Q4 2021 Lindsay Corp Earnings Call
[music].
Good morning, everyone. My name is Jamie and I will be your conference operator today.
At this time I would like to welcome everyone to the Lindsay Corporation fourth quarter fiscal year 2021 earnings conference call.
During today's call if you should need operator assistance. Please press star and then zero all.
Vince will be in a listen only mode.
After todays presentation, there will be an opportunity to ask questions.
Please also note today's event is being recorded.
During this call management may make forward looking statements that are subject to risks and uncertainties, which reflect management's current beliefs.
All participants future economic circumstances industry conditions company performance and financial results.
Forward looking statements include the information concerning possible or assumed future results of operations of the company and those statements preceded by followed by or including the words.
Expectation outlook could may should or similar expressions.
For these statements we claim the protection of the Safe Harbor for forward looking statements contained in the private Securities Litigation Reform Act of 1095.
Please note today's event is being recorded.
And I'd like to turn the conference call over to Mr. Randy Wood, President and Chief Executive Officer, Sir. Please go ahead.
Thank you and good morning, everyone welcome to our fourth quarter earnings call with me today is Brian Ketcham, our Chief Financial Officer.
Fiscal 2021 was an extraordinary year.
We prioritized the health and safety of our employees, while maintaining business continuity through transfer transformational actions taken over the past several years, we were well positioned to capitalize on market tailwind in irrigation, while navigating persistent headwinds presented by the COVID-19 pandemic.
We operated from a position of strength and then set shipment records in several businesses.
Due to the commitment and resiliency of our people.
We have great teams around the world that continue to execute well meeting commitments to our customers and driving growth in our business I. Thank them for all they're doing to make Lindsay successful.
That's particularly true on the factory floor, where we continue to operate our global footprint safely and efficiently material cost.
Cost increases labor shortages and supply chain disruption and logistics availability continued to impact the business and we continue to make decisions and prioritize investments that mitigate this impact on our company and our customers.
Pasadena and efficiency investments in Brazil, China, Turkey, and the U S have allowed us to satisfy demand and leverage our global footprint.
Yeah.
Our innovation pipeline continues to advance with the development of the smart pivot platform in irrigation and the road connect platform and infrastructure both products share a common architecture and are moving through our voice of the customer new product development process and initial field trials feeds.
Feedback from users and our strategic partners.
Print is helping us further refine the tools and we're very pleased with the feedback we're receiving.
We're also pleased to congratulate our technology product manager Reese Andrews, who was recently recognized by the irrigation Association as the recipient of the 2021 Innovator award for his significant intangible contributions to the industry.
<unk> played an important role.
<unk> is field met and innovation work since the inception of the platform and we're very proud to see this recognition for our work.
And the environmental social and governance or ESG space, we continue to move our strategies forward in July we published the third edition of our sustainability report, where we outlined our five focus on investing in.
We'll and arguable technologies, improving our operational footprint empowering our people engaging our local communities and operating with integrity.
Turning to market conditions.
The domestic irrigation market entered the seasonally low fourth quarter were strong commodity and farm income projections, although commodities.
These have receded slightly they are still well above historical norms observed through the egg downcycle net farm income is projected to increase another 19, 5% in 2021 after growing by approximately 19, 6% in 2020.
Year over year price increases have been unprecedented in North America, we've made progress on price realized.
Realization, but still see some latency due to the significant backlog as customers pulled forward purchases to get ahead of projected price increases.
External market surveys indicate farmer sentiment may be waning due to inflationary cost pressures they are experiencing in all of their business.
We continue to see strength across most mature and developing markets in the international.
Irrigation business shipment records have been set in both Turkey, and Brazil, where activity has more than doubled in each business on a year over year basis.
We've also seen shipment records from our facility in France and increased exports from our facility in South Africa in order to meet global demand.
In Brazil, we're benefiting from strong market fundamentals.
Investments in the dealer channel, but have allowed us to grow our presence in mature and emerging regions within the country. This continues to be a very competitive market and we see some of the same cost escalation that we've seen in the U S. That's added pressure to margins, we continue to manage production and pricing actions to maintain business quality.
In the Europe Africa.
Middle East region, we continue to shift a large project into Egypt without disruption by leveraging our global footprint. We expect those shipments will continue early into the second quarter of 2022 fiscal year, we see additional opportunities in this market and are well positioned strategically to compete for this project business.
Moving to infrastructure.
The road Zipper business continues to experience headwinds caused by the global pandemic, while our strong project sales funnel remains at pre Covid levels. Our team has noted that prioritization of Covid response plans and travel restrictions limiting face to face meetings have impacted the pace of movement through the funnel.
These headwinds are beginning to subside as business travel active.
We returned to normal levels. However, we do not see project exits from the sales funnel until the second half of the fiscal year.
The fixing America's surface transportation or fast act expired temporarily on September 30. The Senate has approved a short term extension, which provides funding for an additional 30 days this creates a window for the infrastructure.
Activity apps, if an agreement cannot be reached we do expect another extension could be negotiated.
Depending infrastructure Bill continues to make its way through the approval process in Washington D. C. Our president has been working to pass both the $1 two trillion dollars bipartisan infrastructure investment and jobs Act and a $3 five trillion dollars build back.
<unk> built a better act, we're optimistic that some form of infrastructure Bill will ultimately pass due to the bipartisan supported has received however, the timing and size remain uncertain. This may keep some projects in a holding pattern while states wait for certainty on the incremental funding availability.
When past we expect this legislation will provide a positive tailwind for.
The infrastructure business, including road Zipper Road safety and our technology products.
I'll now turn the call over to Brian to review, our fourth quarter and full year financial results Brian.
Thank you Randy and good morning, everyone.
Total revenues for the fourth quarter of fiscal 2021 increased 20.
Versant.
$153 6 million compared to $128 4 million in the same quarter last year.
Earnings for the quarter were $5 8 million or <unk> 53 per diluted share compared to net earnings of $14 7 million.
Or $1 35 per diluted share in the prior year.
Net earnings for the quarter were reduced by an after tax LIFO impact of approximately $4 5 million or <unk> 41 per diluted share.
Total revenues for the full fiscal year.
2021 increased 20% to $567 6 million compared.
Compared to $474 7 million in the prior year.
Net earnings for fiscal 2021 were $42 6 million or $3 88 per share.
Compared to net earnings of $38 6 million or $3 56 per diluted share in the prior year.
Irrigation segment revenues for the fourth quarter increased 63% to $125 3 million compared.
Compared to <unk> 70 <unk>.
$7 million in the same quarter last year.
North America irrigation revenues of $53 $5 million increased 30% compared to last year's fourth quarter.
The increase in North America irrigation revenues resulted from a combination of higher irrigation equipment unit sales volume.
And higher average selling prices.
In the international irrigation markets revenues of 71 $7 million increased 100% compared to last year's fourth quarter.
The increase in international irrigation revenues resulted primarily from higher unit.
<unk> sales volumes, along with higher selling prices and a favorable foreign currency translation impact of $2 $8 million the.
The largest sales volume increases were in the Brazil, and middle East markets.
Total irrigation segment operating income for the fourth quarter was $10.
$6 million, an increase of 78% compared to the prior year fourth quarter and operating.
Margin was eight 4% of sales compared to seven 8% of sales in the prior year fourth quarter.
The impact of higher irrigation system unit volume was partially offset by.
Impact of higher raw material and other costs.
We continue to face some margin headwind as the realization of pricing actions lagged the impact of cost increases.
Fourth quarter operating results were also reduced by approximately $5 million, resulting from the impact of the LIFO.
Method of accounting for inventory.
Under which higher raw material costs are recognized in cost of goods sold rather than an ending inventory values.
During the quarter, we added additional inventory as a buffer against supply chain uncertainty expected cost increases and.
As part of our build ahead plan in connection with the temporary shutdown at the Lindsay Nebraska facility to install productivity upgrades.
We expect to realize some benefit of this fourth quarter LIFO impact in future periods as inventory quantities decline.
For the full fiscal year.
Total irrigation segment revenues to increase 35% to $471 $4 million.
Compared to $349 $3 million in the prior year.
North America irrigation revenues of $273 $9 million increased 22% compared to the prior.
Prior year and international irrigation revenues of $197 5 million.
Increased 59% compared to the prior year.
Irrigation segment operating income for the full fiscal year was $63 2 million, an increase of 53% compared to the prior.
Year.
And operating margin was 13, 4% of sales compared to 11, 8% of sales in the prior fiscal year.
Infrastructure segment revenues for the fourth quarter decreased 45% to $28 $4 million.
Compared to $51 4 million.
Per year in the same quarter last year.
The decrease resulted primarily from lower road zipper system sales compared to the prior year.
Revenues in the prior year included a large project in the United Kingdom that did not repeat in the current year.
And in the current year, we have continued to see the timing of certain.
Projects impacted by Corona virus related delays.
Infrastructure segment operating income for the fourth quarter was $5 8 million compared to $19 $9 million in the same quarter last year and infrastructure operating margin for the quarter was 25% of sales.
Certain prepared to 38, 8% of sales in the prior year.
Current year results reflect lower revenues and a less favorable margin mix of revenues compared to the prior year fourth quarter and were also reduced by approximately $1 million, resulting from the impact of LIFO.
For the full fiscal.
Full year infrastructure segment revenues decreased 23% to $96 3 million compared to $125 $3 million in the prior year.
First infrastructure operating income for the full fiscal year was $20 $2 million compared to $42 7 million in.
In the prior year and.
Operating margin for the year was 21.0% of sales compared to 34, 1% of sales in the prior year.
Turning to the balance sheet and liquidity.
Our total available liquidity at the end of the fiscal year was 196.
$1 million.
With $146 $7 million in cash cash equivalents in marketable securities and $50 million available under our revolving credit facility.
Our total debt was $115 $7 million, almost all of which matures in 2030.
At the end of the fiscal year, we were well within our financial covenants of our borrowing facilities, including our gross funded debt to EBITDA leverage ratio of one four compared to a covenant limit of 3.0.
We are well positioned going forward to invest in growth opportunities that create value.
Some shareholders.
At this time I would like to turn the call back over to the operator to take your questions.
Yeah.
Ladies and gentlemen at this time, we will begin the question and answer session.
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Pause momentarily to assemble the roster.
Q4.
Our first question comes from Adam Farley from Stifel. Please go ahead with your question.
Hey, guys. This is Nathan.
Start off with a question just on LIFO.
This is obviously caveat it by.
By assuming that raw material.
<unk> stay where they are which obviously won't happen, but he said is there an expectation for more LIFO charges.
In fiscal 2022 do you expect some of that to come back as you Blake down inventories that maybe there's a lot that benefit in 2022, just any way you can any guidance you can give us on that.
Yeah Nathan this is.
Brian.
Assuming let's assume inventory inflation stays stay.
Stable from here on out obviously, we wouldn't expect any additional LIFO headwinds.
Based on the additional inventory we took in in the fourth quarter that those higher prices went through cost of.
So at the end of the year, our inventories valued at more historical prices, especially as it relates to steel so as our steel quantities come down we would expect to see some of that LIFO impact come back in future periods.
Probably not in the first quarter as well.
Good sold net the build for our fall selling season, but you know as.
Quantities come down later in the year, we'd expect to see some benefit come back.
Do you think the whole thing would reverse sorry about partial return of the the charge that you had in the fourth quarter.
It's really hard.
Hard to say it depends on the mix of inventory, but I would say a fair amount of that should reverse if if inventory quantities come down, which we would expect at some point they will.
Okay. Thanks for that.
I wanted to ask a couple questions about road zipper and the infrastructure business in general.
I think Randy in your comments you.
You you stated that the funnel is about the same size, but things are moving more slowly through it Judy COVID-19.
And you didn't expect to say much except that final until the second half of 'twenty, two which I assume means that we don't see revenue until 2023.
Is that similar for the rest of the infrastructure business should we be.
We're expecting revenue in the in the overall infrastructure segment to be somewhere around flat plus price.
In 2022, just any help you can give us with how to frame that.
Sure you bet good morning Nathan.
Comments were really specific to road zipper projects and the reality is we are much.
Which of those projects, we've got Mark more visibility we're at the table as implementation plans are discussed and negotiated so it's given us a level of insight that we maybe haven't had historically and the comments about the second half of our fiscal year 'twenty. Two is a very specific projects that we know are making their way through through the approval and implementation process.
To close the rest of the infrastructure business isn't impacted in the same way so when the non roads or proportion of that infrastructure revenue wed expect more more traditional or historic revenue pattern.
So we should expect probably some growth in infrastructure. This year, primarily driven by the non road zipper part of.
The business, we see certainly a price is going to support growth and we see good stimulus money potentially coming at a point in time, but the demand drivers are still good in that business. So we would predict project some some natural growth from pricing.
And in the non road zipper business for sure.
Great that helps thanks.
I'll pass it on.
You bet.
Our next question comes from Brian Drab from William Blair. Please go with your question.
Hey, good morning, Thanks for taking the questions on for Brian first just curious if you could give any granularity on how how much impact prices.
<unk> had.
In each of these segments and it would be great to know.
Uh huh.
Fourth quarter and full year I don't know if that if that was.
Detailed yet I, just see that in the slides and a higher average selling prices if you could quantify that that'd be great.
Yes, Brian This is Brian Ketcham, if you've.
Very much I, just the North America pivot business.
We saw the biggest impact of price in our.
Our fourth quarter as the earlier pricing actions.
Really taken hold so if you just look at the pivot business I would say price was above 30%.
Look at it in terms of the.
The growth pivots.
Fourth quarter.
And if you look at full year, it's into double digits, but as you recall in the first couple of quarters pricing was.
It was fairly flat year over year on the infrastructure side price is not.
<unk> been as big of an impact I would say is.
It is.
Approaching a 10% overall, but thats a little bit different mix of.
Particularly steel infrastructure business.
Okay, Okay got it.
Is that fair.
Baird.
I guess, it's fair to kind of use the 30% in the double digit for the full year for for the pivot business as a proxy for the full year irrigation segment.
Or is it it's probably a little bit below whatever it is that you'd haircut. It for the full segment I guess obviously.
So you're getting the most.
And pivot.
If youre looking at North America, and I assume youre talking about 2021.
Yeah, we're still talking about 2021 there, yes, yes, yes, so north America.
You would see for the full year double digit.
Price.
As part of the increase there on the on the international side.
<unk>.
<unk>.
The great majority of the increase has been volume.
Starting to see obviously more price.
In the fourth quarter for international but by and large the increase in international for the year has been mostly volume.
Okay.
And then it.
In the infrastructure segment, there was a nice sequential.
Increased from the third quarter to the fourth quarter.
Is that.
I mean typically the.
The third quarter in the fourth quarter are the strongest seasonally obviously, but.
Is there anything specific that drove that.
That's sequential.
The improvement in then.
And were there any.
Was there any revenue from there was not any revenue from larger road zipper projects right and in the fourth quarter, There's nothing no major projects in progress at this point right.
Yes, if you look at third quarter to fourth quarter third quarter, we really didn't have.
Projects fourth quarter, I would say we had a.
A few smaller projects and then we still have.
Year over year the leasing.
It has been higher.
Throughout the year.
But sequentially and then road safety as you mentioned road safety products are generally stronger in the fourth quarter.
So there's just generally that that seasonality in the fourth quarter from the third okay.
Okay, and then just the last one do you mind given that breakdown Brian.
Brian that I always ask for the dry land replacement conversion in the irrigation segment.
Yes, yes, so for our fourth quarter dry land was 25%.
Any conversion conversion, 27% and replacement was 49.
Okay I'll pass it on thanks very much.
Okay.
And once again, if you would like to ask a question. Please press star and then one to withdraw your question you May Press Star two.
Our next question comes from Jon Braatz from Kansas City Capital. Please go ahead with your question.
Good morning, Randy Bryan.
Good morning Andre.
A common theme we're hearing.
Across these conference calls are the rising costs in.
At some point your customers or anybody.
Customers might reach a breaking point and say enough is enough I can't take it in.
As they all say the cure for higher prices is high prices.
<unk>.
You mentioned that some of your some of the farmers have been pulling orders forward to take a tick or.
He's going to higher higher.
Prices coming.
Do you sense any.
Any impending resistance to higher the higher prices and that there is going to be some demand destruction. If this continues and any thoughts on that.
Sure.
John This is Randy.
Right now we are seeing anecdotal comments around sticker shock and somebody that maybe hasnt bought a pivot for a year or two years. So there is some comments on sticker shock or some external market surveys talking about input costs on fertilizer attractors and almost everything that our customers are buying.
Sure you bet.
Impacted by by inflation, but when you look at the return on investment of a piece of irrigation equipment that payback generated right now Fortunately, we're seeing here of a linear trend in cost increases matched by the linear trend in commodity prices. So from an income perspective, the relative payback on our favorite Hasnt moves.
Today I'll significantly so while there is still some sticker shock we haven't seen customers exit the market at this point and we don't think that that will have a significant number.
Headwind impact on volume demands are provided we continue to see strong farm income support.
So the key is.
Similarly on the on the grain prices and that's going to.
That's pretty much to always the case.
Any decline there is there.
The return on investment.
It begins to decline.
Correct Yep, Okay, alright, well watch it.
I think that's about it thanks very much Randy.
Thank you John.
And we have an additional question from Chris Shaw from <unk> Crespi. Please go ahead with your question.
Yeah. Good morning, everyone. How are you doing.
Thanks, Chris.
If I could first ask on the.
Road Zipper funnel.
I guess.
It doesn't.
Typically about the funnel actually.
What percent of the projects that I guess, maybe on the farm side that you know you're.
You're pretty sure of.
How is that breaking down between leasing and buying at this point and how is that different than what historically had been.
Yes, Chris This is Brian I would say while lease.
<unk> continues to increase incrementally it's still.
A smaller portion of the overall road zipper business.
It's.
The project sales are.
The biggest portion of it.
Why do you think customers still prefer to buy.
That's the same what or.
Why certain one but what what.
Is there a vantage for buying a I'm trying to figure out that out my own mind.
Yes, I think a lot depends on that.
The budgetary constraints at the <unk>.
Government levels, but I think.
Most of our road zipper installations.
A permanent installations. So those would be have more of a tendency to be purchased.
Where we see more of the leasing or <unk>.
Temporary construction type projects, although we do have a couple of longer term leases, but.
But most of the installations are permanent which wood wood.
<unk> itself more to a purchase rather than lease.
Okay that makes sense and if I can switch to irrigation.
In North America.
Fine I feel like farmers are on a good income here like this is that they're looking to minimize their tax burden at the end of the year that looks.
Good land spend some of that money before.
They have to give it to the government so.
And then this year too often that well use it goes into the capital equipment and this year. It seems like you know the tractors and combines are hard to find are you seeing any extra sort of demand as we finish up the calendar year.
Sure.
That kind of sort of tax buying or.
Limited availability of other sort of large capital equipment purchases for the farmer or was that just anecdotal.
I would say, it's anecdotal, but theres going to be a lot more proof as we get through harvest and a lot of the borrowers are making tax.
<unk> oriented purchase decisions Youre exactly right. There is not going to be a lot of capital goods that theyre going to have access to to invest the capital in and we're in a great position right now with our global footprint, our global capacity or we're going to have the ability to fill orders and ship orders before the end of the tax year. So we're absolutely planning for some sort of.
Of an end of year bump, but I think more of that might come as they finish up in the combines as they finish up harvest and start looking at what their financial year looks like so we are we're prepared for that their line of sight and I think you've picked up on a trend thats going to have some impact as we as we finish the calendar year got it. Thanks so much.
<unk>.
And ladies and gentlemen at this point there appear to be no more questions.
Mr. <unk> I'll turn the call back over to you for closing remarks.
Alright, Thank you for your interest and participation today, everyone in the past discrete here, we continue to invest in innovation and technology differentiation.
That support our customers' need for more sustainable and efficient solutions, we leveraged our global footprint to meet rising global demand and continue to evolve our own sustainability journey with our enhanced ESG focus we remain optimistic about the growth potential for our business segments tied largely to the needs of a growing population for safe and uncontested roadways increased.
Transportation capacity food security and the efficient utilization of water <unk> water and energy resources. This concludes our fourth quarter earnings call. We look forward to updating you on our continued progress following the close of our fiscal 2022 first quarter. Thank you for joining us.
Ladies and gentlemen, with that we'll conclude today's conference we.
Thank you for attending you may now disconnect your lines.