Lindsay Corp (LNN) 2007 Q1 法說會逐字稿

Good morning; my name is Richard and I will be your conference operator today. At this time I would like to welcome everyone to the Lindsay Corporation fiscal Q1 earnings call for 2007. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (OPERATOR INSTRUCTIONS).

During this call management may make forward-looking statements that are subject to risks and uncertainties and (technical difficulty) current release and estimates of future economic circumstances, industry conditions, company performance and financial results. Forward-looking statements include the information concerning possible or assumed future results of operations of the Company and those statements preceded by, followed by or including the words expectation, outlook, could, may, should, or similar expressions. For these statements we claim the protection of the Safe Harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

Thank you. I would now like to turn the call over to Rick Parod, President and Chief Executive Officer. Mr. Parod.

Good morning thank you for joining us today. Revenues for the first quarter of fiscal 2007 were $51.5 million as compared to $39.5 million for the same prior year quarter. Net earnings were $1.8 million or $0.15 per diluted share compared with $511,000 or $0.04 per diluted share in the prior year's first quarter.

In the domestic irrigation market revenues were $25.7 million for the first quarter, increasing 11% over the same quarter last year. At the end of the quarter commodity prices for the primary agricultural commodities on which our equipment is used were strong. Corn prices have nearly doubled over the same time last year. Bio refineries continue to have a major impact on corn demand and pricing estimated by USDA to consume more than 18% of the corn produced in the '06-'07 season. USDA also estimates that the corn used for ethanol production will be up 34% from the prior year, reducing corn inventories to less than one-half the levels of a year ago.

Additionally beneficial for farmers, soybean prices were up over 20% and wheat is up over more than 40% from prices at the same time last year. Core crop prices are significantly higher; net farm income is estimated to be down 20% due to lower livestock revenues and higher input costs. Generally speaking, our first quarter, which occurs prior to planting, should not be viewed as a good indicator of the domestic irrigation equipment demand for the fiscal year. However, given the strength of agricultural commodity prices at this time, we're optimistic about the upcoming growing season.

International revenues were $12.2 million for the first quarter compared to $11 million for the same period last year. We continue to have strong sales in Australia and New Zealand and we had strong revenues in the Middle East during the quarter. Revenues from our operations in Europe, South America and Africa were below the same quarter of last year; however, we've seen some recent strengthening in Europe and Africa.

Infrastructure (technical difficulty) $13.6 million, up from $5.4 million in the first quarter of last year with the addition of Barrier Systems acquired in the fourth quarter of fiscal 2006. All of the revenue increase was due to the inclusion of BSI. Through our infrastructure business including BSI we continue to realize revenues associated with the road and railroad expansion as well as projects to improve road safety and traffic flow. We're also very optimistic about new opportunities for growth and expansion of our infrastructure business organically and through acquisitions.

Gross profit was $12.5 million for the first quarter versus $7.4 million in the same quarter last year. Gross margins for the quarter improved to 24.2% as compared to 18.8% for the first quarter last year. Gross margin improvement was a result of stronger revenues in the infrastructure segment from the inclusion of BSI.

[Solo] operating expenses for the quarter were $9.9 million, up $2.8 million due to the inclusion of BSI, higher medical expenses and compensation-related expenses. Approximately 60% of the increase in operating expenses resulted from the inclusion of BSI.

Our order backlog was $24.6 million on November 30, 2006 as compared to $20.9 million November 30, 2005. The increase in backlog is attributable to the inclusion of BSI. Total irrigation backlog was below the same quarter last year by approximately 15%. Last year at this time irrigation equipment revenues were lower in the quarter and we had pass-through irrigation orders resulting from shipment constraint. This year our operations in Nebraska have ramped up earlier and faster in anticipation of the strong selling season resulting in virtually no pass-through orders.

Cash and marketable securities on November 30, 2006 were $45.9 million compared to $49.3 million at November 30, 2005. Accounts receivable increased $12.6 million from the same time last year due to higher revenues and some extended terms for irrigation products. During the quarter we offered a limited number of machines with payments due in the spring to assist dealers in taking early delivery of equipment in advance of the primary season. Inventories increased 12 million over the same time last year due to the inclusion of BSI.

We did not repurchase any company stock during the first quarter of fiscal 2007; however, we have a remaining repurchase authorization for 881,000 shares. In summary, irrigation equipment demand for the first quarter of fiscal 2007 was comparable to the first quarter of fiscal 2006. However, as stated earlier, the first quarter should not be viewed as a reliable predictor of irrigation revenues for future periods. Given the strong agricultural commodity prices driven in part by demand for biofuels, we're optimistic about demand for the upcoming growing season. Spring weather will also be an important driver for irrigation equipment.

In our irrigation segment we continue to launch new products and services aimed at improving farming and water use efficiency. We're also continuing our investment in lean manufacturing process improvements globally to enhance our margins and reduce working capital investments.

In our infrastructure segment we realized strong infrastructure sales led by BSI's quick movable Barrier Systems. We're pleased with the contribution from our infrastructure business with the inclusion of BSI. We believe that the expansion of this business has and will continue to be beneficial in the effective utilization of our manufacturing capabilities, global expansion and in diversifying our revenues and profits as we experienced in the first quarter of fiscal 2007.

For our irrigation and infrastructure segments we continue to aggressively seek acquisitions that are synergistic and that create differentiation opportunities. We are also pursuing attractive acquisitions that provide additional growth adds for Lindsay Corporation. I'd now like to open it up for your questions.

(OPERATOR INSTRUCTIONS). James Gentile, BB&T Capital Markets.

Hey, how's it going? I just wanted to go over your irrigation backlog situation commenting, it was down 15% year-over-year, yet you attempted to incentivize your dealers to accumulate some inventory ahead of what's expected to be a better selling season. If you could use kind of explain that a little bit better?

As I said, the revenues in general were comparable to last year. We did have some trouble last year at the start of the season with getting orders out to dealers because the demand started to pick up fairly early and we saw that -- we had difficulty getting the people on staff to ramp up production. So this year we see, with agricultural commodity prices as strong as they are, the need to really be prepared for that. So what we've done is offer some extended terms on irrigation equipment to have some of our dealers take on some of the equipment in advance of the season because during the peak of the season it becomes difficult to be able to meet that demand.

So it really isn't much more than that. I think the real key is that the first quarter in itself is not a really good indicator of the season and backlog, even at the end of the first quarter, is really not a good indicator of what's going to happen during the season because we really haven't started it at this point.

When is your annual sales meeting? That occurs usually in January, right?

Well, we have ongoing sales meetings that take place out in the field with our dealers. We had those a couple of months ago where we get significant input and feedback from dealers and their salespeople on what they see in the market. And then we have a [doer] convention every two years and that comes up in January.

Just given the history, I would imagine that your customers know the restrictions on certain center pivot manufacturing capacity that's out there. So just kind of logically wouldn't you assume that if we're going to see a cyclically strong demand period in 2007 that they would perhaps be ordering a bit earlier if it's going to be that good?

Well, there are a lot of factors that really come into play in that, James. And one of them is the new pricing policies that we put in place a couple years ago where we really did not commit to pricing more than roughly 30 days. So one of the things that dealers are concerned about is taking orders and placing orders and getting the pricing basically locked in where they're not really sure what's going to happen with things like (technical difficulty) and how it may affect pricing. So that 30-day window does affect that order flow somewhat and we've seen that dealers will tend to -- it'll be a little more hand to mouth in terms of that dealer order flow because of that 30-day window.

Okay. And we were to assume unit -- one last question, I'm sorry. If we were to assume -- if we were to assume maximum capacity in your seasonally strongest quarter, which is usually Q3, what would the Lindsay operations be able to attain in terms of revenue?

I really couldn't forecast that; it depends on a number of other factors and I wouldn't want to --

Such as?

-- well, the other factors are mix. In fact, mix plays a role at any point in time. For example, it would be fair to say that when you look at revenues in our first quarter, part of it was unit increase, part of it was price and (technical difficulty) and mix definitely has an impact in terms of where those machines are going to go. In some parts of the United States those machines would be larger, more complex machines and in other parts of the United States they may be very straightforward five tower type machines. So it really -- mix does have an impact as well.

Okay, thanks.

(OPERATOR INSTRUCTIONS). Ryan Connors, Boenning & Scattergood.

Good morning, guys. A question just following up on the mix theme. You talked about ethanol and obviously that's been a big topic on people's minds. If ethanol really were to take off, which particular aspect of your productline would that benefit or would it benefit things equally across the board? In other words, would it be disproportionately beneficial for center pivot systems or other types of systems?

Well, certainly disproportionately beneficial to we'll say center pivot system. Primarily in the -- obviously in the corn growing region. Where in the Pacific Northwest we may have more of our machines going out into growing potatoes, possibly with corn arms attached. We would see that the primary demand driven by ethanol and biofuels would be corn type machines. We are seeing some changes in the requirements on corn machine (technical difficulty) ethanol is expanding for example in some cases taller machines or larger machines. But generally it would be fairly straightforward pivots and that certainly is guard business that is the core productline.

Great.

I'd also just one point to that, Ryan. If you look at real commodities irrigated by center pivots, it's probably today close to one-third of the center pivots are going onto corn. So it is a very big driver for pivot demand.

Great. Next was just more of a financial question. The G&A line is kind of spiked a bit since the BSI acquisition. I've got it running at about 11% of sales versus historically it was a couple percentage points lower than that. Is that sort of -- should we expect that to be an ongoing run rate or are there synergies that are going to be knocked out there that will bring that down back to more historical averages?

I think if you look at the dollar level of SG&A for the quarter, it's probably indicative of a run rate -- fairly close. It's going to vary some from that. On a percentage basis we will continue to keep a focus on reducing that overall percentage as an SG&A run rate. So we wouldn't be happy with that as a percentage, but on a dollar basis that's probably not too far off in terms of what you see in the first quarter.

Okay, great. And then last one, more of a bigger picture type question. Obviously you've been moving towards diversifying the portfolio to kind of mute the cyclicality of the irrigation business. Can you comment on what inning you think you're in that process now that the BSI acquisition is complete? Are we still early in that process or are you getting to the point where you're more comfortable with the makeup of the portfolio?

Well, I'm happy with the direction that the portfolio is taking. And the drive is not purely to diversify the portfolio, but to really look for those opportunities that give us additional growth paths for earnings for shareholders. And we see in BSI certainly some synergies that were very attractive -- manufacturing synergies, global expansion synergies, also some opportunities to help them to achieve growth in markets that they otherwise would not have been able to do.

So pure diversification from a diversification standpoint is not what we're after. We're really looking for the either growth markets or attractive markets where we can provide something that will be beneficial to attaining that earnings growth for shareholders. In terms of where we are, I'm happy with the addition of BSI and how that's expanded our infrastructure business. I'm also pleased because I see in that more opportunities for additional acquisitions and for productline expansion there.

We're certainly not anywhere near where I would say an end to this. I view it all as a beginning in the sense that we looked at BSI as additional growth -- for additional growth and then we can add more to it. In addition to that, as I commented earlier, we continue to look for another growth opportunity or growth path for earnings for shareholders. I would like to see us be able to add another product group that is still somewhat related or tied into the water industry to give us additional earnings growth.

Great, thanks so much for taking the time.

Well, thank you.

(OPERATOR INSTRUCTIONS). There appear to be no further questions. Do you have any closing remarks, sir?

Yes. For our business overall the global long-term drivers of water conservation, population growth, increasing production of biofuels, and improvements in infrastructure remain very positive. In addition to the overall business enhancements that have taken place, we continue (technical difficulty) structured acquisition process that will generate additional growth opportunities throughout the world in water and infrastructure.

Lindsay is committed to achieving earnings growth through global market expansion, improvements in margins and acquisitions that form growth paths and are accretive to earnings. We have strong cash flows and financial flexibility to continue to create shareholder value by pursuing a balance of organic growth opportunities, accretive acquisitions, share repurchase and dividend payments. We'd like to thank you for your questions and participation in this call and we wish you all a very happy holiday season. Thank you.

Ladies and gentlemen, that does conclude today's Lindsay Corporation fiscal Q1 earnings call for 2007. You can now disconnect.