Lindsay Corporation — Q1 FY2014 Form 10-Q
Business context and period. The quarter ended November 30, 2013. Lindsay manufactures irrigation equipment and infrastructure products, including Road Zipper Systems, barriers, and transportation-safety products. The comparison is with the three months ended November 30, 2012; amounts below are in U.S. dollars.
Financial results and liquidity
| Metric | Q1 FY2014 | Q1 FY2013 | Change |
|---|---|---|---|
| Revenue | $147.7 million | $147.4 million | Essentially flat |
| Gross profit / margin | $40.2 million / 27.2% | $42.9 million / 29.1% | Gross profit down 6% |
| Operating income / margin | $16.0 million / 10.8% | $22.3 million / 15.1% | Down 28% |
| Net earnings | $10.2 million | $14.7 million | Down 31% |
| Diluted earnings per share | $0.79 | $1.15 | Down 31% |
| Operating cash flow | $5.9 million | $13.5 million | Down $7.5 million |
- Segments: Irrigation revenue fell 4% to $129.2 million; segment operating income fell 26% to $20.3 million. Infrastructure revenue rose 41% to $18.5 million, and segment operating income improved to $0.5 million from a $1.3 million loss.
- Cash and liquidity: Cash was $151.8 million at November 30, 2013, versus $151.9 million at August 31, 2013. Net working capital was $275.9 million, up from $234.2 million a year earlier.
- Debt and facilities: The company reported no outstanding long-term debt and no borrowings on its $30 million revolving credit facility or €2.3 million European line. It was in compliance with loan covenants.
- Cash uses: Capital expenditures were $2.4 million; dividends paid were $1.7 million. Cash declined by $0.1 million during the quarter.
Material changes and management commentary
- U.S. irrigation revenue fell 18% to $79.3 million, largely due to a 31% decline in systems sold, lower commodity prices, and reduced drought-related demand. International irrigation revenue rose 32% to $49.9 million, led by South America and Australia and aided by the CLC acquisition.
- Infrastructure revenue increased across most product lines. Backlog was $86.6 million, compared with $85.1 million a year earlier and $66.5 million at August 31, 2013. The increase included a $12.7 million Golden Gate Bridge Road Zipper System order.
- Management attributed weaker earnings to lower irrigation gross margins, a $2.3 million product-warranty charge, higher operating expenses, and increased personnel costs. CLC added approximately $2.1 million in operating expenses.
- The company acquired Claude Laval Corporation in August 2013 for approximately $29 million, funded with cash. CLC supplies filtration and water-management products.
Outlook, risks, and unusual items
- Management anticipated significantly lower U.S. irrigation revenue in FY2014, citing lower agricultural commodity prices and reduced equipment-purchase tax incentives. It said visibility into the primary selling season would improve later in the second fiscal quarter. No specific full-year earnings or revenue guidance was provided.
- Management described international irrigation markets as a key multi-year growth opportunity and cited population growth, food production, and efficient water use as long-term demand drivers. Infrastructure results remain exposed to government funding constraints, project delays, and Road Zipper project timing.
- The board doubled the regular quarterly dividend to $0.26 per share, payable February 28, 2014. The company authorized repurchases of up to $150 million and said it planned opportunistic repurchases of $100 million to $150 million over the next 24 months.
- Warranty: The quarter included the $2.3 million charge; the warranty accrual rose to $8.6 million from $5.1 million a year earlier.
- Environmental contingency: The recorded remediation liability was $6.7 million. Further investigation and discussions with the EPA could change the remediation plan; the company said potential additional costs could not yet be meaningfully estimated and could be material to a quarter or year’s operating results.
- The filing cautions that irrigation demand depends on commodity prices, farm income, weather, and policy. It also notes infrastructure cash flows may not meet forecasts, potentially prompting further impairment considerations. The company reported no material changes to its previously disclosed risk factors.
Important facts for investors to verify
- Whether U.S. irrigation demand and the expected revenue decline develop as management anticipated, and whether international growth offsets the weakness.
- Whether gross margins recover after the warranty charge and the shift toward lower-margin international sales; monitor warranty claims and accruals.
- Conversion and timing of the $86.6 million backlog, particularly the Road Zipper project, and the infrastructure segment’s profitability.
- Updates from the EPA investigation, the adequacy of the $6.7 million environmental accrual, and any related revisions to remediation estimates.
- Execution of the announced dividend increase and share-repurchase plan, alongside cash generation and acquisition needs.