Lindsay Corporation — Form 10-Q summary
Reporting period: Fiscal second quarter and six months ended February 28, 2013; comparisons are with the three and six months ended February 29, 2012. Amounts below are in millions of dollars unless stated otherwise.
Business context and results
Lindsay operates in irrigation equipment and infrastructure products, including movable barriers, crash cushions, and related manufacturing. Irrigation generated 93% of second-quarter revenue and 92% of first-half revenue. Strong U.S. irrigation demand, supported by drought concerns and favorable farm economics, drove growth; infrastructure sales remained pressured by project delays and public funding constraints.
| Metric | Q2 2013 | Q2 2012 | First half 2013 | First half 2012 |
|---|---|---|---|---|
| Revenue | $175.5 | $132.1 | $322.9 | $251.3 |
| Gross profit / margin | $50.4 / 28.7% | $36.5 / 27.6% | $93.2 / 28.9% | $66.7 / 26.6% |
| Operating income / margin | $29.4 / 16.8% | $18.9 / 14.3% | $51.7 / 16.0% | $24.0 / 9.6% |
| Net earnings | $19.4 | $12.8 | $34.1 | $15.7 |
| Diluted EPS | $1.50 | $1.00 | $2.65 | $1.23 |
Material changes and operating drivers
- Second-quarter revenue increased 33%; first-half revenue rose 28%. Irrigation revenue increased 39% in Q2 and 36% for the first half. U.S. irrigation system units sold increased 39% and 46%, respectively.
- Infrastructure revenue declined 15% in Q2 and 23% for the first half. The segment recorded operating losses of $2.1 million in Q2 and $3.4 million in the first half, versus losses of $1.0 million and $2.1 million in the prior-year periods.
- Higher irrigation pricing, productivity, and lower input costs lifted gross margins. First-half operating expenses fell 3%, primarily because the prior-year period included a $7.2 million environmental remediation charge; current-year personnel, research, and advertising costs increased.
- The effective tax rate was 34.4% for Q2 and 34.3% year to date, broadly similar to the prior year. Management attributed the slight increase mainly to incremental foreign taxes, partly offset by reinstated tax credits.
Cash flow, liquidity, and debt
- First-half operating cash flow was $26.2 million, up from $4.9 million. Net earnings improved substantially, while receivables and inventory used cash; increased accounts payable and other current liabilities provided offsets.
- Investing activities used $7.2 million, including $5.3 million of capital expenditures. Financing activities used $3.3 million, including $2.1 million of debt principal payments and $3.0 million of dividends paid.
- Cash and cash equivalents were $159.6 million at February 28, 2013, versus $143.4 million at August 31, 2012. Net working capital was $255.7 million.
- Debt was $2.1 million, all current and due June 10, 2013; no borrowings were outstanding on the $30 million revolving facility or the approximately $3 million Euro line. The revolving facility was extended to February 13, 2016. The company reported compliance with loan covenants.
Outlook, risks, and contingencies
- Management said backlog and order trends supported strong third-quarter sales, but provided no quantified full-year earnings or revenue guidance. Backlog was $159.3 million at quarter end, compared with $87.3 million a year earlier and $85.1 million at November 30, 2012.
- Backlog included a $39.1 million Middle East irrigation contract expected to ship primarily during the remainder of fiscal 2013. Management cautioned that the region carries elevated political, disruption, and execution-cost risks.
- Management noted evidence of irrigation orders being pulled forward amid dry-weather expectations and possible water restrictions. It also warned that lower commodity prices could reduce demand later in 2013 and into 2014. Infrastructure demand remained uncertain because of government budget constraints and project timing.
- The company had accrued $7.4 million for remediation at its Nebraska site. The EPA had not approved the remediation plan; additional investigation and remediation could be required, and the company could not estimate potential additional costs. Management said revisions could materially affect quarterly or annual operating results, but did not expect additional expenses to materially affect liquidity or financial condition.
- Management reported no material changes to previously disclosed risk factors or market-risk disclosures. Interim results may not indicate full-year performance.
Important facts for investors to verify
- Whether the unusually high backlog, including the Middle East contract, converts to revenue and margin on schedule and without material disruption or added costs.
- Whether irrigation demand remains durable or reflects order pull-forward, and how farm income, commodity prices, weather, and water restrictions affect future orders.
- Whether infrastructure sales and segment losses improve as project funding and timing become clearer.
- Whether operating cash flow keeps pace with earnings as receivables and inventory rise with sales.
- How EPA discussions and ongoing site investigations affect the recorded remediation liability and any future expense.