Lindsay Corporation (NYSE: LNN) — Form 10-Q
Reporting period: Fiscal third quarter and nine months ended May 31, 2024. Amounts are in U.S. dollars; financial statement amounts are generally shown in millions.
Business context
Lindsay operates irrigation and infrastructure segments. Irrigation includes agricultural irrigation systems and technology; infrastructure includes road safety products and Road Zipper Systems. Irrigation remained the larger business, accounting for 83% of third-quarter revenue and 86% of revenue for the nine-month period.
Financial performance
| Metric | Q3 FY2024 | Q3 FY2023 | Nine months FY2024 | Nine months FY2023 |
|---|---|---|---|---|
| Revenue | $139.2m | $164.6m | $452.1m | $507.0m |
| Gross profit / margin | $46.5m / 33.4% | $53.2m / 32.3% | $145.4m / 32.2% | $160.5m / 31.7% |
| Operating income / margin | $19.9m / 14.3% | $27.0m / 16.4% | $63.1m / 14.0% | $78.8m / 15.5% |
| Net earnings | $20.4m | $16.9m | $53.5m | $53.2m |
| Diluted EPS | $1.85 | $1.53 | $4.84 | $4.80 |
| Operating cash flow | Not presented quarterly | $42.7m | $59.2m |
Third-quarter revenue declined 15%, led by lower irrigation sales; operating income fell 26%. Net earnings nevertheless rose 21%, primarily because of a $4.8m discrete Brazilian tax credit that reduced the quarter’s income tax expense to a $0.2m benefit. The company says this benefit is not expected to recur. For the nine months, revenue fell 11% and operating income fell 20%, while net earnings edged up 1%, reflecting lower tax expense and improved other income.
Third-quarter irrigation revenue declined 19% to $114.8m and segment operating income declined 36% to $19.5m. Infrastructure revenue increased 11% to $24.4m and segment operating income increased 76% to $6.3m. Nine-month irrigation revenue decreased 12% to $388.0m; infrastructure revenue was nearly flat at $64.1m, with segment operating income up 50% to $13.4m.
Financial position and capital resources
- At May 31, 2024, cash and cash equivalents were $140.2m and marketable securities were $12.5m, totaling $152.7m. Total debt was $115.5m, implying approximately $37.2m of cash and securities in excess of debt.
- Current assets were $488.7m and current liabilities $123.7m; reported net working capital was $365.0m. Inventory was $171.5m, up from $155.9m at August 31, 2023.
- Nine-month operating cash flow was $42.7m, down from $59.2m, principally reflecting inventory investment, partly offset by lower receivables. Investing cash use was $32.4m, including $23.5m of capital expenditures; financing cash use was $30.2m, including $17.9m of share repurchases and $11.6m of dividends.
- Long-term debt included $115.0m of unsecured senior notes bearing 3.82% interest and due in 2030. The $50.0m revolving facility had no borrowings and was fully available at quarter-end. The company reported compliance with its financial covenants.
Outlook, management commentary and notable items
- Management said lower commodity prices and a forecast decline in U.S. net farm income tempered irrigation demand in Q3, with subdued demand expected to continue until the farm-income outlook improves. Wet Midwestern field conditions also delayed deliveries and irrigation start-up. Lower sales reduced irrigation margins because fixed costs did not decline proportionately.
- In May, Lindsay announced a multi-year MENA-region irrigation supply agreement valued at more than $100m, with revenue expected from Q4 FY2024 through Q1 FY2026. Backlog was $246.9m at May 31, 2024, versus $94.5m a year earlier; $62.0m was not expected to be fulfilled within the following 12 months. Management cautioned backlog is not generally a reliable indicator of next-quarter revenue.
- Fiscal 2024 capital expenditures are expected to be approximately $30m, mainly for replacement, modernization, productivity, product development and growth investments. Management retains flexibility to adjust timing or amount.
- Risks highlighted include lower farm income and crop prices, weather, foreign exchange, political and economic conditions in international markets, and project timing. The company has suspended new business activity in Russia and Belarus since February 2022.
- The company agreed to acquire a 49.9% minority interest in agricultural technology provider Pessl Instruments, with closing expected in fiscal Q4 subject to customary conditions and regulatory approvals. A call option may permit purchase of the remaining shares later.
- Product-liability litigation involving X-Lite highway end terminals includes a newly served Tennessee qui tam action and a Missouri transportation commission lawsuit. Management does not consider a loss probable and has recorded no accrual; it cannot estimate a potential loss range. The company maintains insurance and does not expect a material adverse effect.
- An environmental remediation liability for the Lindsay, Nebraska site was $10.6m. The remediation plan remains subject to EPA and state review; actual costs could exceed the estimate, though management does not expect additional costs to materially affect liquidity or financial condition.
Key facts for investors to verify
- Whether weaker agricultural economics continue to reduce irrigation volumes and margins, particularly in Brazil and other Latin American markets.
- Timing, execution and revenue recognition for the MENA project, and how much of the reported backlog converts to sales.
- Underlying earnings excluding the nonrecurring Brazilian tax credit, and the sustainability of reported margins and cash generation.
- Inventory levels, working-capital needs, planned capital expenditures and continued share repurchases.
- Closing and terms of the Pessl investment, as well as developments in X-Lite litigation and environmental remediation costs.