Lindsay Corporation — Fiscal 2023 First Quarter 10-Q
Business context and period: The filing covers the three months ended November 30, 2022, compared with the three months ended November 30, 2021. Lindsay operates irrigation and infrastructure businesses. Amounts below are in U.S. dollars.
Financial performance
| Metric | Q1 FY2023 | Q1 FY2022 | Change |
|---|---|---|---|
| Revenue | $176.2 million | $166.2 million | +6% |
| Gross profit / margin | $53.0 million / 30.1% | $37.4 million / 22.5% | +42% gross profit |
| Operating income / margin | $24.6 million / 14.0% | $13.4 million / 8.0% | +84% |
| Net earnings | $18.2 million | $7.9 million | +131% |
| Diluted EPS | $1.65 | $0.72 | Up $0.93 |
| Operating cash flow | $4.7 million | $(24.2) million | Improved $28.9 million |
Segment results: Irrigation revenue rose 4% to $152.1 million and segment operating income increased 66% to $28.6 million. Infrastructure revenue rose 19% to $24.1 million and segment operating income increased 22% to $3.4 million.
Liquidity and debt: Cash and cash equivalents were $99.2 million and marketable securities were $11.4 million at November 30, 2022. Net working capital was $332.8 million. Total debt principal was $115.9 million, primarily $115.0 million of senior notes; no revolver borrowings were outstanding and $50.0 million was available. The company reported compliance with its debt covenants.
Other cash flow and capital items: Investing cash outflow was $4.2 million, including $3.8 million of capital expenditures; financing cash outflow was $6.2 million, including $3.7 million of dividends. The quarterly dividend was $0.34 per share, versus $0.33 a year earlier. Fiscal 2023 capital expenditures are expected to be $20–25 million.
Material changes and management commentary
- Gross margin improvement reflected better price realization, a lower inflationary impact on input costs, and a more favorable international irrigation mix. The prior-year comparison also included $6.0 million of additional LIFO inventory expense ($5.0 million in irrigation and $1.0 million in infrastructure); the current-quarter impact was minimal.
- Operating expenses rose 18%, mainly due to higher incentive expense, sales commissions, and product-development spending.
- Other expense fell to $0.6 million from $3.9 million, primarily because foreign-currency transaction losses were lower.
- North American irrigation growth was driven mainly by higher average selling prices, with unit volume comparable to the prior year. International irrigation revenue rose 2%; favorable sales in Brazil and other markets offset lower sales in Russia and Ukraine and the non-recurrence of a large prior-year Egypt project. Currency translation reduced international revenue by approximately $1.6 million.
- Unshipped-order backlog was $129.6 million, down from $154.8 million a year earlier. Management cautions that backlog fluctuates and is generally not a reliable indicator of next-quarter revenue.
Outlook, risks, and contingencies
- Management cited robust U.S. irrigation demand, supported by agricultural commodity prices and farm-income expectations, and said supply-chain constraints and input-cost inflation had eased. The filing provides no specific revenue or earnings guidance.
- Longer-term irrigation opportunities include international markets where demand is driven by food security, water scarcity, and population growth. Risks include weather, commodity prices, currency movements, political and economic conditions, and project timing. New business activity in Russia and Belarus has been suspended since February 2022; sales to Russian and Ukrainian customers historically represented less than 5% of consolidated revenue.
- Infrastructure demand depends substantially on government road spending. Management expects the Infrastructure Investment and Jobs Act to support demand for transportation-safety products.
- Supply-chain availability, raw-material prices, labor and logistics constraints, and the uncertain effects of COVID-19 remain potential risks.
- The company is defending product-liability lawsuits concerning its X-Lite highway end terminal, including a Missouri transportation commission lawsuit, and faces a U.S. Department of Justice investigation relating to potential False Claims Act violations. Management says losses are not currently considered probable in the lawsuits, but cannot estimate potential losses or the outcome of the investigation.
- An environmental remediation liability of $13.6 million was accrued for groundwater contamination at the Lindsay, Nebraska facility. The remediation plan is not yet approved by regulators; costs could exceed the accrual depending on regulatory input, pilot-study results, and other factors.
Important facts for investors to verify
- Whether improved margins and pricing can be sustained as input costs, pricing pass-throughs, and product mix change.
- How backlog converts to revenue, particularly given its year-over-year decline and the variability of project sales.
- Cash conversion and working-capital needs, including receivables and inventory, as operating cash flow was positive but modest relative to earnings.
- Updates on X-Lite litigation and the DOJ investigation, including any change in the company’s ability to estimate exposure.
- Regulatory approval, pilot-study results, timing, and cost assumptions for environmental remediation.
- International demand, foreign-currency effects, and developments affecting markets exposed to geopolitical or economic disruption.