Q1 2021 Lindsay Corp Earnings Call
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Good morning, My day mismatch and I will be your conference operator for today at this time I would like to welcome everyone to the Lindsay Corporation first quarter fiscal year 2021 earnings call.
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During this call management may make forward looking statements that are subject to the risks and uncertainties, which reflect management's current beliefs estimates of future economic circumstances industry conditions company performance and financial results forward. Looking statements include the information concerning possible or assumed future results of operation.
So the company and those statements preceded by followed by or including the words, the expectation outlook could may should or similar expressions for these statements. We claim the protection to the safe Harbor for forward looking statements contained in the private Securities Litigation Reform Act of 1995, I'd like now the.
And the color part of Mr., Randy what President and Chief Executive Officer.
Alright, Thank you and good morning, everyone. I appreciate your joining US with me on today's call is Brian Ketcham, our Chief Financial Officer.
Before Brian gets and other details of our fourth quarter results I do want to share some opening comments.
We announced our CEO transition plan and November and I'm pleased to confirm the churn passenger and I have no for the completed the transition and it's my pleasure to join the this morning, as President and CEO of one of the Corporation I want to acknowledge and thank Jim for his full support not only during the transition for the key role he played and the transformation of our company and trillions of pleasure and honor for me the screeners.
The nation the country Norcraft for.
We continue to force you do see safety protocols and all of our facilities as part of our pandemic response plan or businesses are classified as business the central and all of mine plants are operational and running.
We're also maintaining our work from home option for role, but can be performed remotely safety as a non negotiable expectation for us and we'll continue to make decisions the keep our employees per se.
Turning to the business environment.
Conditions, and North American irrigation market improved rapidly during the quarter commodity price and strike and significantly due to the improvement both and supply and demand fundamentals, including an increase and exports linked to the phase one of the trying to trade deal.
Record government support to help offset the ongoing impact of the current virus and trade disputes early in the year for this important positive customer sentiment and improvements in gross profitability.
The rest of your projections now show and 43% increase and 2020 net farm income on a year over year basis and.
Late December the president of signed the kroner buyers direct aid package, the allocated and additional for $2 billion to the AG sector, and we expect that age provide supplemental support for the corn and soybean livestock and dairy sector.
These positive market drivers drove stronger than expected order flow and the second half of the quarter and North America, leading to higher equipment sales and the larger backlog at the end of the quarter.
We also for rapid escalation of input costs, primarily steel during the quarter and some transportation disruptions that resulted in higher expediting fees large influx of orders coupled with increased costs helped put short term pressure on margins price increases have been passed through to the market and we expect to see margin pressures subside as the year progresses.
International irrigation showed solid results on a year over year basis for you and our volume growth across most regions, Brazil continues to perform well through the strong farm income favorable currency for exports and record soybean yield government subsidized financing continues to support market growth and we're seeing expansion and private banking options as well.
And technology and innovation, we were pleased to announce our partnership with trends for the market leader and high resolution and economic imagery, and Microsoft which will allow us to deploy and machine learning and artificial intelligence to create the smart Cabot the combination of advanced economics and machine health monitoring within the integrated fuel and that platform will be in the industry burst.
And further strengthens our position as the innovation leader and mechanized irrigation.
Moving to infrastructure.
We continue to focus on growing the road zipper business by executing our share flux strategy, increasing our goal of penetration and growing the lease business. We did see an increase in road zipper lease revenue in the quarter and our roads reported sales funnel continues to improve on a year over year basis. The timing of project exiting the fall remains challenging to per day.
Net particularly in this current pandemic environment.
Both the road safety and road Zipper project stay short term headwinds as governments have delayed road construction projects, while managing their pandemic response. The recent corporate share. These package did provide additional funding to the space, which we expect will be beneficial for spring projects for us.
And the like Bart and has also expressed the desire to support and infrastructure Bill shortly after assuming office. So we do see the potential for supported news later in the year.
The road Zipper project with heart Wheezing and is now fully deployed and operating well and we expect this should become a great case study that supports for the penetration of road zipper and similar applications.
Now I'll turn the call over to Brian to review, our first quarter financial results.
Thank you Randy and good morning, everyone.
Total revenues for the first quarter of fiscal 2021 were $108.5 million compared to $109.4 million and the same quarter last year.
Net earnings for the quarter were $7.1 million for 65 cents per diluted share compared to net earnings of $8.3 million for 77 cents per diluted share and the prior year.
Net earnings for the quarter included an income tax benefit of approximately $1.7 million or 16 cents per diluted share related to the release of the valuation allowance of a for and tax jurisdiction.
Irrigation segment revenues of $87.4 million for the first quarter increased $4.1 million or five per cent compared to $83.3 million and the same quarter last year.
North American irrigation revenues were $52.8 million compared to $53.6 million and the same quarter last year the.
The decrease resulted primarily from lower engineering services revenue related to a project and the prior year the did not repeat.
And this was partially offset by higher irrigation equipment unit volume.
And the international irrigation markets revenues of $34.6 million increased $4.8 million or 16% compared to $29.7 million and the same quarter last year.
The increase resulted from higher unit sales volumes in several regions, which were partially offset by the unfavorable effects of differences and foreign currency translation rates compared to the prior year the totaled approximately $2.4 million.
Total irrigation segment operating income for the first quarter was $10.6 million, an increase of 9% compared to $9.8 million and the same quarter last year and operating margin improved to 12.2% of sales compared to 11.7% of sales and the prior year.
Improved margins were supported by higher irrigation equipment sales volume. However, this improvement was tempered somewhat by the impact of higher raw material costs and also from higher freight costs that resulted from reduced availability of commercial truck and resources.
Market prices for all types of steel products began to rise rapidly during the quarter with steel coil prices increasing over 70% from September to the end of December.
While we have implemented pricing actions to pass through these cost increases a large number of irrigation equipment orders were received prior to these actions taking effect.
We expect to see some.
Margin headwinds and our second quarter as the backlog of orders received prior to the price increases are shipped.
Infrastructure segment revenues for the first quarter were $21.1 million compared to $26.1 million and the same quarter last year.
The decrease resulted primarily from a large road zipper system order delivered in the prior year, the did not repeat and for lower road construction activity and the current year.
Infrastructure segment operating income for the first quarter was $4.3 million compared to $8.7 million and the same quarter last year.
Infrastructure operating margin for the quarter was 20.1 percentage of sales compared to 33.5% of sales and the prior year.
This decrease is primarily due to lower revenue and higher margin product lines and was also impacted by an increase and raw material and other costs compared to the prior year.
Turning to balance sheet performance and liquidity.
During the quarter, we generated free cash flow of almost $10 million, representing 138% of net earnings.
Our total available liquidity at the end of the first quarter was $196.4 million without and $46.4 million and cash and marketable securities and $50 million available under our revolving credit facility.
Our total debt was $115.9 million at the end of the first quarter, almost all of which matures and 2030.
Additionally, at the end of the quarter, we were well within the financial covenants of our borrowing facilities, including of funded debt to EBITDA leverage ratio of 1.5 compared to a covenant limit of 3.0.
At this time I would like to turn the call over to the operator to take your questions.
We will now begin the question and answer session.
The question you May Press Star then one on your Touchtone phone. If you are using the speakerphone. Please pick up your handset before pressing the keys if at any time. Your question that's been the trust and Youd like to withdraw your question. Please press Star then two at.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Brian Drab with William Blair. Please go ahead.
Hi, good morning, Thanks for taking my questions.
First question is just on the road zipper pipeline.
And the last fiscal year and large.
Large projects total over 50 million and revenue and I'm wondering if you can give us your latest update for and as you look out to the the next fiscal year.
The potential for for large project revenue this year, what's the latest estimate.
Yeah, Brian Thanks for the question.
And.
We've got assets.
Visibility this year too.
Several what I would classify as mid to large projects.
So as.
As you mentioned last year, we were 50 million.
Slightly over and relative for projects.
With $27 million of that being the highways and good project.
I think our visibility right now would indicate that.
We would cover probably about half of that highways, England for.
Contract with the current.
Visibility that we have.
Okay do you think of overall for the year that it could be like 25, plus EUR 30 million plus large project revenue, though for and total for for any projects that you have or is it kind of be kind of below that that range.
I think right now and it would look that depending.
Depending on what how the timing works out that it would be above the 30.
The $30 million.
Okay, great, Thanks, and and.
And as you take that into account.
The that there will be the solid.
Large project revenue, but somewhat down from last year and.
Then on the and the positive and the type of relatively high margin business, but then on the positive side do you have.
Pretty good out the cure for irrigation and good leverage and that business. So overall.
And what direction do you think gross margin goes.
And in the next fiscal year.
Well I think two things on that point, obviously and the irrigation.
Much improved over what it was last year and and.
And.
After a record year and the infrastructure.
The park replicate so the mix.
Of businesses.
Lower operating margin on the infrastructure are I mean on the irrigation side, but obviously as the as you know.
Increase and volume levers pretty well on irrigation side so.
The base its commission or if conditions remain where they are at today.
From a total.
And the profitability standpoint, I think we could replicate last year margin.
The operating margin percentage could could be a little bit lower but total profitability could be at or above last year.
So sorry total.
Operating margin could be the.
Consolidated operating margin, you think could be a little bit lower than it was in fiscal 20.
Yes, just because of the change in mix right.
I understand just wanted make sure I heard it correctly, okay. Thanks very much.
Our next question will come from Nathan Jones with Stifel. Please go ahead.
Good morning, everyone.
For me.
And.
The follow up down and drives lots question and the clarification, Brian you said, the operating margin percentage could be down a bit at the operating income could be high the last year.
Yes, Nathan price.
Medicated that on.
For the AG conditions that were seeing today remain through the year for which we have no reason at this point.
Think they won't with irrigation and having a solid year.
We could definitely get to that point.
Okay. Thanks for that.
I wanted to talk a little bit about raw material prices and and the impact on margin you really only saw it steel prices start to spike up for five months ago, which if I recall correctly is.
About how long it takes you to run it through your inventory anyway. So I wouldn't have thought you guys certainly in the in the fiscal first quarter should really a bit of recognizing any of that increased steel pricing.
Running through the PNM al can you talk about how that plays out in terms of you know.
One of the increase raw material price as you've already recognized I would if the thought that that pricing would would be getting a little bit watch as we go forward here over the next quarter or two and then also how that plays off with the price increases that you put in and have you putting enough price increases the copper all of the increase in raw materials, what do we need to.
Got back to the market share with more price increases.
Yeah names and this Brian we really saw the the steel cost increases beginning in September and then really taking off starting in October.
And you compare that to the order flow that we saw.
Our order flow started picking up and the last of I'd.
I'd say the last half of October.
And and so.
With I think the automobile industry picking up.
Availability started becoming an issue and supply on the steel side, so that really led to the rapid increase in steel costs.
We have fall order program that went through the end of October and our steel price increase and started taking effect of first in November so where we're at today weve implemented several price increases to where it's.
You say double digit kind of range, which.
Which would cover the steel cost increase that we've seen.
Okay. Thanks, I'll pass it on.
Our next question comes from Ryan Connors with bedding and Scattergood. Please go ahead.
Great. Thanks for taking my questions the couple of.
Couple of bigger picture question the first.
You mentioned the ready the.
The by the administration and the infrastructure spend and so forth.
The but I wondered if you could comment on another priority that they've mentioned, maybe less prominently which is the equipped funding you know the sort of environmental program, where they give some low cost money, it's for irrigation and other.
For cultural issues have you heard any more details on that whether that's something that you think is going to be real and whether that.
Tilt the balance of wallet share towards irrigation and even in a good AG market.
Yeah. Thanks for your question, Ryan and I do think you're right. The of the administration, obviously, it's kind of habit significant focus on the environment DSG sustainability and the equip program has proven to be a very efficient means.
Getting capital to the market, where customers are going to use it to improve efficiency like one of the big changes that we've seen and the last farm Bill was the ability to fund technology investments like field and advisor. So I think going forward, we should see strong financial support and the equipped program, which will aid and for machine conversions to mortgage and means of irrigation.
We're also excited that the Dover and for technology investments as well the oil while growers with pivots to buy into technologies that will also save time of.
Water and energy so we see a quick as a as a good tailwind going forward.
Okay, Okay, and then sort of a segue from that.
And you talk about these big raw material price increases and that necessitating.
No product price increases how does that impact of farmers.
Customers decision on whether to put a new pivot in place or whether to try to augment technology and and sort of fix up the they are older base equipment and sort of augment technology on top of it.
You know to just sort of get the most out of what they have and fix if it's going to cost that much more and actually put a new piece of metal and the field.
Yeah, when we look of the impact on pricing and maybe utilize the city of of new machine purchases versus upgrades technology add ons, even not even a double duty double digit increase in the quarter is pretty significant and over the short term, but if you look at the total acquisition cost the impact on yields and profitability, we don't see the.
Driving a lot of purchase decisions towards upgrades or just technology out on the particularly with what we're seeing in and commodity prices and the strength of net farm income. So we don't see the the.
The cost increases passing through as pricing increases on the equipment, having a significant impact our perspective is they are going to continue to make investments that impact their bottom line and that's been include for machines and technology add ons.
Got it Okay and then my last one was kind of switching gears to infrastructure.
And really a big picture question, you talked about the positive impact of infrastructure spending but I.
I saw an interesting quote from I guess, a transportation planning.
Person down in Texas, say and I'm pretty prominent person, who who made the comment that.
Basically with people working from home at least part of the time, it's going to be as if every highway and the country head of lane and added to it during rush hour, which I thought immediately brought the mind.
Sort of the the road zipper because the other the the case has always been to just kind of Adelaide and so.
I don't know if you heard that comment or not but interested to get your take on that angle that maybe we get some infrastructure spending, but how does that sort of potential for the lower density and the roads impacts the the road zipper.
Business case.
Well I think there is going to be a lot of questions about what are the post pandemic environment is is all about and and whether we see a continuation of work from home. The is it is it a hybrid environment and if you look at the the volume of traffic that we see on the nation's highways, there's always going to be a mix of commercial traffic and and trucks moving our GAAP.
Coast to coast and people that are that are driving to and from work people that are our shopping and I think as the economy starts to pick back up again, and and life returns to normal that we're going to see our traffic trends that the maybe don't get all the way back to what we see in our interim and the pre corporate environment, but I think we were we were stressed and.
Our nation's roadways, and we know that we're a little behind on infrastructure spending there's going to be some pent up demand. There. So I wouldn't view that Ryan is having a significant impact and our ability to continue growing down the road zipper funnel and and growing the roads of for business.
Got it very helpful. Thank you happy new year to everybody and congrats on the new role Randy.
I appreciate Ryan Thank you.
Our next question comes from Jon Braatz, with Kansas City Capital. Please go ahead.
Good morning, Randy of Brian.
You guys mentioned that.
The irrigation orders picked up in the second half of the of the quarter and since the end of November grain prices of and.
Improved even further corn and soybeans are up about 16%.
Did you see the pace of activity change or accelerate.
And in the month of December versus sort of the second half of of the quarter or have you seen an improvement and order rates.
Yeah, John it's been a slow steady continuous improvement and and market conditions and if you track commodity price is certainly the the last Corona virus, where the package announcement right at the end of December for has been a lot of positive indicators that pile on top of each other that are really low.
And to our continued improvement and customer sentiment. So when we look at our order intake rate and irrigation. We did see that same acceleration from September October and November through through December. So those are those market conditions. The positive customer sentiment we've seen that continue our rights for December okay.
Would you disclose your backlog at the at the end of December.
First of where you were at the end of quarter.
Well at the end of December now.
We we obviously.
Shipped out some of the the up quarter and about but what I will say and year over year, obviously is a large increase right and.
Compared to where it was last year, but we're seeing.
Just put all of our color around the backlog of units within the irrigation equipment.
And it's well over a 50% increase year over year, okay. Okay. Thanks, Brent and then secondly.
The expense ratio SGN expense ratio was higher than I was looking for.
Anything in there a unusual was were there any transition costs with Tim for retirement.
Recorded in the quarter anything any color on the and the level of EPS DNA of cost.
Yeah, just first of all in terms of transition.
Transition costs nothing significantly there we did have the the COO COO role for a quarter, which we didnt.
Before and.
Going forward, but that wasn't that significant but I.
I think the biggest thing was really timing and how we are kind of booked our incentive accrual this year versus last year first quarter last year, which was pretty low and then as we went through the year we.
Increase that as the infrastructure business grew.
I think the other thing driving we had higher selling expenses and irrigation and the first quarter lot of that was marketing related directed towards the new new product launches that weve entered and.
So.
Your year over year increase but nothing.
The strong.
Brian how much was sort of the the the.
The delta and the incentive accrual for the quarter.
That was when you look at corporate which was up about $1.8 million that would be the large majority of that okay also little bit on the irrigation side. So total of that probably more than half of the increase okay. Thank you.
Our next question comes from Chris Shaw with Monness Crespi. Please go ahead.
Hi, Good morning, everyone, how you doing.
Hi, Chris.
International irrigation was of strongly and you think you guys cited Brazil or the strong markets. Phil how are the other international markets, the and I would assume still the Cobra going on the there's a lot of delays and.
And markets that are sort of maybe more government driven or the institutional driven.
Is that the case, though and I.
The I assume the the Brazilian market, it's probably is the as seasonal as of the U.S. market isn't that different there.
Yes, I think when we look at the international markets, Chris and and you break it up into the of what we define as more mature markets and they operate like North America does with with some supply and demand fundamentals farm income fundamentals and markets like Brazil, like Australia, New Zealand, certainly our portions of Western Europe, and there they are being supported and the.
Propped up by some of the same fundamentals and global commodity prices. So we saw almost across the board improvement and a lot of those more mature markets in the emerging project oriented markets those ones have a mix of business. Some of that will be commodity price net farm income driven and some of the it will be supported by government investments and knots and here.
The where we've seen more interest and projects and and we've talked about this before the the coated crisis and the shutdown of borders really identified for some countries they've got more risks and were comfortable with so we are seeing more discussion inquiries on on projects and those areas, but in markets, where we do have that mix and we see some strong fundamentals we're seeing.
We're seeing business growth, there as well and the only area internationally, where we saw more headwind was really in sub Saharan Africa, and South Africa, specifically, where the out of the market fundamentals are not incredibly weak, but we've got some some political unrest overlays really limiting our capital investment in that part of the world, but when we look internationally.
We see we see pretty good growth for our quarter over quarter and in most parts of the World are your second question on Brazil, We do have some seasonality there, but the they benefit from having multiple crops per year. So they'll they'll have to recycle assets planting growing harvesting the no jump right back in the planting. So there is some seasonality and just comes out.
A little quicker than maybe we see and the markets and the november's for wrong, the one growing season.
And do you handle the rising steel costs, some early and the international markets of the domestic or is that sort of different negotiation with the customer the.
It's a very similar process.
Okay.
And then putting more and I'm.
Net theoretical but [noise].
In terms of irrigation, the U.S. and turns of ER and.
Other it's offered on there's talk about water restrictions or maybe putting a greater economic cost of water supplies, whether it's apple fire or something else, but.
Do you have any sense I always understood that the be more of the maybe a local decision and other than the state based or for the thing, but you know with the by the administration is there a chance of there can be a larger federal effort to I don't know again puts and sort of economic cost and water supplies for farmers or is there any and do you have any I guess.
Site or.
Foresight and to that.
I would say, Chris we don't have any inside knowledge no official perspectives I think it's a it's an area that remains to be seen and and you read a lot about.
Wanting to recognize the true economic cost of water and business models, where water is consumed but there's nothing that we've seen indicated of the administration at this point that we could use to really give you a good fact based and answer to your question.
Got it thank you.
As a reminder, if you have the question. Please press Star then one to be joined into the queue. Our next question is a follow up from Nathan Jones for Stifel. Please go ahead.
Hi, guys I, just wanted to follow up a little bit and the backlog increase of 50% aided the pretty slow the period seasonally for you guys. So it does take huge numbers, probably can move that backlog the round it could be impacted by the timing on the holidays.
And when the buying season starts were there any other factors impacting way you weigh the backlog ended at the end and I've been bad debt or what noting in times of of does Tom maybe the timing impact from the harvest or anything like that that we should be aware of.
The net and this Brian I think you know.
Potentially for a couple of things that you could say maybe pulled some orders forward one would be of theres year and tax buying to a shelter some of the farm income.
And I don't know that we can really quantify that and then I think as steel prices starting starting to use I think.
Some of the orders I'm sure came in.
Trying to beat the price increases.
Right fair enough.
I think with the.
Lead times, starting to extend out I think we are seeing a little bit more of a shift.
Into our second quarter net maybe.
Last year would have been in the third quarter and at this point, it's really hard to say.
We'll see as.
The year plays out.
But clearly the okay then.
The underlying fundamentals of that Randy mentioned.
Really the primary driver behind the order flow and backlog.
Got it and.
And then you talked about having put your double digit price increases talking about robust unit demand increases the technology purchases I'm, just trying to try and get some idea of some sizing of how we should think about the revenue growth.
As we're going forward here I mean, you can have some pretty big swings and revenue in the spaces.
As the Guy, but are we talking about mid case, though of better going forward kind of revenue growth as an expectation how long does it take you for the double digit price increases actually bleed through into the pay and now.
Just to try and give you some idea of what kind of growth, we should be expecting Egon code.
Yes, well.
Well I think.
Second quarter is definitely going to be stronger and year over year and if you are to the project. This out on the full year basis, I would say mid teens is a reasonable expectation.
In regards to win the headwinds start to subside I would expect.
Estimate you know close to 40% of our backlog at the end of the quarter would of been orders received prior to the price increases so.
By the time, we get through.
Most of the second quarter I would say, we'd have the headwind the behind us.
Excellent thanks very much.
Our next question comes from Bill Baldwin with Baldwin Anthony Securities. Please go ahead.
Thank you. Thank you for taking my question just to clarify.
Housekeeping questions do you have the projected tax rate for fiscal 21 at this time or the track the range for tax rate.
Yes Bill.
We would expect for the balance of the year, we'd be up around 23, and a half which puts us a little bit over 20% for the full year.
Okay.
And one of your current cash capital expenditure projections for the full year.
Similar to last year or do you have any particular projects idle and there.
And expectations would be.
Probably a cost of 20 million for the year.
Okay.
And then lastly can you Oh for some color on what the.
Your what's going on what you're doing with your non road zipper net.
For structure business in all of your road safety products year Guardrail your interest rates.
Looks like you've got a pretty good product line up and that area and.
I, just wonder and you know how many states are you currently operate and and what are your plans for that business, the domestically or and or international.
Yes Bill.
Yes, The road road safety products business as.
As you mentioned crash cushions and in Europe, We've got a temporary.
Temporary tape business really both driven around the road construction activity or theres replacement business as well, but we just went through up a full price refresh over the last couple of years and update to the new mash standard so as part of that process.
We've made some product enhancements and.
Thanks.
Have been received very well in the marketplace and we started to see.
So pretty good growth in the road safety products. This most recent quarter.
We said the road safety products were down a little bit and that's really tied to the the.
The slowdown and construction activity that we've seen.
Most of which we think your line is coal coke and related.
Do you currently operate and in most of the lower 48 states and that benefits are in the states that you want to operate and I should say or do you have room for expansion of the addressable market here domestically.
Yeah, it's it's.
The states that we want to operate and it's not a.
I don't know the exact number off hand, but theres certainly.
Certainly.
Key states that we focus on.
There is always room to expand into the other states is just the incremental business.
Business that you'd get isn't going to be as much in certain states.
Right.
And really what what percentage of your disposing some of your infrastructure business kind of true non zip for type products and road safety products.
We haven't broken that out and the past, but it's been more.
More than 50% of the business is has been non relative to last year and the tendency is very strong roads and for year.
Right right very good very good okay.
Thank you very much for your time.
Yep, Thanks for your questions.
At this time there appears to be no more questions Mr., what I'll turn the call back to you for closing remarks.
Thank you very much for your interest and participation today. This does conclude our first quarter earnings call. We look forward to updating you on our continued progress following the close of our fiscal 21 second quarter.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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