Lindsay Corporation (LNN) — Q2 FY2024 Form 10-Q
Reporting period: Quarter and six months ended February 29, 2024; comparisons are to the corresponding 2023 periods. Lindsay operates irrigation and infrastructure businesses. Amounts below are in U.S. dollars.
Financial performance
| Metric | Q2 FY2024 | Q2 FY2023 | Six months FY2024 | Six months FY2023 |
|---|---|---|---|---|
| Revenue | $151.5 million | $166.2 million | $312.9 million | $342.4 million |
| Gross profit / margin | $49.0 million / 32.3% | $54.3 million / 32.6% | $98.9 million / 31.6% | $107.3 million / 31.3% |
| Operating income / margin | $22.1 million / 14.6% | $27.3 million / 16.4% | $43.2 million / 13.8% | $51.9 million / 15.1% |
| Net earnings | $18.1 million | $18.1 million | $33.1 million | $36.3 million |
| Diluted EPS | $1.64 | $1.63 | $2.99 | $3.28 |
Q2 revenue fell 9% and operating income declined 19%, while net earnings were approximately flat. Lower irrigation revenue and margin pressure from reduced sales without a matching reduction in fixed costs weighed on operating results. Lower taxes and a swing to other income, including higher interest income and improved foreign-currency results, helped offset the operating decline.
- Irrigation: Q2 revenue fell 10% to $133.0 million and segment operating income fell 22% to $25.6 million; segment margin was 19.3%, versus 22.2%. For six months, revenue declined 9% to $273.2 million and operating income declined 17% to $51.0 million.
- Infrastructure: Q2 revenue was essentially unchanged at $18.5 million, while operating income rose to $3.5 million from $2.0 million. For six months, revenue declined 7% to $39.7 million, but operating income increased 32% to $7.1 million, supported by a more favorable mix of Road Zipper leasing revenue.
Cash flow, balance sheet and capital
- Six-month operating cash flow was $12.1 million, compared with $7.9 million a year earlier. The filing attributes the improvement primarily to working-capital changes.
- Investing cash outflow was $30.8 million, including $18.8 million of property and equipment purchases and $15.0 million of marketable-security purchases, partly offset by $3.5 million of security maturities. Financing cash outflow was $8.6 million, including $7.7 million of dividends paid.
- At February 29, 2024, cash and cash equivalents were $133.4 million and marketable securities were $17.2 million, totaling $150.6 million. Cash and securities were $166.3 million at August 31, 2023.
- Total debt was $115.6 million, principally $115.0 million of fixed-rate senior notes due in 2030; no revolver borrowings were outstanding, and $50.0 million was available. The company reported compliance with its debt covenants.
- Working capital was $371.4 million. Current assets were $500.7 million and current liabilities were $129.3 million.
- The quarterly dividend increased to $0.35 per share from $0.34. No shares were repurchased in the six-month period; $63.7 million remained under the authorization.
Outlook, risks and notable items
- Management said U.S. irrigation demand was stable in the first half, but warned that a forecast decline in 2024 U.S. net farm income could pressure demand for the remainder of the fiscal year. Management cited lower commodity prices, tighter grower liquidity and constrained credit, particularly in Brazil and other Latin American markets.
- International markets remain a potential growth opportunity, but project timing, currency movements and regional political and economic conditions make sales difficult to forecast. Lindsay suspended new business activity in Russia and Belarus; those markets historically represented less than 5% of consolidated revenue.
- Unshipped-order backlog was $94.2 million, versus $95.2 million a year earlier. Orders not expected to be fulfilled within the next 12 months were $20.3 million, versus $5.4 million. The filing cautions that backlog is not generally a reliable indicator of next-quarter revenue.
- Fiscal 2024 capital expenditures are expected to be $35–$40 million, including manufacturing modernization and productivity projects; management said timing and amount may be adjusted as conditions warrant. The filing provides no earnings or revenue forecast.
- The company recorded $10.6 million in environmental-remediation liabilities for its Nebraska site. The proposed plan remains subject to regulatory review, and actual costs could exceed the accrual; management does not expect additional costs to materially affect liquidity or financial condition.
- Lindsay is defending product-liability lawsuits concerning X-Lite highway end terminals, including a Missouri transportation commission case. It recorded no accrual because management did not consider a loss probable and could not estimate a potential loss range, while noting insurance coverage. A separate False Claims Act-related case was dismissed without prejudice in October 2023.
- On April 3, 2024, after the reporting date, Lindsay agreed to acquire a 49.9% interest in Austrian agricultural technology company Pessl Instruments, with an option to acquire the remaining shares later. Closing was expected in the second half of fiscal 2024, subject to conditions and approvals.
Key investor verification points
- Whether lower farm income, commodity prices and grower credit availability further weaken irrigation demand, especially in Latin America.
- Whether irrigation margins stabilize as sales volumes and product mix change, and whether infrastructure leasing can sustain improved segment profitability.
- Execution of the $35–$40 million capital-expenditure plan and its effect on operating cash flow and cash balances.
- Regulatory progress and eventual cost and timing of Nebraska remediation; developments, insurance coverage and potential exposure in X-Lite litigation.
- Backlog conversion and timing, and the closing, investment terms and potential future obligations associated with the Pessl transaction.