Infrastructure-equipment maker Valmont Industries (NYSE: VMI) recently posted better-than-expected third-quarter results, benefiting from the growing demand for its products in the irrigation segment. However, the engineered-infrastructure segment, which accounts for nearly one-third of the company's revenue, didn't turn in an inspiring performance.
Let's dig deeper.
The quarter
All four segments of the company -- engineered infrastructure product, irrigation, utility support structure, and coating -- recorded revenue growth. Revenue was up by 27% from the same quarter in the previous year, to $672.2 million while net income saw an impressive 62% increase to $42.1 million. Valmont earned $1.59 per share, beating the market estimate of $1.53 per share.
Growing world population has increased demand for food products. As a result, global crop prices have firmed up and demand for irrigation equipment from farmers all over the world has risen, acting as a boon for companies dealing in agricultural products or equipment. The trend is clear from the high-growth quarterly numbers from companies such as Syngenta (NYSE: SYT), which saw third-quarter sales jump 21% because of strong demand in Latin America.
Valmont's irrigation business, which accounted for 22% of quarterly sales, saw a whopping 71% rise in revenue compared with the previous year's quarter. Similarly, competitor Lindsay (NYSE: LNN) recently reported a 60% increase in its irrigation-equipment revenue this quarter. Valmont expects to benefit from this factor in future quarters as well.
North America and Europe weaken
The company's engineered infrastructure product segment, which sells lighting, traffic, and highway-safety products, was a 33% contributor to quarterly sales and saw 12% revenue growth over last year. But this bump came mainly from the segment's international business. Conditions in North America and Europe and haven't been favorable for infrastructure development. Declining government spending and non-residential construction in North America have weakened demand. In Europe, meanwhile, Valmont faced competitive pricing because of slowing demand, resulting from the continent's economic uncertainty and government austerity programs.
The Foolish bottom line
Overall, the market for infrastructural products seems to be weak in North America and Europe while there's growth potential in emerging markets. The company's irrigation segment, with its current growth rate, should continue to drive revenue growth. The stock has fallen consistently over the past year, but the agricultural boom indicates that the time is ripe for Valmont.
What do you think? Keep a close watch on Valmont Industries by adding it to My Watchlist.
