Lindsay Corporation — Q3 FY2015 Form 10-Q
Reporting period: Quarter and nine months ended May 31, 2015. Financial amounts below are in U.S. dollars.
Business context and results
Lindsay operates Irrigation and Infrastructure segments. Irrigation remains the larger business; the quarter’s decline in irrigation revenue outweighed growth in Infrastructure. In January 2015, Lindsay acquired Elecsys, a machine-to-machine technology and electronics company, for $67.2 million net of cash acquired.
| Metric | Q3 FY2015 | Q3 FY2014 | Nine months FY2015 | Nine months FY2014 |
|---|---|---|---|---|
| Revenue | $160.7 million | $169.9 million | $436.6 million | $470.4 million |
| Gross profit / margin | $46.4 million / 28.9% | $48.2 million / 28.4% | $122.9 million / 28.1% | $131.1 million / 27.9% |
| Operating income / margin | $21.5 million / 13.4% | $25.2 million / 14.8% | $47.9 million / 11.0% | $62.1 million / 13.2% |
| Net earnings | $12.9 million | $16.5 million | $29.5 million | $40.2 million |
| Diluted EPS | $1.10 | $1.28 | $2.46 | $3.11 |
Financial position and cash flow
- Nine-month operating cash flow was $35.4 million, down from $65.9 million a year earlier. Capital expenditures were $11.2 million versus $7.8 million; acquisition spending was $67.2 million.
- Cash and cash equivalents were $154.0 million at May 31, 2015, compared with $171.8 million at August 31, 2014. Net working capital was $250.0 million, versus $257.7 million at fiscal year-end.
- Total debt was $117.4 million, including $115.0 million of 3.82% senior notes due in 2030 and $2.4 million of Elecsys bonds. The company had $44.0 million available under its $50 million revolver after letters of credit; no revolver borrowings were outstanding. It reported compliance with financial covenants.
- Nine-month share repurchases totaled $78.5 million; dividends paid were $9.6 million. The quarterly dividend declared was $0.27 per share.
Material changes and management outlook
- Q3 revenue decreased 5% and net earnings decreased 22% year over year. For nine months, revenue decreased 7% and net earnings decreased 27%.
- Q3 Irrigation revenue fell 12% to $131.3 million and segment operating income fell 29% to $19.9 million. Lower commodity prices, reduced farm income, weaker demand, competitive pressure, and currency translation contributed. International irrigation revenue declined 27% in the quarter.
- Q3 Infrastructure revenue rose 41% to $29.4 million, primarily on Road Zipper and road-safety sales; segment operating income increased to $6.5 million from $0.9 million.
- Foreign currency translation reduced Q3 revenue by $7.5 million and net earnings by $0.8 million; nine-month revenue and operating income were reduced by $12.7 million and $1.0 million, respectively.
- Management described near-term irrigation demand as constrained, with no significant indicators of improvement. It remained confident in long-term demand drivers for efficient irrigation and water use. Infrastructure outlook was positive but tempered by uncertainty over long-term U.S. highway funding and possible global economic weakness. No quantified earnings or revenue guidance was provided.
- Backlog was $53.2 million at May 31, 2015, versus $73.6 million a year earlier; it included $12.3 million from Elecsys. Management cautioned backlog is not generally a reliable indicator of next-quarter revenue.
- Fiscal 2015 capital expenditures were estimated at $15–$20 million, mainly for capacity expansion and productivity improvements. The Turkey manufacturing facility began operations in March 2015.
Risks, contingencies, and unusual items
- Environmental remediation liability was $7.6 million. The EPA had not approved the remediation plan; further investigation and possible plan changes could cause material quarterly or annual expense, although management did not expect a material adverse effect on liquidity or financial condition.
- Acquisition purchase-price allocation remained preliminary, including assessments of shareholder litigation and tax liabilities. Elecsys integration included closing the Digitec facility and consolidating electronics manufacturing.
- Management identified currency, grain and oil prices, and interest rates as risks to customer demand, sales, margins, and competitiveness. It also cited trade sanctions affecting Russia and Ukraine, and uncertainty around government infrastructure funding.
- Other notable items included $1.6 million of acquisition-related costs for the nine-month period and a $1.5 million increase in estimated environmental expenses. The filing states that disclosure controls were effective and that no material change in internal control over financial reporting occurred during the quarter.
Investor verification priorities
- Track whether irrigation demand, farm economics, and international sales stabilize, and assess ongoing currency effects.
- Review Elecsys integration, acquisition accounting, and the expected contribution of the acquired business.
- Monitor operating cash generation, capital spending, share repurchases, and the impact of new debt service.
- Follow EPA discussions, investigation findings, and potential changes to remediation costs or timing.
- Check backlog conversion and Infrastructure performance against highway-funding and project-spending conditions.