Valmont Industries Inc

NYSE:VMI

Earnings Call Transcript 2021-Q4

[Operator]

Greetings. Welcome to Valmont Industries, Inc Fourth Quarter and Full Year 2021 Results. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Renee Campbell, Senior Vice President, Investor Relations and Treasurer. Ms. Campbell, you may begin.

[Renee Campbell]

Thank you, and good morning. Welcome to Valmont Industries fourth quarter and full year 2021 earnings call. With me today are Steve Kaniewski, President and Chief Executive Officer; Avner Applbaum, Executive Vice President and Chief Financial Officer; and Tim Francis, Senior Vice President and Corporate Controller. This morning, Steve will provide a brief summary of our fourth quarter and full year results. commenting on our markets and long-term business strategy. Adam will review our financial performance and provide our outlook and indications for 2022 with closing remarks from Steve. This will be followed by Q&A. A live webcast of the presentation will accompany today's call and is available for download from the webcast or on the investors page at valmont.com. A replay will be available on our website later this morning. Please note that this call is subject to our disclosure on forward-looking statements, which applies to today's discussion is outlined on Slide 2 of the presentation and will be read in full at the end of the call. I would now like to turn the call over to our President and Chief Executive Officer, Steve Kaniewski.

[Steve Kaniewski, President and Chief Executive Officer]

Thank you, Renee. Good morning, everyone, and thank you for joining us. Before reviewing our fourth quarter and full year highlights, I would like to acknowledge and thank our global team of 11,000 employees for their tremendous performance operating through another year of ongoing pandemic impacts and supply chain volatility. I could not be more proud of their hard work and dedication to serving our customers with innovative and essential products and services. Throughout this year, they have remained true to our core values, operating with passion and integrity driving continuous improvement and delivering results while prioritizing safety in our workplace and in our communities. Moving on to the business. Our solid performance this quarter once again demonstrated strong demand across the portfolio and consistent execution of our growth strategies. We delivered record sales and grew adjusted operating income 24% year-over-year, reflecting the resiliency of our business and execution by our teams. Like many others, we have faced the impact of broad-based inflation, supply chain and pandemic-driven labor constraints impacting Valmont, our customers and our suppliers. While we have been managing through this environment well, these constraints challenged our ability to achieve full productivity levels in many of our North American facilities in the quarter. Now let me move to a brief fourth quarter overview summarized on Slide 4 of the presentation. Net sales of $963.3 million, a fourth quarter record increased more than 20% year-over-year. Sales growth was realized in all segments, led by higher pricing and strong broad-based market demand with another quarter of significant growth in irrigation. Moving to the segments and starting with utility. Sales of $324 million, grew nearly 20% year-over-year, led by substantially higher pricing and strong underlying demand as utilities continue to invest in upgrading and hardening the grid. Additionally, sales of Solar Tracker solutions were higher driven by increasing investments for renewable energy generation. This is providing a favorable demand driver for us in 2022 and beyond. As our backlog of utility scale and distributed generation projects has grown 3 times compared to 1 year ago. Additionally, our broad product portfolio uniquely positions us to supply every type of electric grid structure within the utility market, and we are making strategic investments in capacity and technology to meet the growing market demand. Moving to Engineered Support Structures. Sales of $291.9 million, grew 14% year-over-year, led by favorable pricing in all markets. And sales growth of more than 50% in wireless communication products. Our swift and deliberate pricing actions in this segment benefited us throughout the year and international markets continue to benefit from higher stimulus and infrastructure investments, especially in Australia. Demand in our wireless communications business remains very strong, driven by 5G build-outs and significant investments by the major wireless carriers. Turning to Coatings. Sales of $98.2 million grew nearly 10% year-over-year, driven by higher average selling prices, improved general end market demand and sales from our new greenfield facility in Pittsburgh. Moving to Irrigation. Global sales of $276.8 million grew nearly 40% year-over-year, with sales growth in all regions and higher sales of technology solutions. In North America, sales grew 55%. We continue to benefit from strong underlying market fundamentals and positive net farm income projections which are driving farmer sentiment as reflected in very strong order flow. International sales grew just over 23% year-over-year. We achieved another record quarter of sales in Brazil and solid demand in Europe, Australia, Middle East and Africa is giving us a good line of sight into 2022, including ongoing deliveries of our Egypt project. Last quarter, we highlighted our differentiated solar solutions for agriculture. Our market expansion strategy is leading to growth in North America, Africa and Europe. And I'm pleased that sales are expected to more than double in 2022 based on market demand and the current pipeline of orders. Turning to the full year summary on Slide 5. Net sales grew 21% year-over-year to a record $3.5 billion, driven by deliberate pricing strategies, strong markets in our businesses and focused execution by our teams. We achieved considerable growth in all segments, exceeding our expectations for both revenue and earnings. Through strategic capacity expansions and lean methodologies, we successfully added incremental volume within our existing facilities, a testament to the hard work by our operations and planning teams. Turning to the segments. Strong sales growth of 12% and utility support structures led to sales of $1.1 billion, driven by pricing actions and continued robust demand for grid resiliency and renewables. In Engineered Support Structures, sales grew 6.9% to $1.1 billion. Despite lower transportation volumes in North America as expected. Our relentless focus on pricing actions and improved operational performance benefited us throughout the year. Additionally, growth of wireless communication products grew 26% year-over-year to $240 million, exceeding our expectations. Turning to Coatings. Sales grew nearly 12% to $386 million, tracking in line with improved industrial production levels globally. Favorable pricing, higher volumes and favorable currency impacts contributed to sales growth. Turning to Irrigation. Sales grew nearly 60% to more than $1 billion, a record for Valmont, supported by 2021 projected net farm income levels, which increased to approximately $120 billion, the highest level since 2013. In addition, the long-term market drivers of food security, resource conservation and reduction of input costs are supporting solid demand of our innovative products and solutions globally. In Brazil, revenue more than doubled year-over-year, and we achieved higher sales in Europe, Australia and Middle East markets. Sales of Irrigation Technology solutions approached $100 million, growing 45% year-over-year, in line with our expectations. The acquisition of Prospera Technologies this past year accelerated our commitment to make the firm more efficient and increase productivity while considerably improving sustainability. This past year, we focused heavily on integrating the team and executing our strategy to scale and expand market presence. As we enter 2022, we are targeting growth of subscriptions under a recurring revenue model. Turning to Slide 6. During 2021, we took significant steps to advance our ESC strategy and communication capped by an overall improvement in ISS scores for environment and social since the beginning of the year. I look forward to the release of our 2022 sustainability report in late March. Over the past year, we have made remarkable strides to minimize our environmental impact while delivering increasingly efficient and sustainable solutions for our customers that support critical ESG principles. This year's enhanced report highlights additional programs and goals and alignment to new frameworks, including the United Nations sustainable development goals, SASB and TCFD, along with our continued commitments to invest in sustainable solutions and technology that will positively impact the future of our stakeholders. I'm happy to announce that upon the release of our 2022 report, we plan to host a conference call to highlight our accomplishments throughout the year and share more about our ESG journey at Valmont. With that, I will now turn the call over to Avner for our 2021 financial review and 2022 outlook.

[Avner Applbaum, Executive VP & CFO]

Thank you, Steve, and good morning, everyone. Turning to Slide 8 and fourth 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. Fourth quarter operating income of $85.6 million or 8.9% of sales, grew 24.4% year-over-year driven by higher volumes in irrigation and favorable pricing, notably in Engineered Support Structures. Diluted earnings per share of $2.73, grew 24% compared to last year, primarily driven by higher operating income and a more favorable tax rate of approximately 22%, which was realized through the execution of certain tax planning strategy. We also delivered return on invested capital on an adjusted basis of 11.7%, an increase of nearly 16% year-over-year and the highest level for Valmont since 2013. Turning to the segments and starting with our infrastructure businesses on Slide 9. In Utility Support Structures, operating income of $36.9 million or 11.4% of sales increased 110 basis points compared to last year as the benefits of price recovery through contractual mechanisms became more aligned with raw material costs. I want to take a moment to comment on the wind business in Northern Europe. During the fourth quarter, the European Union announced a lower-than-anticipated tariff rate that will be imposed on imports of steel wind towers. This led to a required impairment test, which resulted in a pretax noncash impairment of $27.9 million related to long-lived assets. Our local management team has taken strategic action to reduce costs and increase gross profit. These actions are expected to limit anticipated losses in 2022 and position the business to best serve our customers in the future. Moving to Slide 10 and Engineered Support Structures. Operating income increased to $29.2 million or 10% of sales, an improvement of 50 basis points year-over-year. We continue to benefit from pricing actions, which more than offset the impact of cost inflation. Better fixed cost leverage, including SG&A, also contributed to positive results. I'm also very pleased that we achieved full year operating margin of 10.8% of sales an improvement of 180 basis points year-over-year. Turning to Slide 11. In the Coatings segment, operating income of $10.3 million or 10.5% of sales, decreased 270 basis points year-over-year. Profitability was impacted by a lag in pricing to recover higher cost inflation, including raw materials, labor and freight, and operational impacts due to COVID-related labor inefficiencies in many of our facilities. Margins were also impacted by a higher mix of internal volumes compared to last year. Moving to Slide 12. In the Irrigation segment, operating income of $33 million or 11.9% of sales decreased 80 basis points year-over-year. Profitability improvement from higher volumes and the benefit of continued pricing actions were more than offset by higher input costs that were not fully recovered by price and incremental SG&A expense from the Prospera acquisition completed earlier this year. Turning to cash flow on Slide 13. In 2021, we delivered operating cash flows of $65.9 million, reflecting higher working capital levels to support strong sales growth. As we've stated in prior quarters, we took decisive action to strategically source raw materials throughout the year to help secure availability and meet strong customer demand. We expect to continue these actions in the first half of the year to help mitigate supply chain volatility and expect a notable improvement in cash and working capital levels in the second half of the year. As we have repeatedly demonstrated in the past, we're confident that our actions as a team will help us deliver strong cash flow as supply chain and material costs stabilize, with full year operating cash flows expected to significantly exceed net earnings in 2022. Turning to Slide 14 for a summary of capital deployment. 2021 capital spending of $108 million included $45 million for strategic growth investments. Additionally, $67 million of capital was returned to shareholders through dividends and share repurchases, ending the quarter with approximately $177 million of cash. By far, the largest use of cash from a capital deployment perspective was the $313 million for 2 acquisitions in the Irrigation segment, Prospera Technologies and PivoTrac, both of which fit our long-term ag tech strategy. We continue to maintain a balanced approach to capital allocation that enabled us to grow our business while returning cash to shareholders. Moving now to Slide 15. Our balance sheet remains strong, and total debt to adjusted EBITDA of 1.9 times remains within our desired range of 1.5 times to 2.5 times. Let me now turn to Slide 16 for our 2022 outlook, including a few key metrics and assumptions. We are increasing the 2022 full year guidance metrics that we stated last quarter. Net sales are now expected to increase 9% to 14% year-over-year to a range of $3.8 billion to $4 billion, which assumes an unfavorable foreign currency translation impact of 1% of net sales. Adjusted earnings per share is now estimated to increase 12% to 19% year-over-year to a range of $12.25 to $13, excluding any further restructuring activities. These metrics reflect strong market demand, our solid execution in 2021 and our confidence in our ability to continue this performance. We also assume that steel costs for the year have stabilized. Other metrics and assumptions are summarized on the slide and in the press release. I want to also briefly comment on the operating margin expectations for the year. The rising cost of wages, logistics and other broad-based inputs have not subsided and we continue to work through some higher cost inventory. As such, we will continue implementing additional price actions as needed across our businesses to offset cost increases, and we expect these higher costs will be fully offset during the course of 2022. We anticipate some difficulty to gain operating leverage and higher sales in the first half of the year as we work through the higher cost inventory and other inflationary pressures. We expect margin improvement year-over-year as pricing becomes more aligned with cost throughout the remainder of 2022. Additionally, investments in technology and strategic growth initiatives across the portfolio remain a high priority for us this year. Finally, for modeling purposes, we will recognize a full year of SG&A associated with the Prospera acquisition and Irrigation segment. To summarize, the strong market demand across our businesses, strength and flexibility of our global teams and our continued pricing strategies give us confidence in achieving our sales and earnings per share targets. With that, I will now turn the call back over to Steve.

[Steve Kaniewski, President and Chief Executive Officer]

Thank you, Avner. Turning to Slide 17. We are benefiting from the long-term drivers in all of our businesses as evidenced by our record global backlog of more than $1.6 billion, an increase of 40% from year-end 2020. These demand drivers are providing momentum as we enter 2022, and our business portfolio is well positioned for growth. Like others, we are closely monitoring inflation, supply chain volatility and labor availability. We are ready to take additional actions to address these issues across all our businesses as needed. Moving to the segments on Slide 18. In Utility Support Structures, we expect solid margin improvement from strong market demand and the benefit of previous price impact. Turning to Engineered Support Structures. We expect continued stable market conditions in North American transportation markets and order rates continuing to improve. Demand for wireless communication products and components remains very strong, and we are on track to grow sales 10% to 15% this year, in line with expected market growth. Moving to Coatings. We remain focused on pricing actions to recover cost inflation of zinc and other broad-based inflationary items and expect continued improvement in industrial production levels globally. Moving to Irrigation. We expect a strong year based on strength in global underlying ag fundamentals, a robust global backlog and continued technology adoption. We are taking deliberate steps to address labor constraints and employee retention, notably in our U.S. facilities. We're doing so through a deliberate approach that's specific to the markets where our factories are located, working with communities and enhancing training programs to attract and retain talent. Turning to Slide 19. In summary, I'm very pleased with our strong results and our team's ability to navigate through challenging market dynamics. We've demonstrated our ability to grow sales through innovation and execution while being flexible and responding quickly to meet customer needs. We've increased operating income by executing on our pricing strategies and advancing operational excellence across our footprint. And we have invested in our employees and technologies to drive new products and services and build upon the strength of our operations. We remain disciplined in allocating capital to high-growth strategic investments while also returning capital to shareholders through dividends and share repurchases. When we entered 2021, our focus was on managing what we could control, and that's exactly what we've done. As we look ahead to 2022, we plan to apply the same focus on execution, serving our customers and ESG principles to further build upon our success, while maintaining investments for growth. Generating positive operating cash flow and improving return on invested capital. I will now turn the call back over to Renee.

[Renee Campbell]

Thank you, Steve. At this time, the operator will open up the call for questions.

[Operator]

[Operator Instructions] Our first question today is from Chris Moore of CJS Securities. Please proceed with your question.

[Chris Moore, CJS Securities]

Couple of questions. When you look at the fiscal '22 revenue guide 9% to 14%, roughly, how does that break down between volume growth and price growth overall?

[Avner Applbaum, Executive VP & CFO]

Yes. This is Avner. So if you look at the lower part of the range, you get more volume than pricing. And then if you look at the higher part of the range, you'll get more pricing than volume. And a lot of the pricing is dependent on kind of the steel as we have our pricing mechanism with utilities, I'd say, more value in the pricing on the lower end and higher pricing and the volume on the higher end.

[Chris Moore, CJS Securities]

Probably gotten a little spoiled by you providing some specific near term, along with the annual guidance. Can you provide any more kind of specific thoughts on kind of the Q1 outlook. I know you had said that margins should be improving in second half of the year. Anything else in terms of Q1 that we should be thinking about?

[Avner Applbaum, Executive VP & CFO]

Yes, sure. Well, so first of all, we need to remember, Q1 does have a big seasonality in some of our businesses, so we always need to factor that in. Overall, right, we still have some inflation working through some higher cost inventory, and we did start the year, we had a little bit of a coded impact with microns, all that kind of factor into the guidance. And we will continue to see strength and continued margin expansion throughout the year.

[Chris Moore, CJS Securities]

Last one for me. So on the irrigation front, as the EG contract rolls off at the end, do you have enough visibility in 2023 to know if there will be a meaningful gap on the international revenue side?

[Steve Kaniewski, President and Chief Executive Officer]

So Chris, this is Steve. I would say that when we put together our guidance, if you look at the low end, we assume maybe about $25 million for this year related to that project on the high side about $75 million. So you take the midpoint around $50 million. We have enough, as we look into the pipeline for 2023, that, that would then continue probably around that level of 50 just on a normal pipeline basis. So we don't see a big gap developing between 2022 and 2023.

[Operator]

The next question is from Brian Drab of William Blair. Please proceed with your question.

[Brian Drab, William Blair]

Just following on the Egypt project, I thought that, that was running more, Steve, like a $25 million a quarter run rate. Is it something change there? Is that, what was it, $240 million and started in the fourth quarter of '20, right? Or we're in the 19 -- '20, I guess Yes. So I thought it was going to run $25 million a quarter all the way through '22.

[Steve Kaniewski, President and Chief Executive Officer]

Yes. They're a little behind in the infrastructure there locally in terms of canals, roads and other things. And so there's been already a little bit of a pullback in shipments in the fourth quarter of '21. And then as we go in, that's about what we're anticipating. So there will be some carryover into '23 as that infrastructure gets built out. So if they were keeping up completely on pace on that side, then your original assumption would have been correct.

[Brian Drab, William Blair]

So some of this project -- the specific project will carry over into '23. And then also, is there a potential for add-ons to this project following the completion of the phase?

[Steve Kaniewski, President and Chief Executive Officer]

Yes. President Al-Sisi just visited in December, the site, very excited about the progress and the fact that they're already producing a lot of crop and talked up the agricultural story in Egypt. And so we do see a pretty strong pipeline, not just with our customer, but there's other customers in Egypt as well. And so there's a very distinct possibility of follow-up projects coming out of this project.

[Brian Drab, William Blair]

And then you gave such a optimistic and positive forecast for 2022 on the top line. Has the infrastructure bill influenced your forecast? Or is that still -- is that possibly still more of a 2023 impact on Valmont?

[Steve Kaniewski, President and Chief Executive Officer]

That's correct. It's -- what we've included in 2022 is basically the current pipeline, I'll say, pre-infrastructure build that will help as we go into '23 and '24, specifically. But right now, a lot of that is coming from the utility industry. It's the stronger irrigation numbers, the pretty robust telecom numbers that we've been seeing come through the pipeline and then just the general pickup of industrial production helping coatings.

[Brian Drab, William Blair]

And then last one. For me is -- since we talked to you a couple of months ago, I guess, like 3 months ago or heard from you on the third quarter call, what has changed? What are the most significant changes that you've seen that influenced the increase in the guidance for 2022?

[Steve Kaniewski, President and Chief Executive Officer]

Again, it's just a strong pipeline of orders. I think our operational execution through that time period allows us and gives us a good visibility into what we can produce coming into the year. I think the fact that the pricing and the great work done by the teams on pricing is enhancing some of that. And just the general ability to kind of motor through some of the supply chain constraints, COVID issues, et cetera. So we were taking a conservative view early on. And as we've gotten closer to the year, we can see a better path forward.

[Operator]

Next question is from Brent Thielman of D.A. Davidson. Please proceed with your question.

[Brent Thielman, D.A. Davidson]

The Utility business historically has had longer lead times. Steve, just wondering how much of that year-end backlog you think will convert in 2022 versus the out years?

[Avner Applbaum, Executive VP & CFO]

Yes. This is Avner. I can take that. But at this point, the majority of the backlog is for 2022. We have several long-term projects that kind of go into 2023, but when I look at it, I'd say that the vast majority is for the upcoming year.

[Brent Thielman, D.A. Davidson]

Okay. And I guess my follow-up would be on the Solar Tracker business. It sounds like things are moving along well there. Could you talk about the impact of supply chain issues around that business, in particular, certainly heard some challenges in certain places. And I guess, to what degree that's kind of disrupted timing of projects?

[Steve Kaniewski, President and Chief Executive Officer]

Yes, Brent, when we look at '21, we were disappointed in the fact that we couldn't get more out, both on the customer side, the projects that got pushed because of module availability and then just the general upheaval with steel and what that kind of did to a lot of projects. So we only did maybe a little over $60 million in '21. We expect that to kind of double next year or into 2022 as a lot of those issues -- I won't tell you are going away, but are being tempered, much like you see in the automotive industry. There's some supply coming online. There's better availability of modules. And I think the market has generally understood kind of the steel dynamics that are out there. And so that's allowing more prices to move forward. And our distributed generation approach, which is a little different than most is also helping us give us a lot more visibility to being able to ship these smaller projects more frequently. And so that kind of limits our risk from the one big project being pushed and then that's kind of upending our forecast.

[Operator]

The next question comes from Ryan Connors of Boenning and Scattergood. Please proceed with your question.

[Ryan Connors, Boenning and Scattergood]

I wanted to sort of unpack this offshore wind issue a little bit. I mean it's a pretty big number, especially for a relatively discrete business. I understand you're kind of trying to pass it off as being onetime not material. But Avner, your comments about cost cutting there on an ongoing basis and the team there trying to sort of take action suggest that there is actually a fundamental impact here to the competitiveness of that business. So can you just kind of unpack that for us a little bit? I mean, to what extent is this tariff issue an issue for that business rather than just sort of a onetimer that we shouldn't really pay attention to?

[Steve Kaniewski, President and Chief Executive Officer]

Darrin, this is Steve. When you look at the wind business, particularly in Europe, this has been a challenge we've been under for, frankly, the last couple of years. And volumes historically are down. And there's definitely a forecast out there for volumes to pick back up, a lot of strong data that suggests over the next, let's say, 2 to 3 years, we'll see an uplift in volume. But when you get a very tight volume market and then don't have the protection of, let's say, the U.S. wind market enjoys, that's really what's affecting us in having to kind of reevaluate the cost structure of the business. And so we've been trimming costs over the last couple of years. We've been doing a lot of self-help. That's not been in any of the adjusted earnings. We've really been just kind of going at it and working that angle. We do, and we are optimistic that the team there will be able to capitalize as volume recovers in the markets. Because we are one of the few players left, specifically in Europe that can do rotor houses and some of the larger offshore wind structure. So there will always be an element that they will have to buy from Europe just for lead time purposes. There could be also some strategic purchasing done by countries to make sure they secure local content. So the combination of other bankruptcies that have occurred in the industry, we would have liked to have gotten more help here because that would have been a quicker recovery for us, but we still do see a path to get back to profitability, but not in 2022.

[Ryan Connors, Boenning and Scattergood]

Okay. So -- but just conceptually, is it fair to say that certain types of onetime or is a discrete tax hit or closing down a defined benefit plan or something. I think we're comfortable looking at those as just complete, not related to the fundamentals of the business. I mean, is it safe to say that this this charge and the impairment does actually reflect some fundamental difference in how the business is viewed from a profitability and competitive standpoint. Is that a fair contrast to draw?

[Steve Kaniewski, President and Chief Executive Officer]

Yes.

[Avner Applbaum, Executive VP & CFO]

Yes. I would say so, right? Looking at your future income and your count of cash flows, et cetera. So the answer to that would be, yes.

[Ryan Connors, Boenning and Scattergood]

Okay. And I had one more just on irrigation. There's been a lot of talk about the bullish side of irrigation and we're there, like we think that it's a great outlook. But there has been some talk recently about the fact that farmers are also facing their own inflationary challenges. Fertilizer costs are way up and that, that could lead to a plateauing or a stalling of farm income despite the high commodity prices. What's your take on that side of things?

[Avner Applbaum, Executive VP & CFO]

No. At present, the models that are out there show that that farm income is still growing faster than the inflation. And so we remain also cautiously optimistic that, that dynamic will continue. I think the other thing that probably not -- nobody knows exactly yet, but it's been pretty dry around the world. And we know historically that when you see both in South America and North America, these dry conditions, that usually is a little more bullish for commodity prices, particularly as we get later into the spring and the effects of that are seen. So I think -- right now, the combination of net farm income kind of exceeding inflation and not the best growing conditions should remain to the benefit of those who can produce and have the water to produce good yield going forward.

[Operator]

The next question is from Nathan Jones of Stifel. Please proceed with your question.

[Nathan Jones, Stifel]

If I'm really asking a question, just tell me to read the transcript my phone got out at the start of I just wanted to ask a question around the 9% to 14% revenue guidance. I wonder to see if we can get some color on what's price versus volume in that? And then what are the pivot points between the high and low end of guidance?

[Steve Kaniewski, President and Chief Executive Officer]

Okay. So overall, when you look at the volume part, I'd say, look at it as a mid-single-digit volume for the year. The pricing, right, Steve mentioned a little bit about the Egypt order, right, that, that kind of can go from $25 million to $75 million, so factor that in as well. And then on the lower end versus the higher end, the big difference there is going to be the pricing and a lot of that is based on kind of the utility mechanisms for pricing as it relates to steel costs. So that's kind of how I would look at it.

[Nathan Jones, Stifel]

The utility margins did pick up significantly. We've been talking for a few quarters about that contractual catch-up to steel prices. Have you caught up now on those contracts that have the escalators in them? Or is there still reset to go in those contracts that should be a tailwind to margins as we get into 2022?

[Steve Kaniewski, President and Chief Executive Officer]

Yes. We haven't quite caught up yet. You will see some headwinds in Q1, slightly in Q2. But as we go throughout the year, you'll see significant margin expansion.

[Nathan Jones, Stifel]

And last one for me. You did mention adding some capacity in specific areas of the business. with mid-single-digit volume growth expected in 2022. Are there other areas of the business where you're starting to put up against capacity limitations -- is there a requirement there some additional CapEx to expand capacity, just any color you can give us around that?

[Steve Kaniewski, President and Chief Executive Officer]

Yes, they've been nothing really from the base business perspective. Our operations teams and lean teams have done a great job of giving us additional capacity with the current footprint. As it pertains to kind of growth, we have a new concrete facility in the utility segment that will come on, that's growth-oriented. We're looking at some diversification of our supply chain around the world, particularly in irrigation. So some expansion in Brazil, and we're completing some expansion in Dubai. But most of -- what we're doing is either capacity maintenance, Industry 4.0 for the strategic additions for growth markets.

[Operator]

[Operator Instructions] Our next question is from Brian Drab of William Blair. Please proceed with your question.

[Brian Drab, William Blair]

I just wanted to follow up and ask, given the backlog is up more than 40%. First of all, what -- how does that break down between price and higher prices and volume. And why couldn't your revenue be up much more than what you've guided given you're going into the year with such a strong backlog, especially given when you look at how much backlog was up a little over 20% going into '21 and then you grew revenue kind of commensurate with that.

[Steve Kaniewski, President and Chief Executive Officer]

Yes. So when you look at the backlog, the majority of the backlog is pricing. When you look at the volume, if you take out some specific projects or some project timing, it's mid- to high single-digit volume growth. And both of those factors kind of support our 2022 guidance. So that's kind of how I referred to the backlog. And right now, in terms of the overall revenue, this is where we feel comfortable both on the kind of the low side and the high side based on just constraints still out there in supply chain, potential reactions to inflation by our customers. Now if all those things were to moderate and to life moves back to kind of pre-COVID era, then there obviously could be more upside, but this is where we feel comfortable right now.

[Brian Drab, William Blair]

And Avner, just to clarify, you said that if you adjust for some specific projects, volume is up mid- to high single digits. But why would we adjust specific projects out there and those are going to generate revenue?

[Avner Applbaum, Executive VP & CFO]

Yes. I'll just give you an example, like if you look at the large Egypt project, right, when we booked it at $240 million as you eat through that backlog, right? So that backlog will shrink over time until the project is done. So just trying to kind of exclude those to give you a better flavor of kind of the volume growth that we have projected based on our backlog.

[Brian Drab, William Blair]

Okay. So the run rate increase is mid- to high single digits. But would I be too optimistic to think that there could be potentially upside. I mean, if you went to -- if you got through all this backlog in '22, no matter where it came from, it seems like you could exceed the -- potentially exceed the revenue guidance if you work through -- whether it's volume or price?

[Avner Applbaum, Executive VP & CFO]

Yes. I mean, as Steve said, right, as we kind of work through our productivity and get through COVID and bookings throughout the next several months and quarters, then the answer to that would be, yes.

[Brian Drab, William Blair]

Okay. And then I just wanted to ask you, did I miss an update on the solar tracker business specifically? Is there anything you can tell us about that in terms of what the revenue was for? And what the growth is expected to be in '22, and how share -- if you're gaining a share in that market in the United States.

[Steve Kaniewski, President and Chief Executive Officer]

Yes, Brian, I mentioned that we did a little over $60 million in '21, and would expect that to kind of double in 2022. And it's a combination of we know how to price it. We're not doing singular large projects, but a lot of different small projects as a total envelope so that we have a little more consistency in the revenue throughout the quarters.

[Brian Drab, William Blair]

And are you getting more traction outside of Europe with that business now?

[Steve Kaniewski, President and Chief Executive Officer]

Of course. Yes. We got backlog here in the U.S. Obviously, Brazil is a big market for us. And the DG is kind of scattered to route. So that's where our international footprint and the fact that we do business in all these countries already is really helpful to us.

[Operator]

The next question is from John Braatz of Kansas City Capital. Please proceed with your question.

[John Braatz, Kansas City Capital]

Steve, it's a very favorable market out there in the agricultural area. And I could see maybe some incentive for growers to try and squeeze as many bushels per acre out of every -- out of their production. And -- given this environment, are you seeing any acceleration or greater interest in some of your agricultural technology products? The environment is pretty favorable, they have the cash, are you seeing any additional momentum in adoption?

[Avner Applbaum, Executive VP & CFO]

Yes, Brian -- absolutely, John. We've seen a lot of traction across the technology portfolio. It's both a combination of productivity that they get more yield, it's the fact that there are inflationary pressures on the inputs. So anything we can do to limit that input, they look at that as a cost savings and kind of also just the overall labor availability productivity is, all of these solutions really cut down the need to go out to the field to have people that are constantly start going back to different fields. And that now -- if you take the early generation of technology, with kind of the remote telemetry, that's already proved at this point. And so most growers, no matter how long they've been in the business, realize that, that is a true savings of time and money. And so now as we bring more products and services into the technology area, they're more willing to take a look, and they're signing up to try things. And it's not so easy to get equipment right now. So they have to put cash somewhere. So that's also a favorable thing for us and why we saw the 45% growth that we did in 2021. So we're really optimistic as we look forward to people getting more accustomed to the technologies as a way to get that additional 5 bushels or 10 bushels per acre. But we think, ultimately, our solutions will do even more than that. But they're satisfied even just getting those kind of incremental gains, but we do believe that there is substantial gains that will be had as we go forward.

[John Braatz, Kansas City Capital]

Two follow-up questions. Can you give us an update on your pilot program, our pilot project in Uzbekistan? And secondly, credit availability is always important in Brazil. Any change in that dynamic as we enter into 2022 and 2023?

[Steve Kaniewski, President and Chief Executive Officer]

Sure. The first one is Kazakhstan. And with Kazakhstan, obviously, there were some geopolitical issues that occurred there. Our story there is we really help the government to address some of those quality issues rural income, overall income for the country. So we're still moving forward. We always take a look and make sure that everything is stable first. But that will continue, and we're very excited about the market. We saw a lot of organic growth in the market before our plant goes in already over the last 2 years. So it's been a very supportive market for growth as we go as we try to determine where the overall Kazakhstan business will go going forward. We look at that as the real driver for the region all around as we go there. What was the second part of your question?

[John Braatz, Kansas City Capital]

About credit and availability in Brazil as we go through 2023?

[Steve Kaniewski, President and Chief Executive Officer]

Yes. Right now, there's no changes. The Brazilian government has been supporting the FINAME program quite well. They have a good economist teams that really look at that. The growth in Brazil is notable because it will if it keeps going at this kind of pace will match the U.S. market probably within the decade in terms of overall agricultural productivity, especially because they can do 2 or 3 harvests a year. So we're very optimistic about that those credit changes. There are some favorable tax laws around solar and ag solar with net metering changes that are going on in Brazil. So everything points to continued growth there.

[Operator]

We have reached the end of the question-and-answer session. And I will now turn the call over to Renee Campbell for closing remarks.

[Renee Campbell]

Thank you for joining us today. As mentioned, today's call will be available for playback on our website or by phone for the next 7 days. We look forward to speaking with you again next quarter.

[Unidentified Company Representative]

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 states factors include, among other things, the continuing and developing effects of COVID-19, including the effects of the outbreak on the general economy and the specific economic effects on the company's business. and that of its customers and suppliers, risk factors described from time to time in Valmont's reports to the Securities and Exchange Commission as well as future economic and market circumstances, industry conditions, company performance and financial results, operating efficiencies, availability and price of raw material, availability and market acceptance of new products, product pricing, domestic and international competitive environments and actions and policy changes of domestic and foreign governments. The company cautions that any forward-looking statement included in this discussion is made as of the date of the discussion and the company does not undertake to update any forward-looking statement.