Release Date: June 27, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Lindsay Corp (LNN, Financial) announced a key project win in irrigation, valued at over $100 million, the largest in the company's history.
- Strong growth in the Road Zipper System sales and leasing revenues contributed positively to the infrastructure segment.
- The company released significant enhancements to its FieldNET platform, providing growers with additional insights to optimize planning and conserve resources.
- Lindsay Corp (LNN) has a strong balance sheet with $202.7 million in available liquidity, including $152.7 million in cash and marketable securities.
- The company completed share repurchases of $17.9 million, demonstrating a commitment to returning capital to shareholders.
Negative Points
- Consolidated revenues for the third quarter decreased by 15% compared to the prior year, primarily due to lower irrigation segment revenues.
- North America irrigation revenues decreased by 9% year-over-year, impacted by lower unit sales volume and wet field conditions.
- International irrigation revenues decreased by 31%, with significant declines in Brazil due to suppressed commodity prices and limited access to capital.
- Irrigation segment operating income decreased by 36%, with operating margin dropping from 21.6% to 17% of sales.
- The company anticipates margin pressure in the next 12 to 18 months due to operational investments and inefficiencies.
Q & A Highlights
Q: Can you provide a breakdown of the decline in irrigation revenue in North America and internationally? Was it more due to volume or pricing?
A: In North America, the 9% year-over-year decline was primarily due to a combination of pivot volume and parts volume, with a minor impact from price and mix. Internationally, the 31% decline was mostly volume-driven, particularly in Brazil, where aggressive pricing was also a factor.
Q: Are the aggressive pricing strategies in Brazil short-term discounts or actual list price changes?
A: There are no list price changes. The aggressive pricing is mainly in response to larger project opportunities, particularly in Brazil. This involves offering competitive quotes for multi-system projects.
Q: What is the expected return on the operational improvements in Lindsay, Nebraska? Will we see margin benefits regardless of volume trends?
A: In the next 12 to 18 months, there may be pressure on margins due to inefficiencies during the capital investment phase. In the midterm, margins should stabilize as productivity improvements offset additional depreciation. The improvements will help react to market changes without relying heavily on labor adjustments.
Q: How might the large international order impact irrigation segment margins and the tax rate in 2025?
A: Large projects like the recent $100 million contract are generally dilutive to margins due to their competitive nature. However, domestic and international operating margins have become closer. The tax rate could benefit from operations in tax-free zones like Turkey but may be higher in markets like Brazil.
Q: What was the nature of the income tax credit recognized in Brazil?
A: The tax credit was a retroactive benefit from a deduction with past uncertainties resolved during the quarter. It is a one-time issue and will not carry forward.
Q: What is the current sentiment among Brazilian farmers regarding capital equipment purchases?
A: Farmer sentiment in Brazil is currently cautious, with many waiting for the crop plan announcement expected in early July. This will determine funding levels and finance rates, influencing their investment decisions.
Q: Can you provide an update on the Road Zipper system project sales pipeline?
A: The pipeline is active, and we expect projects to exit the funnel over the next three to four quarters. We are seeing an uptick in funding for road projects, which is a positive indicator for Road Zipper sales and leasing.
Q: How does storm activity typically impact your business from quarter to quarter?
A: Storm activity varies significantly. This year, there was a slow start to the storm season, but we saw higher activity in late April and early May. The impact depends on the severity and timing of storms, with insurance approvals and field conditions affecting demand shifts.
Q: What is the attachment rate for FieldNET in international projects compared to domestic?
A: Domestically, every new pivot is FieldNET ready, with a retention rate of over 97%. Internationally, there has been a shift towards including technology in large projects, driven by the need for automation and resource conservation.
Q: What are the hurdles for potential M&A compared to share repurchases?
A: Share repurchases are considered when the share price is attractive and cash position is strong. M&A remains a key part of our growth strategy, and we will continue to evaluate opportunities that align with our strategic goals.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
