Lindsay Corporation — Form 10-Q Summary
Reporting period: Fiscal second quarter and first six months ended February 28, 2019; comparisons are with the corresponding 2018 periods. Lindsay manufactures irrigation and infrastructure products. Amounts below are in U.S. dollars.
Financial performance
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $109.2 million | $130.3 million | $221.1 million | $254.9 million |
| Gross profit / margin | $24.5 million / 22.4% | $35.3 million / 27.1% | $53.1 million / 24.0% | $67.7 million / 26.6% |
| Operating income (loss) / margin | ($4.5 million) / (4.1%) | $7.3 million / 5.6% | ($2.4 million) / (1.1%) | $13.5 million / 5.3% |
| Net earnings (loss) / diluted EPS | ($3.4 million) / ($0.32) | $1.7 million / $0.16 | ($2.2 million) / ($0.21) | $4.9 million / $0.46 |
- Q2 revenue fell 16%; irrigation revenue decreased 14% to $95.8 million and infrastructure revenue fell 27% to $13.4 million. For the six months, revenue declined 13%.
- Q2 irrigation segment operating income was $7.5 million, down 37%; infrastructure recorded an operating loss of $0.4 million versus income of $2.5 million. Six-month segment income declined 23% for irrigation and 36% for infrastructure.
- Management attributed lower gross margin to lower sales, unfavorable irrigation volume mix, higher warranty costs and operational inefficiencies, as well as prior-year high-margin Road Zipper System sales that did not recur.
- Q2 results included $5.3 million of pre-tax Foundation for Growth costs, mainly consulting fees; management reported an after-tax earnings impact of $3.7 million, or $0.34 per diluted share. Six-month initiative costs were $9.3 million.
Cash flow, liquidity and debt
- Six-month operating cash flow was negative $39.8 million, compared with negative $8.9 million a year earlier. The filing cites working-capital investment, including increases in receivables and inventory.
- Investing cash outflow was $10.4 million, including $11.7 million of capital expenditures; financing cash outflow was $7.7 million, including $6.7 million of dividends.
- Cash was $102.8 million at February 28, 2019, down from $160.8 million at August 31, 2018. Working capital was $234.8 million; current assets were $317.2 million and current liabilities $82.5 million.
- Total debt was $116.7 million, principally $115.0 million of senior notes. No revolving-facility borrowings were outstanding; $44.6 million remained available after letters of credit. The company reported compliance with its debt covenants.
- Quarterly dividend declared was $0.31 per share, versus $0.30 a year earlier. No shares were repurchased during the six-month period; $63.7 million remained under the repurchase authorization.
Changes, outlook and risks
- North American irrigation revenue was affected by business divestitures and weaker equipment volume amid farmer caution and the U.S.-China trade dispute. Excluding divestitures, Q2 North American irrigation revenue decreased 3%; international irrigation revenue rose 22% excluding currency effects, supported by developing-market projects.
- Backlog fell to $44.4 million from $90.2 million a year earlier. Management attributed about $14.8 million of the decline to divestitures and $28.5 million to lower Road Zipper System orders; it cautioned backlog is not a reliable indicator of next-quarter revenue.
- The Foundation for Growth initiative is intended to improve future earnings. Management targets 11%–12% operating margins in fiscal 2020, assuming no improvement in market conditions from fiscal 2017, and expects initiative costs to be recovered through improved operating income. Fiscal 2019 capital expenditures were forecast at $15–$20 million.
- Management expected constrained North American irrigation demand, citing weak crop prices and farm income below the 10-year average. Weather, agricultural policy, currency movements, international project timing and infrastructure spending are additional uncertainties. The effect of widespread Midwest flooding on irrigation demand was unknown.
- Environmental remediation liabilities totaled $16.2 million. The remediation plan remained preliminary and awaited regulatory approval; actual costs and timing could change and revisions could materially affect quarterly or annual results. The company also faces X-Lite highway-barrier product-liability lawsuits; it recorded no accrual, said a loss was not considered probable, and could not estimate a loss range.
- The company completed the sale of a company-owned irrigation dealership in Q1 and received a $5.8 million note receivable. A closed infrastructure facility remained classified as held for sale.
Investor verification priorities
- Verify whether operating performance and margins recover as the Foundation for Growth costs subside, and assess the initiative’s actual results against the fiscal 2020 margin target.
- Track working-capital needs, operating cash flow, cash balances and the pace of capital expenditures and dividends.
- Assess irrigation demand, order backlog and segment margins, separating divestiture effects from underlying sales trends.
- Monitor regulatory progress and revised cost estimates for environmental remediation, and developments in the product-liability cases.
- Review the full filing and prior annual report for risk-factor details; management reported no material changes to previously disclosed risk factors.