- it should be, have at least a good duration here.

Ryan Connors -- Boenning & Scattergood -- Analyst

Great. Hey, thanks for your time this morning.

Stephen G. Kaniewski -- President & Chief Executive Officer

Thanks, Ryan.

Operator

[Operator Instructions] Our next question is a follow-up coming from Nathan Jones of Stifel. Please go ahead.

Nathan Jones -- Stifel Financial Corp. -- Analyst

Hi guys. I just wanted to ask one on cash flow, just given the inflation to likely increase in inventory. Can you just talk about what you're expecting from a conversion standpoint this year or an investment in working capital standpoint?

Avner M. Applbaum -- Executive Vice President & Chief Financial Officer

Yeah, so and over the last couple of years we actually had really strong conversion 1.3%, 1.4%. This year it's possible we'll go a little bit below 1%, just due to the inflationary pressures that you combine the three years definitely will be over that 1. So as always with inflation, it will put pressure on inventory receivables etc. We are taking a lot of initiatives to optimize our inventory, to manage our whole conversion cycle, which will have a strong benefits on our cash flow. So we'll have a strong year on cash flow with some pressure from from steel.

Nathan Jones -- Stifel Financial Corp. -- Analyst

Maybe kind of 90% conversion, 80% conversion somewhere in that range?

Avner M. Applbaum -- Executive Vice President & Chief Financial Officer

Yeah.

Nathan Jones -- Stifel Financial Corp. -- Analyst

Just between for 2021?

Avner M. Applbaum -- Executive Vice President & Chief Financial Officer

Yeah. We'll have a range between 80% to 1% for sure. Yeah.

Nathan Jones -- Stifel Financial Corp. -- Analyst

Okay, thanks very much.

Operator

Thank you. At this time, I'd like to turn the floor back over to management for any additional or closing comments.

Renee L. Campbell -- Vice President of Investor Relations and Corporate Communications

Thank you for joining us today. As mentioned, today's call will be available for playback on our website or by phone for the next seven days. We look forward to speaking with you again next quarter.

Operator

Included in this discussion, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on assumptions that management has made in light of experience, and the industries in which Valmont operates, as well as management's perceptions of historical trends, current conditions, expected future developments, and other factors, believed to be appropriate under the circumstances.

As you listen to and consider these comments, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties, some of which are beyond Valmont's control and assumptions. Although management believes that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect Valmont's actual financial results, and cause them to differ materially from those anticipated in the forward-looking statements.

These factors include, among other things, risk factors described from time to time in Valmont's reports to the Securities and Exchange Commission, as well as future economic and market circumstances, industry conditions, company performance and financial results, operating efficiencies, availability and price of raw material availability and market acceptance of new products, product pricing, domestic and international competitive environments and actions and policy changes of domestic and foreign governments. The company cautions that any forward-looking statements included in this discussion is made as of the date of this discussion and the company does not undertake to update any forward-looking statements.

[Operator Closing Remarks]

Duration: 45 minutes

Call participants:

Renee L. Campbell -- Vice President of Investor Relations and Corporate Communications

Stephen G. Kaniewski -- President & Chief Executive Officer

Avner M. Applbaum -- Executive Vice President & Chief Financial Officer

Nathan Jones -- Stifel Financial Corp. -- Analyst

Brian Drab -- William Blair & Company -- Analyst

Chris Moore -- CJS Securities -- Analyst

Brent Thielman -- D.A. Davidson & Co. -- Analyst

Ryan Connors -- Boenning & Scattergood -- Analyst

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