Lindsay Corporation (LNN) — Q2 FY2023 Form 10-Q
Reporting period: Three and six months ended February 28, 2023. Amounts below are in U.S. dollars; financial statements are unaudited.
Business context
Lindsay operates in irrigation equipment and technology and infrastructure products, including road barriers and safety equipment. Irrigation generated 89% of Q2 revenue. The filing compares Q2 and first-half FY2023 with the corresponding periods of FY2022.
Key financial results
| Metric | Q2 FY2023 | Q2 FY2022 | Six months FY2023 | Six months FY2022 |
|---|---|---|---|---|
| Revenue | $166.2 million | $200.1 million | $342.4 million | $366.3 million |
| Gross profit / margin | $54.3 million / 32.6% | $42.9 million / 21.5% | $107.3 million / 31.3% | $80.4 million / 21.9% |
| Operating income / margin | $27.3 million / 16.4% | $18.3 million / 9.2% | $51.9 million / 15.1% | $31.7 million / 8.7% |
| Net earnings | $18.1 million | $14.6 million | $36.3 million | $22.5 million |
| Diluted EPS | $1.63 | $1.32 | $3.28 | $2.04 |
Q2 revenue declined 17%, while net earnings rose 24%. First-half revenue declined 7%, while net earnings rose 61%. Improved price realization, lower input-cost inflation and more favorable segment and international sales mix lifted margins. Prior-year results also included LIFO inventory expense and approximately $1.8 million of nonrecurring factory maintenance and consulting costs.
Q2 irrigation revenue fell 18% to $147.8 million, including a 10% decline in North America and a 28% decline internationally. International comparisons were affected by a large Egypt project in the prior year that did not recur, lower sales in Brazil, Ukraine and Russia, and currency translation. Infrastructure revenue decreased 5% to $18.5 million in Q2, but increased 7% to $42.5 million for the first half. First-half segment operating income increased 47% in irrigation and 74% in infrastructure.
Cash flow, liquidity and debt
- First-half operating cash flow was $7.9 million, versus cash used of $35.9 million in the prior-year period. The filing attributes the improvement mainly to higher earnings and lower inventory and receivables cash demands, partly offset by a reduction in current liabilities.
- Investing cash outflow was $5.7 million, including $7.2 million of capital expenditures. Financing cash outflow was $9.8 million, including $7.5 million of dividends. Approximate operating cash flow less capital expenditures was $0.7 million.
- At February 28, cash and cash equivalents were $97.7 million and marketable securities were $8.8 million, totaling $106.4 million. Net working capital was $347.3 million.
- Total debt was approximately $115.8 million, primarily $115.0 million of fixed-rate senior notes due in 2030. No revolving-facility borrowings were outstanding; $50.0 million was available. The company reported compliance with its financial covenants.
- The quarterly dividend was $0.34 per share, compared with $0.33 a year earlier. No shares were repurchased during the first half; $63.7 million remained under the repurchase authorization.
Outlook, risks and unusual items
- Management expects FY2023 capital expenditures of $15 million to $20 million. The filing provides no specific revenue or earnings guidance.
- Management described North American irrigation demand as steady, while noting farmer sentiment concerns about lower projected farm income, higher interest rates, inflation and economic conditions. The company expects international markets to remain important growth opportunities, but notes political, currency and project-timing uncertainties.
- Unshipped-order backlog was $95.2 million at February 28, 2023, down from $111.0 million a year earlier; irrigation backlog was lower and infrastructure backlog higher. Management cautions that backlog is not generally a reliable indicator of next-quarter revenue.
- The company is defending product-liability lawsuits involving its X-Lite highway end terminal and faces a related U.S. Department of Justice investigation concerning potential False Claims Act violations. It says loss is not currently considered probable for the lawsuits, but cannot estimate a potential loss range or predict the investigation’s outcome.
- Environmental remediation liabilities were $13.1 million at February 28, 2023. The proposed plan is not formally approved; actual costs could exceed the accrual, depending on regulatory input and the results of a pilot remediation program expected to be completed in calendar 2023.
- Other noted exposures include foreign-currency movements, supply-chain and cost pressures, weather and agricultural economics, government policies, and road-project spending. Management reported effective disclosure controls and no material change in risk factors from its latest Form 10-K.
Investor verification priorities
- Confirm whether improved gross margins persist as prior-year LIFO effects and nonrecurring costs roll off, and as input costs and pricing change.
- Track irrigation volumes by geography, especially international sales, and assess the effect of the nonrecurring Egypt project and Russia/Ukraine-related conditions.
- Monitor operating cash conversion and working-capital movements, particularly receivables, inventory and current liabilities.
- Review updates on X-Lite litigation and the federal investigation, including insurance coverage, potential exposure and any change in the company’s loss assessment.
- Follow regulatory approval, pilot results and cost estimates for environmental remediation against the $13.1 million accrual.
- Assess backlog conversion, infrastructure project timing, capital spending against the $15 million to $20 million plan, and the company’s use of available credit and repurchase authorization.