Lindsay Corp

NYSE:LNN

Earnings Call Transcript

[Operator]

Good day, and welcome to the Lindsay Corporation Fiscal First Quarter 2025 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, executive]

Thank you, and good morning, everyone. Welcome to our fiscal 2025 first quarter earnings call. With me today is Brian Ketcham, our Chief Financial Officer. I'm pleased with our company's performance during the first quarter as our results continue to demonstrate the resilience of our business and our team's collective operational and commercial execution. This execution was clearly reflected in our results as we delivered year-over-year revenue growth and a meaningful expansion to our net earnings and earnings per share overcoming the weaker fundamentals and headwinds in the mature global irrigation markets.

Our international irrigation business delivered 37% year-over-year revenue growth supported primarily by the additional sales volume of our previously announced record project in the MENA region, and we've also observed early positive sales trends in Western Europe and regions of Latin America.

Turning to our Infrastructure segment. While we did see a slight decline in our top line, we have delivered another quarter of strong operating income and margin expansion driven by a continued focus on cost management and our ability to capture additional operational efficiencies. On the commercial side, we recently finalized a $20-plus million contract for a large Road Zipper system project in the Northeast. This is a result of our shift left strategy to go upstream in the design and decision-making process of these large road way projects. We expect this project will fully deliver in our second quarter.

Shifting gears to market outlook. In North America, we continue to expect slightly weaker market conditions in the near term as net farm income continues to be tempered by low commodity prices and high input costs. There are some potential tailwinds in the mid- to longer term. We have seen a recent uptick in customer sentiment connected to the U.S. elections and the federal government recently announced an agricultural A package connected to the federal spending bill passed in late December. This adds $10 billion to help offset low commodity prices. The bill also includes approximately $21 billion in natural disaster aid for farmers and ranchers affected by drought, wildfires and hurricanes over the past 2 years.

In the international irrigation markets, Brazil order volume has stabilized, and we've seen regional financing programs launched in Parana and Sao Paulo states. These programs should support stronger volumes in the second half of the year. Brazil remains a key long-term growth market given the low degree of market penetration from mechanized irrigation and their ability to generate strong ROI with 2 to 3 crops per year with irrigation. We continue to expect strong performance in our developing international markets, specifically in the MENA region as food security and water scarcity continue to be positive demand drivers. While the project funnel continues to be robust, these projects are very competitive and timing is always difficult to predict. We have proven our ability to identify, win and deliver on these large complex projects, and we have line of sight to additional projects in the region that we expect to move forward this fiscal year.

Moving to infrastructure. We expect growth in the segment, supported by the large Road Zipper System project, which is expected to be delivered in Q2. We are not expecting any material changes to the IIJA as the new administration takes office. However, some of the positive benefits from the legislation have been offset by cost inflation making it difficult to estimate the actual impact of the increase in federal funding at this stage. Our solid performance in this segment has continued to be supported by operational expense reductions and improved efficiencies in our manufacturing processes. These improvements, along with the improved margin mix from higher Road Zipper revenues are expected to bolster profitability in Infrastructure segment in the near term.

Turning to innovation and technology. I'm pleased to announce that we closed the previously announced deal to acquire a minority interest in Austria-based peso instruments. This partnership adds incremental capabilities to the Field net and Field-wide platforms and creates an opportunity to grow annual recurring revenue by leveraging their significant global installed base of devices. With the peso investment, we now have access to over 240,000 connected devices, which will support long-term growth in annual recurring revenue. Our teams have already begun collaborating and we're excited about the opportunities this creates for our customers around the world.

I'd like to now turn the call over to Brian to discuss our first quarter financial results. Brian?

[Brian Ketcham, executive]

Thank you, Randy, and good morning, everyone. Consolidated revenues for the first quarter of fiscal 2025 increased 3% to $166.3 million compared to $161.4 million in the prior year. Revenue growth was driven by an increase in international irrigation revenues, which was partially offset by lower North America irrigation and infrastructure revenues compared to the prior year. Net earnings for the quarter increased 14% to $17.2 million or $1.57 per diluted share compared to net earnings of $15 million or $1.36 per diluted share in the prior year. While operating income was similar to the prior year, current year results benefited from an increase in other income and a lower effective income tax rate compared to the prior year.

Turning to our segment results. Irrigation segment revenues for the quarter increased 5% to $147.1 million compared to $140.2 million in the prior year. North America irrigation revenues of $77.7 million decreased 13% compared to the prior year. The decrease resulted primarily from lower unit sales volume of irrigation equipment as well as a less favorable mix of shorter machines and slightly lower average selling prices compared to the prior year. A reduction in net farm income for calendar 2024 continues to temper demand for irrigation equipment in the near term. In international irrigation markets, revenues of $69.4 million increased 37% compared to the prior year.

The increase resulted primarily from revenues related to our large project in the MENA region, along with higher sales in Europe and certain regions of Latin America compared to the prior year. This increase was partially offset by lower revenue in Brazil, where market activity remained lower than the prior year due to lower commodity prices that have pressured grower profitability and available liquidity.

Revenues in the current year quarter were also impacted by the unfavorable effects of foreign currency translation of approximately $2.1 million compared to the prior year. Irrigation segment operating income for the quarter of $24.7 million was 2% lower compared to the prior year, and operating margin was 16.8% of sales compared to 18.1% of sales in the prior year. Lower operating income and operating margin resulted primarily from a larger proportion of international project revenues compared to the prior year, which were dilutive to overall segment margin.

Infrastructure segment revenues for the quarter of $19.2 million were 9% lower compared to the prior year. This decrease resulted primarily from a difference in the timing of Road Zipper System lease revenue and lower sales of road safety products compared to the prior year. Infrastructure segment operating income for the quarter of $4.1 million increased 14% compared to the prior year. And Infrastructure operating margin for the quarter was 21.5% of sales compared to 17.1% of sales in the prior year. The increase in operating income and operating margin resulted primarily from improved manufacturing efficiency and lower operating expenses compared to the prior year.

The large Road Zipper project that Randy mentioned in his opening remarks had been contemplated in our full year fiscal 2025 outlook However, the timing was not clear until the contract was signed after the end of our first quarter. We have been building the machine and barrier required for this project. and we expect to deliver the entire project valued at more than $20 million in our second fiscal quarter.

Turning to the balance sheet and liquidity. Our total available liquidity at the end of the first quarter was $244.1 million, which includes $194.1 million infrastructure cash and cash equivalents and $50 million available under our revolving credit facility. Our strong balance sheet and 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.

This concludes my remarks. And at this time, I'll turn the call over to the operator to take your questions.

[Operator]

[Operator Instructions] And the first question will come from Ryan Connors with North Coast Research.

[Ryan Connors, analyst]

So you had a comment there regarding -- on irrigation regarding the mix effect of shorter systems or smaller systems and irrigation. I've heard you make that comment before. Can you call out the magnitude of that or exactly what that is and what might be driving that? That's a new one for me.

[Brian Ketcham, executive]

Yes, Ryan, this is Brian. It's generally driven more on a regional basis. You get into places, let's say, like the Pacific Northwest, where they've installed larger machines over time. And then maybe they're filling in some of the corners or there's other odd shaped pieces of ground that they're adding irrigation to. So I would say mix like that varies from quarter-to-quarter, but it's really regional. But in terms of the revenue breakdown for the quarter, I mean, the main driver was really just the decrease in overall volume.

[Ryan Connors, analyst]

Yes. Okay. So it was on the margin then.

[Brian Ketcham, executive]

Yes.

[Ryan Connors, analyst]

Yes. Okay. And then one more on irrigation. I have one on infrastructure as well. So this large project in the Middle East. Once that's completed, what's the follow-on service component, if any, on something like that, of that magnitude? Is that something where you'll be it can move the needle supplying parts and service into that on a go-forward basis? Or is it just sort of once it's done, it's done and you have to -- we have to go find -- look for the next one.

[Randy Wood, executive]

Ryan, this is Randy. I'll take that one. And I think it's a combination of both comments you've made. Certainly, the machines in this part of the world operating a significant number of hours. They're almost irrigating around the clock all year. So there is going to be some parts consumption there. Generally, on these deals, the initial purchase will include some stock parts for more of those fast-moving maintenance items, so we may not see it right away. But I think some of the long-term revenue-generating potential certainly going to include aftermarket.

On the service side, that generally in all the markets is dealer revenue, not necessarily Lindsay revenue and on those military contracts, in particular, they've been trained, they generally take care of their own machines. So long-term revenue there is really going to be the service parts for us.

[Ryan Connors, analyst]

Got it. Okay. And then on infrastructure, Brian, you mentioned the timing of lease revenue as one of the headwinds on the revenue line there. I mean, my understanding of the leasing model was that it's actually less volatile, less lumpy than the book ship that we had in the past. So can you explain exactly what the dynamics are that can drive timing on lease revenue to cause the kind of volatility.

[Brian Ketcham, executive]

Yes. It's really just one project ending and then the other one not starting immediately. It's those kinds of things. And in the scope of the change for the revenue. I mean we're talking about a couple of million dollars probably. But that's really what drives it. I mean we've got line of sight to continuing to add to the lease portfolio. But I think it's just as some projects and new projects beginning, sometimes there's a small gap there.

[Ryan Connors, analyst]

Yes. Okay. But just to be clear, so when a lease project is signed, that becomes pretty much an annuity stream on a go-forward basis. There's no real -- so you're just saying there's book ship projects rolling off and there's not lease revenue necessarily to replace it immediately, but there's really no volatility associated with leased system once it's up and running. Is that a fair characterization of that?

[Brian Ketcham, executive]

We do have some situations where it's a multiyear lease. Obviously, that one is going to be very stable. But the other ones are going to -- if they're tied to a construction project, it could be a 9-month project or a 12-month projects. And so then when those come to an end, there can be a gap before a new project starts. But again, if you look at it over a full year basis, it's very stable. But quarter-to-quarter, there could be some timing with ...

[Ryan Connors, analyst]

Got it. So it's -- I see. So it's not a permanent installation. It's just on a specific project.

[Brian Ketcham, executive]

A lot of -- yes. A lot of incremental leases that we've added over the last year have been more directly tied to construction projects.

[Operator]

The next question will come from Brian Drab with William Blair.

[Tyler Hutin, analyst]

Tyler on for Brian. Just starting with the international irrigation business. So did you recognize about $60 million in revenue for the Middle East and North African project? I know that was supposed to be kind of evenly spread through the year. Just wondering if that cadence is the same.

[Brian Ketcham, executive]

Yes. In general, Tyler, the cadence is the same. I think we were slightly above $20 million for the quarter. And what we had said coming into the year is we were expecting roughly $20 million a quarter.

[Tyler Hutin, analyst]

Got it. And then one more for international irrigation. Your European and Latin American sales are stronger, as you said, does that kind of change your expectations for the base international Irrigation business in the first half of the year?

[Brian Ketcham, executive]

No, I don't think it changes our expectations. I think we had seen growth opportunities in both of those regions coming into the year. it's positive to see some green shoots in some of those regions. But I don't think it, at this point, doesn't change the outlook that we have for the full year.

[Tyler Hutin, analyst]

Okay. Great. And just one more for the infrastructure segment. You clearly had some efficiency and cost savings in this quarter. I'm just wondering, like with the project activity picking up, Were these OpEx savings like a onetime occurrence? Or do you expect that to kind of roll through the future quarters?

[Brian Ketcham, executive]

Yes, our expectation is these operational cost savings will continue. I think a big part of it also is, as I mentioned in my comments, as we're building new machines, building new barrier that's absorbing a lot of fixed costs, but we've also done some improvement improvements in our factory in order to increase our overall capacity and the flow through the factory as it relates to the Road Zipper project line -- our product line.

[Operator]

Next question will come from Nathan Jones with Stifel.

[Adam Farley, analyst]

This is Adam Farley on for Nathan. Maybe first looking at Brazil. Are the sizes of reaching a bottom here? What's the expectation for the year is irrigation markets continue to stabilize there?

[Randy Wood, executive]

Yes, this is Randy. I'll maybe start and Brian can add on if necessary. And -- we don't see a lot of further deterioration in Brazil. We're starting to lap the strong growth that we've seen there and then some of the regression with soy prices, in particular coming back access to credit has been kind of a limiting factor on market upside as well. And we kind of see all those things kind of leveling off at this point. So I think our projection would be not significantly worse, but in the near term, maybe not significantly better either. And the 2 credit programs that we've seen, we're not quite sure how quickly they're going to get rolled out, how quickly those funds are going to get consumed. But we do view that as some potential uplift in the market. But again, we don't see it getting significantly better or significantly worse in the near term.

[Adam Farley, analyst]

Okay. And then on domestic irrigation, I think the presentation called out slightly lower ASPs in the quarter. Where are you seeing pricing pressure. And then if you think about it in aggregate, is price cost positive, neutral or negative?

[Brian Ketcham, executive]

Yes, Adam, this is Brian. I would say we have not changed our selling prices. What we've seen is selective discounting and maybe it's regional, maybe it's on certain orders or whatever. I would say it's been margin neutral at this point. We have seen steel coil prices softened. But on the same token, we've got -- still have inflation in other raw materials. So overall, cost environment, I would say, has been stable, but really not on ASPs, some impact on top line, but I would say margin neutral overall.

[Operator]

Next question will come from John Braatz with Kansas City Capital.

[Jon Braatz, analyst]

Randy, since this fall, we've seen corn prices move up, at least on the board, up about 20%, and soybeans up a little bit less, but a lot less. But nonetheless, they recovered a little bit. I guess when you look at the recovery that we've seen, do you sense any change in the supply and demand issues affecting these prices, what might account for some of the price -- some of the improvement? Any ideas?

[Randy Wood, executive]

I would say, John, in this window, seasonally at least in the Northern Hemisphere, there aren't a lot of significant certainly movers on the supply side. The harvest is done, and we have. Anything that moves is generally going to be on the demand side. I know we were watching like year-round approval of E15 ethanol that didn't get passed as part of the package here recently. That would have been certainly a demand-side driver.

Right now, I think we kind of -- we're in a holding pattern until we get the planting intentions for next year, and there's maybe a better view on exports at that time. Are there going to be trade disruptions tariff-related issues. So there's nothing on the supply-demand side, and I always try and to sell it down to those very pure supply-demand economic drivers. There's nothing that's moved significantly one way or the other right now. There's maybe some speculation in the market moving it around. But I don't think we'll see anything significant in either supply or demand until we get closer to next spring and understand what those planning intentions look like, John.

[Jon Braatz, analyst]

Okay. What about in Brazil in terms of soybean prices? What's the trend been there?

[Randy Wood, executive]

It's been dropping from the highs, stable, maybe getting more stable than what we've seen historically. And I guess when you're on the slide, the customer view is where is it going to stop? And I think we've probably bottomed out, and we know that we're not going to go past the lower threshold. So that adds to the stability comment that I made in my comments earlier. I don't think customers, again, our view is the same, it's not going to get progressively worse in the near term, but it's not going to get progressively better either.

[Jon Braatz, analyst]

Okay. And Brian, in the quarter, you talked a little bit about a lower tax rate and some positive other income. How do you see that going forward?

[Brian Ketcham, executive]

Yes. I think really for the rest of the year, we expect to have a lower rate. And the primary driver of that is a pretty significant shift in our earnings from Brazil into Turkey, which Turkey is providing the equipment for the large project in Turkey, we're in a free trade zone. So we don't have tax there in Brazil a 35% rate. So going forward, probably somewhere in that 23% range.

[Jon Braatz, analyst]

Okay. Okay. And the other income, anything there?

[Brian Ketcham, executive]

Yes. Other income, I think when you look at interest expense and interest income, I would expect that trend to continue. On the other side is really the currency nations that have an impact and that one is obviously hard to predict.

[Jon Braatz, analyst]

Yes. Yes, absolutely. And Brian, in the past, the large infrastructure projects have typically had a nice margin to it. How do you view this $20 million project?

[Brian Ketcham, executive]

This should be similar to some of the other projects that we've had. We expect it to be accretive to overall operating margin for the segment and for the company, actually.

[Jon Braatz, analyst]

Right. Well, in the past, has there been over 30% or something like that?

[Brian Ketcham, executive]

Yes. It's definitely been over 30%.

[Operator]

Our next question will come from Brett Kearney with American River Opportunity Partners.

[Brett Kearney, analyst]

I was just going to ask for a quick update on the CapEx projects you guys have underway this fiscal year. I know the largest one being the expansion at the Lindsay, Nebraska facility, just how planning, procurement, processes are going around that at this stage as well as the other initiatives you guys have underway.

[Randy Wood, executive]

Yes, Brett, that's something, obviously, we're tracking pretty closely and all the reviews we've got at this point, we don't see any real red flags. We've had some short-term weather issues to deal with here. Nebraska, but they're part of the time line. So nothing that we're concerned with everything still appears to be on track.

[Operator]

With no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Randy Wood for any closing remarks.

[Randy Wood, executive]

Thank you all for joining us on today's call. And while we're encouraged with our resilient financial resource this quarter, we're even more optimistic about the opportunities in front of us, and we look forward to delivering value for our customers and shareholders in fiscal 2025. Thank you.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.