Lindsay Corporation — FY2014 Form 10-K
Reporting period: Fiscal year ended August 31, 2014. The filing also reports fourth-quarter results. Lindsay manufactures irrigation and water-management products and road-infrastructure and safety products.
Financial performance
| Metric | FY2014 | FY2013 | Change |
|---|---|---|---|
| Revenue | $617.9 million | $690.8 million | Down 11% |
| Gross profit / margin | $171.0 million / 27.7% | $194.8 million / 28.2% | Margin down 0.5 percentage points |
| Operating income / margin | $78.4 million / 12.7% | $107.1 million / 15.5% | Down 27% |
| Net earnings | $51.5 million | $70.6 million | Down 27% |
| Diluted earnings per share | $4.00 | $5.47 | Down 27% |
| Cash flow from operations | $91.8 million | $57.5 million | Up $34.3 million |
| Capital expenditures | $17.7 million | $11.1 million | Up $6.6 million |
Cash and cash equivalents were $171.8 million at year-end, compared with $151.9 million a year earlier. Net working capital was $258.2 million. The company had no long-term debt or outstanding borrowings on its credit facilities; available borrowing capacity under its Wells Fargo facility was $24.5 million, plus a separate $5.0 million facility with no borrowings outstanding. Total assets were $526.6 million and total liabilities were $143.9 million.
FY2014 dividends were $0.92 per share, totaling $11.7 million. Lindsay repurchased 497,899 shares for $41.1 million; $108.9 million remained under its $150 million authorization.
Segments and changes versus FY2013
- Irrigation: Revenue fell 14% to $539.9 million; segment operating income declined 27% to $91.7 million, and margin fell from 20.0% to 17.0%. Lower system volumes, weaker agricultural economics and completion of much of the Iraq contract weighed on results. U.S. storm-related replacement sales contributed an estimated $27.0 million; the acquired LAKOS filtration business contributed $20.8 million in revenue.
- Infrastructure: Revenue rose 20% to $78.0 million. Segment operating income improved to $3.5 million from an $0.8 million loss, with a 4.5% margin versus negative 1.3%, reflecting higher sales and favorable product mix.
- International sales were 39% of total revenue, versus 38% in FY2013. Overall, the decline in irrigation more than offset infrastructure growth.
- Gross margin slipped amid lower volume and fixed-cost deleverage. Operating expenses increased $4.9 million to $92.6 million, partly reflecting the LAKOS acquisition; excluding LAKOS, expenses decreased $3.6 million.
- Fourth-quarter revenue was $147.5 million versus $148.4 million a year earlier; net earnings were $11.3 million versus $10.4 million, and diluted EPS was $0.89 versus $0.81.
Outlook, risks and unusual items
- Management anticipated lower irrigation-segment revenue in FY2015, citing reduced commodity prices and farm income, improved growing conditions, reduced tax incentives and geopolitical risks. International activity remained generally active, though some projects were delayed.
- FY2015 capital expenditures were estimated at $20–25 million, focused on capacity and productivity, including a Turkey manufacturing operation planned to begin operating in early calendar 2015. Management said timing and spending could be adjusted to economic conditions.
- Infrastructure opportunities include market-share gains, but growth remains exposed to government transportation funding. The August 2014 U.S. highway-funding measure was temporary; management noted uncertainty pending a longer-term highway bill.
- Year-end backlog was $79.6 million, up from $66.5 million, including a $12.7 million Road Zipper order. The filing cautions that backlog fluctuates and is not a reliable indicator of next-quarter revenue.
- Iraq contract: Of a $39 million contract, $35.8 million had been fulfilled. Political instability led Lindsay to suspend installation indefinitely. The company had $2.5 million in related receivables and a $1.9 million performance bond; it had not accrued a loss while assessing possible claims for unfinished services.
- Credit risk: $8.0 million of receivables from Chinese government entities was delinquent. The allowance for doubtful accounts, including current and long-term receivables, rose to $4.8 million from $2.9 million.
- Environmental contingency: The company had accrued $6.4 million for remediation at its Lindsay, Nebraska Superfund site. Further investigation and EPA discussions could require additional work; costs for potentially affected areas could not yet be reasonably estimated. The company said additional expense was not expected to materially affect liquidity or financial condition, though quarterly or annual results could be affected.
- Other principal risks include agricultural and weather cycles, commodity and energy costs, supplier disruption, foreign-exchange movements, international political and trade conditions, and acquisitions or expansion execution. Management estimated a 10% adverse currency move could reduce operating income by less than $1.0 million.
Key facts for investors to verify
- Whether irrigation demand and margins stabilize as commodity prices, farm income and weather conditions change.
- Collection of delinquent Chinese receivables and recovery of Iraq contract receivables; potential performance-bond or contract claims.
- EPA investigation findings, revised remediation requirements and whether the existing environmental accrual remains adequate.
- Execution and returns from the Turkey facility, planned FY2015 capital spending and the integration of LAKOS.
- Infrastructure order conversion and the effect of U.S. and international public funding on sales and margins.