Lindsay Corporation — Q1 FY2018 Form 10-Q
Reporting period: Three months ended November 30, 2017; comparisons are with the three months ended November 30, 2016. Lindsay reports irrigation and infrastructure segments.
Financial results and position
| Metric | Q1 FY2018 | Q1 FY2017 |
|---|---|---|
| Revenue | $124.5 million | $110.4 million |
| Gross profit / margin | $32.4 million / 26.0% | $28.4 million / 25.7% |
| Operating income / margin | $6.2 million / 5.0% | $2.7 million / 2.5% |
| Net earnings | $3.2 million | $0.9 million |
| Diluted EPS | $0.30 | $0.08 |
| Operating cash flow | $(5.0) million | $8.1 million |
- Revenue increased 13%; irrigation revenue rose 15% to $103.4 million, while infrastructure revenue increased 3% to $21.2 million.
- Operating expenses increased 2% to $26.2 million, but declined to 21.0% of revenue from 23.2%. Management attributed improved gross margin to higher revenue and better infrastructure product mix and lease revenue; irrigation volume leverage was partly offset by product and regional mix.
- Cash and cash equivalents were $109.5 million at November 30, 2017, down from $121.6 million at August 31, 2017. Net working capital was $206.1 million.
- Total debt was $116.9 million, including $115.0 million of senior notes; no revolving-facility borrowings were outstanding. The company had $44.6 million available under its $50 million revolver and reported compliance with debt covenants.
- Operating cash use reflected increased working capital supporting higher sales, including an $8.7 million inventory cash use and a $6.5 million receivables cash use. Investing cash use was $3.0 million; financing cash use was $4.0 million, including $3.2 million of dividends.
Business trends, outlook and risks
- North American irrigation revenue rose 28%, reflecting a more typical fall selling season; international irrigation revenue declined 4% due to lower project sales. Infrastructure growth reflected road-safety volume and higher Road Zipper System lease revenue.
- Management said the U.S. irrigation market appeared to have stabilized after a four-year downturn, but expected meaningful demand growth to remain constrained absent sustained improvement in commodity prices and farm income. International project sales can fluctuate and are difficult to forecast.
- Infrastructure continued to show growth and profitability improvement despite constrained government spending. Changed highway-safety certification requirements could increase research and development spending and affect competitive positioning.
- Order backlog was $80.3 million, versus $55.9 million a year earlier and $51.8 million at August 31, 2017; management cautioned backlog is generally not a reliable indicator of next-quarter revenue.
- Fiscal 2018 capital expenditures were expected to be $12–$15 million. No specific revenue or earnings forecast was provided. Management said cash, projected operating cash flow and available credit were sufficient for expected working capital, planned capital expenditures and dividends.
- U.S. tax reform legislation passed Congress on December 20, 2017, after quarter-end. The company estimated it could reduce tax expense, partly offset by deemed repatriation of foreign income, and was still assessing the impact.
- Environmental remediation liability was $17.4 million. The proposed remediation plan had not been approved; actual costs could exceed the accrual, and revisions could materially affect quarterly or annual operating results, though the company did not expect additional costs to materially affect liquidity or financial condition.
- The company was defending product-liability lawsuits involving X-Lite highway-barrier end terminals. It recorded no accrual because it did not consider a loss probable and could not estimate a loss range; it warned additional suits might be filed. It maintains insurance.
- Foreign-currency movements, agricultural prices and farm income, weather, government policy, project timing, and litigation and remediation costs are among the stated uncertainties. The company reported no material changes to its previously disclosed risk factors.
Important facts for investors to verify
- Whether irrigation demand and the increased backlog translate into sustained revenue, particularly in North America and international project markets.
- Whether working-capital investment reverses and operating cash flow improves as sales are realized.
- The eventual financial-statement effects of tax reform and adoption of the new revenue-recognition standard, which the company was evaluating.
- EPA and state-agency approval of the remediation plan, potential cost changes, and developments in the X-Lite litigation.
- Execution of the $12–$15 million capital-expenditure plan and continued compliance with debt covenants.