Lindsay Corp (LNN) 2010 Q1 法說會逐字稿

Good morning.

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

At this time I would like to welcome everyone to the Lindsay Corporation 2010 first-quarter conference call.

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 which reflect 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.

I would now like to turn the call over to Mr.

Rick Parod, President and Chief Executive Officer.

Mr.

Parod, you may begin.

Good morning and thank you for joining us today.

Revenues for the first quarter of fiscal 2010 were $86 million, 24% below the same prior quarter and up 17% from the fourth quarter of fiscal 2009.

Net earnings were $6.7 million or $0.53 per diluted share, compared with $6.3 million or $0.51 per diluted share in the prior year's first quarter.

US irrigation revenues were $32.8 million for the first quarter, decreasing 39% over the same quarter last year and rising 12% over the fourth quarter of fiscal 2009.

The first fiscal quarter is traditionally a low revenue quarter for irrigation equipment as farmers are typically focused on harvest activities.

It is likely that the late and protracted harvest this fall also negatively impacted equipment demand.

The comparable first quarter of fiscal 2009 reflected a record first-quarter irrigation revenue working off a record backlog from the end of the previous fiscal year.

Agricultural commodity prices were relatively stable when compared to the same time last year.

And in general, lenders for irrigation equipment purchases in the US remained willing and able to finance purchases.

However, there are indications that requirements for obtaining financing have become somewhat more stringent.

International irrigation revenues were $20.5 million for the first quarter, 37% lower than the same period last year and 20% lower than the fourth quarter of fiscal 2009.

Irrigation revenues decreased in most regions outside of the US, partially offset by increases in Mexico, Brazil and Europe.

The Brazilian market has shown fairly strong signs of recovery, driven by increased sugar cane production for sugar and ethanol.

Cane production in Brazil is estimated to be up approximately 7% over the previous year.

In Europe, the higher revenues were in the traditional markets of Spain and France, and revenues were lower in the CIS countries still impacted by funding availability.

For all markets, Irrigation segment revenues were $53.3 million, down 38% from the same quarter of last year.

Approximately 85% of the revenue reduction was in unit volume, due to the significant changes in the economic environment and the remainder in lower unit prices passing through reductions in input materials.

Long-term market drivers of expanding food and biofuel production and in improving water use efficiencies through mechanized irrigation systems remains very positive.

Infrastructure revenues were $32.7 million in the quarter, increasing 20% from the first quarter of last year and up more than 75% over the fourth quarter of fiscal 2009.

Approximately 80% of the revenue for the $19.6 million project in Mexico City was realized in the first quarter and the remainder is expected to be realized in the second fiscal quarter of 2010.

The anticipated project list for Barrier Systems' traffic mitigation systems remains very strong.

The timing of orders for these projects is uncertain and currently difficult to forecast in the present economic environment.

Numerous projects have been delayed for the past year due to funding limitations or uncertainties.

While additional roadway projects have resulted from the Federal stimulus package, future projects may be impacted by the uncertainty surrounding the passage of a new multi-year Federal highway funding bill.

Multiple short-term extensions of funding are expected before any serious activity is undertaken to pass a multiyear bill, due to apparent other priorities.

While Barrier Systems revenues were significantly higher in the quarter due to the project in Mexico, Diversified Manufacturing revenues were down approximately $5 million from the same quarter last year on lower Commercial Tubing and Contract Manufacturing revenues.

Overall gross profit was $25.8 million for the first quarter versus $28.6 million in the same quarter of last year.

Gross margins increased to 30% compared to 25.3% for the first quarter of last year.

Infrastructure gross margins increased on higher revenues and a favorable product mix, while irrigation margins remained stable.

During the quarter, steel prices remained relatively low and average irrigation equipment prices remained unchanged from the fourth quarter of fiscal 2009.

Recently, steel prices have moved higher and are expected to rise further in future months.

Total operating expenses for the quarter were $14.6 million versus $16.8 million in the same quarter of last year.

The $2.2 million lower expense level reflects the reductions made last fiscal year primarily in personnel-related expenses.

Our order backlog was $36.1 million on November 30, 2009, as compared to $43.6 million on August 31, 2009, and $40.1 million on November 30, 2008.

Irrigation equipment backlog was up slightly from the same time last year.

Our balance sheet has continued to strengthen.

Cash and cash equivalents are $63.5 million higher, while long-term debt has been reduced $6.2 million, improving our net cash position by more than $69 million.

Accounts receivable decreased $32.5 million from the same time last year due to the lower revenues and improved DSOs.

Inventories decreased $28.2 million over the same time last year with significant decreases in both irrigation and infrastructure inventories.

Company initiatives remain focused on inventory reductions through the implementation of lean initiatives and on overall cash flow management.

In summary, strong revenue and margins for the Mexico City road project partially offset lower irrigation revenues as compared to the same period last year.

Globally, farmers continue to remain cautious in committing to capital goods investments.

However, the first fiscal quarter is generally the harvest quarter and the quarter's revenues are not a good indicator of next season's demand.

The traditional selling period in the major markets will begin in the latter part of January or early February.

In the Infrastructure markets, stimulus funds have been applied to shovel-ready maintenance projects versus more significant road-widening or new road construction projects, which are more likely to use our movable barrier and crash cushion products.

Uncertainty continues to exist on the Federal highway funding status.

While this uncertainty exists, interest in Barrier Systems' traffic mitigation systems remains fairly strong.

Overall, we have responded to these contracted market activities with reductions in our work force and overall spending reductions in all of our operations.

During the quarter, we realized the benefit of these actions and of the leverage obtained from a sizable quick move barrier project.

In addition, we have implemented action to enhance cash flow through the reduction in working capital, which has resulted in a very strong balance sheet.

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

Our strong balance sheet has well positioned us to invest in growth initiatives both organic and through acquisitions.

I would now like to open it up for your questions.

(Operator Instructions).

Ned Borland.

Next Generation.

I had a question here on Infrastructure.

Could you give us a sense of how the non-Mexico City-related businesses are doing?

Are those businesses sort of stable?

Are they increasing a little bit with stimulus projects?

I know some of these projects have gone forward and they are awaiting further funding, but can you give us a little clarity on that?

Yes.

Good morning, Ned.

I would characterize it as there had been some benefits in other product categories such as the crash cushion from the stimulus fund.

And the other parts of the business -- for example, Snoline in Italy or Diversified Manufacturing [to being in] things like that are really not affected by the stimulus investments directly.

As I mentioned earlier, we have seen some decrease in Diversified Manufacturing revenues, but the -- really unrelated to any of the stimulus kind of activity.

It's more tied to some of the Contract Manufacturing work that's done.

In fact, for agricultural equipment providers.

But in general, I would say there has been some benefit in the crash cushion and safety products in the US, but for the other businesses really no impact.

And then, on Infrastructure margins, I mean, is there a way to kind of quantify the Mexico effect here in the operating margin?

I would imagine it would be tough to achieve 23% operating margins going forward in that business.

I love those operating margins and I would love to see that every quarter.

However, I think you can see from those results, the real benefit of significant quick move barrier projects.

And while we are really not going to split out the specific margins for that product, I would say that you can really see the leverage attained and it is important for us to continue to pursue those.

And as I mentioned earlier, we do still have a pretty significant project list of projects that we are pursuing, with a fairly good confidence of achieving those.

However the timing, of course, is uncertain as to when they will fall in.

Are most of those international or are some of them domestic?

It's a combination of domestic and international.

It really is both.

It isn't -- I can't say that that list is right now is biased one way or the other.

Okay.

And then switching quickly to Irrigation, the late harvest, maybe it impacted sales in the first quarter.

I mean, would you expect to see those kind of delayed sales show up in 2Q?

I think there is the opportunity of seeing some of the delayed harvest activity appear in the second Q.

However I think there are some other things that potentially occurred in the first quarter.

For example -- and this question really came up even in last quarter's call -- there was an extension of the Section 179 of benefit or really it's an accelerated depreciation on capital goods that expires 12/31 of '09.

So there is a benefit that can be attained for farmers to buy equipment and have it installed and operating by the end of the year.

And I'm sure that we saw some benefit from that in the quarter, more than we did in, say, the previous quarter at the end of the fiscal year.

So I think there's some offsetting factors there.

So yes, I think there is some possible demand that was deferred because of the harvest.

But I think there was some benefit achieved, also, from the accelerated depreciation.

Okay and then can we just get a sense of pricing in Irrigation?

As I mentioned in the opening comments, pricing quarter to quarter sequentially was basically flat.

If you look at it, year over year, from the same time last year, pricing would be down and it's probably in that 8% range, but the quarter to quarter was flat.

Okay.

Thank you.

Michael Cox.

Piper Jaffray.

Good morning, gentlemen.

Congratulations on a very nice quarter.

Good morning.

Thank you.

My first question is also on the Infrastructure margin profile.

If we were to back out the Mexico City project, with the margin profile of the remainder of your Infrastructure business, would it -- in the November quarter would it have looked different than it has in the preceding four quarters on an average basis?

Or is it stable?

Honestly, Mike, I can't say that.

I've looked at it, backing out the Mexico Project.

I would say that there was no other significant change in the quarter of any size other than the Mexico Project.

So I think the assumption that it looks similar to previous quarters would probably be a fair one.

I don't know of anything else significant other than the Mexico Project.

That's helpful.

On the backlog, could you provide the breakout between Irrigation and Infrastructure?

And then, just so I am clear, you take out the component of Mexico City that you delivered and it's just the remainder, I assume?

Yes, Mexico City is out of the backlog in terms of the portion that has been complete.

And we are not separating the backlog in total for competitive purposes.

I did comment that the Irrigation backlog is up slightly from the same time last year.

Okay.

And then on the -- just on your comments about seasonality as revenue build in the January-February timeframe, looking back historically 2Q has, generally speaking, been a bigger quarter than 1Q.

Would you expect that to be the case this year on -- in the Irrigation segment?

I'm not sure I caught the first part of your question but if you are -- I think your question is is Q2 likely to be higher revenue than Q1 in Irrigation.

The answer is yes.

And then just my last question on how your dealers are approaching this upcoming growing season?

Are they making inventory investments?

Are they approaching it with the same degree of caution that it sounds like you are?

I think in general, I [would] characterize it more as dealers approaching on a more normal basis.

Meaning I don't think they see anything -- they are not pessimistic.

They are not overly optimistic let's say to the extent that the kind of exuberance they saw back in the 2008 time period, when the market was really picking up steam fast.

But they're certainly not pessimistic.

Dealers typically have not put in much inventory.

Most -- in fact or any inventory.

They may have a unit or two on hand for somebody walking in and being able to obtain a machine quickly.

But in general, I think dealers feel pretty good about the upcoming season.

However, as I mentioned, this is really -- this past quarter has been primarily harvest.

And it remains to be seen what the next quarter will look like.

Thank you very much and, again, nice job in the quarter.

Thank you.

Brian Drab of William Blair.

Good morning, Rick.

Good morning.

So first I know that you are not going to break down the backlog in any detail here.

But in terms of trends, can you comment on how the Irrigation backlog trended from the fourth quarter to the first quarter?

Just directionally?

I don't happen to have that.

I think we have that information here and I will get that for you, just one moment.

From fourth quarter, let's see, Irrigation equipment would be up from the end of the fiscal year.

Okay, thanks.

And as I said slightly up from the same quarter last year.

Right.

Okay.

And you know on the -- it sounds like your tone regarding farmer sentiment is the same as it was at the end of the fiscal year.

Is that fair to say that you still feel like it is a really normal environment and when you use the word 'cautious' in your press release, you are not indicating that it is a negative environment, just a normal but cautious kind of sentiment?

Yes.

I think that is a pretty good summation of it.

I'm not more pessimistic in any way from where I was last quarter.

I think that the farmers view this as a fairly normal environment at this time.

And as I mentioned last quarter, there were a number of things that were really up in the air, including the harvest and the carryover in terms of inventory, what yields were going to look like, what the funding environment would be like and just a number of factors that influence it.

Some of those we still won't know until spring.

Now in terms of the harvest and crop carryovers and things, I think there is nothing really exceptional out of that.

So I think from the overall farmer's perspective, it is a pretty normal environment.

Great.

And then regarding the 179 policy, I was under the impression that that was very likely going to be renewed in 2010.

Is that the right impression or not?

I honestly don't have that impression.

My impression has been that it expires at the end of 2009, and that it will be based on -- available to farmers who have the equipment in and installed at that point.

I haven't heard anything about the extension, but given current economic situation, nothing would surprise me.

Got it.

And just one last quick one.

On the tax rate in the quarter, could you just comment on why that was --?

I think it was a little higher than people expected and if so, what was driving that?

Well it was and there was one very abnormal kind of item in it and I am going to let Dave Downing explain that item.

Good morning, Brian.

It was a previously allowed deduction that we had taken in France, and was subsequently disallowed by the EU.

We would expect our tax rate for the year to be in the 34 to 35% range.

Great.

Thank you.

As a further clarification on it, that deduction was actually taken by the previous owner of a company that we acquired a number of years before we acquired the company.

And it was one that was allowed by the French Tax Authority at that time.

In fact encouraged by the French Tax Authority and then later disallowed by the EU.

So it was quite a surprise when that came about.

Ryan Connors of Boenning & Scattergood.

Hello.

Couple of questions on the irrigation business there.

You know first off just a bigger picture question.

One of the things that we watch closely is the irrigated land value.

The KC Fed puts out some good numbers on that and, historically, they are a pretty good barometer of the directional trends in your Irrigation business.

And for the first time in a long time, irrigated land values actually declined in the third quarter.

So just wanted to get your thoughts on that.

Obviously to some extent, it's a symptom of what is going on, but also my understanding is a lot of these loans are sort of collateralized by property, etc.

So what is your take on the fact that the irrigated land values seem to be on the decline, at least recently?

I haven't seen the data you are referring to specifically, Ryan, but I would ask the question.

Did it decline on its own or did it decline relative to other farmland or non-irrigated farmland as well?

The answer is in absolute terms.

You know, per acre, land values, irrigated land values declined year over year in the third quarter, I think, for the first time in a decade.

And so just wanted to get your sort of high-level thoughts on that.

Is that something that's worth watching?

Again it seems that the correlation historically has been there.

I think it's worth watching.

I think looking at it, irrigated land versus non-irrigated land, that relationship is worth watching in terms of value.

I would be surprised if there is any significant change of, let's say, in irrigated land decreasing either faster or in any way outside of what the non-irrigated decreases or changes.

And the reason is is because with the irrigated land, obviously, productivity could be so much higher.

And I think the -- so that would be a bit of a surprise to have that happen.

And it is worth watching.

We will take a look at it as well.

And is it true just factually that a lot of those loans for center pivots would be, at least in part, collateralized by real property?

I don't know that.

If it's -- I don't know that it is collateralized by real property.

I haven't really seen much of that.

I've seen more of it collateralized with the equipment, but I really haven't seen much collateralized with real property.

Okay.

And then another, just a separate issue, Rick.

In terms of a lot of these governments are in, obviously, tough position and I'm wondering whether, internationally, has there been any change, i.e., cutbacks in any of these subsidy programs?

I know you have talked a lot in the past about the Brazilian program, the [FONAMI] program, for example.

Has there been any downward pressure on any of those government programs backing irrigation technology?

A couple of things.

One is the FONAMI program, the 4.5% interest rate was just recently extended by the Brazilian government through the first half of 2010, which is positive.

We are also seeing continued support in China, for example, in terms of the direct subsidy programs they have there.

Okay.

That's helpful.

Thanks for your time.

Paul Mammola.

Sidoti & Company.

Obviously you've done a good job on costs.

But can we assume, especially in the near term, that the cost structure is stable or are some variable costs starting to come back in 2Q, would you say?

I think in terms of variable, I'd say the cost structure in general is pretty stable.

I think the one caution I made is that we did see and have seen steel prices start to move up and I think that this deal is likely to move a little bit further in future periods, whether it is the next month or quarter.

Now that said, our general practice has been to hedge steel when we see steel prices starting to rise.

So if steel is stable or falling we will generally hold and be able to buy at market.

But as we see steel start to increase, we will have hedge buys that will generally cover up to 75% or more of a quarter.

That way, we are locking in steel at some beneficial prices.

That's very helpful and then (multiple speakers).

We were generally able also to pass those through in price.

Okay, perfect.

And, typically, I think you have said center pivots sales come from a place that conversion and expanded acreage.

I guess I'm curious, what do you think has hurt you the most and what might have the most potential for this year and next in terms of those categories?

I'm not sure I understand.

I guess the question that you are asking is if something has -- if one of those in particular has changed or if there is something that has hurt one of those in particular?

Well, I guess which one has been the biggest drag?

And as you look at fiscal '10 and fiscal '11 which provides the most opportunity in your eyes?

I think the way I would characterize it is that, in general, that historically looking over a five- to seven-year period, we have seen that split be fairly even to about 1/3, 1/3, 1/3.

If you go back to 2008 when commodity prices really ran up fairly fast, we saw the percentage of -- that was going into dry land putting irrigation in for the first time really rise quicker which was not unexpected.

Because the benefit of going to irrigated versus non-irrigated land was significant in terms of yield and profit improvement for the farmer.

So that one jumped up.

And what we have seen when prices are fairly stable, it tends to go back to the 1/3, 1/3, 1/3.

Now long term, there's certainly the belief that the replacement will become a bigger percentage, but I think that is when the market hits more of a maturity level.

I think there is an interesting bit of facts, and in fact we have included it in the slide deck this time which is, the USDA published their farm and ranch irrigation survey for 2008, which is a five-year review.

They put that out every five years.

And if you look at it, I think the interesting statistics in this one is that the most common method of irrigating in the US has been gravity irrigation.

And going back to 2003, it was 44% of irrigated land which was I believe 53 million acres at the time was gravity irri -- 44% was gravity irrigated, 41% pivot.

And the most recent information that came out in 2008 or that was just published, gravity is now 39% and pivot has moved up to 46%.

And the acreage that is irrigated has also moved up to 55 million.

So we've seen growth in irrigated acres.

We've seen growth in pivots versus other irrigation methods and certainly there's been replacement as we talked about in the past.

So all of those are continuing to grow.

Okay.

So if you look at the conversion piece on an international basis, do you still think that penetration wide center pivots under 5% in some of the developing regions?

Yes.

Okay.

So --.

It still seems that the majority of the pivots that we are selling into the international, I would probably characterize more as going into dry land than I would conversion.

Conversion would be second and replacement is a distant third.

And then finally, in China, so along the same lines, is there anything you can point to that you are doing there to try and get farmers to warm up to center pivot as opposed to the old methods that they have used for hundreds of years?

I think the primary -- and what you're really getting to, the question is how do you stimulate demand in that market -- and I think the answer is that we have stimulated demand by picking the regions that were most likely improbable for putting in pivot or mechanized irrigation systems.

And that meant generally large acreage, larger farms with crops that are typically the ones you are going to find under pivots.

And, frankly, there's a lot of that in China.

So we focused on those regions and made some early successes with large farmers and then, since then, had government subsidies that have been applied supporting farmers to make that conversion.

And one of the things that we found in time is that the more of the machines we get in, the more comfortable the farmer next door becomes with the equipment and the mechanized irrigation as well and more likely to change.

The other obstacle that we are going to face in China will really be the size of land in certain regions and the type of farming that is taking place.

And it will be a longer-term process in terms of converging there.

Meaning farm will likely consolidate before mechanized irrigation is installed.

Thanks for your time.

(inaudible) (technical difficulties).

Congratulations on getting most of the Mexico City barriers delivered.

I know that was a long process, but congratulations on that.

A question for either Rick or Dave.

With most of the Mexico City order out of the way, I'm trying as well as many other investors are probably trying to gauge for modeling purposes what the core recurring EPS is for the Company.

Given the gross margin profile for the core Infrastructure and the international domestic Irrigation segment, I calculate $0.37 of contribution from the Mexico City project in the quarter out of what you guys reported of $0.53.

And I am wondering if you could confirm that EPS contribution from the Mexico City deal for the quarter in that $0.15, $0.16 delta is possibly the quarterly run rate we should be thinking about for the core recurring bid throughout this fiscal year?

I have one follow-up too.

Thanks.

Well before -- I guess to kind of jump on that, I would say first that, for a number of different reasons, we really don't split out the Mexico City contribution.

I think for competitive purposes as well as a number of other reasons we really won't get into splitting that part out.

Needless to say it did make a significant contribution this quarter and there is still part of that project left.

I can't tell you whether your estimate is right or not.

I would just say that we really can't split that out.

Okay.

Can you talk to the domestic Irrigation seasonality through this fiscal year?

I know you mentioned that your Irrigation revenue should be up this quarter, but if we look at the past and we kind of exclude 2008 as kind of a super boom year, what fiscal year should we look at historically to model seasonality for the Irrigation line this year?

I'm not positive I would know what specific fiscal year would be the best model.

I would look at probably maybe even a 2004 to 2007 area and look at those in combination in terms of the seasonality.

But there's other things that have impacted it now.

If you separate out the US market, you'll get a pretty good picture of that, but we also increased our international market penetration during that time which can skew Irrigation in total.

But if you look at it from a US perspective you can probably get a decent view then of that seasonality.

But just to explain it a little bit further, this is, as I said, the slower season, or the first quarter is when it is generally harvest.

The second season we usually -- the second quarter, we will usually see it pick up towards the middle to end of the quarter and that's when farmers will be, say, buying or pre-buying in anticipation of planting and trying to get the equipment into the field.

So generally in the Northern Hemisphere, it you are going to see the equipment being sold in that January, February, March, April, May time period.

And after that it really becomes too late because they will have planted.

And you're really not going to see much going into those fields, after that time period other than replacements or other special situations.

Thanks.

That's helpful.

That's all I have.

(Operator Instructions).

Steve Gambuzza of Longbow Capital.

I just wanted to ask about your comment on pricing and hedging policies you have in place.

Did you say that you -- that year-over-year prices in the last quarter were down about 8% for Irrigation products?

In that range.

Yes, that's correct.

And that effectively just represents the kind of change in the market price of steel during that time period?

I would say that that's a fairly true perspective.

Because what we have seen is margins hold fairly well in Irrigation and steel did come down in those -- many of those decreases in steel were then passed through to customers.

Generally I would comment as well that we do not lead in terms of price reductions in the market.

it really depends on market conditions.

And as a competitive environment, at times we are forced to take that action.

And how far out do you hedge deals?

Do you go out a quarter or more than a quarter?

It will vary depending on what we see happening in terms of pricing and opportunities.

But our general practice has been to be in the range of 75% of the next quarter and not much further than that and generally not further than that.

So your statement earlier that you expect prices on steel to go up, I mean that probably reflects a good -- the fact that you have hedged a good portion of your expected sales in the next quarter at higher steel prices?

Yes, you can expect that that means that we are currently hedging.

We have buys in place and maybe there will be more buys, but we are currently hedging steel or buying forward on steel as the opportunities arise.

And can you just give me a sense --?

Because I know you guys are -- you report [FIFO] and just kind of convert the timeline between when you know based on normal inventory conversion when kind of the market if you buy steel today at market price kind of how long it takes to recycle that steel through your P&L?

Generally, we generally do that on a real-time basis.

Our LIFO, because our inventory has a real seasonality, we generally watch that pretty closely and make an adjustment in the fourth quarter and not quarterly.

Okay but you're a FIFO reporter, right?

So you are showing it -- it's FIFO inventory count, correct?

Generally coming through the income statement on a real-time basis, yes.

Okay.

So -- I mean that it -- okay.

Good enough.

Thank you very much.

I'll follow up off-line.

Michael Coleman.

Sterne, Agee.

On the Irrigation for the international, I was thinking back a year ago I would have expected some divergence in that year-on-year revenue mix and I was wondering if you could just kind of talk to, your domestic is down 39%.

Your international is down 37%.

You know at what point those two diverge in terms of the growth as I expected the international will be down less than the domestic?

I believe I understand your question.

I guess the answer would be, I wouldn't read too much into the change that you see in the first fiscal quarter for Irrigation, either domestic or international or the correlation of the two.

Because as I said, it is a low quarter.

This is generally harvest quarter except in areas of the Southern Hemisphere.

So I wouldn't read too much into it to indicate that they are really the same or that there's anything different that is happening there.

We still see significant growth opportunities in the international markets.

Some of those, however, have been impacted by potential funding or funding availability and that would be primarily the more developing markets.

However, in the other international markets they still have strong drivers and we still see good potential there.

So I wouldn't read too much into it at this stage.

So on the seasonal question regarding the international revenues, I guess I was under the impression that the first -- your first fiscal quarter is your strongest internationally.

Do you think that seasonal pattern has changed or has been disrupted?

No.

I don't think there's any change or disruption to the seasonal pattern.

I think that in the international markets what we have seen and this, particularly, would apply to the export market, what we have seen is it's often very project-oriented.

Meaning an order might come in of significant size and it's difficult to project or read into anything from the timing of those orders.

So it is a little more project-oriented on the international export site.

In the areas where we have our international business unit, that flow is I would say progressing in a pretty traditional manner at this point.

Okay.

And there's no real change there.

Okay and you talked about your backlog being up slightly year over year, implying sequential growth.

The order growth that you are seeing in Irrigation, is it -- is there more heavily weighted towards domestic versus international at this point?

No.

I think that -- I don't believe that there is a more heavy weight in that.

Just going to take a quick look at one piece of information here.

I think from a backlog standpoint, there is probably more somewhat more growth in, say, the domestic side of the irrigation year over year.

It's really pretty -- it is very flat all the way across the board.

So year-to-year comparison I would say you really can't read anything into it.

It's really pretty flat from a backlog standpoint with both international and domestic.

Okay.

Thank you.

Omar [Saad].

(technical difficulty).

Thanks for taking my question.

You've addressed it in a number of different ways and I just want to ask a more specific follow-up on steel pricing and product pricing for the quarter.

Could you quantify maybe the benefit you had or if there was a benefit at the margin line vis--vis the maybe lag if you have prices down in the quarter on your purchases versus what you are able to sell product at?

I'm not sure if -- you said margins were flat.

I'm not sure if there was a benefit that you could put into numbers for us.

Yes.

I don't have a specific benefit amount to put into numbers.

I would say that, towards the end of the quarter, particularly where our buy would have been below the spot market price.

I'm not sure if that is significantly different than what a competitor would have, which means the competition may have been around that same point and from a price standpoint as well.

So I'm not sure I could quantify a specific dollar amount tied to any benefit.

That's helpful.

In terms of pricing do you still see discipline holding up?

I think over the last couple of quarters, the comment has been that generally things were holding and do you still see that in the US that competitors are acting very rationally?

Yes we have.

It is always difficult when you see rising material costs to I guess respond to that in some respects, because you never know how fast one is going to raise price, or how fast they will see cost increases versus another.

But in general I would say we've seen very good pricing discipline for many quarters now.

There are no further questions at this time.

Mr.

Parod, do you have any closing remarks?

Yes.

For our business overall the global long-term drivers of water conservation, population growth increased the importance of biofuels and improvements in infrastructure remain very positive.

In addition to the overall business enhancements that have taken place, we continue to have an ongoing structured acquisition process that will generate additional growth opportunities throughout the world in water and infrastructure.

We thank you for your questions and participation in this call and wish you all a safe and happy holiday.

Thank you.

This concludes today's conference.

Thank you for your participation.

You may now disconnect.