Valmont Industries Inc (VMI) 2011 Q4 法說會逐字稿

Good morning. My name is Sara, 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. 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 would now like to turn the call over to Mr. Jeff Lauden, Manager of Investor Relations. Mr. Lauden, you may begin.

Thank you, Sara. Welcome to the Valmont Industries fourth quarter earnings conference call. With me today are Mogens Bay, Chairman and Chief Executive Officer; Terry McClain, 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 this 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.

Good morning, everyone, and thank you for joining us. I trust you have all read the press release, so I will focus on some of the highlights for the quarter and for the year. The main drivers of fourth quarter operating results were significant sales increases in the irrigation and utility business, and great operating leverage in the utility support structures, irrigation, and coatings segment. One-time items previously discussed in December were noteworthy to our recorded results. Excluding the one-time events, fourth quarter earnings per share were $1.83. In the irrigation segment, positive momentum driven by a strong farm economy continued during the fourth quarter. Favorable weather conditions, and an early harvest in North America, bolstered already strong farmer sentiment, which further benefited sales. In international markets the same drivers of firm commodity prices with high relative farm income, supported our business and led to widespread demand in almost all of our major markets.

Positive comparison to the utility support structure segment resulted from increased volumes and operating leverage. The utility market continues to strengthen and grow. As a result, new players from other industries are entering the marketplace, and as a consequence the pricing environment, while improving, remains challenging. Sales in the engineered infrastructure products segment rose modestly. Operating margins, however, did not follow suit, and remained unsatisfactory. They also reflect the previously mentioned one-time charges in the quarter. Operating margins remain under pressure, largely due to a continuation of weak demand, and a difficult pricing environment. A bright spot in this segment is the positive contributions of the former Delta businesses in Asia Pacific, which are operating well. Our North American coatings business benefited from higher industrial demand, including demand from our other segments. International coatings revenues and earnings improved, due to a favorable business environment in Australia and Asia.

Turning to other financial measures, you will notice that the corporate expenses were higher than last year. The major reason for this are increased incentive compensation, consulting costs related to the company's legal entity restructuring, and normal adjustments that take place in the fourth quarter. Going forward, we would expect corporate expenses to run around $12.5 million to $13.5 million per quarter. The tax rate for the quarter without the one-time items would have been approximately 33%, which is what we expect on a go-forward basis. Inventory increase compared to last year, due to the higher activity levels in irrigation and utilities. Depreciation and amortization for the quarter was $22 million, and capital expenditures were $37 million, putting the annual depreciation at $75 million, and total capital expenditures for the year at $83 million. At the current time, we are expecting depreciation at $70 million, and capital expenditures of $75 million in 2012. The full year results reflect many of the same dynamics as the quarterly results.

The irrigation market has strong fundamentals, good commodity prices, and record farm income. Revenue in the utility business grew over 30%, driven by renewed investment the North American transmission grid, somewhat offset by lower activity levels in international markets. The coatings segment had good results all year, reflecting stronger than expected industrial demand in our markets, and improved internal demand. The full-year of contribution from the former Delta businesses further contributed to our results. The biggest challenge we faced in 2011 was weak markets in our global lighting and traffic businesses, due to pressure on government funding for infrastructure. Pricing became very competitive, and an increase in steel cost in the first part of 2011 put further pressure on profitability.

Year end is a good time to reflect on the soundness of our strategy as a company. Nearly two decades ago, we put together Valmont's strategy. It hat not changed since then. It has served us well, delivering approximately 15% compounded return to shareholders over that period of time. It's an easy to communicate and focused strategy. It's one of leverage. We leverage what we do well. We take products we know well to new markets, we add new products to markets we know well, and we take capabilities and build businesses around them. We focus on 2 major markets, agriculture and infrastructure, which have strong global and enduring drivers, and we have established strong leadership positions. Our outlook for 2012 is positive. We are off to a very strong start to the year. The irrigation business continues strong in the current selling season, and we have strength in the utility and coatings businesses. The weak spot continues to be the lighting and traffic businesses. We should have a very strong first quarter. For the year we expect to see revenue increase around 10%, and earnings per share to be in the range of $7.30 to $7.60.

One final note, as you noticed, Terry, our CFO, was introduced at the beginning of this call. We continue our recruiting efforts for Terry's successor. It's a very important position at Valmont. There's no urgency to the search, as Terry is happy to continue in this role until we find the right candidate. We started our search early, and we will continue to search for a candidate that is the right fit for Valmont's culture. We will now take your questions.

(Operator Instructions) Your first question comes from the line of Julian Mitchell from Credit Suisse. Your line is open.

Thanks a lot. I guess my first question was on your utility business. You mentioned that pricing was tough, due to new competitors through the year, but it sounds as if there was an improvement towards the end. Is there any way you could quantify that, maybe talk about how much of the backlog growth from December to December came from price versus volume? And how you've seen pricing change, if it has, in quotation activity and bookings, and when that might feed through into your billings?

First of all, the increased revenue in utilities, nearly all of it is volume related. When we talk pricing, being difficult from project-to-project, some projects we have better pricing, some we have to be more aggressive. But at the end of the day, it may move the operating income 2% one way or the other. And the utility business, because of its project nature, is kind of lumpy as to when these projects come through. So we'll expect from quarter-to-quarter not to have an exact profitability being at the same level, but it will go a little bit up and down. And we still have in the backlog some projects that were taken last year at more competitive pricing than we normally would like, but by and large, we're expecting the quality of the earnings for utility in 2012 to be improved over 2011.

Okay. Thanks. And then secondly, just on the EIP segment, you talk about -- it sounds as if that should be up overall in sales and EBIT in 2012 versus 2011, despite, as you say, the government financial constraints you talk about in the release. And also, I guess, despite the fact that the telecom market still seems pretty soft. You talked about the US being flat, and China being lower in Q4. So could you give a little bit more color within EIP, what your expectations are for 2012, the different pieces inside it.

Yes, I think we currently expect some improvement in revenue, not a lot. It looks like pricing, which is not at a level we like it, but at least it looks like it has stabilized. We have done quite a bit in cost take-outs, as we have talked about before. In Europe, we've taken costs out of several units there. We have closed our Italian operation. We're exiting our -- or we have exited our Turkish joint venture.

So what we have tried to focus on is -- one, keep our market share in tough pricing environment, taking out costs, and improving profitability. So we expect, going into '12, that as a result of what we have been able to do from a productivity standpoint and cost take-out standpoint, everything else even, we will see an improved profitability.

Okay. But are you expecting access systems, communications, and lighting and traffic, all of those should be up in '12 versus '11?

We expect most of the sub units to be up in '12 compared to '11, yes. And I agree with you, communication continues to -- particularly in North America, to be fairly soft. The big merger between AT&T and T-Mobile did not happen, so we would expect that each of those two companies will revert to the plans they had prior to announcing the merger.

Okay. Thank you very much.

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

Hi, good morning. I want to focus first on the utility business. Your backlog has improved quite dramatically. I know you only give it at year-end, but could you also broadly comment on trenchings as you've seen in the last month or two, is it continuing to expand? Then I have a more specific follow-up from there.

Yes, the activity levels in utility continues to expand.

Okay. So in the past, when you have had this much backlog, you sometimes shift some manufacturing to your engineered support structures. Are we in an environment where that could occur? Frankly, the last time you had this kind of backlog, your margin in the business was north of 20%. In the competitive environment we're at now, I assume that's not an achievable goal, but maybe you could comment on what you do think is achievable.

Let me start with the capacity question you first asked. Yes, we are using capacity outside the traditional utility plants. We have added capacity at -- or we are in the process of adding capacity at our Brenham, Texas lighting and traffic plant, which actually added some expenses that were absorbed in that business unit in the third and fourth quarter last year, as we hired and trained new people. And we will continue -- that's one of the advantages we have, is that we can take capacity from maybe a weaker segment, lighting and traffic right now, and help the utility segment. The same with using international capacity. We are using significant capacity at the utility plant in Mexico, but also we are trying to use capacity out of our China operations.

When it comes to profitability, yes, several years ago we had 20% operating income in that business. And as I have talked about several times, it was the perfect storm. We took business at the end of the year before that, when steel prices were very high, and those that were not tied to steel prices were escalators, or de-escalators, were delivered when steel prices were comparatively low. That added tremendously to the profitability opportunity, and yes, we should not expect that going forward. I would expect over time that the utility business, in a strong environment, will settle in around 15% operating income -- some quarters a little less, maybe some quarters a little more. But in general, around mid-double digits is what we should expect.

Is 2012 the year we should expect that?

We should expect in 2012 some quarters a little bit less, maybe quarters a little bit more, but we should be moving towards that target.

Okay. Then I have a clarification question, if I can, on the EIP product segment outlook for 2012. You mentioned you expect increased sales and profitability, and you mentioned specifically some improvement in revenue. But my question on profitability is -- you had a $4 million one-time item that hit Q4 in that segment. When you speak about improved profitability, are you referring to that on a reported basis, which included that $4 million hit, or on an adjusted basis, which would eliminate that $4 million hit?

Both.

Well, again, the more important one would be on the adjusted basis. So you are talking about a pretty noticeable improvement in profitability, even in a flat environment.

Yes, I mean, we are not only talking about offsetting the $4 million charge we took in the fourth quarter. We're talking about profitability even on an adjusted basis improvement.

Thank you. I'll jump back in queue.

Your next question comes from the line of Carter Shoop from Keybanc. Your line is open.

Good morning. For the first question, can you give us a little bit more color about your expectations for the first quarter at a corporate level?

Yes, I can tell you that we are off to a very strong start in the first quarter, and we expect a strong favorable comparison to first quarter of last year. It is partly a result of continued strength, in this selling season, the irrigation business, good levels of activity in utility and coatings, and we have been faced with very favorable weather conditions in the first quarter. As you will recall in the past, sometimes we have had issues in the first quarter battling snow storms or blizzards, and in the first quarter of this year, that certainly is not going to be an explanation.

So we shouldn't expect the same type of sequential decline that we've seen the past two years in the first quarter. Is that safe to assume?

I don't understand your question.

You said sequential, Carter. Again, as we've always cautioned people in this kind of a seasonal and cyclical business, sequential quarters is not the way we really approach it. We usually compare it against a year ago. So you always have -- you still have the beginning of the construction season in North America in that first quarter.

Got it. So if you look at earnings per share growth in fourth quarter, on a year-over-year basis is about 39%. It sounds like we should be expecting that to accelerate then, on a year-over-year basis in the first quarter?

I think we've given you as much guidance on the first quarter as we're going to give you. It's going to be a strong first quarter.

Fair enough. I appreciate the color there. Can we shift over to the irrigation business? The margins there were a little bit below what I was expecting. While healthy, it was the lowest margin for the full year, relative to the other quarters. Is there something going on there in the quarter that drove margins a little bit below plan? And do you expect that business to rebound, or is that 15% to 16% range a good number to think about as we go into 2012?

Well, let me first say that of all the questions I could anticipate, one about concern about irrigation profitability was not one of them. But specifically addressing your question -- again, if you compare fourth-quarter irrigation this year to fourth-quarter irrigation last year, the quality of the earnings were up nearly 1%, [as found in] operating income. Expecting this kind of profitability in this environment is what we'll expect. Again, it can move a few percentage points up or down, depending on how well things move through the plants, and where in the world we're getting the business. So there are many things that impact it, but I can only say that I am very pleased with how the irrigation business is performing.

Okay. That's helpful. In the third quarter, the year-over-year margins improved by about 380 basis points, then fourth quarter is closer to 60 basis points, so I wasn't sure if anything was happening there. But I think I understand your position on that now. That's helpful.

Then lastly, when we look at the charges in the quarter, excluding the tax items, were those in the COGS line, or in the SG&A line at a corporate level?

They were largely in the SG&A line.

Great. Thank you very much.

Your next question comes from the line of Schon Williams from BB&T Capital Markets.

Hi, good morning.

Good morning.

Congratulations on the quarter. I'm not sure my wife was too happy that I spent all of Valentine's Day working on the Valmont model, but still, good quarter. I wanted to maybe look a little bit farther out. Obviously, you continue to be very bullish on the irrigation side of the business, and I think that I certainly would echo those thoughts. I think that we've got at least another 12 to 18 months of good solid growth there. But I'm wondering if -- is it inevitable that as we move into 2013 and 2014, most of the macro-level forecasts are for ag commodities to start to decline, maybe farm incomes start to tick lower. Is it inevitable that as we move into 2013 that you start to see sales declines in that division, or do you have some -- in your mind, do you have additional catalysts that can maybe offset some of those macro headwinds? I'd like to get your thoughts there, more long-term.

First of all, in the irrigation business, having been in it for 30-some years, nothing is inevitable. But I would say that the macro -- I do not expect that from a macro standpoint and long-term we're going to see headwinds in general. That doesn't mean that we can't see headwinds in shorter terms. This has been a cyclical business. It will probably continue to be a cyclical business. But every time you exit a cycle, the next peak is higher than the previous, and when you get into a down cycle, the bottom of it is higher than the previous bottom. But when you look at what's happening globally in the demand for grain, it continues to go up. It's driven on one hand by population growth, but probably even more important by improved diets in countries like China and India, where when people move out of poverty and into middle class, the first thing they do is improve their diets, which puts much more pressure on grain production.

So I do not have crystal ball that would tell me what 2013 is going to be. I don't even have a crystal ball that will tell me what the second half of this year will be. The current selling season looks strong. It finishes in late Spring. In early Fall we start the next one. Currently, there's nothing out there that would indicate that headwinds would hit us, but during the Summertime, depending on growing conditions, not only in this country but around the world, that will dictate commodity prices. And in turn, commodity prices will dictate farm income, and the closest correlation to short-term sales is net farm cash income.

So cyclicality has not disappeared from the irrigation business, but predicting the cyclicality is very, very difficult. Long-term, the drivers are as strong as I've ever seen them. I just came back from a North American dealer conference earlier last month, and I have never seen the dealers more optimistic than they are right now. But again, they don't have a crystal ball that's any clearer than the rest of us.

Okay, thank you. I appreciate the perspective. And then maybe to switch gears, a follow-up on one of Arnie's questions -- the utility segment, again, last time that we saw backlog at this type of level was 2008. And subsequently in 2009, I want to say you put up sales growth in that division closer to 50%. And I want to talk about -- is there something different about where we are today versus where you were in exiting 2008 that says that type of sales growth, 50% type sales growth, is there anything that says you could not achieve that type of number as we move into 2012?

Yes. We are already right now at substantially higher volume. Pricing is not what it was at the end of 2008, when we took orders at very high steel prices. And steel prices, to a great extent, dictate what the eventual revenue numbers are going to be. So expecting a 50% increase in our revenue for the utility segment in 2012 over 2011, I can tell you, is out of the question.

Okay. That's helpful. Thanks, guys. I'll get back in the queue.

Your next question comes from the line of Brian Drab from William Blair. Your line is open.

Good morning. Congratulations on a great year.

Thank you, Brian.

First question. I don't know what detail you can give us on this, but I would like to understand just how Delta has performed overall since the acquisition. If we could just measure the performance and growth there, however you can lay out a scorecard for us, that would be really helpful.

I did mention in my prepared remarks that we are very pleased with the performance of the former Delta businesses in the Asia Pacific region. We are also pleased with the performance of the Delta galvanizing units in North America. So all in all, in total, we probably couldn't be more pleased with how the Delta businesses settled into Valmont. They're meeting the expectations we had at the time of the acquisition, and we are pleased.

Can you give me any sense, though, in terms of how they've grown, what those expectations were? Are these businesses growing at low single-digit, high single-digit rate overall?

Well, in total, the businesses we are in, and the markets we are in, have not exactly been, in general, very buoyant because of the low economic growth around the world. But these businesses have been growing, and they continue to deliver operating income at double digits.

And any particularly strong business that's outperformed your expectations, any specifics on the Donhad business maybe, or the industrial access systems business, or any more specifics you can give us? The reason I'm asking these follow-ups is just because it's such a big part of your business now. And investors typically are largely focused on utility and the lighting and traffic, and this is a substantial part of your business that I feel like I don't have enough understanding of.

So let me give you in general. The access systems have done well. They've done very well compared to exactly what we expected. Donhad is doing well. The galvanizing businesses are doing well. In the structural businesses, utility is doing well. And the lighting and traffic businesses have been faced with the same kind of headwinds that we've seen elsewhere in the world.

Okay, great. If I could just ask one more -- Mogens, I think that people are very excited about the opportunity in the utility market, but I take so many calls from investors indicating that there's -- that people have a lot of difficulty understanding exactly what in the near term is driving the utility growth. And I think it's clear in the long term that the grid needs to be improved, and reliability needs to be improved, but maybe it would be helpful for people to hear, in your words, the shorter-term factors, or the recent factors that are driving utility, changes with the NERC and FERC and the Energy Act, and why are we seeing the growth now?

Well, it's the same growth, in my opinion, that started several years ago. And it's the same drivers of improving reliability, improving the grids, connecting alternative energy such as wind and solar to the main grids. That's the long-term drivers, but they're also now the short-term drivers. We had a dip in 2010, but that, I think, was mostly driven by the fact that liquidity dried up, and access to debt dried up. A year later, that started settling down, and the utilities have access to money to finance their projects, and they have plenty of projects on the drawing board. And when we look at what are on the drawing boards of the utilities for this year and next year, and even starting into 2014, we see continued strength in that business.

I think that's helpful. Thanks a lot.

Your next question comes from the line of Jeff Beach from Stifel Nicolaus. Your line is open.

Thank you. Good morning, Mogens.

Good morning.

Because it's the area of interest for me, I wanted to see if I could get a little bit more information on the utility structures. The revenues were so strong in the fourth quarter. Is that what you would view as representative of the demand, or were there some large shipments that may have boosted and made that fourth quarter look as strong as it was?

I would say that, in general, it's a reflection of demand. As I have said earlier, some of these projects are large, and some of the shipments can be lumpy, and move from one quarter to the other. But in general, what we've seen the last couple of quarters in the utility is a reflection of the continued strength and growth in that market.

Okay. And then, this will be my stretch question, but can you give us a sense as to the magnitude of capacity increases, as you convert your lighting lines over, and the timing of when capacity will come on stream in 2012, and whether some capacity has already come on stream?

Some capacity has already come on stream. We have capacity available in some plants around the world that we hope we will utilize, and a lot of that also depends on the product mix. It's not just saying a lighting plant can be converted to a utility plant. A large coal facility that has been serving maybe high-mass lighting or sports lighting, can be converted. It's not really a question of conversion, it's just a question of producing products for the utility industry instead. But you can't convert a small pole line to suddenly be a large pole utility line. But we will continue to find opportunities to stretch capacity and to add capacity.

And there is more planned capacity coming on stream for this year?

Yes.

Okay. Thank you.

Your next question comes from the line of Brent Thielman from D.A. Davidson. Your line is open.

Hi, this is [Karen Kuwita] filling in for Brent. Most of my questions have been answered, but I just had a couple of follow-ups. In regards to the Australian flooding, has there been any material disruptions?

We've had some effects of the Australian flooding, particularly in the Queensland area, that have had some impact on some of our business, but not in a material way.

Perfect. And then, in regards to --? (multiple speakers)

Last year, that was not the case.

Pardon me?

Last year, it was more serious.

Okay. Perfect. And in regards to the coatings business, there's been strong improvement in that segment. I was wondering what the leading drivers were for that, and if you've been seeing price increasing?

Well, actually, most of what we've seen in that business is probably more strength of what we would expect from industry in general, both in Southeast Asia and in North America. We've seen more throughput from our other segments. There's been a good pricing discipline in that area, and as you add volume, you get very good leverage.

Perfect. That's it for me. Thank you.

(Operator Instructions) Your next question comes from the line of Arnie Ursaner. Your line is open.

All of our questions have been answered, thanks.

Your next question comes from the line of Carter Shoop from Keybanc. Your line is open.

Hi. Just a few more housekeeping questions. When you retool an engineered infrastructure facility to start handling the utility products, how does that impact divisional operating profitability? You mentioned that there's a tooling charge in the fourth quarter. Is that impacting the utility business or the engineered infrastructure facility. And then as that capacity comes online, is that going to be benefiting more the utility or engineered infrastructure, or both?

Let me start by saying -- we don't necessarily retool. We transfer from one product line to another, using the equipment we already have. In the fourth quarter, we were in the middle of adding capacity to our Brenham, Texas plant, which is going to be allocated to utility, but it sits in the engineered infrastructure segment. They absorbed the cost in getting that additional capacity ready. Whenever the capacity starts getting used, there's a transfer price mechanism between the engineered infrastructure business and the utility business.

So to answer your question, both segments will benefit. The engineered infrastructure segment will benefit of being able to utilize capacity that they would maybe not be able to utilize because of their weak market conditions, and utility will benefit from not having to add additional capital to build a plant exclusively for them. They will have to, in a way, split some of the margin, but in our opinion, both segments benefit.

Okay. That's helpful. And then, in below the operating income line there, interest expense jumped a little bit sequentially, and then Other expenses was a little bit higher than what I was expecting. Anything going on there worth talking about at this point?

Yes, Carter, this is Mark Jaksich. You have to realize, also, that the fourth quarter of this year was a 14-week quarter, as opposed to last year, which was 13 weeks. You get an extra week of interest across the system. But in Other income, there were really two items. Part of it was foreign exchange transaction losses that we incurred, and about $1.5 million of expense related to translation losses, as we are unwinding our joint venture in Turkey. And that particular item is part of the one-time adjustments that we referred to in the opening remarks.

Great. Thank you.

Your next question comes from the line of Julian Mitchell from Credit Suisse. Your line is open.

Thanks a lot. I guess I had a question on the various businesses, fasteners, tubular products, and so on, inside Other, because Other's EBIT last year was sort of higher than EIP, so it's becoming a pretty important driver. Can you just give an update on the trends, and longer-term, the strategy. Is there an ambition via M&A or something else to focus on two or three units inside Other, and build it into sort of a discrete, normal kind of fifth leg, or how are you thinking about it?

Yes, Julian this is Mark Jaksich. That Other category includes basically three businesses. It includes -- the largest piece of it is the grinding media business that we refer to as Donhad. It also includes our tubing business, and it also includes the electro -- the Manganese dioxide business that we own a majority of. The largest share of that is the grinding media. As we mentioned, that business is operating well. The tubing business is the next largest in terms of size, and they had a very good year as well. They continue to perform very well in good markets, and they're driven a little bit by the agricultural market as well. So those are businesses that really don't fit in any of the other segments.

And from -- you had a strategy aspect to your question, too. There's no strategy to create another segment, based on what fits in others right now. They sit in Others because they don't fit in the other segments, and they are not big enough to be a segment of their own.

Okay. Thanks. Then just a follow-up. Obviously your backlog across-the-board is up strongly. You talked about some capacity additions in utility. Your overall CapEx budget, though, is down just under 10% in '12 versus '11. So could you maybe clarify? Is there just one or two big projects that are coming to an end, and that's why?

Part of the capital expenditures in 2011 is our new plant in India. That plant is being commissioned and getting ready to go right now. So that we will not have this year. And the capacity expansion, particularly in the utility business, as we're expanding to current plants, is really not that capital intensive.

Okay, thank you.

Your next question comes from the line of Jeff Beach from Stifel Nicolaus.

Considering the potential for strong sales through '12 and into '13 in irrigation and the transmission structures, these are both big users of your galvanizing. Do you have enough capacity currently to meet strong market demand in '12 and into '13 without adding new capacity? Then, as this volume grows, and a lot of it is internal, does that have continued positive margin implications?

Well, on the galvanizing question, yes, we have plenty of capacity. And to put it in perspective, our total galvanizing revenue, less than 20% is internal volume, and that's in North America, and even less than that percent is in Southeast Asia. So capacity in the galvanizing business is not going to be a problem.

And is there leverage from, again, continued growth, if the revenues continue to ramp higher, is there leverage that helps the average margin move higher year-to-year?

Well, you have seen in the coatings business that the quality of the earnings over the last few years have been increasing, and it is a result of better leverage. These facilities leverage well when volume comes through.

Thanks.

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

I did want to follow up on one. Your irrigation backlog almost doubled year-over-year. Can you just give us a better sense of how we should think about when you ship your backlog there? Wouldn't the majority of that hit in Q1?

Yes, the backlog went up quite a bit towards the end of the year. Part of that was probably tax considerations. And because of the good weather patterns, the season may be a little earlier. And yes, a lot of that backlog will be shipped, probably all of that backlog will be shipped in the first quarter.

So again, knowing from a manufacturing point of view, which is always one of the challenges, how do you schedule manufacturing of pipe, and ship pipe? Given that you went into the quarter with a backlog, wouldn't you expect pretty noticeable positive margin performance from that segment in Q1?

Well, you know, like in the other businesses, if you have very strong volume going through, you tend to see some leverage opportunities. And our irrigation business has done a very, very good job of reacting quickly to the increased demand in that business. Our whole effort on Lean, and what we call the Valmont Way, has really gotten good traction within the irrigation business. The last time the irrigation business had a very strong year, apart from '11, was back in '08, and at that time we were less prepared to react quickly to that tremendous uptick in volume. Over this last 12-plus months, they have done an outstanding job in getting that done.

Already briefly touched on it, but in your prepared remarks you spoke about successful development in new markets. You mentioned, clearly, India. Can you speak about your outlook for these new markets, which ones you're in, and how you're targeting making further progress in these new markets?

Well, in general, we got into a number of new markets with the Delta acquisition in southeast Asia. We established a regional headquarter in Sydney, so we have a full time Group President for Asia Pacific that lives in the region. We have lots of activities going on in that area. We had not done much in India except exporting into India over the years, and we decided early last year that would be the next frontier for us in the structural businesses and in the coatings business. We approved, and have now built, a plant for lighting and utility structures in India, and we have built, I think, the largest galvanizing bath in India. Both of those will be up and running in the first quarter.

Now, it takes a while for those businesses to get traction, so they're not going to have any meaningful impact on our overall earnings for a while. When you look at the irrigation business, we have been global for a long, long time, but we are focusing a lot on the markets in the former Soviet Union, Russia, and some of the -stans, and we are seeing good progress in those markets also.

Staying on irrigation one more second -- if water is free like it is in California, there is very little demand for people to shift from drip irrigation or flood irrigation. With the droughts we're seeing, and with a pretty significant change in the views towards water, are we seeing any legislative changes that are forcing people to approach water differently as opposed to a free commodity? Are you actually seeing impacts from droughts, and perhaps legislation driving people towards center-pivot?

The answer is yes. Globally, you're seeing countries that have issues with the quantity of water they have available for food production. They are taking actions to restrict either the amount of water a farmer can use per acre, or they may put a price on the water. And both of those will be drivers for our center-pivot business. The business we are really in is using water for large scale agriculture more efficiently than alternative ways of irrigating. So any movement, anywhere in the world, towards really paying attention to the amount of water available, and how it is used, will support our business.

And Arnie, we've seen this for many, many years actually, in the form of different kinds of regulation in North America. In North America, it was state-by-state, in some cases district-by-district, where regulation was put on, sometimes as a result of a drought, sometimes as the result of some other abnormal uses that were going on in the area, and that will continue. The pricing of water is not likely, but the regulation as a result of local conditions has been going on for many, many years.

Back to your guidance or view that your run rate corporate expense would be $12.5 million to $13.5 million, that's well above what you had been running in the past, which was more $10 million, $11 million on a run-rate basis. What is embedded in that? Much higher bonus accruals, or other factors that are causing a permanent shift in your base number, if you will?

Well, Arnie, if you look at the 2011 figures, the $60 million, which would suggest a $15 million run rate reflects higher incentives than what's embedded in that $12.5 million to $13.5 million figure. The incentives are higher than that base level, due to the performance of the Company, and we had still continued to have some expenses that went through corporate, related to things like the Delta legal entity restructuring, and some carry-on things that related to that. So really, I think we've consistently said over time that quarterly run rate would be in the $12.5 million to $13.5 million rate, based on a normal trend related to incentives.

Thank you.

And there are no further questions in queue.

Thank you, Sara. With no further questions, Sara will now read our disclosure on forward-looking statements. We thank you for joining us, and we look forward to our next call.

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 industry 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 can 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 changes, or 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 this discussion, and the Company does not undertake to update any forward-looking statements.