Valmont Industries Inc (VMI) 2017 Q1 法說會逐字稿

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

I would now like to turn today's conference over to Mr. Jeff Laudin, Manager, Investor Relations. Please go ahead, sir.

Thank you, Kayla. Welcome to the Valmont Industries First Quarter 2017 Earnings Conference Call. With me today are Mogens Bay, Chairman and Chief Executive Officer; Steve Kaniewski, President and Chief Operating Officer; Mark Jaksich, Executive Vice President and Chief Financial Officer; and Tim Francis, Vice President and Corporate Controller.

Before we begin, please note that this conference call is subject to our disclosure on forward-looking statements, which applies to today's discussion 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, which is located in the Media Room link on our website.

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. Thank you for joining us. I trust that you've all read the press release and reviewed the accompanying earning slide deck. I would address first quarter highlights, then Steve will provide the update on segment performance, and Mark will provide an overview of the financial matters.

With that, let me turn to this period's highlights. Revenue in the first quarter increased nearly 7% to $637 million, and made broad-based volume growth across all segments, led by Utility Support Structures. 3 of our 5 segments performed beyond our expectations and 2 not quite up to expectations. Our Utility Support Structures segment had a strong quarter with significant revenue growth and improvement in quality of earnings.

I would caution, however, against extrapolating first quarter's 13% operating income as a percentage of sales. Projects do move from one quarter to another, and that can significantly affect quarterly performance. Overall however, the quality of our Utility Support Structures business is clearly improving.

The Irrigation segment showed good revenue growth and continued to deliver a strong quality of earnings despite higher input costs. This segment did offset the higher input cost through operational excellence.

Looking forward, we are still faced with a very difficult agricultural economic environment, with no indication of significant improvement in the short term. The Energy and Mining segment delivered significant improvement over last year's results, but the quality of earnings in this segment is still very much affected by the weak energy and mining industries worldwide.

Both the Engineered Support Structures segment and the Coatings segments were faced with rapidly increasing raw material costs; steel and zinc, respectively. I always say that I'm not too concerned about the actual cost of steel as long as it gets to where it's going in an orderly fashion. This last quarter saw rapid increases, which makes it difficult to recover those in the marketplace in a very short term. Both segments operated in large and geographically diverse markets and should continue to see good growth opportunities.

On the whole, the team executed well in the first quarter, and we are encouraged by strengthening demand in several of our end markets.

I will now turn the call over to Steve, who will review the segment performance.

Thank you, Mogens, and good morning, everyone. During the quarter, steel and zinc costs rose quickly and stayed firm longer than expected. But recently have shown signs of moderating. We have exercised our market leadership and expect to recover cost increases through price. However, in some businesses, price recovery can lag or take longer than in others. Over time, Valmont's value proposition of engineering, quality, lead times and product dev allows us to recoup changes in raw materials.

In the Engineered Support Structures segment, sales grew 2%. Wireless communication product demand remained strong, driven by provider imperatives to improve coverage. China's rollout of 4G and Australia's national network expansion supports our international results. In North America, commercial lighting markets remain firm. We have yet to see a measurable pickup in demand from the Highway Bill, but do expect to see improvement in the second half of the year.

In EMEA, sales fell mostly due to lower export sales to the Middle East. There has been no change in end-market drivers in Europe. As infrastructure spending remains muted across the region. Our strategy to offset this weakness is to grow our markets in the Middle East, where infrastructure spending is more robust. In Utility Support Structures, sales improved 21%, a continuation of the market growth that started last year. Volume increases, good mix and minimal movement in utility project schedules supported growth. The markets remained robust and are being driven by reliability requirements and increased renewable project additions being added to the grid.

We believe these will be sustainable drivers throughout the year. Operating income for the segment was 13% of sales for the quarter, the highest quarterly performance since the first quarter of 2014, improving on price, volume and operational leverage. In the Coatings Segment, sales rose with modest gains in both North America and the Asia Pacific. Profitability was influenced by the strong internal mix of utility volumes. Margin pressure was evident on a steep rise in zinc costs, as sales price increases somewhat lagged the cost increases.

In the Energy and Mining segment, sales rose year-over-year. We have had good demand for offshore wind towers and products. The Access Systems market is improving slightly, and we're having success growing outside our traditional markets. The recent increase in iron ore prices has helped our screening product sales particularly in Australia. Grinding Media sales also increased. We remain cautious, however, with the segment's demand profile due to the volatility in the end markets.

Turning to the Irrigation segment. North American sales were slightly higher than last year. International sales increased as our major markets on balance have improved with good project activity and continued strength in Latin America. The upturn in irrigation is promising and may indicate grower adjustment to the current environment. We still have the current selling season and upcoming crop season to assess farmer sentiment and their associated buying patterns. Irrigation segment operating income was a solid 18.2% of sales.

Before I turn the call over to Mark, I would like to talk about some strategic product development efforts. While we appreciate that you may want us to quantify the revenue contribution of each of these projects, our intent is to provide color on how we leverage R&D to deliver on organic growth that supports our commitment of revenue growth over time of 5% to 10%.

In irrigation, you may have read about our recent exclusive distribution agreement with Trimble Irrigation. This builds on a strategic goal to integrate technology into the product itself, rather than a series of bolt-ons and continues to build on our leadership position in precision water application. Together, Valley Irrigation and Trimble will provide growers unmatched precision water application products and services.

In Utility Support Structures, our PyraMax product is gaining traction. Sales are ahead of internal projections as utilities have migrated to its unique value propositions around total cost of ownership. In addition to the North American market, we have a promising large project in the Southeastern Asian market. In Engineered Support Structures, and Energy and Mining, we're cross-selling an integrated parking structure solution in Australia, that combines tested crash barriers with building screens from our Access Systems group, allowing the developer to minimize risk, provide environmental protection and beautifying the structure.

This solution makes it easier for the developer to gain approvals from local governments and insurance providers, while providing unmatched client protection. In Engineered Support Structures, we have released a new traffic signal pole dampening solution, the MITIGATOR, which provides unparalleled protection from wind-induced vibration. Our customer's traffic engineers continue to be impressed with its performance in protecting the poles and the public.

I will now turn the call over to Mark.

Thank you, Steve, and good morning, everyone. First quarter reported earnings per share were $1.72, up 19% from $1.45 in 2016. Virtually all the improvement was due to increased earnings with negligible effect from shares outstanding. The effect of currency translation on quarterly results was slightly positive, but not significant. As mentioned in the previous comments, the vast majority of the sales increase over Q1 2016 was due to volume improvements. The larger shares of sales increase came from Utility Support Structures, where sales growth also realized in the Irrigation and Energy and Mining. The increases in Engineered Support Structures and Coating sales were due to increased sales to other Valmont segments. This is a good example of how we leverage capabilities across geographies and segments to create a more effective global supply chain. Gross profit margins for the company decreased by 130 basis points compared to last year, as steel and zinc costs rose during the quarter and were not yet fully recovered through productivity improvements and sales price increases.

About half of this gross margin compression was due to the LIFO accounting effects and caused by the raw material inflation. In an effort to provide transparency, you will notice that we now break out LIFO expense in the press release tables and this will provide better clarity for you. SG&A spending was comparable to 2016 and included $1.8 million in the increased deferred compensation expense due to the required accounting for our deferred compensation plan. This expense is offset in the income statement by an increase in gains and losses on investments.

By holding SG&A relatively flat in relation to the sales increase, SG&A as a percentage of sales improved by 80 basis points. First quarter operating income was $64.5 million, roughly 3% higher over the same period in 2016. The improvement was based on higher sales and despite an aggregate $4.6 million increase in LIFO and deferred compensation expense. The operating income improvement before these expenses was approximately 11%.

Turning to the rest of the income statement, the majority of the increase in other income was due to investment gains and deferred compensation plan assets, which offsets the $1.8 million SG&A increase previously mentioned. Our income tax rate of 27.8% was favorable this quarter, due to a net $2 million tax recovery from prior years. Excluding this benefit, our rate was approximately 31.5%.

Turning to the cash flow statement. We increased our cash balance by about $25 million over year-end 2016, despite the fact that this first quarter typically is not a strong cash flow quarter for us. For the quarter, operating cash flows totaled $36 million compared to $80 million last year. Operating cash flows were lower this year due to increased working capital in support of the higher sales levels and the timing of our annual contribution to Delta pension plan.

Capital spending was $14.2 million compared to $14 million in 2016. Regarding other capital deployment activities, we did not repurchase any shares during the quarter under our current reauthorization, which does not have an expiration date. We have a $132 million remaining under this authorization and will continue to be opportunistic in our share repurchase activity.

With that, let me now comment on our outlook for 2017. We are reaffirming our guidance of sales growth in the mid-single digits and EPS growth of 10% year-over-year, excluding acquisitions. Share repurchases are not anticipated to have a significant impact on the 2017 results and guidance. Our sales growth for the first quarter, as you know, is about 7%.

Our current outlook is for free cash flow to approximately -- approximate 1x net earnings and our after-tax return on invested capital to exceed 10%. While steel and zinc raw material costs have risen, our forecast remains that the cost of these commodities will moderate somewhat during the balance of the year. We will continue our efforts on mitigating the effects of higher raw material costs through cost-reduction activities and cost recoveries through the sales pricing end market.

Foreign exchange translation rates are not expected to have a material effect on sales and profitability. We expect our tax rate for 2017 to approximate our adjusted 2016 rate of about 31%, which does not take into consideration any possible changes in the U.S. tax code.

Our balance sheet remains strong, with manageable leverage and solid free cash flow. We will continue to invest growth in our core businesses to drive new product or market development or in acquisitions.

Cash at the end of the quarter was $425 million, most of which is -- in outside of the United States, while our net debt position is $332 million. We have no borrowings under the revolving credit agreement at the end of the quarter, and we remain committed to maintaining an investment grade credit rating. Our cash priorities are unchanged, and they are to the support our businesses and performance and growth through working capital and capital spending as needed, acquire companies that strengthen or are closely adjacent to our existing businesses, pay dividends at 15% of net earnings over time and to repurchase our own shares.

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

Thank you, Mark. The first quarter went well, with improved sales, operating income and net earnings. Our segment diversification manifested with 3 segments performing well and 2 lagging, pressured by raw materials. We are focused on end-market demand and driving growth. Raw material price fluctuations will work back into price over time. Our outlook for the year remains on track. We expect improvement in most of our markets. We believe this, plus executing on product and market growth strategies will more than offset challenges in those markets exposed to broader commodity cycles, like Energy and Mining and Irrigation or regional economic challenges, like Europe. Accordingly, we believe we are on track to deliver on our guidance for the year.

At this time, I'd like to turn it over to the operator to take your questions.

(Operator Instructions) Our first question comes from the line of Julian Mitchell from Crédit Suisse.

Just my first question would be, I guess, around the input cost impact. And just if you look at where steel and zinc prices are today, do you think that the LIFO swing in terms of the benefit to the cost in Q2 will be less than the $2.8 million swing you had in the first quarter?

Julian, this is Mark. Let me try to answer that question. The $2.8 million swing is really taking into consideration the fact that we had a decrease in LIFO expense in the first quarter of last year, and we had a slight increase in the second quarter. I think as we get into the second quarter, we have LIFO expense in the second quarter. And so we'll continue to have some LIFO effect on that. But as the year goes on, if prices retreat to some degree like we hope they will and believe they will, that will mitigate itself to some extent.

Understood. And then my follow-up would just be around balance sheet usage. As you said, there was minimal buy -- no buyback in Q1, not much embedded for the year as a whole. There is no debt due till 2020. So what can you tell us about the M&A pipeline today and the attractiveness of deals and where multiples are?

Julian, this is Mogens. I would say that the activity level in the acquisition pipeline has increased. But as you know, predicting when an acquisition may happen is not easy as we never know before we get to an agreement on value and on other considerations. We stay very disciplined on not looking for EPS accretion, but looking for returns on invested capital. But I would say, overall, the activity level has stepped up.

Our next question comes from the line of Craig Bibb from CJS.

Could you give us more details on the 21% increase in revenue that you assessed? How much was pricing volume? How much was large structure?

Craig, this is Steve. Almost all of the increase was related to volume. And so that was just from end-market pick up. We're good to -- all of our customers, project activity, all is trending upwards as compared to the same quarter last year.

Okay. And any large structure in there? And what do you see over the horizon?

I'm sorry, what was that?

Any large structures in there, large projects.

Oh in terms of the large projects, we typically have 1 to 2 large projects that come through at any given time. There is no notable increase in large projects. What we're -- what we've been able to really adjust to and be much better from an efficiency perspective is the number of smaller projects that comes through the system. Basically by upgrades in IT, improvements in engineering capability, we've been able to now handle a lot of those projects, no differently than we would a large project.

Great. And in the press release you noted that the order book was growing at ESS for lighting and traffic structures. Is that or is that FAST Act? Or is that more non-res construction?

It's a combination of the 2. Really, it's -- well, primarily the commercial lighting has done very well, and continues to grow. The FAST Act DOT work again, fairly moderate, but not -- nothing to -- that's notable from what we've guided previously. We still expect, really the second half of the year to see more increase in DOT work.

Our next question comes from the line of Nathan Jones from Stifel.

Just following up on the margin compression in the ESS and Coatings. Can you talk about what pricing actions you've taken so far? What pricing actions you're going to take in the second quarter? And how we should expect to see the margin progress back up as you recover those increased costs?

Nathan, this is Steve. With -- I'll start with coatings. Coatings, as you know, zinc prices really stepped up particularly through the January and February time frame. It's tough to go after the market right away when you see just a temporary spike. We don't know if it's going to last. Once we see that it's a sustainable increase, we'll go back to our markets, and let them know what's coming and then effect a price increase. And we did do that through the first quarter. You'll start to see more of those effects as we now go through the rest of the year. In the Engineered Support Structures, pricing, as the general environment remains very competitive. And so there it's really more of a price leadership position, where we have to go and go back to the market with both steel and zinc, and talk to the customers, work with the customers over time to see how this is having an effect on us in the pricing of our product. So that one tends to take a little bit longer, and I would actually expect us still have some compression through the second quarter into that segment. And then working its way into the third and fourth quarter more moderate at that point.

You guys, in the Utility Business, took the step to increase pricing, when demand was at a low point there. Are you intending to do the same kind of thing in ESS? And if that sacrifices the market share in the short term, that's okay? Or how are you planning to look at that?

Yes, we look at it much the same way. We consider ourselves as a market leader. And as such, we believe that we should get a fair price for the services and the products that we deliver. And so we look at that very strategically and by a customer by customer to make sure that we don't suffer the one side of the business for the other. It's a kind of a thing, balancing act, but I think we do a good job of it.

And I think, this is Mogens, adding that in the Utility business, it's a very concentrated market in North America. In ESS, you have plants all over the world and therefore, by geography, you have to decide how best to get the pricing up.

Okay. And then one follow-up on utility. You said late last year that you had started to see some pricing improvement. You're talking about, hey, 21% increase in utility revenue being largely driven by volume. I would assume that, that means pricing should be better or is expected to get maybe meaningfully better as we get forward. Can you just talk about the pricing environment, and what you're expecting for the rest of the year there?

Yes, a similar comment to ESS. There's still very competitive pricing out there, particularly, when a large project will come up, anybody would like to try and have good volumes, so the pricing can be very competitive. What we're seeing is when balance improve because of the -- as with the volume increases, a lot of the excess capacity that had been in the market in '15 and '16, has been soaked up a little bit, but there's still some excess out there. So again, it will be selective. We have pricing agreements with a number of our large customers. So we won't necessarily be moving on those, so it's more opportunistic than broad-based.

Our next question comes on the line of Brian Drab from William Blair.

Just quickly a couple of housekeeping questions. Was that $0.04 -- or I'm estimating about a $0.04 gain on the investments in the quarter included in the previous guidance. Or how should we think about that?

Brian, this is Mark. The $0.04 you're referring to is with respect to what now?

Your gain on investment in the quarter that you're breaking out of the other items?

Oh yes, that's right, because the deferred compensation matter is really, as I said, is offset by an increase in SG&A expense. The impact of the income statement is nil. So it has no effect on earnings per share. It's just a geographical presentation matter.

Okay. So the -- isn't the gain, though, a different item than the deferred compensation impacting what so...

Two related I -- the 2 separate but related items that in the income statement offset each other.

Okay. Okay, got it. And then, Mark, is your expectation that working capital will -- working capital would be a use of cash in the year or not a source of cash?

No, I think it depends a little bit on the amount of the sales growth, because naturally a sales increase and everything else being equal, receivables are going to be up to some degree. But normally, we do have a bit of an inventory build in the first quarter, mostly related to our structures businesses, because it's starting to move into the heavier seasons of second and third quarters. So normally, the way our cash flows work is that first quarter typically isn't that strong comparatively speaking, but as the year goes along with the cash flows typically improve over time. So that's a basis for the annual guidance.

And for -- the net working capital for the year though do -- is it in your model a use of cash or a source of cash for the full year?

Yes. It would be a small use of cash. More or less in line with the amount of the sales increase we would expect to see over the course of the year.

Okay. And then just a couple of quick questions on Utility. I think that in the last report, you indicated Utility should be up in the mid-single-digit range in 2017. Have you said today yet where you think we will be for the year? Given the strong performance in the first quarter, it seems like maybe that could be, I don't know, high single digits or low double digits for the year.

That was for the overall utility market that we said would be up about 5%. So when you look at all of the customer base across the whole area, now we still believe that's pretty solid. And it really is based on our customers and whether projects move in or out, as you know, utility projects can be fairly volatile and they move from quarter to quarter or year from year. So we're fairly comfortable with where we are at right now.

Okay. Okay. And then just a question on the PyraMax product. It sounds like it's gaining great traction. Can you answer 2 questions on that product? First of all, what are the margins -- your margins on that product relative to the rest of the portfolio maybe just at least directionally? And then what percent of the portfolio does PyraMax account for today? Or right now, I guess, it's very small today, but a couple of years from now, what could it be?

Okay. So from a margin profile, we don't break out individual products. But let's just say that it's fairly comparable to the other products within the portfolio. And PyraMax really is allowing us to grow the served market that we have out there. Particularly because it can replace lattice structures. So it's been doing well. We believe it will continue to do well. It's not a complete replacement for lattice. It is a product that, within a lattice line allows the utility to really look at foundations, cost of construction, at certain segments of the line and do those much more efficiently than they would be it another structure.

And no comment on what -- how big this could be within the portfolio in a couple of years? I imagine you are able to take some share from Thomas -- yes, from trending.

We're up at aspirations for the product, but nothing that we would disclose for how big we think it's going to be a year or 2 or 3 from now.

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

Steve, you mentioned that the Irrigation sales in Latin America were pretty strong. I assume that's -- maybe I shouldn't assume it -- but I assume that's Brazil and in Argentina. And typically, there is some government incentives and some sort -- do you expect those incentives to continue to be in place? And maybe I'm using the wrong word incentive, but do you think they will be there next year -- in the next growing season?

Yes. In Brazil, it's the FINAME financing scheme that's set up there. That's now in the process of being rehashed for the following year. We fully expect that, that will be a go-forward item. It's the commodities, the corn, soy and others are the one good source of foreign capital for Brazil. And so even though the political environment may be shaky, they are all pretty united in making sure that moves forward. In Argentina, there is not yet an actual financing program. Although there is now heavy talk about putting one in place similar to Brazil, because they've seen that it's has been very effective in Brazil as well. So we expect, like I said, the Brazil one to continue forward and other countries to potentially mirror it.

Okay, if Argentina would do that, how substantial is that market opportunity?

Argentina is one of the breadbaskets of the world. And so it's not been the best of economies, for a number of reasons, over the last decade or so. So we believe that if they did something like that, it would have a meaningful improvement in the market for our products.

Jon, this is Mogens. Let me add to -- just to put in perspective if you look at South America, Brazil is the big market. Argentina is a big opportunity, but their government policies have not been too favorable towards agriculture until recently. So even though Brazil -- in Argentina, we expect rapid growth in the percentage, it's not really moving the needle for a while. So Brazil is the big -- continue to be the biggest opportunity short-term in South America.

Okay. Elsewhere internationally, were there any noticeable increases, decreases?

No, it was fairly broad-based across all the markets.

Our next question comes on the line of Brent Thielman from D.A. Davidson.

On Utility, are you seeing any greater urgency from customers to start some of these larger jobs sooner than the time line you discussed before? I think it was sort of late '17, 2018?

Most of them -- their planning cycles tend to be long planning cycles, permitting processes take time, regulatory approvals take time. So we don't see anything that's necessarily greater, it's just everything that was in the pipeline kind of moving through the pipeline.

Okay. And then kind of based on schedules, projects and conversations with customers. How would you characterize your level of visibility into next year at this point in that business, I guess, maybe relatively to where you have been at this time over the last few years?

Yes, we see -- out into the future, projects -- as they become into the planning cycles of our utilities that we service and for the most part, we still see pretty good project activity. Nothing necessarily, again, by the large-scale that you would have seen in '13, that's still fairly muted, but in terms of the ultimate drivers of reliability, bringing more solar and wind farms online, both from a substation and transformative perspective at least right now those as well as some outside sources have confirmed that, that looks okay at this point.

Okay. And then, any additional thoughts on the North American wireless business? I know it's one of many pieces in that segment, but it seems to be some pretty positive trends there?

Yes. Last year was definitely affected by the spectrum licensing auction. And so most people sat on the sidelines at least for the first part of the year. Actually, probably well into the late part of the year. We see now pretty broad-based, everyone once again, working on coverage, working on rollouts of increased technology, and so that's been fairly a nice recovery within the telecom market as compared to last year.

Our next question comes on the line Jose Garza from Gabelli.

I just had a question on the Coatings business. And do you expect the kind of dynamic that went on here in the first quarter to kind of continue throughout the year with lower external, but higher intercompany?

No, we have seen some

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have in the quarter start to come back and get improved. The internal mix was just very heavily obviously, the utility business, but now we're starting to see the custom fabrication market start to come back to light. It's still muted, particularly in solar and the oil and gas parts of the business, but from a general fabrication perspective, it has improved slightly.

Okay. So you -- do you expect volume increases on that throughout the course of the year?

Yes.

Okay. And on the Utility side, I wonder if you could just give us more color on just kind of the lead time dynamics -- if you were to compare maybe from a quarter ago with what's going on there?

Lead times, generally have moderated. So they're not increasing. If you recall, we talked about having somewhere in the range of about 26 week lead time on average. Those have moderated a few weeks to maybe the 23, 24 type time frame from a industry market perspective, so not increasing further.

We now have a follow-up question from the line of Craig Bibb from CJS.

I have a follow-up on the Coatings. Zinc prices were down about 12% in Q1. Could zinc margins swing the other way in Q2? Or how does that flow-through?

Yes, Craig, this is Mark. I'm not quite sure I understood your question, because zinc prices rose, really, throughout the first quarter.

You mean $1.30 to $1.15?

Well, that was recent. I think that drop in zinc prices happened after the end of the quarter. So -- but certainly, as zinc prices fluctuate that will have some sort of a carry on effect on margins in some respects depending on arrangements with customers that can be affected as well to some extent through sales pricing. But we didn't any of the recent downtick a little bit in the zinc prices really didn't have any impact on the first quarter.

But I guess the question is, could it help the second quarter?

Yes. Sure, it could everything else being equal that's for sure. And just like it hurt on the way up, it would help a little bit on the way down.

Okay. And you guys have a new plant. Is that generating revenue now? Is it ready to go?

It is, but we are still going through some startup phases in that business. And so there was an element of that, that contributed to some extent to the operating income drop quarter-v-quarter.

But at this plant, the plant is now fully operational and servicing both internal and external customers.

I mean can you quantify what the margin hit from the low capacity plant was, like, 50 basis points? Or...

Well, I think, if you look at the operating income drop in the first quarter, the way to bracket that would be is, there was a bit of an effect through the zinc pricing, and also the mix affect, and also the startup of the plant was, they were pretty similar across those 3 different major factors.

We have another follow-up question from the line of Brian Drab with William Blair.

I'm just looking at steel price a year ago versus at your current prices, whether you look at fourth quarter year-over-year or into the first quarter. I'm just wondering how -- you said that the 21% increase in Utility was strictly driven by volume. Can you just help me reconcile that? Why wouldn't you have gotten some price? I would imagine you pushed there some price, given that steel dynamic.

Yes, I would say, again, the lion share was volume, there was some price due to the effect of steel. But our lead times were different back then. So if you go a year ago, first quarter versus this year, you'd have to offset and look at the steel pricing probably towards the end -- more at the end of '15, where it was pretty low at that point. So when you look at that versus where we quoted in the kind of October, November time frame, they are pretty similar from the steel pricing perspective.

Okay. So you're seeing compare October, November in '16 more as the closer to the end of the year in '15?

That's correct.

Okay. Yes, that gets it a little closer. Okay, I understand. And then, I guess, if I could, just ask one question maybe to Mogens. There's a lot of discussion every call around the smaller projects within utility and the FERC 1000 regulation, I was wondering if you could just give us an update on how big a deal is this really for the Utility segment? And would this kind of change the game, really? And would we ever see margins get back to where they were in the past or this segment approach $1 billion in revenue in the past? Or has the game kind of changed?

First of all, I think I've said on numerous times that I don't think we'll see 18%, 19% operating income that we did back in '13, which was the perfect storm, lower steel prices, capacity constraints, et cetera, et cetera. And I've said that through the cycle in the Utility business, if we can operate between 10% and 15% operating income, we will be very happy and we will have a very good return on invested capital. So I think that's the range, at least in what we see currently and in -- as far as we can look out in the future, where I think we're going to be. Now when it comes to smaller projects, big projects, there has been a slowdown in big projects since those days and at some point of time, some of them will come back, again. But we're also adjusting to become more and more competitive in the smaller projects. I mean the smaller projects in a relative sense will require more drafting and engineering, because it's fewer structures and more differences in products, they go through plants, less efficiently than large structures. But we're getting much better at handling the smaller projects. So the -- when I talk about 10% to 15% operating income that is not dependent on large projects coming back to a great extent, that is dependent on the kind of mix we see now.

And there are no more questions at this time. I hand the call back over to the presenters.

Thank you, Kayla. This concludes our call, and we thank you for joining us today. The 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, Kayla will read our disclosure on 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 in which Valmont operates, as well as management's perceptions of historical trends, current conditions, expected future developments and other factors believed to be appropriate under the circumstances. As you listen to and consider these comments, you should understand that these statements are not guarantees of performance or results. They involve risks, uncertainties, some of which are beyond Valmont's control and assumptions. Although management believes that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect Valmont's actual financial results and cause them to differ materially from those anticipated in the forward-looking statements. These factors include, among other things, risk factors described from time to time in Valmont's reports to the Securities and Exchange Commission as well as future economic and market circumstances, industry conditions, company performance and financial results, operating efficiencies, availability and price of raw material, availability and market acceptance of new products, product pricing, domestic and international competitive environments and actions and policy changes of domestic and foreign governments. The company -- excuse me, the company cautions that any forward-looking statements included in this discussion is made as of the date of this discussion, and the company does not undertake to update any forward-looking statements.

This is the end of today's conference call. You may now disconnect, and have a great day.