Q3 2024 Lindsay Corp Earnings Call
Hello, and welcome to the Lindsay Corporation fiscal third quarter 2024 earnings Conference call, all participants will be in listen only mode.
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I would now like to turn the conference over to Randy Wood, President and CEO of Lindsay Corporation. Please go ahead.
Randy A. Wood: Thank you and good morning, everyone welcome to our fiscal 'twenty 'twenty four third quarter earnings call with me today is Brian Ketcham, our Chief Financial Officer.
Our fiscal third quarter was highlighted by steady execution, which resulted in strong operational performance. Despite market headwinds that impacted topline revenue, we announced key project win in irrigation and continue to be pleased with the growth of our road zipper sales and lease business and infrastructure I'm proud of our teams and their execution.
Turning to our key end markets.
In North America irrigation market conditions continue to weigh on farmer sentiment, resulting in overall demand softness high precipitation levels in wet field conditions across the Midwest contributed to lower year over year sales of irrigation equipment and replacement parts in that region, while we experienced volume growth in the west and northeast regions.
We did see higher than expected storm damage activity that hit the Midwest in late April and early May however, delays in insurance approvals and what fuel conditions shifted most of that demand into our fiscal fourth quarter.
And international irrigation, we've continued to see a decline in Brazil due to suppressed commodity prices and limited access to capital ultimately tempering overall demand in the short term tragic flooding in the South is also hindered order activity in that region.
Randy A. Wood: We did see strong customer turnout in quotation activity at recent farm shows and expect to see this year's crop plant in early July that will start funding levels and finance rates for this coming season.
Zero in other key South American agriculture markets remain dramatically underpenetrated for mechanized irrigation and the value created by irrigated agriculture will support long term growth in this region. We were pleased to host a delegation of our farmers and government officials for Mato Grosso state in the quarter. There were one of several regions in the country that continue to investigate ways to improve production to Andy.
Randy A. Wood: You can see with center pivot irrigation and irrigation technologies like field man.
And the mid East and North Africa region, we were pleased to announce we've been awarded a contract valued at over $100 million the largest in our company's history. This will provide efficient water management and technology solutions that maximize production conserve valuable and scarce resources and expand the region's potential this project executed with a repeat customer.
Builds upon our track record in the region and serves as a great example of Lindsey ability to execute large scale and complex projects that address the critical needs of our customers while timing is difficult to predict we're still managing an active funnel of opportunities and expect these types of projects will be an important part of our growth strategy moving forward.
Moving to infrastructure.
Randy A. Wood: As I mentioned in my opening remarks, we are encouraged by the growing strength and momentum in this business. Our overall profitability continues to benefit from the strong growth of our road zipper system sales and leasing revenues a positive outcome, resulting from our shift left strategy.
As discussed previously we anticipate our infrastructure business will benefit over time as the U S infrastructure spending increases under the infrastructure investments and jobs Act. We've also only recently seen this funding, Florida market and believe we are in the early stages of a multiyear growth trajectory for domestic infrastructure spending with additional promising opportunities globally.
Turning to innovation and technology.
In May we released significant enhancements to our industry, leading field map, our global voice of the customer process was used to collect feedback on features and the customer experience. This resulted in an operating platform that provides growers with additional insights to optimize their planning and conserve energy and water resources, while maximizing yield. We were also pleased to be part of a generative AI.
Randy A. Wood: Pilot developed by Bayer This will allow growers to seamlessly integrate their data from fuel Mac with the Bayer platform. The pilot also accelerates the development of digital tools that can serve water resources and highlights the importance of including water management and these AI driven agronomic tools I'm very proud of our team's efforts to support more sustainable farming practices by enhancing our.
<unk> and expanding our partnerships to maximize the value of our mechanized irrigation solutions.
Shifting to our operational footprint.
Earlier this year, we announced our intention to invest over $50 million to modernize our facility in Lindsay, Nebraska as part of our operational excellence strategy that work has started and we look forward to updating you on our continued progress.
I'd now like to turn the call over to Brian to discuss our third quarter financial results Brian.
Thank you Randy and good morning, everyone.
Consolidated revenues for the third quarter of fiscal 2024 were $139 $2 million, a decrease of 15% compared to $164 $6 million in the prior year third quarter.
An increase in infrastructure segment revenues was more than offset by lower irrigation segment revenues.
Net earnings for the quarter were $24 million or $1 85 per diluted share compared to net earnings of $16 $9 million or $1 53 per diluted share in the prior year.
The impact of lower revenues and lower operating income was favorably offset by an increase in interest income and favorable foreign currency translation results compared to the prior year along with the record in recognition of an income tax credit in Brazil of $4 $8 million in the current year.
Turning to our segment results irrigation segment revenues for the quarter were $114 $8 million, a decrease of 19% compared to a $142 $6 million in the prior year.
Randy A. Wood: North America irrigation revenues of $68 $2 million decreased 9% compared to $75 million in the prior year.
The decrease resulted from a combination of lower unit sales volume of irrigation equipment lower sales of replacement parts and a slightly lower average selling price compared to the prior year.
In international irrigation markets revenues of $46 $6 million decreased 31% compared to revenues of $67 $5 million in the prior year.
The decrease resulted primarily from lower revenues in Brazil, and other Latin American markets, while demand in other international markets remained stable overall compared to the prior year.
And Brazil order activity remains constrained due to the impact of lower commodity due to the impact of lower commodity prices have on grower profitability in available liquidity, which is reducing growers' ability to invest in irrigation equipment in the near term.
Irrigation segment operating income for the quarter was $19 5 million a decrease of 36% compared to the prior year and operating margin was 17% of sales compared to 21, 6% of sales in the prior year.
Lower operating income and operating margin resulted mainly from lower revenues and the resulting impact of from deleverage of fixed operating expenses.
Infrastructure segment revenues for the quarter were $24 $4 million, an increase of 11% compared to $22 million in the prior year.
Randy A. Wood: The increase resulted from higher road zipper system sales and higher lease revenues compared to the prior year.
The impact of higher sales of road safety products in the U S was offset by lower sales in international markets compared to the prior year.
Randy A. Wood: Infrastructure segment operating income for the quarter was $6 $3 million, an increase of 76% compared to $3 $6 million in the prior year.
Infrastructure operating margin for the quarter was 25, 8% of sales compared to 16, 2% of sales in the prior year.
The increase in operating income and operating margin resulted from higher revenues and a more favorable margin mix of revenues with higher road zipper system sales and lease revenues compared to the prior year.
Randy A. Wood: Turning to the balance sheet and liquidity, our total available liquidity at the end of the third quarter was $202 $7 million, which includes $152 $7 million in cash cash equivalents in marketable securities and $50 million available under our revolving credit facility.
Speaker Change: Our strong balance sheet and our ample access to liquid capital resources continue to serve as a strategic asset for Lindsay as we execute our capital allocation strategy to create enhanced and sustained value for our shareholders.
During the quarter, we completed share repurchases of $17 $9 million.
Going forward, we will continue to be opportunistic in regard to capital deployment balancing organic and inorganic investments along with returning capital to our shareholders.
This concludes my remarks and at this time I'll turn the call over to the operator to take your questions.
We will now begin the question and answer session.
Speaker Change: To ask a question you May press Star then one on your telephone keypad.
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At this time, we will pause momentarily to assemble our roster.
Okay.
The first question is from Ryan Connors with Northcoast Research. Please go ahead.
Good morning.
Right right.
I wanted to start off with discussing the top line a little bit in irrigation and is there any breakdown you can give us on both.
North America and international with regard to volume versus pricing was all that decline really on the volume side or are there some dynamics to be aware of there on the pricing side as well.
Speaker Change: Yeah Ryan.
Starting with North America irrigation that 9% year over year decline I would say, probably 7% to 8% of that is a combination of pivot volume and parts volume and the rest of it would.
It would be price and mix I would say that.
Average selling prices driven somewhat too by the MC.
A mix of these machines and we did have smaller machines. So I would say price wasn't a big impact in domestic irrigation during the quarter when.
Speaker Change: When you look at the international side, 31% down year over year, Brazil.
Is it was probably down just slightly more than that year over year and I would say most of that is volume, but we are seeing.
More aggressive pricing in Brazil, just especially when it's on.
Larger.
Project opportunities there, but most of that decline is volume.
Okay, and then when you say aggressive pricing is that more <unk>.
Discounts being offered that there are sort of short term in nature or are those actual like list price changes.
Yeah, No list price changes I would say it's just.
When you're quoting let's ask six or seven system project.
We have seen aggressive pricing in those situations and so in that case, we will respond obviously, but I wouldn't say, it's widespread but when you look at the.
Our total.
Irrigation business I'd say, Brazil is where we're seeing the most aggressive pricing.
Speaker Change: Understood.
More on for me on.
Lindsay: Operational improvements and Lindsay.
What is the return on those investments in other words, what do we expect from a margin benefit standpoint in terms of both the timing.
And do we need the volume recovery to unlock that or should we see some margin benefit from those investments regardless of where volumes trend in the next 18 months.
Yeah, I would say in the next.
12 to 18 months is probably more pressure on margins than actual improvement just as we deal with the some of the inefficiencies of working through the capital investments there I would say in the mid term more of a stable margin situation. Because we've got we'll have the additional depreciation that will offset some of that.
Productivity improvements, but for us I think that the biggest thing is the ability to react to market changes, both up and down without really having to.
Flex the labor like we have in the past and incur the additional.
Head count in overtime and things like that so it just provides less reliance.
On the labor through the additional automation and things like that.
Got it okay. Thanks for your time.
Okay.
The next question is from Jon Braatz with Kansas City Capital. Please go ahead, good morning, Randy Bryan.
Alright.
If we sort of look ahead into 2025 2025 with this with this big International order.
We might see international revenue irrigation revenues in excess of domestic or North American revenues irrigation revenues.
How might that impact.
Speaker Change: The margins of the you know the operating margins for the irrigation segment and in addition to that how might that influence the tax rate as we look forward.
Bryan: Yeah, John this is Bryan.
As we've said in the past you know a large project like the one we announced is generally going to be dilutive to margins just because of the competitive nature of that.
You know I'd say.
Setting that aside the day.
Domestic and international operating margins have have gotten a lot closer so the international growth Shouldnt have a dilutive effect, but the project business would have some.
Speaker Change: Uh huh.
Okay, what about what about on the on the tax tax rate front with more international revenues, yes tax.
Bit of a mixed bag.
This project business coming out of our facility in Turkey, which is in a.
Tax free zones, so that definitely benefits the tax rate anything that we have growth in Brazil or other market is going to be at a higher tax rate than what we have in the U S.
Okay, Okay, Okay, and Brian what was the nature of the income tax credit.
Speaker Change: What was that.
What was behind that.
Yeah, not not going to get into specifics just because of the complexity of the tax adra. Please [laughter], but.
Yeah. It was I would say it was that a retroactive benefit.
As a result of a deduction that Ted there were some ins uncertainties regarding it in the past that were resolved during the quarter. Okay. So it's really not anything that's going to be carried forward as more of a onetime issue during the quarter. Okay. Well one last question, Randy you talked a little bit about.
Farmer sentiment in Brazil are obviously theres some difficulties this year with lower prices and flooding and so on.
And.
You're seeing I guess, there's some.
Farm farm shows at this point now in Brazil.
And do you think do you think there is sentiment sentiment for capital equipment purchases.
Might improve over.
Over the and in the near term or is the sentiment are just sort of a depressed for a while.
Yeah, John I think there is theres a lot of growers, they're really waiting to see what this year's crop plan looks like and we do expect to see that in early July I was optimistic based on some of the discussion in quotation activity that we saw at the shows but a lot of those customers, they're going to be on the sidelines until they know what the government program looks like.
And if it if it operates as it has in previous years, there is going to be a big rush of applications that got to work themselves through the system.
It's also a market if we look at our fourth quarter last year. They they set record revenue in the fourth quarter of last year, I think it's going to be tough to match that or exceed that based on what we've seen kind of moving into the quarter, but I think we are seeing stability I'm not sure that I see significant further decline in farmer sentiment there.
Bouncing along at the rate that would may be seen for the last quarters, but but right now it's really about what is that crop plan look like for this year how much funding in total is going to be allocated what's the finance rate, what's the gap between the Selic rate. There you know public market rate in the program right. So we've got customers that we know are interested in investing in irrigation.
We've got specific quotations and customers pieces of land that we're working on and I think it's a matter of how how quickly that program money is available how quickly it's consumed but we'll know more as we kind of ended our fiscal year here or do you think the Brazilian funding program will will be announced in June this year.
I think it was June last year wasn't it.
We would expect it and hopefully in the first half of July Okay, Alright, alright. Thank you.
You bet John.
The next question is from Nathan Jones with Stifel. Please go ahead.
Good morning, This is Adam Farley on for Nathan.
Morning.
Hey, good morning on infrastructure could you provide an update on the road zipper system project sales pipeline.
Like that's trending up over time do you expect any additional road zipper system project sales to convert in the near term.
Speaker Change: Yeah, Adam this is Brian.
We've talked before we do have better line of sight into some of those projects and it's it's more active I would say and we see projects I would say, we see projects exiting the funnel over the next.
Yeah.
Four quarters.
Okay, and then in the broader.
A lot of funding for road projects during the summer months are you seeing an uptick in funding for roads.
Are you seeing any funding.
Bobby starting to flow.
Yes, we are I think we kind of mentioned that in her opening comments. It. It took some time and I'm talking to others in the same space involved in roadway construction. It has taken some time, but we are seeing it now.
Significant portion of that unfortunately is getting eaten up by inflation, we're hearing that from some of the customers, but from our perspective, even the lease growth that we're seeing in road zipper that that's a good early indication that road work is happening usually the road safety assets kind of come behind that is the project finishes up. So we're pleased that the money is making it to market, it's maybe not.
As impactful as we would've hoped due to inflation, but it does give us some stability and predictability in that infrastructure revenue stream.
Okay. Thank you for taking my questions.
Thanks Sam.
Speaker Change: The next question is from Brian Drab with William Blair. Please go ahead.
Hi, Good morning, Blake on for Brian.
I just wanted to ask you mentioned the storm activity in the domestically in North America that had pushed demand into your next fiscal quarter can you just remind us.
How.
Speaker Change: How storm activity typically impact your business.
Speaker Change: From quarter to quarter and based on that from a top line perspective.
It's it's really variable depending on the severity of the storm season, and I would say in North America. It was it was I hate to describe it. This way it was a slow start to the storm season. So we didn't see.
Anything significant worthy of mention we did have those those storms are kind of went our right around to Omaha, and then through eastern Nebraska, Kansas other parts of the Midwest. So it was a little higher during that window than what we've seen in previous years and it's really once once the storm grows through the dealers or are working aggressively with the customers the insurance companies and adjusters are out so.
There is some some time and delay, but we did like our dealers' ability to get out there and get on a lot of those really early and get our customers up and work and so I think we'll have more clarity when we get through the fourth quarter. We can talk more specifically about what we saw in terms of trends up or down in and storm activity.
Got it understood and then just lastly, I wanted to ask about the pivot.
In the international project and your attachment rate for field.
Beyond that.
Speaker Change: And just trying to understand what the big projects do they usually attached deal met or are they just gone to the mechanized irrigation.
That works and then maybe how it compares to domestic field that attachment rate.
Yes, so I'll start with domestic right now every new pivot we ship is a field that ready. So every new machine goes with field, Matt with the first season complimentary use and retention rate on that platform as it is north of 97% and in the customers. We lose are really customers that stopped farming or had rented fields that are no longer in.
Speaker Change: The rotation so that the attach rate is 100% when it leaves the factory and we're keeping you know more than 97% of those customers on the platform internationally. We have seen I would say a shift in recent years and then if you go back five or 10 years a lot of those projects didn't include the technology, but I think they're really seeing now with with the scope and scale and <unk>.
Are these projects, it's really tough to manage hundreds or thousands of pivots without some form of automation being motivated by by energy and water conservation.
It's really changed the game in a lot of those projects. So right now we do see tools like field Matfield adviser being applied in those projects and again once you start farming growing operating with that type of a tool. It's sorry, it's nearly impossible to give it back. So I think it's a key differentiator for us and our ability to help our customers manage these large projects and weed.
Expect to see continued growth there.
Got it I will pass it along thank you.
<unk>.
Again, if you have a question. Please press Star then one.
Speaker Change: The next question is from Brett Kearney with American Rebirth opportunity partners. Please go ahead.
Hi, guys. Good morning, Thanks for taking my question.
Hi, Brad.
Great to see the pickup.
Jay funds starting to make their way through the system. Randy I think you mentioned potential opportunities and some of the international infrastructure markets you participate in any comments you could provide.
Road Zipper project.
Opportunities internationally as well as on the leasing side as well.
Sure and I think there is a couple of specific markets and maybe say you know traffic congestion as traffic congestion that it doesn't matter where you are in the world. If you want to keep your workers safe and a construction zone. It doesn't matter where you are in the world. So I think that the value that we've seen from our longstanding penetration here in North America that same value those same benefits.
Speaker Change: Extend into the international markets and now that we've placed key strategic resources in different parts of the world, where we're able to be more more visible I'll spend more time with our customers and really talk about and demonstrate the value of what road zipper can do we talked about the big project in the U K that got US a lot of visibility we've talked in different times.
Big installation in Japan, with a lot of their road and Enbridge management projects. So we're heavily penetrated there we've got a lot of work going on now in Italy, and there are a lot of these markets, we start with that with a small pilot proof of concept and again, it's kind of like film at once the customers understand what the road zipper does the safety improvements they can.
Make the ability to manage traffic flow.
It just grows from there. So we are pleased to again the resources, we put internationally. The success. We've demonstrated internationally, that's going to be a big contributor to growth going forward.
Thanks, Glen and then if I could sneak one last one in great to see the opportunistic share repurchases and the share.
Share repurchases in the quarter.
Do you think about the robust multi year opportunity in front of me both of your businesses.
Can you help me understand the hurdles that any potential M&A would have to clear relative to the value.
In purchasing your own shares.
Yeah, I'll just start first of all with the share repurchase that we did make during the quarter in <unk>.
We looked at where our share price had been trading and when you look at our cash position and we look at other opportunities to deploy cash we felt like it was really good buying opportunity for us So and we've got the obviously the balance sheet to be able to do.
Execute all of our various capital allocation priority so.
Speaker Change:
Speaker Change: As we as we go forward I mean share repurchases is something that again as the opportunity presents itself, we would continue to do that.
Speaker Change: But we also have an eye on what the.
Speaker Change: Organic growth opportunities.
<unk> Lindsey investment as one and we've talked about.
Investments in Brazil, and Turkey in the past, but M&A is definitely an area that.
As part of our.
Gross strategy.
We don't.
We don't anticipate.
Backing off from that at all.
Great. Thanks, very much Brian.
Thank you.
This concludes our question and answer session I would like to turn the conference back over to Randy would for any closing remarks.
Okay.
Thank you all for joining us on today's call. We're pleased with our team's progress year to date and look forward to strong execution for the remainder of the year.
In irrigation are project sales strategy is working and we're winning and delivering complex international projects being a global company is a strength. When this revenue is helping to offset softness in the north American and Latin American markets and infrastructure, we're actively managing our funnel of opportunities and see continued growth in our leasing business contributing to margin performance and technology.
Our strong balance sheet allows us to continue investing and growing as evidenced by our recent acquisition of field wise and a strategic investment in personal instruments, our ability to enhance shareholder returns has also been exemplified this quarter by our recent share buybacks.
This concludes our third quarter earnings call. We look forward to updating you on our continued progress following the close of our fiscal 2020 for fourth quarter. Thanks for joining us.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Yeah.
Speaker Change: [music].