Lindsay Corp (LNN) 2017 Q4 法說會逐字稿

Good morning.

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

At this time, I would like to welcome everyone to the Lindsay Corporation Fourth Quarter 2017 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, 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.

(Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Mr. Rick Parod, President and Chief Executive Officer.

Good morning, and thank you for joining us today.

With me on today's call is Brian Ketcham, Lindsay Corporation's Chief Financial Officer; and Lori Zarkowski, our Chief Accounting Officer.

Total revenues for the fourth quarter of fiscal 2017 were $131.9 million, decreasing 1% from the same quarter last year.

Net earnings for the quarter were $6.3 million or $0.59 per diluted share compared to net earnings of $7.8 million or $0.73 per diluted share in the same quarter last year.

A higher effective income tax rate for the quarter decreased net earnings $1.1 million or $0.10 per diluted share compared to the same prior year period.

Total revenues for the full fiscal year of 2017 were $518 million, reflecting a slight increase over the previous year, and the first year-over-year increase in revenues since the most recent cyclical peak in fiscal 2013 when Lindsay revenue exceeded $690 million.

Net earnings for fiscal 2017 were $23.2 million or $2.17 per diluted share compared with $20.3 million or $1.85 per diluted share in fiscal 2016.

Fiscal 2017 net earnings reflect a higher effective income tax rate for the full year, decreasing net earnings by $1.5 million or $0.14 per diluted share compared to fiscal 2016.

Revenues for the irrigation segment in the fourth quarter were $101.9 million, increasing 2% over the same quarter last year.

Irrigation operating income for the quarter was $9.8 million, reflecting an increase of 10% over the same quarter last year.

Irrigation operating margin was 9.6% of sales in the fourth quarter, compared to 8.9% in the same quarter last year.

In the U.S. irrigation market, fourth quarter revenues were $55.6 million, decreasing 3% from the same quarter last year, driven primarily by lower filtration and pump system revenues.

The majority of the decrease in the filtration and pump system revenues were in drip irrigation filtration and pump systems for landscape and golf applications, markets outside of pivot irrigation.

Pivot and lateral irrigation equipment revenues increased in the quarter on higher average selling prices and higher unit sales volume.

The higher average selling prices were due to the pass-through of higher material costs, primarily steel.

This was the second consecutive quarter of increased unit sales volume for irrigation equipment in the U.S.

In the international irrigation markets, revenues in the fourth quarter were $46.3 million, increasing 9% over the same quarter last year.

The increase resulted from the continued market recovery in Brazil, increased project activity in developing markets, and a slightly favorable currency translation impact.

Quoting activity for projects in international markets remain strong as we continue to see sizable agricultural projects undertaken in developing regions of the world.

For the full fiscal year of 2017, total irrigation segment revenues were $418 million, and were 1% lower than the same period last year.

U.S. irrigation revenues of $242.6 million were 7% lower than last year.

International irrigation revenues of $175.4 million for the full year or 10% higher than last year, driven by the recovery in Brazil and projects in developing regions.

The irrigation segment generated operating income of $42.8 million for the year, operating margin of 10.2% of sales, compared to operating income of $49.2 million and operating margin of 11.7% in the same period last year.

Infrastructure segment revenues in the fourth quarter were $30 million, declining 9% from the same quarter last year.

In the quarter, higher Road Zipper lease revenue and higher sales of road safety products in the international markets were more than offset by lower Road Zipper system sales and lower sales of road safety products in the U.S. The infrastructure segment generated operating income of $7.5 million for the quarter and operating margin of 25.1% of sales compared to operating income of $9.3 million and operating margin of 28.1% in the same quarter of last year.

The fourth quarter of fiscal 2016 included 3 midsized Road Zipper system sales contributing profit unmatched in this year's comparable quarter.

As previously stated, we run a higher level of engineering and R&D expense in the infrastructure segment for development and testing of products to the MASH standard for road safety hardware.

Under the Federal Highway program, road safety hardware will be evaluated for reimbursement under MASH standards, with various effective dates that extend through December 2019.

However, several states have moved or will move to the new standards before the required federal dates.

We have already received letters of eligibility from the FHWA for products tested and submitted for review, and in the process of completing testing and preparing requests for eligibility of the next group of products.

The level of development and testing is expected to continue through fiscal 2018, as we complete the transition of the core product lines to the new standards.

For the full year of fiscal 2017, total infrastructure segment revenues were $99.9 million, and was 5% higher than for the same period last year.

The segment generated operating income of $20.1 million for the year and operating margin of 20.1% of sales, compared to operating income of $18.5 million and operating margin of 19.6% of sales in the same period last year.

We're very pleased with the significantly improved performance in the infrastructure business.

For the total company, gross margin for the fourth quarter of fiscal 2017 was 28.6% of sales compared to 30.1% of sales in the same quarter last year.

Margins were slightly lower in both irrigation and infrastructure segments.

In the irrigation segment, U.S. irrigation equipment margins were comparable to the prior year while overall gross margins were lower due to a higher mix of revenue from international markets, while gross margins are typically lower due to less vertically integrated manufacturing processes and competitive project revenues.

Operating expenses for the fourth quarter of fiscal 2017 were $26.3 million, a decrease of $1.7 million or 6% compared to the same quarter of last year.

The decrease resulted from reductions in selling and administrative expenses.

Operating expenses were 19.9% of sales in the fourth quarter compared with 21% of sales in the same quarter last year.

Operating income for the fourth quarter of fiscal 2017 was $11.5 million, a decrease of 4% compared to $12 million in the same quarter last year.

Irrigation segment income increased on higher revenue, and lower operating expenses, while infrastructure segment operating income decreased in comparison to an exceptionally strong fourth quarter last year.

Operating margin for the fourth quarter of fiscal 2017 was 8.7% of sales compared to 9% in the same quarter of last year.

The order backlog on August 31, 2017, was $51.8 million compared to $50.7 million, August 31, 2016.

The irrigation segment backlog was higher at the end of the quarter in the same time last year and infrastructure segment backlog was lower.

Our backlog typically represents some longer-term irrigation and infrastructure projects as well as short lead-time orders, and therefore is not necessarily a good indication of future quarters' revenues.

Cash and cash equivalents were $121.6 million at the end of the fourth quarter compared to $101.2 million at the same time last year.

Cash generated from operations in fiscal 2017 were $39.4 million compared to $33.1 million generated in fiscal 2016.

Capital expenditures in fiscal 2017 were $8.9 million compared to $11.5 million last year.

Capital expenditures were lower than planned and some capacity expansion projects were deferred based on market conditions.

In the upcoming fiscal year, capital expenditures are expected to be in the range of $12 million to $15 million.

There were no share repurchases made during the fourth quarter, and a total of $63.7 million remains available under our share repurchase authorization at the end of the quarter.

The strength of our balance sheet continues to position us for investments in organic growth initiatives, strategic and accretive acquisitions, and other initiatives to drive improved returns for shareholders, including share repurchases.

We've now completed the fourth full year of the cyclical downturn in our U.S. agricultural equipment market, and it appears that the market has reached a level of stabilization.

The latest USDA estimate of net farm income for 2017 is projected to be 3% higher than last year.

The first such increase following 3 years of significant decline.

In addition, the recalibration of farm input costs and general economic optimism have also contributed to improved farmer sentiment towards investment, particularly in efficiency and high yield-enhancing equipment, such as our irrigation equipment and irrigation management platform.

In our upcoming fiscal year, we expect modest growth in the U.S. irrigation business as well as continued aggressive market penetration of our technology products.

We also expect growth in the international markets through ongoing market recovery, expansion in developed markets as well as some project activity in developing markets.

In the infrastructure segment, we continue to see rising interest in Road Zipper system projects as well as increased global demand for our road safety products.

Under the current Federal Highway Bill that has been in place for close to 2 years now, we have not yet seen significant incremental increase in spending for surface transportation projects.

In addition, the current order flow for road safety products in the U.S. is negatively impacted by the ongoing transition to MASH-compliant products.

However, there continues to be a need for infrastructure development and improvement in the U.S. that will continue to drive growth in demand for critical road safety products.

While the agricultural markets are cyclical, farmers remain acutely aware of the benefits provided by efficient irrigation in increasing crop yields and quality.

Throughout the downturn in this cycle, we continue to drive and invest in initiatives to strengthen our market position, expand our solutions offering and improve our global cost structure.

All of these will benefit the company now and long term.

As you will recall in February, I announced my intention to retire from Lindsay Corporation effective December 1, after more than 17 years as President and CEO of the company.

In July, the Board of Directors announced the appointment of Tim Hassinger as my successor in this role, effective next Monday, October 16.

In my retirement from Lindsay, I'm extremely confident of the growth potential of the differentiated market positions established, the global footprint created and most importantly, the purpose-driven intelligent management team here, along with a superb group of bright, dedicated, multinational women and men throughout the organization.

The entire organization is passionate about Lindsay Corporation's contributions towards expanded food production, the efficient use of natural resources and transportation safety.

This organization remains committed to building value for our shareholders while demonstrating respect and integrity.

As I leave this role, I wish to thank all of you, our shareholders, my fellow supportive board members, our dealers, distributors, suppliers and others associated with helping our company to be successful during my time at the helm.

Most importantly, I wish to thank the employees, past and present, who have helped build this platform for future profitable growth.

I'm confident that Lindsay will be in good hands under Tim's thoughtful leadership.

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

(Operator Instructions) The first question is from Brian Drab at William Blair.

And Rick, congratulations on a great run.

We're going to miss you.

Well, thank you.

I'm going to miss you, guys, too.

This quarter had been a little stronger at the end, but it's been a fantastic opportunity.

And as I've told people in the past, I've had the best job in the world.

Well, great.

Well, yes, congrats again, and yes, a bit of a rough-stock reaction today.

But I mean, you're up 27% over the last 12 months.

I wouldn't beat yourself up too much and you've had a great run.

Thank you.

So can you just talk a little bit more about where the confidence and growth in the domestic irrigation business comes from?

From my understanding, I know you've pointed out the tick-up in net farm income, some of the new products, clearly, net farm income is still way down from the level it was at 3 years ago.

So are you seeing -- is it just a combination of all these things, the backlog and these other things that you mentioned?

And could you talk about maybe which is the most important factor kind of in forming the forecast for growth next year?

Well, I think a number of factors in answer to this.

One, we do need to see what happens with yield data as we complete this harvest, and we'll give a little more insight into that later today.

But based on what we're hearing in terms of overall farmer optimism, I'd say it's definitely a little different climate than it was even a year ago.

I commented on that last quarter as well.

I also believe that there's still excellent share growth opportunities for Lindsay.

As I mentioned, there's excellent opportunities for rapid expansion of our technology platform.

I also believe that there's more expansion opportunities and quite significant expansion opportunities for our project sales.

And we've seen a little quieting of projects in the United States in the last year, 1.5 years, but I expect that will start to pick up, and we're definitely seeing a pickup in the international markets.

Okay, okay.

And then on the infrastructure side, has there been any impact to your business at this point, you think from this incident in Tennessee late last year?

It doesn't seem like there really has been.

Is that resolved?

Well, I think we saw some of the states take our X-LITE product off of the qualified products list.

However, the -- what that equated to is roughly less than 0.5% of our total company sales that would be reflected in those removed from that list.

Now at the same time, that product is getting phased out, so -- no, I would say that hasn't had a significant effect.

There is an effect, however, of the conversion to MASH, where states are making either different purchase decisions or deferring purchase decisions during that time period.

Right.

So this product, that was the subject of the incident, would be phased out.

And longer term, everyone's competing on the new MASH products anyways, is that -- and you could be approved with the MASH products in these states?

Yes.

We anticipate X-LITE will be replaced by other products of MASH-compliant products by the end of the calendar year, as states transition from the NCHRP 350 standard to MASH.

Okay.

So these states where you've had the -- where you've been taken off the approved list, you should be able to get back on the approved list with the new products next year?

Well, we're certainly going to apply to all of those states.

And obviously, all of the states are making their own decisions.

And some are asking additional questions, other than just whether past and MASH standards.

So this will be an ongoing discussion with each state.

Okay.

Okay, great.

And then may be a question for Brian.

And I don't know if I missed this.

But the -- just a small one with the tax rate that you're expecting for next year.

Did you say that?

Yes.

We -- for next year, Brian, I would expect it to be in the range of 34%.

It could be slightly lower, depending on the mix of earnings.

But I think 40 -- 34% would be what I would model.

The next question is from Joseph Mondillo at Sidoti & Company.

As the previous questioner said, I also congratulate you, Rick.

It's been a pleasure, and good luck to your future.

Well, thank you.

My first question, I just wanted to ask about competition and pricing, and what you're sort of seeing, your peer out there.

While the last 3 or 4 years ago, you guys have done a really good job, even outperforming your peers' irrigation segments.

But the last 3-or-so quarters, it seems like you've -- maybe been underperforming.

But I know also that your peer had a pretty big project in North America that's maybe skewing the numbers a little bit.

So just wondering sort of what you're seeing with competition, pricing, specifically domestically, because that's what it seems like maybe you're underperforming a little bit.

Or give me your thoughts on that and also internationally as well.

Well, as you would expect, whenever we report, I'm sure, our competition dives deep as they can into our numbers, as we do when they report, to get as good a look as we can.

And I would characterize most of what we see as project-related generally.

And we've seen pricing remain pretty rational across the board.

From time to time, we see some things where a dealer may get aggressive in a region, whether it's in a domestic region or an international project.

And often, you can't tell whether it's just the dealer's aggressiveness or the company.

But generally speaking, I would say, it has continued to remain rational across the board.

And normally, it is project related where you will see those would appear to be share shifts during that period of time.

And as I think as I've seen overall in my tenure here, share shift does take place, and there is some gradual share changes that have taken place, we believe, we pick up some share and a number of markets, certainly, in the international ones as we've entered those.

But outside of that, most of the share shift that we see from a quarter-to-quarter basis tend to be more regional or project related.

Okay, great.

And I wanted to ask you on the infrastructure side, that segment's been doing really good.

You even mentioned that the Road Zipper business performed quite well.

I know that's a higher margin.

Just curious what the outlook with the leasing side of Road Zipper looks like as well as projects compared to '17, sort of what your outlook in '18, how's that outlook look like?

Without getting to a point of guidance, I'd say that the project activity, and from a leasing standpoint, is still very good and strong.

And I think it's -- you could correlate this closely, obviously, to road construction.

So when you see the leasing is generally going to be during construction season and in construction projects.

We do have some leasing that maybe is tied to some longer-term projects as well, but generally, it's leasing during that construction process.

In terms of the sales process and what we see in the pipeline, we continue to have a very good pipeline on the sales project list.

In fact, I would say it's better than what we saw 2 years ago or 3 years ago or even a year ago.

So I'm optimistic from that standpoint on the projects.

Now I'd comment as well that the projects can be anything from a project that may be a couple of million dollars in size to a project that could be $20 million in size.

And we see all of those potentially in that pipeline.

So from the overall standpoint, it would be very optimistic about the potential of the Road Zipper system sales and leasing.

And in '17, could you just remind us what sort of project activity you saw, if at all, regarding QMB projects?

Well, most of the QMB projects we saw in '17 were what I would consider to be small to medium-size.

And I'd characterized them in the probably $2 million to $5 million size, but we were seeing multiple of those even as we talked about that in the comparison in the last -- the fourth quarter of last year was the same thing.

So we're seeing more of the smaller projects, which is good.

And Brian, do you have a specific -- any large one in '17?

I don't recall.

I think it's in that mid-sized -- small to midsize range.

And just so I'm sure on sort of what you're looking at, it looks like the next 24-month outlook looks a little better maybe, or improving from what you saw in terms of '17 activity?

Well, if I were looking at the next 24 months, let's say, in terms of sales of Road Zipper systems, I believe, it looks better.

If I were to look from a leasing standpoint, I wouldn't make that call yet, and it's primarily because it's tied to how this money is spent on the highway bill spending and road improvement.

But we haven't seen a significant increase there.

We have made progress in terms of getting now to more construction projects as they occur, a higher percentage of them.

But I haven't seen a significant increase in -- I think the data would show there's not a significant increase in surface projects, road projects with the new highway bill yet.

Okay.

And then just one last question for me.

Brian, I was just wondering on working capital.

It looked like your inventory increased fairly substantially this -- at the end, compared to the end of '17 versus the end of '16.

Just wondering what your thoughts are on working capital for 2018 is.

Yes.

I think where we ended the year, that was clearly higher than last year where we would normally anticipate being.

I think pretty much all of that was driven by international irrigation and a slight increase in the domestic inventories.

But again, that was to help support the international business.

So going forward, I would expect that to moderate and come down a little bit, but it will -- if you looked back over the last couple of years, it will probably average a little bit higher just because of the increasing growth in the international sales and just the longer lead times and things like that involved in the supply chain.

The next question is from Brett Wong at Piper Jaffray.

Rick, I do want to voice our appreciation for everything over the years and wish you all the best going forward.

Well, thank you.

But digging into the domestic irrigation demand expectations again, are you seeing that in your order book?

I know you mentioned irrigation being up, but is that domestic or international?

I know you tend to not really break that down, but are you seeing the order book up for domestic?

Well, we're not going to split out backlog numbers between domestic and international.

I'd characterize it, as I said as -- we definitely have seen more optimism with the domestic dealers and the international ones.

And I've been -- in fact, I was visiting some international dealers last week and definitely see more optimism there as well.

Part of what I would attribute to readjusting to existing commodity prices, where commodity prices are and input costs have been recalibrated some.

But I definitely sense more optimism in both the domestic and international one.

Now we won't see that really translate into -- in being significant in terms on order rate in the domestic market until we get into the selling season, which is not -- we're not in that now.

We may see some bump as they complete harvest, but generally, it (inaudible) see for a bit yet.

Okay.

And what do you think needs to happen in order to see a meaningful list in domestic irrigation demand?

I mean, where you think corn or grain prices need to move to?

I'm not sure there's a specific price.

I would say that the prices we're seeing with corn are not bad.

I'm sure if we saw $4, everybody would feel better.

But I do think it's some stability is essential, too.

And I think finding out where we come out with this harvest will be beneficial to farmers in terms of making their decisions for this next season, and that will be beneficial for the demand overall.

One of the things we did see during this year in looking at the split of the units sold, on whether it's conversion or dryland and replacement is pretty typical in what we would see in the fourth quarter.

I think very similar to what we saw in the fourth quarter of last year, where about 25% went into conversion, 22% into dryland, and 53% in replacement.

Now that's pretty normal for the fourth quarter because you're going to get a lot of the some storm damage and people that are making decisions.

And also at this time, prior to harvest, that's what we would expect to see.

I think what we'll see, as time goes on and commodity prices do improve, obviously, we see that dryland percentage go up.

Yes.

Okay.

That makes sense.

And then one last one on the international irrigation side.

Can you just provide a little more color on the comment of increased activity in developing markets, where you kind of more specifically seeing some of that growth.

And then overall, I know you'll obviously provide formal guidance, but as we look at next year, what kind of growth are we going to expect, given you do have or tend to have more visibility there?

And is there something similar to this year?

Are is there just some -- sort of qualification would be helpful.

Well, I think, again, just giving you a little more color on what we're seeing is we're definitely seeing projects in Africa.

We've seen some larger projects now in China.

We've seen projects in South America, more project activity in Russia, Ukraine, the CIS region.

And those are all been encouraging in terms of either projects that are -- have been in process and ones that are potentially in development.

Now when you get to growth rates, we've typically talked about the international markets being the same.

We expect that they're going to be in the low- to mid-teens growth, on average over a 3- to 5-year time period.

And it's a difficult one to peg because we have some very developed international markets, where we -- they probably more closely reflect growth rates that we've seen in the domestic market in U.S. and then we have some of these regions that are developing, where we may have 20% to 40% growth rates.

So it really varies, but in accumulation when we're putting them altogether we say we expect in that kind of mid-teens -- low- to mid-teens growth for international markets.

The next question is from Nathan Jones at Stifel.

Congratulations on your retirement, Rick.

Thank you.

Thank you.

I'd like to talk a little bit about the balance sheet, which has now got itself back into a net cash position.

The company has always run a very conservative balance sheet.

Where do you think the most efficient level of leverage would be for the company?

And how do you plan to get there?

I mean, is there -- are there M&A transactions in the wings?

Are you going to be more aggressive on share repurchase?

I know you talked about investing in organic growth, but that's not going to take up all that cash.

Well, let me take one part of this, and I'll let Brian take the -- and maybe what the leverage would be.

But I'd say that we're currently in is a situation where we're -- obviously, we're having a CEO transition.

And it has made the acquisition process a little more challenging, and I would say that we've had some good contacts.

Our people have identified some good companies and have had discussions.

However, it's not the time to complete those.

And they, obviously, as a seller, are interested in who will be the CEO, and when they come in.

And I think some of those discussions will be picked up again after this transition takes place.

I think what's similar in terms of the cash or the stock repurchases at this point, is that our philosophy has not changed.

I think we have work to do in terms of the utilization of cash resources from a best return for shareholders' standpoint.

However, during this transition, that pace has slowed.

So I think you should expect that to change with the transition.

Brian, do you have any...

Yes.

And Nathan, just in response to the question on leverage.

I mean, I think you're right.

At the end of the year, we're probably at 1.9x trailing EBITDA.

We certainly have the ability to increase our leverage, but being in the net cash position that we're in today -- don't really see the need for that, but we certainly do for the right opportunity on the acquisition side and have the ability to -- and willingness to improve or increase the leverage.

Maybe I could ask this a little different way.

What kind of size of transaction do you think the company could handle doing both in terms of liquidity and increasing liquidity if necessary, and also in terms of bandwidth and experience at integrating larger deals?

I wouldn't set a dollar limit, but I'd say that deals that we've looked at and have traditionally felt that we'd be comfortable with would be in the $100 million to $150 million in purchase price.

Now I wouldn't say that we couldn't go bigger because we could with better additional leverage in the balance sheet.

But certainly in that range, I'd say I'd be comfortable.

Okay.

And did I hear you say, to the last question, that you expected low- to mid-teens growth in international irrigation?

I'm sorry, what was that?

Did you say you expected low to mid-teens growth in international irrigation in '18?

Said on a 3- to 5-year look when we look at our -- our goal is we anticipate that 3 -- that low to mid-teen growth rate over that time period.

That's not projecting it for any specific year.

Got you.

I would assume that you expect to have higher growth in international with the project opportunities than you do in domestic in 2018.

Is there any help you can give us with the kind of margin dilution we should expect just from that mix shift in '18?

Well, there isn't because it really depends on where the projects are and what type of projects it consist of whether it's our complete project with pump stations and other things in it, or whether it's just selling pivots and the competitive nature of those deals.

But I will say, one of the things to keep in mind from the international standpoint is as that part of the business grows, yes, it's true there are some lower margins that are generated in that today with some of the projects.

But it's also one of the best opportunities long term in 2 different ways.

One is that, as that market grows, we will see more complete projects going in with potentially more complete solutions.

We'll also have opportunities for additional efficiencies in our factory, including the -- adding in additional equipment such as -- whether it's galvanizing or tube mills.

But the vertical integration of our plants to further reduce costs.

The next question is from Chris Shaw at Monness, Crespi.

I think I've asked this question before, but I'm going to try again because I now see evidence of that in your website.

But the infrastructure, for the Road Zipper systems, Richmond-San Rafael Bridge, can you talk about that project at all?

I mean it's -- just maybe size it at all, because it seems like it would be a little bit longer -- maybe even the Golden Gate.

And then maybe -- is it maybe not a sale but a lease because I haven't really seen it show up yet?

I think, at least, I thought I'd say was a sale in the number just yet.

No.

And it hasn't shown up yet and we haven't talked about it as a project.

And one of the things that we adopted a number of years ago is to not talk about any projects that we're working on, specifically, unless we have permission to do it, or there's a reason to do it.

Because we got some instances in the past where we've talked about a project and then had analysts or others calling this prospective customer and pushing it to a point where they became uncomfortable and things happen.

So we don't go into any discussion on a project until it's actually booked.

And we've got, I think, 2 order on the books.

And at that time, we will talk about projects.

There's no doubt that the project that we know of and we're working on, but I would leave it at that, and just say that when that is a firm order we'll have something to talk about.

Okay.

Just for your information, there is -- you do have some mentions of it on your website, as a project you're working on, on the Barrier Systems Inc.

website

Yes.

And it is a project that's being worked on.

But as I said, it's been -- until we have -- that isn't over, I wouldn't go into any more depth in terms of size and those -- anything else about that at this stage in terms of character of it.

Next question comes from Joseph Mondillo at Sidoti & Company.

So I wanted to ask you guys, last November quarter, surprisingly, was a very tough quarter.

I think it shocked most of the people on The Street.

And so I'm just wondering, given the high yields that we're expecting, the low commodity prices, and that November is seasonally the weakest quarter.

Going back to what you remember about last year in the November quarter, is there any dynamics that are a little different or going into this November quarter?

Or are we expected to see a similar sort of weak quarter just relative to farm income just being low, commodity prices, et cetera?

Yes.

Joe, this is Brian.

I think one of the things in the first quarter last year, I think we were caught a little bit off-guard as the order rates were quite a bit lower than what a technical first quarter would have been.

So from an operational standpoint, we got caught a little bit off-guard.

I think going into the first quarter this year, we're much more prepared for that.

And I wouldn't expect to have a similar situation this year.

The next question is from Mike Shlisky at Seaport Global.

And of course, I also wish you my absolute best in your retirement.

I hope you really enjoy it.

Thank you.

Thanks.

I just -- let me ask about the first quarter as well.

On the cost side, I was wondering if there are any unusual costs you have to kind of watch for in the fiscal first quarter here because of the CEO changeover, whether it's on Rick's side or on Tim's side.

Is there any kind of just incentive comp or double comp we should be aware of here?

I think -- Mike, it's Brian.

There'll be just a little bit of overlap on the comp side for 1 or 2 months, but I don't view that as being significant in total.

And outside of that, I don't see any incremental -- any other unusual type of incremental cost.

Got it.

I also want to ask about the prices of some metals.

Could you possibly quantify the impact, in the fourth quarter, of any big increases in either galvanizing or steel?

And kind of -- any kind of thoughts you can give us for the outlook for fiscal '18 on both galvanizing and steel?

In regard to steel, I think from a market standpoint, we saw it peak during our third quarter.

And since then, it's maintained at fairly steady levels, maybe moderated a little bit.

But compared to the first quarter, which was lower on a relative basis, is up probably 30% to 40% on coil.

From a market standpoint, obviously, we have at any point in time, hedge buys in place to -- as we see steel increase to lessen the impact of that.

But I think our outlook going forward at the present time is for steel to maintain where it's at today for the most part, which is how it's been over the last couple of quarters, it's been fairly steady.

And as far as galvanizing costs, is that been up as well?

Yes.

I think, earlier in the year, it was up.

I think it's moderated somewhat since then.

And it's a smaller percentage of our total cost obviously than what steel is.

Okay, got it.

And just a quick question on your outlook for U.S. irrigation next year as well.

Is any of the tailwinds that you think might be taking place next year, is any of it based on parts and service?

Or are you still balancing a lot more of the growth on the new system or replacement system sales?

Well, there's always good opportunity and more opportunity on the parts and service.

But it's primarily based on these systems that we're referring to.

I think there's more opportunity on parts and service globally for us to pick up market share.

Okay.

And one last one for me on Brazil.

So this quarter ended in August.

Is there quite a bit more start-of-season sales in September that we should be aware of in the first quarter on your international business?

I mean, if you had a good fourth quarter could you also have a good first quarter there just on those conditions alone?

Without giving any guidance, of course.

I don't have -- I can't really -- I'm not going to project anything for the quarter.

I'd say that I would expect it to be comparable to previous years.

We have seen, overall -- or I shouldn't say -- comparable to previous years, meaning from quarter-to-quarter.

So overall, we've seen a general improvement in Brazil that appears to be ongoing.

So that's about as specific as I could get with it.

Is there a way -- I could ask you in a different way.

Is September an important month for deliveries and installations in Brazil?

Or is it already past that time given their planting season?

I think it's getting kind of toward the end of their planting season.

So we would expect it to tail off a little bit, but depending on -- I think that they're planting may have been a little later this year because of weather conditions.

Okay.

Got it.

But I do know...

But Yes.

Sorry, I don't think -- latest information in Brazil really is that their planting pace is really picking up in terms of they're trying to make up for some delays that they've had in planting after having some needed rains.

And at this point, I think probably in the Mato Grosso region, they're picking up their planting pace.

So it's about the extended that I've said, so I don't think it really impacts necessarily demand for our equipment or the timing of anything at this stage.

This concludes the question-and-answer session.

I would like to turn the conference back over to Mr. Parod for any closing remarks.

Well, first of all, I'd like to thank all of you.

It's been a pleasure to know you and work with you, and I wish all of you the best.

Lindsay Corporation is 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.

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