Lindsay Corp (LNN) 2014 Q3 法說會逐字稿

Good morning, my name is Victoria and I will be your conference operator today. At this time, I would like to welcome everyone to the Lindsay Corporation third-quarter 2014 earnings call.

(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 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 the 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. You may begin.

Good morning and thank you for joining us today. Joining me on today's call is Jim Raabe, Lindsay Corporation's Chief Financial Officer, and Lori Zarkowski, our Chief Accounting Officer.

Total revenues for the third quarter of FY14 were $169.9 million, 23% lower than the same quarter last year. Irrigation revenue declined 26% from the same quarter last year, partially offset by a 13% increase in infrastructure revenue. Operating margins were 14.8% in the quarter, compared to 18% in the same quarter of last year.

Net earnings were $16.5 million, or $1.28 per diluted share, compared with $26.1 million or $2.01 per diluted share in the prior year's third quarter. For the first nine months of FY14, total revenues were $470.4 million, decreasing 13% from the same period of last year. Net earnings were $40.2 million, or $3.11 per diluted share, compared to $60.1 million, or $4.66 per diluted share, in the first nine months of last year.

For the Irrigation segment, sales totaled $149 million in the quarter, decreasing 26% from the same quarter of last year. Irrigation operating margins were 18.8% of sales versus 21.9% last year, due to the deleveraging of fixed expenses on lower revenue.

In the US irrigation market, revenues declined 26% to $88.1 million for the quarter. Excluding the sales from the Lakos filtration business acquired, US irrigation sales declined 31% in the quarter, reflecting the significantly contracted market when compared to last year, due to the reduced drought impact and lower crop prices.

Corn prices have declined roughly 30% as compared to a year ago and the current forecast for 2014 US net farm income, while higher than the 10-year average, is 27% below 2013. The elimination of the enhanced Section 179 tax depreciation benefit has also likely contributed to the market headwinds for equipment sales; however, it's difficult to estimate the effect, given the change in commodity prices.

As the third quarter drew to a close, spring storms across the plain states created additional demand for replacement units, aiding revenue somewhat and increasing US irrigation backlog.

In the international markets, revenues for the third quarter were $60.9 million, decreasing $21.7 million over the prior-year quarter. The revenue reduction was primarily due to the near completion of the Iraq contract, which contributed $16 million to revenue in the third quarter of last year, and only $400,000 in revenue in the recent quarter.

As noted in the release, the escalation of hostilities in Iraq in June has created some uncertainties for completion of the contract, as we have been unable to complete installation in some areas of the country. At the end of the quarter, we had a receivable from the contract of approximately $2.5 million, which is not yet due.

There is also a $1.9 million performance bond outstanding, securing our obligations for completion of the contract. We do not believe it is necessary or appropriate to establish a reserve for bad debt or for the performance bond at this time, but we will continue to evaluate the situation.

In other international markets, declines have occurred in many regions compared to the same period last year, partially offset by increases in Australia and the inclusion of Lakos international sales. The combination of lower crop prices, delays in government subsidized funding for equipment purchases in Brazil, and conflict in the Ukraine and the Middle East have created near-term market headwinds. It's important to note that year-over-year, international sales comparisons will be impacted again in the fourth quarter by the Iraq contract, which contributed $17.4 million in revenue in the prior-year fourth quarter.

For the first nine months of FY14, total Irrigation segment revenues decreased 17% to $414.1 million. The US Irrigation revenues were $260.8 million, decreasing 21% from the previous year. The international Irrigation revenues were $153.3 million, decreasing 8% from the previous year. The international decrease to date is due primarily to the lower contract revenue in Iraq.

Infrastructure segment revenues were $20.9 million in the quarter, increasing 13% from the same quarter of last year, reflecting increases in road safety products, rail products, and Road Zipper System revenues. Infrastructure segment operating margin increased to 4.3% of sales as compared to 1.1% in the third quarter last year, driven by the revenue increase and cost leveraging.

For the first nine months of FY14, Infrastructure revenues have increased 26% to $56.3 million, with increases in nearly all product lines. While the status of a multi-year highway bill continues to create uncertainty for the near-term, we are pleased with the progress of improvements in our Infrastructure segment and are confident we will continue to see growth over the longer term.

Gross profit in the third quarter was $48.2 million, or 28.4% of sales, versus $63 million, or 28.7% of sales, in the same quarter last year. Gross margins in Irrigation declined less than 1 percentage point, with the decline primarily reflecting fixed-cost deleverage on lower sales volume.

Our salespeople and dealers report increased price competition; however, we have experienced minimal price impact to date. Infrastructure gross margins improved by approximately 3 percentage points on a mix shift and cost leveraging on higher sales.

Operating expenses in the third quarter decreased by approximately $500,000 compared to the same period last year. Excluding the inclusion of the acquired Lakos filtration business, operating expenses decreased $2.7 million, with the largest decreases in incentive competition and bad debt expense. Operating expenses were 13.6% of sales for the quarter compared to 10.7% of sales for the same period last year, reflecting a revenue decline.

The order backlog on May 31, 2014 was $73.6 million compared to $80 million on May 31, 2013. Year-over-year backlog for the US Irrigation and Infrastructure markets increased and international irrigation backlog declined. The higher US irrigation backlog reflects replacement of machine orders received at the end of the quarter, driven by the spring storms.

The current year Infrastructure backlog includes the $12.8 million order for the Road Zipper System project on the Golden Gate Bridge, which we expect to recognize in revenue at FY15. The prior-year international Irrigation backlog included $23 million remaining on the project in Iraq, which is now down to $2.6 million. Our backlog typically represents long-term projects, as well as short lead-time orders, and therefore is generally not a good indication of the next quarter's revenues.

Cash and cash equivalents of $182.1 million were $11.8 million higher compared to the same time last year, while debt decreased $1.1 million. Cash generated from operations over the last 12 months were partially offset by capital expenditures, dividend payments, share repurchases in the Lakos acquisition completed in the fourth quarter of last year.

Our current estimate for capital expenditures for 2014 is between $10 million to $15 million, which is down significantly from estimates at the beginning of the year due to project timing. The specific projects delayed are generally capacity expansion projects in developing markets, delayed by government approval processes or regional conflict.

During the quarter, we repurchased 129,000 shares for $11.2 million and year-to-date have repurchased 208,000 shares for $117.8 million. We continue to execute against our capital allocation plan announced January 2014.

In summary, the US irrigation market has slowed significantly in recent quarters as compared to the same time last year. US Irrigation revenues have contracted due to significant reduction in commodity prices, reduction in the Central Plains drought conditions, and the reduction in accelerated depreciation benefits, partially offset by demand caused by spring storm damage. International markets remain active, but with some projects delayed due to lower commodity prices or by regional conflict.

Despite the current market headwinds, we're optimistic about the future are expanding our global irrigation equipment manufacturing capacity. The Infrastructure business has improved its profit profile of generating growth in a continuing environment of constrained government spending. We believe this business will continue to grow and improve in profitability as we gain share in each of the markets and as we identify and develop new Road Zipper System applications worldwide.

In addition, our balance sheet remains strong. We will continue to invest in growth and productivity, both organically and through acquisition, and will utilize excess cash to improve returns to shareholders. In addition, we will continue to pursue strategic, synergistic acquisitions that further differentiate our market positions and add new growth opportunities. We will maintain our acquisition discipline to ensure we achieved value creation for shareholders. I would now like to open it up for any questions.

(Operator Instructions)

Brett Wong, Piper Jaffray.

Great. Thanks for taking my questions (inaudible) with the backlog --

(Operator Instructions)

Hello?

Hello.

Good morning. Sorry about that. I was having some technical problems. Thanks for taking my questions. Just wondering if you can quantify the replacement units in the backlog that were result of the storms?

Well, I would say that the revenue gain on replacement of the storm damaged machines in the quarter was not really significant and was less than 5% of our Irrigation segment revenue in the quarter. In addition, for the revenue in the quarter, the replacement orders contributed to an increase in backlog for US Irrigation at the end of the quarter. I would characterize it in that manner.

Okay. I know you had mentioned that the backlog is typically more longer-term. Just wondering any thoughts on timing for some of the replacement units?

The replacement units are really very rapid in terms of timing, so typically what we see in our backlog is there would consist of some longer-term projects at times, like the Iraq projects, but then a lot of the other Irrigation backlog that we would have is generally going to turn very quickly. The need for those machines, in terms of the storm damaged ones, is very immediate, so they would like to have those very quickly.

Is there -- with them coming back in -- any risk to crop damage or anything like that? Other than what happened from the storm?

There can be and it really depends on the situation, but I'd say that in some markets, they are really dependant on being able to have irrigation in order to get good consistent crops. So while you may have some crop damage in going in and taking out the old machine or adding in the new one, it's probably minimal in comparison to losing your entire crop by not irrigating.

Great. Thanks. And just in the domestic market, are there any specific regions that you're seeing have significantly more weakness than others?

I'd say that the largest decreases we saw were really in the, as we even talked about in the previous quarter, were in the Midwest Corn Belt region, including the Great Plains. This is the same region that was really most affected by the drought last year, which fueled a record irrigation equipment demand in the past, and that's generally where we've see that change.

Okay and are you still seeing some good growth on the eastern side of the Corn Belt?

We see good growth in some markets in pockets and I couldn't really speak specifically in terms of what regions but I would say that the primary region where we've seen the decrease has been the area where we saw the significant increase due to the drought.

Great. Thanks. I'll hop back in line.

Thank you.

John Duni, BB&T Capital Markets.

Hi. Good morning. This is John filling in for Schon.

Good morning.

Hey. One of your irrigation competitors recently said they are calling for flattish year-over-year growth in the back half of calendar 2014. Is that in line with your expectations or are you guys seeing something a little different than that?

Well, we don't really give guidance, and I would say that what would really characterize this is we're in what we'd considered to be a change in the ag cycle, obviously from where we were in the past couple years, which were really pretty bullish with the drought conditions that we had. I'd say that we've really entered this trough period of the cycle where we've seen the lower commodity prices and [high ending] stocks in corn.

The real question that we typically get when we see these conditions, which we've seen in the past, is how long will it last and how far will it go, which is very difficult to know, because all of them are a little bit different. Usually, what it takes is some kind of a significant weather event or something else to happen in order to change that situation.

Right now we don't see that on the horizon. So I wouldn't necessarily make a projection or give guidance, but to say I believe that we are in a different trough -- we are in a tough period now compared to what we've seen in the past couple of years and the commodity prices do make a difference.

We're also seeing that the expansion of new markets in some of the developing areas that we've participated in have added more corn acreage, which creates a situation in terms of some of these conditions could take longer to work through in terms of working down stocks of corn or other grains. So everyone is a little bit different, but I'd say in the years that I've seen this occur, we will work through and we're very bullish on the long-term, but short-term is maybe a little bit tough for a period.

Okay. Great. That's helpful. And then switching gears to Infrastructure, with the Golden Gate Bridge project, do you have an update on the timing in FY15? Because I remember seeing an article not too long ago that mentioned the total project might be delayed into spring or summer of 2015, but I don't know if you guys had any additional commentary there?

The last estimates that we've seen on this would really put the revenue recognition for us certainly into our FY15 and we're probably looking at a January/February time period for our work. That's the latest information that I've got. I don't have anything more current than that.

Okay. Perfect. And then just sticking with that, are you expecting any significant ramp-up in QMB deliveries in Q4 of this year? Any normal seasonal uptick in shipments we should expect?

Again, I don't want to get into any guidance or forecast in this. I would just say that we continue to work that QMB Road Zipper System market very aggressively, with a lot of activity in terms of interest in various markets around the world, but I really am not at a point to talk about any specific one or to predict the timing on those.

Okay. That's perfect. I'll hop back in queue. Thanks.

Ryan Connors, Janney Montgomery.

Great. Thank you. A couple of questions from me. First, Rick, I wondered if you could talk about the price/cost dynamics. I know, as you've mentioned, we're moving into a different point in the cycle in Irrigation and obviously that presumably will have some pricing ramifications and yet some of the key input prices -- I know zinc, for example, has been in the news about running up lately. So what's your view going forward on your ability to recoup some of that and maintain margin on the pricing side?

Well, first I'd comment on the competitive situation a bit and say that the situation is definitely competitive, but not unlike other years. And if commodity prices remain at this level or trend lower, we anticipate that there will be an increase in competitive intensity, which we think we're really well-positioned for.

Our adoption of lean and our Nebraska irrigation factory has deepened, broadened the Organization and we've demonstrated the ability to ramp up and ramp down as necessary to minimize the deleverage effect as the market contracts. So we can't eliminate it, but we minimize that deleveraging effect.

In addition we look forward, in terms of buying the major commodities such as steel and zinc and others that are important to our manufacturing process, and in some cases we'll do pre-buys or hedge wherever necessary. So that's another action we will take. And we cannot prevent the competition from really fighting aggressively on price. We tend to differentiate on offering as much as we can, but we are really well-positioned to compete wherever this is going to go.

Okay. And that segues to my next question. One of the ways that you've historically differentiated is with technology. I know the FieldNET system has been very successful. Can you give us an update on the recent movement in the technology side and how you see that playing out?

I know Trimble has gotten a little more active on the irrigation side with their new pivot control system. I know AgSense has been having some success, so where do you see that going to, and do you think Lindsay can remain as relevant in that side of the business as it has been historically?

One of the things that we do internally is we're very objective in terms of looking at competition and we never get cocky in terms of really underestimating where that's going to go. I'd say that in our objective view, we're seeing a lot more competition, more that are focusing in this area in terms of the technology and this offering of a more complete solution from the irrigation information or the, let's say, growing information part of the cycle.

At the same time, I would say that FieldNET has been very successful in terms of market penetration and very successful on delivering on the value propositions that it offers, which is very significant and somewhat unique. We will continue to be aggressive in adding additional features and developing FieldNET and continuing to build out that offering in many different ways.

While we see competitions from some good companies and large companies, that's interesting plays for them and new plays for them, they are still relatively small pieces and really not the same value proposition that a FieldNET offers. So that's probably where I'd leave it, but I'd say that this a very important piece of our business that we will continue to aggressively defend and grow.

Great. Thanks for your time today.

Thank you.

Tim Mulrooney, William Blair.

Good morning, Rick.

Good morning.

I have a question on your domestic Irrigation segment. We were looking at the model. Actually, this is for total Irrigation revenue. We see that typically seasonality suggests that your Irrigation revenue will decline about 30% from the third quarter to the fourth quarter. Is there any reason this year we should expect anything different?

One factor that is difficult to factor into this to some degree is this storm damage aspect, because we do have storm damage replacement machines in backlog that will be revenue in the fourth quarter. That said, I'm not really going to get into guidance or really splitting out that specifically, but I would say that does help our fourth quarter somewhat from a typical year.

Okay. That's fair. That's helpful. Thank you. And then did you guys give how much Lakos contributed to Irrigation in the fiscal third quarter?

We didn't specifically split that out. And I don't really have that number available on hand, but we have not specifically split out Lakos revenue. And it is split between our domestic and international numbers in the Irrigation segment.

Okay. It's two-thirds domestic and one-third international? Is that about right?

I couldn't say. I don't really know and I don't, Jim, if you had anything on that?

No. It can generally be anywhere from 20% international to one-third international. It will fluctuate but in that range. Yes.

Okay. Thank you. Just one more. Could you give a breakdown -- sometimes you give a breakdown of domestic Irrigation in the quarter, with regards to what percent was replacement versus conversion versus dry land. Do you have that handy?

I do. Yes. The replacement percentage was roughly 36% of the whole goods shipped. Dry land was 38%. That's adding in irrigation for the first time. And conversion was 26%. That's converting from a flood or gravity irrigation.

So we've seen a higher percentage of replacement. Dry land is still holding up pretty well. We've seen it through during the drought conditions in the high 40% ranges, close to 50%, and it is now 38%. Replacement is still pretty good and part of that I'm sure is because of the storm damage machines that were also in replacement.

Okay, got it. Thanks, Rick. Thank you, Jim.

Joe Mondillo, Sidoti & Company.

Hi guys. How are you doing?

Good morning.

Just wanted to ask you a question on how you're looking at cost control. I know you mentioned ex-Lakos, you saw operating cost down $2.7 million, but I'm wondering -- the decremental margins are above 40% on average in the last three quarters. And with the outlook of a record harvest maybe this year translating into the down acreage next year, just wondering how you're looking at your cost situation and if there's any other levers that you can pull to cut the cost structure?

Well, I'll make this comment into two sectors here, two different segments, first is from the manufacturing costs or the cost of goods sold perspective. I would say that we're going to continue to do what we need to in terms of hedging costs, whether it's steel or zinc or whatever those are, and with the implementation of leaner manufacturing operations, which creates a lot of flexibility but also allows us to deleverage as much as we can and minimize that impact.

At the same time on the operating expense side, I would say we've tightened the belt and made reductions where we felt it was appropriate. At the same time, we are continuing to invest in product development and geographical expansion and really developing the strategies and the synergies between our businesses in developing differentiation in our business segments, which helps our margins long-term.

We are well-positioned, given our market strength and balance sheet, to continue to make those investments and others that create shareholder value, including share repurchases and acquisitions as we go through this period. Obviously, we will continue to reevaluate our operating expense position as we learn more about the market and where things are going and make adjustments accordingly that we feel that are appropriate, but we will maintain our strategic direction.

Okay. Great. And then in terms of the international business, it seems like you highlighted a little bit more of a caution this quarter and it's understandable just given what we've been seeing, but I'm just wondering if -- are you actually starting to see a slowdown in orders or is it just a caution given what we've been seeing in these particular regions around the world?

I would describe it as a caution because we're seeing some of the commodity price impact to some degree in all of the international markets, but to a limited degree still. And yet at the same time while we are dealing with the commodity price issue, we've had the conflict in the Middle East, which certainly affects that market, Ukraine and Russia, which create some difficult market conditions there at this time.

But we'll get past those and we expect to continue to see growth in Brazil, China, Ukraine, Russia, parts of South America, parts of Africa, and while we're experiencing some contraction right now, we expect that the financial investors in ag will continue to make investment in new projects around the world as part of the food security initiatives in other things. So it still makes sense to see good growth in the long term in these international markets but they're going through just a little bit of a rough time right now.

Okay. So in terms of -- I know you don't like to give guidance -- but the first half of the year, you were averaging $40 million to $50 million. Is that far off given what you're seeing? Just trying to understand how difficult the environment is, given your comments?

Well, again, I don't want to give guidance and I'd say that I wouldn't describe it as difficult. I would say that there are some challenges right now, as I've described, but what we have also seen in the last couple of months is we've seen projects in some of the international markets that were somewhat delayed due to investors holding back because of commodity price changes or investment in, let's say, Ukraine or Russia, because of the conflicts that are taking place right now.

And yet, the interest is still very strong and is still there, where I believe that, that will continue, it's just a matter of some delays. So I can't really predict in terms of timing of projects or anything of that nature. I would just say that the drivers are still very, very strong and we would expect that to continue.

Okay. Great. And then just lastly, in terms of your acquisition strategy, just wondering if there's any different viewpoint that you take in a downturn versus the very robust period that we've seen in the last few years? Is there any chance that we see a pick-up of acquisitions or anything like that? I'm just wondering what your viewpoint is going into the trough time period here?

Well, strategically, it doesn't change anything that we plan or do from an acquisition standpoint, in terms of we're still looking for water-related acquisitions and acquisitions that are synergistic to our core business and basically build on differentiation and continue to build our offering from a total solutions standpoint. From an opportunistic standpoint, this may create some new opportunities because the market is a little softer in some areas, but outside of that, it doesn't really change anything from a strategic level in terms of acquisitions.

Okay. Great. Thanks a lot.

Thank you.

Kevin Bennett, Sterne Agee.

Hey guys. Good morning.

Good morning.

One piece of clarification real quick, the breakdown you give of replacement dry land, is that just domestic or is that total Irrigation?

That is just domestic.

Okay. And then is there any chance you can give me those numbers for the third quarter of last year?

I believe we have those. Jim has those. Just give us a second here.

Sure.

The third quarter of last year was 46% dry land, 23% conversion, and 31% replacement.

Got it. Thank you. And then sticking to what Joe was talking about on the international side, I know you guys have always thrown out that 15% long-term growth rate in that business, do you think that needs to come down a little bit given what's going on in the Ukraine in some of these other areas or are you still comfortable with that -- it's not really guidance but just a target?

Well, if you were to try to apply it to any one quarter or short-term period, I would say that's difficult to predict and that really--

Sure.

Gets into trying to forecast it, but I would say from a longer-term perspective, no, I don't feel that we would change that at this point. There's some factors in play, primarily Ukraine, in terms of what happens there that could impact that, but I still believe there's so many growth opportunities throughout the world for efficient irrigation, that I wouldn't change that estimate at this time.

Got it. Okay. And then if you look year-over-year and back out Iraq, it looks like it was the international piece was down about 10% organically, I'll call it. Can you just go through some of your major markets and just talk about which ones were down and which ones may have been up next, just to get a better sense of what's going on there ex-Iraq?

Well, without getting too specific, I would say a number of them are down. One of them that has been very strong for the last few years certainly has been Brazil and we did see it lower in the quarter, primarily due to the government-subsidized funding delays, which we would expect to improve after the next election and hopefully that will get turned back on again.

But outside of that, there was no real specific market. We've seen some delays, or let's say, some reductions in China, which we've talked about a little bit in the past due to some government tender delays and things of that nature, nothing really significant. But the primary ones were the Middle East, which was the Iraq contract, and Brazil due to the government funding.

Got it. That's super helpful. And then a couple more -- one, I know you guys are working on a plant in Turkey. Is that part of what's been delayed or is that still slated for next year?

Well, the plant in Turkey is under construction and we're in the process of hiring for key positions for that plant at this time. It is delayed but we do expect to be operational probably by the end of the calendar year. And we had many months of delays in gaining the appropriate approvals in country that we needed, but the project is now really proceeding according to our revised schedule. But that's one of a couple projects in, let's say, developing markets that is delayed due to government approvals and those types of processes.

Got you. Are there any others that you'd like to call out?

Not specifically at this time. I may talk about them in the future as we get the capital invested, but not at this time.

Got you, okay. And then last one for me on the Infrastructure piece of the business, I know there's some alarm bells going off regarding the Highway Trust Fund running out of money in a couple months. Have you seen that impact your business at all? Are your customers talking about it or they just figure it will get fixed?

I can say everybody is talking about it and I don't think there's an assumption of anything getting fixed. Maybe there's a belief that it will be long-term, there is faith. But I would say the way we look at this is the new leadership we have in the business, there's been a new request for expansion of profit in our business.

In each of our markets, actually, we are participating in, in the Infrastructure, Management is focused on better utilization of resources and production planning; we've seen continual, albeit a slow, recovery in the US market with roadway infrastructure segment in general, in both construction and general repairs. We think we are pretty well-positioned, and as we see a multi-year highway bill put in place, it will be beneficial to the business, so we think something will happen. It's just a matter of timing. It has to take place.

Got you. Okay. Thank you guys so much. Appreciate it.

Thank you.

David Rose, Wedbush Securities.

Good morning. Thank you for taking my questions. I was hoping we can follow-up just on pricing. If you could maybe parse out a little bit of where you're seeing the pricing pressure in terms of smaller direct competitor, small versus large of the players and if there's any regional component to this?

And how are you seeing pricing pressure? Are you seeing it in the form of rebates or are you seeing it in direct price reductions? Maybe if you could provide a little bit more color on that?

Well, as I mentioned in the comments, we've seen the -- we've primarily heard it more anecdotally from our sales people and our dealers and we do have discussions with our dealers regarding specific competitive situations as they arise. I wouldn't describe it as specifically regional or broad and widespread.

I would say that, as I commented on earlier, it really has had minimal if any impact on us to date. I would say a pretty small impact. So I'm not really concerned about it at this point. Like I said, my bigger concern with this is depending on where the market goes in the future and going forward.

Okay. That's helpful. And then in terms of mitigating the impact on margins from a revenue decline, can you maybe break out a little bit more from lean in terms of where you saw some of the improvement or at least the mitigation? Is it in labor? Was it on cost equality? Was it in procurement? Maybe provide a little bit more color.

This is Jim and I would just say it really is more of the overall management of the plant from a productivity labor standpoint. We are seeing deleverage, as you would expect, from just the overall fixed cost structure, but they've done a very good job in just managing the overall labor costs and making sure that we've got full productivity in the plant, or as much as we can in a situation like this.

From a purchasing standpoint, we always have efforts ongoing. I wouldn't say there's any significant items to call out there. I would just say it's more of the overall managing of productivity.

And how many shifts are you running in the US plant in irrigation?

I would say it's generally one, probably a couple in some departments, as necessary. There may be another one or two departments that could be running three shifts but generally in that one to two.

Okay. Great. Thank you.

(Operator Instructions)

Chris Shaw, Monness Crespi.

Good morning, everyone. How are you doing?

Good. Good morning.

I was curious, I was surprised that you didn't buy back more shares during the quarter. It looked like it was maybe $11 million worth after doing a think $6 million or so last quarter when you only had a few weeks to actually do it. And [frequently] when the cash continues to rise, was there a reason you weren't more aggressive there or is there some [redo] in potential M&A maybe, going forward?

No. Chris, it's more -- our overall approach is this is $100 million to $150 million repurchase that we see executing over the 24 month period. And our view really hasn't changed, which is we want to be active in the market, and we also want to be opportunistic. And that's really where we stand is that what we've shown in the last couple of quarters is that we do expect to execute at some level but the level will vary based on where we see opportunities.

So I don't think I would really comment more than that. It really isn't related to any other outlook items. We obviously have a very strong balance sheet and a significant amount of cash, so we have the flexibility we need for acquisitions in other types of things. It's just we are going to be thoughtful about the process on the repurchase.

And on deals, just the pipeline, is it getting bigger, smaller, or are you just finding problems with getting the right valuations from the targets? Or are there other factors that are slowing up any potential deals?

This is Rick. In terms of the deals, I would say that the pipeline is very active. We have a lot of potentials that we are looking at, and as I commented last quarter, many of them are smaller than we'd like to see. That's still the case; they are primarily smaller deals that add in nicely and there's a synergy with our existing business.

Some cases, price expectations are challenging. In many that's not the case, but it's a matter of just finding the right deal and being able to get those closed. So the pipeline is as good as it's ever been. In fact, probably I'd characterize it more as continually increasing.

Good. And then shifting gears just -- I have more recent experience with what happened to your business in irrigation when you have a period of dryness or drought. But in a season like this where it's a little bit more rainy or floods in some areas a little bit, in the past does that drive down demand? Obviously, relative to if it was really dry out, but just from a normal season, do you see people less inclined to put in irrigation just when they have a good season or do have a history of that, that you could point to?

I would just describe it as -- obviously, during periods of drought, it's really top of mind for everyone, in terms of how to enhance the yield of their crop, and obviously, irrigation is the number one method for being able to do that. But it's also the number one method from a consistency standpoint in terms of crop yield. Obviously, there's other things, in terms of seed and fertilizers and things that take place, but consistently applying that water during that growing cycle is extremely important, which our irrigation can do.

Now when it comes to flooding that's taken place, obviously it's difficult to sell equipment into regions that are flooded. You can't do that. Regions that are flooding, where there's just too much water, they are no thinking about irrigation at that point. However, what they're really looking at longer-term, is what I would consider to be more dramatic weather cycles than what we've seen in the past and where we've see that this is cycle of droughts and flooding and things taking place in different markets.

So many areas where we have seen farmers not interested in irrigation in the past in some of the Midwestern states where they've sufficiently had enough rainfall, didn't have enough rainfall in the 2011, 2012 time period with drought, and even though they may be getting it now and there may be some flooding longer-term, they'll probably still consider irrigation, because that's going to be the best path to consistency in terms of the crop. So that's really how they're looking at it; while they may not be looking at irrigation this year because they're flooded or they don't have water issues, that will change as the cycles change.

Great. Thank you.

John Duni, BB&T Capital Markets.

Hi. Thanks. Just one quick follow-up. You briefly talked about your thoughts on the highway bill, but I wanted to get your take on Section 179. It looks like we've seen some positive developments recently in the House, but I didn't know if you were able to offer any additional color as to your own expectations for the bill or anything you've heard recently?

The only color I'd add to it is that everything that we've heard since it expired was that it would probably be renewed, and at some level, we don't really know what level that would be. However, it is likely that it will be renewed at the end of the calendar year, which really won't do any good obviously for our fiscal year, this year.

It may make a difference for us next year in terms of demand. But at this point, I would say, it really has no impact on FY14 for us, but our expectation is it probably will get renewed, but in today's political environment, it's anybody's guess.

Okay. Great. Thanks for taking my questions.

Thank you.

Peter van Roden, Spitfire Capital.

Hey guys.

Good morning.

Just a quick question once again on domestic pricing. In the past, you guys have talked about how you don't see a ton of value trying to cut price in order to gain market share. So if that's the case, are there any of your competitors that you see being in financial distress from the drop-off? Did they fly a little bit too close to the sun and put themselves in trouble? Or is the competitive market pretty healthy right now because everyone has done so well over the past couple of years?

It's more the latter. Everyone is in pretty good shape. Looking at it on a more global basis, we have some competitors that occasionally get into some difficult financial times because of spreading too thin or growing too fast and investing too much, too quickly. So we may see some opportunities that come out of that and occasionally a little more price aggression and things like that, which is a usually short-lived.

But generally, I would say that everybody is in pretty good shape and our competitive environment is really pretty solid. As I stated earlier, I do think, depending on what happens with commodity prices, or more importantly, farmer sentiment and market demand, things could get more aggressive, but I'm not overly concerned because we are well-positioned given our lean and other things that we've implemented throughout our operations.

Got it. Thanks guys.

Thank you.

That will conclude the Q&A session for today's call. I would now like to some the conference back over to Mr. Parod for any closing remarks.

While we've experienced a near-term decline from peak Irrigation revenues, drivers for the Company's markets of population growth, expanded food production, efficient water use, and infrastructure expansion support our long-term growth goals. We are committed to creating shareholder value through investments in organic growth, dividend increases, strategic water-related acquisitions, and share repurchases, congruent with our capital allocation plan. We thank you for your questions and participation in this call. Thank you.

Again, thank you for your participation. This concludes today's conference. You may now disconnect.