Q4 2022 Lindsay Corp Earnings Call
Good morning, My name is Jay 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 2022 earnings call.
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Yeah.
I would now like to turn the call over to Mr. Randy Wood, President and Chief Executive Officer.
Thank you and good morning, everyone welcome to our fourth quarter and full year earnings call and with me today is Brian Ketcham, our Chief Financial Officer.
Fiscal 2022 was a dynamic year, where we recognized record revenues and earnings per share. It was a year marked by robust demand in our global irrigation business highlighted by tremendous growth in our international regions.
And our infrastructure business, our teams demonstrated tremendous perseverance and finished the year strong delivering two road zipper systems projects.
We continue to make investments in our global footprint and this has allowed us to take advantage of global market share wins in high growth markets, including Brazil, and the middle East.
Despite inflationary pressures logistics challenges and supply chain shortages.
We're able to prioritize investments this year to support the strong demand in our irrigation business to make sure products were available when our customers need it the most.
Navigating and rising about these challenges each day, our people who are relentless in their pursuit to support our customers and our business around the world.
We thank our teams for all they're doing to contribute to the success of our customers and our company I'm very proud of the job they've done.
In the area of sustainability.
In July we released the fourth edition of our annual environment, social and governance or ESG report. This report highlights the progress, we're making in establishing and meeting our goals in important areas that include investing in sustainable technologies, improving our operational footprint.
Empowering our people engaging in our local communities and operating with integrity.
Encouraged by the progress we've made and look forward to continuing to provide solutions that address some of the world's most pressing issues.
Turning to irrigation market conditions.
The market continues to see a combination of factors impacting customer sentiment and business growth.
In North America commodity prices and net farm income are projected to remain strong droughts across broad geographies continues to highlight the opportunity for irrigated agriculture and a strong storm season also drove demand in North America in our fourth quarter.
Customers continue to deal with rising costs that include airports labor and cost of capital. This will have some impact on market upside, but we would not expect us to create significant headwind at this time.
In international markets, we see some of the same strong market fundamentals connected to global commodity prices and farm income having a positive impact in the mature markets that include Australia, and New Zealand, Western Europe and Brazil.
Brazil continues to start shipping records and our business there has more than doubled on a year over year basis.
We continue to see project activity across Central Asia, and the Middle East connected to food security, our global manufacturing, our commercial footprint and allow us to participate and win these large projects around the world.
Moving to infrastructure.
Macro indicators remained strong in the U S with the states, having full access to the infrastructure Bill funds the.
The increased funding has translated to state and local government contract awards, increasing by 16% on a year over year basis.
The purchasing power of this increase has been partially offset by the impact of inflation, which has required some projects to be delayed re scoped or rebid.
We continue to actively manage the road zipper sales funnel and have returned to pre pandemic travel and customer engagement levels.
This has allowed us to start moving projects through the funnel and as previously communicated one project in the northeast started shipping in the fourth quarter and will continue into the first quarter of 2023.
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 2022 increased 24% to $192 million compared to $153 6 million in the same quarter last year.
Net earnings for the quarter were $17 $9 million or $1 62 per diluted share compared to net earnings of $5 8 million or <unk> 53 per diluted share in the prior year.
Total revenues for the full year of fiscal 2022 increased 36% to $777 million.
Compared to five $567 6 million in the prior fiscal year.
Net earnings for fiscal 2022 were $65 5 million or $5 94 per diluted share.
<unk> to net earnings of $42 6 million or $3 88 per diluted share in the prior fiscal year.
Irrigation segment revenues for the fourth quarter increased 20% to $155 million compared to $125 3 million in the same quarter last year.
North America irrigation revenues of $80 $1 million increased 50% 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 higher.
Higher unit sales volumes resulted primarily from increased storm damage replacement demand compared to the prior year fourth quarter.
In international irrigation markets revenues of $78 $4 million were slightly lower compared to last year's fourth quarter and this includes unfavorable effects of foreign currency translation differences of approximately $3 $5 million.
Strong sales growth in Brazil, Europe , and other markets more than offset Egypt project sales of $17 million in the prior year that did not repeat.
Total irrigation segment operating income for the fourth quarter was $24 $2 million, an increase of 129% compared to the prior year fourth quarter and operating margin was 16, 1% of sales compared to eight 4% of sales in the prior fourth quarter.
The increase in operating income and operating margin resulted from higher unit sales volumes improved price realization and lower inflationary headwinds compared to the prior year fourth quarter.
For the full fiscal year total irrigation segment revenues increased 41% to $665 $8 million compared to $471 $4 million in the prior year.
North America irrigation revenues of $355 $7 million increased 30% compared to the prior year and internationally irrigation revenues of $310 $1 million increased 57% compared to the prior year.
Irrigation segment operating income for the full fiscal year was $105 8 million, an increase of 67% compared to the prior year and operating margin was 15, 9% of sales compared to 13, 4% of sales in the prior fiscal year.
Infrastructure segment revenues for the fourth quarter increased 40% to $39 $7 million.
Compared to $28 4 million in the same quarter last year.
The increase resulted from higher road Zipper system project sales, which were partially offset by lower lease revenue compared to the prior year.
During the quarter, we delivered approximately $16 million of the $24 million barrier replacement project in Massachusetts, and expect deliveries to continue in the first quarter of fiscal 2023.
Infrastructure segment operating income for the fourth quarter increased 97% to $11 5 million compared to $5 8 million in the same quarter last year.
Infrastructure operating margin for the quarter was 28, 8% of sales compared to 25% of sales in the prior year.
Improved current year results reflect the increase in road zipper system sales compared to the prior year fourth quarter.
For the full fiscal year infrastructure segment revenues increased 9% to $104 9 million compared to $96 3 million in the prior year.
Infrastructure operating income for the full fiscal year was $18 3 million compared to $22 million in the prior year.
And operating margin for the year was 17, 5% of sales compared to 21.0% of sales in the prior year.
Results for the full year reflect a less favorable margin mix of revenues compared to the prior year as well as the impact of under absorbed fixed overhead costs in the first half of the current year.
Turning to the balance sheet and liquidity, our total available available liquidity at the end of the fiscal year was $166 $5 million with $116 5 million in cash cash equivalents in marketable securities and $50 million available under our revolving credit facility.
At the end of the fiscal year, we were well within the financial covenants of our borrowing facilities, including our gross funded debt to EBITDA leverage ratio of 1.0 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'd like to turn the call over to the operator to take your questions.
Thank you we will now begin.
A question and answer session to ask.
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At this time, we will pause momentarily to assemble our roster.
Yeah.
Today's first question comes from Nathan Jones of Stifel. Please go ahead.
Good morning, everyone.
Good morning Nathan.
Ed.
I wanted to just start off with a quick one on LIFO.
With a LIFO charges in the fourth quarter.
Can you.
I think it was like $20 million or something for the full year in LIFO charges.
Can you talk about any expectations for.
2023, whether that be charges or income.
Yes, Nathan this is Brian I think when you look at just the fourth quarter compared to last year last year, we had called out about a $6 million negative impact overall from LIFO $5 million of that being in your irrigation.
And then first and second quarters. This year. We also had some negative LIFO headwinds third and fourth quarters I would say, there's been very little if any benefit from.
From LIFO.
Primarily being theres still some inflation.
Moderated, but our inventory levels.
From the end of our second quarter have not yet come down.
So really no LIFO impact in our fourth quarter as we look forward to 2023.
As.
We potentially see some continue continued deflation in raw materials or are inventory levels start to come back down we would expect it.
We expect to see some LIFO benefit coming through but it's hard to predict at this point with this.
The size of that might be.
Could you just give us the.
But for the LIFO charge.
Yeah, so for 'twenty two.
It was $8 8 million in total.
Okay. Thank you.
About six a little over six of that being in the irrigation.
Okay. Okay.
I wanted to ask was on price cost.
Steel prices have come down pretty significantly some other jobs remain elevated freight costs have come down.
I, probably electronics that labor is still going up can you just talk about kind of what direction Youre seeing your overall cost go on a net basis.
Yeah.
To your point I think the steel coil has fallen over the last several months, it's still remains higher than it was at the <unk>.
Fall of 2020.
At that same time.
Over the last several months structural steel continued to increase over that period of time as you mentioned other components electronics as well as labor cost have increased what I would say right now and kind of what we experienced fourth quarter as costs have stabilized for the time being.
And our view going forward is we may continue to have some slight inflation, but overall our cost outlook is.
Is stable at least for the first half of the fiscal year.
And just last one before I pass it on can you talk about the impact of price that you increased in 'twenty, two and 2020 revenue under the level of growth Youre expecting from carryover pricing.
Yeah, we expect.
Our first and second quarters to still have a little price benefit I would say first quarter, maybe high single digits second quarter mid single digits and then beat.
Relatively flat year over year as we lap the price increases from from 2022.
That all depends also on what happens with raw material prices, but assuming a stable raw material pricing environment.
Kind of our outlook on the price impact going into 2023.
Perfect. Thanks very much.
The next question comes from Ryan Connors of Northcoast Research. Please go ahead.
Hey, good morning, Thanks for taking my question.
Right.
So I wanted to and I apologize if I missed this I know you talked about storm damage, but did you actually give a quantification of the impact of the storm damage in the quarter.
Yes. Good morning. This is this is Randy and I'll take that question and we haven't broken it out Brian but what we can say is as it was up fairly significantly this year versus versus prior years, and we always have some storm damage and it's moved around from the southeast in the Midwest in different years. This was some strong storm activity in the mid west.
Regions, but we haven't broken that out in terms of volume specifically.
Okay and then.
Is that generally a positive or a negative from a mixed standpoint, I mean, those would seem to be.
You know they want to replace those machines quickly. It is the pricing sort of normal for those or is it a little better than that.
Other orders.
It's not a sales type where we attempt to get stronger pricing I would say, there's less competitive pressure on price in those purchase decisions because it's more about timing and how quickly can you get the machine delivered installed and get it irrigate again, so I would say pricing is normal Ryan, but it's maybe less competitive just because timing so.
Important and price is less sensitive at that time got.
Got it.
I wanted to ask about the issue of sort of channel inventories I know center pivots arent necessarily held for inventory by dealers or sort of more made to order but.
In terms of parts and aftermarket supplies, you know theres been a lot of.
Industrial companies talking about Destocking cycles is there anything of note to mention there for you in terms of your parts and aftermarket.
Product.
In our view, there really isn't anything that would be substantial or drive a difference in our results Ryan R. Our dealers don't necessarily stock full machines, we do see some inventory go out in the summer months, just so dealers have it on the shelf if they needed to respond to storm damage very very quickly.
Those machines I would say for the most part have now been delivered and installed but it shouldnt have a material impact on us going forward.
Got it and then one last one.
More of a bigger picture question, but you know the whole issue of water scarcity, obviously very front and center.
You've talked in the past about that being.
Quote unquote good thing for you as long as it doesn't get too bad and water availability becomes an actual problem.
Where do we stand on that spectrum of how bad that's gotten and then also if you could comment on some of these programs that have come out I know the department of interior announced that program to actually pay farmers to reduce water consumption as part of that latest infrastructure Bill. So if you can comment on that as well that'd be helpful.
Sure I'll take that one Ryan.
We're in the middle of our North American regional sales and strategy meetings now. So we spent the last several weeks kind of out with each of our dealers in the North American markets. We've got a similar meeting with our Europe Middle East Africa Channel. This week and are in Europe . So I think we've got a lot of really good day, even if it's anecdotal feedback from our people in the field and I think there is some mark.
So I would put kind of the Panhandle West, Texas and on that list right now, where we've had customers that haven't been able to finish a crop I know theres been some new stories on the impact on the cattle industry as well in that part of the world. That's maybe one where we've seen a lot of stress that could impact.
Enter a week it could impact purchase an implant and the decision is going in to next spring. So that's the one that probably stands out where we see the greatest risk and in the other parts of the country that are pivot markets, where we see drought, we're not quite at a point that theres, a theres a lack of water thats going to prevent them from from planting and finishing our crop next year, but we got.
We continue to watch the acquisition has started in the West it's moved steadily east and if you look at the current drought map. It's it's got a lot of really deep red in the middle part of the country. That's our core market area for us So right now thats. The one area there West, Texas Panhandle of Texas that we see the greatest rest of the rest of the markets. We are we will continue to monitor.
<unk> as far as government support goes we've always benefited us as an industry and I think the government does recognize the importance of conserving and saving water and just a blanket statement really any any program that incent customers to consume less water, while producing food fiber and fuel is going to be good for our for our business.
And they have consistently supported our industry because of the conservation benefits that we can create so any dollars invested in that space.
There's going to be good for us.
Super Thanks for your time this morning.
Alright, Thank you Brian .
The next question comes from Brian Drab with William Blair. Please go ahead.
Hi, Thanks for taking my question.
So first thing here.
Curious if you can give us any additional color on the guidance I mean that.
The guidance commentary I guess my takeaway is that.
You feel the domestic irrigation market is solid but there is some uncertainty.
Internationally.
Potentially stronger driven by food security and.
I'm not sure what to takeaway in the infrastructure.
Segment, I mean, you.
Clearly the infrastructure Bill should should be a positive.
But I don't know if you can comment any more specifically on that and how that might affect fiscal 'twenty three.
And are there any other road zipper projects in the pipeline.
Any more additional like can you talk about growth rates in these segments that you're expecting you've heard.
Directionally.
And any other additional comments on guidance would be helpful.
Okay. This is Brian I'll take that one yes.
Yes, we start with domestic irrigation market again, the positive AG fundamentals that are there some of the drought related.
Impacts, we would expect to see steady demand and probably.
Increase slight increase in demand in our first three quarters of the year I think the fourth quarter with the storm damage that we had this year, we're not going to expect that to continue so when you put that altogether maybe its more.
Closer to flattish year over year from a volume standpoint, but again thats off of a base of a pretty solid demand.
I think the wildcard there is going to be.
And if raw materials go up or down and it has to be reflected in price that would be one thing, but again we're <unk>.
Expecting that environment to be stable when you look internationally in irrigation.
Scott I would say our core developed markets continue to expect to see growth from the solid fundamentals, we do have about $19 million in the first two quarters related to the Egypt order that we are going to have.
Have to overcome.
And I think there is there is ongoing activity in that project market, but thats I would say a little bit of a wildcard on the international side.
Is whether there is another larger projects like the Egypt projects, but.
Core markets again.
Expect in that single single digit type growth coming off a very strong base from this year.
Looking at infrastructure, obviously that large.
<unk> from Massachusetts. This year, we've got some of that rolling over into the into next year.
Sure.
The current pipeline.
Anticipate a similar sized project as well.
Massachusetts next year, but we do have a number of smaller to mid sized projects.
So but on the leasing side, we do expect.
Based on our line of sight today that will have an increase in leasing and then the road safety products.
Benefiting from the additional.
Infrastructure funding Thats out there so the outlook for our infrastructure business I would say is mid to upper single digit type growth for next year.
Okay, that's all very.
Very helpful.
Alright, if there is an echo here in Atlanta on the.
Colin I'm hearing it again, but.
Just a couple of follow up questions to the international I guess at the core markets were.
Single digits.
Does that mean that that.
International irrigation might be might be down actually given the tough comp with the Egypt.
I think.
That might be the case, if we didn't have another project like Egypt, I think based on the.
The activity that we're seeing now we would expect.
That we're going to see additional projects like that we just can't.
It's hard to predict the timing of that.
But there was $19 million of Egypt in the first two borders 'twenty two so.
Okay, and then just to clarify.
Infrastructure segment.
I know you have some tough comps.
With Massachusetts project.
But I think at the end you said maybe up.
Mid single digit or.
Is that is that including the.
The projects had the tough comp with the project or is that kind of the core infrastructure business, excluding any big projects would be.
No that was overall I think.
If.
We may be down a little on the projects. If we don't replace to the full value of the Massachusetts product project, but we're going to be.
We're looking to be up in leasing and up in the road safety products.
Okay.
And then just.
Last question for now.
About 888 to $8 5 million left and that Massachusetts project.
Yes.
Okay.
I'll get back in line. Thank you.
The next question comes from Chris Shaw with <unk> Crespi Hardt.
Please go ahead.
Hey, good morning, everyone. How are you doing.
Yes, correct.
The answer of irrigation.
Margins in the fourth quarter margins were the highest package side.
Even going back to the sort of post drought early.
2011, 2012 period was there anything funky going on this quarter in the margin or is it a replacement parts just that much more higher margin.
Well I think just if youre looking at fourth quarter alone I mean, obviously.
The higher volume that we got from North America, that's not typical in our fourth quarter, that's generally our lowest quarter for North America revenue.
That would be the one anomaly otherwise I would say our fourth quarter margins would be more reflective of where we would expect to be when you look at fourth quarter last year, we did have the LIFO headwind so.
Stronger incremental margins than what you would typically see but that's more because last year was lower than what you'd expect.
Okay can I just ask on.
The storm season.
Was it mostly with the tornadoes I don't remember being a lot of tornadoes or is it just literally like the ratios in our thunder storms and things like that.
Yes, there wasn't a lot of direct tornado hits. These were Midwest storms also they were wind related but a lot of those Chris were straight line winds more more of that through western and central Nebraska and it was really may and June when we saw those storms rolled through the biggest ones. So that's the volume that we really start shipping through our through June and Joe.
Why.
Got it.
On the backlog.
<unk>.
You know that's always a bit of a funky number in itself.
Down over $50 million year over year is that just sort of if mostly reflecting timing of potentially just the not the <unk>.
Last year I think you had some Egypt still on there right. So just could you just talk about it.
Yes, yes, so when you look at it year over year last year, we still had $19 million of Egypt in the backlog.
I would also say.
Junk of the difference is timing because last year in that inflationary environment with a lot of price increases going on both in the U S and Brazil, I think we saw orders pulled up in the backlog earlier to beat the price increases so I think.
Those are the two things that really stand out infrastructure backlog is is up and that's mostly because of the carryover from the Massachusetts project.
Does that just.
Irrigation for exactly that.
Just sort of the I mean.
Outside of a replacement.
Lana conversion volumes had been a bit weaker this year.
That's the.
The farmer really are they are they waiting out the higher prices are are they.
I think it's going to come back it sounds like a little bit.
2023.
Is it.
I'm just curious.
What they what maybe the customer now thanks.
The tire prices, and where they're where they're willing to buy it.
When you look at some of the market research in the area of customer sentiment you certainly see some apprehension related to where pricing has gotten some apprehension connected to where interest rates are going and so you hear that from customers, but we always go back to the payback on our investment in irrigation and were really <unk>.
Fortunate in this inflationary environment that we're seeing strong commodity support and if you've got $6 75, and $6 80, corn your payback on our favorite if youre going to get a 50 bushel lift that payback is still a little over two years, which is what it's been historically, so we don't see a significant shift in the air.
Economic fundamentals of irrigated agriculture, and I think that gives us an advantage maybe over some of the other capital investment decisions that a customer might be making.
Alright, Thanks, a lot great. Thanks, a lot you bet.
The next question is from Brett Kearney with Gabelli funds.
Please go ahead.
Hi, guys. Good morning, Thanks for taking my question.
And Brad Brad.
On the infrastructure side, you guys highlighted and we've heard from some others in the space.
You know what customers I guess.
State municipal level, we're dealing with in terms of getting projects to move forward.
Particularly on <unk>.
Re scoping of projects on the inflation side and then also to some extent labor availability curious based on what Youre seeing in your business. Some initial signs of deflation.
As we look out into next year if.
Are you hearing or expecting you if I guess.
Inflation moderates and <unk> labor frees up a little bit on the construction side could not kind of loosen up some of these projects that have been.
<unk> been hanging out there.
I think that's that's a good prediction bread and I guess inflation stabilizing implying that we're not going to continue to see the sharp increases that we've seen over the last year I think thats certainly going to help I think the other thing is that the money is now being appropriated and actually rolling into the bank accounts of these state organizations.
That are able to now invest the money. So I think there are a couple of things here that have kind of delayed implementation of some of those projects unemployment access to labor access to equipment that builds roads and bridges is something else thats been a bit of a.
Headwind here, so our view would be that a lot of those hopefully get get a lot better in the second half of the year and then as we enter the 2023 road construction season in those northern markets in particular, where we will see a lot of those headwinds have been eliminated and hopefully create opportunity for some ops and good market opportunity.
Great. Thanks, so much Randy Thanks, you.
You bet.
The next question is from Jon Braatz of Kansas City Capital. Please go ahead.
Morning, Randy Bryan.
Alright, John .
Brian I think you mentioned that you met with the North American irrigation dealers recently I guess my question is is.
If this drought continues the way it is.
And do you think it could be.
<unk> pool in terms of purchase decisions.
Going forward are for 2023.
I was wondering if you look back at 2011 2012.
They're really spurred business on.
It's dry out there.
Another couple of weeks, we might be able to walk across the Mississippi River, but.
Is there a possibility of that.
We could see North American revenues being a north American units being a little bit stronger than maybe.
What youre thinking.
There is a possibility John that's for sure and it really it gets back to how significant is the drought and where is the drought and what we saw back in 2013 I was in the North American business at that time is that drove continued east and it moved across Iowa, and it popped up in Illinois, Ohio, and Indiana is it.
Starts to move and continue east. The reality is these investments become much easier to justify if you look at the yield impact in those non traditional these are maybe more supplemental markets for us, but it was non traditional markets the yield impact of having a center pivot irrigation and crop for one year Youre payback could legitimately be one year in some of those markets.
So as that drove continues to move east as it continues to intensify it could certainly open up some of those non traditional market force and create some upside opportunity and we feel we're in a good position when it comes to dealer channel when it comes to technology and innovation those are high motivators for customers in those parts of the.
Country, and we feel like we'd be in a good position if we do start to see more market opportunity there and those non.
Not typical markets, let's say east of the Mississippi.
Is the availability of water.
On aquifer as Ed at all an issue.
It's going to depend on where you are north to south and I can't give you kind of a universal answer that would apply everywhere, but for the most part there are areas if they needed the water either through surface or groundwater they'd have they'd have access to it. So we don't see that being a significant limiting factor if the customers need to irrigate because of the drought.
Say for the most part they're going to be able to find access to available water. Okay. Thank you very much.
Thank you.
Again, if you have a question. Please press Star then one.
The next question comes from Brian Drab with William Blair.
Please go ahead.
Yeah, just one more question on the irrigation segments, given the commodity prices.
Input costs steel primarily have come down.
What is your.
The stance on on what Youll do with price and in the on the center pivots in the near term and throughout you know what.
Would you predict it will happen with price throughout 2023.
Yes, Brian .
I would say right now our view again.
Far as the raw material outlook.
To be overall fairly stable as I mentioned earlier, we did see we have seen some.
Reduction in some of the hot rolled coil prices, but we've had continued inflation in structural steel and other things so.
But our view is let's say we continued to see.
At some point in the year more substantial softening in our raw material costs, our view would be yes.
And a strong demand environment, we should be able to hold onto price.
And that would be our view at some point, if we have to respond to competitive <unk>.
<unk>, we would do that but our view is as you know.
Right now, we've got an opportunity to maintain our price.
And you have not lower price.
That correct, even given with any of the recent pullback in commodity.
No.
That's correct and in fact as <unk>.
As recently as September 1st we implemented an additional I would say modest price increase.
But we have not lowered price at all.
Got it thanks very much.
This concludes our question and answer session I would now like to turn the conference back over to Randy Wood for closing remarks.
Thank you all for your interest and participation today, we're very pleased with fiscal 2022 results and look forward to carrying that momentum into fiscal 2023.
The infrastructure segment continues to be supported by incremental funding provided by the infrastructure investment and jobs Act. The irrigation segment continues to see strong drivers connected to high commodity prices in international project demand offset slightly by rising input costs may have a detrimental impact on customer sentiment.
<unk> provided by an investment in an irrigated agriculture will continue to support strong markets around the world.
Both segments benefit from strategic investments in technology, and innovation that improve customer profitability, while conserving resources and making our roadways safer.
This concludes our fourth quarter earnings call. We look forward to updating you on our continued progress following the close of our fiscal 2023 first quarter. Thanks for joining us.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.