Lindsay Corporation (NYSE:LNN) Q4 2023 Earnings Call Transcript

Lindsay Corporation (NYSE:LNN) Q4 2023 Earnings Call Transcript October 19, 2023

Lindsay Corporation beats earnings expectations. Reported EPS is $1.74, expectations were $1.15.

Operator: Hello, and welcome to the Lindsay Corporation Fourth Quarter 2023 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Randy Wood, President and CEO. Please go ahead.

Randy Wood : Thank you, and good morning, everyone. Welcome to our fourth quarter and full year earnings call. With me today is Brian Ketcham, our Chief Financial Officer. Fiscal 2023 marked a year of significant achievements for Lindsay. Our teams executed extremely well across both of our business segments, which helped deliver record full year net earnings and earnings per share results. Fourth quarter performance was highlighted by strong irrigation results, specifically in Brazil, which recorded record levels of revenue and operating income. Our commercial efforts, including price management, coupled with the efficiency initiatives and organic growth in our international regions helped drive record operating income and operating margins within our irrigation business.

These strong income results were achieved despite difficult year-over-year comps and a lower top line when compared to 2022. Turning to market outlook. Similar to the comments I made last quarter, our market outlook for Lindsay’s business segments and key end markets remains positive in the near term. As it relates to our North American irrigation end markets, current commodity prices and U.S. net farm income projections should continue to support healthy demand as we begin our fiscal 2024. While income for growers dipped slightly when compared to the record levels we saw, growers will be profitable this year. While customers did take a wait-and-see approach this spring, we’re seeing evidence of a strong fall selling season based on year-over-year order trends.

Within our international irrigation markets, we experienced strong growth during the fourth quarter, particularly across Brazil and South America. We expect international sales volume levels to remain robust in fiscal 2024 and supported by strong fundamentals in the mature markets and the continued expansion and project potential in the emerging and developing markets where irrigation presents significant opportunities for yield enhancement to address food security and weather uncertainty. Turning to infrastructure. We continue to see positive near-term and long-term market opportunities driven by federal funding provided by the Infrastructure Investments and Jobs Act in the United States. This funding as it continues to be distributed will support necessary investments in roadway infrastructure, and we believe this will ultimately broaden our infrastructure sales and leasing pipeline.

While comparisons were difficult relative to the prior year, where we benefited from a number of non-repetitive Road Zipper project wins, our focus on funnel management did generate leasing growth in 2023. Going forward, we see secular demand strength to both sales and leasing for Road Zipper and expect solid earnings support from our line of road safety products. Moving to innovation and technology. Our team continues their deliberate focus of delivering customer first innovation, which will continue to strengthen our growth profile and projections. We were pleased to complete our acquisition of FieldWise during the fourth quarter of this year. FieldWise is a market leader in agricultural technology products with a focus on subscription-based precision irrigation solutions.

This allows Lindsay to reach an expanded set of irrigation technology customers while accessing previously untapped growth markets and sales channels, opportunities like FieldWise, strengthen Lindsay’s irrigation market position but also advance our integrated technology capabilities and overall ability to reach a broader set of customers and service providers globally. In the area of sustainability, we were pleased to release the fifth edition of our annual ESG report in our fourth quarter. This highlights our continued progress on our environmental, social and governance goals contributing to our mission of conserving natural resources, expanding our world’s potential and enhancing quality of life. I’d like to thank our employees and team members for their ongoing hard work and dedication and advancing our vision to become the innovation and market leader in our core irrigation and infrastructure segments.

I’d also like to thank our loyal customers and dedicated dealers around the world. Without the trust to be able to achieve the record results we’ve delivered. I’d like to now turn the call over to Brian to discuss our fourth quarter and full year financial results. Brian?

Brian Ketcham : Thank you, Randy, and good morning, everyone. Total revenues for the fourth quarter of fiscal 2023 decreased 12% to $167.1 million compared to $190.2 million in the same quarter last year. Net earnings for the quarter were $19.2 million or $1.74 per diluted share, each growing more than 7%, respectively, compared to net earnings of $17.9 million or $1.62 per diluted share in the prior year. Total revenues for the full year decreased 13% to $674.1 million compared to record revenues in the prior fiscal year of $770.7 million. Net earnings for fiscal 2023 were $72.4 million or $6.54 per diluted share compared to net earnings of $65.5 million or $5.94 per diluted share in the prior fiscal year. Performance that marked year-over-year growth of 11% and 10%, respectively.

As Randy mentioned, this level of earnings is a record for the company, which is significant as efforts we’ve made to enhance our profitability have taken hold, irrespective of lower year-over-year top line performance. Turning to our segment results. Irrigation segment revenues for the fourth quarter decreased 5% to $143.6 million compared to $150.5 million in the same quarter last year. North America irrigation revenues of $60.2 million decreased 25% compared to last year’s fourth quarter. The decrease in North America is primarily attributable to lower unit sales volumes, while average selling prices were comparable with the prior year fourth quarter. Unit sales volumes in the prior year fourth quarter reflected an exceptional level of storm damage replacement demand, while unit sales volumes in the current year reflected a more normal seasonal demand profile.

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As previously noted, the incremental revenue impact from last year’s storm damage replacement demand was estimated at approximately $20 million. In international irrigation markets, revenues of $83.4 million increased 18% compared to last year’s fourth quarter. The increase was primarily from higher sales volumes in Brazil, Argentina and the Middle East compared to the prior year fourth quarter. As we indicated on our third quarter call, we anticipated sales volumes in Brazil to increase in the fourth quarter. supported by the new government financing plan that was announced in June. Total irrigation segment operating income for the fourth quarter was $29.8 million, an increase of 23% and compared to the prior year fourth quarter, and operating margin was 20.7% of sales compared to 16.1% of sales in the prior year.

The increase in operating income and operating margin resulted from gross margin expansion driven by improved price realization, reduced inflationary impact on input costs and improved operating performance in our factories compared to the prior year fourth quarter. This record level of profitability in the fourth quarter also was bolstered by record performance in Brazil. For the full fiscal year, Total irrigation segment revenues decreased 12% to $586 million compared to $665.8 million in the prior year. North America irrigation revenues of $309.5 million decreased 13% compared to the prior year and international irrigation revenues of $276.5 million decreased 11% compared to the prior year. Operating income in the Irrigation segment for the full fiscal year was $122 million, an increase of 15% compared to the prior year.

And operating margin was 20.8% of sales compared to 15.9% of sales in the prior fiscal year. The increase in operating margin resulted from gross margin expansion driven by the factors noted previously as well as from a more favorable mix of international revenues compared to the prior year. Infrastructure segment revenues for the fourth quarter decreased 41% to $23.5 million compared to $39.7 million in the same quarter last year. The decrease resulted from lower Road Zipper system sales with the prior year fourth quarter, including a number of project sales that did not repeat in the current year fourth quarter. One project in particular that was delivered in last year’s fourth quarter amounted to approximately $16 million. The impact of lower project sales was partially offset by growth in Road Zipper lease revenue and higher sales of road safety products compared to the prior year fourth quarter.

Infrastructure segment operating income for the fourth quarter decreased 73% to $3.1 million compared to $11.5 million in the same quarter last year. Infrastructure operating margin for the quarter was 13.3% of sales compared to 28.8% of sales in the prior year. The decrease in operating income and margin resulted from lower revenues compared to the prior year and the resulting loss in fixed cost leverage. For the full fiscal year, Infrastructure segment revenues decreased 16% to $88.1 million compared to $104.9 million in the prior year. Infrastructure operating income for the full fiscal year was $12.1 million compared to $18.3 million in the prior year. And operating margin for the year was 13.7% of sales compared to 17.5% of sales in the prior year.

Turning to the balance sheet and liquidity. Our total available liquidity at the end of the fiscal year was $216 million, which includes $166 million in cash, cash equivalents and marketable securities and $50 million available under our revolving credit facility. Our strong operating performance for the year, along with effective working capital management, resulted in free cash flow of $100.9 million or 139% of net earnings. This improved cash flow further strengthens our balance sheet and positions us well to continue executing our capital allocation strategy. In closing, I’d like to provide investors with an updated view of the company’s longer-term financial goals and targets. Over the past 3 years, Lindsay has delivered marked growth and solid financial results across a variable macroeconomic backdrop.

And we have updated our 5-year financial goals as highlighted on Page 15 of the earnings presentation. Over this period, our goal for organic revenue growth is to average greater than 7% annually. Additionally, our goals are to deliver annual operating margins greater than 14%, return on invested capital greater than 12% and earnings per share growth greater than 10%. These 5-year goals are supported by the performance momentum we’ve been able to deliver and our alignment to positive secular growth trends across both our irrigation and infrastructure businesses. 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: [Operator Instructions] Today’s first question comes from Nathan Jones with Stifel.

Nathan Jones : I guess I have to start with a question on these 5-year financial goals. And I guess, specifically, I have to start with operating margin greater than 14%. I think you did — you just did operating margin greater than 14% for 2023. It looks like it’s at 15%. Can you just talk about the expectations from there? I mean — and just how you come up with greater than 14% 5-year target when you are already at 15%?

Brian Ketcham: Yes. I think when you look at kind of, again, where we’re at today. I think this year, we did benefit from some of the raw material softening, but we also had some LIFO benefit this year that I wouldn’t plan on going forward. But I guess our feeling is operating on a regular basis above 14% and then reinvesting into our business with the technology and new product development, that’s kind of what our thoughts are behind the greater than 14%.

Nathan Jones : Okay. And then I guess I’ll go to domestic irrigation. I mean some of your commentary was pretty bullish despite the fact that we’ve seen a few quarters in a row here of of negative growth, fairly negative growth in domestic irrigation business. I mean you talked about strong near-term demand. You talked about positive order rates year-over-year so far this quarter. I understand there was a negative impact from storm revenue year-over-year in the fourth quarter ’23. It would seem that it’s likely that you’re still going to have some negative comps there in the short term in domestic irrigation. But Randy, your commentary sounded maybe a bit more bullish than that. So maybe if you can just give us some more color on the near-term expectations around the domestic side of the irrigation business.

Randy Wood: Sure. You bet, Nathan. And I think what we’ve talked about today is consistent with what we talked about earlier in the year, and we talked about this wait-and-see approach where we know customers are going to be profitable this year. And they’ve demonstrated when they make money, they invest money, and we know that we can battle for and win that capital when they make investments to improve their operations, to enhance yields, improve yield consistency, we know we can get those dollars. So I think this spring, we saw kind of a truncated season. And we were a little disappointed with some of the results. but we did see strong quotation demand. We just didn’t see customers taking those quotations all the way to orders.

So some of this was expected based on feedback from customers in our channel. And again, when they’re profitable, they’re going to make these investments. So we feel good about what we see in order demand right now. This is customers selling or buying based on crop they’re selling this year and profits generated this year. As we move forward into next season, I think every year starts new. So does — do we carry a lot of optimism into next spring? I still think the yield enhancement benefits are going to be a tailwind for us. I still think customers are going to be profitable, maybe not record profit levels that we saw last year. But again, customers make money, they invest money, I think that’s really given us confidence in this market, Nathan.

Nathan Jones : I know you guys don’t give guidance, but do you — I’ll ask the question, would you expect to be able to generate organic revenue growth in the domestic business in fiscal ’24?

Brian Ketcham: Yes, Nathan, this is Brian. I think that is our expectation. I think as Randy talked about, we saw some of this demand being deferred. And so far into the fall, it’s kind of playing out that way. So — and then we get into our second and third quarters, and we do have easier comps. So I think it’s realistic to expect year-over-year unit volume growth in North America.