Lindsay Corporation — Form 10-Q Summary
Reporting period: First quarter of fiscal 2012, three months ended November 30, 2011; comparisons are to the three months ended November 30, 2010. Lindsay operates irrigation and infrastructure businesses.
Financial performance
| Metric | Q1 FY2012 | Q1 FY2011 | Change |
|---|---|---|---|
| Revenue | $119.2 million | $89.2 million | +33.7% |
| Gross profit / margin | $30.2 million / 25.4% | $24.2 million / 27.2% | Margin down 1.8 points |
| Operating income / margin | $5.1 million / 4.3% | $6.6 million / 7.4% | Income down 23.1% |
| Net earnings | $2.9 million | $4.3 million | Down 31.8% |
| Diluted earnings per share | $0.23 | $0.34 | Down $0.11 |
| Operating cash flow | $6.2 million | $2.2 million | Up $4.0 million |
Revenue growth was driven by irrigation, partly offset by lower infrastructure sales. Irrigation revenue rose 67.9% to $100.8 million; infrastructure revenue fell 36.8% to $18.4 million. Irrigation segment operating income increased to $9.8 million from $5.9 million, while infrastructure shifted to a $1.2 million operating loss from $4.0 million income. The filing attributes the infrastructure decline chiefly to lower QMB system revenue.
Gross margin declined primarily because of lower sales of higher-margin QMB products. Management said irrigation and non-QMB infrastructure gross margins improved, reflecting higher-volume cost leverage and productivity gains. Excluding environmental remediation accruals, operating margin was 10.3%, compared with 8.2% a year earlier.
Cash, debt and liquidity
- Cash and cash equivalents were $108.7 million at November 30, 2011, versus $80.5 million a year earlier and $108.2 million at August 31, 2011.
- Operating cash flow was $6.2 million; investing activities used $2.2 million, including $2.6 million of capital expenditures; financing activities used $2.7 million, including $1.1 million of debt principal payments and $1.1 million of dividends.
- Total debt was $7.5 million, comprising $4.3 million current and $3.2 million long-term debt. The $30 million revolving credit facility was undrawn. Management reported covenant compliance.
- Management believes cash, projected operating cash flow and available credit are sufficient for expected working capital, planned capital expenditures, dividends and other cash needs, excluding potential acquisitions.
- Order backlog was $52.8 million, versus $59.7 million a year earlier and $46.0 million at August 31, 2011.
Material changes, outlook and risks
Results included a $7.2 million environmental remediation expense, or $0.37 per diluted share after tax, compared with $0.7 million, or $0.04 per share, in the prior-year quarter. The company estimated $7.2 million of remediation and operating costs over the next 5 to 10 years and recorded the amount as an expense. The balance-sheet remediation liability was $8.1 million, including $2.9 million current and $5.2 million noncurrent.
The estimate relates to contamination at the Lindsay, Nebraska site. Investigation is incomplete, does not cover all affected areas, and remediation plans have not been finalized or approved by the EPA. Additional costs could significantly exceed the accrual and materially affect results in a quarter or year; management does not expect additional costs to materially harm liquidity or financial condition.
Management reported the highest first-quarter revenue in company history and expects favorable agricultural conditions, global food-security needs and water conservation demand to support continued strong irrigation demand in fiscal 2012. It identified international markets as an important longer-term growth opportunity and cited strategic acquisitions as a potential growth avenue. No specific full-year earnings or revenue guidance was provided.
Infrastructure conditions remained challenging amid government budget constraints and uncertainty over U.S. highway funding. QMB project interest continued, but order timing is difficult to forecast and sales can be volatile. Other risks discussed include fluctuations in agricultural commodity prices, possible changes to U.S. farm subsidies and tax incentives—including the scheduled reduction in the Section 179 deduction—and foreign-exchange exposure. Management said risk factors were not materially changed from the prior annual report.
Key facts for investors to verify
- Whether the environmental investigation, EPA discussions or revised remediation estimates change the $8.1 million recorded liability or lead to additional material charges.
- Whether irrigation demand remains strong across U.S. and international markets, and whether commodity prices and tax incentives support farmer investment.
- Whether infrastructure and QMB sales recover, given lower QMB revenue, project timing uncertainty and public-sector spending constraints.
- Whether backlog converts to revenue as expected; the filing notes backlog fluctuates and typically represents only part of expected revenue for the following three months.
- Whether cash generation, borrowing capacity and covenant compliance remain adequate as the company funds operations, capital spending, dividends and potential acquisitions.