Lindsay Corporation — Q1 FY2021 Form 10-Q
Reporting period: Three months ended November 30, 2020; comparisons are with the three months ended November 30, 2019. Lindsay manufactures irrigation systems and technology, and highway safety and infrastructure products.
Financial performance
| Metric | Q1 FY2021 | Q1 FY2020 | Change |
|---|---|---|---|
| Revenue | $108.5 million | $109.4 million | Down 1% |
| Gross profit / margin | $31.4 million / 29.0% | $34.1 million / 31.1% | Profit down 8%; margin down 2.1 points |
| Operating income / margin | $7.5 million / 6.9% | $12.3 million / 11.2% | Down 39% |
| Net earnings | $7.1 million | $8.3 million | Down 15% |
| Diluted EPS | $0.65 | $0.77 | Down 16% |
| Operating cash flow | $15.4 million | $1.5 million | Up $13.8 million |
Irrigation revenue increased 5% to $87.4 million, while infrastructure revenue fell 19% to $21.1 million. Irrigation operating income rose 9% to $10.6 million; infrastructure operating income declined 51% to $4.3 million. Consolidated gross margin contracted mainly because of lower higher-margin infrastructure revenue. Operating expenses increased 10% to $23.9 million, reflecting new-product sales and marketing, incentive compensation, and health and medical costs.
Reported income tax benefit was $0.2 million versus $2.9 million of tax expense a year earlier. The current quarter included a $1.7 million discrete tax benefit, primarily from releasing a valuation allowance on foreign net operating loss carryforwards expected to be realizable.
Cash, liquidity, and debt
At November 30, 2020, cash and cash equivalents were $126.8 million and marketable securities were $19.6 million, totaling $146.4 million. Net working capital was $254.1 million. Operating cash flow benefited primarily from working-capital movements, including receivables and accounts payable; inventories used $8.3 million of cash.
Total debt principal was $116.3 million, including $115.0 million of senior notes; there were no revolver borrowings and $50.0 million of revolving capacity was available. The senior notes mature in 2030 and bear fixed interest at 3.82%. The company reported compliance with its financial covenants. Capital expenditures were $5.6 million and dividends paid were $3.5 million during the quarter.
Changes, outlook, and risks
- International irrigation revenue increased 16% to $34.6 million on higher unit sales, partly offset by approximately $2.4 million of unfavorable foreign-currency translation. North American irrigation revenue declined 2% to $52.8 million.
- Infrastructure sales were affected by a prior-year large order that did not recur and lower current-period road construction activity. Backlog rose to $89.2 million from $69.2 million a year earlier, primarily due to stronger North American irrigation orders; management cautions that backlog is not generally a reliable indicator of next-quarter revenue.
- Management said COVID-19 had so far had limited impact on manufacturing and no significant effect on product demand, but its future effects remained uncertain, including potential supply-chain and customer-demand impacts.
- Fiscal 2021 capital expenditures were expected to be $15 million–$20 million, with flexibility to adjust timing or amount. The filing provides no quantified revenue or earnings guidance. Management cited international markets as a significant longer-term growth opportunity.
- Key contingencies include X-Lite highway end-terminal product-liability lawsuits, including a Missouri agency lawsuit, and a U.S. Department of Justice investigation concerning possible False Claims Act violations. The company said losses were not considered probable for the lawsuits, recorded no accrual, and could not estimate potential losses; it could not estimate the investigation outcome or loss exposure.
- Environmental remediation liabilities were $16.1 million for groundwater contamination at the Nebraska facility. The proposed remediation plan had not been approved by regulators, and actual costs could exceed the accrual. The company said additional expense was not expected to materially affect liquidity or financial condition.
Most important facts for investors to verify
- Whether the decline in infrastructure revenue and margin persists, and whether the higher backlog converts to sales.
- Whether working-capital-driven operating cash flow is sustainable and how inventory levels develop.
- The ultimate cost and timing of Nebraska remediation after regulatory review.
- Developments in the X-Lite litigation and federal investigation, for which potential loss ranges were not estimable.
- The durability of irrigation demand amid changing farm economics, weather, currency movements, and government programs.