Q4 2019 Earnings Call
Good morning, My name is like say and I will be a conference operator today.
This time I would like to welcome everyone to the Lindsay Corporation fourth quarter and fiscal year 2019 earnings call.
During this call management may make forward looking statements that are subject to risks and uncertainties, which reflects management's current beliefs estimates of future economic circumstances industry conditions company performance and financial results forward. Looking statements include the information concerning possible RCM teacher results.
Operations of the company and those segments preceded by followed by or including the watch expectation outlook could may should or similar expressions.
Well. These statements we claim the protection I'll, just say how about for forward looking statements contained in the private Securities Litigation Reform Act of 1995.
Please note that if you wish to ask a question. Please press star one on your telephone. Unlike FINAME stand out first I would like to turn the call lives. That's mr., Tim pacing up President and Chief Executive Officer. Please go ahead.
Good morning, Thank you for joining our call with me on today's call is Brian Ketchum, Chief Financial Officer, and Lori Zarkowski, our Chief Accounting Officer.
The objective of this call is to discuss our quarter for result, before we go to that overview I'll make a few introductory comments.
For the domestic irrigation business.
Got it resolved trade disputes continue to put downward pressure on farmer sentiment along with the lower commodity prices compared to what we were seen at the end of our third quarter. However, there is upside potential for commodity prices given the uncertainty on what final yields will be.
On the.
International irrigation business, a large middle East order that we mentioned on our last earnings call illustrated that we continue to be active in a growing middle East Africa region.
Currently we are working to fulfill that order.
We continue to see a healthy amount a project prospects and the developing markets. However.
We have seen a delay in several of them. During this past quarter that will push their start date to later in the fiscal here and this delay does bring more risk to their eventual start date.
One other area to highlight is Brazil.
And although there have been delays in order is waiting for financial approvals, we continue to be bullish on the opportunity in this market based on the potential orders in our sales funnel.
For the infrastructure business there were two good proof points provided in the last call that the road zipper business is moving at a positive direction. The increased use of road zipper and road construction projects aligned to our ship west strategy and the new Japan $15 million.
[laughter] order were great. Examples that we are successfully addressing the need to grow this business and.
Increased the leasing business as we've said before [laughter] by addressing these two objectives, we can reduce the lumpiness associated with this business.
Our focus on these two objectives is moving this business forward I.
At an accelerated rate our overall sales funnel projects based on a 50% probability of success is at the highest level it has ever been.
As these projects progress to the signed agreements data stage, we'll announce them on future updates.
Another positive development for the road Zipper business was the announcement on September 26.
At the Federal Highway administration repeal a 103 year old federal procurement rule that prohibited state and local governments from using patented or proprietary products on highway and bridge projects that receive federal funding this change remain.
Those historical road block that has inhibited the consideration of our road zipper solution when federal dollars were a funding source.
On innovation.
Last quarter, I said that Lynsey was bringing new products to the marketplace and mentioned pivot watch as the latest example, pivot watch has been launched in the North American irrigation market and we continue to make significant progress on our innovation strategies.
Our new computer control panels were launched at the fall farm shows all panels now have embedded feel that technology, which means that 100% of our machines will ship from the factory field that enable.
We also released access to satellite imagery in the quarter.
All Fieldnet advisor customers now have access to satellite imagery and through our partnership with farmers edge, our mutual customers can access high resolution daily satellite images, enabling anomaly and stressed detection images are important.
Secondly into the field men platform, where they are available to users as part of their field that advisers subscription.
With all these improvements that have been introduced the interest in Fieldnet advisor continues to build as we had a 78% increase and the number of year over year subscriptions Lastly regarding our foundation for growth initiative. We have previously stated that we expect.
To realize $13 million to $18 million in margin improvement from the for work streams that have been highlighted since the beginning of this transformational journey. Our goal has been to have these margin improvement projects implemented as we enter fiscal year 2020.
Well, we recognize that market conditions will have an impact on our ability to achieve our goal of 11% to 12% operating income I can confirm that these margin improvement projects have been implement what is clear to us.
Our foundation for growth initiatives has led to a transformational change for winter. So now let's move to our Q4 results and for that I'll turn the call over to Brian .
Thank you, Tim and good morning, everyone.
To begin I'd like to cover two items that impacted our reported results for the quarter.
First we incurred expense of $1.9 million for professional consulting fees in connection with our foundation for growth initiative, which represent the final expenses for this engagement that was completed August 31st.
Second we incurred a onetime noncash expense of $2.8 million in connection with the valuation adjustment applied to indirect tax credits carried in a foreign jurisdiction.
After tax impact of these two items amounted to $4.3 million or 40 cents per diluted share.
The remainder of my comments regarding the fourth quarter and for your results are based on comparisons of adjusted results, which exclude foundation for growth costs and the valuation adjustment and are detailed in the regulation G. disclosure at the end of the press release.
I.
Revenues for the fourth quarter of fiscal 2019 were $101.9 million, a decrease of $21.4 million or 17% compared to the same quarter last year.
Net earnings for the quarter were $5.8 million or 54 cents per diluted share compared to net earnings of $4.5 billion or 42 cents per diluted share in the prior year.
The previously announced business divestitures accounted for approximately $18.7 million of the decrease in revenues with a net earnings impact of $1.2 million or 11 cents per diluted share.
Total revenues for the full year fiscal 2019 were $444.1 million, a decrease of $103.6 million or 19% compared to the prior fiscal year.
Net earnings for fiscal 2019.
Were $15.6 million or $1.45 cents per diluted share compared to net earnings of $31.6 million or $2.94 per diluted share in the prior fiscal year.
The business divestitures accounted for approximately $78.1 million of the decline in revenues with a net earnings impact of 2.0 million or 19 cents per diluted share.
Irrigation segment revenues for the fourth quarter were $69.5 million, a decrease of $26.7 million or 28% compared to the same quarter last year.
Excluding the impact of the divestitures North America irrigation revenues of $41.5 million were relatively flat compared to the prior year.
Higher revenue from Engineering project services, and the impact of higher average selling prices were offset by lower irrigation equipment unit volume.
Demand for irrigation equipment is added seasonal low point during our fourth quarter and is primarily driven by replacement activity.
In the international markets revenues of $28 million decreased $7.6 million or 21% compared to last year's fourth quarter.
Sales activity was lower in several markets, including Brazil, which as Tim mentioned was impacted by delays and farmers receiving government financing approvals.
Revenues were also negley negatively impacted by approximately $1 million from differences in foreign currency translation rates compared to the prior year.
Total irrigation segment operating income for the fourth quarter was $6.3 million, a decrease of 2.1 or $2.2 million compared to the same quarter last year and operating margin was 9.0% of sales compared to 8.8% of sales in the prior year.
The divestitures accounted for approximately $1.7 million the decrease in operating income while the impact of lower irrigation equipment sales volume was partially offset by improved cost and pricing performance.
For the full fiscal year total irrigation segment revenues were $351.5 million, a decrease of $88.4 million or 20% compared to the prior fiscal year.
Excluding the impact of the divestitures North America irrigation revenues of $218.6 million increased 1% compared to prior fiscal year.
International irrigation revenues of $132.9 million decreased 9% compared to the prior fiscal year with approximately 5% of the decrease attributable to differences in foreign currency translation rates.
Irrigation operating income for the full fiscal year was $33.3 million or 9.5% of sales compared to $46.9 million or 10.7% of sales in the prior fiscal year.
Infrastructure segment revenues for the fourth quarter were $32.4 million, an increase of $5.3 million or 20% compared to the same quarter last year.
The increase resulted primarily from higher road zipper system sales and lease revenue, while sales of road safety and other products were slightly lower compared to the prior year.
Infrastructure segment operating income for the fourth quarter was $9.3 million, an increase of $4.9 million compared to the prior year.
Infrastructure operating margin for the quarter was 28.8% of sales compared to 16.6% of sales in the prior year.
This increase resulted from higher revenue, a more favorable revenue mix and lower operating expenses compared to the prior year.
For the full fiscal year infrastructure segment revenues were $92.6 million, a decrease of 14% compared to the prior year.
Infrastructure operating income for the fiscal year was $16.8 million.
Decrease of 32% compared to the prior year and operating margin was 18.1% of sales compared to 22.9% sales in the prior year.
Record results in fiscal 2018 were driven by large road zipper projects that did not repeat in fiscal 2019.
Cash and cash equivalents were $127.2 million at the end of the quarter compared to $160.8 million at the end of the prior fiscal year.
No share repurchases were made during the quarter and a total of $63.7 million remains available under our share repurchase authorization.
At this time I would like to turn the call over to the operator to take your questions.
Thank you. Your first question comes from Brian Drab with William Blair. Please go ahead.
Hi, good morning, Thanks for taking my questions.
So I think I heard this first want to make sure.
Where do you stand now on the commitment to 11% to 12% operating margin in fiscal 2020 is that so on the table.
Hey, Brad it's Tim and.
Yes, we're still targeting for that obviously.
Project Foundation the foundation for growth initiative that we laid out was a key driver for that.
And the growth initiatives as we mentioned are being implemented we've hit the milestones that we laid out of one and a half years ago and the financial results are starting to take hold related to that. Good example is the shift left of road zipper strategy. So.
The key actions that.
We've been continuing to update you are truly are taking hold having said that we've been real clear on this throughout the journey here is that we need a market similar to 2017 terms of market conditions. There. So that's the the status of where we're at right now.
Okay. Thanks, and then Tim can you give a.
And any sort of granularity or detail around.
Some of the other specific initiatives like how I know sourcing was a big component of getting to that 11 to 12, you know how how is that progressed over the.
The last few quarters, and where are you with the DNA reduction and you also mentioned maybe you could comment on what are you doing in terms of the commercial.
Channel optimization.
What does that mean exactly.
Yes, So let me just highlight some of the key achievements along the way here, Brian that we've had we've had the one infrastructure plant closing we've had for business divestments, we had a shared service integration moving from.
Several locations decentralized here in Omaha, we created as you just mentioned decentralized sourcing team and there's been several cost reduction and sales growth initiatives also underway on the infrastructure commercial team. There has been several projects I would say the big highlighted that I've met.
Mentioned is the ship left we're really pleased with the road zipper, what's happening there and the fact that that strategy is taking hold on the irrigation and it's been more channel management and all of those actions are in process of being implemented right now for the fiscal year 20 season.
Okay all right.
Theres no way that you'd be able to put any.
Dollar amounts and savings around any any of these like the sourcing that's been accomplished is there I don't want to press you too much on that but that's kind of what I was looking for <unk> or you are hitting the fine financial.
Cost cutting targets that you talked about previously there.
Yes.
Brian This is Brian Ketchum.
I think we've seen some of that take a whole during the year I think we saw.
Some of that impact our Q4 results I would say in Q4, what we saw was some of the operational initiatives as well as sourcing initiatives that.
Hello.
Improved margins not only in irrigation, but also it infrastructure.
And as Tim had mentioned earlier all of that projects that we had identified to get us to that target has reached the implementation stage by the end of year and of course now realization as the next step and sourcing being an example.
That starts to get to realization when you burn through existing inventories and those kinds of things.
Got it okay.
And then just the last one and then I'll turn it over.
Just a housekeeping sort of question, what's the breakdown in the in the fourth quarter of and within irrigation of dry land conversion replacement.
Yes, so and our fourth quarter this year news, 15% dry land, 23% conversion and 62% replacement.
Fourth quarters, typically a higher percentage of replacement.
Other quarters.
Is that is that driven more just by that typical seasonality that you just mentioned or was there any specific.
A weather related driver there as well.
No, it's typically the seasonality and a lot of that.
Being driven after the crops are planted by storm replacement I would say our our level of storm activity. This year was lower than it was last year.
Got it okay.
Okay. Thank you very much.
Thanks, Brett.
Thank you Sir your next question comes from nice in China, but stifle. Please go ahead.
Good morning, everyone.
Good morning Nathan.
Just following up to a couple of Brian's questions that firstly on the 11% to 12% operating margin targets and you guys are being clear seems to stuff that you needed a a market pretty similar to 2017.
Clearly through 29 chain volumes in irrigation are down.
Yeah on AD revenues are pretty flat, but I think a lot of that comes from price infrastructure revenues through 29 chain or about 10% lower than they were in 2017. So it doesn't seem like 2020 is actually going to be a market. That's similar to 2017. So would you be out to help level set expectations.
For where you think margins can get too in 2020, given current market conditions.
Yeah. Nathan this is Brian I think just to that point on the market conditions I think.
Clearly the infrastructure business was lower as you pointed out I think our outlook for infrastructure would be that we would we would.
Get back to at least 2017, potentially 2018 type level with infrastructure. So that's a headwind that we feel pretty good that we.
I have addressed I think it's it comes back to the irrigation side and.
I think.
Without the market similar to last year it creates additional headwind to get to the 11, if we see a recovery.
Clearly, we've still got line of sight to the 11, but I don't want to speculate on what you know without the market help obviously chances are fall short of that but I don't want to give you a farm number on what that might be because I don't nobody knows what exactly the market is going to do.
Yeah irrigation is fairly hard to predict and it sounds like there's some uncertainty potentially on when those international projects might ship and later in your fiscal 20 or possibly to fiscal 21.
Yeah. Nathan this is Tim we would continue to say that we're seeing good prospects out there. There's a good profile. The projects. However, just as you mentioned there has been some delays and that always brings more risk when there is delays, but theres still active projects and we're encouraged by the potential but.
Lastly, the uncertainty as a factor here.
So those projects kind of at the point, where you've won the projects being awarded the project pit. The Arnaud doesn't have committed financing in place yet and that kind of what we're waiting on <unk> in order for it to be in I'd be releasing go into production fear.
Nathan there isn't the one answer I can give you there's a there's a wide range of different scenarios here from.
In tender and final decision, making.
Dates have been finalized or.
Tenders in process, but a uncertain when the person that the company that selected when the start date would be so there's a wide range of different scenarios here.
Okay, and then maybe I'm just talking a little bit more about the shift left strategy I'm on the road sheep up business clearly Three Q4 q you had 19 for you guys was it was a strong quota for that business.
I used to the point with those initiatives now, where we should see a more consistent level of revenue quarter to quarter.
And year to year.
Rather than a you know the lumpy up and down kind of stuff that we've had over the last few years or is it still you know a significant amount of what to do to try and smooth that that kind of business out.
Yeah, Nathan we viewed last this past year is our launch here for the ship left strategy.
We continue to see increased interest in road zipper on a global basis for projects and leasing opportunities.
We're finding opportunities earlier in the buying process that we've talked a lot about.
I announced success in last quarters earnings call that there was a strong proof point that the shift less strategies advancing in a positive direction I think the large order in Japan that was also mentioned has has begun to be fulfilled so most of the sales occurring throughout fiscal year.
20 on that one is also a a strong proof point that the new strategies working so just just as you referenced our focus is to increase the overall demand and specifically increase our lease sales.
Theres Theres two couple of points here I want to make that are really critical when I looked at our sales funnel for fiscal year 20, and beyond we continue to see good progress in both areas, we have more machines being lease than ever before and our sales funnel is the best it's ever been that's that's why.
I am have optimism for road zipper going forward.
And that the comment that you made about the regulation being remediate removed of using federal funds to buy.
Peyton today intellectual property, how meaningful could that be to that but you to the business there.
I can't give you a number yet.
Jason on how much that but it's a it's just the a barrier that has existed and that is now been repealed. So we see only upside potential with this but we're not far enough along to be able to frame. It for you as how big of an opportunity that will be.
Okay. Thanks, very much for the help I'll pass it on.
You bet. Thanks.
Thank you. Your next question comes from Jon Braatz, Kansas City Capital. Please go ahead.
Good morning, everyone.
Hi, Jonathan Tim.
Steel prices have come down a little bit what do you see for 2020 in terms of pricing independent of any competitive issues, but.
What do you see for for pricing in the irrigation segment a for next year.
Yeah. So John you are correct steel prices have decreased specifically the past few months.
However, terrorists associated with.
Purchase materials from other than steel.
Our are still in place. So our goal has continued its continue to be to pass on these cost increases to the market as we've discussed in prior calls we we led the industry.
The implementation of the surcharge to address that needs. So our intention is to continue with this strategy and of course, we've got to remain competitive at the same time. So it's all about finding that balance, but our intention as terrace still are in place on these materials other than steel we're at.
Tempting to pass that on.
Okay, all right. Thank you and secondly.
Geographically speaking here and Aaron here within the United States. Obviously, there were some markets that were fairly strong I think maybe out west and maybe southeast I, maybe wrong, but.
When you look at those those geographical markets that were strong last year any reason why that would not be the case again this year any changes as you've seen and those specific markets.
Well, if you look west potatoes is one crop that that definitely jumps out and we're seeing strong demand arena.
The U.S., Japan trade agreement is supportive for that so overall, we would say I would again two extremes I would say potatoes market looks encouraging and on the other extreme but the cotton growers in the one that seem to be right now in the more difficult situation in the south southeast.
Okay. Okay, alright, thank you Tim.
Thanks.
Thank you once again, if you wish to ask a question. Please press star one on your telephone and white FINAME to being out. Your next question comes from Chris shallow with Monness Crespi. Please go ahead.
Morning, everyone I guess.
Hi, Chris Oh, My first question I asked a question about the inventories in the balance sheet. I mean, you every year there up a 16% I think it is that's just.
What we're just talking about before the sort of cost inflation or is there something else happening there and so does that.
I was going to flow through later on the into the income statement.
Yeah, Chris This is Brian .
Yeah, I'd say inflation as a part of it but that's that's not the biggest part I think.
You know that probably one of the bigger things is.
Around infrastructure and support for that.
The road zipper activity that we're seeing particularly in the barriers so theres a lot of.
Components that are brought into.
Build the barriers for the projects that we've got in front of US you know what I'd say the other area is in irrigation.
Domestic inventory levels in irrigation.
Some of that is to support export, but I think we've.
Been challenged with some supply chain issues with tariffs and some of the components coming from China. So we probably carried a little bit more inventory as a result of that so.
You know I suspect inventory levels for irrigation to.
Come down I think what's unknown at this point is inventory related to infrastructure as you know as the road zipper projects continue to develop.
Makes sense and I'm just curious in.
International irrigation sort of similarly to infrastructure is lumpy I think.
It was up double digits down double digits down double digits kind of thing. This year is there an opportunity there to convert.
Customers to leasing as well or that's just something I wouldn't work that market.
And Chris just talking here on road zipper or are you talking on international irrigation, because it's it's pretty lumpy as well and that's similar to the infrastructure.
It is more lumpy than domestic that's driven obviously by the large project driven markets. So I think thats I would describe that more as just a dynamic of that market.
I think it's going to be difficult to smooth that out just given the fact that these projects tend to be large whether you win or lose them.
This is there no anywhere in the world through leasing of a irrigation equipment that has ever model for either domestic or international.
So you've seen there's there's certain countries, where we have done some leasing it's not a very big piece of the business I think just the nature of these installations being more or less permanent once you put them on a field but.
That's an area that like I say, we've done some in some countries but.
Not something that we look at.
Large opportunity overall.
And then just <unk> for the irrigation and break down you know the try lender placed on an all do you have that on the on the annual basis I know you give us the fourth quarter, but I was in or if you're the full year.
Yeah, no for your comments about 22% dry land.
39% conversion and 38% replacement.
Great So what we.
Yeah, but that's fine.
Thanks.
Thank you.
There appear to be normal questions. At this time, Mr. Hasten go Oh, I'll turn the call that key for closing remarks.
Well, we appreciate the interest. So this concludes our fourth quarter earnings call. Thank you for your interest and participation in today's call.