Lindsay Corporation — Q2 FY2021 Form 10-Q
Reporting period: Three and six months ended February 28, 2021; comparisons are to the periods ended February 29, 2020. Amounts are in U.S. dollars unless noted.
Business context
Lindsay operates in irrigation and infrastructure. Irrigation includes agricultural irrigation systems and related technology; infrastructure includes road safety products and movable barriers. Irrigation generated 83% of Q2 revenue and 82% of first-half revenue.
Financial results
| Metric | Q2 FY2021 | Q2 FY2020 | Six months FY2021 | Six months FY2020 |
|---|---|---|---|---|
| Revenue | $143.6m | $113.8m | $252.1m | $223.2m |
| Gross profit / margin | $41.2m / 28.7% | $33.4m / 29.4% | $72.6m / 28.8% | $67.5m / 30.2% |
| Operating income / margin | $15.8m / 11.0% | $8.6m / 7.6% | $23.3m / 9.3% | $20.9m / 9.4% |
| Net earnings | $11.9m | $5.5m | $19.0m | $13.9m |
| Diluted EPS | $1.08 | $0.51 | $1.74 | $1.28 |
- Q2 revenue rose 26%, operating income 83%, and net earnings 115% year over year. Six-month revenue rose 13% and net earnings rose 37%.
- Q2 irrigation revenue increased 27% to $118.6m; segment operating income rose 79% to $18.0m. Infrastructure revenue increased 23% to $25.0m, but segment operating income rose only 8% to $6.3m and margin fell to 25.4% from 29.0%.
- For the first half, irrigation revenue rose 16% to $205.9m and segment operating income rose 44% to $28.7m. Infrastructure revenue was nearly flat at $46.1m, while segment operating income fell 28% to $10.6m.
- Six-month income tax expense was $2.5m versus $4.3m; the 11.5% effective rate included discrete tax benefits of $2.6m, including a $1.7m valuation-allowance release.
Cash, liquidity and debt
- At February 28, 2021, cash and equivalents were $110.8m and marketable securities were $19.6m, totaling $130.3m. Total debt principal was $116.3m; no revolving-credit borrowings were outstanding, and $50.0m was available under the facility.
- Six-month operating cash flow was $11.1m, compared with cash used of $2.2m in the prior-year period. Investing cash outflow was $17.7m, including $16.6m of capital expenditures; financing cash outflow was $4.5m. Cash declined $10.6m from fiscal year-end.
- Cash flow less reported capital expenditures was approximately negative $5.4m for the first half. Working-capital investment included $16.2m of inventory and $10.8m of receivables cash outflows.
- Current assets were $375.6m and current liabilities $114.8m. Net working capital was $260.8m. The company reported $319.0m of shareholders’ equity.
Changes, outlook and management commentary
- Revenue growth was led by higher irrigation unit volumes in North America and international markets. Management cited improved farmer sentiment and higher commodity prices. Infrastructure’s first-half revenue was affected by lower road construction activity; Q2 benefited from higher Road Zipper sales and lease revenue.
- Higher steel, raw-material, freight and logistics costs pressured margins and extended delivery lead times. Management said the pressure was short term until selling-price increases could cover higher costs.
- Backlog was $101.4m at quarter-end versus $104.4m a year earlier. Management cautioned that backlog fluctuates and is not generally a reliable indicator of next-quarter revenue.
- Fiscal 2021 capital expenditures were expected to be $20m–$25m. Management said cash, securities, expected operating cash flow and available credit were sufficient for expected working capital, planned capital expenditures and dividends. No specific earnings or revenue guidance was provided in the filing text.
- Management described COVID-19’s operational impact to date as limited, but noted continuing infrastructure project delays and uncertainty around future demand, supply chains and operations. Long-term growth opportunities were identified particularly in international irrigation markets.
Unusual items, contingencies and risks
- A $1.5m one-time share-based compensation charge followed the former CEO’s retirement and modification of outstanding awards. The prior-year comparison included a $1.2m gain on sale of a building, affecting gross profit and margins.
- The company carries a $16.1m environmental remediation liability for groundwater contamination near its Lindsay, Nebraska facility. The remediation plan remains preliminary and is not approved; actual cost or timing could change, and revisions could materially affect quarterly or annual operating results.
- Lindsay is defending X-Lite highway-end-terminal product-liability lawsuits, including a Missouri transportation commission suit seeking damages and other relief. The company has not accrued a loss, says it believes it has defenses, and cannot estimate a loss range. A related U.S. Department of Justice investigation concerning potential False Claims Act violations also remains unresolved; the company cannot estimate potential loss or outcome.
- The company stated that pending proceedings were not expected to have a material adverse effect, while noting the DOJ matter could have a material adverse effect depending on its outcome. It also cited foreign exchange, commodity and farm-income conditions, government policy, supply constraints, and infrastructure spending as business risks.
Important facts for investors to verify
- Whether selling-price increases offset steel, freight and other input-cost inflation, and how that affects margins.
- Progress on the Nebraska remediation plan, regulatory approval and possible changes to the $16.1m accrual.
- Developments in the X-Lite lawsuits and DOJ investigation, including any new estimate or recognition of potential losses.
- Conversion of backlog into revenue, particularly given infrastructure project timing and supply-chain constraints.
- Execution of the $20m–$25m capital-spending plan and the sustainability of operating cash flow amid working-capital needs.