(LNN) 2024 Q1 法說會逐字稿

Hello, and welcome to the Lindsay Corporation Fiscal First Quarter 2024 earnings conference call.

All participants will be in listen-only mode.

Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.

After today's presentation, there will be an opportunity to ask questions to ask a question.

You may press star, then one on your telephone keypad.

To withdraw from the question queue, please press star then two.

I would now like to hand the call to Randy Wood, President, and CEO.

Please go ahead.

Thank you and good morning, everyone.

Welcome to our fiscal 2024 first quarter earnings call.

With me today is Brian Ketcham, our Chief Financial Officer.

I'd like to start by once again, recognizing our dealers, partners, and employees around the world for their contributions.

Their focus on our customers and execution of our business strategies continues to generate positive results for our shareholders while supporting our purpose of conserving natural resources, expanding the world's potential and improving quality of life.

I continue to be very appreciative of the job they're doing.

Our fiscal first quarter was highlighted by growth in our North American irrigation markets and improved operating income and margin capture or infrastructure segment, driven primarily by growth in Road Zipper System leasing in North America, demand for irrigation equipment was improved over the prior year first quarter as commodity prices and US net farm income have continued to support stable demand in our North American end markets.

We experienced increased order activity as grower profitability became more transparent following harvest season.

This was expected and is consistent with the wait-and-see approach we discussed coming out of last year's spring selling season moving to international irrigation, our key end markets remain healthy, although revenues for the quarter were lower in South America, particularly Brazil.

Despite being down year over year, our results remain quite solid, particularly when compared to the record-setting international revenues captured last year.

Specific to Brazil, the tsunami financing program offered by BNDES. was modified this year to distribute funding in quarterly increments.

Ultimately, this cause some short-term disruption to our order confirmations in the period.

And while this impacted our quarterly results, we do not believe this will have significant impact to our full year results in the region.

Moving to infrastructure, well, Ross, where you're still very much are in the early stages of deployment.

We are beginning to see the positive impact of IJA. driven U.S. infrastructure spending.

We continued to see solid growth in Road Zipper System leasing and sales of our road safety products in the quarter, which largely offset the softer Road Zipper System sales and project activity in the period.

As a reminder, last year's fiscal first quarter carried the tail end of revenues from the large project in Massachusetts Road Zipper lease revenue continues to represent a greater proportion of our consolidated Infrastructure segment revenues.

This sales mix remains accretive to Lindsay's overall margin profile.

We also continue to actively manage projects through our Road Zipper sales project funnel.

However, timing and project implementation remains challenging to forecast in the area of technology and innovation.

And I'd like to highlight a few key items this quarter.

The integration of the field wise acquisition is going very well and we're pleased that we've continued to add dealers to our distribution channel.

This is a key element of our technology growth strategy, and it expands our access to the installed base of competitive brands.

We're also pleased to record our first commercial sale of our new road Connect platform in the quarter.

This roadside asset monitoring technology has been well received by the market, and we expect to see growth in both device and subscription revenue going forward.

I'd now like to turn the call over to Brian to discuss our first quarter financial results.

Brian?

Thank you, Randy, and good morning, everyone.

Consolidated revenues for the first quarter of fiscal 2024 were $161.4 million, a decrease of 8% compared to $176.2 million in the first quarter last year.

Net earnings for the quarter were $15 million or $1.36 per diluted share compared to net earnings of $18.2 million or $1.65 per diluted share in the first quarter last year.

Turning to our segment results, irrigation segment revenues for the quarter were $140.2 million, a decrease of 8% compared to $152.1 million in the first quarter last year.

North America irrigation revenues increased 7% to $89.4 million compared to $83.9 million in the first quarter last year.

The increase in North America irrigation revenues resulted primarily from higher unit sales volume that was partially offset by the impact of a less favorable mix of shorter machines compared to the prior year first quarter.

Average selling prices remained stable and were comparable with the first quarter last year.

In international irrigation markets, revenues of $50.8 million decreased 25% compared to record revenues of $68.1 million in the first quarter last year.

The decrease resulted primarily from lower sales in Brazil and Argentina compared to record sales in those markets in the first quarter last year.

Changes in the timing of funding under the financing program in Brazil that Randy mentioned and the government transition in Argentina following the recent presidential election, both contributed to lower sales in the quarter.

Total irrigation segment operating income for the quarter was $25.3 million, a decrease of 12% compared to the first quarter last year.

And operating margin was 18.1% of sales compared to 18.8% of sales in the first quarter last year.

Lower operating income and operating margin resulted primarily from lower international irrigation revenues and the resulting impact from deleverage of fixed operating expenses.

Gross margin remained consistent with the first quarter last year.

Infrastructure segment revenues for the quarter were $21.2 million, a decrease of 12% compared to $24.1 million in the first quarter last year.

The decrease resulted from lower Road Zipper System sales with the prior year first quarter, including $8 million of project sales that did not repeat.

The impact of lower Road Zipper sales was largely offset by growth in Road Zipper lease revenue and higher sales of road safety products compared to the first quarter last year.

Infrastructure segment operating income for the quarter was $3.6 million, an increase of 7% compared to $3.4 million in the first quarter last year.

And infrastructure operating margin for the quarter was 17.1% of sales compared to 14% of sales in the first quarter last year.

The increase in operating income and margin resulted primarily from a more favorable margin mix of revenue with higher lease revenue compared with the first quarter last year.

Turning to the balance sheet and liquidity.

Our total available liquidity at the end of the first quarter was $225.7 million, which includes $175.7 million in cash, cash equivalents and marketable securities and $50 million available under our revolving credit facility.

Our strong balance sheet and our ample access to liquid capital resources will continue to serve as a strategic advantage for Lenzie as we continue to execute our capital allocation strategy to create enhanced and sustained value for our shareholders.

That concludes my remarks.

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

Thank you.

We will now begin the question and answer session to ask a question.

You may press star, then one on your telephone keypad.

If you are using a speakerphone, please pick up your handset before pressing the keys.

To withdraw your question, please press star then two at this time, we will pause momentarily to assemble our.

Sir, Today's first question comes from Brian Drab with William Blair.

Please go ahead.

Hey, good morning.

This is Tyler Hootan on for Brian Drab.

Thank you for taking my questions this morning regarding.

Yes, just wanted to start, I appreciate the color on the South America or irrigation situation.

Has there been any other impact on international irrigation shipments due to geopolitical tensions or other factors?

If we look at or at a year-over-year basis, Tyler, I wouldn't say there's anything that's moved the needle significantly one way or the other.

If we focus on the quarter that the big shift was really in South America for the reasons that we've cited.

Got it.

And then on the previous call, you mentioned that some irrigation projects could be diluted dilutive and infrastructure projects could be accretive.

Can you just give some details on how those scenarios could play out in the future?

Yes.

I mean, I think up and on the infrastructure side, I'll start there the Road Zipper project side, which we've we haven't had any significant projects since we had the first quarter last year, but those are typically going to be higher margin kinds of projects.

And I would say with what we've commented on before, there is post pandemic.

Once we've been able to reengage with some of the munis municipalities, government entities that are in charge of these projects, it's taken some time to get reengaged with them.

And I'd say our commercial team over the last few quarters has made some really good progress, and we've got line of sight in moving some of these projects forward on the international irrigation side, again, line of sight to a lot of projects has been an active market, a lot of quoting activity.

The challenge there is part of it is access to capital access to US dollars in some of the markets, but we still remain confident that we'll see project activity coming out of both irrigation and infrastructure.

Yes.

Thank you for the color and just a final question, just when it comes to data analytics in the field, I saw some articles about farmers maybe having like too much data or information overload.

Just how do you and the dealers approach, farmers like that and convince them that these solutions are optimal for their operations?

And that's all I have today.

Thank you.

Sure.

And I'll take that one, Tyler, I would agree that there's a lot of data available to our customers and being able to convert that data and insights that they can use to manage our operation is really important, and we really focus on our core and our core is irrigation and water management.

So our tools are very deliberate, very focused and purpose-built to help them manage water and energy to deliver water and the most efficient means possible.

So we're not going up outside of our core to trying to bring more to our customers.

We're really focusing on that irrigation and water management core.

And the feedback we're getting from customers is that's exactly what they need.

When we look at the retention of our digital tools at north of 97%.

I've had customers say once they start with our platform, they couldn't farm.

They couldn't hear a gate without it.

So I think the direction that our teams are heading in the right direction.

And I think that's confirmed with customer feedback growth we continue to see in those technology platforms.

Sounds good.

Thank you.

And I'll pass it along.

Thank you.

The next question is from Nathan Jones with Stifel.

Please go ahead.

Good morning, everyone in this morning and happy year on how to go to Brazil.

Argentina you've had some challenges in particularly Brazil, government changeover.

There was phenomenal financing wasn't available for a while now.

They're shifting around the way that's happened.

And it seems like Brazil has been down pretty significantly at least three of the last four quarters as you should have some pretty easy comps coming up.

Does that lead to the expectation that we should see a pretty significant year-over-year growth for the next few quarters out of Brazil, especially on?

Or is that enough uncertainty in the way that phenomenon financing is going to come out?

You could cannot be confident enough to say that.

Yes, I think obviously the last you said three out of four quarters, we did have a strong fourth quarter in Brazil once that tsunami financing became available for the first quarter, but financing continues to kind of keep a lid on the demand there to in some respects, there's a lot of dependence on that government program because of the difference in that rates compared to the commercial rates.

But having said that, what we've seen the last four or five months is the central bank rates in Brazil have come down about 200 basis points are expected to come down another 50 basis points in January.

So we're seeing more availability of commercial financing through commercial banks outside of pharmacy, which I think is another positive.

But on the demand environment in Brazil is still strong.

I would say it's just done the financing plays a key in some of the timing, and we're seeing that in the first quarter of this year.

Obviously, some issues in Argentina, what's the relative size after you guys between Brazil and Argentina and Brazil significantly bigger.

We haven't broken that out specifically, Nathan, but your instinct is correct.

Brazil would be significantly more impactful to us than non than Argentina in terms of market size.

Got it on.

And then I just wanted to get back to the domestic business.

I thought that growth year-over-year in the first quarter was pretty encouraging.

Crop prices have been on the decline through 2023, which now all else equal, would suggest that farm income will be lower in 24 than it than it was in 23.

There's obviously some offsets to that with crop input and financing costs and all those kinds of things.

Is it reasonable to think that farm incomes down in 24 and that should probably late to domestic irrigation down in 2024?

Or is that not the way you're thinking about it at this point?

I think at a macro level, obviously, I think your logic walks based on history, Nate, and I think the dynamics of this coming year in 2024, if you think back to where we were Q2, Q3 of last year, we talked a lot about customers taking a wait-and-see approach that they were waiting for interest rates to come down, waiting for inflation to stabilize, waiting for prices to come down right now.

We see a lot more stability.

So just the fact that we think we'll we won't see that those delayed purchase decisions, just a more normalized seasonal order pattern next year will offset some of that market softness and maybe some of those end-of-year machines and first quarter machines that we saw this year, we're going to see that more naturally in the second and third quarter next year.

But I think it will be difficult to predict some significant upside in the market just because those fundamentals related to farm income and crop prices and their impact on customer sentiment, it would be tough to see a line of sight to significant growth.

But I think, again, with the comps that we have particularly year over year for Q2 and Q3.

We don't see the market falling apart either and farmers are profitable.

All banks help invest.

Yes, thanks.

I'll pass it on.

Yes.

The next question comes from Brian White with ROTH MKM.

Please go ahead.

Thanks.

Good morning and thanks for the question.

Just wondering one more on the Brazil situation, given the dryness and Mato Grasso ensuring that it could be gains still a game time decision and come February and March for the suffering that season.

As far as planning a vectors on you is that on what should we be thinking about that is a positive backdrop on it as far as potential and why your commentary on the strong kind of quoting and quoting levels that you're seeing, I think the weather there, and that's going to be obviously the biggest market for that's a free and a second season crop.

And if there is some risk to Germany across maturing crop irrigation, obviously is going to offset some of that risk.

So we would view that as a potential tailwind to the continued market opportunity in Brazil.

But as Brian mentioned earlier, it's going to be about access to capital and do they have they sold the first crop through and then the cash flow they need to go into the second and potentially the third crops in some parts of the country.

So there's certainly some good macro tailwind there, but we're they still have to get access to funding.

And again, the phenomenon program is going to be supportive.

We're seeing the Central Bank rate continued to drop in, and that's going to be supportive of financing.

So we do see that as some potential upside.

Okay.

Thank you.

And then I guess on a follow-up, there has been talk in Brazil about Tom, putting together an incentive program to the conversion of pasture land to crop plan?

Or is there kind of any had no headwind or headway that's been made on the on regulatory or legislative front on that?

You know, in the past in order to not a lot that would be actionable in the near term.

Okay.

Okay, great.

And then two, just real quick on balance sheet question on marketable securities were up pretty nicely sequentially up to over $10 million in the quarter.

Just what kind of securities are you buying there?

These would be high-grade commercial paper and other things where generally it's going to be will be beyond 90 days, but the six month maturities or so, but an opportunity to get some additional rate and interest income.

So just up a little bit of an allocation of cash from if compared to where we were at the end of the calendar year.

Okay, great.

And then I guess one last one, if I could on the inventory picked up a bit sequentially in the quarter.

Just your thoughts on that?

I would say it's mostly going to be a seasonal kind of thing as we get into the main selling season in North America, that's probably the biggest driver of the increase.

And if you go back to 2023, we over the course of the year, we reduced overall inventories about $40 million.

So a slight uptick in the first quarter is really more of the seasonal nature of the business.

Okay.

Creates kind of a total for North America and next quarter.

So that's great.

And that's all I've got.

Thank you so much for the questions.

Thanks, Brian, and thank you.

As a reminder to ask a question, you may press star then one next question comes from Jon Braatz with Kansas City Capital.

Please go ahead.

Morning Randy.

Brian Franke was on one hand and on the domestic international front domestic irrigation front, how does the demand profile vary for a region, a Midwest versus maybe Southeast Northwest?

Are you seeing any significant difference in sort of the demand picture by geography?

Yes, John, this is Brian.

What we saw in our first quarter was really a demand increase in almost all of our regions we're seeing in the Southeast and mid on kind of that Great Lakes region, what Great Lakes region typically has been more of a supplemental irrigation market, but we've seen nice growth there.

And we've seen it in the corn belt in the Midwest.

So I'd say first quarter, it's really been pretty broad across all the regions.

Is there something specific in the Great Lakes area that may be driving a different profile there from the from the past?

There's probably a couple of things, John.

It's a pretty big seed corn area.

We see Steve Horn entries growing Aaron and it's mandatory to irrigate their crops and really just shifting climate patterns.

And we've talked a lot here about what customers have to invest in a crop to put it in the ground necessarily on cost if they don't get water.

So I think just the risk management and the yield enhancement benefit of irrigation is driving a lot of investment in that part of the world.

Okay.

Thanks, Brian.

And it looks like maybe your selling prices are sort of flattish year over year, and I suspect it might continue to be that way.

But we're off we're all seeing higher costs, maybe not as high as significant as we've seen in most of the past couple of years.

But how when you look at the cost pressures of your business, how are how is that do you think you'll be able to offset those cost pressures with productivity?

Or is there going to be a little bit a little bit impact on your margins because of some rising costs?

Yes, I think we have seen steel from November to December.

The CRU for hot-rolled coil has gone up 25%.

I mean, it had softened a fair amount going back into 2023.

So and structural steel continues to maintain at a higher level.

But yes, I'd say where we're positioned now.

I mean, I think steel's kind of the biggest variable that a lot of the other inflation has kind of abated a bit.

But we expect, um, I think if you go back to probably last quarter, I mean, maybe the our view was we would have to give price back if raw materials softened, but we're not seeing that situation today, I think where raw materials appear to be headed is would be supportive of maintaining price.

Okay.

All right.

Thank you very much, Caio.

This concludes our question and answer session.

I would now like to turn the call back to Randy Wood for closing remarks.

Thank you all for joining us on today's call.

While current commodity prices in US net farm income are down from recent highs.

Growers remain profitable.

And while they're investing cautiously, we feel this will continue to support stable demand for irrigation equipment in North America, the international project pipeline for irrigation investments remains robust and supportive to our long-term growth trajectory.

These projects are driven by food security and stabilizing global grain supplies, and we're uniquely positioned to identify and win these project opportunities.

As we execute our strategy, we expect to continue the strong momentum we've seen from Road Zipper leasing as well as solid growth from our road safety products, the combination of which will continue to drive a revenue mix, which is supportive to our consolidated margin capture in the segment in our consolidated returns.

This concludes our first quarter earnings call.

We appreciate your interest in Lindsay and look forward to updating you on our continued progress following the close of our fiscal 2024 second quarter.

Thanks for joining us.

The conference has now concluded.

Thank you for attending today's presentation.

You may now disconnect.