Greetings, and welcome to the Valmont Industries Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms.
Renee Campbell, Vice President of Investor Relations and Corporate Communications. Thank you. Please go ahead.
Thank you, and good morning. Welcome to Valmont Industries' 2nd quarter 2021 earnings call. With me on today's call are Steve Kaniewski, President and Chief Executive Officer Avner Applebaum, Executive Vice President and Chief Financial and Tim Francis, Senior Vice President and Corporate Controller. This morning, Steve will provide a brief summary of our 2nd quarter results and comment on our strategy and long term business outlook. Avner will review our financial performance and provide trends and key assumptions for the balance of 2021 with closing remarks from Steve.
This will be followed by Q and A. A live webcast of the presentation will accompany today's discussion and is available for download from the webcast or on the Investors page at valmont.com.
A
replay of today's call will be available for the next 7 days. Please also note that this conference call is subject to our disclosure on forward looking statements, which applies to today's discussion and is outlined on Slide 2 of the presentation. It will also be read in full at the end of this call. I would now like to turn the call over to our President and Chief Executive Officer, Steve Kaniewski.
Thank you, Renee. Good morning, everyone, and thank you for joining us. Before we recap our Q2 results, I would like to share some opening comments. First, I want to thank our employees around the world for their consistent execution against our strategic priorities and supporting our customers as global markets begin to recover from the pandemic. Like many companies, we have faced unprecedented levels of cost inflation, especially raw materials and transportation since the beginning of the year.
These levels are pervasive and must be accounted for in market pricing. So it has been an imperative for us to quickly increase prices globally across all of our businesses. Current economic trends Lead us to believe that inflation will not mitigate in the near term, especially for durable goods. And we will continue to take additional pricing actions In all segments as needed, while inflationary pressures continue. For example, in North America Irrigation, This year, we've raised price 5 times on irrigation systems, totaling more than 30%, inclusive of upcoming increases.
And in utility, utilizing our pricing mechanisms, we've raised price 7 times on steel monopoles. As we have demonstrated over the past few years, price leadership is a strategic priority for us and will continue to be in all of our served markets. Next, I would like to thank our global operations and production teams who have done an excellent job this year with productivity and managing through these unique supply chain dynamics. I want to commend them on the improvement in ship complete and on time metrics even as our business is accelerating. We're proud of our team's persistent focus and we expect to continue building on this strong momentum going forward.
Now, let me start with a brief recap of our Q2 summarized on Slide 4 of the presentation. Record sales of $894,600,000 increased $205,800,000 We're nearly 30% compared to last year, an increase more than 26% on a constant currency basis. Sales growth was realized in all segments, most specifically in Irrigation and Utility Support Structures. Starting with Utility. Sales of $267,900,000 grew $36,500,000 or 15.8% compared to last year.
Higher volumes were driven by strong broad based demand From ongoing investments in grid hardening and modernization as well as renewable energy generation. Moving to Engineered Support Structures. Record sales of $269,400,000 increased $16,000,000 or 6.3% compared to last year. Favorable currency and pricing impacts As well as sales growth in wireless communication products and components were slightly offset by anticipated lower North American transportation market volumes. Global lighting and transportation sales grew 3.3% as pricing improved in all regions And international markets benefited from increasing stimulus and infrastructure investments, especially in Europe and Australia.
Wireless communication products and component sales grew 7.2% compared to last year. Carrier spending in support of 5 gs build outs continues to drive strong demand globally, as evidenced by significantly higher sales of our small cell integrated products. Favorable pricing also contributed to sales growth. I want to take a moment to congratulate our ESS team on delivering a record quarter of sales and operating income. I'm especially proud of our commercial teams for their demonstrated price leadership during this inflationary environment.
Turning to coatings. Sales of $98,200,000 grew $18,200,000 or 22.7% compared to last year and improved sequentially from last quarter due to improving end market demand, Favorable pricing and currency impacts. During Q2, we commenced operations at our new greenfield coatings facility near Pittsburgh, Built with enhanced processes to generate less heat and humidity and providing additional recycling opportunities. This facility aligns well with our ESG principles, while serving the growing demand for new infrastructure in this region. Moving to irrigation.
We have record global sales of $282,000,000 Grew $131,300,000 or 87.2% compared to last year, With sales growth across all served markets, including more than 35% growth in our technology sales. Higher volumes and favorable pricing were driven by the continued strength of ag market fundamentals and deliveries for the large Egypt project. In North America, sales of $156,100,000 grew 57.6% year over year. Strong market fundamentals and improved net farm income projections continue to positively impact farmer sentiment, generating strong order flow. Significantly higher volumes, higher average selling prices and higher industrial tubing sales all contributed to sales growth.
International sales of $125,900,000 We're 1.4 times compared to last year, led by the ongoing delivery of the Egypt project, strong European market demand And record sales in Brazil, where sales through the Q2 have exceeded full year 2020 revenue, a testament to our market leadership in this region. Regarding our project pipeline in Africa, We recently were awarded more than $20,000,000 of additional projects from new customers in Egypt, Sudan and Rwanda, demonstrating our market leadership, global operations footprint and project management capabilities. Turning to Slide 5. During the quarter, we completed the acquisition of Prospera Technologies, An award winning global leader in AI and machine learning. For those who attended our Virtual Investor Day in May, You will recall how we outlined our strategic pillars for long term profitable growth.
Accelerating innovation Through investments in recurring revenue services is one of the critical components of our industrial tech growth strategy. Through this acquisition, together, Valmont and Prospera have created the most global vertically integrated AI company in agriculture, Immediately providing a highly differentiated solution focused on in season crop performance that is able to go beyond traditional irrigated acres. No one else in the industry can offer this kind of solution. Prospera brings advanced agronomy and unprecedented visibility to the field. Their technology is currently being used on over 5,300 fields on a variety of crops, including corn, soybeans, Potatoes, wheat, onions, alfalfa and tomatoes.
Growers are very excited about this technology as evidenced by strong adoption rates In the critical need for growers to reduce inputs while increasing yields, aligning well with our ESD principles of conserving resources and improving life. Through Prospera's solution, vision and talented team, We are moving to the next stage of agricultural development. Today, approximately half of our irrigation technology sales are generated from recurring revenue services. With this acquisition, we expect those particular sales to grow more than 50% per year over the next 3 to 5 years. We also expect this acquisition to be accretive to the segment beginning in 2023 as we continue investing in our in season data services.
Integration is going well We plan to share more on our accelerated market growth strategy in future quarters. Additionally, in today's market, The war for talent is pervasive and competitive. Prospera brings the strongest team in the industry, and we are fortunate to have 100 highly talented and motivated employees on board, including experts in data science and machine learning. As you can tell, I'm very excited about this acquisition. It builds upon our demonstrated success over the past 2 years as we move forward together as one company.
We also completed the acquisition of PivotTrak, a subscription based agtech company that provides remote sensing and monitoring solutions for the Southwest U. S. Market, helping grow our technology sales to $50,000,000 year to date. Turning to Slide 6. Our solar business is another area where we are accelerating growth and new product innovation, while supporting our sustainability commitments.
During Investor Day, we talked about solar growth opportunities in both utility and agriculture, and I'm very excited to see our growing pipeline of projects in both end markets. Our backlog of utility scale and distributed generation projects has been increasing as we expand the solution globally. In the Q2, we were awarded projects totaling $47,000,000 Additionally, over the past 18 months, We received more than 30 orders for the North American market. With our industry recognized Class of 1 status Our solar solutions are also driving accelerated growth in agricultural markets. In the Q2, we were awarded 3 projects Totaling $25,000,000 We've already completed several others in Sunbelt regions like Brazil and Sudan and are planning an official North American market launch this fall at the Husker Harvest Days Farm event.
We are also partnering with large global food producers to help them achieve their own ESG goals. Working together with our utility solar team and world class Valley dealer network, we have formed a global cross functional team Committed to delivering integrated solutions to support ag players in their markets. We're very excited about this growth potential. Turning to Slide 7. At our Investor Day, I talked about several of our ESG initiatives and highlighted the many ways that our products and services can serve resources and improve life and help build a more sustainable world.
As we've said before, ESG is a strategic priority for us. It's embedded into our strategic deployment process It drives our most important initiatives at Bauma, and we are pleased that our efforts are being acknowledged externally. One example is with institutional shareholder services or ISS. Our environment and social quality scores Have improved significantly this year from a 6 to a 2 for environment and from a 6 to a 3 for social, while governance has held steady at a solid 2. While this is a continuous journey, we are proud of the progress we have made so far.
I want to congratulate our teams and business partners who are strengthening our commitment to grow and innovation as a company with ESG in mind. With that, I will now turn the call over to Avner for our Q2 financial review and 2021 outlook.
Thank you, Steve, and good morning, everyone. Turning to Slide 9 and second quarter results. My comments will focus on the adjusted results as outlined in the press release and in the Reg G disclosure in the presentation appendix. Operating income of $90,900,000 Our 10.2% of sales grew $25,200,000 or 38% compared to last year, Driven by higher volumes in irrigation, improved operating performance and a favorable pricing, notably in Engineered Support Structures. Diluted earnings per share of $3.06 grew more than 50% compared to last year, primarily driven by very strong operating income and a more favorable tax rate of 22.5%.
This rate was realized through the execution of certain tax planning strategies. Turning to the segments. On Slide 10, In Utility Support Structures, operating income of $21,200,000 or 7.9 percent of sales Decreased $4,100,000 or 300 basis points compared to last year. Strong volumes, Increased pricing and improved operational performance were more than offset by the ongoing impact of rapidly rising raw material costs during the quarter, which our pricing mechanisms did not allow us to recover. Moving to Slide 11, in Engineered Support Structures.
Record operating income of $31,900,000 or 11.9 percent of sales increased $9,000,000 or 2.90 basis points compared to last year. We're extremely pleased with the results from deliberate, proactive pricing actions taken by our commercial teams to more than offset the impact of a rapid cost inflation. We're also recognizing the benefits of previous restructuring actions. Additionally, our operations team Continue to drive performance improvement across the segment through improved productivity and product quality and better ship complete and on time delivery metric. Turning to Slide 12.
In the Coatings segment, operating income of $14,700,000 or 14.9 percent of sales was $4,300,000 or 190 basis points higher compared to last year. Higher volumes, favorable pricing and operational efficiencies more than offset the impact of raw material cost inflation. Moving to Slide 13. In the Irrigation segment, operating income of $42,900,000 Or 15.2% of sales nearly doubled compared to last year and was 80 basis points higher year over year. Significantly higher volumes and favorable pricing were slightly offset by higher R and D expense for strategic technology growth investments, including product development.
Turning to cash flow on Slide 14. We delivered positive operating cash flows of $37,000,000 and positive free cash flow this quarter despite continued inflationary pressures increasing our working capital needs. This quarter, we closed on Prospera acquisition for a purchase price of $300,000,000 funded through a combination of cash on hand and short term borrowing on our revolving credit facility. We also acquired 100 percent of the assets of PivotTrak for $12,500,000 funded by cash on hand. As we stated in prior quarters, rapid raw material inflation can create short term impacts on cash flows.
The current market outlook indicates that general inflationary trends may not subside in 2021, so we would expect some continued short term impacts. We expect working capital levels and inventory to remain elevated to help us mitigate supply chain disruptions and opportunistically lock in better raw material pricing. Accounts receivable will also meaningfully increase in line with sales growth. As our historical results have shown, we will see improvements in working capital as inflation subside. Turning to Slide 15 for a summary of capital deployment.
Capital spending in first half of twenty twenty one Was $49,000,000 and we returned $42,000,000 of capital to shareholders through dividends and share repurchases, Ending the quarter with just over $199,000,000 of cash. Moving now to Slide 16. Our balance sheet remains strong with no significant long term debt maturities until 2,044. Our leverage ratio of total debt to adjusted EBITDA Of 2.3 times remains within our desired range of 1.5 times to 2.5 times. Let me now turn to Slide 17 for an update To our 2021 outlook, including a few key metrics and assumptions.
We are increasing sales and EPS guidance for fiscal 2021. Net sales are now estimated to grow 16% to 19% year over year, driven primarily by very strong agriculture market fundamentals. Further, we now expect Irrigation segment sales to grow 45% to 50% year over year and continue to assume a foreign currency translation benefit of 2% of net sales. 2021 adjusted earnings per share is now estimated to be between $10.40 11.10 I want to take a moment to discuss the rationale for providing an adjusted earnings outlook going forward. As a technology company, the cost structure of Prospera is very different than any acquisition in Valmont's history, including a significant restricted Stock brand for talent retention purposes.
We have also acquired intangibles technology assets. We believe That by excluding Prospera's intangible asset amortization and share based compensation in the adjusted financials, The metrics will provide a better comparison of future Irrigation segment performance as compared to historical results. A table outlining the reconciliation of these adjusted items to GAAP is included in the presentation appendix and press release. Other metrics and assumptions for 2021 are also summarized on the slide and in the release. Turning to our second half 2021 segment outlook on Slide 18.
In Utility Support Structures, we expect a meaningful sequential improvement to the quality of earnings beginning in Q3, driven by margin improvement as pricing becomes more aligned with steel cost inflation. Moving to Engineered Support Structures. We expect continued short term softness in North American transportation market and improved demand in commercial lighting. Demand for wireless communication products and components remains strong and we expect sales growth in line with expected market growth of 15% to 20%. Moving to coatings, end market demand tends to correlate closely to general economic trends.
We are focused on pricing excellence and providing value to our customers. Moving to irrigation, we expect a very strong year of 45% to 50% sales growth Based on strength and global underlying ag fundamentals, the estimated timing of deliveries of the large Egypt project And another record sales year in Brazil. A couple of reminders that I want to mention for this segment. The first is that the 3rd Quarter is a lower sales quarter compared to the rest of the year due to normal business seasonality. 2nd, deliveries of the large Egypt project began in Q4 2020, which will affect year over year growth comparisons.
And as Steve mentioned earlier, We have been consistently raising prices to offset inflationary pressures. With that, I will now turn the call back over to Steve.
Thank you, Avner. Turning to Slide 19 and the long term drivers of our segments. Overall, we We continue to see strong demand and positive momentum across all businesses, evidenced by backlog of more than $1,300,000,000 At the end of Q2 and the demand drivers are in place to sustain this momentum into 2022. Like many others, we are closely monitoring the COVID delta variant and continue to follow state and local regulations to keep our employees and customers safe. At present, government mandated shutdowns in Malaysia Have led to the temporary closure of 3 of our small facilities there.
The expected impacts from these closures Have been included in our full year financial outlook. Turning to Slide 20. In summary, I'm very pleased with our strong second quarter results and our team's ability to navigate and capitalize on challenging market dynamics. We believe this demonstrates the strength and sustainability of our business And long term strategy, favorable end market trends and strong price leadership in the marketplace. As we discussed at our Investor Day, we remain focused on the execution of our strategy, which is fueled by our dedicated and talented team 10,000 employees and our differentiated business model.
Through our acquisition of Prospera Technologies and PivotTrak, We are accelerating growth through investments in innovation, technology and IoT, building on our strategy to grow recurring revenue services. Finally, we're very positive on the year as demonstrated by our updated financial outlook and are poised and well positioned to capture growth and drive shareholder value in the future. I will now turn the call back over to Renee.
Thank you, Steve. At this time, the operator will open up the call for questions.
Thank you. Ladies and gentlemen, the floor is now open for questions. Our first question is coming from Chris Moore of CJS Securities. Please go ahead.
Hey, good morning, guys.
Maybe we could just
start with solar. So utility Solar contracts, dollars 47,000,000 in orders in Q2. I'm just trying to get a feel for how big the projects are here. Is that 1 or 2 customers, is it 10?
Hi, Chris. This is Steve. So we're targeting both utility scale and distributed generation because we think that, that will be the mix of generation going forward. So it's Number of customers, it's not just 1 or 2. I won't say 10, but it's the project size It's a couple million kind of each, when you look at that.
So it's a way to support developers of solar and distributed. And then we will typically call out the larger scale utility orders like we had at the end of last year where they were somewhere in the range of about $25,000,000 to $30,000,000 each.
Got you. That's helpful. And maybe just one more for me. The Egypt contract $240,000,000 kind of estimated, roughly how much of that will have been recognized by the end of
2021? Well, it would be a little over half. We started in Q4 last year. It's been pretty even. So by the time you get through 2021, I'd say, 55%, 68% The rest being delivered in 2022.
Got it. So I just want to make sure it wasn't really accelerated this year. I'll leave it there. Thank you, guys.
Thank you. Thanks, Chris.
Thank you. Our next question is coming from Nathan Jones of Stifel. Please go ahead.
Good morning, everyone.
Good morning, Nathan.
Maybe we could start on Prospera now that it's In the portfolio, can you talk about the expected contribution of revenue in the second half, the expected contribution to EPS? Just always add.
Yes. Hi, Nathan. This is Avner. So as it relates to revenue In 2021, I would say it would be nominal, as we start ramping up. So not a large impact for 2021.
As it relates to EPS, it will be actually decretive in 2021. As Steve mentioned, we'll start the accretive to the segment in 2023. So if you want to ballpark it, I'd say about $0.30 to $0.35 decretive for our results in 2021. Right.
And Nathan, I would just add that since we were in partnership with Prospera, we were already recognizing revenue. So that's why the increase in revenue or the incremental piece would be more nominal. It'll be there'll be some growth, But it won't be as substantial because we were already seeing that.
Okay. So understanding that this is A bit of a different acquisition for you guys. Can you talk about how long does it take Valmont To get this business to earn a return that's greater than your cost of capital, Just I guess that for a first question. At what point in the future here do you think that Prospera is going to earn a return for Valmont that's greater than
Sure.
The margins that are associated with Prospera are Very much higher than our typical industrial margins. And so if we think about 60% to 70% gross margins, With the way that we kind of see the growth, roughly around 50% over the next 3 to 5 years, the recurring revenue, We would anticipate this is more of a transformative acquisition. So normally, we would say within 3 years, this is probably more like 4, maybe 5, but really does start to change the way that the segment looks as we go forward, Particularly on the growth side, where you could see 500 to 800 basis points of improvement as we look out in the longer term.
Maybe I'll just add one more point. As you think about this business, the working capital needs are really minimal being kind of a tech business with Very little working capital intensity, so that's another good driver for return on invested capital.
Where are the margins today and where do you think they'll be in 3 to 5 years?
Yes. On the growth side, we are already Seeing margins in that, again, that 60% to 70% range. So we will continue So the SG and A line will look a little heavier than it would be for a traditional industrial business. But overall, This is a strong margin business. We would expect that to continue as adoption picks up.
And so we can see that 60% to 70% range really holding pretty steady Through the period, we saw that even though the market had been declining over the past 6, 7 years as we started our tech sales. So I think we're on pretty solid footing when it comes to those margin levels.
And on the operating margin levels, Where are they today and where should they be in that 3 to 5 year timeframe?
Well, they're decretive right now and will be through 2022 Because of the reinvestment back into the business for growth. And so if you think about 2021 2022, again, we would start to get closer to breakeven by the end of 2022 And then building in 2023, and really is that year 4 or 5, you would really start to see things that would be Closer to a 30% kind of operating.
Okay, great. Thanks. I'll pass it on.
Thank you.
Thank you. Our next question is coming from Ryan Connors of Benning and Scattergood, please go ahead.
Great. Thanks for taking my question. Wanted to get your take on this announcement Kind of on the tape from PG and E that they're going to try to bury a lot of their power lines out there because of the fires and the fact that the Above ground lines are apparently one of the causes behind some of these tragic events there. Driving some concern, I guess, that maybe underground lines are the wave of the future. Can you I mean, I know that's not a new risk, but this is kind of a high profile Example of that front page of The Wall Street Journal.
What's your can you just give
us your reaction, your take
on that as a substitution risk in USS?
Yes, it's very small, Ryan. What we see, we saw this with Lake Champlain. We see it kind of in other Selected areas is that they may take something that is really through part of maybe a Tinderbox And bury it, but it does cost 10 to 12 times more in total construction, which rate payers Really do push back on the PUCs, really push back on. And from a high voltage perspective, and I think we've said this before, The heat generated really makes it impractical from a transmission perspective. So where you see the substitution tends to be more in distribution.
And distribution, at least for us, is a smaller part of our business. And what we've seen from California is much More in the way of both concrete and fiberglass solutions, which we offer both on the distributed side, At least for the, I'll call it, the long haul miles. There's also a tech play for us that we've been participating in on that side, Which is the remote monitoring of the right of way, and we have some solutions that are able to give the operators much more visibility At a specific structure level, as to a right of way intrusion, a fire, Earthquake, those kinds of things. So I think it'll be out there. It's something that Does make sense in certain types of areas, but from a substitution, at least as it pertains to our business, it's still pretty, very small.
Got it. Okay. That's helpful. And my other one was kind of a big picture in nature. And just looking at inflation and how it actually impacts your I mean, you talk about inflation as a headwind and sort of suggested if it goes away, that's a good thing.
But yet, You just posted a record quarter right in the middle of this inflationary environment. So obviously, that inflationary environment is helping The Ag business, the irrigation business, because of commodity prices and farm incomes, it doesn't seem to be hurting the other businesses. I mean, if you think about why steel is up, it's Because you and your peers are seeing a lot of demand. So I mean, would inflation going away, and even though that helps you on the cost side, Would that really help us from an earnings standpoint? Or would that sort of be more than offset by negative demand Circumstances of that environment changing out there?
Yes. The reason for our comment about the headwind is particularly as it moves so fast, Our pricing mechanisms, most specifically in utility, can't catch up fast enough. And so As inflation abates, even if it just plateaus, we will then see a pretty significant catch up in margins. So if you think about how we go into 2022, we'll have a catch up in March. Long term, we've always said we like inflation.
It's just when it moves this quickly, it does provide some drag on the business. But if inflation were a more typical 3% to 5 Percent, that's very healthy for our business. So you're right that You could worry about demand destruction, but it's not something that we're worried about in the present time, because markets are strong. It's just been the rate has been so dramatic that you're playing catch up with your pricing to catch that. We've seen it in irrigation, which is why we didn't get maybe a little more leverage in irrigation.
It's utility, dollars 8,000,000 worth of steel costs that we could not pass through in price. But as you get to a more normalized either growth of inflation or just even a plateau, we tend to catch up very fast. It does consume a lot of working capital too in the meantime, which is another consideration. But We've been well capitalized and we have the wherewithal to be able to handle.
Got it. Well, hey, look, I appreciate the comprehensive
response. Thank you.
Thank you. Our next question is coming from Brian Drab of William Blair. Please go ahead.
Hi, good morning. This is Blake Heating on for Brian.
Hey, Blake. Hi.
You guys mentioned last call meaningful sequential improvement in the second half utility margin. Do you still expect that improvement to be around 200 to 300 bps This is the first half? Yes.
It would be definitely approaching more of our, let's say, normalized kind of margins in there. So if you think about the performance of the segment at 10% to 11% operating, we would get closer back to that as we look at the second half of the year.
Got it. Thank you. Then just one quick follow-up. What are some of the drivers behind the international strength in irrigation outside of the Egypt project? Was any of the strength in Brazil pre buying ahead of further price increases or anything of that nature?
It is broad based. It's every one of our served markets. And so if you look at Europe, it's based on just normal ag fundamentals And very good net farm income projections. And so Europe across the board, both Western Europe, Eastern Europe and kind of the Ukraine, Russia area have all performed extremely well. We're seeing additional project work outside of Egypt and Africa, As we mentioned in our comments and Brazil, the Phenomie program and the fact that It's still a U.
S. Dollar derived commodity, really have accelerated the demand there as Brazil, Let's say, next to the U. S. Is really helping to get protein stocks built back up, whether that's chicken, pork, beef. As we know, there's some pretty notable shortages out there around the world, both here in the U.
S. And in China. So Those fundamentals are what's driving the order flow globally.
Got it. Thank you.
Thanks, Blake.
Our next question is coming from Jon Braatz of Kansas City Capital. Please go ahead.
Good morning, Steve and Avner. Good morning. In the solar area, your solar business seems to be gaining some momentum And the solar industry is rather
strong at
this point. I guess my question, Steve, is do you See yourself gaining share in that business, in that industry at this point? Or are you sort of just matching what the market It is giving you.
I'll answer it twofold. I think in the short term, We're very careful because of the cost profiles, particularly around steel and some of the PV shortages that are out there. Some players in the industry got caught, we didn't. So we forego some orders simply because It would have been loss making. I think as we look at some of our awards that we've announced, those are at margin levels where we can make good money.
And I think that's accelerating as people see more and more of us, particularly in the U. S. Market. In the agricultural space, that is a brand new business for us and accelerating very quickly. And so as large food processors are thinking about ways to hit their own ESG targets, They don't want to go to electrical contractor, another electrical contractor, have risk of performance, Etcetera.
So the bankability of our balance sheet, our Valley dealer network, as well as a company that's been in The utility power generation business for well over 40 years, I think that's going to really help us to grow market share as we go forward. So it was a great quarter by both teams, the utility and the ag team. And I think you'll start to see that As the market kind of recalibrates around the new cost structure, solar generation is still on A very solid ground as compared to other generation sources. I think what you'll see in the market is The idea that cost minus kind of goes away in this kind of environment.
Okay. Okay. Thank you. One other question. On the irrigation side, the North American farmer is going to have a pretty good year.
And as they look at their Tax situation at year end, would you envision that there might be a, if You want to call a surge in business in the 4th quarter as growers try to reduce their taxable income?
As it would stand right now, that kind of dynamic we've seen in the past, so it's very plausible That would happen. Obviously, if there were some tax changes out of Washington, D. C, that could be more pronounced. And so we're standing ready to take advantage of it if it does occur. But it's Quite a plausible scenario as we've seen through the way farmers purchase and do tax planning together.
Okay. All right, Steve. Thank you very much.
Thank you. Our next question is a follow-up coming from Ryan Connors of Boenning and Scattergood. Please go ahead.
Hey, thanks for taking the follow-up. I just wanted to get your take on the sort of the infrastructure bill situation. I mean, It's sort of ironic, we cover infrastructure stocks exclusively and we're 3 for 3. Velma is the 3rd company this week for us to report infrastructure company Report record revenue and earnings and yet we've got Congress still kind of debating an infrastructure bill to stimulate that market. What's your take?
I mean, do you think that's going to happen? Does the market even need stimulus at this point? It seems like things are going pretty well.
Yes. We had said in our outlook earlier, that an infrastructure build to us would be incremental and not accounted for in our guidance. That's because states and state spending make up the vast majority of what we see in our business. So at a federal level, if more came in, it's really like additional adrenaline to the market. And so It would help.
It would move things along. It would be definitely incremental to our business, but it's not necessary In terms of just the way our business performs quarter over quarter, I think that the chances Are still good that something will come out at least along bridges, highways and roads. It's Kind of the other side of telecom and transmission that is still debatable based on funding and how they're going to pay for it. So I would say right now it's fifty-fifty, but we're not banking the business, so to speak, on having to see something come out of Now in Australia and Europe, we have seen stimulus. They've gotten it through.
It is a part of helping our business even in the current profile.
And can you just remind us what's order of magnitude, how big is U. S. Road and Highway Type projects as a percentage of total Belmont, let's say, revenue?
Well, I would say within the ESS segment, If the segment itself is close to $1,000,000,000 the traffic and lighting piece is Maybe 3 quarters of it. And of that DOT work, I'd say probably half. Okay. Okay. The commercial mining that just goes to commercial and then we have the DOT piece.
So I think that's probably the way to look at it.
Got it. Thanks again for your time.
Thanks, Ryan.
At this time, I'd like to turn the floor back over to Ms. Campbell for closing comments.
Thank you everyone for joining us today. As mentioned, today's call will be available for playback on our website or by phone for
Included in this discussion 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 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 made as of the date of this discussion and the company does not undertake to update any forward looking statements.
This concludes