Lindsay Corp (LNN) 2012 Q1 法說會逐字稿

Good morning. My name is David and I will be your conference operator today. At this time I would like to welcome everyone to the Lindsay Corporation first quarter 2012 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's 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 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.

Good morning and thank you for joining us today. Joining me on today's call are Jim Raabe, Lindsay Corporation's Chief Financial Officer and Lori Zarkowski, our Chief Accounting Officer. In the first quarter of fiscal 2012 we continued to experience growth in irrigation equipment demand in both domestic and international markets. We have leveraged those sales gains into increased cash flows and higher margins from operations. The margins gains were offset by an accrual in the quarter of $7.2 million or $0.37 per diluted share in expenses that we expect will be incurred in future years for environmental remediation at our Lindsay Nebraska facility. Consolidated revenues for the quarter were a record $119 million increasing 34% from $89 million in the same quarter of last year. Net earnings were $2.9 million or $0.23 per diluted share compared with $4.3 million or $0.34 per diluted share in the prior year's first quarter. Excluding the environmental accrual, net earnings were $7.7 million or $0.60 per diluted share. I intend on devoting the majority of my comments to the underlying performance of our business excluding the impact of the environmental accrual. Before doing so, let me spend a few minutes on the situation with our environmental liability.

In 1992 the Company entered into a consent decree with the EPA specifying monitoring and remediation actions regarding contamination that occurred in the 1980s. Since that time, we have worked with Nebraska Department of Environmental Quality and the EPA including numerous five-year reviews, and adjustments to the monitoring and remediation actions. We have accrued expenses over the years based on the discussions with the EPA and the plans developed from the five-year reviews. As a result of the most recent review, we've been discussing potential actions that could result in more permanent remediation solutions on the site. Based on preliminary findings of our environmental advisors, we determined in recent days that it was appropriate to accrue $7.2 million of expense that we expect will be incurred over the next five to 10 years in remediation activity in accordance with appropriate accounting treatment. The accrual is based on preliminary findings and plans which have not yet been finalized nor have the specifics of the action plan been agreed to by the EPA or Lindsay, so this estimate is subject to change. I'm confident that the expenses required to address this environmental obligation will not materially impact the Company's liquidity or financial resources or long-term trajectories for our growth. Nor will this expense impact the extent to which we invest in growth or the advancement of our competitive position.

Now I'd like to move on to discuss the underlying performance of our business in the quarter as noted, exclusive of the $7.2 million in environmental expense. Global irrigation sales grew 68% to $101 million in the quarter with segment operating margins exclusively environmental remediation expenses of 15.6%. US irrigation revenues totaled $60.7 million, for the first quarter increasing 66% over the same period last year. Commodity prices remain relatively high through most of the quarter and continue to support positive farmer sentiment. Projections of record US farm income throughout 2011 along with Section 179 accelerated depreciation and write off of equipment purchases continue to support positive economic conditions for US farmers. In the international irrigation market, revenues increased 71% to $40.1 million, a record for the first quarter. We've seen solid revenue increases in nearly all international markets with the most significant year over year gains in Belize, South America, and China. Long-term market drivers of improving diets and growing worldwide populations combined with water use efficiencies available from mechanized irrigation systems continue to be positive drivers for global irrigation equipment demand.

Infrastructure segment revenues were $18.4 million, decreasing 37% from the first quarter of last year due to lower QMB system sales. Importantly we have made significant progress in our other infrastructure product lines as our non-QMB infrastructure sales grew by 7% over the year-ago quarter. It's quite a difficult environment for funding highway and other infrastructure projects. Yet we are confident in the opportunity to drive significant profitability with QMB system sales over the long-term as the superior solution to worldwide traffic congestion and improvement in driver and highway worker safety. QMB sales are likely to continue to have some level of volatility due to the project nature of this business in the current funding environment. For the irrigation and infrastructure segments combined, gross profit increased to $30.2 million for the first quarter versus $24.2 million in the same quarter of last year. Gross margins were 25.4% compared to 27.2% in the first quarter of last year. The lower gross margin was primarily due to the lower revenues of higher margin QMB systems accounting for 2.5 percentage points of the year over year margin difference in the quarter. Both irrigation and non-QMB infrastructure gross margins improved as compared to the prior year period due to expense leveraging and productivity gains. Last quarter we discussed challenges associated with our ERP implementation, while there remains opportunities to improve our productivity and better utilize this new tool, a significant amount of inefficiencies have been eliminated. We look forward to further improvements in future quarters.

Operating expenses for the first quarter increased by $1 million to $17.9 million for the first quarter of fiscal 2012, exclusive of the environmental accrual. The increase in operating expenses is attributable to inclusion of newly acquired businesses. Operating margins excluding environmental liabilities increased to 10.3% from 8.2% last year driven by the higher revenues. Our sales remain strong through the quarter and our order backlog at the end of the quarter was $52.8 million on November 30, 2011. Compared to $46 million on August 31, 2011 and $59.7 million November 30, 2010. Our first quarter is typically our low quarter for the irrigation segment and the backlog at the end of any quarter is not indicative of future demands. From a balance sheet perspective our position remains strong with cash and cash equivalents of $108.7 million, $28.2 million higher than same time last year, while debt decreased $4.3 million over the same period. Accounts Receivable were $16.7 million higher year over year reflecting our higher sales volumes, and inventories increased $4.5 million while inventory turns improved. Our primary use of cash remains investing in organic growth opportunities, dividends and continuing to seek accretive acquisitions that add new businesses and/or product lines.

In summary, strong global irrigation performance and solid results from our infrastructure segment were realized in the quarter. Through the balance of fiscal year 2012, we will continue to execute on a strategic plan containing additional technology investments and organic growth initiatives, and an operating plan featuring more lean manufacturing initiatives and fewer ERP system inefficiencies. We believe these plans position us well against the backdrop of continued global economic uncertainty. Furthermore we are confident that the key drivers for our business are favorable and that over the long term, increasing agricultural yields to boost food supply including water use efficiency, expanding biofuel production and improving transportation infrastructure will remain global priorities. I would now like to open it up for your questions.

(Operator Instructions) Michael Cox, Piper.

Good quarter, guys.

Good morning and thank you.

My first question is, you had noted that the backlog is not a good indication. But I guess I would be curious as you look at the progression of order activity through the course of the quarter, and I guess in by comparison to some of the commentary we've heard from the farm machinery companies talking about a very robust pipeline for 2012, is this kind of dip in the backlog just a function of the recent decline we've seen in grain prices? Or is there something more to this that we should consider?

I think if you were to -- if we can analyze this backlog a little bit for you, Mike, it would be the primary decrease in the backlog from the same time last year was more in the infrastructure product line and primarily in the QMB backlog. In the first quarter of last year, we had a significant project that we were taking on, an East Coast bridge product that we talked about, I believe it was about $15 million, of which $8 million of it was in the first quarter and the rest of it was in backlog for the second quarter. So the primary difference in the backlog is really in the infrastructure business.

Okay. That's very helpful. As I look at selling expenses in the quarter, with a 34% revenue increase and selling expenses were flat essentially year-over-year, could you talk about the ability to maintain that selling expense number? What was done in the course of the quarter that was allowed -- allow you to keep that number flat in spite of the big sales increase?

Well, selling expense in general is not very variable. It tends to be more fixed. It does at times ramp-up in more of a step-level based on what's happening in terms of advertising activities or other promotional activity. But it tends to be more of a fixed expense. There are some exceptions, it is a little more variable in the Infrastructure part of our business than in the Irrigation part. But I wouldn't expect it to ramp up in a quarter like this with the increase in volume.

Okay. That's great. And my last question is on the strength of the balance sheet and the cash you have on hand. We've started to see I guess a couple of acquisitions in the farm equipment space here just recently. Could you speak to the opportunities that might be out there from an acquisition standpoint? Or is that an area that we should look for in fiscal 2012 as a potential use of cash?

Well, it certainly is an emphasis of ours to find strategic acquisitions that fit with our business. I think we've found in recent looks that there is many attractive pieces out there, different areas where we can find some businesses that make sense. At the same time, the M&A market is competitive in some sense and I think we've seen some high prices on some of the deals that were done, and we're pretty prudent and cautious in many respects, so we'll be careful in terms of what we walk into in that area, but I would expect that will continue to be an emphasis, to find strategic acquisitions.

Ryan Connors, Janney Montgomery.

First off, just a question on the Irrigation side. I mean, really remarkable results for this seasonally slow part of the year. If I'm not mistaken, it's the first time that segment has ever done $100 million in revenue in that November quarter. So, you also mentioned in your commentary this issue of the depreciation benefit -- in terms of that being a driver. I mean, to what extent do you think, just in terms of a short-term basis here that that's having an impact on the order flow in that top line?

Well, the reference was to the Section 179 accelerated depreciation and write off on equipment. It's difficult to determine how much that really drives it, but I'll make a reference, Ryan, to something we've talked about in the past, which is the percentage of our equipment that will go out into dryland or replacement and conversion. As I've said, what we've typically seen, is that it wouldn't be unusual to see about a third, a third, a third in terms of the split between those three categories. What we usually see in periods with higher commodity prices is that dryland will be the highest percentage and in this past quarter we saw that dryland was about 39% of the shipments out. So that was about what we would expect.

The other one that was a little higher than maybe I would have expected is the replacement, which may be somewhat driven by the Section 179 and that was around 34% to 35%. So I don't think it was a huge driver in this past quarter. Our salespeople and dealers have said that it's more likely to have an impact in the next quarter or in the current quarter we're in, rather than the second quarter. And I'm not sure that that will be a significant impact either but it's more likely that we'll see more of the Section 179 impact in this quarter.

Okay. That's very helpful. And then just my second question. I mean, I respect the fact that you would prefer to talk about the base business, but obviously the remediation issue is I think the magnitude of the charge kind of caught people off guard, certainly us, so just two questions there. Is there any way you can characterize exactly what the reserve is for? In other words, is it wells you're drilling for aeration or whatnot? And then number 2, you said it's subject to change but would you characterize the reserve as being a conservative one? In other words, that in other words you reserved pretty aggressively against it and we shouldn't see further reserves in the future? Or could it change either direction?

Go ahead Jim.

This is Jim. First of all, I'd say that what we've done is we've made the estimate based on the best estimate that we can make at this point. The nature of the remediation is around things on the site -- on the facility site. And so it is wells and that type of thing although that's still some analysis being done and the specifics still being developed. With regard to the estimate infused or changes to the estimate, this is based on the preliminary work that we've done, we do still need to work through that with the EPA and get their agreement with the path that we would end up proposing. And then always -- there is always the possibility, you learn as you go on these things and there could be changes as a result of that, so there certainly could be changes from this point forward.

Okay. Then just one last one on that, so I assume given the ramped up level of activity around that, that you've engaged consultants and so forth. Are expenses related to that flowing through SG&A? Or are those going into this reserve as well?

Expenses related to that would go against the reserve.

Okay, great. Thanks for your time.

Carter Shoop, KeyBanc.

First question's on gross margin, can you talk about some of the levers in profit gross margins on a quarter-over-quarter basis, the August and November quarters? Specifically can you comment on how much of a benefit you saw from the ERP implementation and consulting fees and then also what kind of impact the price environment had in the quarter?

Well, I think, Carter, it's difficult to split out specifically some of the levers that you're referring to. I would say that we did see efficiency improvement in this quarter versus the previous quarter, and that certainly -- it had quite a role in two areas. One is, that it caused some of the inefficiencies or variances to be reduced, and that had some amount of savings. The other is, it allowed us to get more volume out in the quarter, where in the previous quarter, we would have had more difficulty just because of the convergence of the new system, so that was certainly key to handling the volume activity we had.

The other factor that can often play -- that does play a role in the margins would be what's happening with steel pricing. And what we saw happen this past quarter is steel prices have moved up about 20% from where they were the same time last year. And we're seeing a steel environment right now that is, it's getting a little [cost], so we are seeing steel pricing move up. We have been able to generally pass that through, and we basically had about a 3% to 3.5% price increase through the quarter and year-over-year, I think it's about 13% increase in price. And most of that is passing through the steel prices.

We haven't really seen much change in the competitive environment from a margin standpoint, so I would say competitively everything is pretty stable, but it's a constant battle when you're passing through things like steel increases and we all of course have different impact in terms of our steel purchases at different points in time. Those are probably the primary levers along with the volume itself that allowed us to leverage our fixed expenses in our factory.

Thanks. And just to clarify, in the fourth quarter you had talked about $1 million in factory inefficiencies. Can we think of that number being cut in half this last quarter or is there still tangible inefficiencies to that magnitude?

I would think about it as approximately half. And that is a rough number, because there are a number of variables, but I think about it as approximately cut in half.

That's helpful. Can you talk about the QMB section a little bit here? In regards to what the outlook is going forward for that business? Obviously it's a little bit longer in lead time than your Irrigation business or your other Infrastructure business. Can you comment and maybe qualify that there's backlog there and how that backlog has looked so far in the February quarter?

I think I would qualify or probably quantify it more from a standpoint of, there really hasn't been much change from previous quarters when we've talked about the project list that we look at and the potential projects that are out there that we're tracking and working. They really don't convert to backlog and so they become an actual order and not much has really changed in that area. I will say we've got a good opportunity identification process where we're identifying new ones to go onto that list all the time in different markets, so I'm optimistic about that. Nothing really has changed in my perspective on that, I think it still looks pretty good. It may be a little tight towards the end of this year, just because we're not sure what's happening with funding yet, and I mean end of the fiscal year, in 2012. We're not sure what's happening with government funding on projects, but at this point I'm still very optimistic about QMB for the year.

Great. Thank you very much.

Brian Drab, William Blair.

First, how much confidence do you have that the $7 million investment in remediation will clear you of this issue?

Well, as I said, we've made the best estimate that we have based on the information that we have, and we've tried to vet that, but there are always uncertainties as we go forward. Now, this is a multi-year accrual, so I would guess that there will be circumstances that could change over that time but those could affect the accrual in either direction. But for now we've made the best estimate we can.

Okay. And I guess said another way, that $7 million investment, the idea is that the work plan driven by that $7 million would take care of the issue and it's not just phase 1 of several phases? Is that correct?

There could be some additional work that needs to be done after this is completed, but we would need to go through this piece of the work to make further determination.

Okay. Great. Looking at the Infrastructure side of the business, can you give us any sense for how much of the revenue came from QMB sales in the quarter? I'm sure you won't quantify it, but can you tell us if it was less than 10% or less than 5%, somehow give us an idea of what the impact was?

I don't have that number offhand. I could possibly get that in a minute, but I believe it was pretty low in the quarter. Let's see. It was probably somewhere around -- based on what I do have, about a third of what it would have been at the same time last year. And I don't have a specific percentage for you on that.

I'll follow-up with you.

Okay, thanks. So QMB, your guess though right now, Rick, was a third of the level of sales that you had in QMB last year in this quarter?

Yes.

Okay.

That is about right.

Okay. Okay. And then I guess this has already been asked, but it's just very surprising that in the seasonally weak quarter for irrigation, you had a pretty substantial increase sequentially from the previous quarter, and in the domestic market. I guess what would be the number 1 thing, I don't know if it's clear to me yet, what would be the number 1 thing that you'd point to that's driving that? Is it farmer sentiment or is it combination of that with the bonus depreciation?

Yes, I would point to farmer sentiment and I was talking to dealers both in US and internationally, I would say that the one primary driver and comment has been farmer sentiment has been pretty positive. Farmers have come off of a good year with excellent farm incomes, their balance sheets are in good position, and if you look at some of the press recently, they've been buying land even at some pretty high prices. But a lot of the land purchases are with cash, so farmers are in pretty good shape and optimistic about the future and I think they're also looking at the longer-term perspective even though they tend to be pretty short term in some of the purchase decisions. And looking at the long-term, seeing that the demand for the commodities that they're producing is pretty robust long term, and that there is a good outlook there, so they're willing to make these investments. So I think it's been a pretty positive environment from a farmer sentiment standpoint.

Okay, great. Thanks a lot.

Schon Williams, BB&T Capital Markets.

Trying to make sure that I'm absolutely clear on the environmental charge. Again, mentioned that it was a multi-year accrual, I just want to make sure -- this is the full accrual for the next five to 10 years of what you expect to spend, is that correct?

This is -- yes, this is accrual for what we expect to spend. As I said, we still have discussions with the EPA to finalize and to agree to the specific path. And as I said, there are also the things that could come out of the future work that could result in a revision to that. But this is an accrual that would cover five to 10 years.

Okay. And then just on the infrastructure side of the business, looks like by, kind of adjust for the environmental remediation, it looks like in the base business, it's still fairly weak there. I mean, when would you guys anticipate given some of the restructuring efforts you've done there, when would you anticipate that base business kind of ex QMB to move into the profitable realm?

Well, what I would point to on this is, some of the improvements that's taken place. I guess the reference point would be, what we saw in this quarter, for the non-QMB business is the revenue was up over 6%, and we saw a gross margin improvement in the range of over 3% in the quarter. And when we look at the operating margin or operating income of this business, as you said when you back out the EPA portion, it basically was break-even for the quarter on roughly an $18 million revenue number. And if we were to look at a comparable quarter and I think going back to last year, Jim you had mentioned I think second or third quarter of last year?

Of 2010.

Of 2010 rather, $18 million comparable revenue quarter that business would have lost about $1 million. So from that standpoint there's a significant improvement that has taken place in the business as it is, and also when you look at the revenue from past -- last year for the total infrastructure business of about $109 million. This quarter revenue in the $18 million range is pretty low. So to be breaking even at this level, I'm not concerned and I see very significant improvements that's taking place from the same time in 2010.

And should we be seeing I guess a further ramp, are there additional savings that are kind of ramping up over the next couple of quarters? Even if volumes were to stay at kind of existing levels, should I see that margin level actually improve?

What you should see is continual emphasis to improve those margins. Those margins, the emphasis on improving those margins will be in product cost reduction, manufacturing efficiencies, selling price management, and the other part of it that is a definite emphasis in this, is increasing our revenue in our safety products outside of the QMB. Not that we're not trying to increase revenue in QMB, but to the other product lines, increasing revenues to see more leveraging of costs in other periods. So you should see revenue increases plus margin improvement.

All right. Thanks a lot.

David Rose, Wedbush Securities.

I was hoping we can follow-up a little bit more on the international sales and provide a little bit more color on how lumpy the order book is. In last quarter, we talked about lumpiness in the business. Then secondly, if there is some color on margins, again, internationally the guidance with margins were going to be weaker. Are there initiatives to improve margins? And then lastly, on the international irrigation sales -- these are all irrigation sales questions, but that last one is, as it relates to the competitive environment, could you provide a little bit more color on perhaps the technology component of the sales or other initiatives that you need to do to be competitive internationally?

Okay. I think from the international market perspective, we've seen some pretty robust market conditions in the last quarter in most all of the markets we're participating in. I mentioned a few specifically where we saw good opportunities and good growth in Middle East, China and South America. Most all of the international markets were up year-over-year for the quarter from the previous year. So we did see a good demand out there and a lot of that demand is being driven by the strong fundamentals of the population growth and the need for food security, and overall agricultural prices certainly played a role in it, but we're pretty pleased with the growth that we're seeing there. Now when you referred to it as an order book, it's a little more difficult because we tend to flow through orders pretty quickly so we don't have big backlog or order books necessarily on irrigation products but they'll flow through relatively quickly. We have not seen a significant drop off or change in demand, and I'm optimistic about the future.

I also think there is some excellent still-developing markets that offer good growth potential, for example Russia and Ukraine. We think that we will see a good future there, but they will take some time yet to develop and there will be, in time, some government subsidies that will help those markets develop. We're also seeing some strong fundamentals and market demand in Northern Africa where there are some projects that are taking place that are primarily driven again by food security needs from other countries moving into that region.

So from an international standpoint, it will continue to be a pretty good -- but we're also going to see, because it is project oriented, that will have some impact on margins from time to time because they will be competitive. We do see the strong order flow in general, but also as I said, we will see projects. We had one of those in this past quarter, not very significant in size but a project that took place in the Middle East region. And those, as I said, tend to get a little more difficult in terms of competitive bid situations.

Coming back to the competitive environment in general, I would say that we haven't really seen much change in competitive environment, but we are emphasizing our differences in the Lindsay advantage in everything we do from a marketing standpoint, and that includes the strength, the durability, ruggedness of our equipment, as well as the technology in what we offer with our FieldNET product line, we think is pretty unique. We're going to continue to add on features to the FieldNET product line and to that offering, to further differentiate our product line and to further differentiate our competitive position. It doesn't play a huge role in terms of price, in the sense of people buying more technology or play a huge role in the sense of commanding much larger price because of it. But it is an important differentiator and I think there are still more opportunities there for us as well. And I think that hit the majority of your question. I'm not sure if I missed any one aspect of it.

You actually hit them all, I appreciate it. Thank you very much.

Andrew O'Conor, Harris Investments.

I wanted to know on capital expenditures, what you guys expect to spend for fiscal 2012 and in what areas will the expenditures be made? I'm may have missed this. Thanks.

Our estimate for the capital expenditures for 2012 is about $9 million to $11 million. Some of it in productivity, some of it in product development, tooling, those types of things.

Okay. Can we apportion between the two segments, Irrigation and Infrastructure, between the $9 million to $11 million? Thanks.

We don't specifically apportion that, but I would say that you can expect that the majority of it will be Irrigation and the majority of it will be more manufacturing-related, in terms of equipment versus product.

Okay. Thanks, Rick. And then I'm just kind of wondering out loud, is it possible or are you guys actively investigating the utilization of your QMB technology perhaps in other directions? Or with some modifications? Is this system applicable for other uses? In having asked this, I don't know what that would be but I'd be curious to get your thoughts. Thanks.

Well, I'd answer that in saying yes, it is applicable in other uses, in other kinds of environments other than the ones that we've sold it in. I wouldn't want to go too far in terms of describing those for competitive purposes, but I would say it is an emphasis to enter into some new market segments with the QMB-type technology. We believe there are some opportunities in areas where we haven't really been able to penetrate a market, because of either weight or size of the equipment, and there is some opportunities just thinking about this a little differently.

So you are at liberty at the moment to maybe characterize what some of these other uses are?

No. I would rather not do that at this point. I think there will be a time in the future when we can talk about that.

All right, sir. Thanks.

Jeff Beach, Stifel Nicolaus.

Would you discuss the trends and outlook in your non-QMB infrastructure operations, the road safety, rail structure, contract manufacturing?

Yes. I think we are particularly pleased with the outlook, I think from in the road -- sorry, the railroad market segment, we think that there's a lot of opportunity there, and we have developed relationships with many of the larger railroads and we will continue to expand our market position in that area. We think the rail structures area is a good growth opportunity for us in the next few years. The diversified manufacturing or contract manufacturing part has been a key piece of our business in terms of overhead absorption and really absorbing overhead with lower margin contract manufacturing-type business. I think we'll continue to have that and support the customers that we have, but it is becoming somewhat deemphasized from the standpoint of other proprietary product that is taking some of that utilization of equipment and space as well.

The road safety products is a good market and will be a good market in the long-term. I do think it's a tough environment in terms of road safety products today, especially considering that we don't really have a US multi-year highway bill. What we have today is just short-term extensions on the existing bill, and I think the current one is extended out until March. But we really need a multi-year highway bill that creates a better opportunity for expansion of infrastructure and that will definitely benefit our road safety product line. Also, outside of the United States, I would say that we see opportunities in developing markets with our road safety products, but it is still difficult in some markets due to government funding situations. But we're pretty optimistic about that for the long-term; we think it will be a great business to be in.

And as a follow-up, regarding some of these operations and probably QMB as well, are you getting a lot of your benefits of the ERP system in these -- broadly across these infrastructure operations of yours?

I think it's too soon to get much of the benefit across the operations. I will say, we've finally gotten to the point where all of our operations are on the same ERP system, which will be beneficial to all of the operations, and we're in the early stages of that, now that we've gotten -- really gotten everything converted over in this last quarter, the fourth quarter of last year. So I think we will see those benefits come over the next few quarters, we expect to reap the benefits throughout this year.

Fine. Thank you.

(Operator Instructions) Brian Drab, William Blair.

Just a quick follow-up -- two quick follow-ups. On the Irrigation side, what's your sense, Rick, I don't know if you'll be able to really answer this completely, but do you think that it's going to be difficult to have irrigation revenue up in fiscal 2012 after such a strong year in 2011, arguably with some benefit from the bonus depreciation?

I think you'll probably not be surprised to hear me say it's too soon to tell.

Yes.

As you know, this is really the slow part of the season and what I'm always interested in is what's really happening with commodity prices and the markets in general and farmer sentiment in that February, March time period when the US market really starts to turn back on. I think it's just too soon to tell at this point and to make a call for us one way or the other at this stage. I would say that the fundamentals have been very positive in support of strong demand for 2012 in terms of commodity prices and farmer sentiment and the longer-term perspective from population growth and food security and all the other aspects. But it all comes down a little bit to what happens in that February, March time period as we approach spring to see what farmer sentiment will be.

Sure, okay. Thanks. Then on the bonus depreciation issue, I think that I might not understand this completely, but I have been told that the farmer doesn't get the benefit of the bonus depreciation unless the system, the irrigation system is purchased, installed, and commissioned. He doesn't get the bonus depreciation just when he buys it from the dealer. So I'm wondering, is that true? And if so, is it unlikely that any revenue that you would record with the purchase of an irrigation system, say, in December would actually be driven by someone who thinks that they're going to get bonus depreciation? Because that they're not going to have it installed and commissioned for maybe a month or two after that?

Well, I would say I've heard the same thing. I don't know for a fact whether that's the case. I will say that somebody ordering a system and having it delivered and getting it installed in December is still very possible. So I wouldn't rule that out in terms of being able to comply with the accelerated depreciation, Section 179 benefits that are available.

Okay. Thanks very much.

Schon Williams, BB&T Capital Markets.

Hi, just a quick follow-up. I wanted to see if you could maybe comment on what your lead times are currently on the irrigation? I mean it sounds like just with that last response I guess you think it's less than four weeks. If a dealer can make an order at the beginning of December and still get it to the customer by the end of the month. Could you talk about where you think lead times are as we move into the new year and maybe where those -- if you have any sense of where those lead times are versus your competitors?

Typically, we schedule our irrigation production based on a forecast, and to some extent a master production schedule, but generally from this forecast. As long as the orders are within the forecasted range, the lead time is relatively short and could be two to three weeks. So it's really not going to be very long. So in some cases, it could even be less if somebody has a specific need and we're accelerating an order through. Once we get beyond that forecasted level, then it becomes a little more difficult and the lead times may move out to six or eight weeks. But generally, we've been forecasting and been able to hold within that to some extent. So I would say it's probably still in the two to four week range.

Okay. And then you did comment on some of the opportunity that you see on the railroad structures business. I know that the Obama Administration had struck down some of the -- I guess, failed to implement some of the safety regulations around signage that possibly would have benefited that business. Is there any update on maybe the legislative side, on where some of that safety regulation is going in the near future?

No. I don't really have any update on that at this point. What we found is most of our customers who have been working on the positive train control requirements, the PTC requirements that were involved in the legislation have continued to work towards implementing positive train control in PTC. So I think that really hasn't stopped anything yet. I do believe that there could be some delays in it, but at this point, we really haven't seen much change.

There are no further questions. Mr Parod, do you have any closing remarks?

Yes. For our business overall, the global long-term drivers of water conservation, population growth, food security, increasing importance of biofuels and the need for safer, more efficient transportation solutions remain 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. Lindsay is committed to achieving earnings growth through global market expansion, improvements in margins and strategic acquisitions. We thank you for your questions and participation in this call, and we wish you and your families happy holidays. Thank you.

This concludes today's Lindsay Corporation first quarter 2012 conference call. You may now disconnect.