Lindsay Corp (LNN) 2003 Q1 法說會逐字稿

Good morning ladies and gentlemen, and welcome to the first quarter results conference call. At this time, all participants are in a listen-only mode. Following today's presentation, instructions will be given for the question and answer session. If anyone needs assistance at any time during the conference, please press the star, followed by the zero. As a reminder, this conference is being recorded today, Monday, December 23rd, 2002. I would now like to turn the conference to Ms.

from FRB Shandwick. Please go ahead, ma'am.

Thank you. Good morning, I'd like to thank everyone for joining us today. Earlier in the day, we sent a press release outlining the results for the first quarter ended November 30th, 2002. If anyone has not received the release, please call the Financial Relations Board at 312-266-7800, and my assistant,

, will send you another copy.

Joining us today from the management team of Lindsay Manufacturing, we have Rick Parod, President and Chief Executive Officer, Bruce Karsk, Executive Vice President of Finance and Chief Financial Officer, and Tom

, Corporate Controller.

Management will provide an overview of the quarter, and then we'll open the call to your questions.

Before we begin, we'd like to remind all participants that this conference call may contain certain forward-looking statements that are subject to the Safe Harbor disclaimer in today's press release.

At this point, then, I'd like to turn the call over to Rick. Rick?

Thank you. Good morning. We appreciate each of you participating in this call just before the Christmas holiday.

Revenue for our first quarter of 2003 was 33.5 million, up 17 percent from the same period of last year, with a strong increase in irrigation equipment revenue. Gross profit for the quarter rose to seven million from 5.6 million in the first quarter of last year. Gross margins increased to 21 percent for the quarter, versus 19.7 percent in the same period last year.

As stated in our press release, during the first quarter of fiscal 2003 we recorded both "other income" and "other non-current" assets of 1.7 million to reflect the cumulative cash value of four life insurance policies that we maintain on our current and former executive officers. These policies were established in 1993 to ensure our potential liability under the supplemental retirement plan for these executives.

Lindsay is the sole main beneficiary and owner of these policies, which are held in a trust. The 1.7 million of current cumulative surrender value was generated largely through annual premium payments made from '93 through 2000. The company expensed the premiums as incurred, and had not previously recorded the increases in cash surrender value of the assets.

The change in the cash value of these life insurance policies is not material to our results of operations in any previous period. We anticipate that the future annual change in the cash value of these policies will also not be material.

Excluding the impact of this item, which amounted to 14 cents per share, net earnings rose six percent to 1.2 million, or 10 cents per diluted share, compared with 1.1 million or nine cents per diluted share in last year's first quarter. Net earnings, including the "other income" items, were 2.9 million, or 24 cents per diluted share.

Domestic irrigation revenues rose 14 percent in the first quarter from the same period last year. While domestic shipments solidly over the previous year, the sales were off slightly from our expectations. Most of our domestic dealers are reporting very strong quote activity, however, in many cases, it's taking longer than expected to achieve purchase commitments.

The Environmental Quality Incentives Program, or EQIP, included in the 2002 Farm Bill, provides aid to farmers in the form of subsidies for improving water use efficiencies, and in reducing soil erosion. While the program is beneficial to the overall growth of our business, growers will, in some cases, time their purchase commitments based on the availability of program funds in their region. We expect that this may impact the flow of purchase commitments throughout much of this year as it has our current order backlog.

Additionally, with the improved commodity prices, farmers did not receive the first partial counter-cyclical payment for corn, wheat or soybeans, affecting their short-term cash flow. We expect that these factors will have less impact as the year progresses, and for our overall domestic demand to increase.

Projected reductions in inventories of agricultural commodities will continue to support favorable commodity prices for corn, soybeans, wheat, and cotton, all of which are key drivers for our business. If this year's growing season remains dry, that, too, will positively affect demand - domestic demand in fiscal 2003.

In the international markets, our equipment revenues rose 60 percent over the same period last year. Sales from our operations in Europe, South America, and Africa all achieved growth over previous years' levels, and our exports from the U.S. were also higher.

During the first quarter, we recorded our first revenues at our location in South Africa, which began operation by reselling imported equipment from Lindsay - imported equipment from Lindsay. We anticipate that our South African operation will be producing product at that location before the end of the current quarter. We are pleased with the progress of our international locations, and all of them met our expectations for the first quarter.

In Brazil, the President-Elect, Mr. Lula, has calmed some fears of a deteriorating economy by naming a fiscal conservative to head the Finance Ministry. Additionally, the government program

, which also - which provides financing for agriculture equipment purposes, remains in place, improving the growers' outlook for continued agricultural development. We anticipate that with

in place, the market for our products will remain strong in Brazil for fiscal 2003.

Export shipments for the first quarter were above the same period last year and met our expectations. However, going forward, we remain concerned about the potential impact an extended conflict with Iraq could have on equipment demand in the mid - Middle East region.

Diversified manufacturing revenues were down 24 percent in the quarter from the same period last year, reflecting the

in fiscal 2002 due to customers' relying less on outsourced manufacturing. We recently hired a business manager to oversee and grow our diversified manufacturing business. With his leadership and the support of the Lindsay resources, we're identifying additional opportunities for expansion and new proprietary products that utilize our full manufacturing capabilities. For the full year fiscal 2003, we expect diversified manufacturing revenues to be comparable to fiscal 2002 levels.

Gross margins for the quarter were 21 percent versus 19.7 percent in the same period last year. Higher volumes and slightly improved pricing contributed to the overall margin improvement. Factory costs were tightly managed during the quarter, maintaining the cost improvements implemented in previous periods. Our emphasis on improving manufacturing efficiencies is expected to continue to yield benefits in all locations during fiscal 2003. Total operating expenses were 1.2 million higher in the quarter resulting primarily from our acquisitions during the third quarter of last year. Excluding the acquisitions and the startup of South Africa, operation expenses increased 500,000 or approximately 10 percent.

Our order backlog at November 30, 2002 totaled 19.4 million compared with 26.4 million at November 30, 2001. The backlog for both irrigation equipment and diversified manufacturing are below last year's level. As stated earlier, while irrigation dealers report strong quote activity, new order commitments lagged our expectations during the quarter. We believe that this is large attributable to farmers anticipating funds availability from the

program and to the loss of subsidy payments given higher crop prices.

Our balance sheet remains in excellent shape. We now have approximately 46.5 million in cash and marketable securities compared with 44.5 at the end of first quarter of last year. We continue to have no long term or short term debt.

Our accounts receivable are 4.1 million higher than last year, resulting from increased sales and acquisition. Inventories are higher by 3.3 million, with most all of the increase attributable to acquisitions in the startup. Looking forward, we believe that the demand for agriculture equipment remains positive for fiscal 2003. We're uncertain about how the increased equip funding, higher commodity prices, and counter-cyclical subsidies will affect our domestic order flow, however, the key market drivers are favorable for continued growth in the domestic irrigation equipment market.

Additionally, our international expansion into Western Europe, South America, and now, South Africa, has created new revenue opportunity. Barring the possible adverse effect of an extended conflict in Iraq, we continue to project growth in earnings in fiscal 2003, on revenue growth of approximately eight percent, excluding future acquisitions. I'd now like to open it up for questions.

Thank you, sir. Ladies and gentlemen, at this time, we will begin the question and answer session. If you have a question, please press the star, followed by the one, on your push button phone. If you'd like to decline from the polling process, press the star, followed by the two. You will hear a three-tone prompt acknowledging your selection. Your questions will be polled in the order they are received. If you are using speaker equipment, you will need to lift the handset before pressing the numbers.

One moment please for our first question.

Once again, ladies and gentlemen, if you do have a question please press the star, followed by the one, on your push button phone, and if you are using speaker equipment, please lift the handset before pressing the numbers. Our first question comes from Richard Henderson, with Pershing.

Must be a sparse crowd out there, I guess with the holidays. Anyway, just a couple questions. You did a good job in kind of outlining the positives and negatives and so forth. Could you give a little guidance on the outlook for the SG&A and selling expenses? Those ratios were a bit high in the first quarter, you explained. Is that going to continue, or is that going to moderate, or what?

Well, as a percent of sales, it will moderate a little bit, but in the total dollar number we would anticipate for the full year that per quarter they run in the 6 million or so range per quarter.

OK. The other question I had is on diversified products. Is -- you mentioned that the sales would probably be level with a year ago. Is that in some anticipation of your new manager bringing some new business on, or is that kind of business that you have pretty much in house?

Yes, for the most part, that's business that would be what we have had in the past. This is not anticipating any significant increase in terms of what he brings in. He's out there trying to identify that new business, and we have some good things that we can -- that look very positive for us. However, they take some time and we're not really sure of the timing of those.

OK, and last question, a little guidance on the engineering expense? Bruce, how do you think that's going to run for the remainder of the year?

And as I was talking about SG&A, I really including the engineering expense in there, Dick.).

Oh, OK.

You know, it will be in the five point -- in total operating expenses, if we group them as operating expenses -- we'll be in the 5.8 to six million range. You know, the engineering expense, I think, for the quarter was up just a little bit.

OK. Let me ask you one other one. On this Environmental Quality Incentive Program, what's the take, or how would it track if the budget deficit continued to worsen? Is that kind of pretty much tied to that, and it could kind of be less than everyone is kind of thinking? Or is that kind of -- it's just really a question of how it lays out in the quarters?

You know, I don't know that I will know what happens if there's, I guess, significant budget deficits, but I know there has been discussion from time to time on reallocating the funds, let's say, on emergency basis for other agricultural use, whether it was for support of cattle ranchers of other types of things. There could be a reallocation, as I understand it, of those funds potentially, but we're not really expecting that to be a factor at this stage. We don't really see anything that will impact it at this time.

OK. Thank you.

Thank you. Our next question comes from Alexander Paris with Barrington Research Associates. Please go ahead.

Good morning.

Good morning, Alex.

Could you give the actual sales numbers for the quarter this year and last year for domestic irrigation, international and diversified manufacturing.

Certainly. The domestic irrigation were this year 21.3. Last year there were 18.9 -- 19.0, actually. The international this year was 9.3. Last year it was 5.8, 5.9.

And diversified manufacturing?

Diversified manufacturing is at 2.8 this year, versus 3.7 last year. And then, there's a small amount of other income that changes. It's kind of a rounding issue.

Um-hmm. And you said you expected diversified manufacturing --well, without any new contracts -- to be about the same as this year for the full year?

For the full year. You know, we brought on the new business manager, and we have -- are optimistic about his ability to win back some of that business that we have not been getting.

Yeah. The acquisition revenue in the quarter, where was that from? Was that from the distributor, primarily, that you bought?

It would have been from the distributor -- primarily from the distributor, but also from the startup in South Africa, and in Lindsay, South America in Brazil.

OK. And you said you're gonna start manufacturing, actually, in South Africa before the end of this quarter. Does that make a fairly significant change in your cost? You take out the transportation cost, first of all. That's reasonably high.

Yes. We take out transportation and any relevant duties. It will fairly significantly improve our cost of the product in South Africa. All of the input costs today that are going into the product that we are exporting to South Africa are all, obviously, in U.S. dollars. And we'll have input costs going in in South African

for the most part, so it will reduce labor that goes into it. So, it should have a pretty good impact.

OK. Just finally, Bruce, what tax rate should we be using for the full year going forward?

It would have been 31 percent lacking the change ...

Right.

... of thirty-and-a-half to 31 percent - in that range.

OK. I think that's all I have. Thank you.

Thank you.

Merry Christmas.

Merry Christmas.

To you, too.

Thank you. Ladies and gentlemen, if there are any additional questions, please press the star, followed by the one on your push-button phone. And if you are using speaker equipment,

before pressing the numbers.

Gentlemen, it look like there are no further questions at this time. Please continue.

Thank you. The strategic initiatives of international expansion, product line expansion, parts programs and depots, and the additional of integrated system components are all generating growth from Lindsay Manufacturing. Our initiatives that differentiate our product offering, improve our product costs, and control expenses are also contributing to improved selling margins and profitability. In the international markets, we're strengthening our position with local manufacturing as well as differentiated products.

We continue to believe that the farmer's outlook is generally positive and we expect to see continued emphasis on improving farm productivity through the installation of efficient, intelligent irrigation and field management systems. The long-term drivers remain excellent. We continue to seek additional business extensions through acquisitions that are congruent with our mission and provide access to new markets and that build value for our shareholders.

We thank you for your questions and participation in this call, and we wish you a very happy holiday. Thank you.

Thank you, sir. Ladies and gentlemen, this concludes the first quarter results conference call. If you'd like to listen to a replay of today's teleconference, please dial 800-405-2236 or 303-590-3000 using the access number of 513123.

Once again, if you'd like to listen to a replay of today's teleconference, please dial 800-405-2236 or 303-590-3000 using the access number of 513123. Thank you for your participation. You may now disconnect.