Lindsay Corporation — Q3 FY2013 Form 10-Q
Reporting period: Three and nine months ended May 31, 2013; comparisons are with the corresponding 2012 periods. Financial statements are unaudited. Lindsay manufactures irrigation equipment and infrastructure products, reported in Irrigation and Infrastructure segments.
Financial performance
| Metric | Q3 FY2013 | Q3 FY2012 | Nine months FY2013 | Nine months FY2012 |
|---|---|---|---|---|
| Revenue | $219.5m | $172.1m | $542.5m | $423.4m |
| Gross profit / margin | $63.0m / 28.7% | $49.0m / 28.5% | $156.3m / 28.8% | $115.8m / 27.3% |
| Operating income / margin | $39.6m / 18.0% | $28.8m / 16.7% | $91.3m / 16.8% | $52.8m / 12.5% |
| Net earnings | $26.1m | $18.8m | $60.1m | $34.5m |
| Diluted EPS | $2.01 | $1.47 | $4.66 | $2.70 |
- Q3 revenue, operating income and net earnings increased 28%, 37% and 38%, respectively. Nine-month revenue, operating income and net earnings increased 28%, 73% and 74%.
- Irrigation: Revenue was $201.0m in Q3, up 34%, and $497.8m year to date, up 36%. Segment operating income was $44.1m in Q3 and $106.8m year to date. U.S. and international system sales both grew; international growth was particularly strong in the Middle East and South America.
- Infrastructure: Revenue was $18.6m in Q3, down 17%, and $44.6m year to date, down 20%. Segment operating income was $0.2m in Q3 versus $1.4m; the year-to-date segment operating loss widened to $3.2m from $0.7m.
- Gross-margin improvement year to date reflected stronger irrigation pricing, productivity and operating leverage. Q3 infrastructure margins weakened with fewer higher-margin Road Zipper projects and irrigation margins faced a greater mix of lower-margin international sales.
Cash, liquidity and debt
- Cash and equivalents were $170.2m at May 31, 2013, versus $143.4m at August 31, 2012. Net working capital was $280.5m.
- Nine-month operating cash flow was $40.9m, compared with $25.9m. Receivables and inventory uses of cash were $49.4m and $19.9m, respectively. Capital expenditures were $8.1m; investing cash outflow was $8.6m and financing cash outflow was $5.6m.
- Debt outstanding was $1.1m at May 31; the remaining BSI Term Note balance was repaid at scheduled maturity on June 10, 2013. The $30m revolving credit facility had no borrowings and was extended to February 2016. The company reported compliance with loan covenants.
- Cash dividends declared were $0.115 per share for Q3 and $0.345 per share year to date. No common shares were repurchased during the nine-month period.
Outlook, commentary and risks
- Management described irrigation demand as strong during the primary selling season, supported by farmer investment, farm income and commodity prices. It said demand for 2014 and beyond was unclear and dependent on weather, commodity prices, farm income and other agricultural conditions.
- Management expected lower gross margins in Q4 FY2013, citing a backlog mix with more lower-margin international irrigation projects and planned maintenance.
- Infrastructure revenue and profit remained volatile because of project timing, government funding constraints and delays. Management noted indications of improvement in recent sales trends but identified longer-term funding uncertainty.
- Backlog was $80.0m at May 31, versus $44.5m a year earlier and $159.3m at February 28. The year-over-year increase included carryover from a $39m Iraq order and increased South American demand. Backlog varies with seasonality and contract timing.
- The company had accrued $7.25m for environmental remediation. Further investigation and EPA discussions could require changes to the remediation plan; the company said potential revisions could materially affect a quarter or fiscal year, although it did not expect a material adverse effect on liquidity or financial condition. Meaningful estimates of additional costs could not be made.
- Management said current cash, projected operating cash flow and available bank lines were sufficient for expected working capital, planned capital expenditures, dividends and other needs, excluding potential acquisitions. Approximately $18m of cash held by foreign subsidiaries was considered permanently reinvested.
- Other notable items: the warranty accrual rose to $6.5m from $4.1m a year earlier; receivables reserves increased. No material changes to previously disclosed risk factors or market-risk disclosures were reported.
Most important facts for investors to verify
- Whether irrigation demand and favorable agricultural conditions persist, particularly after the reported Midwest rainfall and planting concerns.
- Whether the $80m backlog converts to revenue as expected, and the effect of international project mix and maintenance on Q4 margins.
- Whether infrastructure orders and Road Zipper project activity recover despite funding constraints and delays.
- Whether additional EPA remediation requirements arise beyond the $7.25m accrued liability, especially after the planned investigation and EPA review.
- Whether receivables, inventory and warranty accruals remain manageable as sales expand, and whether operating cash flow keeps pace with earnings.