Q1 2022 Lindsay Corp Earnings Call
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Okay.
Good morning, My name is vice Navi and I will be your conference operator today at.
At this time I would like to welcome everyone to the Lindsay Corporation first quarter fiscal year 2022 earnings call.
All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing Star then zero.
After today's presentation there'll be an opportunity to ask questions.
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Please note this 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.
To make our future economic circumstances industry conditions company performance and financial herself.
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 woods expectation outlook could may should or similar expressions.
These statements we claim the protection of the Safe Harbor for forward looking statements contained in the private Securities Litigation Reform Act of 90 95.
I would now like to turn the call over to Mr. Randy Wood, President and Chief Executive Officer. Please go ahead.
Thank you and good morning, everyone welcome to our first quarter earnings call with me today is Brian Ketcham, our Chief Financial Officer.
I'd like to start by once again thanking our employees around the world for their continued resiliency and focus during the global pandemic.
Our manufacturing teams continue to operate safely and efficiently around the world, while our non manufacturing resources continue to maintain productivity and efficiency, while working from home for the office. We greatly appreciate all you're doing to support our dealers distributors and customers around the world.
Turning to the current operating environment.
Material cost increases and supply chain constraints continue to impact our business, we expect that to persist through the spring and summer seasons for our irrigation and infrastructure products.
Our teams continue to work diligently to offset these risks while minimizing customer impact we have been able to leverage our sourcing talent and global footprint to take advantage of the strong market demand and we continue to pass through cost increases and see a rational pricing environment in the market.
In the area of innovation.
We continued to enhance both the fuel mandate road connected platforms, we see growth in adoption of these technologies that reduce labor and improve efficiency for our customers.
We're also pleased to announce that Mike Stern, former head of the climate Corporation and digital farming for Bayer has joined our team as an innovation advisor reporting directly to me.
Mike is a pioneer and trusted expert in the AG Tech space in his guidance will prove invaluable as we continue to expand our product offering and leverage partnerships to deliver value for our customers and Mike's personal views on sustainability and environmentally sound management practices aligned well with our mission and purpose.
We're also very pleased to welcome Pablo DC to our board of Directors. Pablo is currently the executive Chairman for Volkswagen Latin America. His previous experience includes finance leadership roles at <unk> Global Kimberly Clark and Monsanto Pablos experience in international operations and business management as well as knowledge of corporate.
Finance bring tremendous value to our board and our company and we look forward to his contributions.
Pablo fills the board opening created by the departure of Michael No who announced his retirement at the end of last year, Michael has been a significant contributor to Lindsay since he joined our board in 2003, we thank him for his dedication to our company and wish him the best in the future.
Turning to market conditions.
In the domestic U S irrigation market demand remains strong as commodity prices and net farm income continue to be positive market drivers net farm income is projected to approach $117 billion. In 2021. This is up 23% from the prior year and we would be the highest farm income levels since 2013.
And international irrigation, we see some of the same positive market drivers linked to strong commodity prices and farm income in the developed markets, including Brazil, where we continued to set shipping records to Australia, New Zealand and Western Europe.
The developing project oriented markets of central and Eastern Europe Middle East and Africa are also showing signs of continued strength linked to food security economic diversification and private investments.
We have continued shipments of our $36 million project into Egypt, and expect those deliveries will carry into the first half of our second quarter, we continued to be well positioned to compete for and win additional project business in this region.
Moving to infrastructure.
Consistent with discussions on our fourth quarter earnings call. We did not see any significant road zipper projects exit the sales funnel in the first quarter and we have similar expectations for our second quarter. However, we do expect to see projects beginning to close and deliver in the second half of the year. The project funnel remains robust and we are seeing signs of progress as we've been able.
To get back into the market to visit customers and actively move projects along maintaining the ability to travel will be key to managing the sales process and exiting project from the sales funnel.
The infrastructure and investment job Act was signed into law on November 15th this legislation adds $110 billion in incremental funding to repair our roads and bridges and support major transformational projects.
The Bill also includes a $370 billion reauthorization of the fixing America's surface transportation or fast Act.
This reauthorization, coupled with the increased infrastructure Bill funding provides long term stability for surface transportation investments.
We expect this will support project funding over the next several months and we should see some market lift in the 2022 summer construction season.
I'll now 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 2022 increased 53% to $166 2 million compared to $108 5 million in the prior year quarter.
Net earnings for the quarter were $7 9 million or <unk> 72 per diluted share compared to net earnings of $7 1 million or <unk> 65 per diluted share in the prior year quarter.
Net earnings for the quarter were reduced by an after tax LIFO impact of approximately $4 5 million or <unk> 41 per diluted share.
While net earnings in the prior year quarter included an income tax benefit of $1 7 million or <unk> 16 per diluted share related to the release of evaluation allowance in a foreign jurisdiction.
Irrigation segment revenues for the first quarter increased 67% to $145 9 million compared to $87 4 million in the prior year quarter.
North America irrigation revenues of $79 million increased 50% compared to the prior year 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 $66 $9 million increase.
Increased 94% compared to the prior year quarter.
The increase in international irrigation revenues resulted primarily from higher unit sales volume.
Along with higher selling prices and a favorable foreign currency translation impact of $1 1 million.
The largest sales volume increases were in the Brazil, Middle East and Europe markets.
Total irrigation segment operating income for the first quarter was $17 2 million, an increase of 62% compared to the prior year quarter and operating margin was 11, 8% of sales compared to 12, 2% of sales in the prior year.
The impact of higher irrigation system unit volume was partially offset by the impact of higher cost of raw materials and other inputs.
While we have been successful in passing along most of our cost increases through higher prices during the quarter. We continued to experience additional inflation and a number of areas.
First quarter operating results for irrigation were reduced by approximately $5 million.
The resulting from the impact of the LIFO method of accounting for inventory.
Under which more recent and more expensive raw material costs are included in cost of goods sold rather than in ending inventory values.
We would expect to realize some benefit of this LIFO impact in future.
Future periods as the current inventory quantities decline.
Infrastructure segment revenues for the first quarter were $20 2 million, a decrease of 4% compared to $21 1 million in the prior year quarter.
The decrease resulted from lower road zipper system sales, which were partially offset by higher road zipper lease revenue and increased sales of road safety products compared to the prior year quarter.
Infrastructure segment operating income for the first quarter was $2 $8 million compared to $4 3 million in the prior year quarter.
Infrastructure operating margin for the quarter was 13, 7% of sales compared to 21% 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 quarter.
And were also reduced by approximately $1 million, resulting from the impact of LIFO.
Turning to the balance sheet and liquidity.
Our total available liquidity at the end of the first quarter was $164 $9 million with a $114 9 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 our first quarter, we were well within the 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 for our shareholders.
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 question to ask a question you May Press Star then one on your Touchtone phone.
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At this time, we will pause momentarily to assemble our roster.
The first question comes from Nathan Jones with Stifel. Please go ahead.
Good morning, everyone.
Good morning Nathan.
Maybe I could just start on on some of that supply chain issues debate the dead horse for another quarter.
You guys have seen the backlog in irrigation in case, you are at a seasonally slow period.
Can you talk about.
How supply chain is at the moment, whether it's getting less whether it's getting better and how confident you are on your ability to ramp up with volume as we go into the seasonally strong spring selling season.
I'll cover that were Nathan and supply chain issues obviously.
See these across industries right now and we're no different than anyone else.
It's a daily task of our sourcing organization to identify where shortages might exist and then fight to find supply to keep our factories running and we've really benefited in our opinion from our global footprint and we have the ability to move supply around as the market dictates and a good example is a market like Australia and New Zealand.
That would generally get most of their supplier here from the U S. We've been able to divert that supplier to factories in Turkey, and South Africa to open up some additional capacity here. So the supply chain constraints, we do see those persisting through spring and summer into into next year, but our teams are working daily to make sure. They don't disrupt our ability to meet.
Land and were in a good position based again on our global footprint to meet the demands that we see for <unk> for this coming season, and then we'll have the ability to adapt on the upside or the downside.
Hey, you guys say supply chain is limiting your ability to ramp up with the seasonality in revenue.
We do not right now.
Great and then maybe one for Brian on the LIFO charge, we have seen steel prices start to come down pretty significantly, particularly in the U S.
Last few months do you have an expectation for what the LIFO charge might be in the second quarter and when we should start seeing these LIFO charges disappear.
Yes.
Let me first start with just explaining a little bit about the LIFO impact because I'm not sure that it's well understood by everyone.
We are under LIFO LIFO method of accounting for inventory, which very few companies are anymore, but.
Under LIFO in an inflationary environment like we've had the.
The most recent purchases and higher priced purchases flowed through cost of goods sold right away, where whereas if you're under FIFO those higher costs would be in including in your ending inventory valuation. So what we saw in our fourth quarter as we had called out about <unk>.
It's the same.
A number of $6 million total LIFO impact we're.
Ending inventories had we been under FIFO would have been $6 million.
Higher.
Going into the first quarter, what we what we saw was at the end of our first quarter that debt.
Difference between FIFO and LIFO was actually $12 million. So we did have that $6 million for the first quarter that that rolled through as a benefit in the first quarter, but it was offset by.
An additional $12 million of inflation so far.
Full impact of inflation.
We really started to see that.
Increase of it in our fourth quarter its continued on into the first quarter.
To your point about steel.
<unk> really been.
Hot rolled coil that we.
We started to see that moderate.
And reduce <unk>.
Really toward the end of our first quarter into our second quarter, but at the same time.
We've seen continued cost increases in structural steel and other components. So we're still in.
An inflationary environment as you as we look forward.
Our second quarter to your question on the anticipated LIFO impact there.
We may see.
Yes.
Hot rolled coil continued to soften but.
Other items continued to increase so I would expect to have a similar LIFO impact in our second quarter, because I don't expect our inventory values to decline.
Between now and the end of February.
Could start to see more of a benefit would be in our.
Third and fourth quarters.
That's very helpful. Thanks, I'll pass it on.
The next question comes from Brian Drab with William Blair. Please go ahead.
Hi, Good morning, I thought maybe I could start by just asking about the international irrigation segment and what Youre seeing.
First of all with the Egypt projects, how that's progressing and it looks like since you announced that project <unk> had a step function increase.
In international irrigation revenues system, that's going well, but an update would be great and what are you seeing in the.
The other markets and just any trends there.
Sure. Brian This is Randy I'll take that one on Egypt project is growing very well deliveries moving through the system erections installations operations growing very well locally.
Obviously, a very important market and in the international scope of our business and we do see continued opportunities there and executing well on our current project, we feel certainly puts us in a good position to compete and win for future projects. As we stated in the rest of the international markets you really see two trends that we've talked a lot of our tier one.
Those more mature ish markets like Brazil, Australia, and New Zealand, we see a lot of the same strong market fundamentals connected to.
Net farm income connected to strong commodity prices globally. So we see sustained growth there are in the project oriented or developing markets. We go back to those those macro trends are on food security diversification of GDP and still continued ongoing private investment in those markets. So we're in an environment now where we see good strength.
Good opportunities in both those developed and developing markets Brian.
Great. Thanks.
Now.
In irrigation.
You are coming up on the tough comps and I'm wondering if with.
Corn prices still being near $6.
As you just mentioned there is positive sentiment largely driven by the.
Higher commodity prices.
Do you expect the irrigation segment.
To continue even with these tough comparisons that you are coming up on 30% next quarter, and then 50 and 60.
Can you grow on top of those comps.
Yes, Brian I'll take that.
We see the continued demand obviously last year.
Very strong demand and I think some of that demand got pulled forward a little bit with the rapidly increasing.
Steel costs and other costs.
We still feel that that year over year.
Unit volume growth won't be as strong in or.
Second and third quarters, but we still have the benefit of the higher pricing we don't anticipate.
Prices to drop just given the continued inflationary environment. We have so we would see domestic market growing driven primarily by price, but still having some unit volume growth.
As Randy mentioned in the international markets, we continue to expect.
Strong growth there.
Okay and then just.
Thanks.
And along that line of thinking on pricing.
What did price can you tell us at least roughly what price contributed to.
Revenue growth in each of the segments in the first quarter.
Yes.
Starting with the domestic irrigation business and just related to the pivot.
Revenue price was in the.
In the mid 40% range, we had <unk>.
Volume increase in that in the mid teens.
And some of our other service parts subscription revenue did not grow as much they were up but thats what.
What drove that.
Domestic revenue increase on the international side by and large it's a volume increase we had we have had similar inflation in Brazil that we've seen in the U S. But.
Unit volumes in Brazil were.
Roughly double what they were last year.
Pricing.
Probably in that 50% range, so some pretty significant price increases in Brazil, but by and large volume is what's driving the international revenue.
Okay.
On the infrastructure side, you also mentioned in your prepared remarks price increases is that.
Can you add some granularity to that comment.
Yeah I think.
On the infrastructure side price is going to be less impactful.
The driver in revenue in that case, I mean, you're talking about the lease revenue on road zipper and some of the project.
Type business, which we really didn't have any in the quarter. It was the road safety products and I would say road safety products.
Price increase year over year is probably in the 20% range.
Okay. Thanks, very much I'll pass it on.
The next question comes from Jon Braatz, with Kansas City Capital. Please go ahead good.
Good morning, Randy Bryan.
There is some economic angst in Turkey, and I know you have a facility there.
The Turkish clears.
<unk> significantly.
Is that impacting your business at all.
And in Turkey, and your ability to.
To meet orders in produce.
Yes, John this is Bryan.
Yes.
Despite the devaluation in the Turkish Lira, it's really I would say has had minimal impact on our business our functional currency in Turkey as the U S. Dollar, it's really a business that's set up to be an export business for us. So most of all of our sales are based in U S dollars and most of our.
Input costs are also in U S dollars, the exception to that would be labor costs and it's really.
The devaluation has been more impactful for our employees and inflation in some of their.
Daily needs and purchases. So we've had wage inflation or we expect to have further wage inflation.
In Turkey, but that is again offset when you translate that back into U S dollars.
Again minimal minimal impact on our business at this point okay. Okay. Thanks, and then Brian.
When you look at the third quarter results.
Again cost.
Or a little bit above.
Your price increases.
On net how much.
How much of your how much costs were on recovered in the quarter can you give us some idea.
I would say John in both.
Domestic market and our Brazil market, which we've called out before.
A little bit of a lag until we get to full price realization, let's say by the end of our quarter or even during our quarter.
Where we needed to be from a price standpoint, given the.
Relation that we had expected.
So.
There is further inflation like we're seeing will have further price increases but.
I don't think it was.
Outside of the LIFO, which.
We believe that more of a timing difference but.
I would say that the pricing headwinds are.
Subsided at this point again.
Further inflation will require further price increases.
Thank you Brian.
Yes.
The next question from Greg.
Globally.
Please go ahead.
Hi, good morning, Thanks for taking my question.
Hi, Brett.
I was curious what the opportunity set looks like for you all.
M&A landscape.
And I know there was high.
Highway products business that transacted recently curious if thats the type of asset you all evaluate or.
What is kind of the best.
Best fit that you guys are looking at on that front.
Yes, Brett this is Bryan.
I would say our.
Our main focus is from an M&A standpoint would be.
Aligned with our irrigation business and more specifically anything related to technology and.
Building out our capabilities.
On the irrigation technology side.
Broadening that out a bit where technology and water.
A connection there.
Not necessarily looking to add to our road safety products portfolio I think on the infrastructure side as we've stated before.
Anything that would help us with road zipper growth, because thats, where the portion of infrastructure that we're really focused on growing its a high value high margin.
Product, where we see a lot of growth opportunities there.
Hopefully that helps.
Yes, it's very helpful. Thank you very much.
Yeah.
The next question is from Ryan Connors with Boenning, Canada. Please go ahead.
Great. Thank you.
What I wanted to sort of explore the supply chain dynamics.
Couple of different angles. The first is.
Have you had any kind of sort of components switching where you've had to switch out to different suppliers have different types of chips and things like that especially in the field net side.
And where any other significant sort of alterations to the component base or the supply chain that could.
Potentially at some point in the future manifest itself.
A product quality issue or a warranty issue or anything like that I mean is there anything that.
That has been switched on the fly that gives you any concern.
On that side.
Yes, I'll take that Ryan.
Don't know that I would describe it as a significant swap out but like many companies, we've really been leveraging engineering talent sourcing and supply chain talent to allow us to respond quickly to any shortages that we see in front of us or shortages that we might see even months in advance. So I think we've got the systems and demand tracks.
Our solutions are in place to really understand and be as proactive as we can to get in front of the Orion and then I would say with confidence you are nothing gets released without full validation. So while we are making some substitutions to allow us to meet the needs of our customers I don't see that creating any risk at all for a future product quality.
Got it Okay. That's reassuring and then the other thing.
One of the unique things about Lindsay is that.
Even for the farm industry sector.
Our flagship facility in your namesake town of Lindsay, Nebraska is it's a very rural.
Facility I know Thats why the prior management to move that HQ, two Omaha, because it was a little too off the beaten path.
I'm curious how that impacts how that fills facilities been impacted more or less by all these supply chain issues.
Given given its.
How far flung. It is and then also in terms of the labor front is there is there.
Sufficient labor force, there or have you had issues.
Staffing there just curious how that rural facility has held up.
And.
In this environment.
Sure you bet Ryan. This this is a facility obviously a flagship facility for us around the world our largest most vertically integrated facility and I think when you look at the workforce quality and our rural work environment. We've got people that work in that facility that understand the importance of the products. They are making to the customers that they will serve so.
We like the work ethic of Midwest workforce, we like the work ethic of our rural based workforce because again they understand how this equipment has to be used Howard has reduced more food for a growing population. So that's the mindset that we like in terms of labor attraction. There is adequate workforce in the area and our human resources team.
<unk> worked very aggressively to pull people in and as we as we needed them.
We're implementing a number of lean initiatives to be more efficient and require less labor to produce the goods that will allow us to meet demand we have the ability to work over time. So we're in a good position, we feel with the quality of the workforce and in our ability to attract workers with the supply chain specifically.
Similar answer we're in front of the things that we think we need to be in front of our strategic sourcing group working aggressively both short and long term to be as proactive as they can and we don't see this creating any significant risk or being a detriment to the business overall.
Okay no. Thanks, so much for your time.
Congrats.
As a reminder, if you have a question please Chris.
When one company joined into the queue.
Our next question comes from Chris Shaw with monarch.
Please go ahead.
Hey, good morning, everyone has their own them.
Alright, great guys.
Just on the backlog.
Reported are up quite significantly year over year and attributed at all to the irrigation business.
But given sort of your comments are the numbers you gave on price volume for the quarter I'm just trying to gauge like how much of that is of that increased backlog is pricing approximately I guess it would seem like it'd be a lot of it given what you said pricing was for the quarter, but is that accurate.
Yes, Chris This is Brian Yeah first of all I'll, just say on that <unk>.
The increase in backlog the domestic backlog is probably at a similar level to last year and as you recall last year. We ended the first quarter, we had a significant increase in backlog so.
I would say similar.
In the domestic market.
Of that increase or most of the increase I should say is coming from the international markets.
Again, most of that would be volume related.
Sure.
Again at the end of November.
There is always the timing on the domestic side, but there is clearly some price.
Baked into there on the domestic side is still roughly the same level.
As last year.
That's interesting, but there wouldn't be that much in the on the international.
Pipeline that there wouldn't be that much of the Egypt projects left in that right I mean, that's mostly.
Accordingly, yeah.
I think we roughly $10 million left to ship in the second quarter on that.
There's a lot of new international projects, Oh, that's great.
Yes, I would characterize that international backlog is really being up in all markets.
The primary.
The largest increase year over year is going to be in Brazil.
And then if I could just ask.
And a lot of us probably know Mike Stern back from Monsanto and climate.
Just wondering you've talked a little bit better as well, but I think if you're looking at like M&A for tech stuff could you I know you just referenced that's kind of an area where you're looking at in M&A.
Or are you trying to be more sort of like kind of.
Integrate.
Your platform, maybe with other things out there like climate or whoever has stuff out there because I know he's very familiar with all the compete.
Competing products out there.
AG digital World. So I was just curious if you have any more detail there.
Yes, Mike Mike is going to play a critical role in technology strategy, where our innovation strategy. It will include industry partnerships will include potential assessment integration of M&A. It'll include voice of the customer work to make sure. We're in front of market needs. So somebody with.
The experience and skills that Mike has we're going to leverage them in a number of different and unique ways, but a big big add to the company, we can't wait to get started with them.
Sounds great all right. Thanks for the help.
Thanks, Chris.
Next is a follow up.
From Brian Drab with William Blair. Please go ahead.
Hi, just two quick follow up questions Randy you mentioned.
I think road Zipper project.
The activity picking up in the second half of fiscal 'twenty two is that.
Quoting activity do you expect revenue from some major projects in the second half.
Yes, a lot of these Brian or projects that have been kind of delayed and deferred and pushed through through the Covid era. So these are ones that have been moving their way through the funnel ones, where we've got line of sight on funding. So we will move into our sales funnel exits in the second half of the year and should start to see some revenue recognition on those projects.
Okay.
I guess just the last one.
Brian I eventually youre going to put this in the slides I think if I if I ask for another 10 years.
The question around the breakdown of irrigation equipment sales dry land replacement et cetera.
Yes, youre right it would make it easier if I just put it in this slide.
Right.
So yes dry land in the first quarter was 25% conversion, 38% and replacement 37%.
Got it thank you very much.
You bet.
At this time there appear to be no more questions.
Mr. <unk> I'll turn the call back to you for closing remarks.
Thank you all for your interest and participation today Megatrends fueled by global food security sustainable agricultural practices infrastructure capacity and roadway safety all create positive tail winds and we remain optimistic about the growth potential for both the infrastructure and irrigation business segments.
We continue to develop technology and innovation that makes our customers more efficient and productive creating ongoing opportunities for recurring revenue and differentiation that supports customer attraction and retention.
Our global footprint and ability to leverage capacity also puts us in an advantageous position, allowing lindsay to capitalize on growth opportunities around the world.
This concludes our first quarter earnings call. We look forward to updating you on our continued progress following the close of our fiscal 2022 second quarter. Thank you for joining us.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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