Valmont Industries Inc (VMI) 2009 Q4 法說會逐字稿

Good morning. My name is Stephanie and I will be your conference operator today. At this time I would like to welcome everyone to the Valmont Industries fourth quarter earnings conference call. (Operator Instructions)

I would now like to turn the conference over to Jeff Laudin, Manager - Investor Relations. Please go ahead sir.

Thank you, Stephanie. Welcome to the Valmont Industries fourth quarter 2009 earnings conference call. With me today are - Mogens Bay, Chairman and Chief Executive Officer; and Terry McClain, Senior Vice President and Chief Financial Officer; Mark Jaksich, Vice President and Corporate Controller.

Before we begin, please note that 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 and Chief Executive Officer, Mogens Bay.

Thank you, Jeff, and good morning, everyone and thank you for joining us. Let me begin with the fourth quarter highlights. First, we had record fourth quarter net earnings and a 19% decline in sales. Second, operating income in the Utility Support Structures segment increased 14% even though sales were down 13%. Third, the engineer support structure segment had a good increase in operating income driven by operational improvements. For the year, record levels of both operating income and net earnings were gained so 4.1% and 13.7% respectively.

Before turning to the quarterly performance by segment, I'd like to make a few general comments about the year. One cannot talk about 2009 without mentioning the credit and financial crisis and the global recession that followed. Valmont's diversification somewhat insulated us from even greater pressures from the recession due to a very strong performance in our utilities support structure segment. Our other businesses did not escape the downturn in the global economy.

Our Engineered Support Structures segment felt the recessions impact almost immediately with reduced demand from residential and commercial lighting projects such as strip malls and parking lots, international markets for street lighting and poles suffered from reductions in municipal spending, while some international stimulus programs were beneficial, US stimulus policy and contract with a focus on shovel ready projects did not directly benefit our business.

Our wireless structures business was weaker due to a pull back in spending by wireless carriers both in North America and in China. The recession impacted our Irrigation business quite severely, following a record year in 2008, the depth of the economic malaise hit during our peak selling season. Our customers were leery of committing to new capital investment in such an uncertain environment. As it became evident that farm income would be significantly lower in 2009, farmers pulled back spending even more, leading to a 35% drop in global Irrigation sales for the year. The coating segment felt the recession's impact as a drop in US industrial manufacturing activity led to an 18% decline in revenue for the year.

One of our biggest challenges in 2009 was having too much high steel cost inventory as the year began. We were able to significantly bring down levels and improve margins as the year went on. Two measures we used to track our performance operating income as a percentage of sales and return on investor capital. In 2009 operating income as a percent of sales improved to 13.3%, compared to 12% in 2008. Our return on invested capital declined slightly to 15.2% from 16% last year. We are pleased with these improvements in the quality of our earnings given the difficulties we faced during the year. In summary, 2009 was another record year for Valmont.

Let's now review fourth quarter results. I'll begin with the Utility Support Structure segment where sales decreased 13% to $129.8 million, operating income increased 14% to $27.7 million or 21.3% of sales, largely as a result of lower material costs. There are two dynamics at work in our North American Utility Structures market. Long term is the recognized need to modernize the grid by investing in more structures. A long periods of under investment in the grid left it vulnerable to service interruptions during periods of peak demand. Also the grid does not readily support interconnectivity between states or Utility entities and finally, renewable energy projects for wind, solar and biofuels will need new transmission and distribution lines in order to connect to the grid.

Short-term is the recessionary economic environment. We've seen a reduction in electricity demand as a result of the recession. This, in turn, has led utilities to deferring some projects into 2011 and beyond. This is the primary reason for Valmont's lower fourth quarter sales and the outlook for 2010. In January of 2008, the Edison Electric Institute prepared a report called Transmission Projects At a Glance, which is available on their website. This report lists 62 major transmission lines slated for construction between 2007 and 2022. This report and others like it line up well with our discussions with our Utility customers and leave us optimistic about the long-term outlook for Valmont's Utility business.

You will notice that we reorganized our segment reporting. The utilities support structure segment will now include all international Utility sales. These sales were formerly reported in the Engineered Support Structure segment and they were about $70 million in 2009. Since the international opportunity for Utility Structures exceeds the North American opportunity, a global focus is necessary. Outside North America, most large Utility transmission structures were lattice towers. Valmont's strengths is in Engineered Mono Pole Structure solutions. Our success in growing our global presence will be reflective of how well we gain market acceptance for Engineered Mono Poles. We will keep you posted on our progress.

We have reorganized so that our North American Utility business management team is now responsible for our global activities in the Utility market. In the Engineered Support Structure segment, sales decreased 15% to $156.1 million, operating income increased 65% to $15.2 million and was 9.7% of segment sales. Profitability was substantially higher reflecting our programs aimed at improving factory productivity. In North America, lighting and traffic sales were lower. The main reason for the decline was the lack of a new federal highway bill.

Without a multi-year highway bill, states become reluctant to begin major roadway projects that span more than one year. Additionally, tight budgets impinge on the ability for states to provide matching funds for federally funded highway projects. We believe that most people in public office recognize the importance of investing in US infrastructure for job creation. In a current version of the jobs bill that could be voted on next week, a further extension of the 2005 highway bill until December 2011 is in the language.

Commercial lighting sales were lower, a consequence of the decline in construction markets. In Europe, sales in most markets fell due to economic weakness. In our wireless structures markets, North American sales were substantially lower due to lower investment by the carriers and in China, sales of wireless communications products were also lower.

In the Irrigation segment sales were 32% lower at $82.8 million. The Irrigation segment operating income at $7.6 million were 34% lower than last year's $11.6 million and was 9.2% of sales. Comparisons with 2008 when Valmont had record fourth quarter Irrigation sales were particularly weak. A late harvest in North America kept farmers in the field for much of the fourth quarter. The lateness of the harvest kept the final crop size and accordingly farm income uncertain and this uncertainty was an additional factor in delaying farmers capital spending plans.

Internationally, Irrigation markets were negatively impacted by lower farm income and to a greater extent tight credit. During 2009, we added an Irrigation manufacturing facility adjacent to one of our structures plants in China. We have started commercial production this month and expect to ship products during the first quarter. This investment will enable us to better serve our growing customer base in the China Irrigation market. In the Coatings segment, fourth quarter sales of $27.2 million were 16% lower than last year due to a decline in US manufacturing activity. Operating income decreased 32% to $4.7 million or 17.3% of sales as a result of volume deleverage and rising import costs.

Turning to other financial measures, inventories were down $100 million for the year. Accounts receivable declined reflecting low activity levels. Depreciation and amortization for the year was $44.8 million and capital expenditures were $44.1 million. The increase in depreciation compared with 2008 reflects the addition of the investment in a mid-sized pole plant in Nebraska, a new pole plant in China and the full-year impact of acquisitions. In 2010, depreciation and amortization is expected to be about flat and for 2010 we expect capital spending to be at the level of our depreciation. The swing in miscellaneous expense during the fourth quarter is primarily a result of changes in the asset value of a long-term deferred compensation plan.

And corporate expense increased due to incentives and the increase in the deferred compensation liabilities. Our current 2010 earnings outlook is for a decline of approximately 25%. We expect a significant negative comparison in the first quarter as a result of much lower Utility revenues and the negative impact on our businesses of bad winter weather throughout North America and Europe. For the year, we -- excuse me, as you know, our Utility revenue is to a great extent depending on large projects, the timing of which and our success in securing those can be difficult to predict. For the year we currently expect Utility profitability could be down as much as 50%. In our other businesses, in the aggregate, we expect better performance for the year compared to 2009, but not enough to offset the decline in Utility. This concludes the prepared portion of our remarks and I'd now like to take your questions.

Stephanie, we can't hear your comments.

(Operator Instructions) Your first question comes from the line of Arnie Ursaner with CJS Securities.

Hi, good morning, Morgens.

Good morning, Arnie.

I think you answered my first one - which is, it looks mechanically like nearly all -- in fact all of the decline expected in 2010 is from the Utility segment. A couple of follow-ups there. You mentioned your backlog was down to about one third of what it was last year. I believe your number last year entering the year was $380 million, so is it right to assume it was around $125 million?

Yes, approximately, that's correct.

Okay. And of that $125 million, how much of -- maybe in a broader sense, how much of the work you're currently seeing in Utility is either ongoing projects, repair or maintenance versus new projects? Maybe another way to say this, what sort of is a run rate -- a sustainable run rate even in this downturn for revenue in that segment?

That's a difficult question to answer. And I will probably have to do some digging with our Utility businesses to give you a good answer. But I would say that our Utility activity level in 2009 was at a non-sustainable rate short-term and I think that if you look at a trend line starting back four or five years, you will see that trend line with continued increase in Utility revenue in 2009 being a spike. So I would say that expectations at least in my mind is to stay on that trend line over time and that's probably a good way to look at it.

Okay. As we think about the communication you're having with utilities, obviously we've seen very public cancellations or deferrals of some sizable projects. Yet you're pretty optimistic about 2011 and 2013. Can you walk us through what you are hearing as you have these discussions with utilities and when you might start to see some more sizable orders return?

Well, I was with our Utility management team yesterday down in Birmingham and they are seeing a number of projects that were scheduled for 2010 move into 2011. None canceled. It's basically a question of timing. There's no doubt that the timing is influenced by the fact that the current recession has actually lowered the consumption of electricity in this country and, therefore, has given the utilities some breathing room in implementing these projects.

But this is not a change in the utilities plan and willingness to put these projects into place. It is merely a timing issue and currently the utilities are saying that these projects will be implemented starting in 2011. Now, this again, obviously, is dependent on what happens in the general economy. If we have a deeper recession or no improvement compared to where we are today, that can change again. But that's the current thinking.

Final question for me, if I can. On the highway bill -- you mentioned in your prepared remarks looking at 2010 that you expect earnings for Engineered Support Structures to improve, but when I think about the two key drivers of potential growth there, we don't have a highway bill and most people don't expect one until after the midterm elections and we have sharply declining nonres commercial activity which would also impact demand there. Is the key factor that would lead to growth the international or the transition you have of that $70 million of revenue into Engineered Support?

No. I think the -- first of all, I think we are seeing good traction in a number of our international markets. So we feel pretty good about the improvement in the international markets. In the North American markets, we are counting on some public money going into infrastructure as opposed to what we saw from the stimulus bill and, as I mentioned, currently they are talking about extending the 2005 highway bill funding going forward. So we expect some improvement from that.

We also expect improvement in the way that the operational performance is taking place in that business. You will recall that we talked last year about several instances where we did not do a good job of operating our plants and we are doing more consolidation and we are having a better focus and better results in improving the overall internal operation of the plant and we expect that to also aid in having a better result this year.

Thank you very much.

Your next question comes from the line of Steven Gambuzza with Longbow Capital.

Good morning.

Good morning, Steve.

Your comment that Utility might be down as much as 50% this year, was that a comment based on the revenues or the earnings?

That was the earnings.

The earnings. With backlog down by, 66% and margins for 2009 well above the mid-teens operating margin that you've talked about in the last couple of calls as a sustainable margin, I guess I would think that it would actually imply a greater decline if your margins were to go back to normal unless you're expecting big orders in the middle part of the year. Can you help me understand that?

Yes. We have visibility to a number of orders and smaller projects that probably will be implemented this year. And we think that the most unfavorable comparison is going to be in the first quarter. Following up on your question of margins reverting to more normal levels in the mid-teens, we do expect that. So in other words we do not expect the revenue in the Utility business for the year to be down by 50% or two thirds.

Okay. That's helpful. And just could you be a little bit more specific in terms of the -- just helping us understand the shape of your earnings through the year. You've pointed to Q1 being particularly weak, I'm jut curious -- if you could help us understand that more specifically relative to last year?

I think the particular weakness in the first quarter is primarily driven by the Utility activity that we just talked about and I would say that we expect the relative comparisons during the year to improve quarter by quarter.

Okay. But you're not willing to provide any kind of guidance for Q1 in terms of levels of corporate earnings?

Well, no, I'm not really, but I would say that the first quarter is going to be the most severe and the most unfavorable comparison and a lot of that is still up in the air. All of our products practically go to outdoor construction projects and you've all watched the weather pattern we have had in North America and in Europe over the last several weeks and there doesn't seem to be any end in sight as to winter weather and that will have some effect on our shipment in the first quarter, so it's very difficult to predict exactly how the first quarter is going to land.

So I mean is it fair to say that full year earnings are going to be down approximately 25%, it's going to be down much more than that in the first part of the year and down less than that in the latter part of the year?

That's my expectation.

Okay. Then, I guess the outlook that utilities is going to be down, all the other businesses are going to contribute positively to operating results versus 2009. Could you perhaps give a little bit more color on which businesses you're more optimistic on and whether the drivers of that operational improvement, whether it's end market demand or cost cutting or whatnot? What's -- just give us some more commentary on what's going to be leading to those operational improvements?

First of all, I didn't say that all the other businesses would be better, I said in the aggregate, they would be better.

Okay.

I would say that we expect a better performance compared to last year in the Irrigation business and, as you know, it's a business that's difficult to predict, but we think that the mood in the farmers' mind is better than it was a year ago and so we expect some improvement there, not significant.

We expect some improvement in the Engineered Support Structure segment and I talked about that in some detail when I answered Arnie's question, which is partly driven by international activities, partly driven with some expectation of funding out of the US government that would be put in place this year and operational improvements. When I talk about better results in ESS, I'm talking about it from an earnings standpoint. I don't think we'll see better sales. I think we will probably see down sales, but we will operate better.

Thanks very much.

You're welcome.

Your next question comes from the line of Brent Thielman with DA Davidson.

Good morning.

Good morning, Brent.

Just a question, as it pertains to the Engineered Support Structures segment, obviously we're starting to see steel prices pick back up again and I just wanted to get your, sort of, opinion. Are you comfortable with the pricing environment you're seeing in that business and sort of your ability to pass those increases onto the market?

Well, over time we've done a pretty good job of passing on steel price increases to the marketplace. At the beginning of last year, we were somewhat caught with too high inventories at high prices and it took us a while to get that out of the system. But in general, we have a good track record of passing on steel price increases. There's talk about steel price increases, some of them are happening, but we'll need more of a firm footing for the economy in general to see those steel price increases become major increases.

Okay. Then on the Utility Support Structures business, I mean just thinking about margins going forward with the inclusion of sort of the global Utility business. Does the global Utility business inherently have lower margins or higher margins versus the domestic business?

Our -- if you compare it to North American Utility margins in 2009, the answer is clearly that they have lower operating income margins, but in general, our experience is that international Utility sales come in at gross profit margins similar to what we normally would see in North America. I want to reiterate again that the expected run rate on operating income in those businesses would be about the mid-teens. I think what we saw last year is not something that we should get used to.

Okay. So that 21% in the fourth quarter is still probably a touch higher than what you think the run rate is going to be?

I would say more than a touch.

Okay. And then on the Coatings business, are you starting to implement price increases to offset the higher zinc costs and, if so, have you seen the market sort of accept those increases?

I would say in general our Coatings people have done a very good job in matching their pricing with the input cost. It cannot always be done exactly, but when you look at the quality of earnings in that segment, even with declined revenue, they've really done a good job of taking costs out and getting price. Now, it varies a lot from plant to plant. It depends on what your competitors in your geographic region react, how they react to increased input costs. But I would say in total, our Coatings people have done a good job and I expect them to continue to do that.

Sure, absolutely. And then maybe one last one for Terry or Mark, do you have any estimate in terms of corporate spending for 2010?

2010. Corporate spending should be down from 2009.

Okay. Perfect. Thanks a lot, guys.

Your next question comes from the line of James Bank with Sidoti & Company.

Good morning. A moment if I could, just one more question on Coatings. The 17% out margin you did in the fourth quarter, is that something we should expect, I guess, throughout 2010?

Well, I think in 2009 the Coatings segment ran a little better than 20%, about 20% and I would expect for 2010 to be approximately at the same level.

Okay. Now, on the Engineered group, I was wondering if you might be able to break up the operational improvement versus the favorable impact from the steel costs on a margin basis?

If I gave you a break out of that, I'd tell you more than I know. I -- if there is any break out we can give you, we'd have to get back to you on that.

Okay. Fair enough. And, Terry, what was your CapEx for this year, for the end of the year?

CapEx was about $44 million.

$44.8 million.

There's roughly depreciation, James.

So did you guys have nearly $11 in free cash flow per share, then, to end the year?

Yes. It was -- for the year, James, this is Mark, we had about $350 million of operating cash flow and so that would make it about $300 million after CapEx.

Closer to $12.

So, yes, I'd say maybe a little closer to $12.

Okay. Great. And the only other thing I noticed I can't recall if you do this on your 4Q press releases, the backlog for the other segments or is that something we'll have to wait on in the 10-Q -- excuse me, the 10-K?

That's on the 10-K, James. That will be published next week.

Okay. That is all I had. Thank you very much.

Your next question comes from the line of Alex Potter with Piper Jaffray.

Yes, hi, guys. I was just wondering if you could comment a little bit on, I guess, international opportunities in general and then specifically with regard to first Irrigation and, second, Utility. You had mentioned that you had opened up a Chinese manufacturing facility and that you expect to start selling some Irrigation equipment here in the first quarter. I was just wondering if you could quantify that opportunity a little bit better for us, just give us an idea of how big that eventually could be?

Let me start with China. The reason that we built a manufacturing facility in China was not that we think there's going to be a major change in the market size in China. The China market has been growing fairly nicely over the last few years. The reason we built the plant in China was that there are import duty considerations and local support for local manufacturing that makes us more competitive having a manufacturing facility in China.

So it's not a result of suddenly seeing the flood gates open in China, but there's probably no single market that has better opportunity than the Chinese market because the Chinese government is recognizing and dealing with the limited amount of fresh water and the quality of their fresh water. So Chinese agriculture will over time be forced to use water more efficiently. So I'm sure that long term we're going to have good opportunities in China, but I don't want to leave the impression that the plant is suddenly going to double our activities in China.

Now, in total internationally, we are expecting higher volume in 2010 than we had in 2009. The same drivers are evident internationally as we see in North America. Maybe additionally I would say that North American farmers are in better financial shape than some of the international customers and, therefore, credit availability is more of an issue in international markets than it is in North America, but we do expect a better revenue year internationally in 2010 than we do in 2009.

Then I guess, just on the flip side, although that credit issue could be a benefit to -- and correct me if I'm wrong here in my thinking about this, but -- although the credit issue could potentially be a positive for the domestic purchases of Irrigation, the fact that penetration rates are much lower internationally would make, I guess, on the margin more demand from international buyers, is that accurate?

Over time, yes, but trying to time that in one quarter or one year is difficult. Because internationally, as we open up new markets, it takes a considerable amount of time to make local farmers change their modus operandi to use our type of Irrigation equipment. So I would say in general you're correct that the adoption internationally of Center Pivot Irrigation is much lower than it is in North America and therefore longer term the international opportunities are larger than in North America, but it doesn't happen overnight.

Okay. Then I guess, also, if you could just comment a little bit more on material costs. Obviously they had a big impact on profitability here in the quarter. Could you comment a little bit on inventory? You said that for the most part this kind of funky nature of steel costs has been worked through inventory. Is that basically true or are we still looking at a quarter or two of impact?

No, our -- as I said in my remarks, our inventory levels were down $100 million during the year and at the beginning of the year, we told you that we thought we had $50 million too much in inventory. So I think our people did a great job of taking inventory levels down and it is very difficult to try and match inventory levels with what may or may not happen in the steel pricing area.

So therefore the more efficient we are in turning our inventory over time, the better we'll perform because trying to guess when to load up on inventory in expectation of higher steel prices or be more efficient in expectation of lower steel prices, I don't think that's very productive.

Okay. Okay. Thanks very much. That's all I've got.

Your next question comes from the line of Jon Braatz with Kansas City Capital.

Good morning, Morgens.

Good morning, Jon.

A couple of questions. Excuse me. Number one, you talked about China, so I got a good update on China in terms of Irrigation, but is the moratoriums in Nebraska, some of the well moratoriums, do you see that having any impact on your overall growth in Irrigation in terms of North America?

Well, let me answer it this way. Short-term, moratoriums on well drilling or taking wells out of production clearly has a short-term impact on our business. Longer term, the more we have to focus on using water efficiently is going to have a very positive impact on our business. So you can find pockets in the US or elsewhere where local government address current water issues that could have a negative impact, but in the big picture, concerns about fresh water will have a positive impact on our business.

Okay. Okay. Secondly, in the wireless area, you mentioned that business was soft. As we all begin using our phones more for data and numbers, is there a need for an expansion of the network and more cell towers to meet that demand?

Yes.

Are we seeing anything yet?

No.

Okay. Are we expected to see that any time soon?

Yes. I would expect so, but I mean it comes down to, also, capital budget, capital availability, the pressures from consumers to do it. You read about some of the issues that Verizon had in New York City and so on and so forth and as these things add up, it will put more pressure on capital investment. But there's no doubt that the amount of traffic that will pass over wireless systems will go up and up and up and how exactly it translates into our type of structures and exactly when, we don't know. But your observations are correct.

Do they -- do we just -- do we need not -- not only new structures, but can they just slap something else on an existing pole?

Well, to a certain extent, but poles are usually designed for the loads that the carrier wanted to put on it when it's designed. So if you have a structure that's designed for one or two antennas and suddenly you want four or five on it, often you have to redesign or replace or strengthen the structure.

Okay, okay. And then lastly, obviously your balance sheet has strengthened considerably over the last 12 months and net debt is about zero. You haven't -- I don't know if you've -- I don't think you've made any recent acquisitions, it doesn't look like it, or anything significant. Is acquisitions going to be more on the front burner in 2010?

From an activity level, we have stepped up our activity in looking for good acquisitions quite a bit. Whenever we find one where we can acquire a company at the right value, that's tough to predict, but, yes, we know we have a strong balance sheet, we know we have great debt capacity, but we have to balance that with making sure we stay disciplined and finding the right value proposition. But from an activity standpoint, yes, we are spending much more time on it, but we have very little to show for it.

Would we -- should we anticipate more of an international bent to your acquisitions as opposed to domestic?

In theory, I would like that, but it all depends on where the right opportunity surfaces.

Sure. Okay. Thank you very much.

Thank you.

(Operator Instructions) Your next question comes from the line of Jeff Beach with Stifel Nicolaus.

Yes, good morning.

Good morning, Jeff.

A couple of questions around the Utility Structure business. The volume is coming off significantly. Are you cutting people and downsizing your costs as fast as the volume is coming off or is there a lag, are we going to see cost reductions well into 2010 to offset the lower volume?

Let me first say that we got a lot of leverage out of utilizing plants very efficiently in 2009 and we'll see less levels in 2010. That we can't adjust costs. Having said that, yes, we are adjusting our overall cost structure for lower level of activity, without going to the extent that we are not ready for what we see coming in 2011 and 2012. Now, remember, also, that one of the assets we had in 2009 that really, really helped us was the ability to use facilities outside the Utility organization.

North American lighting and facilities in China to support the North American activity level. So it's not like at the current time we have to take capacity out or do anything like that and we continue to expect that 2011, 2012 and 2013 will be very strong years in the Utility business.

Okay. Second, on the Utility, can you give us an idea where you think the -- not where, approximately when during 2010 you might see the actual sales begin to bottom out?

Well, that's a tough question to answer. Let me try and give you some flavor. One thing is that I would expect that first quarter, may be the bottom from an activity level, but when you talk about the projects that are now slated for 2011, during the second half of this year, we better get some of those projects in the backlog to have a good start of 2011. So to answer your question specifically, second half of this year should give us an indication as to the actual timing of 2011 projects.

And the last question, some of the larger projects that you said have been delayed from 2010 into 2011, can you name a few of the ones that have been pushed back?

I could, but I'm not going to.

Okay. Anyway, thank you.

You're welcome.

Your next question comes from the line of Michael Coleman with Sterne Agee.

Good morning.

Good morning.

The international Utility, I think you called it about $70 million. I was wondering if you could give us some indication of where that is kind of located around the world, how that's dispersed?

Well, it's actually spread around pretty well. Some of it in Australia, some of it in Africa, some of it in the Middle East, some of it in China. Those are the four major areas.

Okay. And just kind of understanding a longer term growth opportunity there, you talked about your Mono Pole versus the grid or the lattice --

Lattice, yeah.

Could you just kind of maybe summarize what the advantages of the Mono Pole versus the lattice structure, relative -- your competitive advantages in that marketplace on a footprint basis?

The biggest advantage of Mono Poles over lattice towers apart from the, in my opinion, aesthetic advantage, is you need much less of a footprint. A lattice tower requires quite a bit of footprint that a Mono Pole does not. In many instances, also, you have a cost advantage going to Mono Poles and in some instances you have cost advantages going to lattice.

Over the years, there's been more and more movement in this country towards Mono Poles, so the lattice business has been declining over the years. We expect the same thing to happen internationally. And -- but that's a lot of pioneering work taking place. When I look at the international opportunities, I basically say I don't know how big it is exactly, but I know that if we could do $600 and some million in North America in one year, the opportunity internationally is several times that.

If you just look at total electric production and the growth rate of some of these economies around the world, the opportunity is clearly there, but it's a lot of pioneering work and we're going to invest some SG&A expenses in doing this because you need to get in at the design stage. So this is -- this is not something that happens overnight. But I'm absolutely convinced that sometime in the future our international Utility business will outgrow our North American Utility business.

Okay. Wanted to ask about -- you had a previous question on acquisitions. What level or the size of an acquisition are you comfortable with or the -- you and the Board is comfortable with?

Well, that's -- that depends on the acquisition, it depends on where it is, it depends on how close it is to our core businesses. The closer it is to our core businesses and the more -- and the more close it is to us geographically, in North America, we will probably entertain big opportunities and maybe internationally, but it all comes down to what is the value proposition and what is our comfort level on the past performance on those businesses and what we think they can do going forward. And a very important consideration for us is good management.

We don't have a lot of bend strength, we've been growing our businesses and our internal people are busy doing that, so we are not looking for turn arounds, we are not looking for businesses where we have to add management. We are looking for businesses where we will also get with a business, a strength to our overall management ranks, but we would not shy away from acquisitions that are several hundred million dollars.

Okay. Thank you. And one more question. Wanted to go back to the China Irrigation plant. Do you have an estimate of what the CapEx expenditure associated with that was? Is there a time frame that you would feel comfortable -- the efficiencies in quality out of the China facility where you could incorporate that production into your kind of global system where you're supplying parts out of China for Australia or other -- globally? Do you have thoughts on that?

Yes. First of all, the capital investment was just a few million dollars, but the very important question is surrounding quality and making the China plant part of our global network that we can draw upon and that will happen instantaneously. We are not going to start producing products in China that isn't up to the same quality levels as the products we produced in North America or elsewhere.

So as soon as we are up and operating in China, if it makes economic sense for any given market to use the China plant over our plant in the US or in Dubai or South Africa or wherever we are, we will do that. That plant will be operating from day one at the same quality level as our plants elsewhere.

Thank you.

Your next question comes from the line of Arnie Ursaner with CJS Securities.

Hi, Arnie.

Hi. As you gear up for the Irrigation season, what traffic or comments are you hearing from your dealers and what sort of -- I'm assuming the farmers are now, at least, considering their purchases. What sort of feedback are you getting from your dealers and how should we think about pricing in the upcoming season?

I don't think we are going to see much of a difference in the general pricing environment. We just had a global dealer conference in January and the dealers that I visited with and my colleagues visited with basically had a more positive outlook for 2011 than what we saw in 2010. But it didn't border on euphoria in any way. So I'd say positive compared to 2009. To what extent, time will show.

Okay. Thank you.

At this time, there are no further questions. I would like to turn the conference over -- back to the management for closing remarks.

Thank you, Stephanie. 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 next quarter and at this time Stephanie 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 experience in the industries 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 statement included in this discussion is not made as of the date of this discussion and the Company does not undertake to update any forward-looking statements. This concludes today's conference call. You may now disconnect.