Lindsay Corporation — Form 10-Q Summary
Reporting period: Fiscal first quarter ended November 30, 2015; results are unaudited and compared with the three months ended November 30, 2014. Lindsay makes irrigation equipment and infrastructure products. Amounts below are in U.S. dollars.
Financial performance
| Metric | Q1 FY2016 | Q1 FY2015 | Change |
|---|---|---|---|
| Revenue | $121.6 million | $134.8 million | Down 10% |
| Gross profit / margin | $34.4 million / 28.3% | $36.9 million / 27.4% | Profit down 7%; margin up 0.9 percentage point |
| Operating income / margin | $11.7 million / 9.7% | $11.9 million / 8.8% | Income down 1%; margin improved |
| Net earnings | $6.9 million | $7.6 million | Down 8% |
| Diluted EPS | $0.62 | $0.62 | Unchanged |
| Operating cash flow | $8.5 million | $5.7 million | Up $2.8 million |
| Capital expenditures | $4.7 million | $3.6 million | Up $1.1 million |
- Segments: Irrigation revenue fell 12% to $101.3 million and segment operating income fell 13% to $12.7 million. Infrastructure revenue rose 1% to $20.3 million; segment operating income rose 37% to $3.1 million.
- Cash and liquidity: Cash was $129.3 million at November 30, 2015, versus $139.1 million at August 31, 2015. Net working capital was $221.2 million. The company reported $44.4 million available on its $50 million revolving facility after standby letters of credit.
- Debt: Total debt was $117.3 million, principally $115 million of 3.82% senior notes due in 2030, plus Elecsys bonds. No revolver borrowings were outstanding. The company reported compliance with its debt covenants.
- Shareholder returns: The quarterly dividend declared was $0.28 per share, up from $0.27. The company repurchased $9.2 million of shares, versus $30.0 million a year earlier; $102.8 million remained authorized.
Material changes and management commentary
- Lower irrigation sales drove the revenue decline. Management cited weaker farmer sentiment amid lower commodity prices and farm income. U.S. net farm income was estimated by USDA at $55.9 billion for 2015, down 38% from its 2014 estimate.
- Currency movements reduced revenue by $7.7 million and operating income by $0.7 million year over year. International irrigation revenue declined 19%, including a $6.0 million currency-translation impact.
- Gross margin improved, primarily due to sales mix; management said irrigation input-cost benefits largely offset competitive pricing pressure. Lower operating expenses also supported operating margin, including reduced environmental, personnel, and acquisition-related costs.
- Interest expense increased to $1.2 million from $0.1 million, mainly reflecting debt issued in February 2015. Net earnings declined, while diluted EPS held steady at $0.62, alongside a lower weighted-average diluted share count.
- Order backlog was $61.9 million, compared with $68.3 million a year earlier and $48.0 million at August 31, 2015. Management cautioned that backlog fluctuates and is generally not a reliable indicator of next-quarter revenue.
Outlook, risks, and contingencies
- Management said visibility into 2016 was limited and identified headwinds to near-term revenue growth: weak farm income and demand, challenging currencies, and reliance on project sales in some international markets. It expressed confidence in long-term demand for efficient irrigation and water use.
- Infrastructure outlook was described as positive, supported by U.S. highway funding and road-safety needs, but potentially constrained by a global slowdown affecting international government spending.
- Fiscal 2016 capital expenditures were estimated at $15–$20 million, mainly for manufacturing capacity and productivity improvements; timing and amount could change with economic conditions. The Turkey plant, which began production in March 2015, may create short-term fixed-cost absorption pressure.
- Environmental remediation: Accrued liabilities totaled $7.4 million. The EPA had not approved a remediation plan; further investigation and a feasibility study were planned. The company could not estimate costs for contamination beneath a manufacturing building. It said plan revisions could materially affect a quarter or year’s operating results, but did not expect additional expenses to materially harm liquidity or financial condition.
- Other ordinary-course legal matters were disclosed; the company said potential losses beyond accruals, excluding the environmental matter, were not expected to materially affect the business or financial statements.
- No material changes to previously disclosed risk factors or market-risk disclosures were reported. The filing highlights currency exposure and sensitivity of irrigation demand to agricultural conditions and government policies.
Important facts for investors to verify
- Whether irrigation demand, farm income, and international sales stabilize, and whether currency effects persist.
- Whether segment margins and infrastructure growth continue, including the effect of Turkey capacity and Elecsys integration.
- Cash generation and capital allocation relative to planned $15–$20 million fiscal-year capital expenditures, dividends, repurchases, and debt service.
- EPA review progress, the timing and scope of remediation, and whether the currently unestimable contamination leads to additional costs.
- Debt-covenant compliance, available revolver capacity, and the assumptions supporting management’s liquidity assessment.