Yahoo Finance Lindsay Corp (LNN) Q2 2024 Earnings Call Transcript Highlights: Navigating Market Challenges ...
Consolidated Revenues: $151.5 million, down 9% year-over-year.
Net Earnings: $18.1 million, consistent with prior year.
Earnings Per Share (EPS): $1.64 per diluted share, slightly up from $1.63 in the prior year.
Irrigation Segment Revenues: $133 million, decreased by 10%.
North America Irrigation Revenues: $82.8 million, down 8%.
International Irrigation Revenues: $50.2 million, down 13%.
Irrigation Segment Operating Income: $25.6 million, down 22%.
Irrigation Operating Margin: 19.3%, decreased from 22.2%.
Infrastructure Revenues: $18.5 million, comparable to prior year.
Infrastructure Operating Income: $3.5 million, up 74%.
Infrastructure Operating Margin: 19%, improved from 10.9%.
Total Available Liquidity: $200.6 million.
Free Cash Flow Impact: Affected by increased capital spending in Lindsay, Nebraska operations.
Release Date: April 04, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
North American irrigation business supported by steady demand amid tempered grower sentiment.
Infrastructure business profitability benefits from strong growth of Road Zipper System leasing business.
Strategic actions taken to navigate suboptimal market conditions in some regions.
Investment in a 49.9% interest in Pencil Instruments to enhance digital water management portfolio.
Commitment to invest over $50 million in manufacturing facilities to implement state-of-the-art technology.
Negative Points
Consolidated revenues decreased by 9% compared to the prior year.
International irrigation saw softening of demand, particularly in the Brazilian market.
USDA's initial 2024 net farm income projections significantly below market forecasts, potentially impacting farmer sentiment.
Lower sales of replacement parts and competitive discounting in some regions.
Challenges in Brazil due to reduced grower profitability, limited access to financing, and constrained investment capacity.
Q & A Highlights
Q: Can you elaborate on the comments regarding pricing softness and its magnitude? A: Brian Ketcham, CFO of Lindsay Corp, noted that the pricing softness was more regional and involved selective discounting. In the US, overall prices remained steady, but there was some competitive discounting in certain regions. In Brazil, competitive pricing pressures were more significant due to market softness.
Q: Despite two years of double-digit negative revenue declines, gross margins have held up well. Is this a new normal level for gross margins? A: Brian Ketcham explained that gross margins have been stable due to price management and operational efficiencies in the US and internationally. He believes that the current gross margin environment is sustainable, assuming raw material costs remain stable.
Q: Why did R&D expenses decline year over year? A: Randy Wood, CEO of Lindsay Corp, clarified that the decline in R&D expenses was due to timing and not a strategic shift or reduction in overall spending. The company continues to invest in areas of technology and innovation.
Q: What do the $20 million worth of orders in the backlog, expected to be fulfilled within the next 12 months, relate to? A: Brian Ketcham mentioned that the increase in backlog is primarily related to a multiyear lease renewal for the Road Zipper System in Texas and other infrastructure-related orders.
Q: What is the timing of Road Zipper system projects, and how is the pipeline evolving? A: Brian Ketcham indicated an improved line of sight to projects moving forward and expects some projects to be recognized in fiscal 2024, likely in Q4. The timing will determine how much revenue is recognized in fiscal 2024 versus 2025.
Q: What incremental benefits will the $50 million investment in facility modernization bring? A: Randy Wood discussed that the investment will provide flexibility, automation, modernization, and improved safety. It will allow the company to react more efficiently to market demand and leverage new technologies for better production monitoring and maintenance.
Q: What encouraged Lindsay Corp to take a 49.9% investment in Pessl Instruments? A: Randy Wood expressed that the synergies of moving Pessl's hardware and software services through Lindsay's channel, along with the data analytics and integration with FieldNET Advisor, were key motivators. Pessl's global footprint and installed devices present significant opportunities for annual recurring revenue and broader integration.
Q: What is the expectation for the Brazilian market over the near term? A: Randy Wood stated that while Brazil faces short-term headwinds, the mid to long-term outlook remains strong due to low irrigation penetration and the potential for significant growth.
Q: Can you provide an update on international demand fundamentals and the project funnel outside of Brazil and South America? A: Randy Wood mentioned that international revenues are stable with minor ups and downs in various markets. The project demand remains strong, with specific designs being worked on in the Middle East, Eastern Europe, and Africa.
This article first appeared on GuruFocus.
