Lindsay Corporation (NYSE:LNN) Q1 2024 Earnings Call Transcript

Lindsay Corporation (NYSE:LNN) Q1 2024 Earnings Call Transcript January 4, 2024

Lindsay Corporation beats earnings expectations. Reported EPS is $1.36, expectations were $1.26. LNN isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Hello and welcome to the Lindsay Corporation Fiscal First Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. [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.

Randy Wood: 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 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 and US 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 US 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?

Brian Ketcham: 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 favourable 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 favourable 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.

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Q&A Session

Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] Today’s first question comes from Brian Drab with William Blair. Please go ahead.

Tyler Hutin: Hey, good morning. This is Tyler Hutin on for Brian Drab. Thank you for taking my questions.

Brian Ketcham: Good morning.

Randy Wood: Good morning, Tyler.

Tyler Hutin: Yeah, 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?

Randy Wood: 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.

Tyler Hutin: 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?

Brian Ketcham: Yeah, 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 US dollars in some of the markets, but we still remain confident that we’ll see project activity coming out of both irrigation and infrastructure.

Tyler Hutin: Yeah, thank you for the color on that. 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 some that these solutions are optimal for their operations? And that’s all I have today. Thank you.

Randy Wood: 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 and 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, north of 97%, the 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 are the right direction, and I think that’s confirmed with customer feedback and growth we continue to see in those technology platforms.

Tyler Hutin: Sounds good. Thank you and I’ll pass it along.

Operator: Thank you. The next question is from Nathan Jones with Stifel. Please go ahead.

Nathan Jones: Good morning, everyone.

Brian Ketcham: Good morning, Nathan.

Randy Wood: Good morning, Nathan.

Nathan Jones: And Happy New Year. I want to go to Brazil, Argentina. You’ve had some challenges in, I mean, particularly in Brazil. Government changeover, there was FINAME financing 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 three of the last four 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 that FINAME financing is going to come out for you to not be confident enough to say that?

Brian Ketcham: Yes. I think obviously the last — you said three out of four 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 four or five 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.