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Lindsay Corporation (LINDSAY) - 10-Q Summary

Business Context and Reporting Period

This filing is a Quarterly Report on Form 10-Q for Lindsay Corporation, covering the three and nine months ended May 31, 2011. Lindsay is a leading designer and manufacturer of self-propelled center pivot and lateral move irrigation systems, as well as infrastructure products including moveable barriers, crash cushions, and railroad signals. The company operates in two reportable segments: Irrigation and Infrastructure.

Key Financial Metrics

(All figures in thousands, except per share data)

Material Changes vs. Prior Period

• Revenue Growth: Operating revenues increased 53.3% for the quarter and 33.7% for the nine-month period compared to the prior year. This was driven by a 58.0% increase in Irrigation segment revenues and a 34.5% increase in Infrastructure segment revenues.
• Profitability: Net earnings surged 144.7% for the quarter and 63.5% for the nine-month period. Operating income increased 130.3% for the quarter and 66.4% for the nine-month period.
• Margin Expansion: Gross margin improved to 27.0% (quarter) and 27.5% (nine months) from 25.2% and 27.0% in the prior year periods, respectively. Operating margin expanded to 15.1% from 10.0% for the quarter.
• Segment Performance: The Irrigation segment operating income rose 77.8% for the quarter. The Infrastructure segment turned a loss of $0.9 million into a profit of $1.1 million for the quarter.
• Debt Reduction: Interest expense decreased significantly (59.5% for the quarter) due to principal reductions on outstanding term debt. Total long-term debt decreased from $13.9 million to $9.6 million year-over-year.

Guidance, Outlook, and Risks

• Market Conditions: Management cites high agricultural commodity prices (corn up 111%, soybeans up 47%) and record projected Net Farm Income as drivers for strong U.S. irrigation demand. International markets, particularly China, Europe, and Brazil, also showed growth.
• Backlog: As of May 31, 2011, the order backlog was $43.3 million, higher than the $33.9 million recorded at May 31, 2010, but lower than the $64.3 million recorded at February 28, 2011.
• Outlook: Long-term drivers include global food production needs, water-use efficiency, and infrastructure improvements. However, risks include potential changes to government subsidies/tax credits and weather-related impacts on crop yields.
• Risks and Contingencies:
  • Environmental: The company is under a consent decree with the EPA regarding groundwater contamination at its Nebraska facility. Accrued liabilities were $1.5 million as of May 31, 2011. Additional costs may be required.
  • ERP Implementation: The company is implementing a new Enterprise Resource Planning (ERP) system at U.S. locations in the fourth quarter of fiscal 2011, carrying risks of cost overruns, delays, and business interruption.
  • Foreign Currency: The company uses derivatives to hedge exposure to the Euro, Brazilian real, South African rand, and Chinese renminbi.

Investor Verification Checklist

• Verify the sustainability of the 53% revenue growth rate in the Irrigation segment given the cyclical nature of agricultural equipment sales.
• Monitor the status of the EPA remediation work plan at the Nebraska facility for potential increases in accrued liabilities beyond the current $1.5 million.
• Assess the impact of the upcoming ERP system implementation on operational efficiency and potential short-term disruptions.
• Review the composition of the $43.3 million backlog to understand the timing of future revenue recognition.
• Confirm the company's ability to maintain gross margins above 27% as commodity input costs fluctuate.