Lindsay Corporation — Form 10-Q Summary
Business context and reporting period. This unaudited quarterly report covers the three months ended November 30, 2016, Lindsay’s first quarter of fiscal 2017. The company reports irrigation and infrastructure businesses. Financial amounts below are in U.S. dollars.
Financial results and position
| Metric | Q1 FY2017 | Q1 FY2016 |
|---|---|---|
| Revenue | $110.4 million | $121.6 million |
| Gross profit / margin | $28.4 million / 25.7% | $34.4 million / 28.3% |
| Operating income / margin | $2.7 million / 2.5% | $11.7 million / 9.7% |
| Net earnings | $0.9 million | $6.9 million |
| Diluted earnings per share | $0.08 | $0.62 |
| Operating cash flow | $8.1 million | $8.5 million |
| Capital expenditures | $1.4 million | $4.7 million |
- Cash and cash equivalents were $103.1 million at November 30, 2016, versus $129.3 million a year earlier and $101.2 million at August 31, 2016. Net working capital was $190.3 million.
- Total debt was $117.1 million, including $115.0 million of senior notes; no revolving-credit borrowings were outstanding. Cash exceeded debt by approximately $14.1 million. The company reported compliance with its debt covenants and $43.8 million available under its revolving facility.
- Cash from operations, investing and financing was $8.1 million, negative $1.4 million and negative $3.8 million, respectively. Cash dividends declared were $0.29 per share.
Material changes versus the prior comparable period
- Revenue fell 9%; net earnings declined 87% and diluted EPS fell from $0.62 to $0.08.
- Irrigation revenue declined 11% to $89.9 million and segment operating income fell 59% to $5.2 million. Infrastructure revenue rose 1% to $20.5 million, while segment operating income decreased 3% to $3.0 million.
- Management attributed weaker results mainly to lower irrigation-system volumes, reduced gross margin, and operating expenses that increased $3.0 million. Irrigation margin was pressured by lower overhead absorption, increased warranty costs from a specific component field-fix, and changes in international sales mix. Current-period expenses also included higher product development and testing, project-related legal and consulting fees, and personnel costs; the prior-year quarter benefited from a $1.2 million bad-debt reserve reversal.
- Operating cash flow decreased $0.4 million. Lower capital spending and the absence of the prior-year $9.2 million share repurchase reduced cash used in investing and financing, respectively.
- Foreign-currency translation contributed to a $1.4 million other comprehensive loss; total comprehensive loss was $0.5 million.
Outlook, risks and unusual items
- Management described the agricultural downturn as prolonged and said there was not a sufficient near-term catalyst for improvement. Lower commodity prices, declining farm income, weather, currency movements, international political and economic conditions, and market competition could weigh on irrigation demand and pricing.
- Management cited long-term opportunities in efficient irrigation and water use, particularly in international markets. Infrastructure outlook was described as positive, supported in part by U.S. transportation funding, but could be affected by economic slowdowns, constrained government spending and new highway-safety certification standards being phased in beginning in 2018.
- Backlog was $55.9 million, compared with $61.9 million a year earlier and $50.7 million at August 31, 2016. The company cautioned that backlog fluctuates and is generally not a reliable indicator of next-quarter revenue.
- Fiscal 2017 capital expenditures were estimated at $14–17 million, mainly for manufacturing capacity and productivity improvements; management said timing and spending could be adjusted. The company stated cash, projected operating cash flow and available credit were sufficient for expected working capital, planned capital expenditures and dividends.
- The company carried an $18.8 million environmental remediation liability for its Lindsay, Nebraska site. The proposed plan remained preliminary and subject to EPA and state review; actual costs could exceed the accrual and revisions could materially affect quarterly or annual results, although management did not expect additional expense to materially affect liquidity or financial condition.
- Accounting changes adopted in the quarter included early adoption of guidance on deferred-tax balance-sheet classification and share-based payments. The latter produced an approximately $0.1 million income-tax benefit. The company was still evaluating the effects of forthcoming revenue-recognition and lease standards.
Important facts for investors to verify
- Whether irrigation demand and margins stabilize, given the agricultural downturn and the segment’s substantial contribution to revenue.
- Progress on the Nebraska remediation plan, regulatory approval, and whether estimated costs or timing change from the recorded $18.8 million liability.
- Execution of the $14–17 million capital-spending plan and maintenance of liquidity, covenant compliance and dividend capacity.
- Whether infrastructure growth and backlog convert into revenue, considering project timing and upcoming safety-standard changes.
- Potential currency, commodity-price, warranty-cost and international-market effects on future sales and profitability.