Lindsay Corporation (LNN) — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended May 31, 2022; comparisons are with the periods ended May 31, 2021. Lindsay reports Irrigation and Infrastructure segments. Amounts below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Financial performance
| Metric | Q3 FY2022 | Q3 FY2021 | Nine months FY2022 | Nine months FY2021 |
|---|---|---|---|---|
| Revenue | $214.3 | $161.9 | $580.5 | $414.0 |
| Gross profit / margin | $61.7 / 28.8% | $44.1 / 27.2% | $142.1 / 24.5% | $116.6 / 28.2% |
| Operating income / margin | $35.2 / 16.4% | $21.3 / 13.2% | $66.9 / 11.5% | $44.7 / 10.8% |
| Net earnings | $25.1 | $17.8 | $47.5 | $36.8 |
| Diluted EPS | $2.28 | $1.61 | $4.31 | $3.35 |
- Q3: Revenue rose 32% and net earnings rose 41%. Irrigation revenue increased 35% to $188.7 million; Infrastructure increased 17% to $25.6 million. Irrigation operating income rose to $39.6 million, while Infrastructure operating income was nearly flat at $3.8 million.
- Nine months: Revenue rose 40%, led by Irrigation, up 49% to $515.4 million. Infrastructure revenue declined 4% to $65.2 million; its segment operating income fell 52% to $6.9 million. Irrigation segment operating income increased 55% to $81.5 million.
- Year-to-date gross margin fell 3.7 percentage points despite higher sales. Management cited raw-material and other input cost inflation, approximately $8.8 million of LIFO-related cost, and a greater mix of lower-margin Irrigation revenue. Q3 gross margin improved year over year, primarily on better Irrigation price realization.
- Effective tax rates increased: 29.5% versus 15.9% for Q3 and 26.0% versus 13.7% year to date. The filing attributes this mainly to a larger share of earnings in higher-tax foreign jurisdictions and, in the prior year, larger discrete tax benefits.
Cash flow, liquidity and debt
- Operating cash flow was negative $24.9 million for the nine months, compared with positive $30.7 million a year earlier. Increased receivables and inventories, associated with higher Irrigation demand, were the main factors.
- Cash and cash equivalents were $81.8 million; marketable securities were $13.9 million, for combined cash and securities of $95.7 million at May 31, 2022. This compared with $146.7 million at August 31, 2021.
- Net working capital was $301.6 million. Total debt principal was approximately $116.0 million, including $115.0 million of Senior Notes. No borrowings were outstanding on the $50 million revolving credit facility, which was fully available at period-end. The company reported compliance with its financial covenants.
- Investing cash outflow was $10.1 million and financing cash outflow was $9.0 million. Capital expenditures were $12.2 million. Dividends paid were $10.9 million; quarterly dividend was $0.33 per share. No shares were repurchased, and $63.7 million remained under the repurchase authorization.
Outlook, commentary and material risks
- Management described U.S. Irrigation demand as robust, supported by agricultural commodity prices and farm-income expectations. International Irrigation growth reflected higher prices and volumes, including strength in Brazil, the Middle East and Europe. Management identified international markets as an important growth opportunity, while noting project timing and regional political and economic uncertainty.
- Supply-chain constraints, raw-material prices, freight and logistics costs, limited component availability and labor constraints continued to pressure costs and extend delivery lead times. Management expected elevated costs to weigh on margins until price increases fully offset them.
- New business activity in Russia and Belarus had been suspended since February 2022. Russian and Ukrainian customers historically represented less than 5% of consolidated revenue.
- Infrastructure demand depends significantly on government road-construction spending. Management anticipates that the Infrastructure Investment and Jobs Act could support demand for transportation safety products. The May 31 backlog was $98.3 million versus $120.8 million a year earlier; the prior-year figure included a $36 million Irrigation project. Management cautioned that backlog is not generally a reliable indicator of next-quarter revenue.
- Fiscal 2022 capital expenditures were expected to be $15–$20 million. Management stated that available cash, securities, projected operating cash flow and credit capacity were sufficient for expected working capital, planned capital expenditures and dividends.
- Environmental remediation at the Lindsay, Nebraska site had an accrued liability of $15.9 million. A proposed remediation plan was not yet approved by regulators; a pilot study was expected to begin in the second half of calendar 2022. Actual costs and timing could exceed estimates.
- The company is defending product-liability lawsuits involving X-Lite highway end terminals, including a Missouri transportation commission action. It reported no accrual because it did not consider a loss probable, but could not estimate a potential loss range. A U.S. Department of Justice investigation concerning X-Lite and potential False Claims Act violations also remained unresolved; the company could not estimate any loss or outcome.
Key facts for investors to verify
- Whether price increases continue to offset inflation, LIFO effects and supply-chain costs, particularly given the weaker year-to-date gross margin.
- Whether the working-capital build converts to cash and whether receivables and inventories remain elevated.
- Progress, regulatory approvals and revised cost estimates for Nebraska remediation.
- Developments, insurance coverage and potential exposure in the X-Lite litigation and DOJ investigation.
- How the lower reported backlog, international project timing, currency movements and the Russia/Ukraine conflict affect future orders and revenue.