Lindsay Corp (LNN) 2012 Q2 法說會逐字稿

Good morning. At this time, I would like to welcome everyone to the Lindsay Corporation Q2 2012 earnings 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.

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.

Revenues for the second quarter of fiscal 2012 were $132.1 million, increasing 10% over the same quarter last year. During the quarter, we continued to achieve global growth in irrigation equipment revenues over the same period of last year. However, some of that growth was offset by significantly lower infrastructure revenues primarily due to lower QMB project sales. Net earnings were $12.8 million, or $1 per diluted share in the quarter, compared with $11.3 million, or $0.89 per diluted share in the prior-year second quarter. Operating margins increased slightly to 14.3% from 14.2% last year.

Total revenues for the first six months of fiscal 2012 were $251.3 million, increasing 20% from the same period of last year. Net earnings for the first six months were $15.7 million, or $1.23 per diluted share, approximately equal to the first half of fiscal 2011. However, the first half of fiscal 2012 includes a $7.2 million accrual for environmental remediation at our Lindsay Nebraska facility recorded in the first quarter of fiscal 2012. Excluding the environmental accrual, operating margin improved to 12.4% for the first half of the fiscal year, compared to 11.6% in the previous year. And net earnings increased to $1.60 compared to $1.27 per diluted share for the same period of last year.

In the US irrigation market, revenues were $82.9 million for the second quarter, increasing 25% over the same period of last year. In the international irrigation market, revenues increased 36% to $34.1 million. Revenues increased in nearly all of US and international regions, with the most notable international growth in the Middle East, Canada, Europe and Latin America.

For the first six months of fiscal 2012, US irrigation revenues were $143.5 million, increasing 39% over the first half of last year. We are now in the midst of our primary irrigation selling season in the Northern Hemisphere, and quote and order activities are significantly more robust than the same time last year. In the international markets, revenues were $74.2 million for the first six months of fiscal 2012, increasing 53% over the first half of last year.

Commodity prices continue to support improved irrigation equipment demand. The USDA projects US 2012 net farm income to be the second-highest on record, only slightly less than 2011, and 28% higher than the 10-year average, continuing to create positive economic conditions for US farmers. The global long-term market drivers of improving diets and the growing population, combined with water use efficiencies available from mechanized irrigation systems, continue to be positive drivers for irrigation equipment demand.

Infrastructure segment revenues decreased 47%, to $15.1 million in the quarter due primarily to lower QMB system sales. Infrastructure revenues, excluding QMB system sales, decreased 4% from the second quarter of last year, reflecting flat revenue from the road safety products, and lower revenues in railroad signaling structures. QMB system sales were more than 85% lower in the quarter than the same quarter last year due to a sizable project in the comparable period last year, and delays in anticipated projects for this fiscal year. The project delays are due to funding- and non-funding-related issues, but the delays have not significantly changed our perspective on the likelihood of specific projects or the future demand for QMB systems.

Long-term global interest remains strong in QMB as a superior solution to worldwide traffic congestion, and improvement in driver and highway worker safety. QMB sales are likely to continue to be volatile due to the project nature of the business. Year-to-date at the end of the second quarter, infrastructure revenues were $33.6 million, 42% lower than the first half of last year. Excluding the lower QMB system sales, infrastructure revenues increased slightly over the first half of last year.

As we've discussed in previous calls, our infrastructure management team remains focused on improving the growth and profitability of the business through expanded sales and marketing actions, product cost reductions, and converting fixed expenses to variable where possible. While progress has been made, there is still more improvement planned.

Gross profit was $36.5 million for the second quarter versus $34 million in the same quarter of last year. Gross margins were 27.6% compared to 28.3% for the second quarter of last year, primarily due to lower revenues of higher margin QMB system sales. Irrigation gross margins improved by more than 2 percentage points from the same quarter of last year as a result of cost leveraging and productivity gains.

Operating expenses for the second quarter increased by $600,000 to $17.5 million for the second quarter of fiscal 2012. The increased operating expenses were primarily from the inclusion of an acquired business, and personnel-related expenses. Total operating expenses as a percent of sales improved to 13.3% for the quarter compared to 14.1% for the same period of last year. Our order backlog was $87.3 million on February 29, 2012, as compared to $52.8 million November 30, 2011, and $64.3 million on February 28, 2011. (inaudible - technical difficulty) irrigation backlog is more than 50% higher than the same time last year, and historically is the second (inaudible - technical difficulty) highest quarter-end backlog, second only to the same period in fiscal 2008. The infrastructure backlog was lower at the end of the quarter versus the same time last year.

Cash and cash equivalents were $26.5 million higher at the end of the quarter versus the same time last year, while debt decreased $4.3 million and $4.9 million as acquisitions were completed. Accounts receivable were $2.4 million higher year-over-year due to the higher sales, while days sales outstanding improved. Inventories increased $13.7 million in support of the peak selling season, and inventory turns improved. The primary uses of cash remain investing in organic growth opportunities while continuing to seek accretive acquisitions that add businesses and/or product lines.

In summary, we are pleased with the continued robust irrigation equipment demand realized during the past quarter and in the current season for the Northern Hemisphere. The global economic conditions for farmers remain positive, supporting continued irrigation equipment demand. In the infrastructure segment, we continue to experience revenue and profit volatility due to the project nature of our QMB product line, and the fixed nature of some SG&A expenses. Predicting timing on QMB projects is likely to remain a challenge, but we remain positive regarding the business. The business has provided good returns to shareholders since acquired, and I'm confident that it will continue to provide good returns.

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

(Operator Instructions)

Our first question comes from the line of C. Schon Williams of BB&T Capital Markets.

Aaron Reeves sitting in for Schon this morning. Hope everyone is doing well.

I just had a few questions on the quarter. I guess my first question -- this goes back to the Irrigation segment. We were noticing as we went through the numbers that it looks like incremental margins may be accelerated in Q2 versus Q1. And I guess my question is if you could just maybe help provide some color on to what extent pricing and volume and maybe -- did you see any raw materials released in the quarter? What actually drove that acceleration in incremental margins, sequentially?

Yes. Well, I think the first point is in terms of selling prices in Irrigation, pricing was up about 3% in the quarter and about 6% year-over-year. So, there is not a significant change from a pricing standpoint. And I would say that from a competitive environment standpoint it's been, I would say, a comparatively stable in terms of the competition has been somewhat pretty typical in terms of what we see. So nothing really unusual from that standpoint.

Steel pricing has moved up about 15% from the same time last year, but we are not really seeing a steel impact in the quarter in the sense that we've been able to pass-through steel cost increases for the most part. I think most of the margin improvement that we've seen has really been from cost leveraging due to the incremental volumes plus productivity gains in our factory. As you recall, we had an ERP conversion back a couple of quarters ago that did cause some deterioration in productivity and we've been able to regain most of that if not all of it in the last couple of quarters.

Okay, great. Thanks for the color. I have another question, too, and this is just also in Irrigation but it looks more internationally. We noticed that demand seemed to be down versus Q1. I guess my question there is whether or not you think -- is that something that we should be concerned about like weaker overseas growth? Is this something that you see that is going to persist? Or how would you explain the weaker international demand?

I wouldn't read too much into that. Some of it is project-oriented when we look at our international revenues and we did have a larger project in the first quarter. So I wouldn't read anything into that. I think that we are seeing a strong demand in all of the international markets. And we are really getting into the peak of the selling season for Northern Hemisphere markets. So, I think that we will see a little more, let's say, volatility to some degree, a little more fluctuation in the international markets because of the size and of the individual markets, but I wouldn't read more into than that.

Okay. And then I just wanted to touch on the Infrastructure side for a moment. Could you give us a sense of what level of sales you're seeing in the QMB side? I'm really focused on the project sales. So if you could maybe give me a sense of where you are with that and maybe where your backlog stands with QMB?

Well the backlog first of all is relatively low in the Infrastructure business and we don't really have a significant project, QMB project, in backlog in Infrastructure at this time. Where you will see our backlog spike up on Infrastructure is when we do have the QMB projects because they are typically pretty sizable. We are still seeing very strong interest in the projects, and our overall project list that we track is still pretty robust and not that unusual from, or different than what we've seen in the past. I think what we are seeing in the past couple of quarters and primarily in the last few months is some projects slipping out in timing. And as it is a project-based business it does make a difference when you see a pretty sizable project that we expect will happen in, say, the second quarter and all of a sudden it slides out and becomes indefinite. Or really not clear when that is going to happen, whether we'll be in the next quarter the quarter after.

And that's really what we are seeing. And as I mentioned some of these are funding, but many are non-funding related meaning it could be related to road construction projects that hasn't been completed in order to accommodate the QMB or some other, or negotiations that are taking place with the contractor and the city or state. So there's a number of other factors that come into play. But it is project-oriented so we will see it be fairly lumpy.

Okay, fair enough. And one final question and I'll jump back in the queue. Could you just sort of tell us what you're seeing from an M&A standpoint, just if there's anything in the pipeline, anything look attractive right now? Sort of what you're expectations are for M&A over the next couple of quarters?

Well, we are certainly very active from an M&A standpoint in terms of we've got a very active list. And we are tracking a number of different companies in a couple of different sectors that we think could be synergistic fits with us. So, we are going to stay very active in this because we think there are some good opportunities for growth that will provide good returns to shareholders. So, I would expect that you should see us still continue to be very active.

I would add that during the past we've had a number of small acquisitions that were primarily adding some capabilities or technologies to the business. That is not our current focus. We are focusing on larger-sized acquisitions, probably in the $50 million revenue and up at this time. So, I think when we do make acquisitions, we should expect it would be in that size. It doesn't mean that we would not make a small one if the opportunity came up -- that we found a significant fit in some way, but that is not our current focus.

Got it. Thanks for the color. Thanks for the quarter, too.

Your next question comes from the line of Ryan Connors of Janney Montgomery Scott.

Good morning. So, a couple of questions, first off Rick, I want to talk a little bit about the US Irrigation business in particular. Just a couple of questions there. Number one, just to what extent, if at all, do you think a relatively mild winter in terms of weather played a role in the quarter for better or worse? And then number two, can you just talk about the geographic distribution of the strength in the US Irrigation business? In other words, is the core kind of Nebraska and other plains markets that are driving the strength, or is there strength in some of the nontraditional pivot markets?

Well, first, Ryan, in terms of the weather, I would say that it is difficult to pinpoint that as a specific driver for the sales that we have seen. And I say that because even going back to the previous quarter, we were seeing strong order activity and strong revenue. And there was discussion about Section 179 for example, we talked about what impact that would have. And the strong order in sales activity continued right through the year-end. And has stayed pretty strong.

Now what we have seen is that our part sales are probably a little higher in the quarter due to the good weather and people able to get out and work on the machines a little quicker than what they might have if the weather had been, let's say, more typical winter and a harsher winter. But I don't think there is anything real significant to read into in that part of it. So, I think weather-wise, nothing major. I'm sorry, the second part of your question was?

Just had to do with as you're seeing strength in the US business, is it mostly driven by Nebraska and the other traditional pivot markets? Or are you seeing greater adoption in some of the markets that traditionally have not utilized pivot aeration as heavily?

The regional split in the US, how I would describe it is basically all of the regions have been strong compared to the previous year. All of them up from the previous year with really one exception, the one area that has struggled this season has been Texas. And as you know with the drought, they've suffered this past year. I'm not really surprised at that. But all the other regions for the most part are up, and surprisingly not all, but most of them, are up a very similar percentage. So it's been pretty strong across the country.

Okay. Interesting. And then just wanted to revisit the prior question there on margins and you talked about the drivers in ERP being a benefit. As you look forward, what are you see as the margin potential in Irrigation, in particular, now that you've got that ERP system in place? Is there a potential for a reasonably significant step change in margins if unit demand is stable here, and even improves a little bit?

I think there is always that opportunity. I think there is a number of factors that are driving margins from our standpoint. One has been productivity improvements in the factories. As we've mentioned, the ERP piece. The other one is volume-related in terms of leveraging fixed expenses. That can be impactful in terms of margins.

Another one is steel pricing, and if we saw some pullback in steel pricing that allowed us to hold onto that price that could be an improvement in margins. So there are a number of factors that can play into it. And the other one of course is what happens with competition and that one can go either direction. But I think the opportunity for steps improvement is there. I am not, of course, projecting or forecasting that as we're not giving any guidance in terms of future quarters.

Right, okay. And that is one final. Little bit of a bigger picture question. Our understanding is that there is a significant amount of acreage that will be expiring out of the Conservation Reserve Program, the CRP program, this year. And that re-enrollment in that program will be pretty weak just because of how the stronger earnings potential on that land outside of the CRP program. So, do you - - what's your view on that issue? As acreage comes out of CRP, and we're kind of looking at that as a positive in terms of a ripe opportunity for additional demand as that acreage goes into agricultural production. Do you look at that the same way or what's your view on that issue?

I have a mixed view in the sense that I probably consider it something like a 50/50 perspective on that one, Ryan, in the sense that some of the acreage that will come out of CRP is probably not prime acreage in terms of acreage that will be either high-yield or that they will even -- may even have water, not have water access. So, it's really a mixed view. I don't really put too much emphasis on that. What I see as more positive is the current commodity prices. The fact that there will be some more acreage that will be put it into production I really think is generally beneficial. So I think there is some opportunity in that acreage but I wouldn't consider it significant.

Okay, great. Well thanks for your time this morning.

Your next question comes from the line of Brian Drab of William Blair.

Good morning. Congratulations on a solid quarter. Can you give us just a rough sense, Rick, on QMB sales year-over-year? And even if it's just down a third or down a half, or something like that?

Well, as I mentioned in the comments, it is down about I think 85% roughly from the same quarter of last year.

Sorry, I missed that.

It is a very significant decrease. But also in the second quarter of last year we had part of a -- it was the second half of the New York bridge project that was being completed. So, there was a pretty sizable project that was in that quarter.

Okay, sorry, I didn't hear that. Then the push out that you're referring to, can you give us a little bit more of a sense if it's projects that you are expecting in the third quarter that maybe moved to the fourth, or is it more in fiscal 2012 moving to fiscal 2013?

It is a difficult one, Brian, in the sense that we have one of the projects that we expected in our planning process, say, earlier in the year that would've been in the second quarter was one that we also had expected could happen last year. And now I would say it's definitely one that I consider to be a 90%-plus probability that the project will happen. It's a question of which quarter will fall into. And I wouldn't be able to predict that at this point because there are still discussions and things going on around it.

The projects will range in size from, say, $2.5 million to $3 million project to a $15 million project. So there are very different size ranges in here but they are moving around. Some of it has to do with funding and maybe, to some extent, while we view projects and have seen projects that were, from everything we've heard, theoretically funded. We've seen attempts to take funding from a funded project and move it into other things. So there is a lot of activity that has taken place that makes a very hard to predict. I think the more important aspect of this is that those projects when we do get them are very profitable, they provide very good returns to shareholders. They will always be a little lumpy to predict but we still think the market for those projects and the probability of getting the projects that have been on our list is still very high.

Okay, great. And just one more kind of high-level question on the Irrigation side. A lot of investors are struggling trying to figure out how to model Irrigation given record farm income in 2011. And the likely step down maybe even though it might be just a modest step down in 2012. What are the fundamental drivers that are leading to increasing demand for Irrigation equipment rather than, say, flat demand, albeit at a record level? What is driving the continued growth?

Certainly the commodity prices are driving growth. The farmers are optimistic in terms of the future and in terms of profit opportunity. Their balance sheets are in good position so they are in a position to be able to take on debt. The return on the investment for irrigating versus non-irrigating versus dry land farming is significant. It is probably in the three- to five-year payback period in most cases, but in some cases it can be one to two years. So it is a good return to add that.

And I think one of the things that I've noticed in looking at the historical data that we collect quarter-to-quarter on application of the equipment is as you recall in a typical year in standard times, we would see about a third of our equipment go into dry land, a third into conversion, and a third into replacement. And the numbers have been more in the 40% range into dry land in the recent couple of quarters. So there is a significant increase in that because of the return that it provides and that profit opportunity. So that is really the primary driver. It is different than any other agricultural equipment in my opinion in the sense that it can provide that very significant return when commodity prices rise.

Okay, that's helpful. I guess not to press the issue, but I feel like those long-term drivers, fundamental drivers, were in place in 2011. Is there anything that you can point to that changed in 2012, or gotten better in 2012 compared with 2011? Or is it really just continuing growth in a good growth market?

I think that is part of it, I think there is some momentum that has been created in terms of what we saw in 2011 extended into 2012. So, some of that is just some built-up momentum in the agricultural market. And we are seeing that momentum still taking place more in the international markets in the sense that there are a few of them that are still lagging in terms of achieving that growth rate. For example, Russia is still coming up to speed and I think we are just starting to see that turn on. China is still really turning on. So, I think some of the markets are not catching up to the momentum that we are seeing in the US market yet.

Okay. Thanks. Thanks, Rick.

Your next question comes from the line of Brett Wong of (inaudible - technical difficulty).

I am sitting in on behalf of Mike Cox and I just want to focus a bit on the international. And wondering for the Irrigation segment, of the regions that you mentioned, where do you see the greatest sales momentum?

Well, the -- I guess in terms of the sales momentum, we had some very strong regions during the quarter. Europe was strong in the quarter. Canada, the Middle East was strong in the quarter. So we had a number that were strong quarter and yet some of the best momentum and the biggest potential ones that I see still are Russia and Ukraine, China, I think Brazil has some strength. But Brazil and Argentina are going through some drought conditions in parts. So that will play a role and have some impact. But I would say that the highest potential market still globally are in Russia, Ukraine, China, and some markets in the Middle East.

Okay. And are you -- how is the credit availability in those regions? In those international markets?

Well, it's spotty in terms of Russia and Ukraine, it can be a little bit more challenging there. China, typically, we're not dealing with significant credit issues because in many cases the customer is the Chinese government and it'll be one region or province or another. So, we're dealing generally with government in those cases. However, I would say that doesn't ensure timely payment, but it does ensure that the funds will be there for payment.

Okay. And then final question on the international margins. Is there a scale or revenue level that we should look for to start seeing international margins converge to the domestic business? Or is component sourcing make that impossible?

Well it is certainly not impossible. A lot of it has to do with the scaling of our international factories. Most of our international factories we have started those with sourcing tubing locally and galvanizing with outside suppliers locally, versus being very vertically integrated, excuse me, as we are in our US operations. As the volume is increasing in markets, we will continue to explore and expand vertical integration of our factories in those markets. And we are close in a couple of areas where we may invest more to -- in terms of vertical integration. But as those businesses and those markets grow, we will add more in and it will reduce our cost basis.

All right. Thank you very much.

Our next question comes from the line of Carter Shoop of Keybanc.

First on just investing in the business. Organically, it sounds like maybe some vertical integration opportunities in international markets. And then inorganically, acquisitions, sounds like they might be a little bit larger. And based on the size of the deals are looking at, I would imagine those are not going to be to further vertically integrate the business. So, maybe help me understand what types of end markets you're looking at for acquisitions? Is it more in the Irrigation segment, more in the Infrastructure segment, or something outside of your core competencies today?

Well, first in terms of the organic growth, I think that the two primary areas where we would be looking at from an organic growth standpoint would be in adding new products, product line expansions and vertical integration. In addition to that we will continue to invest in things like geographical expansion, so those will potentially require some capital. And when we look at our acquisition opportunities, we're looking at primarily water use efficiency and transportation safety. And I would say that the emphasis has been more on water usage efficiency type products to date and we will continue to be looking in that area. So, we are looking for businesses that will be synergistic to those two core businesses of ours.

Okay. And then on the financial hurdles, when you think of the potential acquisitions. What type of financial hurdles do you have that at the board level in regards to efficiency and accretion if there are any?

Well, our view has been that we expect acquisitions to be accretive within a year of the acquisition. That is one of the first ones. We also, obviously, look at the multiples that we are going to be paying for an acquisition and it is difficult. We do see that in the M&A market some of the potential ones we have looked at, particularly in the water space in the past, have been bid up pretty heavily which caused us to walk away.

We've been pretty comfortable in probably that maybe six to eight times EBITDA type multiple, I wouldn't rule out others. But it is been in that range where there is a fair level of comfort, especially when we can see a synergy. And we also for each of the acquisitions, or specifically, significant acquisitions that we look at we will model in three scenarios, kind of a base-case, worst-case, and best-case scenarios before we proceed with the deal.

Okay. And moving over to the order trends in the quarter, can you talk a little bit about the linearity that you saw? Obviously, a huge acceleration in orders on a year-over-year basis versus the November quarter. Was that a little bit more front-end weighted? Did you see the orders come on a little bit stronger towards the end of the quarter? And then is that persisting in the current quarter here, fiscal 3Q?

Well, I won't go too deep into the current quarter, but I would say that it was pretty consistent through the quarter. As I mentioned that when we are looking at coming up to year-end and thinking that we may see more of the orders being driven by the Section 179 ending. We didn't really see that. Our order rate continued to be solid and did through the quarter. And as I mentioned in my opening comments, we did continue to see robust order activity in through our peak selling period as we are in right now.

Great, last question. How should investors think about the likelihood of a large booking in the QMB side in the second half of the year? It sounds like the potential is for more projects to get pushed out. So at the low-end it seems like no project, no large projects. What would be a bull-case scenario in regards to how many projects could potentially be booked in the second half of the year for QMB?

I'm not really going to give an estimate or a projection on that in the sense that we look it at as there is a number of those that are opportunities that could fall into the second half of the year. But as we have seen in some quarters, we've seen some of those slip out. All of those are wonderful projects when we get them. We are very happy to get them, but I'm not going to really forecast or project projects for the second half.

Okay. Thank you very much.

Our next question comes from the line of Jeff Beach of Stifel Nicolaus.

Congratulations on a good quarter. I am impressed with the small increase in the SG&A expense in spite of some small acquisitions. Is this something you can sustain out into the future, SG&A growing meaningfully lower than your revenue base?

Yes, Jeff, this is Jim Raabe. I would say that this is kind of a good indicator, this quarter is a good indicator of the current run rate, and we look at SG&A for the year in that 15% range. I think it is a very disciplined organization with regard to how we approach SG&A and our intent is to continue to lever it.

Okay. And second, can you give us some additional color on the three segments in Infrastructure outside of the QMB, rail structure, road safety, contract manufacturing? I know in the last quarter you indicated you saw a good outlook for rail in this year and it doesn't sound like it occurred in the second quarter. Can you just talk about the outlook there?

Yes, I would say that your perspective on the rail is right in that we do see a good opportunity. And we have seen some good interest and we've had a couple of good quarters in the past. Some of it was driven by some of the PTC -- the Positive Train Control activities that were taking place. What we've seen in the last couple of quarters is that the rail activity has been down. And primarily what we are making is rail, railroad signaling structures. And we found that we definitely were impacted by the flooding that took place last year in the spring and held on through the summer. And we haven't really seen that pick back up since then. So, we think there is still good opportunities for rail but we haven't seen that return to the robust levels that we were running at previously.

In terms of the road safety products, they are generally running flat to a little bit up from same time last year. So we've seen that performing pretty well. Diversified manufacturing was consists of contract manufacturing, and our tubing business is also relatively flat. When you look at all of those pieces together outside of the [canopy], I believe the number was a 4% decrease in the quarter and up slightly for the year. So, overall there isn't much change in that year-over-year in those other pieces.

And outlook for the contract manufacturing and tubing, that sounds like it ought to be doing -- registering some pretty good growth over the course of, let's say, the next several quarters. Is that the case?

Well, I think there is definitely opportunity for growth in the tubing business. And I think the tubing sector and market in total has some excellent growth opportunities. We would like to see that expand -- our business expand in that area. In the form of the contract manufacturing, that is really not a piece of our business that is expanding. We've got a good relationship with a select customer base there that we want to maintain. However, we are not actively pursuing contract manufacturing-type projects. We look more for growing the proprietary products within our business.

All right, thank you.

Your next question comes from the line of Joe Mondillo of Sidoti & Company.

Good morning. Just in terms of the QMB it seems like domestically it would be sort of tough, also in Europe, just given the budget constraints municipally as well as federally. I was wondering if you guys are trying to attack other markets that are maybe easier to win contracts?

Absolutely. I think that when you look at the QMB product line and the system in total in terms of what it does from a traffic mitigation and road safety standpoint, it's really a pretty significant product in any area where there is a major metropolitan area with a large population base, particularly those with bridges. So, we still see many growth opportunities within the United States. Outside the United States we've had good success in Australia, New Zealand, Puerto Rico, some in Europe. But as you said, some markets are more impacted than others.

But the second part of that is that we've really taken an approach of developing a prospecting approach to this or marketing aspect to it. Where we are looking at all of the major metropolitan areas throughout the world and identifying those that are potentially good candidates for the solution and developing marketing activities to approach those markets. So, I think whether the next sale happens in Brazil, or Australia, or Puerto Rico, or Hawaii, or wherever it is, we don't really know, but I would say that we are actively working in many cities around the world.

Could you talk about how you go about actually marketing the product? Do you have sales agents all around the world and you go to municipals, or cities? How does that work?

In some cases it distributors who are distributing our other safety products who are bringing opportunities to us. In some cases it's a rep who may be finding an opportunity and bringing it to us. I think the ones that we see often are also ones where they know of the product and the government agency is contacting us directly. I love those. But I would really like for us to be more proactive in terms of finding those before the government agency has to contact us. But it really comes from a number of different options and solutions. We've also created a great video that shows the benefits of the QMB system that we've used in working with some of the government agencies to help educate the benefits of that system, which I believe will drive demand as well.

Okay. And then just changing subjects, a couple of small things. First off, how long out does your backlog go?

How long -- are you referring to the total backlog or the Infrastructure QMB backlog?

The total backlog.

Well, I would say the total backlog is relatively short in duration in the sense that it is mostly Irrigation. And backlog typically will represent less than one month of sales. However, we are seeing some extended lead times in orders at this stage. Where typically we would be able to fill orders in, I would say, a two- to three-week time period, we are probably in the four- to five-week time period in many cases in Irrigation today. So the backlog is a little longer than normal but it is still pretty short in length.

So that backlog at the end of February was about March's backlog?

Well, I wouldn't characterize it in terms of a specific month. I really don't have that information because it's going to be also a combination of domestic and international orders. But I would say that backlog typically turns pretty fast.

Okay, all right. And then also you mentioned China and Russia's opportunities. What percent of sales is that of your current sales and how are you positioning to attack those markets?

Well, both of those, when we look at the first half of this year, would be very insignificant in terms of sales for the first half. Those markets are really turning on for the season, now, at about this time. So, we'll see potentially more activity in the next quarter to two quarters in those markets. China for us usually happens in the second half of the year. I wouldn't describe or break out a specific percentage of sales for any region. I would say that China has been one of the fastest-growing regions we've had in the last couple of years.

Okay, great. All right, that's it for me. Thank you.

Your next question comes from the line of David Rose of Wedbush Securities.

Hello. This is Michelle in for Dave. My first question is how are you measuring your progress on the ERP? And could you quantify the benefits or headwinds in the quarter?

Well, I think that we are monitoring our progress relative to the overall productivity of the plant and the utilization of the tools that we have there. I think to date as we mentioned at the end of the fiscal year, our focus was really on trying to get back to more normal productivity in the first couple of quarters, and I think we've accomplished that. Now we are really looking at how we can use the tool going forward. But -- we certainly have overall productivity measures that we use in the plants that are driven by a number of factors, and utilization of ERP is one of them. But it is also somewhat subjective with regard to the overall efficiency on workstations and individual processes and those kinds of things.

Thank you. My next question, can you provide more color on international, what you're seeing maybe in Eastern Europe? Are there any distributors? And then can you comment on Latin America and the Middle East?

Well in terms of what we are seeing in Eastern Europe, it is still a very strong interest. We've also seen that there's been difficulties, as we were discussing earlier, with credit in some of those markets. But the growers that have the money still have strong interest. And we're seeing that conversion starting to take place where two years ago they were interested in talking and looking at the new technology and seeing what we had to offer. Now we've seen in the last couple of years the order rate is picking up. So, I think it's starting to accelerate. It's still not at a real high level yet but we will continue to see acceleration in that market. Middle East tends to be a [slippery] project oriented for us. We've had some projects that really were primarily in the previous quarter and some of that in the second quarter, but it will be a little bit more project oriented in the Middle East region. Latin America, we've seen good growth in -- certainly in Brazil, we see some growth opportunities now in Argentina, we've seen Chile market, overall good, but it's not a very big market. And Mexico of course has been a good market for us. So, overall, I'd say the Latin American market is strong and has still a lot of potential.

Great, and my last question is in the second quarter of 2011, fuel costs rose 12% over 2010. Could you provide us insight on how we should think about your ability to manage these costs for the remainder of the year? For example, how much pricing would the Company need to take in order to keep up with inflation?

Could you repeat the first part of that? -- it was a little quiet.

Sure. How do you think about your ability to manage costs, fuel costs for the remainder of the year?

Would you say steel costs or fuel costs?

Fuel.

I understand. I think that obviously fuel effects in both our outbound and our inbound and the inbound gets factored into our overall costing. And that indirectly gets fed into our steel costs and those kind of things. I think Rick has already alluded to what we've seen there which is about 15% increases year-over-year, but a little bit kind of more flattening steel prices. From an outbound freight standpoint, we try to manage that to be relatively neutral from the standpoint of what we charge for getting our deliveries to our dealers and to our customers. And I think we manage it from that perspective.

Okay. Great. Thank you.

There are no further questions at this time. I will now turn the conference back to Mr. Parod for closing remarks.

For our business overall, global long-term drivers of water conservation, population growth, increase of importance of biofuels and the need for safer, more efficient transportation solutions remain very positive. In addition to the overall business enhancements that has 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.

I'd like to thank you for your questions and participation in this call. Thank you.

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