ヴァルモント・インダストリーズ 2026年第3四半期決算説明会サマリー

ヴァルモント・インダストリーズ（VMI）は、北米の電力インフラおよびコーティング部門が牽引し、第3四半期の売上高と利益が拡大したと発表しました。経営陣は通期の調整後EPS業績予想を引き上げた一方、鋼材やその他の投入コストの増加加速により、短期的には利益率への圧迫が強まると警告しました。

要点

• 売上高は前年同期比5.5%増の11億ドルとなり、営業利益率は220ベース・ポイント拡大して15.7%となりました。
• 希薄化後EPSは25.3%増の6.24ドルとなりました。ヴァルモントは2026年の調整後希薄化後EPS予想を22.75〜23.75ドルに引き上げました。
• インフラ部門の売上高は9.1%増の8億8,210万ドルとなりました。北米の電力インフラ売上高は23%増加し、販売量の増加が成長の大部分を占めたほか、価格改定も約2桁の寄与となりました。
• インフラ部門の受注残高は18億ドルに達し、主に電力インフラ向けの注文を反映しています。経営陣によると、2029年までのパイプラインは強化されており、受注は2028年まで好調に続いています。
• 農業部門の売上高は6.4%減の2億2,600万ドルとなりました。北米での15.8%の増収が、海外市場での25.3%の減収により相殺されました。
• 経営陣は、投入コストのインフレ、事業ミックスの変化、および第3四半期にあった一部の好影響の消失により、第4四半期の利益と利益率は緩やかになると予想しています。

主要財務実績

事業および業績動向

インフラ部門

北米の電力インフラ売上高は、販売量増加と価格改定に支えられ23%増加しました。経営陣は、通期の電力インフラ成長率を20%台半ば、販売量の伸びを2桁と見込んでいます。同社は、2029年計画の達成に必要な電力インフラ用鋼材の追加生産能力のうち、約20%を稼働させました。

北米のコーティング売上高は、電力建設およびデータセンター需要により13.8%増加しました。ヴァルモントは拡張プロジェクトの稼働に伴い、溶融亜鉛めっき能力のより多くを自社内需要へ割り当てる計画です。

照明および交通インフラ売上高は、堅調な交通需要があったものの、住宅および商業用建設活動の低迷が照明部門に悪影響を及ぼし、2.2%減少しました。

通信売上高は、5G基地局整備のピークを過ぎ通信キャリアが設備投資に慎重な姿勢を維持したため、33.8%減少しました。経営陣は不透明感が残るとしつつも、同様の状況が2027年まで続くと予想していますが、同年後半にかけて改善する可能性があることにも言及しました。

海外インフラ売上高は、価格改定と好意的な為替効果に支えられ5.5%増加しました。ヴァルモントはまた、大手電力会社に配電用ポールを供給するヨーロッパでの大口契約を獲得しました。

農業部門

北米の農業部門売上高は、主に嵐による強い買い替え需要が発生したことで15.8%増加しました。良好な価格設定と北米比率の高まりも収益性を後押ししました。

海外の農業部門売上高は、主に中東およびブラジルでの販売量減少により25.3%減少しました。それにもかかわらず、アフターサービス部品の売上高は約12%増加し、テクノロジー・サービスは機器需要が軟調であったものの7%成長しました。

農業部門の営業利益率は17.9%に達しましたが、これには主に南米での回収に関連する約700万ドルの一時的な好影響が含まれています。経営陣によると、これらの要因を除いた同部門の利益率は14%をわずかに上回る水準でした。

ヴァルモントは、テクノロジーおよび水管理ソリューションを網羅する1億ドル規模の北アフリカ向けプロジェクトを受注しました。出荷は2027年前半に開始され、約18〜24か月間続く見込みです。経営陣は、このプロジェクトの利益率は同部門の基準営業利益率をやや下回るものの、大きな開きはないと述べています。

経営陣による業績予想

経営陣は、2029年末までに1株当たり利益35ドルを目指す目標を維持しています。また、電力インフラおよびコーティングの生産能力拡大を支援するため、2027年の成長投資額を2026年比で倍増させる予定です。

リスクおよび注視事項

• 契約上の価格転嫁に使用されるサードパーティ製インデックスにおける鋼材の平均価格は、前年同期比で約50%高い水準でした。
• コスト環境が安定している場合、価格調整が業績に反映されるまで通常2〜3四半期を要します。経営陣は、投入コストのインフレが加速する中で、第4四半期には利益率への圧迫が強まると予想しています。
• 投入コストの高止まり、穀物価格の下落、ブラジルの高金利、および中東でのプロジェクト遅延により、農業部門を取り巻く環境は引き続き厳しい状況です。
• 第3四半期の農業部門の収益性は、嵐に伴う買い替え需要、良好な地域ミックス、および同水準での再発が見込まれない一時的な回収金の恩恵を受けました。
• 通信需要は引き続き低迷しており、経営陣は回復の時期に関する見通しは限られていると述べています。
• 需要の増加と新規生産能力の立ち上げに伴い、電力インフラ業界のリードタイムは60〜70週間に長期化しています。

アナリスト質疑応答の要点

• 価格改定とコストのタイミング：経営陣は、第3四半期の利益率への圧迫は軽微であったものの、第4四半期には増大する見込みであると述べました。利益率の改善は、契約に基づく価格転嫁が追いつくほど投入コストのインフレが落ち着くかどうかにかかっています。
• 電力インフラ事業の見通し：同社は、電力インフラ事業の長期目標に対する確信が高まったと述べました。顧客の支出、受注残高、および2029年までのパイプラインは強化されており、顧客の計画は2030年、一部の協議では2032年まで及んでいます。
• 2027年の電力インフラの価格設定：経営陣は、電力インフラにおける2桁の価格調整が2027年まで続くと予想していますが、これは主に利益に直接反映されるというよりも、鋼材コストの上昇を相殺するためのものです。
• 農業部門の利益率の正常化：経営陣は、第4四半期における北米と海外の比率がより正常な水準に戻ると予想しており、異例に好調だった第3四半期の利益率と比較して圧迫要因になると見込んでいます。
• 業界の生産能力：ヴァルモントは、公表されている増産計画にもかかわらず、電力インフラ需要は依然として供給を上回っていると述べました。経営陣は、競合との差別化要因として、エンジニアリングの専門知識、納期の信頼性、および長年にわたる顧客関係を強調しました。

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経営陣による説明

Operator

Greetings, and welcome to the Valmont Industries, Inc. Third Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I'll now turn the conference over to your host, Renee Campbell, Senior Vice President, Capital Markets & Risk. Ms. Campbell, you may begin.

Renee Campbell

Good morning, everyone, and thank you for joining us. With me today are Avner Applbaum, President and Chief Executive Officer; John Schwietz, Executive Vice President and Chief Financial Officer; Eric Johnson, Chief Accounting Officer; and Casey Meyer, Vice President, Treasury and Investor Relations.

Earlier this morning, we issued a press release announcing our third quarter 2026 results. Both the release and the presentation for today's webcast are available on the Investors page of our website at valmont.com. A replay of the webcast will be available later this morning.

To stay updated with Valmont's latest news releases and information, please sign up for e-mail alerts on our Investor site. We'll begin today's call with prepared remarks and then open it up for questions. A reminder that today's presentation and Q&A includes forward-looking statements about Valmont's expectations, plans and future performance. Actual results may differ materially from those expressed or implied. Important factors that could cause those differences are described under forward-looking statements, which is outlined on Slide 2 of today's presentation and in the risk disclosures in our most recent Form 10-K and subsequent Forms 10-Q available on our Investor Relations website at sec.gov. With that, I'd now like to turn the call over to Avner.

Avner Applbaum

Thank you, Renee. Good morning, everyone, and thank you for joining us. Turning to Slide 4. I would like to start by highlighting 3 important takeaways from the quarter. First, we delivered another quarter of sales and earnings growth. Net sales increased 5.5% and operating margin expanded 220 basis points. Earnings per share rose 25.3%. The progress we are making reinforces our confidence in achieving our long-term financial objectives. Second, infrastructure growth continues to be anchored by markets where we have strong positions and see significant long-term opportunity. North America utility sales increased 23% as customers are modernizing the grid, adding capacity and improving resiliency as power demand growth.

North America coating sales grew 14%, supported by utility construction projects, including data centers. These businesses are delivering on our Investor Day priority to capture above-market growth in utility. Finally, North America Agriculture sales increased 16% and a notable result given the challenging broader market. When storms disrupted gross operations during their peak season, our Valley dealers and teams were ready to help get their systems back up and running as quickly as possible. Strong replacement activity contributed to the quarter's growth and demonstrated the value of the dealer network.

These relationships also support our strategy to grow aftermarket parts and technology strengthening the business even before a broader market recovery. Turning to Slide 5. I'll review our infrastructure businesses, starting with North America utility. Demand is exceptionally strong. Our alliance relationships give us visibility into customers' multiyear plans before projects become firm orders and enter the backlog. That pipeline continues to strengthen. This quarter, more of those opportunities converted into orders, bringing the infrastructure backlog to $1.8 billion. The projects ahead and orders in hand support our confidence in utility growth behind our path to $35 in earnings per share by the end of 2029.

My recent conversations with key utility customers reinforce our view that we are still early in a multiyear investment cycle. When a customer told me it has tripled its project management and field teams over the past 2 years to support its expanding investment program. That same company asked us to evaluate structural alternatives and total installation costs for a higher voltage transmission project. Customers rely on our engineering expertise to make informed decisions early in their projects. They have also made clear that dependable delivery is essential to their construction schedules. That's why we are focused not just on adding capacity but also on improving throughput and meeting delivery commitments.

Through the third quarter, we've installed and commissioned approximately 20% of the incremental utility steel production capacity required to support our 2029 plan. Lead times across the industry have extended as demand grows and new capacity ramps up. To support utility and coatings, we are increasing our expansion and expect to double our growth capital investment in 2027 compared with this year. These investments are aligned with visible customer demand in our capital framework presented at Investor Day.

North America Coatings is also benefiting from the infrastructure investment supporting utility and other end markets. With 1 of the largest galvanizing networks in the industry, our coatings business plays an important role in improving the durability and life cycle performance of critical steel infrastructure. With galvanizing demand outpacing industry supply, we expect to shift more of our existing capacity towards growing internal volumes as we bring expansion projects online. This will help us maintain reliable delivery for utility customers.

In Lighting & Transportation, transportation markets are healthy, while lighting continues to be affected by softer residential and commercial construction activity. We're pursuing targeted growth, including expanding our presence in Texas. Our work with utilities and municipalities is translating into new orders and product approvals, supporting our growth in this important market. Our priorities remain improving on-time delivery manufacturing reliability and overall operating performance.

In telecom, carrier capital deployment remains selective, following the peak of the 5G build-out. Several carriers are delaying site modification work to align with future technology and spectrum deployment. This impacted demand this quarter, and we expect market conditions to remain soft in the near term. This does not change our view of the longer-term need for network investment. We are well positioned to support long-term growth in data consumption and network capacity needs. Across our international infrastructure markets, we're advancing initiatives to strengthen commercial execution and operational performance across these businesses.

A good example this quarter is in Europe, where we secured a new contract to supply distribution poles to a major utility expanding our participation in grid investment. Turning to agriculture on Slide 6. The Global ag market conditions remain challenged. In North America, higher input costs and lower green prices continue to pressure pharmaeconomics and constrained capital spending. Recent industry reports indicated a decline in gross sentiment and capital investment expectations, reinforcing our view that this quarter sales growth does not suggest a broader market recovery.

The landscape is similar in Brazil. Interest rates and input costs remain elevated while green prices have not kept pace. We remain confident in the long-term fundamentals of the Brazilian market. In the Middle East, the ongoing conflict in the region continues to affect our operations and the timing of certain customer projects with high shipping costs, adding to the delays. We do not expect a near-term return to normal activity in the region and recovery will take time. At the same time, we are very pleased to have been awarded a $100 million project in North Africa, supporting food security in the region.

The project includes our full suite of technology and water management solutions to improve farm productivity and water efficiency. We expect shipments to begin in the first half of 2027 and our diverse global manufacturing footprint provides the flexibility to reliably serve this customer. While the underlying dynamics differ across regions, we expect the overall operating environment for ag to persist through year-end. We are investing in higher-value aftermarket and technology solutions to help growers improve productivity. These areas continue to gain traction and strengthen the quality and resilience of the business through the cycle. Across Valmont, our priority as we look ahead are clear, efficiently ramp the capacity we're adding, align our operations with demand across the portfolio, and recover higher input costs through disciplined pricing.

I'll now turn the call over to John to review our third quarter financial results and updated 2026 outlook.

John Schwietz

Thank you, Avner, and good morning, everyone. Turning to Slide 8. I'll begin with our consolidated results. Net sales of $1.1 billion increased 5.5% year-over-year driven by growth in infrastructure, notably North America Utility and Coatings. Operating income increased to $172.8 million, and operating margin expanded 220 basis points to 15.7%. Our tax rate was approximately 26%. Diluted earnings per share was $6.24, a 25.3% increase from prior year.

Moving to our segment results on Slide 9. Beginning with infrastructure. Sales of $882.1 million grew 9.1% year-over-year. North America utility sales increased 23%, driven by higher pricing and volume growth supported by a robust market environment. Sales in North America Lighting and Transportation declined 2.2% due to lower volumes. North America coating sales increased 13.8%, supported by healthy infrastructure and data center demand. North America telecom sales decreased 33.8%, reflecting lower carrier spending as customers shifted capital allocation priorities.

International sales increased 5.5% and driven by pricing actions and favorable foreign exchange impacts. Operating income increased to $154.8 million or 17.6% of net sales. Compared to $143.4 million or 17.8% of net sales. Higher pricing and volumes in utility and Coatings helped offset higher material costs the cost of ramping utility capacity and lower telecom contribution. We are addressing the margin pressure through contractual pass-throughs and broader pricing actions. As capacity ramps, we are focused on strategic sourcing, productivity enhancements and improving material flow.

Let me provide some context on the price/cost timing we are experiencing. Average steel prices on the third-party index we use for contractual pass-throughs were approximately 50% above prior year levels. This increase is visible in the chart we have in the appendix. Because of the size and duration of our utility backlog, these costs affect results before the related pricing adjustments reach revenue. When input costs stabilize, we expect pricing will catch up and support infrastructure margin expansion. This usually takes 2 to 3 quarters to fully realize. These near-term pressures do not change our view of the long-term earnings potential of this business.

Turning to Slide 10. Third quarter agriculture sales decreased 6.4% year-over-year to $226 million. North America sales increased 15.8%, led by strong replacement orders and favorable pricing. International sales decreased 25.3%, driven primarily by lower Middle East and Brazil volumes. We also saw continued growth in our higher-value offerings with aftermarket parts sales increasing approximately 12% and in Technology Services growing 7% despite softer equipment demand. Operating income increased to $40.1 million or 17.9% of net sales. Compared to $23.2 million or 9.7% of net sales. Lower credit losses and certain recoveries in Brazil and higher North America volumes contributed to the year-over-year increase which was partially offset by lower international volumes.

Moving to Slide 11 for cash, liquidity and capital allocation. Operating cash flow was $100.5 million which includes $40 million of accelerated receivable collections. Working capital increased during the quarter, driven in part by increased sales volume and raw material inflation. We remain focused on improving cash conversion. We ended the quarter with $122 million of cash and net debt leverage of approximately 0.9x. The strength of our balance sheet continues to be reflected in our investment-grade credit ratings with S&P reaffirming our BBB+ rating during the quarter and Moody's reaffirming our BAA2 rating subsequent to quarter end.

Turning to capital deployment. During the quarter, we invested approximately $46 million in capital expenditures, primarily to support utility capacity expansion. We returned $97 million to shareholders through $82 million of share repurchases and $15 million of dividends. At quarter end, approximately $367 million remained available under our current share repurchase authorization. This balanced deployment of capital reflects our focus on investing in the highest return growth opportunities while maintaining financial flexibility and returning capital to shareholders.

Turning to our full year outlook on Slide 12. We are reaffirming our net sales outlook of $4.3 billion to $4.45 billion. and raising our adjusted diluted earnings per share guidance. Our infrastructure sales outlook is unchanged at $3.4 billion to $3.5 billion. It reflects favorable pricing and volume growth in North America Utility and Coatings and continued softness in telecom. Our agriculture sales outlook is also unchanged at $900 million to $950 million as current market conditions remain broadly consistent with our prior assumptions.

Looking to the fourth quarter, we expect earnings and margins to moderate from third quarter levels. Our outlook reflects increasing input cost pressures, business mix effects and the absence of certain third quarter benefits. Following the strong third quarter performance, we now expect full year adjusted diluted earnings per share of $22.75 to $23.75. Finally, our capital expenditure outlook remains unchanged at $170 million to $200 million.

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

Renee Campbell

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

Operator

[Operator Instructions] Our first question comes from the line of Nathan Jones with Stifel.

質疑応答

Nathan Jones

I guess I'll start on price cost. I'm sure it's going to get a lot of attention. There's obviously been significant steel inflation, freight cost inflation, all of that kind of stuff. I wonder if you'd be able to just talk about what the impact to margins or what the impact to earnings was for that. Does it get worse in 4Q before it gets better as you start to catch up on price cost? I know we've seen this movie before with Valmont -- we know there's a lag between the cost and the price catch-up.

Just any more color you can give us around what the impact in the quarter was, what you'd expect it to be next quarter? And how much margin upside there is assuming costs stabilize at some point?

Avner Applbaum

Thank you, Nathan, for the question. So I won't go through the movie as we've seen it before, as you said. But the answer is there was impact to the margins here in Q3. They were modest impacts -- there was no, let's say, negative dollar impact to it, but there were impacts to the margins. As we look to Q4, we expect that to get a little more pressured. So what we've seen since the last earnings call is that the pace of the inflation in our input costs have accelerated. So we expect more pressure in Q4 on the margin side.

If we look further out, as you know, it usually takes 2 to 3 quarters to sort of fully pull through our price mechanisms to results in a stable environment. I'd say even if it moderates, we'll see some growth again in margins. We don't need a full stabilization, but some moderation of the pace of input costs.

Nathan Jones

I guess the other 1 I'll ask is on the ag side. Obviously, the 16% North America growth is something influenced by the storm revenue and the margins there are also impacted by storm revenue. It's much higher margin. I know -- can you talk about the impact that, that had to the quarter? Maybe what it contributed to earnings if you can break it down that far, just so we kind of have a better idea of what the underlying run rate was?

Avner Applbaum

Yes. Perfect. So Nathan, I'll start off and then I'll hand it over for John for some more detail. I think it's important to understand that when these storms occur, our farmers have choices. And they chose to come to Valmont for several reasons. One, it is a critical time for our farmers to be able to get back up and running -- and our operations team are able to manufacture and support with manufacturing these pivots, our dealers are ready to support our customers and able to get them back into Valmont's ecosystem with our technology and other offerings. So we're very pleased with our ability to support our farmers and -- which contributed strongly to our results.

And maybe, John, you add a little bit more color there.

John Schwietz

Yes, sure. To your question about the impact to revenue growth and then also the margins -- on the revenue side in North America, that was substantially responsible for the growth in North America that we saw in Q3. If we go through the margins -- so 17.9% was exceptional and exceeded our expectations. So sort of 2 areas to touch on. As we mentioned in the prepared remarks, we did have some onetime benefits in ag. It was -- it amounted to about $7 million. Those were mainly related to recoveries that we made in South America.

If we take the impact of those onetime items out, we're just north of 14% for the operating margin. And really, that was above what we had discussed in terms of low teen expectations for the second half of the year. And in that delta really is the effect of the storm, it's the effect that it's a higher mix with regards to North America better accretive and then also better pricing as well.

Operator

Our next question comes from the line of Tomohiko Sano with JPMorgan.

Tomohiko Sano

If you could talk about infrastructure backlog has increased to $1.8 billion -- could you break down what is driving the increase across customers? And if you could talk about competitive landscape as well from the current environment?

Avner Applbaum

Sure. So first all, the majority of the increase, majority of the backlog is related to our utility customers. Now it's important to understand the entire context is backlog is part of the equation, right? We also monitor our pipeline -- and our pipeline with our alliance customers have actually strengthened as well. And the backlog represents those orders converting from the pipeline to our backlog.

The environment continues to be extremely robust -- our customers are strengthening their order, they're increasing their spend. Our pipeline through 2029 has increased over the last several quarters. So the market continues to be extremely strong. As it relates to the competitive landscape, the industry is constrained and being the leaders in this industry with the engineers and relationship that go over for many decades. I visited, as I mentioned, I visited some of our customers, and it's clear that they come to us for our engineering expertise, for our on-time delivery for the reliability overall.

So we continue to win in this space. We're booking well into 2028. Our customers are looking for us to secure capacity -- so we're continue to see robustness in this -- in the industry.

Tomohiko Sano

And then just 1 quick follow-up on North America utility was up 23% in Q3. Could you quantify the contribution from volume versus price in -- how should we think about Q4 in your guidance?

John Schwietz

Thank you for the question. So 23% was a result we were pleased with -- so the majority of the driving factor there was volume in this case, for Q3. Although it's noteworthy that price was right at double digits as well. So both contributed. If we look at the full year, we're expecting mid-20s in terms of growth rates for utility, and we are expecting to hit our target of double-digit volume growth for the full year.

Operator

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

Brian Drab

First on the project in North Africa, congratulations on that win. Can you talk a little bit more specifically on the timing of revenue recognition there and the cadence of that? And also the margins relative to typical ag margins?

Avner Applbaum

Yes, sure. So overall, -- right now, we're expecting to start delivery on that project in the first half of 2027. It's going to be likely in 18 months, up to 2 years project. But maybe just take a step back. I mean, -- in this environment, we're very pleased on our ability to win a project in the region as well as to support it with our global footprint, we're able to support it from our from our Dubai facility as well as from other facilities around the world, which allows us to continue to support that region, which has strong demand for food security and water scarcity -- so that is a good win for the team. And so overall, I just summarize, probably go over 24 months. And John, maybe share a little bit about the margin profile.

John Schwietz

Sure, so on the margin side, we are, of course, very disciplined in our intake process as it relates to these projects. This particular project like most large projects is slightly below baseline operating profit margin but not significantly and not expected to really make an impact necessarily.

Brian Drab

Okay. And then just switching to utility. I mean you guys sounded of course, very positive on the utility outlook at the Investor Day. You sound to me, maybe even more positive now. I was a little surprised just now to hear that volume accounted for more than half of the growth in the quarter, given what's going on with price. But has your outlook become more positive, even just since the recent Investor Day? And do you have more visibility now you talked about visibility to $6.7 billion in revenue through '29. How has that number maybe changed and just the overall sentiment?

Avner Applbaum

The answer is yes. We are more confident now in our goal, and that is based on several factors. One, we're actually seeing the spend. We saw our backlog increase. The pipeline we spoke about for the $6.7 billion, that number now, of course, we're shipping against that as well, has increased, so we're getting better coverage through our 2029. And the confidence is driven based on our conversations with our customers. It's with our customer spend. It's their customers committing to them for load growth and committing to spend within.

We're seeing more in the industry around additional spend in areas like AI. We're seeing even areas that we don't talk about that much, but we're seeing that the EV spend has also increased. We're seeing more energy out of that area. As well as all the other factors of onshoring, manufacturing. Unfortunately, we've seen some storms over the last several weeks, which just emphasize a point that we need to keep on focusing on grid hardening and resiliency. So we keep our eye on the market. We're booking well into 2028.

The utility have plans going through 2030 and some conversations with the customers, our plans are going through 2032. And we've also seen that in the industry that the lead times are expanding, right? We're seeing now they're going well beyond the year where they're going to 60 and 70 weeks. So it just shows the entire strength in the market, and we're very pleased with how we're adding our capacity, supporting our customers and looking pretty positive for us.

Operator

Our next question comes from the line of Brent Thielman with Oppenheimer & Company.

Brent Thielman

Great. Avner or John, just back on the North America utility would you expect pricing to sustain at a double-digit run rate as we go into 2027, just considering all this inflation, there seems to be a pretty significant factor to your growth rate for that business next year?

Avner Applbaum

Brent. The answer is yes. .

Brent Thielman

Okay. And then I guess, just in terms of telecom, obviously, utility is outgrowing, but any sense from customers when we might see a change? I know you mentioned that through this year. But I mean, any sort of inclines what you're hearing next year and what could be some catalysts to turn the business around?

Avner Applbaum

At Telecom, we don't have great visibility into the market. Of course, we do toss to our customers, and we are seeing that they're being more selective around their spend following the peak of the 5G rollout and some of the site modification or capital allocation moved out into 2027. So right now, we're looking to continued same environment going into 2027. We do know that they're going to spend more on the spectrum. They're waiting for some technology advancement. But overall, they need to continue their build.

So we know it's coming. It's just a matter of timing. Some indications that we see some coming back more towards the latter half of 2027. But again, we don't have great visibility. So right now, what we're doing is we're focusing on our costs. We're focusing on new product development with our customers. We're looking into other spaces like private networks. Overall, we're working on what we can control, but expect that these conditions to remain at least through the end of the year.

Operator

Our next question comes from the line of Chris Moore with CJS Securities.

Christopher Moore

A couple. So maybe just 1 more on the steel catch-up. So obviously, Q3 was a little bit of pressure. Q4 is going to be a little bit more double-digit pricing is going to continue into '27. From where you sit today, assuming some normalization of steel pricing, would that imply that we start to see kind of a little bit incremental margin improvement in Q2? Or is that more back half? .

John Schwietz

Thanks for the question. So -- so the pace of margin expansion really will be defined in part by how quickly these costs continue to accelerate or stabilize -- so Q2 is a bit far for us to really tell where these costs are going to be the trajectory of these costs. What we can see is that the actions that we're taking to expand margins are taking hold. And so as you know, our focus on scaling profitably on improving operating leverage you can see improving leverage over SG&A. You can see that in the SG&A numbers that we posted here this year and in this quarter. Those things will continue to be working on to try to offset any price cost, any sort of price cost pressure that we have.

Avner Applbaum

I just want to add 1 point, which I think you know this, but as we're talking about the dislocation, which has an impact on our margins in the short term, as we look forward, right, the pricing actions we take are mostly to offset the cost. Of course, there's some margin there. But as we get into next year and we see higher pricing, that doesn't necessarily mean that's all dropping to the bottom line. That's really offsetting some of the steel costs. So the pressure right now is more of the dislocation. And as they stabilize, that's when our margins stabilize as well.

Christopher Moore

And maybe just 1 more within the competitive landscape within infrastructure. Obviously, demand is off the charts at this point in time. Just specifically, Nucor is a relatively new entrant here. Just near term, perhaps long term -- any -- do you see that as any impact on the infrastructure kind of landscape at all from where you guys are sitting at this stage?

Avner Applbaum

Yes. So we monitor capacity industry consistently. And to your point, [indiscernible], they just announced that they're going to add capacity. Even with all the capacity adds, there's still more demand than supply in the industry. So we feel very comfortable with our ability to continue to support our customers without having the industry at full capacity. But it's also important to understand that our customers and the large utility customers, they come to Valmont, not because we have 4 walls and press breaks. They come to us because of our engineering expertise for our reliability, on-time delivery and the fact that they don't want to take risk and then they come to Valmont that's 1 area that they don't have to take risk. So of course, we have our eyes on the competitors, but we feel very good that the industry continues to be well in balance and we don't have any concerns on that element.

Operator

Our next question is a follow-up from the line of Brent Thielman with Oppenheimer & Company. .

Brent Thielman

Maybe just 1 follow-up on ag. The margins has been outstanding this year, and I know there's some mix factors to that. But why wouldn't we see a carryover benefit to margins in that segment into the fourth quarter from what you saw in 3Q?

John Schwietz

Yes. Great question. Thanks, Brent. So we -- really, the story here is the mix between North America and international. So Q3, you're very familiar with, is usually a very strong international quarter. And as you saw, because of the storm demand that we had that was exceptional, it was much stronger on the North America side. And then also with that, the preferred pricing that we get in those circumstances. So that really drove a much better business mix in Q3 -- if we look to Q4, to your point, it's -- we are expecting sort of a more normal return to the business mix between North America and international, and that will put some pressures on the margins get into Q3.

Brent Thielman

Okay. And maybe if I could, just a follow-up. What -- what's been the headwind from -- I know that the issues in the Middle East, including the closure of the facility. What's been the overall headwind to the business this year just so we can kind of think about that going into 2027.

John Schwietz

Just from a numbers perspective compared to last year, you're right that it's been the Middle East. I mean the biggest delta from a top line perspective versus last year, has been the lack of project revenue through Ag this year. Other than that, it's really just been the sort of the market conditions, the soft market conditions that we see and the fact that we're we haven't quite seen line of sight yet to the recovery.

Avner Applbaum

Yes. So if you -- if you just order it right, we'd say definitely the Middle East, and then we did see continued softness in Brazil. We're North America is 1 area that we're bumping along the bottom, right? And that market keeps on kind of spring those conditions, and we've seen that in Q3. Actually, we had strength, but that's our expectation is that North America does not go further down with more upside opportunity in North American market. .

Operator

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

Renee Campbell

Thank you for joining us today. A replay of this call will be available for playback on our website and by phone for the next 7 days. We look forward to speaking with you again next quarter. .

Unknown Attendee

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