Valmont Industries Inc (VMI) 2008 Q2 法說會逐字稿

Good morning. My name is Cynthia and I will be your conference operator today. At this time, I would like to welcome everyone to the Valmont Industries second-quarter 2008 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question-and-answer session. (OPERATOR INSTRUCTIONS). I'd now like to turn today's call over to Jeff Laudin. Please go ahead, sir.

Thank you Cynthia. Welcome to Valmont Industries second-quarter 2008 earnings conference call. With me today are Mogens Bay, Chairman and Chief Executive Officer; Terry MacMcClain, Senior Vice President and Chief Financial Officer; and Mark Jaksich Vice President and Corporate Controller.

Before we begin, please note this discussion is subject to our disclosure on forward-looking statements which applies to today's talk and will be read in full at the end of the call. The instructions for accessing a replay of the call can be found in our press release. I would now like to turn the floor over to our Chairman, Mogens Bay.

Thank you Jeff and good morning everyone and thank you for joining us. Let me begin with second-quarter highlights. First we had record second quarter sales, operating income and net earnings. Second, operating income increased 42% and was 12.7% of sales. Third, operating income as a percentage of sales rose 1.6 percentage points. This was during a period of unprecedented inflation in steel cost.

Fourth, net earnings increased 38% on a 24% increase in sales. And fifth, the improvements were widespread. All operating segments had record second-quarter results. Before I review the results by segments, I would like to make a few general comments about inflation and capacity.

The price of hot-rolled steel increased approximately 35% during the quarter. Rapid price inflation poses significant challenges for Valmont. We must react very quickly in an inflation environment by raising prices to recover increased costs. We must be proactive and thorough in communicating with customers the basis for our pricing actions in this environment. I want to congratulate our entire team for their outstanding job in managing through these challenging times.

Often investors ask if we have the capacity to meet the demands of our markets. We have a global network of locations with flexible capacity. Over the past two years, we have been adding capacity to support growth in our businesses. In some cases, we're building greenfield plants such as in China and in other cases we're adding to existing facilities like we have in our utility and other businesses. We've also been supplementing capacity by acquiring businesses in our core product lines.

We will continue to attempt to match capacity with the anticipated growth of our various markets. And we're comfortable we will be able to do that. We also anticipate that our lean efforts will help us free up additional capacity. Let us now review the second quarter results by segment.

I will begin with the Engineered Support Structures segment where sales increased 19% to $191 million, operating income increased 7.4% to $17.9 million or 9.4% of sales. Operating income was below last year as inflationary costs rose faster than we were able to recover those costs.

There were three main drivers of higher sales for the segment. First, the market for our core businesses that support lighting and traffic products were resilient. Second was a positive impact of acquisitions and third was improved demand in the North American wireless communication market.

In North America, sales of lighting and traffic products for the transportation markets were higher. The principal source of funding for this market is the US Federal Highway Bill. Our current sales and order levels are firm as (inaudible) from projects funded under the 2005 bill.

However, with fixed budget projects, inflation reduces the physical size of any project. During the next year, debate will begin on a new highway bill for fiscal years 2010 through 2015. The primary source of funding for the bill is a gasoline tax which is a per gallon tax. We expect the change in the tax to one that is based on a percentage of sales will become part of the debate.

If history is any guidance, each successive highway bill has incorporated higher levels of funding. Even though some states currently may face budgetary constraints, infrastructure spending will continue to be a high priority in the US.

Turning to other markets, sales of residential and commercial lighting in North America were lower as expected due to softer activity in the housing and real estate markets. International markets gains in European sales reflect positive currency translation and incremental sales from the Tehomet acquisition which took place late in the second quarter of 2007.

In China, sales were essentially flat as higher lighting and utility structure sales offset a decline in wireless communication product sales. The Chinese government recently restructured the wireless communication industry and while the short-term impact was to temporarily reduce demand, long-term we see the restructuring as a positive. The new industry structure increases competition between our customers which should broaden our business opportunities.

In summary, new and existing infrastructure projects continue to be developed around the world. Going forward, we expect the pace of infrastructure development to remain strong.

In the Utility Support Structures segment, sales increased 13% to $101.3 million due to the additional sales from PennSummit and improved pricing. Operating income increased 15% to $13.8 million or 13.7% of sales as a result of the recovery of material cost increases and better factory performance.

As we have noted before, utility sales can vary considerably between quarters depending on the timing of shipments of large orders. Our order rates are strong and the current utility backlog is at record levels. At the present time, we do not anticipate a slowdown in investment utility structures.

Spending on the electrical grid remains a high priority for utility companies and their regulators. There's agreement on the need to increase the reliability of the grid and to expand its capacity. To accomplish this, additional transmission and distribution structures will need to be installed.

In the Coatings segment, second-quarter sales of $37.2 million were 5% higher than last year due to solid demand from our internal customers and improved industrial demand. Higher activity in the agricultural and petroleum sectors is adding to the base level for coating services. Operating income rose 54% to $9.1 million or 24.4% of sales as a result of lower cost, higher volumes and manufacturing efficiencies and the absence of a $650,000 charge taken in the second quarter of '07.

In the Irrigation segment sales were 48% higher at $159.7 million. Global demand for irrigation equipment was broad-based across North America and international markets during the second quarter. The Irrigation segment operating income increased 68% to $28 million and was 17.5% of sales.

We believe the Irrigation business is moving towards higher growth rates than we have historically experienced. Previously, supply disruptions caused temporary price increases in grains that would be relieved when production increased and subsequent periods.

Today, commodity prices are driven by increased demand worldwide. Besides a growing world population that needs more food, an emerging middle class in countries such as India and China, brings with it the desire for an improved diet.

An additional factor is the emergence of biofuels as an alternative source for energy. This demand-driven environment is leading to increased capital investment by growers and productivity tools like our mechanized irrigation equipment.

The need to increase production will inevitably increase the competition for limited supplies of freshwater as agriculture today uses about two-thirds of the world's freshwater resources. Center pivot technology remains the best solution to this challenge. Evidence of this is the continued adoption of center pivot technology by growers in emerging markets.

Turning to all the financial measures, increased inventories and accounts receivable largely reflects higher activity levels, inflation's impact on inventory valuation and currency translation. During the quarter we added approximately $16 million to the LIFO reserve. Inventory and accounts receivable turns showed a slight improvement.

Depreciation and amortization for the quarter was $9.6 million and capital expenditures were $14.5 million. You may notice a large increase in current installments of long-term debt. Because our revolving bank loan agreement matures in May of 2009, it is now classified as a current liability. In their term we would plan to renegotiate this agreement with our lenders.

For the quarter, cash flow from operations were an inflow of $33.6 million. Investing cash flow were an outflow of $14.9 million and financing cash flow an outflow of $22.2 million. In 2008, depreciation and amortization is expected to be between 38 and $40 million. For all of 2008 we expect capital spending between 60 and $70 million.

Our tax rate should be approximately 34% depending on mix of international and domestic earnings. You may recall that in the third quarter of 2007 we had a very favorable tax rate of 22%. That will not repeat in 2008. The third quarter 2008 tax rate will likely be closer to the 34% average rate.

Reviewing our outlook for the balance of the year, it is positive. In our Engineered Support Structure segment we expect increased sales in our global markets. In our Utility Support Structure segment we see continued strength driven by utility investment to increase the capacity and reliability of the North American transmission grid.

And our Coatings segment markets are strong. However since coating services is not a backlog business, future results will largely be determined by conditions in local economies where we have facilities. In the Irrigation business, we're confident that the need for agriculture to increase feed grain production worldwide will support further growth.

We will continue to face the challenges of inflationary pressures everywhere and economic conditions in some markets. However, our broad diversification among many industries, product lines and geographic regions worldwide should help us manage through these challenges.

In summary for the year, we currently expect the revenue growth percentage in the mid-20s and operating income as a percentage of sales to increase more than one percentage point as we have mentioned earlier in the year. This concludes the prepared portion of our remarks and I would now like to take your questions.

(OPERATOR INSTRUCTIONS) Arnie Ursaner, CJS Securities.

Good morning and congratulations on a pretty good quarter. First question I have is on the utility business I know some of your customers sometimes will ask you to defer shipping products for a month or two or three. Can you focus just on that for a minute, perhaps give us a sense of how many shipments you may have moved just because of timing?

Well Arnie, it's not a question of moving them because customers are asking for a delay. It is just that large projects tend to ship pretty close together so they can be in one quarter or another. But if your question is do we expect to see a bigger improvement in the third quarter this year compared to third quarter of last year than we saw in the second quarter, the answer is yes.

The second question I have is regarding the slowdown you had in China and I have really two or three questions related to China. One is on the timing issue you referred to there or the change in regulations, when do you expect to see the positive benefit of the change in increased competition?

Well you know whenever an industry goes through a restructuring, it takes a little while before it settles down. But I think that the actual restructuring of how they have organized their wireless carriers is actually behind them. And I would expect to see improvements in that side of the business going forward from here.

Update us on the status of (multiple speakers)

So in other words we expect an improvement, a good comparison in revenue in China in the third quarter.

Okay, can you update us on the status of the third plant, please, in China?

Yes, the third plant has actually started, if you will, test production and it will have its official opening on August 28. But so far it is on schedule and I think we have the first few poles being produced and maybe already shipped over the last week or so.

My final question is more longer-term and strategic. In various times, you as a Company have spoken about well-run industrial companies achieving 15% operating margin as a goal. You have also expressed a goal of 100 basis point improvement per year in your operating margins. As we think out to 2009 and 2010 do you continue to believe you as a Company through lean initiatives and other actions can improve your operating margin 100 basis points or so per year and at some point do you believe you will achieve that 15% goal that well-run industrial companies can achieve?

Let me first by kind of clarifying the statement you made on previous statements. When we said that our goal was to get to 10% operating income, we said we continue we expected that period of time to improve by 100 basis points a year and we actually improved faster than that.

We have continued to improve that performance despite very difficult environment from an inflationary standpoint and I am proud of our people being able to do that. I think that lean over time will give us further opportunities to improve our performance but it also depends on what is the general health of the markets we're in.

Right now and in the -- at least as far as we can see into the future, it looks like we have good solid markets to operate in. But if we get into down cycles in some of the markets, it will certainly affect absorption rates etc. etc. But our focus is to not only grow our businesses but also find ways to improve the quality of our businesses.

I will jump back in queue. Thank you very much.

Ned Borland, Next Generation Equity.

Good morning guys and great quarter. If we could focus a little bit on the guidance, it seems like in the first half you have about a 190 basis point improvement versus the first half of last year. How do you expect that margin improvement in the second half to narrow or are we just looking at typical management conservatism surrounding the guidance on operating margins?

Well as you know, we had a very strong irrigation year and third quarter in particular is traditionally a weak quarter in the irrigation business because that's not when farmers in this country install new equipment. So that will have an effect on it. And so a part of it has to do with seasonality of our earnings throughout the year and it's not a result of overly conservative estimates on the part of management.

Okay and then following up on the comment on the third quarter, we've been hearing the lead times for pivots are up a little bit. Does that affect -- can we expect to see kind of less of a seasonal drop-off in the third quarter given that your lead times are up a little bit?

Well you would probably see a positive comparison in the third quarter but the third quarter is not going to get to levels that you have seen in first and the second quarter.

Right.

The reality is that it's too late to put systems on a field unless for instance they were damaged because of tornadoes and they're willing to take some crop loss by tearing up the field. So it's not like because it's delayed the third quarter becomes a very, very strong quarter. The reality is that the season is fundamentally over for most people in the US.

But given the level of price increases that you guys have put through in irrigation, are you seeing anybody kind of buying ahead, somebody that would maybe buy in the fourth quarter after the season maybe buying the pivot system now and installing it maybe late in the season?

Well you reflect in your backlog equipment that farmers have placed for installment late in the third quarter and the fourth quarter. But I mean this is not the period of the year where farmers go in the field and install equipment because they can't get in the field. That doesn't mean that some of them haven't bought equipment or reserved equipment for late in the year.

Jon Braatz, Kansas City Capital.

A couple of questions. Obviously there's been a lot of talk in the utility sector about wind turbines and so on and so forth. Is there anything inherently different in terms of a wind farm and the need for transmission towers as opposed to a coal generating plant or anything like that? Any reason why there's more towers required?

Well the more you see alternative energy in the form of either wind farms or solar farms, the more it will drive our transmission distribution business because these wind farms as an example will not be placed next to a transmission line. They will be placed in the middle of a good wind opportunity.

So therefore, each time you put a wind farm in, you will need additional transmission lines, substations etc. etc. So even though we are not big in the actual support structure for a turbine, we will clearly benefit from the utility markets growing as a result of new forms of energy generation being put in place.

Okay, secondly in the coatings business, obviously the margins were very strong in the quarter. I think they were 24% plus. From your vantage point is something like that sustainable?

No, I don't think so. But I mean a good solid operating income performance I think is sustainable but not in the mid-20s.

Was there something inherent in this quarter that drove those margins higher?

Yes, I mean we talked about the challenges we had in the steel side when steel went up faster than we have ever seen in the past. The benefit in the coatings out of the business also was that we saw zinc drop. And we saw one business unit that had a drastic improvement recovering from a difficult quarter last year.

And then I think we also mentioned that last year in the quarter we had a $650,000 charge that did not repeat. But yes, you know zinc throttled back and I don't know if that's permanent or for a while but sooner or later that will translate into the marketplace.

And then lastly going back to China, your China facility manufactures wireless towers, utility towers, lighting towers. Can give us a breakdown a little bit as to the revenue breakdown as to by product segment? I thought in China wireless towers structures were the biggest portion of revenue I assume and I may be correct. I'm not sure but can you give us an idea how that breaks down?

Well I can confirm that while the structure is still the largest part of our business in China followed by utility structures and then followed by lighting. From a growth opportunity perspective, utility has probably the largest growth opportunity.

At some of point time, the rapid growth of the wireless market will slow down as it has everywhere else in the world. But utility is a very long-term significant growth opportunity for us.

The lighting business is a huge business in China but there are many more competitors and some of the products are not as complicated from an engineering standpoint. So we need to find the right niches to participate in the lighting market. But long-term lighting market is also a big opportunity.

Like in the United States do you have -- are you establishing the good relationships with the utility companies over there and have sort of inside track in many cases?

Well no, I wouldn't say that. But I would say that there's a national grid organization in China that we stay close with and there are regional utilities we stay close with but we have to earn the business like anybody else.

Brent Thielman, DA Davidson & Co.

Good morning and congratulations on a great quarter. I guess as we look forward specifically in the Engineered Support Structures segment, are you still working through contracts that have not fully recognized the current cost of steel?

Yes, you know one of the things in the North American structure of businesses is that a lot of their jobs are funded by federal funds and you have no opportunity to go back and renegotiate prices based on inflation. So therefore you have jobs in your backlog that you will have to deliver at prices that were agreed upon before you have this run-up in costs; so, yes.

Brent Thielman Okay and I guess as you talk to suppliers do you get any indication where steel prices are going from here?

Well so far it is still an upwards trend. I mean there is some talk of steel increases easing or stopping in the fourth quarter but you know we've had predictions like that before. You follow what happens with some of the iron ore prices and contracts worldwide and you see price increases of 60 and 70 and 80%. You know you would think that the general slowdown in the economy in this country, the automotive industry and in other parts of the world eventually would put some dampening on steel costs but I'm not sure.

You have seen a lot of consolidation in the steel industry over the last number of years. And I think as an industry they have become smarter. And instead of producing more than there's a need for, they take furnaces out for maintenance etc. etc. and try and manage their supply. So I certainly do not expect a drastic decrease in steel prices but I think that the kind of run-up we have seen lately is not going to continue.

Okay and then on the Utility Support Structures, maybe you could just talk to the performance of PenSummit year-over-year relative to your expectations?

Yes, I mean PennSummit, you know I would say the first few weeks you have the usual getting used to each other and integration issues but PennSummit is performing up to our expectations.

Brent Thielman Okay, and then also within that segment and I realize margins are very lumpy on a quarterly basis given sort of the timing of work. But given your comments on backlog, should we assume utilization rates should improve from here and I guess overall that you know at least margins are sustainable at these levels?

Yes, I would say it's not like you see margins changing a lot depending on that volume quarter to quarter. But you see volume changes because of large projects. And we expect that the relative growth in the utility business in the next quarter to be higher than it was in the second quarter.

Brent Thielman Sure. Okay and then just on the Coatings segment and I know again you have very limited stability here as well. But I guess as you guys are talking to fabricators, steel fabricators do you get any sense of what they are seeing over the next several months within their own order books?

Well it all depends on the industries we serve. But the basic infrastructure industries and agricultural industries remain strong and some of the industries tied to consumer products -- it could be boat trailers etc. -- is probably going to be less buoyant.

And then final question and I'll let somebody jump in. In your Irrigation business I guess as your international irrigation business grows relative to your North American business, are you seeing anything that might (inaudible) to some extent more so than you have seen in the past, the seasonal slowdown you do typically see in the third quarter for that business this year?

Well you know in international businesses you have Northern Hemisphere businesses which will generally follow the same patterns as we do in North America and the business in the Southern Hemisphere will be on a separate type of seasonality. But I expect our third-quarter international irrigation business to continue very strong growth.

Thank you very much. Congratulations again.

Steve Gambuzza, Longbow.

I was wondering if you could just comment on the revenue guidance of mid-20s growth for the year if you would not mind giving us some sense as to how much currency and acquisitions individually will contribute towards that goal.

Currency, probably not very much in that overall picture. Acquisitions, some pricing some and volume some. And I would say that volume and acquisitions is a bigger portion than you will see price.

Okay, when you say currency is not significant, does that mean it's less than a percent or so or is it a couple of percent?

Well I cannot tell you if it is 1% or 2% but there's not going to be much currency change year-over-year and it's on a small part of our business. I mean it's basically the European business where we see (inaudible) currency. In China it can go a little bit the other way.

And then in terms of the wind opportunity, I know historically you had given some thought into entering the market for constructing -- for manufacturing wind towers but had decided that was not a business that met your kind of strategic criteria. I was just curious if you had given any thought to that opportunity again or if you continue to believe it's not something you want to pursue.

Well I'll start with there's no doubt in my mind that wind will continue to be a fast growth industry. Our participation as we had envisioned it were large structures that was a different design than the typical design. We could not see the financial returns. It was not a strategic decision. It was a financial decision that we did not see the returns necessary to enter that business.

We could see okay returns if we used current facilities but we don't have excess capacity in our current facilities meaningful enough to make that the basis of entering this industry. And when we added the capital necessary to build plants specifically for wind, we just didn't find it attractive enough at that time. Your question is that something we've just put way and we're not thinking about. The answer to that is no.

We constantly look at the opportunities where there's the right combination between a product that we may be able to deliver to the wind power industry directly in support structure for turbines and the financial returns we will require and my hope is we will find the right combination. But until we do, we are not going to enter it.

So you have no plans to invest capital presently?

Not right now, but we constantly look at ways where we can create enough return where capital investment will be justified.

Great and then finally I was wondering if you wouldn't mind just explaining the inventory accrual that you took during the quarter. I guess I'm just a little bit confused because my understanding is you actually -- your inventory is kind of half accounted for under LIFO and half accounted for under FIFO.

Yes, some plants are on the FIFO and some are on the LIFO. And LIFO accounting in inflationary times tends to lower your profitability and we took a $16 million additional LIFO charge in this quarter than if we had not been on LIFO by and large would've gotten to the bottom line.

I guess under LIFO, you're reporting the most current material prices through cost of goods sold.

Yes and we're taking -- yes, you're right.

Why would you need an additional accrual if you are showing the most expensive material prices through your cost of goods sold?

Before I give you more financial or accounting advice I'm going to turn that answer over to Mark Jaksich.

Well as opposed to going through the detailed calculation, but basically what you're doing conceptually is you're matching current costs with current revenues under LIFO. So in the case like we've had this year with the steel inflation, you will end up with additional LIFO provision.

Now the only way you can mitigate some of that is with a substantial reduction in quantities. But in that particular case because of the volumes we have had and the level of business we have had, we have not do that because of inventory levels we're going to need to support the business. But that is basically what it is. So in the cases where you have got a lot of inflation, you'll have more LIFO.

And the LIFO reserves you will see in the inventory number. That's where it is.

Michael Coleman, Sterne McGee.

On your utility backlog, given the dramatic increase in input costs, could you characterize the unit volume component of that increase in the backlog?

I don't have the exact split but there is volume increase. There is a good price effect on that because of the run-up in steel. But there is also volume increase on the backlog.

Okay, great. On the irrigation could you kind of like what you did with China and your three businesses, but irrigation, could you go through your top three international markets in terms of their size today and then their -- rank them according to their growth potential?

Well we don't split up individual markets within our segments. But I think as we said in the press release, we have seen very good growth in South America and Brazil and also in Argentina. And Brazil has been kind of a depressed market for a couple of years but it is reverting to levels that we have seen in the past.

And if you look at long-term growth, Brazil continues to be one of the biggest opportunities. They had vast tracts of land. They have opportunities for double cropping. They have good water reserves in many parts of Brazil. There's a central state by the name of (inaudible) that is an enormous opportunity for soybean production.

The commodity prices seem to be overcoming the strengths of the Brazilian currency and they probably are continuing to improve their infrastructure so they can get these commodities to world markets more efficiently. So I would say that from a growth perspective, Brazil continues to be very much at the top of the list. And I think longer-term, the whole former Soviet Union Central Asia region is holding a lot of potential for growth.

Earlier this year I think after the first quarter you had some (inaudible). You sold some stock and I think your CFO sold some stock as well. Do you intend for additional sales in current calendar year?

I continue to look at sales and if you look back at my sales over the last few years, you know I would've made much more money if I had retained it. But it's prudent to do some diversification particularly as you're getting somewhat closer to retirement. So this is not a reflection at all as to how we look at the future of our business.

You know I think I sold at $30 and $50 and $70 and $90 and that is just a diversification strategy. We have a stock ownership guideline within the Corporation and I think in my case it is six times my salary and I probably have 50 times my salary in Valmont stocks. So we are certainly all and will continue to be very much tied to the well-being on our stock.

Okay, I just thought I would check. Thank you.

James Bank, Sidoti & Co.

Question on the flooding in the Midwest, I just wanted to know if there was any impact to your business at all. Sort of a medium-term thought would be the damage done out there that there could be an incremental replacement cycle; just wanted to get your thoughts on that.

Well most of the flooding took place in Iowa and Iowa is not a big pivot the market. They basically rely on rainfall for their crops. Where we have seen more activity than usual is storm damage in Nebraska and Kansas and this general area. And each summer you tend to have some storm damage. This summer has been particularly bad from a weather standpoint, in other words, a lot of damage and more than we normally see. But it was not flood related. It was storm related.

Okay that's hopeful. If I could just get I guess a little bit more background on the highway bill which I guess is actually an act that was signed in 2005 almost two years after it had been a bill. My understanding is that it was a $286 billion six-year spend but the spend didn't begin until 2005. So doing simple math, roughly over $100 billion are left to spend or were appropriated for to kind of go and carry past 2009. Am I thinking through this clearly or no?

Yes, James. The money that was proposed will be spent. The question that is going on right now is that a big part of that funding comes from a tax that is on gallons used and the gallon usage in the United States is declining from last year in a number of cases. So there may be less money available from that part of this funding and the question is whether or not Congress will either kick up the tax rate or put in more general funds in order to keep the spending levels at what was projected initially under that bill.

Okay, I just wanted to know if there was any great risk beyond 2009 as they muddle over a new highway act.

If you believe the experts, there needs to be more spending than there was in the past on infrastructure. And so right unless there is a major priority change and there always can be a major priority change within the federal budgeting process, we wouldn't expect to see less money. We would expect to see more money being spent.

James, there's always a risk when you deal with politicians and what they decide to do. But as I said in my remarks, if history is any guidance, every single highway bill has ended up containing higher funding levels than the previous ones. Now often you have disruptions between two bills where it takes a while for Congress to agree on what's going to happen and often what they do, they extend the funding levels at current levels until they agree on a new bill but that's out of our hands.

That's very helpful. Thank you so much. That's all I had.

(OPERATOR INSTRUCTIONS) Ned Borland, Next Generation Equity.

Two questions on irrigation. Are there any major pricing discrepancies between how you price pivots in the US versus international?

No.

Have you seen any market share losses in the quarter?

No, I mean it's very difficult to (inaudible) quarter by quarter and sometimes -- see, we are in an industry where most of the players worldwide are not public companies so we have to collect a lot of information from our markets, from our dealers, from our suppliers etc. etc. But we have not seen any significant switches between the players over the last couple of years.

Arne Ursaner, CJS Securities.

I wanted to try to follow up a little bit on your comment regarding the 25% or mid-20s revenue growth assumptions. You mentioned that volume and acquisitions would both be bigger than price and I've kind of done some back of the envelope math --

Arnie, that's not what I said. I said the two combined would be bigger than price.

Let's stay right on that. So if you have 35% or so price increases, that alone based on steel as a percent of your cost of goods would in and of itself almost translate to a 12% revenue growth.

That's correct.

So to be very clear, are you including unannounced future acquisitions in that 25 or is that what we have in hand? Maybe you could -- let's just hypothetically say price is half of it, its 12 of the 24 --

And then the other half would be between volume and acquisitions.

Can you break those down? In other words, there are no unannounced acquisitions in that. Is that correct?

That's correct.

So can you give us a sense of what sort of volume growth is embedded in your mid-20 type (inaudible)?

It would be about half of the mid-20s would be -- well you mean -- when we announced the acquisitions, West Coast Engineering and PennSummit, I think we told you in both cases that revenues were about $50 million. Those are the main acquisitions that would affect this.

Right but we as analysts would have already embedded that in.

Yes and that is already in the mid-20s that we are talking about also.

Right. The price obviously is greater than we would have thought? (multiple speakers)

Right, depending on mix, in total our steel cost is about 35 to 40% of our cost of goods sold. So if you just use that number, the calculation you came up with is correct. Price would indicate if we get complete price, it would indicate that it would be about 12%. Some backlogs we can raise price and some backlogs we cannot. So at the end of the day it's probably a little less than that which means that a little more than 12 or 13% would come from a combination of volume growth and acquisitions.

Okay so taking that again -- I know you don't provide formal guidance. But as we as analysts think about '09 and I know it's well out there and it's subject to lots of economic vagaries and a lot of other issues, should we be thinking about organic volume growth?

Again there's a mix of volume and price. Most of the price increases you're putting in now will get some benefit from those into next year as well. So if I think of revenue growth in '09, if prices are up five, six, seven or eight or whatever the math might work out to, what sort of volume growth are you envisioning in kind of your key markets and then the opportunity for volume growth next year?

Well your first question was do you anticipate organic growth or volume growth beyond price going into '09 and the answer to that is yes. As long as our main markets continue to be as buoyant as they are and we continue to see the growth opportunities that we see currently, yes. We expect volume growth as well as growth as a result of the price increases we have had to install this year. We're not going to give you a specific guidance as to how much volume growth we see on top of the price growth at this time. But as we go into next year were going to give you some indication as to how we feel about that.

At this time there are no questions. I'd like to turn the call back over to management for closing remarks.

Thank you Cynthia. This concludes our call and we thank you for joining us today. This message will be available for playback on the Internet or by phone for the next week. We look forward to speaking to you again in the next quarter and at this time Cynthia will read our forward-looking statements.

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 the experience in the industries in which Valmont operates as well as management's perception of historical trends, current conditions, expected future developments and other factors to believe 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 and 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 statement included in this discussion is made as of the date of the discussion and the Company does not undertake to the any forward-looking statements.

This concludes today's conference call. You may now disconnect.