Lindsay Corp (LNN) 2009 Q2 法說會逐字稿

Good morning.

My name is Michael and I will be your conference operator today.

At this time, I would like to welcome everyone to the Lindsay Corporation second quarter 2009 conference call.

(Operator Instructions).

During this call, management may make forward-looking statements that are subject to risks and uncertainties and which reflects management's current beliefs 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 Mr.

Rick Parod, President and Chief Executive Officer.

You may begin your conference.

Good morning and thank you for joining us today.

Revenues for the second quarter of fiscal 2009 were $65.1 million, 40% below the same prior year quarter.

Net earnings were $200,000 or $0.01 per diluted share, compared with $9.7 million or $0.79 per diluted share in the prior year's second quarter.

Total revenues for the first six months of fiscal 2009 were $178.3 million, down 3% from the same period last year.

Net earnings for the first six months were $6.5 million or $0.52 per diluted share, compared with $14 million or $1.15 per diluted share for the first six months of fiscal 2008.

In the domestic irrigation market, revenues were $33.4 million for the second quarter, decreasing 38% over the same quarter last year.

Economic conditions for US farmers continued to be unfavorable during the quarter, driven by the worldwide economic recession.

Current economic conditions have adversely affected the willingness of farmers to make investments in capital goods.

The current USDA projections for 2009 net farm income show a 20% decline when compared to 2008 estimates, although the projections are still 9% above the 10 year average.

Agricultural economic conditions have changed significantly from the same time last year.

At the end of the second quarter of 2009, commodity prices for corn and soybeans had dropped approximately 35%, 40% respectively.

And wheat was down approximately 50% from the same time last year, while input costs had not fallen as rapidly, driving farmers to analyze their production costs and capital investments carefully.

Farmers' balance sheets remained strong.

However, they have remained cautious awaiting clearer indications of improving farm economics and capital availability.

Agricultural market conditions are expected to continue to adversely affect irrigation equipment demand for the remainder of our fiscal year.

For the first six months of fiscal 2009 domestic irrigation revenues were $87 million, down 1% from the same time last year.

International irrigation revenues were $15 million for the second quarter, 48% lower than the same period last year.

Exports were down in all regions with the exception of China, driven by general economic conditions and the strength of the US dollar.

Revenue from our international irrigation business units in Brazil, South Africa and France were also significantly lower than the second quarter of 2008.

For the first six months of fiscal 2009, international irrigation revenues were $47.4 million, down 7% from the same time last year.

Year-to-date our domestic and international irrigation businesses benefited from the strong first quarter revenues which resulted from fulfilling the sizable order backlog at the end of fiscal 2008.

Infrastructure revenues declined 35% from the second quarter of last year.

Revenues were significantly lower than last year, lower than expected, due to the delay in the previously announced Mexico City movable barrier project.

Last year in the second quarter, BSI had high margin movable barrier revenues from a significant project in Puerto Rico and recently anticipated strong revenues and margins in the second quarter of fiscal 2009 from the inclusion of the Mexico City project.

The project has been delayed pending the resolution of issues between the contractor and the local government which we believe are now being resolved.

We anticipate revenues from the project to begin in April and consistent with our earlier release, we still anticipate the majority of revenues for the project to be earned during the second half of fiscal 2009, with the project completed in early fiscal 2010.

Additionally, during the past quarter, federal, state and local governments generally curtailed infrastructure spending, pending the availability of funds and the outcome of the federal stimulus package.

Indications are now that funds have been allocated to the states, that project bidding is broadly in process and road infrastructure spending is likely to be fairly robust this summer.

Year-to-date at the end of the second quarter, infrastructure revenues were $43.9 million, down 3% from the same time last year.

Barrier systems revenues were down 28% while lower margin, diversified manufacturing and Snoline revenues increased 22% and 30% respectively over the same period last year.

Overall gross profit fell to $13.3 million for the second quarter versus $30 million in the same quarter last year, primarily due to lower volume.

Gross margins declined 20.4% compared to 27.7% for the second quarter last year.

Gross margin on irrigation products decreased during the quarter over the same time last year, resulting from significantly reduced factory volumes.

Infrastructure margins decreased due to an unfavorable shift in product mix with a delay in the Mexico City project and due to approximately $600,000 of unfavorable currency exchange impact related to shipments to New Zealand, which approximately half of which was offset in other income through hedging.

Year-to-date gross profit was $41.9 million compared to $49.3 million in the prior year period.

Gross margin was 23.5% year-to-date, compared to 26.8% in the first six months of last year, adversely affected by the lower production in the second quarter and unfavorable infrastructure product mix.

Total operating expenses for the quarter were $13.7 million versus $14.2 million in the same quarter last year.

Lower personnel related expenses were partially offset by the inclusion of a full quarter of operating expenses for Watertronics, which was acquired on January 24th, 2008 and severance related expenses.

For the quarter, operating expenses were 21.1% of sales compared to 13.1% in the prior year, second quarter.

Actions have been taken to reduce global staffing levels and other expenses and the annualized impact of SG&A, staffing reductions is now approximately $3.8 million.

Our order backlog was $45.5 million on February 28th, 2009 as compared to $98.5 million on February 29th, 2008.

The irrigation equipment backlog decreased $66 million while infrastructure backlog increased $13 million with the previously disclosed Mexico City movable barrier project of approximately $20 million.

Our balance sheet has strengthened compared with the prior year.

Cash and marketable securities are $16.3 million higher while debt has been reduced $21.2 million, improving our net cash position by $37.5 million.

Accounts receivable decreased $14.9 million from the same time last year, due to the lower revenues.

Inventories increased $6.1 million over the same time last year, due primarily to the build for the Mexico City barrier project.

Balance sheet initiatives remain focused on working capital reductions and overall cash management.

In summary, the current global economic conditions adversely affected our irrigation infrastructure businesses in the quarter.

Globally, farmers demonstrated hesitancy in purchasing capital goods, due the potentially reduced income opportunity and the tightening of financing available.

Government agencies curtailed committing funds on road infrastructure projects due to budget constraints and anticipation of funds available from the federal stimulus package.

We responded to these reduced market activities with reductions in our workforce and overall spending reductions in all operations.

Since the beginning of fiscal 2009, we've reduced our global workforce by 27%.

In addition, we have implemented actions to enhance cash flow through the reduction of working capital and restricting other non-essential spending resulting in a stronger balance sheet with a further improved net cash position.

In spite of the near term challenges we're confident that the increasing agricultural yields to boost food supply, improving water use efficiency, expanding biofuel production and improving the transportation infrastructure will remain global priorities and will be strong drivers for our business and our markets long-term.

Our strong balance sheet and the organization changes made have positioned Lindsay well to endure the current market conditions and to benefit from future growth opportunities.

I'd now like to open it up for your questions.

(Operator Instructions).

We'll pause for just a moment to compile the Q&A roster.

Your first question comes from Michael Cox with Piper Jaffray.

Good morning, gentlemen.

My first question is on pricing within the irrigation equipment segment.

I was wondering if you could comment on what that looks like in the environment, given the softer sales levels?

Yes.

Well, what we saw in the second quarter is that pricing moved down some.

I think the overall net price difference was probably in the range of about 3% in the quarter.

We also saw a little bit of a mix shift in the machines that we sold in the second quarter versus the second quarter of last year.

The machines were a little bit shorter and there was kind of a combination price mix effect in there.

But overall pricing moved down a little bit about 3%.

Would you expect that to hold at that level or given that steel prices have come down significantly, would you expect that pricing continues to move lower?

What I expect at this time, Mike, is that pricing will be a bit volatile and I don't mean really that it will be all over the map.

But I expect that we'll see some price reductions and moving back up some, based on market conditions.

We have seen competitors adjust price down in an attempt to try and pull in or stimulate more demand in the market, which I really don't think is extremely successful in terms of creating demand at this point.

So we will see some volatility in pricing.

But overall, I don't think we'll see anything dramatic or anything that will really be -- probably not be offset with the lower steel costs.

Okay.

Okay.

That's helpful.

The gross margin coming in right around 20%, should we think of that as a run rate for this level of sales or should we expect some seasonal impact as we move through the year?

I wouldn't jump on this as a long-term or overall run rate.

I think there's a seasonal impact.

I also would say that there's an adjustment that took place during the quarter and that adjustment was really in response to the changing market conditions.

So during the quarter, we are making further reductions in our staffing in response to the order rate.

And I think that you really can't assume that this would be a run rate at this point.

That's helpful.

Another big picture question on the irrigation side.

What are your thoughts on the availability of financing for farmers?

Is that playing into this or is this more of a psychological retrenchment in capital spending?

I think it is primarily a psychological sentiment or maybe retrenchment to some degree, more than anything else.

We have seen credit tightening somewhat for farmers, whether it was tight for specifically for our equipment or for capital goods or for farming operations in general.

There has been some tightening of credit that I'm sure enters into the farmer's perspective.

But in general, I would describe it more as responsive to the current recession, where farmers are really uncertain about what the future holds from a financing availability, from a profitability of the crop that's they're planting and decisions in terms of what crop to plant and general economic conditions, more than anything else.

Okay.

That's great.

Just one last housekeeping item maybe for Mark or for Dave.

If you could provide the operating profit by segment for the three months just ended as well as the six months, if you have, since it wasn't disclosed on the last call.

If you pull up the slide deck that is on our website, we've included the operating or the -- yes, the business segment data in that slide deck now.

Okay.

Thanks.

I'll grab it then.

Your next question comes from Joe Giamichael with Rodman and Renshaw.

Good morning, Rick.

Congratulations from a cash flow standpoint at least.

Thank you for finding that silver lining.

Well, your incremental margins cut both ways and when you see volumes drop off like this, you're certainly looking at a different world.

But the business has changed a bit over the last year as a result of the acquisitions.

How much variability do you think you can have built into the cost structure?

Will G&A be able to be reduced as these things are, I guess merged together better?

And then, again, on a selling expense basis, where do you think that's going to come out as a percentage of revenue?

Well, I'm not sure I totally understand the question, but let me try to answer because what your question really, is the effect of SG&A or the effect on SG&A of the acquisitions we've made and what opportunity there may be for further reduction and how all of this is impacted by the combination of these businesses.

I think the answer is that we've made some pretty significant reductions and I said on an annualized basis in staffing of about $3.8 million to date.

And the next obvious question that usually comes from that is, will we do more, is there a need to do more or what happens next.

And I think the answer is it will really be determined by what happens in terms of market condition.

I believe that we've made some appropriate and responsive cuts.

I still see additional things that can be done in the organization in terms of reducing expenses that are not necessarily people related but certainly organizational and just plain restricting spending.

But I think that if we were to see a market that contracted further, which is not what I expect at this point, then certainly we can make further reductions.

And I think it's too soon to really predict what an SG&A run rate would be at this point because we're in the process of, as you've seen, of making these reductions.

We've made significant ones and just $3.8 million annualized reduction on staffing is really including a little bit, the last month or so, in the third quarter.

So I think it's too soon to really call a SG&A run rate at this point.

I guess just from a G&A basis, then, that should be relatively fixed around these levels, regardless of volume movements though, right?

No, I wouldn't call it fixed at this stage.

Okay.

And then just a second question.

Commodity prices have seemed to bottom over the last couple months.

What do you think it's going to change to revive the international demand?

Is it still perception-based?

Is it credit markets?

What's going to wake up some of the international markets where you have been strong in the past?

It's an interesting combination of factors that really have affected the international markets.

I think there's -- from an export standpoint, certainly the higher dollar has influenced exports into the international market.

But I think from the farmer standpoint, it's very similar to the sentiment that we've seen in the United States, a bit of confusion in terms of what really to consider for planting, for the next season.

There also the concern about the availability of funds in terms of financing.

But at the same time, what we've seen is a continuation of some significant projects in the international market, where we've seen large growers who are acquiring land, continue to look at acquiring land and it may be food-related or it may be biofuel related.

We'll continue to see those large projects develop.

But the typical farmer in many of the markets, whether it's Brazil or South Africa or Europe or anywhere else in the world will still be -- sentiment or perspective will still be influenced by the financing availability and what he perceives as future profit potential, based on commodity prices.

And as you said, I think we've seen some stabilization in the commodities and I do think it's not a bad picture.

I think there's some good profit opportunity for farmers.

And as this stabilizes, I think they'll see that, they'll get that perspective and then the next part will be to be more confident about financing availability.

And just one last question and I'll get out of the way.

A large percentage of new acreage planting has come in the form of soy.

What does that do in terms of irrigation demand relative to some of the other grains?

I don't really see that as significantly affecting demand for our product or having much impact.

A fair amount of the acreage that will go to soy or incremental acreage will probably be rotational from corn to soy.

And in many cases, that's a significant pivot market for us either way.

So we have -- soybeans are probably the second biggest crop under pivot after corn so it's I think a significant opportunity for us either way.

Okay.

Great.

Well, thank you very much.

Thank you.

Your next question comes from Ned Borland with Next Generation.

Hi, guys.

Just one general question with regard to domestic irrigation.

I mean, would you -- would you expect the rate of decline that you saw in this quarter to sort of carry over to the second quarter?

I mean, I'm getting the understanding that there's some farmers that are sort of waiting to the last minute.

I mean, would the rate of decline be slightly less?

I know there's a lot of moving parts, but if you could just help us think about that.

Yes, I understand.

I think you're looking at how does this really play into the third and fourth quarter of our fiscal year.

And I'd say that I really don't know with certainty.

I would say that what I see happening at this stage is that we're seeing a definite hold back from farmers in terms of making those purchase commitments for capital goods, similar to what we saw in '05.

And I would expect that it will be a decreased market from what we saw in '08 under any circumstances in the third and fourth quarter.

It's difficult to predict whether or not we'll see an improvement in volume at this point in the third quarter, as farmers get a little closer to that planting, to make some decisions.

But I still anticipate it will be down pretty significantly from what we saw in '08.

And if you go back to the '05 time period, we saw about a 30% decline in demand over the '04 year, which was a very strong year.

And what we saw after that, then, was a pickup in '06 and '07 and then up to '08.

So what we have seen in the past is a pretty significant drop in a bad year when farmers are really pulling back from making those purchase commitments and then building from there.

Okay.

That's helpful.

Thanks.

Your next question comes from Ryan Connors with Boenning Scattergood.

Good morning.

A few questions.

First off, on the operating results for the second quarter, was there anything one-time in nature involved on the expense side?

Were there severance costs involved or taking lines out of production or anything like that that will -- that was sort of one-time in nature?

There were severance costs, Ryan.

I don't have a specific amount in terms of what the severance dollars were but we were making reductions through the second quarter in terms of staffing, both in hourly and in salary workforce.

So there certainly were severance-related expenses.

In addition in the second quarter, in terms of a one-time expense, we also had about $600,000 in FX impact in the quarter, which would have been in the margin level in the infrastructure part of our business.

This was on shipment to New Zealand, as I mentioned in the opening.

And that's a one time thing that was partially offset in other income, is through hedging.

Outside of that, no other real significant item that I'm aware of in the -- no other significant item in the second quarter.

Okay.

And so it doesn't sound like the severance was massive.

I guess what I'm trying to get at is how much of a drag was that on earnings?

Doesn't sound like from your comment that it was -- if it were material, you would have noted it, the magnitude of it.

Yes.

Okay.

And then just wanted to talk -- follow up on the international side.

A couple questions there.

One of the things you can't pick up a newspaper now a days without hearing about the protectionist wave and tariffs and that sort of thing.

I'm curious your thoughts on whether there's been any impact there, in any of the markets that you serve, whether that's an issue.

And then also, secondarily, in terms of the government funding in some of the key areas.

I know Brazil, for example has their [Funami] program, I believe it's called, that -- where they fund the irrigation equipment.

Has there been any movement in terms of governments going away from that, given the fiscal duress people are under?

Well, the answer to the tariffs and the funding question, the government-sponsored funding type programs, the answer would be the same in both of those.

We really haven't seen any significant change, any real impact at all.

I do believe that the higher dollar has had an impact from an export standpoint that causes some of our customers or potential customers to think twice or reconsider whether they're going to make the purchase at this time or wait.

But we haven't really seen any significant change from a tariff standpoint or from a government funding standpoint.

We still consider, and still see, strong demand in markets like China where there is some government subsidy and that has continued to be strong for us.

Okay.

Great.

And then I just had kind of a bigger picture question for you, Rick, just from the standpoint of managing the organization.

I mean, obviously the volatility of the last couple years has just been tremendous in terms of demand on the irrigation business.

You had an unbelievably great year in '08 in terms of demand.

Now it seems like it's a sharp correction to that.

How do you go about -- if you could just walk us through your thinking about how you go about managing the productive footprint of the Company with that kind of volatility?

In other words, how do you keep from being, say, short-staffed in terms of personnel, et cetera, when the market picks back up from cutting too deep, if in fact things will rebound in the relatively near term?

If you could just walk us through your thinking there and how you balance the need to cut costs with the need to be able to react when things improve.

It's a complex question.

I think the way that I would look at the business and the way I look at how we operate, is to start first with really looking at the processes of the business and what processes we have in place that really support that kind of volatility that you're talking about.

And by that I mean, I think we have a good processes in terms of analyzing raw material costs, analyzing production requirements, being able to forecast and make adjustments in our production capacity, fairly variable production capacity levels on a frequent basis.

So we're forecasting frequently.

We are -- our salespeople and factory people are meeting frequently to make adjustments to the production forecast and how that affects our operating units or our manufacturing units.

The other is in terms of the reductions that we're making, I always look at it in terms of maintaining the core of what we have to from -- or I feel is beneficial for the long-term.

And I am definitely interested, and more interested in many respects, in terms of the long-term and what I see as the opportunities for the Company and careful not to cut out that long-term potential.

So it's difficult to make these cuts and it's disruptive to have to do it.

But I'd say we have pretty good processes in place and people in place that have been responsive to the market conditions.

And we see this period as a difficult one but also as an opportunity to continue to enhance our processes.

So we've got people looking at how we can forecast better, how we can respond better in our manufacturing operations.

We still see some pretty significant market opportunities long term.

So we're maintaining the pieces in place to take advantage of those opportunities.

But it is a difficult process to have this kind of volatility.

And yet I'd have to say our management team has responded very well in terms of being able to capture that additional demand.

as you pointed out last year and is yet very responsive to making the adjustments this year to a reduced market.

Great.

Then one final one, Rick, is that there's -- I guess there's a school of thought that one of the things that took place in 2008 was that some of the replacement demand, some pivots may have been replaced that could have lasted a few more years but that farmers were doing well financially and decided to replace some of that equipment earlier than they otherwise might have.

And I guess if that's true, then that would suggest that maybe some of that replacement demand portion of your business would be weaker, for an extended period.

I wonder if you could just give us your thoughts on whether you think there's any validity to that school of thought and if so, to what magnitude do you think that may or may not have taken place?

Well, I look at that, the data that would support what's really happening in the market a little bit differently.

We track based on warranty information that we get when we sell a machine.

What percentage of the machines are going into dry land, what percentage going into conversion from flood to pivot and what percent would be replacement on an ongoing basis.

So we're tracking that regularly.

What we saw last year, which was obviously a very strong year, was that a slightly higher percentage than normal, when normally we would see about a third, a third, a third, in terms of those three applications.

We were seeing about 40% of the machines going out the door going into dry land applications which made a lot of sense to us because the profit opportunity in terms of the incremental profit opportunity with the high corn prices that we saw really accelerated the payback for installing a piece of equipment on dry land.

So that made a lot of sense.

Now, what I've seen in the let's say most recent quarter, looking at the data, is a similar rate where a high percentage over the third, close to 40% is still going into dry land applications.

So that would tell me that is not really the case of the significant amount being replaced last year, so therefore changing that replacement market.

Okay.

That's great information.

Thanks for your time this morning, Rick.

Thank you.

Your next question comes from Jon Braatz with Kansas City Capital.

Rick, good morning.

I apologize, I've been on and off the call.

I apologize if this question has been answered.

Over the last two months I've contacted a lot of irrigation dealers and it seems like the overriding theme that I got from them was that the farmers were very reluctant to spend because of the what I would call the headlines, I mean, the world was coming to an end.

And unfortunately for your business, all these -- the worst headlines seemed to coincide with your prime selling season.

Would you agree with that?

And that if we see some, like we're seeing today, a better environment and maybe improving global economic picture, that we could get a snapback rather quickly this fall?

Not necessarily this season, but next fall, if we see the overall picture improve come this fall?

Well, I definitely agree with the assessment that the farmer is responding to the overall headlines.

I think that, like consumers, farmers are looking at the headlines and seeing the recession and looking at the availability of financing and those things and also seeing some volatility in terms of input costs.

And input costs have been high feed costs and rising and falling fertilizer costs.

So farmers have been troubled with how to really manage that, the economics of farming in the most recent months and I do think that we're starting to see some stability come in that respect.

The headlines are still not rosy but the farmers seeing a little more stability from the input cost side, little more stability in the commodity price side.

So I think that's all going to be beneficial.

If they can start to feel a little more confident about the economics in general and if financing doesn't become an issue for them, which I suspect will not be the case because their balance sheets are in good shape.

Then I think that there could be a good snapback and farmers could be in a very different position at the start of the next season.

Secondly, I was reading your 10-K last night and I think in the 10-K it said you had a sales office and a distribution office or warehouse in China.

Can you tell me a little bit about what you're doing in China?

Is it all irrigation related?

Is it infrastructure?

And I think also in the 10-K they mentioned that the leases on those offices were expiring.

Is that something that you want to continue to -- those investments there, you want to continue to make?

Well, we have a sales office and a warehouse in China where we have stocked goods.

And we have gone through a cycle where we exported to China initially without a warehouse and we had one or two people there to where a couple of years ago we moved to some contract manufacturing in China which we stocked in the warehouse and married with goods that we shipped over from the United States.

We've now reached the point where we're primarily exporting again back to China, full machines and that's to maintain the kind of quality level that we want.

But we've also reached a point that we believe that in order to maintain our significant market share in the region and maintain our quality level that we're interested in keeping, that we need to have our manufacturing, our own manufacturing, Company-owned manufacturing in China.

So part of our plan and process has been to set up manufacturing in China which we are in the process of doing.

We've located a facility that's one that is likely that we will get into and we have accumulated some equipment that would go into that facility.

So our plan would be yet this fiscal year to set up or begin the production in the China operation.

At that point, we would probably consolidate certainly, the parts warehouse -- or the warehouse would go away.

We'd end up with a factory.

We may up with our sales office consolidated into that.

Is this all irrigation?

All irrigation related, yes.

Since we started this on an irrigation basis we've had a significant amount of interest come up about doing some things in infrastructure as well.

That might be the next step.

But this is primarily irrigation driven.

Well, obviously the irrigation potential in China is huge.

What kind of developments are you seeing internally, I mean in China in terms of bringing on more center pivot irrigation?

I mean, the fields there are awfully small, I think.

Are we seeing changing -- sort of a changing infrastructure there in the agricultural area?

I think the infrastructure will change in time.

But the primary markets for our equipment in China are in areas where the fields are already pretty significantly sized.

Okay.

Inter Mongolia, for example, is a significant market for us.

And as I was talking about the exports in my opening comments, I mentioned that all the export areas -- regions -- basically are down, except China.

China has continued to be pretty strong for us.

So we still see some good opportunity there.

We believe that there will be good growth there.

They definitely have a need to enhance and increase food production and reduce water usage.

Okay.

All right.

Thank you very much.

Thank you.

Your next question comes from Steve Gambuzza with Longbow Capital.

Good morning.

Good morning.

Just wanted to clarify a couple comments that were made.

The 3% price decrease in the quarter, does that imply that kind of the balance of -- that would apply to irrigation or is the average price decreased for irrigation products sold in the quarter?

I'm sorry, I didn't understand that last part of the question?

I think you said that price in the second quarter was down 3% in irrigation.

Is that correct?

Correct.

So the balance of the revenue decline would be related to volume?

That's correct.

Okay.

And prospectively, you don't expect, based on your current -- based on the market, the price of steel, et cetera as you see forward this year, you don't expect price to be a big impact going forward?

It's difficult to predict what will happen with price going forward.

But to answer your question, I do not expect that it will be a significant factor.

We have seen a little more price stability from a competitive price standpoint and we do have some lower steel prices, so I really don't see that as a significant factor going forward.

I do, however, know that if in fact competition or whatever market conditions were to drive pricing lower, we'll go where we have to to protect our market share and protect our business.

It seems actually somewhat surprising given the drop in steel prices and the drop in volumes overall in the industry that price was only down 3%.

That kind of exceed your expectations?

Not really.

I think there's a general understanding that the price or let's say it really is not going to be very elastic from the standpoint of we're not going to create a lot of demand right now by dropping price.

The real issue is the farmers' sentiment and the farmer is more concerned about general economic conditions and financing availability than whether the price is 3% or 4% or 5% lower.

Okay.

And on the -- there was some discussion earlier about one-time charges in the quarter.

Looking at the segment margins, you had basically breakeven levels in the highway products, in the infrastructure products and a lower decline in irrigation.

I was wondering if you could just comment again on what the impact of one-time charges were?

I didn't quite follow what you said earlier.

Well, what I said was there's not a great deal of significant one-time charges in the quarter.

There was about $600,000 one-time impact in the quarter of FX impacts in the infrastructure business, foreign exchange impact, due to a sale to New Zealand.

And there certainly was some severance expenses offsetting some of the reductions that were made in the quarter.

But no significant one-time charges in the quarter.

And I think the way to look at the quarter, from the -- what you're really asking is that there was a significant drop in irrigation revenue versus the second quarter of last year.

Significant decrease in many respects in the infrastructure revenues also versus last year, which was a combination of taking out the -- let's say the Puerto Rico quick move barrier project which was completed last year and not having that replaced with the Mexico City project which was expected to begin but is currently delayed but hopefully starting very soon.

And a reduction in government spending in the infrastructure part of the business as far as getting started with some of the road construction projects and things like that tied to the stimulus funds.

In addition to that, in response to the significantly reduced market conditions in irrigation, we were reducing manufacturing costs and reducing our production levels, which means we're not running at optimal levels at that point because we were taking out costs as we're going along through the quarter.

Still not sure of what that next month's order book would look like, as we were going through that process.

So let's say not running at an optimal level or as responsive as we would like in terms of the cost coming out because we weren't really sure what the next month's orders were going to look like.

So I think that's how we really get to what happened in the second quarter.

So but I guess it seems like you also made the point that you would not use these run rates, these margins as kind of a run rate at this level of revenue.

Essentially.

If we don't see a pickup in revenue going forward that, if the activity level of this past quarter or kind of the run rate going forward, that you would expect to see improving margins because of some of the actions you've taken this quarter.

Is that a fair statement?

Yes, I think that I would expect to see some improvement.

But I also would caution that you have to factor in whatever happens with pricing at the same time or volume from where we are with the volume in the second quarter.

So let's say, similar volume levels to what we ran in the second quarter, then I would anticipate improvement from an overall run rate in terms of margins.

But again, I would -- you would have to factor in then what happens with pricing and raw material costs as well.

And I guess your current expectation is that they would be stable if we have stable volumes?

My expectation would be that they're stable but I'm not making a forecast in that or going to give guidance on that.

I would just say that I don't see anything at this point that would say -- that I would -- that would cause me to believe that steel will significantly run up or that competition will significantly change the pricing structure today.

And the infrastructure products business with the Mexico project coming online in the second half, seems like you should be able to get the kind of revenue level necessary to support profitability in that business?

Yes, I'm optimistic about the infrastructure business going forward.

I think that the Mexico City project, I think it started as expected, will be very beneficial to that business in the second half.

In addition, we're now seeing that the stimulus package funds have been allocated out to the states and there's lot of bidding that's in process and going on.

And I'm optimistic that we'll start to see some of that late in the year in terms of turning into projects that will be for either leasing projects for quick move barrier road construction or will be road safety products going into either some rework or roadwork that's in process from the stimulus funds.

Thank you very much for your time.

Yes, thank you.

(Operator Instructions).

Your next question comes from Michael Coleman with Sterne Agee.

Good morning.

Just kind of a follow-up.

Would you expect to see a seasonal benefit this year as you go from the second to third quarter.

Or is in a year like this the kind of seasonal benefit deferred or that pattern interrupted?

It's a difficult one to predict at this point.

I would say -- I wouldn't call it deferred or interrupted.

I would say that the seasonal benefit should be taking place right now and it should have started really in the second quarter in terms of that seasonal benefit.

But what we saw in the second quarter and I would characterize the situation as primarily the domestic farmer more than international farmer, but the domestic farmer is stuck.

Stuck from the standpoint of really uncertain about what farm economics will be for this season and stuck in terms of availability or what's going to happen with availability of financing and may be somewhat hesitant to make those investments.

Doesn't mean that there are not significant orders or investment decisions being made.

But certainly not at the levels that we would expect or have seen in the past.

So we're definitely seeing that sluggishness in the market that's tied to farmer sentiment.

Okay.

I realize you don't provide guidance but, I mean, you said that you didn't see the seasonal benefit in the second quarter.

Is it present in the current order rate?

Well, let me correct that statement.

We did see seasonal benefit in the second quarter, not to the extent that we would have expected or that we saw last year or would like to have seen.

There was seasonal benefit.

In other words, farmers are making decisions in terms of putting in equipment for the spring in advance of planting.

So that is taking place.

Not at the rate that we would like to see.

Okay.

Thank you.

There are no further questions at this time.

Mr.

Parod, you may proceed.

Well, for our business overall the global long-term drivers of water conservation, population growth, increasing importance of biofuels and improvements of infrastructure remain positive.

Our balance sheet is strong.

Our management team is prepared to take appropriate actions to changes in market conditions.

Lindsay is committed to achieving earnings growth through global market expansion, improvement in margins and strategic acquisitions.

Thank you for your questions and participation in this call.

This concludes today's conference call.

You may now disconnect.