Lindsay Corporation (NYSE:LNN) Q1 2023 Earnings Call Transcript January 5, 2023
Lindsay Corporation beats earnings expectations. Reported EPS is $1.65, expectations were $1.18.
Operator: Good morning. My name is Joe, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lindsay Corporation Fiscal Year 2023 First Quarter Earnings Call. All participants will be in a listen-only mode today. After today’s presentation, there will be an opportunity to ask questions. During this call, management may make forward-looking statements that are subject to risks and uncertainties, which reflect management’s current beliefs, estimates of future economic circumstances, industry conditions and company performance and financial results. Forward-looking statements include the information concerning possible or assumed future results of operations of the company and those statements preceded by, followed by or including the words expectation, outlook, could, may, should or similar expressions.
For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Please do note that today the event is being recorded. I would now like to turn the call over to Mr. Randy Wood, President and Chief Executive Officer.
Randy Wood: Thank you, and good morning, everyone. Welcome to our fiscal 2023 first quarter earnings call. With me today is Brian Ketcham, our Chief Financial Officer. We were pleased to start our fiscal year strong, delivering revenue growth and earnings that more than doubled compared to last year’s first quarter. I’d like to thank our employees, dealers and suppliers around the world for their contributions. The relentless focus on our customers and execution of our business strategies continues to generate positive results for our shareholders and supports our mission of conserving natural resources, expanding the world’s potential and improving quality of life. I continue to be very proud and appreciative of the job they are doing.
Looking at the macro environment, we continue to see supply chain constraints impacting certain areas of our business. Our teams have done a great job mitigating the impact of these challenges and we expect to see continuous improvement in the situation as the year progresses. Overall inflationary pressure on raw materials and other input costs have moderated. Price realization remains strong and even in a competitive market we remain disciplined in our approach to passing cost increases through to the market. In the area of technology and innovation, we were pleased to recently announce our strategic partnership with Ceres Imaging. This addition to FieldNET expands our Smart Pivot platform and provides our customers additional choices and sources of high resolution imagery and analytics to help them make the best agronomic decisions for their crops.
Allowing flexibility in customer choice is a fundamental part of our imagery strategy and we anticipate additional strategic partnerships in the future. Turning to irrigation market conditions, we continue to see strong market fundamentals in the North American market, including high commodity prices leading to record net cash farm income in 2022. Drought conditions have eased somewhat in the far west, but we are seeing conditions worsen year-over-year in the core Midwest markets, including Nebraska and Kansas. This highlights the importance of irrigated agricultural and should be supportive of a strong market. Customer sentiment is cautious at this stage due mainly to future concerns about profitability of the 2023 crop and rising interest rates.
This may temper market upside, but we don’t expect this to create a significant headwind at this time. In the international regions, we see the same strong market fundamentals connected to global commodity prices and farm income having a positive impact in the developed markets particularly in Brazil. The presidential transition in Brazil has resulted in some market latency that may delay second quarter deliveries, but we don’t expect it to impact our full year results. Project activity and visibility across Central Asia and the Middle East continues to be strong, timing of execution is difficult to predict, but we are pleased with what we see in the market and our ability to leverage our global footprint to compete for and win these projects.
Moving to infrastructure, we expect to see the positive impact of the Infrastructure Investment and Jobs Act in the Road Safety business. November year-to-date state and local government contract awards for highway and payment projects are up 24% compared to a year ago, supporting an increase in construction activity in the second half of our fiscal year. The full impact of this increase is being somewhat offset by inflation in construction costs. We continue to actively manage the Road Zipper sales funnel and completed shipment of our large project in Massachusetts in the first quarter. Our global teams continue to identify applications for the Road Zipper in both permanent installations and temporary lease applications to help mitigate traffic congestion and provide positive protection during roadway construction.
I will now turn the call over to Brian to review our first quarter financial results. Brian?
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Brian Ketcham: Thank you, Randy, and good morning, everyone. Total revenues for the first quarter of fiscal 2023 increased 6% to $176.2 million, compared to $166.2 million in the same quarter last year. Net earnings for the quarter were $18.2 million or $1.65 per diluted share, compared to net earnings of $7.9 million or $0.72 per diluted share in the prior year. Irrigation segment revenues for the first quarter increased 4% to $152.1 million, compared to $145.9 million in the same quarter last year. North America irrigation revenues of $83.9 million increased 6% compared to last year’s first quarter. The increase in North America irrigation revenues resulted primarily from higher average selling prices as unit sales volume was comparable to the prior year.
In the international irrigation markets, revenues of $68.1 million increased 2% compared to last year’s first quarter, including unfavorable effects of foreign currency translation differences of approximately $1.6 million. Higher sales in Brazil and other markets more than offset the impact of lower sales in Ukraine and Russia, as well as Egypt project sales of $9 million in the prior year that did not repeat. Total irrigation segment operating income for the first quarter was $28.6 million, an increase of 66% compared to the prior year first quarter and operating margin was 18.8% of sales, compared to 11.8% of sales in the prior year first quarter. The increase in operating income and operating margin resulted primarily from improved price realization, less inflationary impact on input costs and a more favorable margin mix of international irrigation revenues compared to the prior year first quarter.
The prior year first quarter included LIFO expense of $5 million, while the current year LIFO impact was minimal. Infrastructure segment revenues for the first quarter increased 19% and to $24.1 million, compared to $20.2 million in the same quarter last year. The increase resulted from higher Road Zipper System project sales, which were partially offset by lower Road Zipper lease revenue and lower sales of Road Safety products compared to the prior year. During the quarter, we delivered the remaining $8 million of the $24 million barrier replacement project in Massachusetts that began in our fiscal fourth quarter last year. Infrastructure segment operating income for the first quarter increased 22% to $3.4 million, compared to $2.8 million in the same quarter last year.
Infrastructure operating margin for the quarter was 14% of sales, compared to 13.7% of sales in the prior year. Improved current year results resulted primarily from higher revenues and less inflationary impact on input costs compared to the prior year first quarter. This increase was partially offset by a less favorable margin mix of revenues compared to the prior year first quarter, because of lower Road Zipper lease revenue. Turning to the balance sheet and liquidity. Our balance sheet remains solid and our total availability — total available liquidity at the end of the quarter was $160.6 million, with $110.6 million in cash, cash equivalents and marketable securities, and $50 million available under our revolving credit facility. Through an ongoing focus on working capital management, we expect to improve our free cash flow generation in fiscal 2023 and further enhance our position 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.
Q&A Session
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Operator: And our first question here will come from Tyler Hutin with William Blair. Please go ahead.
Tyler Hutin: Hey. Good morning. Thanks for taking my question.
Randy Wood: Hi, Tyler.
Tyler Hutin: I was just wondering if you could start off with any updates on larger projects internationally in irrigation and then I have one more follow-up.
Randy Wood: Sure. I will cover that one, Tyler. And as we said in the script, the timing of confirmation, the timing of execution is always difficult to predict. So really we focus on the number of opportunities that we see and right now there is a robust funnel and it’s linked to food security, population growth. We have talked to different times. The pandemic really accelerated a lot of discussions in different parts of the world on improving food security for a lot of governments and countries around the world. So we are pleased with what we see in the funnel, but it is difficult again to predict when we are going to see those confirmed and start delivering, but the funnel is strong.
Tyler Hutin: Right. Thank you for confirming that. And then in infrastructure, with the number of small- to mid-sized projects for fiscal 2023, how would that stack up against that one large project in Massachusetts for fiscal 2022? Thank you.
Brian Ketcham: Yeah. Tyler, this is Brian. I would say, what we see is an increase in the leasing part of our business in probably the second half of the year as the construction season gets underway and then as we said before, some smaller and medium-sized projects on the Road Zipper projects side of the business. And so in total, Road Safety products, we expect some growth, so year-over-year, we expect to be able to offset that Massachusetts project with growth from some of the other areas.
Tyler Hutin: Okay. Thank you for the color on that. That’s all I had for today. Thanks.
Operator: And our next question will come from Ryan Connors with Northcoast Research. Please go ahead.
Ryan Connors: Good morning and congrats on super results there to everyone on the team. So, it looks like what we saw here is, pricing really holding up very well as some of the inflation moderate. So I guess my question is that jump in the gross margin, how should we be thinking about that going forward, obviously, you never want to be on a call like this telegraphing anything — any kind of negative price. But how should we think about price cost and sustainability as inflation moderates and we are up at this kind of a margin level?
Brian Ketcham: Yeah. I think, Ryan, this is Brian. Where we finished the first quarter, obviously, year-over-year, big increase, I think, you look at a good chunk of that attributed to the LIFO — negative LIFO impact we had last year and not as much this year. But still you factor that out, you factor the dilutive nature of the Egypt project last year and we still had very strong incremental margin improvement. And I think what we have been saying since third quarter last year as we have gotten the full price realization that we have expected, there’s still some noise in some of the inflation. But I would say both in North America and in Brazil, we have seen some margin expansion as a result as we have come through this — gotten through the inflationary impact, looking at a strong demand environment.
So we have been able to expand margins and we continue to look at other opportunities through productivity improvement to continue to grow margins. But we are pretty pleased with the progress we have made to-date.
Ryan Connors: Okay. And then my other one has to do with this issue of, obviously, 2022, talking full year — fiscal year rather, you had a pretty nice impact of storm damage and replacement demand. I wonder if you can kind of frame that issue for us as we look ahead to 2023, both in terms of to what extent that was a driver and any way that you might be able to quantify the impact there in 2022? And then also, there’s been some talk about insurance carriers, at least some insurance carriers dropping coverage of pivots, because in part of the claim frequency with all that storm damage. So curious if you have any thoughts on how that could impact customer buying decisions going forward?
