Lindsay Corporation — Form 10-Q Summary
Business context and period. This filing covers the first quarter of fiscal 2015, the three months ended November 30, 2014. Lindsay operates in Irrigation, which manufactures and markets agricultural irrigation systems and related products, and Infrastructure, which includes road safety products, steel tubing, railroad products, and outsourced manufacturing.
Financial performance
| Metric | Q1 FY2015 | Q1 FY2014 | Change / context |
|---|---|---|---|
| Revenue | $134.8 million | $147.7 million | Down 9% |
| Gross profit / margin | $36.9 million / 27.4% | $40.2 million / 27.2% | Profit down 8%; margin up 0.2 percentage points |
| Operating expenses | $25.0 million | $24.2 million | Up 4% |
| Operating income / margin | $11.9 million / 8.8% | $16.0 million / 10.8% | Income down 26%; margin down 2.0 percentage points |
| Net earnings / diluted EPS | $7.6 million / $0.62 | $10.2 million / $0.79 | Both earnings and diluted EPS down 26% |
| Operating cash flow | $5.7 million | $5.9 million | Down $0.2 million |
| Capital expenditures | $3.6 million | $2.4 million | Increased year over year |
Segments. Irrigation revenue fell 11% to $114.7 million and segment operating income fell 28% to $14.7 million; segment margin was 12.8%, versus 15.7%. U.S. irrigation revenue declined 21%, including a 27% drop in irrigation-system unit volume. International irrigation revenue rose 4%. Infrastructure revenue increased 9% to $20.1 million, while segment operating income rose to $2.2 million from $0.5 million; segment margin improved to 11.1% from 2.7%.
Liquidity and capital. Cash and cash equivalents were $139.3 million at November 30, 2014, down from $171.8 million at August 31, 2014. Net working capital was $231.8 million. The company reported no outstanding long-term debt and no borrowings under its credit facilities; $24.6 million remained available on its $30 million revolving facility after letters of credit. Current assets were $341.4 million and current liabilities $109.6 million. Cash used in financing was $34.5 million, primarily reflecting $30.0 million of share repurchases and $3.3 million of dividends. The quarterly dividend was $0.27 per share, compared with $0.13 a year earlier.
Total comprehensive income was $3.6 million, compared with $11.1 million, including a $4.0 million foreign-currency translation loss in the quarter. The company repurchased 381,619 shares at an average $78.57, with $79.0 million remaining under its authorization.
Changes, outlook, and notable items
- Management attributed weaker results mainly to lower irrigation revenue as lower crop prices and farm income weighed on U.S. farmer equipment demand. Lower irrigation pricing and higher input costs also pressured irrigation gross margin. Infrastructure results improved, aided by road-safety sales, product mix, and higher sales leverage.
- Management expected U.S. irrigation equipment demand to remain lower in fiscal 2015, while noting that demand was difficult to assess ahead of the primary selling season. It described international irrigation opportunities as positive over the long term and planned to open a Turkey factory in the second fiscal quarter; initial capacity could create short-term fixed-cost absorption pressure.
- Infrastructure outlook was positive but tempered by the lack of a long-term U.S. highway funding bill and possible effects of a global slowdown on international projects. Backlog was $68.3 million, versus $86.6 million a year earlier and $79.6 million at fiscal year-end; management cautioned that backlog is not generally a reliable indicator of next-quarter revenue.
- The company had signed a definitive agreement to acquire Elecsys Corporation for approximately $70.5 million in cash, targeting a January 2015 closing subject to customary conditions, including Elecsys shareholder approval. It incurred $0.6 million of related costs and said it expected to raise $100 million through a long-term debt placement over the next several months.
- Operating expenses included $1.5 million of incremental estimated environmental costs and $0.6 million of Elecsys transaction costs. Management said these items reduced diluted EPS by $0.11 after tax.
- The environmental remediation liability was $7.9 million, including $1.5 million of incremental operating costs accrued in the quarter after the EPA requested a feasibility study. The EPA had not approved the remediation plan; costs for contamination under a manufacturing building could not yet be reasonably estimated. Management warned revisions or additional testing could materially affect results in a quarter or year, but did not expect additional expenses to materially harm liquidity or financial condition.
- Management cited currency movements, grain and oil prices, farm income, interest rates, trade sanctions affecting Russia and Ukraine, and uncertainty in government infrastructure funding as risks to demand, sales, and margins. The company used foreign-exchange derivatives to manage currency exposure and stated it did not use them for speculation.
- The company was evaluating the impact and transition method for the new revenue-recognition standard, effective for it in fiscal 2018; the impact had not yet been determined. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether irrigation demand, especially in the U.S., stabilizes as crop prices, farm incomes, and purchasing sentiment evolve.
- Whether the Elecsys acquisition closed as planned, its financing and integration costs, and its contribution to results.
- How EPA review and the feasibility study affect remediation scope, timing, and costs beyond the $7.9 million accrued liability.
- Whether the planned $100 million debt placement occurred and how acquisition spending, buybacks, and dividends affect cash and leverage.
- Whether currency movements, input costs, and infrastructure funding uncertainty materially affect segment margins and the reported backlog converts to revenue as expected.