Lindsay Corporation Price & Performance (LNN)

Thank you, good morning, everyone. Welcome to our fiscal twenty twenty five second quarter earnings call. With me today is Brian Ketchum, our Chief Financial Officer. I'm extremely proud of our team and their execution during the second quarter as our results reflect record quarterly net earnings supported by revenue growth in both business segments. These results demonstrate our commitment to deliver on our long term goals despite market headwinds in our key irrigation markets. Our irrigation business delivered year over year revenue growth led by strength in our international markets, while the domestic irrigation market has continued to perform in line with our expectations. We continue to deliver the large project in the MENA region and also saw growth in other non project business in this part of the world. We're encouraged by the recent improvement in market conditions in Brazil with unit sales volumes returning to levels comparable to prior year. Turning to our Infrastructure segment. Our team delivered very strong results this quarter as they completed the Road Zipper project in the Northeast valued at over $20,000,000 that we mentioned during our first quarter call. We remain optimistic in our Road Zipper project sales pipeline. However, the timing on large projects such as this one remain challenging to predict.

Our leasing revenues and unit sales of Road Safety products were slightly lower compared to prior year. However, as we've mentioned on prior calls, we remain focused on growing our Road Zipper system leasing business over the long term as this supports a higher and more stable margin profile for the segment and our overall results. We were also pleased to receive FHWA approval on our new Tau XR Express Repair Crash Cushion in the quarter. This product is designed for high frequency impact locations, improving safety from motorists and ease of maintenance for work crews. This product ships fully assembled and can be repaired in less than thirty minutes after a head on or side impact. Shifting gears to our market outlook. In North America, we don't expect meaningful improvement in market conditions in the near term. While the USDA is forecasting a 29% increase in net farm income for 2025, this increase is primarily due to higher government support payments, while crop receipts are projected to be slightly lower compared to last year. We anticipate demand for irrigation equipment in the second half of our fiscal twenty twenty five will be stable relative to prior year pending any significant storm damage activity.

In our international irrigation markets, particularly the developing regions, we expect to see continued growth driven by project activity as these countries continue to prioritize food security and water resource conservation. In Brazil, we are encouraged to see some improvement in commodity prices supporting increased customer sentiment. However, rising interest rates and a more challenging credit environment does provide a headwind that can temper demand. Regarding infrastructure, our strong year to date performance sets us up for full year growth in fiscal twenty twenty five. Our Road Zipper sales funnel continues to be strong and while additional project sales are on the horizon, the timing of these more complex sales remains uncertain. For the second half of the year, we expect overall activity to be comparable with last year. Before I turn the call over to Brian, I would like to outline our approach to addressing the tariff plan released by the White House yesterday. We've already implemented a comprehensive action plan that includes supplier negotiation, strategic inventory placement and other supply chain initiatives to manage potential cost impacts to our business. We anticipate the impact of the proposed tariffs to result in marginal increase to our cost of goods, which we will pass through and increase pricing.

We are also evaluating the potential impact of additional or retaliatory tariffs. While the situation remains fluid, we have the structure in place to react quickly and plan to utilize our global footprint and supply chain to minimize the potential impact of these actions on our business and our customers. I'd now like to turn the call over to Brian to discuss our second quarter financial results. Brian? Thank you, Randy, and good morning, everyone. Consolidated revenues for the second quarter of fiscal twenty twenty five increased 23% to $187,100,000 compared to $151,500,000 in the prior year. Revenue growth in International Irrigation and Infrastructure was partially offset by lower North America Irrigation revenues compared to the prior year. Net earnings for the quarter increased 47% to $26,600,000 or $2.44 per diluted share compared to net earnings of $18,100,000 or $1.64 per diluted share in the prior year. As Randy mentioned, these results represent the highest quarterly net earnings and earnings per share in the company's history. Turning to our segment results. Irrigation segment revenues for the quarter increased 11% to $148,100,000 compared to $133,000,000 in the prior year. North America irrigation revenues of $77,100,000 decreased 7% compared to the prior year.

The decrease resulted primarily from lower sales volume unit sales volume of irrigation equipment, slightly lower average selling prices and lower sales of replacement parts compared to the prior year. This decline in unit sales volume was slightly less than expected as we did see year over year growth in certain regions of The U. S. In international irrigation markets, revenues of $71,000,000 increased 42% compared to the prior year. The increase resulted from revenues related to our large project in the MENA region, along with higher sales in other parts of this region compared to the prior year. This increase was partially offset by lower revenue in other international markets and by the unfavorable effects of foreign currency translation of approximately $4,700,000 compared to the prior year. As Randy mentioned, the Brazil market showed signs of improvement during the quarter with unit sales volume being comparable to the prior year. Irrigation segment operating income for the quarter of '20 '7 point '4 million dollars increased 7% compared to the prior year, while operating margin was 18.5% of sales compared to 19.3% of sales in the prior year. Operating income increased due to higher revenues, while a larger percentage of project revenues resulted in some dilution to operating margin compared to the prior year.

Infrastructure segment revenues for the quarter of '30 '8 point '9 million dollars more than doubled compared to revenues of $18,500,000 in the prior year. The increase resulted primarily from the completion of a large Road Zipper system project valued at over $20,000,000 that was delivered during the quarter, while Road Zipper lease revenue and sales of road safety products were slightly lower compared to the prior year. Infrastructure segment operating income for the quarter of $13,300,000 more than tripled compared to $3,500,000 in the prior year. Infrastructure operating margin for the quarter was 34.1% of sales compared to 19% of sales in the prior year. The increase in operating income and operating margin resulted primarily from higher revenues and a more favorable mix margin mix of revenues as Road Zipper system sales represented a higher percentage of revenues compared to the prior year. Turning to the balance sheet and liquidity. Our total available liquidity at the end of the second quarter was 236,700,000 which includes $186,700,000 in cash, cash equivalents and marketable securities and $50,000,000 available under our revolving credit facility. The strength of our balance sheet and ample access to liquid capital resources continue to serve as a strategic asset for Lindsay as we execute our capital allocation strategy to create enhanced and sustained value for our shareholders.

This concludes my remarks. And at this time, I'll turn the call over to the operator to take your questions.

Thank you. We will now begin the question and answer session. And our first question will come from Brian Drab with William Blair. Please go ahead.

The first one that we wanted to ask was on the international side. You're ahead of our expectation by quite a bit for the quarter in terms of revenue. And I'm just wondering if you could dig in a little deeper on the timing of how that revenue is being recognized. Was any of it maybe pulled forward or maybe a little heavier than expected in the second quarter? And what should we expect from that region over the next few quarters?

Yes. Sure, Brian. This is Brian Ketchum. I will say in the quarter, we did ship a little bit more of the large project than what we had originally anticipated. I think we had indicated roughly $20,000,000 a quarter. We were a little bit above that during the second quarter, but I don't think that affects our expectations for third and fourth. We'd still be kind of back to that cadence that we originally planned on. As mentioned in our comments, too, we did see revenue growth in other parts of the MENA region as well that were non project related compared to the prior year. Brazil, we had mentioned unit volume was flat. The currency impact that we talked about was primarily related to Brazil and difference in the real. And then other parts of the market, huge differences, but Western Europe and Australia both being down slightly compared to last year.

Okay. All right. And then someone's going to ask you to dig into the tariff situation more and the levers you can pull. So I'll just be the one to do that. But can you just elaborate on where your most significant exposures are? And really, what other actions are you going to have to take besides just, I guess, passing on, you said, price consumers. And really, I guess, the main focus here is on the irrigation side. But, you know, I think that you're on the infrastructure side, the whole highway spending situation has been under pressure in part because prices are higher and the projects are more expensive. And can you just talk about how it affects both businesses a little bit more and what you can do to offset that? Yes. No, you're right. The biggest impact is going to be on our irrigation business. And we've been anticipating at least the China, Mexico, Canada tariffs for some time now. But yesterday with the additional tariffs, I think pull in from our standpoint, Taiwan and Korea where we do source some products. But I think that on the cost side, the other thing, we source our steel all domestically, but we have seen steel prices going up, steel coil prices going up.

A lot of that's been driven by, I think, building inventories to in anticipation of tariff impact. We don't necessarily consider that to be a long term increase. But we I think to your question, in terms of what we've been doing, some of it has been some inventory build. We've had shifted some suppliers around a little bit already. But I would say, when you look at it in total, Randy mentioned a marginal increase in our cost of goods, It's something if we were to quantify it today, ballpark, it'd probably be like mid single digit kind of an impact on our cost of goods.

Okay. And then just one more quick follow-up. When you talk about moving around some of the suppliers, what are we talking about there? Like circuit boards, controls or something? Like what kind of imports do you have the most exposure to, if you could just remind me?

Yes. I think electrical components would be one. And some of this had already been addressed as we were considering potential China, Taiwan conflict, things like that. We do have an operation in China and a fair amount of our internal components come from China. But so we some of the supply chain stuff has been in the works for a while. Our next question will come from Ryan Connors with Northcoast Research Partners.

First on the irrigation, I wanted to come at that from the angle of margin. It seems like the margins seem to hold up there better than we had expected with the big jump in international project. So a little bit of a decline year over year, but it seemed like a pretty solid margin there given the contribution from international, which typically you've said in the past has been lower carries a lower margin. So anything you can drill down on us there, how the margin managed to hold up so well with North America down like it was and in that big order contributing like that?

Yes. I think starting with North America, I would say margins comparable to last year. So we've from a pricing standpoint, we've maintained our pricing. We've seen some cost a little bit of cost softness on steel earlier in the quarter. But I think on the international side, we've had pressure in Brazil over the last few quarters just with the demand coming down there. So there's been some margin pressure in Brazil. We saw that stabilize in the second quarter. And then I think the volume leverage that we're getting from that project on the international side is definitely helping to offset the gross margin dilution on the large project.

Got it. Very helpful. And then the other one was just on the tariff side. Very much appreciate your comments about what you're doing and what you can control within the business. But I think what the other concern is what the tariffs will mean for the agricultural economy, given the different tariffs on different exports from The U. S. Corn Belt and things like that. Obviously, you don't have a crystal ball, but any thoughts on that issue like how this could impact the demand and potential recovery from the tougher market we've been in, in The U. S?

Yes. Good morning, Ryan. This Randy. I'll take that one. I think, obviously, when you look at $27,000,000,000 worth of U. S. Ag exports going out into the world, if any of that is in jeopardy, then you have a disruption on the demand side of the equation that I think is going to have to have and will have some impact on the pricing side of the equation. I know that the government is working aggressively to develop new markets in parts of the world where maybe we haven't exported grain. If you look at the WASDE forecast, it's roughly 16% of the corn this year demand is export demand. And if that goes away, I think there is going to have some impact. I would say if we look at it at a historical perspective, when we've had issues like this in the past, whether it's trade, we've seen the government step up to support the American farmers. And we've just had roughly $30,000,000,000 in aid rolled out here in the past several months. And again, when we've had historic trade disruptions like this potential that we see today, government has stepped in. I'm not sure there's going be a natural market demand driver that's going to open up a lot of new markets to offset what we might lose.

And again, this is we might lose. We don't know with certainty what the retaliatory tariffs are going to look like. I think we've got some measure of confidence that we're going to see some additional support if and when the American farmers need it. But certainly, the element of uncertainty, I don't think is going to help customer sentiment and it's not going to make customers more eager to go out and get loans or take on additional capital investments. So something we're watching closely and you're right to highlight that this is really twofold for us what it does on the COGS side and what it might do for the end markets as well.

Got it. Thanks for your time this morning.

Thanks.

Our next question will come from Nathan Jones with Stifel. Please go ahead.

Yes. Good morning. This is Adam Farley on for Nathan. I wanted to follow-up on that last question. What is your expectation on pricing to the domestic irrigation market? Do you think farmers could bear another round of price increases in response to tariffs?

Yes, Adam. This is Brian. We have already taken some pricing actions based on the increase in steel costs that we have seen in the market. And as we demonstrated a couple of years ago when steel was going up pretty dramatically, I mean, we were able to pass that along. I mean, I think, as I mentioned too, right now, we're looking at the cost impact being mid single digit kind of increase. So we feel and this is we're not in any different situation than our competitors. So we feel like we would have that ability to pass that along. I think the other thing to mention, the timing of all of this, we're coming to the end of our spring selling season here, so the demand is going to drop off seasonally also. But no, I think that's we've already taken some action. And depending on where all of this settles off or settles out, it will depend on what other actions that we need to take.

Okay. And then this is a hypothetical, but if the trade war continues to ramp up and if The U. S. Is hit with retaliatory tariffs, could that potentially be a benefit for investment in Brazil if some of the production shifts around?

We've certainly seen that in the past, Adam. And I don't know that the global demand for grain is going to change at all just because we have these trade wars. So I think that demand going to shift around and the supply side then goes into different countries, whether it's Brazil or Argentina or other parts of the world. Demand is going to be pretty stable and demand is going to continue to grow. So with a global company like ours, we're able to react quickly in Brazil. We've got the capacity there. If we start to see an expansion of that market, we're going to be able to react to that very, very quickly. So again, when we look globally, I think we're positioned very well and uniquely to take advantage of any incremental increase in demand on the grain side in any of our facilities around the world.

This concludes our question and answer session. I would like to turn the conference back over to Randy Wood for any closing remarks.

Thank you all for joining us today. We're very pleased with our year to date results and our record second quarter performance. Our teams continue to execute well and we're positioned to manage through the market headwinds in our North American irrigation market while leveraging opportunities in the expanding international irrigation regions. Our Road Zipper funnel will continue to drive long term growth and our global footprint and supply chain will allow us to effectively manage through tariff uncertainty. This concludes our second quarter earnings call. We look forward to updating you on our continued progress following the close of our fiscal twenty twenty five third quarter. Thanks for joining us.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.