Lindsay Corporation — FY2017 Form 10-K
Reporting period: Fiscal year ended August 31, 2017. The filing also reports fourth-quarter results. Lindsay manufactures agricultural irrigation and water-management products and roadway safety and infrastructure products.
Financial performance and liquidity
| Metric | FY2017 | FY2016 |
|---|---|---|
| Revenue | $518.0 million | $516.4 million |
| Gross profit / margin | $145.0 million / 28.0% | $148.6 million / 28.8% |
| Operating income / margin | $40.2 million / 7.8% | $34.4 million / 6.7% |
| Net earnings | $23.2 million | $20.3 million |
| Diluted EPS | $2.17 | $1.85 |
| Cash from operations | $39.4 million | $33.1 million |
| Capital expenditures | $8.9 million | $11.5 million |
| Cash and cash equivalents | $121.6 million | $101.2 million |
| Total debt | $117.0 million | $117.2 million |
Net working capital was $200.9 million, compared with $188.9 million a year earlier. The company reported $44.6 million available under its revolving credit facility and no revolver borrowings at year-end. Its $115 million senior notes carry a fixed 3.82% rate and mature in 2030. The company paid $12.5 million in dividends in FY2017 and made no share repurchases.
Business and material changes
- Irrigation revenue declined 1% to $418.0 million; segment operating income fell 13% to $42.8 million and margin was 10.2%, versus 11.7%. U.S. irrigation revenue fell 7%, while international irrigation revenue rose 10%, supported by Brazil and project activity in Africa and the Commonwealth of Independent States.
- Infrastructure revenue increased 5% to $99.9 million; segment operating income rose 9% to $20.1 million and margin improved to 20.1%. Higher Road Zipper sales and leases and international road-safety sales contributed.
- Consolidated operating expenses fell 8% to $104.8 million. FY2016 included a $13.0 million increase to the environmental remediation reserve that did not recur; FY2017 expenses included higher product development, testing and professional fees.
- Gross margin declined 0.8 percentage points, primarily due to weaker irrigation margins from lower domestic volume and a greater international sales mix. The effective tax rate rose to 35.1% from 30.8%.
- FY2017 fourth-quarter revenue was $131.9 million, versus $132.9 million; net earnings were $6.3 million, versus $7.8 million, and diluted EPS was $0.59, versus $0.73.
Outlook, risks and unusual items
- Management said U.S. irrigation demand appeared to be stabilizing after a four-year downturn, but significant growth remained dependent on sustained improvement in crop prices and farm income. International opportunities remain, though project-driven revenue and regional conditions make results difficult to forecast.
- Management expects FY2018 capital expenditures of approximately $12 million to $15 million for replacement, capacity expansion and productivity improvements; timing may be adjusted to economic conditions.
- The company has an $18.0 million accrued environmental remediation liability for its Lindsay, Nebraska site. The proposed remediation plan was preliminary and unapproved; the final plan was not expected until FY2018 or later, and actual costs could exceed the accrual.
- Lindsay is defending multiple product-liability lawsuits involving its X-Lite end terminal. It reported no accrual because management did not consider a loss probable, and said it could not estimate a possible loss range. The company maintains insurance.
- Infrastructure sales face risks from government transportation funding and changing highway safety standards, including MASH certification requirements and associated development and testing costs. Other key risks include agricultural commodity and weather cycles, foreign exchange, raw-material costs and availability, international political and credit risks, and product liability.
- Timothy L. Hassinger was appointed CEO effective October 16, 2017, succeeding retiring CEO Richard W. Parod.
Important facts for investors to verify
- Whether irrigation demand and U.S. farm economics improve enough to support higher equipment volumes and margins.
- Whether international irrigation growth and infrastructure project activity persist, and how currency movements affect reported revenue and profitability.
- Updates to the Nebraska remediation plan, reserve adequacy and expected timing of expenditures.
- Developments in the X-Lite lawsuits, potential exposure and insurance coverage; the filing provides no estimable loss range.
- Progress and costs associated with MASH compliance, and the effect of transportation funding on infrastructure demand.
- Capital spending, dividends, potential repurchases or acquisitions, and compliance with debt covenants.
The independent auditor issued an unqualified opinion on the financial statements and internal control over financial reporting; management also concluded internal controls were effective as of August 31, 2017.