Lindsay Corporation — Form 10-Q Summary
Business context and period. This filing reports the third quarter and first nine months of fiscal 2012, ended May 31, 2012. Lindsay operates in irrigation equipment and infrastructure products, including road-safety and barrier systems. Financial amounts below are in millions of dollars except per-share data.
Financial performance
| Metric | Three months ended May 31, 2012 | Year-over-year | Nine months ended May 31, 2012 | Year-over-year |
|---|---|---|---|---|
| Revenue | $172.1 | +12.2% | $423.4 | +16.7% |
| Gross profit / margin | $49.0 / 28.5% | $41.5 / 27.0% | $115.8 / 27.3% | $99.7 / 27.5% |
| Operating income / margin | $28.8 / 16.7% | $23.1 / 15.1% | $52.8 / 12.5% | $46.8 / 12.9% |
| Net earnings | $18.8 | +23.1% | $34.5 | +11.7% |
| Diluted earnings per share | $1.47 | $1.20 | $2.70 | $2.44 |
- Segments: Third-quarter irrigation revenue rose 17.9% to $149.6 million, with segment operating income up 22.1% to $31.2 million. Infrastructure revenue fell 15.3% to $22.5 million, while segment operating income increased to $1.4 million. For nine months, irrigation revenue rose 31.9% to $367.4 million; infrastructure revenue declined 33.4% to $56.1 million, and the segment recorded a $0.7 million operating loss.
- Cash flow and investment: Nine-month operating cash flow was $25.9 million, versus $28.3 million a year earlier. Investing used $6.2 million, including $7.6 million of capital expenditures; financing used $6.6 million. Cash increased by $11.6 million from fiscal year-end to $119.8 million.
- Liquidity and debt: Net working capital was $211.6 million. Total interest-bearing debt was $5.4 million, down from $9.6 million a year earlier; $4.3 million was current. No balance was drawn on the $30 million revolving credit facility, and the company reported compliance with loan covenants.
- Dividends: Cash dividends were $0.09 per share for the quarter and $0.27 per share for the nine-month period, compared with $0.085 and $0.255, respectively, in 2011.
Material changes and management commentary
- Third-quarter growth was led by U.S. irrigation sales, which rose 37.6%; management attributed stronger demand to favorable farm incomes and commodity prices. International irrigation revenue fell 12.2% in the quarter, mainly due to lower project revenue and delays in a Chinese provincial tender. Management expected China revenue to recover in fiscal fourth quarter.
- For the nine-month period, international irrigation revenue rose 19.7% to $118.2 million. Infrastructure sales were weaker, reflecting completion of prior-year QMB projects and delays in expected projects, along with constrained government funding.
- Quarterly gross and operating margins improved. Nine-month gross margin edged down and operating margin declined, in part because of lower higher-margin QMB sales and a significant environmental remediation charge. Management reported that nine-month operating margin excluding environmental accruals was 14.2%, versus 13.2% a year earlier.
- Order backlog was $44.5 million at May 31, versus $43.3 million a year earlier and $87.3 million at February 29. The filing notes that backlog fluctuates with seasonality, project timing and contract execution.
- Management cited long-term opportunities from global water conservation needs, population growth and transportation safety, and said it continued to pursue strategic acquisitions. No specific numerical earnings or revenue guidance is provided in the filing.
Risks, contingencies and unusual items
- Environmental remediation: The company recorded a $7.2 million expense in fiscal 2012’s first quarter for remediation at its Lindsay, Nebraska site. The recorded remediation liability was $7.759 million at May 31. Investigation and EPA discussions are ongoing, the EPA has not approved possible action plans, and additional costs could significantly exceed the accrual and materially affect results in a quarter or year. The company does not expect additional costs to materially harm liquidity or financial condition.
- Infrastructure results remain exposed to government-budget constraints, highway funding uncertainty, and timing and execution of large QMB projects. Irrigation demand can fluctuate with farm income, commodity prices, and potential changes to farm subsidies or tax credits.
- Foreign-exchange movements may adversely affect results. Management estimated that a 10% adverse currency move could reduce operating income by less than $1.0 million; estimated fair-value effects on net-investment hedges would be reflected in other comprehensive income.
- Management stated that there were no material changes to the risk factors in the 2011 Form 10-K. Ordinary-course legal proceedings were not expected to have a material effect on the business or financial condition.
Investor verification priorities
- Track the Nebraska remediation investigation, EPA-approved plans, and whether estimated costs exceed the $7.759 million recorded liability.
- Verify whether the delayed China irrigation tender generated the anticipated fourth-quarter recovery, and monitor irrigation demand and farm-economy conditions.
- Assess infrastructure revenue, QMB project timing, and the segment’s return to profitability after its nine-month operating loss.
- Reconcile working-capital growth—particularly receivables and inventory—with operating cash generation and backlog conversion.
- Confirm scheduled BSI Term Note repayments and continued compliance with credit covenants.