Lindsay Corp (LNN) 2019 Q3 法說會逐字稿

Good morning.

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

At this time, I would like to welcome everyone to the Lindsay Corporation Third Quarter 2019 Earnings Call.

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

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.

I would now like to turn the call over to Mr. Tim Hassinger, President and Chief Executive Officer.

Please go ahead.

Good morning, and thank you for joining our call.

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

The objective of this call is to discuss our quarter 3 results.

Before we go to that overview, I'll make a few introductory comments.

The ag market conditions this past quarter continued to be a challenging environment, given the continued lower commodity prices, uncertainty surrounding the trade disputes and an unusually wet spring throughout many parts of the U.S. All of this caused a carryover of a low farmer sentiment from the prior quarter.

As we said in the prior earnings call, with all of this uncertainty going on, we were seeing a wait-and-see buying attitude for mechanized irrigation.

Our March sales reflected a continuation of the market environment that we witnessed in Q2.

However, we did see a sales uptick in April and May versus the prior year as many farmers waited to address their irrigation needs shortly before planning.

Given the importance of March in this quarter, the sales increases in April and May were not able to offset the low sales in March.

However, it was encouraging to see an increase in demand in the last 2 months of the quarter.

In addition, with the recent increase in commodity prices, it's our expectation that this will favorably impact farmer sentiment going forward.

A highlight in innovation for Lindsay is the recent launch of Pivot Watch.

This product offers a low-cost entry point for many farmers to help manage their irrigation operation.

This offering helps us reach a group of farmers that have not ever used a telemetry-based product before, and it positions us for further penetration of FieldNET Advisor.

Something that we are focused on doing and getting better at is leveraging technology across our various markets that we serve.

Pivot Watch is a great example of taking technology that has been effectively used in the oil and gas market that Alexis serves in leveraging its use in our irrigation market.

For me, this is a positive proof point that Lindsay is becoming a more innovative company.

In my prior company, we were able to successfully leverage technologies and resources across different markets, and this is a good example of Lindsay rapidly moving in this direction as well.

For the infrastructure business, the transition to MASH-approved road safety products continues to progress in a positive manner.

Throughout this fiscal year, we have had portfolio gaps to address due to the transition timing to MASH.

Currently, the new MASH-compliant products that have been launched this fiscal year, such as the TAU-M crash cushion are exceeding expectations, and we are close to having the complete MASH-compliant portfolio approved.

We expect to launch yet this fiscal year ABSORB-M, a crash cushion which we believe will be our best-selling road safety product in fiscal year 2020.

The product that I want to highlight, and specifically, the change in strategic direction that I have talked about before on these calls, is Road Zipper and the associated shift-left strategy.

We have been very open about the fact that we recognize the need to address the lumpiness of this business.

Our position continues to be that the lumpiness can be improved by growing the business and earning a higher percentage of our business from leasing, making meaningful progress, increasing our leasing portion of the business.

Currently, we have more machines being leased than we have ever had before, and we have expanded our global reach capability with Europe being a good example of where our project pipeline is growing.

Also, a key change we have made in our sales approach is that we are focusing on customer needs earlier in the project planning and design stage than we have done in the past.

A good example of the shift-left strategy is the recent success with the Indiana Department of Transportation.

The Road Zipper System is now being used there in selected construction zones where high traffic volumes and worker exposure created the need for increased safety and motorists' mobility.

Through the design and planning process, we were able to identify the areas which caused the most concern and delivered a solution which will enable the customer to mitigate congestion and keep workers and motorists safely separated.

Also, we have secured another order from our partner in Japan, Nexco East, for a new reactive tension barrier to use with their existing Road Zipper Systems, which is a good indicator that our technology is growing in adoption.

The total order value is approximately $15 million and delivery is expected to begin Q4 fiscal year '19 with the majority being recognized in fiscal year '20.

Lastly, on our Foundation for Growth initiative.

We remain committed to our objective of achieving 11% to 12% operating income in the trough of the market.

This target was based on our view at the time that we announced it that fiscal year 2017 represented the trough of the market.

As you have seen, the market conditions in our fiscal year 2019 have been negatively impacted by several factors, including tariffs, unresolved trade disputes and flooding conditions.

However, we do not believe this is a sustained market environment.

Of course, the challenge is knowing when the timing of these factors will be resolved.

What we do know?

Our Foundation for Growth initiative has continued to progress and is creating positive change for Lindsay.

We are meeting the milestones that we laid out more than 1 year ago, and the financial impact of the actions we have taken since the launch of our Foundation for Growth initiative are starting to take hold.

So now let's move to our Q3 results.

For that, I'll turn the call over to Brian.

Thank you, Tim, and good morning, everyone.

To begin, I would like to cover the costs incurred in the third quarter related to our Foundation for Growth initiative.

Total pretax costs of $3.9 million were incurred in the quarter, of which $3 million represents professional consulting fees.

These fees are performance-based and correspond to workstream projects that have advanced through a stage-gate process to the implementation stage.

We expect to incur a smaller amount of consulting fees in the fourth quarter as the remaining identified projects reach implementation.

We do not expect to incur any further consulting fees beyond the fourth quarter.

Other Foundation for Growth costs during the third quarter consisted primarily of severance expenses related to organizational changes.

The remainder of my comments regarding the third quarter are based on adjusted results, which are detailed in the Regulation disclosure at the end of the press release.

Total revenues for the third quarter of fiscal 2019 were $121.1 million, a decrease of $48.5 million or 29% over the same quarter last year.

Net earnings for the quarter were $5.5 million or $0.50 per diluted share compared to net earnings of $17.9 million or $1.66 per diluted share in the prior year.

The previously announced business divestitures accounted for approximately $27.2 million of the decline in revenues, with the net earnings impact of $1.5 million or $0.14 per diluted share.

Irrigation segment revenues for the third quarter were $98.6 million, a decrease of $29.8 million or 23% compared to the same quarter last year.

Excluding the impact of the divestitures, North America irrigation revenues increased $2.8 million or 5% compared to the prior year.

Higher revenue from engineering project services and the impact of higher average selling prices were partially offset by lower irrigation equipment unit volume and lower sales of replacement parts.

Higher revenue from engineering project services in the quarter were connected to an irrigation development project in the Pacific Northwest that began in the prior quarter.

Demand for irrigation equipment continued to be constrained by market conditions, and above-average rainfall and wet conditions contributed to lower sales of replacement parts.

In the international markets, revenues decreased $5.4 million or 13% compared to last year's third quarter.

Revenues were negatively impacted by $2.7 million from differences in foreign currency translation rates compared to the prior year.

Excluding the impact of foreign currency translation, international irrigation revenues decreased $2.7 million or 7%.

Increased sales in Brazil and Europe were more than offset by declines in other markets.

Total irrigation segment operating income for the third quarter was $11.6 million compared to $18.1 million in the prior year, and operating margin was 11.7% compared to 14.1% in the prior year.

The prior year benefited from the recovery of $2.5 million in previously reserved accounts receivable.

In addition, lower sales of irrigation equipment and replacement parts in North America resulted in a lower margin mix compared to the prior year.

Infrastructure segment revenues for the third quarter were $22.4 million, a decrease of $18.7 million or 45% compared to the same quarter last year.

The decrease resulted almost entirely from lower Road Zipper System sales as the prior year benefited from 2 large projects that did not repeat this year.

Sales of road safety and other products were flat overall compared to the prior year.

Infrastructure segment operating income for the third quarter was $3.6 million compared to $14.4 million in the prior year and operating margin was 16.0% compared to 35.0% in the prior year.

The decrease resulted from lower Road Zipper System sales that carried higher margins.

Cash and cash equivalents were $110.8 million at the end of the quarter compared to $160.8 million at the end of the prior fiscal year.

Cash was utilized in the quarter to fund working capital increases as well as capital expenditures and dividend payments.

No share repurchases were made during the quarter and a total of $63.7 million remains available under our current share repurchase authorization.

At this time, I'd like to turn the call back over to the operator to take your questions.

(Operator Instructions) Our first question comes from Nathan Jones with Stifel.

Wonder if we could talk a little bit more about the North American irrigation number.

I think probably people are surprised at how good that was, frankly, being up 5% organically, given the pretty atrocious weather that farmers had to deal with during the quarter.

I'm specifically interested in your commentary that April and May picked back up.

I think the weather was pretty lousy then, there was a lot of flooding going on.

Is there any color you can give us on what you think was underlying that?

Whether there are differences geographically with some of the flooded areas pretty poor and there was strength in other areas of the country?

Or just any other color you can give us on what I think is, frankly, a pretty strong number here.

Yes.

Nathan, this is Brian.

I think when you look at across the U.S. during the quarter, we were clearly down in the Central U.S., that Nebraska, Missouri area, kind of the -- where a lot of the flooding took place.

We did see gains in the Pacific Northwest, South Central region, which is going to be primarily Texas and then also Great Lakes and eastern part of the U.S. So that -- the increases of some of those regions compensated for the lower sales in the central part of the U.S. And then the engineering project services that we called out in the Pacific Northwest clearly helped offset the lower overall irrigation equipment and parts volume.

Okay.

That's helpful.

Maybe if we could concentrate on some of those, I guess, softer areas in Nebraska, Missouri where the flooding was pretty bad.

Can you talk about what your expectations are for any catch-up there?

Is this something where farmers are unlikely to plant those fields?

You probably don't see any catch-up of that in the back half of the year, you maybe have to wait till next year for that to catch up?

And would you expect to see some catch-up spending even if it stretches out into the next selling season?

Nathan, it's Tim.

Couple comments on that.

Typically, floods do not require replacement of the entire machine as we would see in tornado damage as an example, but an increase in part replacement will typically occur, motors and panels are the primary parts that will typically need to be replaced.

Now on the acreage, let's even broaden out beyond your question.

We're continuing to hear that estimates range anywhere from 6 million to 10 million acres were not planted this year depending on the source that you use.

So really highlight, the key point here is that a high percent of the acres that are not planted this year are in areas where mechanized irrigation does not have a high penetration percent.

In other words, the heavier impact from the weather was on the eastern Corn Belt as opposed to where the heavier percent of mechanized irrigation occurs.

So it's still to play out yet on when we'll know in terms of number of acres that were not planted.

As we're aware, USDA is going to be resurveying the actual planted acres in July and they plan to release an updated figures on August 12.

So I think it's likely that there will not be a real clear indication of actual planted acres until that date and the report comes out.

Okay.

So I think the message there is that the severe weather that we've had hear is maybe not as big an impact on your business as I -- certainly, I was expecting?

Yes.

If you look at where the -- all the news around the late planted, it was heavily in Ohio, Indiana, Illinois, and those are not the states that have the higher percent of mechanized irrigation in them.

The next question comes from Joseph Mondillo with Sidoti & Company.

I was just -- I just wanted to sort of follow-up on sort of the comments on the engineering products -- project services.

Just wondering if that was at all unnormal or abnormal regarding the size of those projects?

Yes.

Joe, this is Brian.

It was clearly a -- not a normal-sized project.

It's a larger project where they're really redeveloping Timberland in the Pacific Northwest for farming and it involves a lot of infrastructure work and moving water from Columbia River to where the land is.

So it's -- our engineering services business does similar work, but not to the scale generally.

This is a pretty unique project.

Okay.

And so if you exclude that sort of abnormal project, where would sort of the organic growth look like?

And also just to sort of add on to that in terms of the backlog.

You mentioned in the press release that backlog in irrigation is up.

Is any of that increased backlog related to some of this project work that's skewing into the fourth quarter?

I would say that this project is primarily a second quarter, third quarter project.

There will be a small amount in the fourth quarter, but backlog increase that we've seen in irrigation is primarily the domestic market.

If you take away the engineering project services revenue for this quarter, our equipment and parts volume was down overall, probably upper single digits when you combine the 2.

Okay.

And you said upper single?

Yes.

Okay.

Great.

And then the international market outlook.

Just wondering if you could sort of go through sort of the countries and sort of your outlook overall.

That segment continues to be very lumpy, which is understandable given that it's large project work.

But just wondering, considering what you have in the backlog and sort of your visibility, just wondering what your sort of thoughts are on the next few quarters in terms of international irrigation.

Yes.

Joe, this is Tim.

Let me just go through each of the regions across and give you a perspective of what we're seeing across the entire international business.

Let me start with Middle East, Africa.

This market continues to be driven by large projects and government investment.

Activity overall is good.

We have visibility of several projects moving forward in the region.

A recent highlight in this region for us, we were just granted another large order in the Middle East.

So a portion of those sales will be realized this current quarter with the remaining amount being delivered in fiscal year '20.

Moving to Brazil.

We continue to see strong market fundamentals there linked to export demand, driven by global trade disputes and the weakened currency.

Their early soybean harvest supported early planning of the safrinha corn crop.

The early planning along with the favorable weather conditions has increased the projected safrinha yield.

It's estimated what we're picking up to be as much as 31% up versus prior year.

There were some market delays during their fall season caused by the expiration of last year's crop plan.

Bank approvals were delayed and customers deferred purchase decisions until the new plan was available on July 1. The financing plan for this year's crop is in place and includes an 8% finance rate.

Now something to watch, a settlement of the U.S.-China trade dispute could temper some of the optimism in Brazil, but overall, for this market, we remain optimistic for the remainder of this year and early into the next fiscal year.

Western Europe.

This region has been a strong market on a year-to-date basis for us.

We've seen a sizable increase in demand linked to the hot, dry weather that was in place during the last growing season.

Moving to the CIS region.

We continue to see stable demand from large and small accounts in this region, connected food security and investments and rehabilitating the irrigation infrastructure.

Russian subsidies continue to be in place for irrigation investments to continue forward, which has been helpful.

Now the other side of the story, Australia, New Zealand.

Sales continue to be slow in this region due to drought in Eastern Australia and low dairy prices in New Zealand.

We're hearing that lenders are starting to tighten requirements for financing approvals, which has limited the market opportunity.

So Joe, when I step back and look at the international business, what's the overall message, we're encouraged by the Brazil market and the project opportunities in the Middle East, Africa region that are being realized, and we're hoping to see some market recovery in the Australia, New Zealand region.

Okay.

So just to follow up on your sort of final summation there.

It seems like you're fairly optimistic, but this is sort of more commentary going forward.

Is that correct?

Because your year-to-date sort of financials, they're actually down slightly year-to-date from a year ago.

So this is sort of projects that are picking up in volume and you're hoping to win in the future?

Is that...

Yes.

We've been real open about the project opportunity we see there is -- there's a large amount of activity going on.

We had announced in prior -- 2 quarters ago that we have received a large order.

We're now announcing that we've received another one this quarter.

So they're difficult to predict when they're going to happen, but we see good activity.

Okay.

And then just last question for me.

Just in terms of your balance sheet and sort of use of cash.

At this point in time in the cycle, 6 years -- 5 years, 6 years in this downturn and then sort of this, this year certainly, it seems like, hopefully, it's sort of establishing a bottom of some sort.

Cyclically, it seems like your positioned quite well and your balance sheet is extremely very strong.

I'm just wondering sort of what your sort of overall long-term thoughts are aside from keeping up with the dividend and your annual CapEx and such.

Just sort of -- is there any acquisition opportunities?

Or any other opportunities that you see that you can utilize your balance sheet?

Yes.

Let me address the acquisition and then, Brian, if you want to add a few further comments after that.

Joe, on the acquisition side, we can say confidently, we know what we want.

We're active in those spaces.

Our key focus is that we want to expand and leverage our technology capability in our core businesses.

We see this as a strength for Lindsay, and the goal is to fully exploit this with our internal capability.

In terms of how we're viewing the use of our cash, Brian will give an overview of how we prioritize that.

Yes.

Yes, I think that the priorities remain the same.

I think internally our CapEx this year is up and a lot of that is supporting new product development, manufacturing, tooling, things like that.

In addition is with the growing lease opportunity on the Road Zipper side, we are increasing the size of the barrier fleet and also producing MASH-compliant barrier so that's taking some additional CapEx.

I think that after the M&A then you fall to share repurchase.

And I think that is clearly something that we continue to have in our priorities.

I think with the uncertainty we've had over the last few quarters just with the unsettled trade and not knowing where that's going has probably made us a little bit more cautious there from a timing standpoint.

But it's something that we continue to evaluate.

The next question comes from Brian Drab with William Blair.

So first, just wanted to ask on the margin front.

The goal of 11% to 12% operating margin and -- that's for fiscal 2020, and to date, this year, 4.4%.

I know it's, obviously, very tough environment, but is that apples-to-apples, first of all?

Can you just remind me?

And 4.4% going to 11% to 12% is the goal next year?

And is that goal still doable?

And what kind of is the bridge from where we are so far this year to that level, if it is doable?

Yes.

This is Brian.

When you look at where we have established the goal back in first, second quarter of 2018, it was using 2017 as a baseline, which we were close to the 8% operating margin.

This year has definitely been a transitional year.

We've had a lot of extra expenses going through, especially with the consulting fees and those kinds of things.

But I think when you look at the market conditions that were in place at '17, we would expect that the market is going to get back to at least those kinds of conditions.

I think what we remain confident in is that we see the $13 million to $18 million of value opportunity that we have, which was, again, based on getting from 8% to the 11% to 12%.

So the timing of the recovery is probably going to have the biggest impact on the full fiscal year.

But I would say, at this point, we still see a path forward to the -- to those objectives.

Okay.

Great.

And in terms of the $13 million to $18 million that you just mentioned in just the cost cutting in general, setting the market conditions aside, how -- where do you stand with the status of achieving those hard cost savings?

I'd say as we indicated last quarter in our walk there, I think, the biggest opportunity was in sourcing second largest manufacturing footprint.

I would say we're progressing along and by the end of the fourth quarter, we'll have all of those initiatives to the implementation stage.

I think the timing of realization, I think, by the end of the fiscal year, we'll have realized close to $5 million of that run rate as we see an additional incremental opportunity on top of that.

Commercial is another big area of the workstreams.

And I think the -- what we're seeing on the Road Zipper side with the shift-left strategy is part of that as well.

And so we're pleased with what we're -- the progress we're seeing there.

Got it.

And then just a last question for me.

Is the -- pricing was a positive for irrigation, and does that apply to the mechanized irrigation piece and kind of -- is that a comment that's separate from the positive engineering project services revenue that you had in the period?

And what would -- I'm just a little surprised that pricing is positive for mechanized irrigation equipment, and if you could give some explanation as to what's going on there.

Yes.

No, that relates to irrigation equipment.

And year-over-year, we still see price being up compared to prior year.

I think going forward, we'll see that dynamic change as we saw the acceleration in steel costs occur -- start to occur in our fourth quarter and first quarter periods.

But year-over-year, it's still up over last year.

I'd say it's probably comparable to what we saw in our second quarter.

So steel costs have moderated somewhat.

They continue to be a little bit volatile, but that's still year-over-year price on irrigation equipment being up.

The next question comes from Ryan Connors with Boenning and Scattergood.

Wanted to talk about the corn price a little bit there.

Tim, I know you don't want to -- we're not here to be corn traders.

But you do mention in the press release that the jump in corn prices supports an improved demand outlook for you, which was a real shift in tone from the past quarters.

And I do think it's playing a role in moving the stock today.

So I think that, obviously, getting your -- more thoughts on what's really behind that comment, I think, is important.

So I mean it is a weather-driven move.

So I guess, in theory it could move the other way if we get more favorable weather over the next 12 months.

So I'm just looking to get some more perspective from you on that comment and whether it's something that's really from a planning standpoint, you now feel like we have line of sight, the commodity upcycle has begun, and we're going to start planning for that?

Or is it really just a little more still speculative at this point?

Yes.

No, happy to cover that, Ryan.

Obviously, the wet weather did cause an increase in commodity prices.

Just to give you a perspective on that.

Corn as of yesterday, if you compare to corn price versus the low point in May, it was up 28%.

So we have seen a good size jump in this, driven primarily due to yield concerns from the late-planted crops and less acres being planted.

So it has also helped some farmers lock in crop pricing at a higher price compared to what they were seeing before the planting season.

So it's clearly helped farmer sentiment.

And then to build on that is the point that I mentioned to Nathan in his opening question is, although the wet weather was throughout many parts of the U.S., the more severe delayed planting or even the case of not planting that occurred in that March/April time frame was really the eastern Corn Belt.

And again, that doesn't have its higher penetration percent of mechanized irrigation.

So when you add all of that sitting here today, Ryan, I see we're hearing a better farmer sentiment going forward.

Now as you said, they're still Unknown.

Right now, the good growing degree days are coming through.

So the Unknown right now is, I would say, one, how many acres did get planted?

There's still uncertainty around that.

And as I mentioned, we won't know most likely until August 12 to have at least a better data point on that.

And then the other is, what will this crop in terms of going through pollination on the corn side getting later in the summer, what impact that will have and the frost date?

So there's still a lot of Unknowns of what impacts going to be on yield.

But sitting here today, with the higher prices, we've seen a change in farmer sentiment.

Okay.

That is helpful.

And then the other thing I wanted to get your comments on trade.

And first off, congratulations on being named to the USDA's Ag Policy Committee for the trade negotiations.

I know you can't tell us much about the deliberations there.

But obviously, it does give you a unique perspective on the big picture around trade and how it may impact Lindsay.

So can you give us kind of your view on the trade situation as it relates to ag, irrigation?

And just what we should be thinking about and watching on that front?

Sure.

And thank you for your comments, Ryan.

It is something looking forward to be and part of.

Let's break out trade and then I'll just make some comments on the tariffs.

First of all, just to give you a sense of the importance, more than 20% of U.S. agricultural output is exported.

So it's clearly a very important topic.

Our primary concern is the U.S.-China trade dispute, especially the impact on soybeans.

We are encouraged by the recent discussions at the G20 outing about China sourcing additional U.S. commodity crops.

However, it looks like there's still a long way to go before a deal is finalized.

The USMCA deal was a big step in a positive direction, assuming ratification occurs later this calendar year.

On the tariffs, we've been passing on the increased costs, and our intention is to continue in that direction.

The elimination of the Section 232 tariffs has contributed to lower steel cost.

However, with U.S. being involved in trade negotiations with so many countries, this has made supply chain redesign especially difficult for products other than steel that are being sourced from outside the U.S. and are getting impacted by these higher tariff amounts.

One thing I'd highlight for Lindsay's business specifically, global footprint in place with various options to source from.

This has been a significant strength in this time of uncertainty, and we would see that continuing going on as a strength.

The next question comes from Chris Shaw with Monness, Crespi.

Just to continue on the trade issues.

You mentioned how it impacts farmer sentiment.

I understand how, obviously, soybean tariffs and all impact sort of big grain crop farmers.

But does it have an impact, I don't know, on things like almonds or fruit or like a vegetable grower out in California?

Are those markets being impacted as well?

Yes.

I'd hesitate to give you a blanket yes or no because it's going to depend on the crop, but there are -- some of those crops that I would say are every bit as dependent on export as soybeans have been.

So the short answer would be, in most cases, yes.

Okay.

And then to go back to the pricing and the -- I guess, the steel pass-throughs.

Do you have any sense what sort of real pricing on the irrigation is, outside of what the steel pass-through is?

I mean, has that been stable?

Is that deteriorating a little bit, has it gone up?

I mean, do you any sense if you unpacked the steel impact?

Yes.

Chris, this is Brian.

I would say most of the pricing impact that has been going on has been related to raw material cost, primarily steel.

I think in the lower-demand environment, the opportunity to increase price has been limited.

Okay.

Chris, just to add on.

A lot of questions around the steel and of course, that's a significant factor here.

But I do want to say that we still need to address the tariffs associated with the purchase materials from outside the U.S. that are not steel.

So that's why I mentioned earlier, our goal is to continue to pass on cost increases that would address any cost escalation even outside of steel.

The next question is a follow-up from Nathan Jones with Stifel.

Just some follow-up questions here on that 11% to 12% margin target.

And you guys have said that would be on the trough volume which you thought was 2017.

I think you guys have said that, that 11% to 12% did contemplate the divestitures that you've made.

So I assume that the revenue number has to as well.

And it looks like you've divested $80 million to $90 million worth of revenue, which would actually probably put 2019 revenue slightly above where that pro forma number would have been from 2017.

So maybe you can comment on what the right way for us to look at that in terms of the volume -- the base volume from 2017 that you're looking at for comparison?

Okay.

Yes, Nathan, it's about $80 million roughly with the divestitures.

So I think when you look at the components of the rest of the revenue, I think, irrigation equipment volume is clearly down at least on a year-to-date basis compared to where we were in 2017.

But I think the 11% to 12% contemplated about an 80 basis point lift from the divestitures since they were below the company average in operating margin.

So is it -- is that the volume that you need to get back to primarily domestic irrigation volume that you're talking about?

Because it would seem that the actual overall revenue number is kind of already at that base from 2017 if you include the divestitures.

Well, I think the other component that's different at least on a year-to-date basis compared to 2017 would be on the infrastructure side with the Road Zipper volume.

I mean, clearly, we've had the -- 1 project -- larger project in the first quarter, but our second and third quarters have been really well below where they had been now.

Our outlook on infrastructure is also improving.

So we would expect that to get back to at least that 2017 type levels.

So those are the things that give us -- still give us confidence in that 11% to 12% goal.

Tim, I do just have a follow-up question on the engineering stuff in the Pacific Northwest.

Is that separate and outside of any actual engineering for irrigation systems?

Should there be irrigation systems that follow that engineering?

Or is this completely a separate thing?

No.

There are some irrigation systems that follow that.

I think what we've recognized to date has been mostly the infrastructure work and design work that's taking place ahead of the irrigation systems work.

Okay.

So there should be some higher-margin revenue that follows this in future quarters?

Yes, that would go through a dealer in that area.

(Operator Instructions) The next question is a follow-up from Joseph Mondillo with Sidoti & Company.

I just wanted to ask about the $15 million revenue regarding the Japan Road Zipper project that you just booked after the quarter.

You mentioned that it's going to start to be shipped here in the fourth quarter.

Just wondering if you could provide any more detail on what the time line of that?

Is that a sort of a fourth quarter/first quarter or over multiple quarters?

And I'm assuming that this is like in other projects where you've called out in the past is sort of higher margin sort of Road Zipper margin that we tend to think about.

Is that -- if you can comment on any of that?

Yes.

Joe, this is Brian.

What we're anticipating is roughly 20% or $3 million of that order to ship in the fourth quarter and then the balance probably split between first and second quarters next year.

And it is all barrier product, which generally would have a higher margin than the overall business.

Okay.

And then just lastly.

In terms of the Foundation for Growth.

So you've been spending quite a bit on this, and we've been going through this for several quarters now.

Is there any way you can sort of estimate or tell us sort of where you are in terms of a run rate of realization of that $13 million to $18 million?

Just curious where we're at in terms of a run rate of what we've already been realizing.

Yes.

So I mean, obviously, we're shooting for a target that's above that $13 million to $18 million in terms of the total projects that we've got in the pipeline, realizing that you're probably not going to hit 100% on every one.

But of those projects, we would expect to be north of $20 million in run rate by the end of the year.

And again, the timing of realization is always a little bit of a question especially when you look at things like sourcing and having to bleed through current inventory levels.

But the line of sight that we would have is that we would be at that run rate by the -- at a run rate that we need to be at by the end of the fiscal year.

Fiscal '20?

By the end of our fiscal '19, the projects will be identified to get to that run rate of $13 million to $18 million.

Joe, this is Tim.

And Brian mentioned it, but I want to come back on this one.

We've always tried to bring some proof points of the progress that we're making and using these workstreams as wider examples within each one of them where we're making progress.

On the infrastructure commercial workstream, the shift-left Road Zipper.

We've talked a lot about this the last few quarters.

This is a tremendous proof point, the Indiana DoT news that I mentioned earlier.

Getting that, building that and recognizing this as an area where we see future growth and continuing to put more resources and efforts in that direction.

So this is a good success story connected to Foundation for Growth.

Okay.

Just a follow-up though regarding my initial question.

I guess I'm just wondering at the end of the third quarter, on a run rate in terms of the savings that we've already realized relative to the $13 million to $18 million, where we're at.

Is it $2 million or $3 million run rate at this point in time and that extends to $13 million to $18 million at some point?

Just wondering what we've already sort of realized in the financials as of the end of the third quarter if there is any way to answer that or...

Yes.

I would say through the end of the third quarter, it's probably in that $2 million to $3 million range.

By the end of the fiscal year, it will be in -- we would expect it to be closer to $5 million that would have been realized this year.

At this time, there appear to be no more questions.

Mr. Hassinger, I'll turn the call back to you for closing remarks.

Well, this concludes our third quarter earnings call.

Thank you for your interest and participation.

The conference is now concluded.

Thank you for attending today's presentation.

You may now disconnect.