Lindsay Corp
NYSE:LNN
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Lindsay Corp
Earnings Call Analysis
Q1-2024 Analysis
Lindsay Corp
Lindsay Corporation starts the fiscal year 2024 with President and CEO Randy Wood acknowledging the positive impact of its business strategies and its focus on stakeholders that continues to drive shareholder value while adhering to its purpose of conserving resources and enhancing life quality.
The company experienced growth in the North American irrigation markets due to stable demand supported by favorable commodity prices and U.S. net farm income. Orders increased as farmers' profitability became clearer post-harvest, aligning with the company's expectations from the previous year's spring selling season.
Internationally, revenues dipped, particularly in South America and Brazil, owing to changes in the BNDES financing program affecting order confirmations. Despite year-over-year declines, the company's performance in the international market remains strong relative to the last year's record numbers and does not expect substantial impact on full-year results.
The infrastructure segment sees an upswing from an increase in Road Zipper System leasing and sales of road safety products, which compensates for decreased sales in other areas of the segment. The infrastructure spending driven by IIJA in the U.S. contributes to this positive trend, although project implementation forecasting remains uncertain.
With the successful integration of the FieldWise acquisition and the addition of new dealers, Lindsay Corporation is broadening its technology reach. The new RoadConnect platform, focused on roadside asset monitoring, secured its initial commercial sale, marking the platform's favorable market reception and potential for future revenue growth.
Lindsay Corporation ended the first quarter with consolidated revenues of $161.4 million, a decrease of 8% from the previous year. Net earnings stood at $15 million or $1.36 per diluted share, down from $18.2 million in the prior year. The decline primarily reflected weaker international irrigation performance and a less favorable mix of shorter machine sales in North America. The irrigation segment saw revenues decrease by 8% to $140.2 million, with North America up 7% offset by a 25% decrease internationally. The infrastructure segment decreased by 12% to $21.2 million, but operating income increased to $3.6 million, a 7% increase. Overall, Lindsay holds a strong balance sheet with total liquidity of $225.7 million, positioning the company as financially robust and resilient.
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Hello, and welcome to the Lindsay Corporation Fiscal First Quarter 2024 Earnings Conference Call.
[Operator Instructions]
After today's presentation, there will be an opportunity to ask questions.
[Operator Instructions]
I would now like to hand the call to Randy Wood, President and CEO. Please go ahead.
Thank you, and good morning, everyone. Welcome to our fiscal 2024 first quarter earnings call. With me today is Brian Ketcham, our Chief Financial Officer. I'd like to start by once again recognizing our dealers, partners and employees around the world for their contributions. Their focus on our customers and execution of our business strategies continues to generate positive results for our shareholders while supporting our purpose of conserving natural resources, expanding the world's potential and improving quality of life. I continue to be very appreciative of the job they're doing.
Our fiscal first quarter was highlighted by growth in our North American irrigation markets and improved operating income and margin capture on infrastructure segment, driven primarily by growth in Road Zipper System leasing. In North America, demand for irrigation equipment was improved over the prior year first quarter as commodity prices in U.S. net farm income have continued to support stable demand in our North American end markets. We experienced increased order activity as grower profitability became more transparent following harvest season. This was expected and is consistent with the wait-and-see approach we discussed coming out of last year's spring selling season.
Moving to international irrigation. Our key end markets remain healthy, although revenues for the quarter were lower in South America, particularly Brazil. Despite being down year-over-year, our results remain quite solid, particularly when compared to the record-setting international revenues captured last year. Specific to Brazil, the FINAME financing program offered by BNDES was modified this year to distribute funding and quarterly increments.
Ultimately, this caused some short-term disruption to our order confirmations in the period and while this impacted our quarterly results, we do not believe this will have a significant impact to our full year results in the region.
Moving to infrastructure. While we're still very much in the early stages of deployment, we are beginning to see the positive impact of IIJA-driven U.S. infrastructure spending. We continue to see solid growth in Road Zipper System leasing and sales of our road safety products in the quarter, which largely offset the softer Road Zipper System sales and project activity in the period. As a reminder, last year's fiscal first quarter carried the tail end of revenues from the large project in Massachusetts. Road Zipper lease revenue continues to represent a greater proportion of our consolidated infrastructure segment revenues. This sales mix remains accretive to Lindsay's overall margin profile. We also continue to actively manage projects through our Road Zipper sales project funnel. However, timing and project implementation remains challenging to forecast.
In the area of technology and innovation, I'd like to highlight a few key items this quarter. The integration of the FieldWise acquisition is going very well and we're pleased that we've continued to add dealers to our distribution channel. This is a key element of our technology growth strategy and it expands our access to the installed base of competitive brands. We're also pleased to record our first commercial sale of our new RoadConnect platform in the quarter. This roadside asset monitoring technology has been well received by the market, and we expect to see growth in both device and subscription revenue going forward. I'd now like to turn the call over to Brian to discuss our first quarter financial results. Brian?
Thank you, Randy, and good morning, everyone. Consolidated revenues for the first quarter of fiscal 2024 were $161.4 million, a decrease of 8% compared to $176.2 million in the first quarter last year. Net earnings for the quarter were $15 million or $1.36 per diluted share compared to net earnings of $18.2 million or $1.65 per diluted share in the first quarter last year.
Turning to our segment results. Irrigation segment revenues for the quarter were $140.2 million, a decrease of 8% compared to $152.1 million in the first quarter last year. North America irrigation revenues increased 7% to $89.4 million compared to $83.9 million in the first quarter last year. The increase in North America irrigation revenues resulted primarily from higher unit sales volume that was partially offset by the impact of a less favorable mix of shorter machines compared to the prior year first quarter.
Average selling prices remained stable and were comparable with the first quarter last year. In international irrigation markets, revenues of $50.8 million decreased 25% compared to record revenues of $68.1 million in the first quarter last year. The decrease resulted primarily from lower sales in Brazil and Argentina compared to record sales in those markets in the first quarter last year. Changes in the timing of funding under the financing program in Brazil that Randy mentioned and the government transition in Argentina following the recent presidential election, both contributed to lower sales in the quarter.
Total irrigation segment operating income for the quarter was $25.3 million, a decrease of 12% compared to the first quarter last year. And operating margin was 18.1% of sales compared to 18.8% of sales in the first quarter last year. Lower operating income and operating margin resulted primarily from lower international irrigation revenues and the resulting impact from deleverage of fixed operating expenses. Gross margin remained consistent with the first quarter last year.
Infrastructure segment revenues for the quarter were $21.2 million, a decrease of 12% compared to $24.1 million in the first quarter last year. The decrease resulted from lower Road Zipper System sales with the prior year first quarter, including $8 million of project sales that did not repeat. The impact of lower Road Zipper sales was largely offset by growth in Road Zipper lease revenue and higher sales of road safety products compared to the first quarter last year.
Infrastructure segment operating income for the quarter was $3.6 million, an increase of 7% compared to $3.4 million in the first quarter last year. And infrastructure operating margin for the quarter was 17.1% of sales compared to 14% of sales in the first quarter last year. The increase in operating income and margin resulted primarily from a more favorable margin mix of revenue with higher lease revenue compared to the first quarter last year.
Turning to the balance sheet and liquidity. Our total available liquidity at the end of the first quarter was $225.7 million, which includes $175.7 million in cash, cash equivalents and marketable securities and $50 million available under our revolving credit facility. Our strong balance sheet and our ample access to liquid capital resources will continue to serve as a strategic advantage for Lindsay. As we continue to execute our capital allocation strategy to create enhanced and sustained value for our shareholders.
That concludes my remarks. And at this time, I'd like to turn the call over to the operator to take your questions.
[Operator Instructions]
Today's first question comes from Brian Drab with William Blair.
This is Tyler Hutin on for Brian Drab. Yes. I just want to start, I appreciate the color on the South America irrigation situation. Has there been any other impact on international irrigation shipments due to geopolitical tensions or other factors?
If we look at a year-over-year basis, Tyler, I wouldn't say there's anything that's moved the needle significantly one way or the other. If we focus on the quarter that the big shift was really in South America for the reasons that we've cited.
Got it. And then on the previous call, you mentioned that some irrigation projects could be dilutive and infrastructure projects could be accretive. Can you just give some details on how those scenarios typically could play out in the future?
Yes. I mean I think on the infrastructure side, I'll start there. The Road Zipper project side, which we haven't had any significant projects since we had the first quarter last year. But those are typically going to be higher-margin kinds of projects. And I would say what we've commented on before there is post-pandemic once we've been able to reengage with some of the municipalities, government entities that are in charge of these projects. It's taken some time to get reengaged with them.
And I'd say our commercial team over the last few quarters has made some really good progress, and we've got line of sight to moving some of these projects forward. On the international irrigation side, again, line of sight to a lot of projects. It's been an active market, a lot of quoting activity. The challenge there is, part of it is access to capital, access to U.S. dollars in some of the markets, but we still remain confident that we'll see project activity coming out of both irrigation and infrastructure.
Yes. And just a final question. Just when it comes to data analytics in the field, I saw some articles about farmers maybe having like too much data or information overload. Just how do you and the dealers approach farmers like that and convince them that these solutions are optimal for their operations? And that's all I have today.
Sure. And I'll take that one, Tyler. I would agree that there's a lot of data available to our customers and being able to convert that data into insights that they can use to manage their operation is really important. And we really focus on our core, and our core is irrigation and water management. So our tools are very deliberate, very focused and purpose-built to help them manage water and energy to deliver water in the most efficient means possible.
So we're not going outside of our core to try and bring more to our customers. We're really focusing on that irrigation and water management core. And the feedback we're getting from customers is that's exactly what they need. When we look at the retention of our digital tools of north of 97% that customers say, once they start with our platform, they couldn't farm, they couldn't irrigate without it. So I think the direction that our teams are heading the right direction, and I think that's confirmed with customer feedback and growth we continue to see in those technology platforms.
The next question is from Nathan Jones with Stifel.
I want to go to Brazil, Argentina. You've had some challenges in, I mean, particularly in Brazil. Government changeover, there was FINAME financing that wasn't available for a while. Now they're shifting around the way that's happened. It seems like Brazil has been down pretty significantly, at least 3 of the last 4 Quarters.
So you should have some pretty easy comps coming up. Does that lead to the expectation that we should see pretty significant year-over-year growth for the next few quarters out of Brazil especially? Or is there enough uncertainty in the way the FINAME financing is going to come out for you to not be confident enough to say that?
Yes. I think obviously, the last, you said, 3 out of 4 quarters, we did have a, yes, strong fourth quarter in Brazil once that FINAME financing became available for the first quarter. But financing continues to kind of keep a lid on the demand there in some respects. There's a lot of dependence on that government program because of the difference in the rates compared to the commercial rates. But having said that, what we've seen the last 4 or 5 months is the central bank rates in Brazil have come down about 200 basis points. They're expected to come down another 50 basis points in January.
So we're seeing more availability of commercial financing through commercial banks outside of FINAME, which I think is another positive. But the demand environment in Brazil is still strong. I would say it's just the financing plays a key in some of the timing, and we're seeing that in the first quarter this year.
Obviously, some issues in Argentina, what's the relative size for you guys between Brazil and Argentina? Is Brazil significantly bigger?
We haven't broken that out specifically, Nathan, but your instinct is correct. Brazil would be significantly more impactful to us than Argentina in terms of market size.
Got it. And then I just wanted to go back to the domestic business. I thought that growth year-over-year in the first quarter was pretty encouraging. Crop prices have been on the decline through 2023, which all else equal, would suggest that farm income will be lower in '24 than it was in '23. There's obviously some offsets with that -- with crop inputs and financing costs and all those kinds of things. Is it reasonable to think that farming comes down in '24 and that should probably lead to domestic irrigation down in 2024? Or is that no way you're thinking about it at this point?
I think at a macro level, obviously, I think your logic walks based on history Nathan. I think the -- namely this coming year in 2024, if you think back to where we were Q2, Q3 of last year, we talked a lot about customers taking that wait-and-see approach that they were waiting for interest rates to come down, waiting for inflation to stabilize, waiting for pivot prices to come down.
Right now, we see a lot more stability. So just the fact that we think we'll -- we won't see that -- those delayed purchase decisions. Just a more normalized seasonal order pattern next year will offset some of that market softness and maybe some of those end-of-year machines and first quarter machines that we saw this year, we're going to see that more naturally in the second and third quarter next year. But I think it will be difficult to predict some significant upside in the market just because those fundamentals related to farm income and crop prices and their impact on customer sentiment. It'd be tough to see line of sight to significant growth. But I think, again, with the comps that we have, particularly year-over-year for Q2 and Q3, we don't see the market falling apart either. And farmers are profitable...
The next question comes from Brian Wright with ROTH MKM.
Just wondered -- one more on the Brazil situation. Given the dryness in Mato Grosso and hearing that it could be a game -- still a game time decision come February and March for the safrinha season as far as finding a vectors, is that -- like should we be thinking about that as a positive backdrop as far as to control and why your commentary on the strong kind of quoting levels that you're seeing?
I think the weather there, and that's going to be obviously the biggest market for that safrinha second season crop. And if there is some risk to terminating a crop, maturing a crop, irrigation obviously, is going to offset some of that risk. So we would view that as a potential tailwind to the continued market opportunity in Brazil. But as Brian mentioned earlier, it's going to be about access to capital. And do they -- have they sold the first crop and then the cash flow they need to go into the second and potentially the third crops in some parts of the country.
So there's certainly some good macro tailwind there. But we're -- they still have to get access to funding. And again, the FINAME program is going to be supportive. We're seeing the central bank rate continue to drop, and that's going to be supportive of financing. So we do see that as some potential upside.
Okay. And then I guess a follow-up there has been talking to Brazil about putting together an incentive program to -- for the conversion of pasture land to cropland. Just -- is there kind of any headwind or headway that's been made on regulatory or legislative front on that in the past?
In our view, not a lot that would be actionable in the near term.
Okay. Okay. Great. And then just a real quick balance sheet question. Marketable securities were up pretty nicely sequentially up to over $10 million in the quarter. Just -- what kind of securities are you buying there?
These would be high-grade commercial paper or other things where -- and generally, it's going to be beyond 90 days, but 6-month maturities or so. But an opportunity to get some additional rate interest income. So it's just a little bit of an allocation of cash from compared to where we were at the end of the calendar year.
Okay. Great. And then I guess one last one, if I could. Inventory picked up a bit sequentially in the quarter. Just thoughts on that?
I would say it's mostly going to be a seasonal kind of a thing as we get into the main selling season in North America. That's probably the biggest driver of the increase. And if you go back to 2023, we -- over the course of the year, we reduced overall inventories about $40 million. So a slight uptick in the first quarter is really more of the seasonal nature of the business.
Okay. Great. That bodes well for North America in next quarter. So that's great. That's all I've got.
[Operator Instructions]
The next question comes from Jon Braatz with Kansas City Capital.
Randy, Brian, on the domestic international front -- domestic irrigation front, how does the demand profile vary per region, Midwest versus maybe Southeast, Northwest. Are you seeing any significant difference in sort of the demand picture by geography?
Yes, Jon, this is Brian. What we saw in our first quarter was really demand increase in almost all of our regions. We're seeing in the Southeast and mid kind of that -- Great Lakes region, which -- Great Lakes region typically has been more of a supplemental irrigation market, but we've seen nice growth there. We've seen it in the corn belt in the Midwest. So I'd say first quarter, it's really been pretty broad across all the regions.
Is there something specific in the Great Lakes area that may be driving a different profile there from the past?
There's probably a couple of things, Jon. It's a pretty big seed corn area. And we see seed corn growing there, and it's mandatory to irrigate that crop and really just shifting climate patterns, and we've talked a lot here about what customers have to invest in a crop to put it in the ground. That's really some cost if they don't get water. So I think just the risk management and the yield enhancement benefit of irrigation it's driving a lot of investment in that part of the world.
Okay. Brian, it looks like maybe you're selling prices are sort of flattish year-over-year, and I suspect it might continue to be that way. But we're all seeing higher costs, maybe not as significant as we've seen in most -- in the past couple of years. But when you look at the cost pressures on your business, how is that -- do you think you'll be able to offset those cost pressures with productivity? Or is there going to be a little bit of impact on your margins because of some rising costs?
Yes. I think we have seen steel from November to December, the CRU for hot-rolled coil has gone up 25%. I mean, it has softened a fair amount going back into 2023. So structural steel continues to maintain at a higher level. But I'd say where we're positioned now. I mean I think steel is kind of the biggest variable. A lot of the other inflation has kind of abated a bit. But we expect -- I think if you go back to probably last quarter, I mean, maybe the view was we would have to give price back if raw materials softened, but we're not seeing that situation today. I think where raw materials appear to be headed is -- would be supportive of maintaining price.
Thank you. This concludes our question-and-answer session. I would now like to turn the call back to Randy Wood for closing remarks.
Thank you all for joining us on today's call. While current commodity prices and U.S. net farm income are down from recent highs, growers remain profitable. And while they're investing cautiously, we feel this will continue to support stable demand for irrigation equipment in North America. The international project pipeline for irrigation investments remains robust and supportive to our long-term growth trajectory. These projects are driven by food security and stabilizing global grain supplies, and we're uniquely positioned to identify and win these project opportunities as we execute our strategy.
We expect to continue the strong momentum we've seen from Road Zipper leasing as well as solid growth from our road safety products, the combination of which will continue to drive a revenue mix, which is supportive to our consolidated margin capture in the segment and our consolidated returns.
This concludes our first quarter earnings call. We appreciate your interest in Lindsay and look forward to updating you on our continued progress following the close of our fiscal 2024 second quarter. Thanks for joining us.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.