Lindsay Corporation (LNN) Q3 2015 Earnings Report, Transcript and Summary

Good morning. My name is Kaila, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lindsay Corporation Third Quarter 2015 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions] During this call, management may make forward-looking statements that are subject to risks and uncertainties, which reflect management's current beliefs and estimates of future economic circumstances, industry conditions, company performance and financial results. Forward-looking statements include 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. Rick Parod, President and Chief Executive Officer.

Good morning and thank you for joining us today. With me on today's call is Jim Raabe, Lindsay Corporation's Chief Financial Officer, and Lori Zarkowski, our Chief Accounting Officer. Total revenues for the third quarter of fiscal 2015 were $160.7 million, 5% less than the same quarter last year. U.S. and international irrigation equipment revenues decreased in the quarter and were partially offset by substantial increases in infrastructure sales. Operating margins decreased to 13.4% in the quarter compared to 14.8% in the same quarter last year. Net earnings were $12.9 million or $1.10 per diluted share, compared with $16.5 million or $1.28 per diluted share in the prior year quarter. For the first nine months of fiscal 2015, total revenues were $436.6 million, decreasing 7% from the same period last year. Net earnings were $29.5 million or $2.46 per diluted share compared to $40.2 million or $3.11 per diluted share in the prior year. Foreign currency exchange negatively affected year-to-date sales by approximately 3% and operating earnings by a little more than 2%. For the irrigation segment in total, sales were $131.3 million, 12% lower than the same quarter last year. Irrigation operating margins decreased to 15.1% of sales from 18.8% of sales due to competitive pricing pressure and deleveraging of fixed expenses on lower revenue. In the U.S. irrigation market, revenues were $86.7 million for the third quarter, decreasing 2% from the same period last year and declining 8% excluding the revenue from the newly acquired Elecsys Corporation. The lower U.S. irrigation equipment revenue is primarily resulting from approximately $4 million less of storm damage sales as compared to the same time last year. While lower commodity prices and reduced farm income have dampened farmer sentiment regarding investments, we're now at the end of the primary selling season for North America and the farmer’s attention is now on planting. While planting in the U.S. has been behind schedule in many counties due to wet weather, we don’t believe this has had much impact on demand in the quarter. While weather condition and the impact is difficult to predict, there does not appear to be a current catalyst for sustainable corn price improvement at this time. As a reminder, the fourth quarter of fiscal 2014 also included approximately $15 million or more of revenue related to storm damage, which was unusually high and unlikely to recur this year. In the international markets, revenues for the third quarter were $44.6 million, decreasing 27% over the same quarter last year with 10% revenue declined due to currency exchange and 10% revenue decline attributable to reductions in Europe reflecting similar cost additions as the U.S. Most of the remaining decrease in international markets was in China where delinquent receivables of restricted sales opportunities. While we have experienced softening in some of the more matured international markets due to lower commodity prices, we remain optimistic regarding agricultural projects. However, we had experienced some increase in competitiveness on larger projects including from manufacturers outside the U.S. given the rise in the dollar. For the first nine months of fiscal 2015, total irrigation segment revenues decreased 14% to $354.3 million. In the U.S. irrigation market, revenues were $219.1 million, 16% lower than the prior year. In the international market, irrigation revenues were $135.2 million 12% lower than the prior year and declining approximately 5% excluding the foreign exchange impact. Infrastructure segment revenues were $29.4 million in the quarter, increasing 41% from the same quarter last year. Road Zipper system and road safety product revenues continue to lead the year-over-year improvement. The infrastructure segment generated operating income of $6.5 million in the quarter, 22.1% of revenue on Road Zipper system sales remain project based and lumpy. Road safety revenues are up 51% in the quarter reflecting increased market penetration and shared gain. In addition, gross margins have increased significantly on road safety products as a result of higher volumes and manufacturing efficiencies implemented. For the first nine months of fiscal 2015 infrastructure revenues increased 46% to $82.3 million with operating margins of 19.5%. Year-to-date, road safety product revenues are up 44%, with insignificantly increased gross margins. For the total company, gross profit in the third quarter was $46.4 million or 28.9% of sales versus $48.2 million or 28.4% of sales in the same quarter last year. Gross margins in irrigation decreased by approximately one percentage points as compared to the same quarter last year. A continuation of the competitive pricing environment and cost deleverage on lower sales had a negative impact on margins but were partially offset by lower steel cost and lower warranty cost. Infrastructure gross margins increased by approximately 10 percentage points, primarily due to an improved product mix of road safety products and Road Zipper system sales and leases. Operating expenses in the third quarter increased to $24.9 million from $23 million in the prior year period. Operating expenses increased $2.4 million due to the inclusion of the recently acquired Elecsys business plus 800,000 increase in health insurance claims offset by $1.3 million reduction in other discretionary expenses in the quarter. Year-to-date SG&A expenses have been reduced from 2014 levels by $2.6 million excluding the addition of Elecsys in 2015's impact of environmental expenses, acquisition expenses and higher healthcare claims. Additional savings are anticipated in the fourth quarter. The order backlog of May 31, 2015 was $53.2 million, compared to $73.6 million at May 31, 2014. The May 31, 2015, backlog includes $12.3 million of backlog for Elecsys Corporation. Year-over-year irrigation backlog levels, including -- excluding Elecsys, have decreased reflecting the reduced demand from storm damage, as compared to the same time last year and the change of agricultural market conditions as well as completion of some large projects. Infrastructure backlog has also decreased due to completion of the Golden Gate Bridge project. Overall backlog has returned to levels consistent with the third quarter of fiscal 2011 and 2012. Our backlog typically represents some longer term irrigation and infrastructure projects as well as short lead time orders and therefore as I've indicated in the past, backlog is generally not a good indication of future quarters' revenues. Cash and cash equivalents were $154 million at the end of the quarter and were $28 million lower than the same time last year. We’ve continued the execution of our capital allocation plan, including the $120 million in cumulative stock repurchases through the end of the quarter under our $150 million repurchase authorization. The strength of our balance sheet continues to position us for additional growth through acquisitions and other initiatives to drive improved returns for shareholders. In summary, we’ve now completed the irrigation equipment selling season in North America. As anticipated, irrigation equipment revenues have remained constructed due to reduced agricultural commodity prices affecting farmer's willingness to invest in capital equipment. For irrigation equipment, revenues declined year-over-year. The declines were partially offset by significant improvement and growth in our infrastructure segment. With favorable growing positions in the U.S. so far this year it's difficult to see a near-term catalyst for improving irrigation equipment demand. However, we know from prior history that weather patterns and crop markets can change conditions quickly. Our experienced Management Team has navigated through these cycles before and during cyclical trough periods such as this and we effectively cut cost where we can, while at the same time maintaining the investments and implementing our key strategies and growth initiatives. U.S. irrigation markets have been most affected by the decline in the cycle and our Management Team at our factory in Lindsay Nebraska has reduced headcount by 25% over the last 12 months and 50% since the peak of the cycle in 2013. At the same time they've continued to drive lean enhancements to improve the efficiency of the operations. Now as we continue to navigate through this agricultural cycle, I’d like to thank our exceptional, dedicated employees who continue to demonstrate flexibility and adjusting to the changing market conditions through their willingness to do whatever is necessary to meet the needs of our customers and create value for our shareholders. As we look forward into 2016 and beyond, we will continue to monitor market conditions and identify areas to reduce cost and improve productivity. At the same time we will also continue to invest in developing products and in geographic expansion and markets that we see as having the greatest potential for growth. And as U.S. regulators contemplate and implement changes in standards, the road safety products we will make appropriate internal investments in our infrastructure product line as well. Overall long-term trends remain positive as the need for increased agricultural production to meet the needs of the growing population will continue to drive irrigation equipment demand. We're persistently enhancing our position to meet the challenges and to take advantages of the opportunities we see in the markets we serve. I would now like to open it up for your questions.

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Brian Drab from William Blair.

Good morning, Rick. Good morning, Jim.

Good morning.

First question just on the infrastructure side, the margins there 22% is really impressive and when I look back to historical results second quarter of 2011, you did 15% operating margin on about that same level of revenue and that was a period where I think you had about 50% of revenue coming from the Mexico City QMB project. So can you talk a little bit about what enabled you to get to 22% margin? What's changed since then in that business and it seems like quite a bit of a mix was just your road safety or non QMB type product. How do you explain a 22% margin or help us understand that? Thanks.

This is the time Brian we’ve had significant changes that have taken place in the infrastructure business including expense reductions, cost reductions and improvements in our manufacturing processes. And as you said there is also a mix difference from that time period through today. And to put it into a little more perspective, in the past quarter more than 50% of the revenue for the infrastructure business in the quarter was from road safety products with some good margins that are generated off of that product line. So that’s a significant change that's taken place for the mix, but at the same time, we’ve benefited from the volume plus efficiency improvements and changes that have been made in the infrastructure expense and cost structure.

Okay, thanks. I guess if you’re able to sustain that level of revenue in the infrastructure segment, but this isn’t when we shouldn’t be surprised if we can sustain operating margin of high teens or even low 20s going forward?

Well I think the way I would characterize this is we’ve made some really good progress in terms of the cost structure and expense structure, but in addition to that, in gaining market penetration and market share with our road safety products. So from that, I would expect that we would continue that initiative. At the same time, we may have a little bit of a seasonal impact where this is the season to see some of the let’s say the leases on QMB, which were not a major factor, but are still a factor, but also road safety products installed. So there is a little bit of a seasonal impact, but in addition I do believe that we’ve made some very significant progress.

Okay. Thanks, and then can you talk a little bit about the pricing environment in the Irrigation segment? It seems like pricing holding in pretty well given the margins that you’re achieving and what do you see going forward and I guess that its obviously the least interesting quarter seasonally?

Of course we have discussed in previous quarters, we definitely seen a change in the pricing from [them] [ph]. There is more competitiveness as the market contracted through this trough of the cycle and we’ve seen that continue through this past quarter. At the same time, we benefited some from lower steel cost, which did help in terms of our cost of goods sold, helped margin some. We also as mentioned had little lower cost in expenses in warranty and other items, but competitive pricing has continued and I believe we’re responding appropriately and well to those conditions.

Okay. And then just a last one for me, which regions were you seeing the most competition internationally?

I don’t know that I could really split out international market specifically in terms of increased competitiveness I would say wherever we see larger projects, which I would say we’ve seen a little bit more probably in Africa and Middle East recently. We’ve seen increased competition, which includes seeing some of our European competitors who have been a little more dormant in the past and we haven't really heard much from kind of re-emerging a bit. So we’re starting to see more competition than we have had, but overall there is not any one specific market that stands out that's increased competitiveness.

Okay, great. Thanks and congrats on the good results in the quarter.

Thank you.

Our next question comes from the line of Schon Williams from BB&T Capital Markets.

Hi good morning gentlemen.

Good morning.

Good morning.

I just wanted to, I wanted to be kind of I guess clear on the infrastructure demand, how much of this do you feel in a significant upside in revenues, how much do you feel is kind of the market actually perking up a bit and the demand environment versus kind of more the internally generated [worthy] [ph] factors, better market penetration, better share gains?

It’s difficult to split that out into specific quantity Schon. In that, I would just say that we have seen a significant improvement in our road safety product sales. Part of it is due to some things we’ve seen in the competitive environment, meaning we were selling more in terms of our end terminals than we have in the past, partially due to what I think some other competitor or competitors maybe going through. But we have picked up market share and we have increased our market penetration meaning getting approved in more markets than we’ve been in the past. So there is overall strategy to expand our road safety product sales that has been affected in doing that and with decent margins as well.

I guess would it be fair to call it demand environment, I don’t know good would you call it robust? What are your just -- your general thoughts on kind of demand separate from your specific product expansion?

Well given the lack of a long-term Highway Bill in place, I would never call it robust at this stage. I would probably say that it's definitely improved some from what we saw a couple of years ago, but I would let's not call it robust. You may categorize it as good, but I still think that more of it is emphasis that we've placed on expanding that product line that it is really the specific market itself.

Okay. And in what -- where do you hearing most recently just in terms of your contacts on the Highway Bills like there were some movements through the Senate here recently. Just any general thoughts there would be helpful?

Well we had a hard time predicting anything regarding the Highway Bill other than to say it’s a continual discussion and I’m optimistic we’ll still get one in place. I have no really estimates in terms of timing of that. I know that there is ongoing discussion of that as we speak.

Okay. And maybe one more if I could, could you just call out what was the contribution from Elecsys to your operating income and how much was kind of purchased accounting? How much was that a headwind in the quarter?

This is Jim, I would say that basically we’re still amortizing most of the purchase accounting cost and so it was from a fully loaded standpoint. It was pretty close to breakeven. We are excluding the purchase accounting adjustments since we’ve acquired and it was still in kind of the mid-teens margins. So the margins have been good and the sales volume has been good. We did finish some of the amortization like the inventory -- step up amortizations and those types of things in the quarter. So I am not going to call out a specific number but we should start seeing more positive contributions from that going forward.

Just to be clear, mid-teens operating margin is kind of excluding some of the purchase accounting.

That’s correct. Okay, thanks guys. I’ll get back in queue.

Thank you.

Your next question comes from Nathan Jones from Stifel.

Good morning, guys.

Good morning.

Rick, you alluded a little bit to increased sales of end terminals here and some issues that one of your competitors is having. I think everybody knows usually its Trinity having that. Are you able to quantify what you think the positive impact to you was from that?

Well we don’t break out the specific sales by product category in our infrastructure business. I would say that the majority of our road safety product increases are probably in end terminals, but the product category itself has been -- the road safety product has been increasing overall, but the largest percentage of increase is probably in the end terminals.

Okay. And would you attribute the majority of that increase to the issues that Trinity are having?

Well I wouldn’t go that far. I would say that what we’ve learned as we’ve gone along is that we had opportunities to expand our market penetration and market share through working with additional states to get our product certified and accepted and we have done that. And through that time, we’ve seen the continual expansion of our road safety sales in general and primarily in our end terminals. I won't attribute to what any specific competitors are going through, but certainly it's had some factor.

And I think what I would add Nathan I think is I think our team has done a really good job and it’s already leading up to what occurred there in expanding our distribution as well as in some of the international markets as well. So we're seeing some -- we've started to get some traction in some markets outside of the U.S. as well.

Okay. Fair enough. Obviously their domestic irrigation segment had quite a bit improved comp this quarter. If you kind of edge out the storm revenues from last year, edge out the contribution from Elecsys, you probably were down about 5% organically there. Also several quarters of the cyclical downturn being in the 15% to 30% kind of range. Given the annual nature of the business, can you talk about what drove the improved comp there? The better sequential revenue that we haven’t seen in the third quarter for the last two or three years and just any color you can provide us on the relatively good result there?

There is nothing really specific that comes to mind. I would say that when you look at the results you’d see that most of the markets from a domestic standpoint behaved as we would have expected where we were down were primary still corn belts from a competitor standpoint. There were a little bit of differences there and again that's also the area where we had more of the storm damage from last year as well. I would say that we’ve seen let’s say more of a stabilizing of the markets in terms of the kind of impacts that we expected that throughout and towards the end of our selling season. I think another factor to look at is in terms of the revenues through the quarters is really that's split out in our product sales on domestic machines in terms of what went into conversion, dry land and replacement. But we also saw really there more of a return to the more normalized third, a third, a third type levels. Wasn’t quite that and we saw about 29% in conversion, 33% in dry land and 38% in replacement. And year-to-date the numbers are closer to a third with 30% in conversion and 32% dry land and 38% replacement. So overall, we’re seeing what I would consider to be more normalized, stabilized conditions in the selling season that we’re just finished up.

Okay. That’s helpful. Thanks very much.

Thank you.

Your next question comes from Brett Wong from Piper Jaffray.

Hey guys thanks for taking my questions. Just wanted to look into the infrastructure business a little bit more. Rick, you mentioned gaining more approvals in more markets than before as part of the benefit that you've realized here. Can you talk to the strategy to continue to penetrate new markets that are there significantly more markets you can get into and what does that timing look like and how does that impact demand?

Well, I can’t really get too specific on that Brett. I’d say that that’s an ongoing process and we have no list of the ones that we know that we have still to go in terms of getting approvals in certain product categories. And we have a group that’s aggressively working that list to work through issues and we do find at times that while we’ll go through a process, we may get a rejection in the first time. We’ll be back again to have further discussion with the State DOT to understand what the reason is and it's usually there maybe some technicalities or technical issues in terms of some paper work that maybe submitted that has to get work through. So it’s an ongoing process and I would say that there are more states. We’re certainly not complete and we have certainly a continual list of the main states of let's say the larger states that we still think are opportunities. And from that, I’d say that we still have some good sized opportunities in front of us, but we’re making really good progress.

Okay. And just in terms of a visibility into the infrastructure segment, when you do get approval in a State, when you start to see demand in sales really ramp there?

Well, sometimes it will be immediate because they may have a need that may trigger the discussion for approval. And sometimes it maybe never in terms of we could see that we get on to the list that not really seen or at least we haven’t seen that happen yet in a state. But I would say more often than not, it would be fairly short-term that we will begin to see the benefits of that. We have had some where that need has specifically driven the discussion. So therefore it was a fairly quick process.

Okay. Great. Thanks. And then just looking at your additional international side, can you just talk to how the start-up of the Turkey facility is down when you mentioned last time that you’re trying to ship in April and then on top of how that’s moving. When can we expect to see an improvement in the international irrigation margins coming from the Turkey operations?

Well the Turkey facility is going very well in terms of it is up and running as we talked about last time and we have shipped units from that facility. There is a portion of it that is not complete yet and we saw one building that is being constructed and the galvanizing operations is going to be opened up and that isn’t ready yet and there are little ways to go they've just really started construction recently. Once we get to full production levels, meaning the galvanizing facility up and demand that will drive more production through that facility, we’ll really see the benefits of that. So it's going to take a little while before we see that. It could happen fairly quickly depending on what happens with maybe some specific projects that we’re working or it could take a little bit longer, but it’s difficult to predict the timing, but I will say that we won’t get the full benefit that we would expect until we have the into our galvanizing operation up and that's still probably I think maybe six months away before we’re at that point.

Excellent, that’s perfect. Thanks a lot for the color.

Thank you.

Our next question comes from Kevin Bennett from Sterne Agee.

Hey good morning, guys.

Good morning.

Rick, first question on the international front, can you talk about what you’re seeing in Brazil right now?

Brazil is holding up pretty well. We haven’t really seen a significant change. We did see a little delay in some orders as they were going through discussions on Tsunami and modern infra in terms of the funding and projects. Overall, we’re still pretty positive about the situation in Brazil and orders that have held up pretty good like I said it was little bit of delay. We do know that many of the funding projects are now being put into place that’s being the funding I believe it is under the modern infra program or the subsidy on the interest rate that is now changing the rates from a subsidized I think 4% interest rate to I think 7.5% now with the new program. So that may have some impact in terms of demand for this next year with equipment buyers, but it’s really too early to tell. But in general, I think Brazil is still good by the way that interest rate is lower for irrigation equipment than it is for other Ag equipment. So it’s a bit of a very good rate. It continues to be a very good rate for the growers. But in addition, I would say that the markets we still are very positive about, we see a lot of growth opportunities in Brazil in general, but it remains to be seen how they react to the new rates.

That’s helpful. And then on the cost front in irrigation, can you help quantify the impact of lower material cost and then the lower warranty expense and then secondly on that front, I see headcount at Lindsay is down 25%. Is that at a place you want it or is there more room to go there?

Well this is Jim and relative to the margins overall, as Rick said earlier, I think the pricing has held up pretty well through the quarter and then the cost benefits that we had from this year still offset most of that. If you remember last quarter, we had about 3% total and we didn’t get much benefit from the steel cost, but we are starting to get it now and that offset most of the pricing. We did have some deleverage and we had a little bit of warranty adjustments on some of our warranty items that were out there, which pretty much offset and those were relatively minor. So it’s mainly the pricing and the steel cost that make up the netting of the kind of 1% down.

Okay. And then two more quick ones, first in the infrastructure business if we think about just the QMB sales, can you help us if we look at the third quarter of '15 versus the third quarter of '14, were they up, down, the same?

QMB revenues would have been up in the third quarter of '15 versus '14. We’re not talking about very big numbers in total. So I would hesitate to draw much conclusion from that other than to say it’s a little bit bigger and I think the difference in '15 would probably be more lease revenue and there wasn’t really a large QMB project in '15 or '14.

Okay. Perfect and then lastly on the buyback, you guys are getting towards the end of the $150 million. Rick, what are your thoughts of kind of re-upping that going forward given that your cash balance is still, almost double kind of your targeted balance. How should we think about that going forward?

I think we as you mentioned, we’re getting close to that authorization level and as we get to the end of that, we will certainly revaluate and decide what we’ll do next, but I’m not really going to speculate or comment on that now other than to say that’s definitely up for reassessment soon.

Okay. Fair enough. Thank you, guys.

Thank you.

Our next question comes from David Rose from Wedbush Securities.

Good morning. This is actually James, calling in for David.

Okay. Yeah.

Can you hear me?

Yes, yes good morning.

Yeah, so my question on Irrigation margins, I know you guys gave pretty good overview of different factors impacting margins, but I wanted to see if you get actually that and may be talk about kind of the progress of your consolidation of your electronics manufacturing and any improvement in utilization and perhaps talk about kind of sustaining sort of those margins going forward.

Well I think in terms of the consolidation fees, I would say that that consolidation is basically complete in terms of consolidating into the Elecsys operation now. I am not really able to give you any specific number in terms of what that estimated savings is at this stage, but I think we’ve commented in the past on what our estimate was on an annualized basis like $1.5 million from that consolidation, which is still very much our expectations on target. In the second part of the question I think it was more in terms of the margin sustainability, question is that correct?

Yes. And may be if you could talk about project mix, was there any shift there, may be year-over-year or sequentially then have benefited or impacted your lines as well.

In terms of product mix within irrigation there was really not any significant mix shift that we saw. I would say that in terms of sustainability on margins will depend on a couple of different things. One is the competitive environment and we do know that competitive intensity is a little greater in these times as I said we're in the trough of a cycle. So it will depend a little bit on what happens with our competition and we will do what we can and all aspects to maintain or gain share and that doesn’t mean our gaining share through pricing, but we definitely will defend our position. So from that standpoint, it depends a little bit on the competitive environment and I’m optimistic that we’re in a very good sustainable position in the sense of our manufacturing efficiencies are lean implementation in our factories and other factors including we're fortunate that we’re seeing a low steel price environment today versus what we’ve seen in some other time period.

Okay and quickly on Elecsys' performance it seem like sales have grown organically although backlog seems to have improved. Can you talk about for your expectations for growth opportunities and any cross selling opportunities in the near term and long term?

Well we do see substantial growth opportunities for Elecsys longer term. Short term our focus and emphasis has really been on the integration of our electronics into Elecsys and that’s been a primary focus. We also know that there will be some challenges as say move forward in terms of some sales mix changes with Elecsys, but we see additional growth opportunities in the current market they serve, which include both oil and gas and irrigation and also in new markets with the utilization of their existing technology. So we see opportunities to expand their core business in addition to the cost savings and what I consider to be some strategic advantages that we get through their capabilities added to our product lines.

Okay, thank you.

Thank you.

Your next question comes from Chris Shaw from Monness Crespi and Hardt.

How are you doing?

Good morning.

Would you cite the breakout and you talked about replacement. I know replacement includes both parts and placement from the subsidy. Can you breakout and notably how much is parts actually for system?

Well the replacement numbers that I referred to is open. We don’t really breakout out our parts revenue in total as part of our revenue, but this is a replacement in terms of whole good number. So as we’re looking at the whole goods going out the door, we split that out to best that we can based on the dealer's representation as far as what percentage went through conversion, dry land or replacement.

All right. Just an idea and how much -- there has been a lot of rain obviously throughout the corn belt and particularly some of the difficult high irrigation areas and perhaps for instance, would that impact at all their usage of their I would think, but also sort of their need for replacement parts throughout the season and investment revenue you should worry about or giving thoughts on that?

Well the wet weather definitely impacts how much they will run the machine and also in some cases had an impact in terms of their starting up of machines, which could delay some of that startup. For example meaning that some of the parts replacements could come a little bit later in the cycle especially we'll see some parts going in after the spring startup, but definitely there is a little bit of a delay. It could impact parts requirements maybe at the end of the season or potentially into next season depending on how much they run, but I wouldn’t say that I’m really concerned about that yet. I would say that what we often see if there is a really wet spring as we've seen and sometimes there is a delay in terms of machines being installed. And we really didn’t see that as having an impact in the quarter although I think there is probably still some machines that maybe sitting out there to get installed yet, but overall I don’t really see that as a significant impact on parts business for the future.

You generally and you guys are obviously invested that you might know but have there been instances that summers were -- they got enough moisture out there, that there wasn’t a need for a lot of farmers to even run their difficult summer or that's very, very rare.

Well, I can I haven’t seen that, not in this region where they won’t run them. I would see that still be a later startup because of the spring range or every some earlier summer rains, but as summer progresses, I haven’t seen a time where they haven’t needed them.

Great, thanks a lot.

[Operator Instructions] Our next question comes from Peter van Roden from Spitfire Capital.

Hey guys.

Hello. Good morning.

First question on North American business, so excluding all the pros around Elecsys and the storm orders only being down 1% seems like a great result considering everything else in that Ad market. Do you guys see domestic business dropping or is it too early to call that?

Well, I certainly wouldn’t call it at this point one way or the other. I would say that if you follow some of the agricultural commodity analysts, I think they would say that it’s very difficult to call at this point what is going to happen with corn prices. I think there is some optimism in terms of corn prices being near a bottom or at a bottom, but it’s certainly too soon to call and I don’t think there is anyone is position that could call that at this time.

Got it. And then just on the detrimental margins in your business I guess there is a little bit of course than I would have thought and I think a lot of that has to do with the Elecsys position. Do you know what margins or excluding Elecsys and I couldn’t figure I out on my own but if you could just provide the number now it would be easier.

Yes, well I think this is Jim and I would just say to you, if essentially the margin flow through kind of on a year-over-year basis in the quarter excluding Elecsys is about where we would think it would be, as you said it’s a little bit higher on the decreasing volume, but that is not almost entirely attributable to the Elecsys coming through on a kind of purchase accounting adjusted number, it's pretty close to breakeven.

Okay. Got it. That’s all I have. Thanks guys.

Thank you.

And there are no more questions at this time. I hand the call back over to you sir.

The global long-term drivers of water conservation, population growth, importance of biofuels and the need for safer, more efficient transportation solutions remain positive. We're uniquely positioned for developing and delivering turnkey irrigation solutions for agriculture, providing the best irrigation management and control technology, offering a broad line of market-leading irrigation solution, engineering integrated pumping and filtration solutions for landscape and industrial applications as well as providing energy absorbing safety solutions and quick change movable barrier that expands the capacity of existing road and bridge infrastructure. We're committed to creating shareholder value through investments in organic growth, dividend increases, strategic water related acquisitions and share repurchases congruent with our capital allocation plan. We thank you for your questions and participation in this call.

This is the end of today's call. You may now disconnect.