Lindsay Corporation — Q3 FY2023 Form 10-Q
Reporting period: Fiscal third quarter and first nine months ended May 31, 2023; unaudited. Comparisons are with the corresponding 2022 periods. Amounts below are in U.S. dollars.
Business context and financial performance
Lindsay reports two segments: irrigation equipment and technology, and infrastructure products including movable barriers and road-safety equipment. Irrigation generated 87% of revenue in the quarter and remained the dominant business.
| Metric | Q3 FY2023 | Q3 FY2022 | Nine months FY2023 | Nine months FY2022 |
|---|---|---|---|---|
| Revenue | $164.6m | $214.3m | $507.0m | $580.5m |
| Gross profit / margin | $53.2m / 32.3% | $61.7m / 28.8% | $160.5m / 31.7% | $142.1m / 24.5% |
| Operating income / margin | $27.0m / 16.4% | $35.2m / 16.4% | $78.8m / 15.5% | $66.9m / 11.5% |
| Net earnings | $16.9m | $25.1m | $53.2m | $47.5m |
| Diluted EPS | $1.53 | $2.28 | $4.80 | $4.31 |
Quarterly revenue fell 23% and net earnings fell 33%, while gross margin improved 3.5 percentage points. For the nine months, revenue decreased 13%, but net earnings rose 12% as improved pricing, lower inflationary input costs, and a more favorable mix lifted gross margin. The nine-month results also benefited from prior-year LIFO and non-recurring factory-maintenance costs not recurring at the same level.
Segments and material changes
- Irrigation: Q3 revenue decreased 24% to $142.6m; segment operating income fell 22% to $30.7m, while margin increased to 21.6% from 21.0%. North American volume declined as farmers delayed investment; international sales weakened in Brazil, Australia, Ukraine, and Russia, with currency translation also adverse. Nine-month irrigation revenue fell 14%, while segment operating income increased 13% to $92.2m.
- Infrastructure: Q3 revenue declined 14% to $22.0m and operating income declined 6% to $3.6m; margin improved to 16.2%. For nine months, revenue was down 1% to $64.5m, while operating income rose 30% to $8.9m.
- Other items: Q3 other expense was $1.2m versus $0.4m of other income a year earlier, primarily reflecting foreign-currency transaction losses rather than gains. The nine-month effective tax rate increased to 29.6% from 26.0%, mainly due to a greater share of earnings in higher-tax foreign jurisdictions.
Cash flow, liquidity, and debt
- Nine-month operating cash flow was $59.2m, compared with cash used of $24.9m in the prior-year period, principally reflecting improved working capital, including receivables and inventory.
- Investing cash outflow was $18.9m, including $13.3m of capital expenditures; financing cash outflow was $13.5m, including $11.2m of dividends paid.
- At May 31, 2023, cash and cash equivalents were $131.6m and marketable securities were $12.8m, totaling $144.4m. Net working capital was $358.3m.
- Total debt principal was approximately $115.8m, largely $115.0m of fixed-rate senior notes due in 2030. No revolving-credit borrowings were outstanding; $50.0m was available under the facility. The company reported compliance with its financial covenants.
- Quarterly dividend was $0.34 per share, versus $0.33 a year earlier. No shares were repurchased during the nine-month period; $63.7m remained available under the repurchase authorization.
Outlook, risks, and contingencies
- Management described U.S. irrigation demand as softer, with farmer uncertainty, lower projected net farm income, higher interest rates, and inflation concerns delaying equipment purchases. It suggested demand may shift later in the calendar year, but provided no specific revenue or earnings guidance.
- Management expects a limited fiscal 2023 benefit from the U.S. infrastructure investment law, with a more positive effect in fiscal 2024 and beyond. Unshipped-order backlog was $94.5m versus $98.3m a year earlier; irrigation backlog was lower and infrastructure backlog higher. The filing cautions backlog is not generally a reliable indicator of next-quarter revenue.
- Fiscal 2023 capital expenditures were expected to be $15m–$20m. Management said current cash, expected operating cash flow, marketable securities, and credit availability should cover working capital, planned capital expenditures, and dividends.
- Key business sensitivities include agricultural commodity prices, weather, farm income, government policy, foreign exchange, international project timing, and the Russia-Ukraine conflict. New business activity in Russia and Belarus has been suspended since February 2022.
- The company is defending product-liability lawsuits concerning its X-Lite highway end terminal, including a Missouri transportation commission suit, and faces a U.S. Department of Justice investigation relating to potential False Claims Act violations. The company says losses are not currently considered probable for the lawsuits, has not accrued for them, and cannot estimate a potential loss range; it notes the investigation could have a material adverse effect.
- Environmental remediation at the Lindsay, Nebraska site remains subject to regulatory review. The company reported a $12.3m recorded liability and cautioned actual costs could exceed the accrual depending on regulatory requirements and pilot-study results. It does not expect additional costs to materially affect liquidity or financial condition.
Important facts for investors to verify
- Whether delayed U.S. farm-equipment purchases recover, and whether international irrigation demand and project timing improve.
- Whether the improved gross margins persist as sales volumes, input costs, and product mix change; quarterly revenue and net earnings declined sharply year over year.
- Developments, potential exposure, and insurance coverage relating to X-Lite lawsuits and the federal investigation; neither potential loss range is clear in the filing.
- Regulatory approval and pilot-study results for the Nebraska remediation plan, and any resulting revisions to the recorded liability.
- Progress against the $15m–$20m fiscal 2023 capital-expenditure plan, cash generation, and the timing and impact of infrastructure spending.