Lindsay Corporation (LNN) Q2 2017 Earnings Report, Transcript and Summary

Good morning. My name is Candice, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Lindsay Corporation Second Quarter 2017 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' 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, 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, expectations, 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 Brian Ketcham, Lindsay Corporation's Chief Financial Officer, and Lori Zarkowski, our Chief Accounting Officer. Total revenues for the second quarter of fiscal 2017 were $124.1 million, an increase of 3% over the same quarter last year. Both international irrigation and infrastructure revenues increased in the quarter while U.S. irrigation revenues were lower than a year ago. Net earnings for the quarter were $5 million or $0.47 per diluted share compared with a net loss of $4.1 million or $0.37 per diluted share in the prior year. The prior year second quarter included $13 million environmental remediation expenses, which on an after-tax basis reduced net earnings by $8.5 million or $0.78 per diluted share. Revenues for the irrigation segment in the second quarter were $106.2 million reflecting an increase of 3% over the same quarter last year. Irrigation segment generated operating income of $11.3 million for the quarter with an operating margin of 10.6% of sales compared to the operating income of $11.1 million in the same quarter last year with an operating margin of 10.7% of sales. In U.S. irrigation market, second quarter revenues were $61.5 million and were 15% lower than the same quarter last year. The lower U.S. irrigation equipment revenue was primarily driven by harsh winter and weather conditions in the Northwest region of the U.S. making it difficult for new systems to be sold and installed during the quarter. This affected our sales to dealers in the region along with revenue from our company-owned irrigation dealership in the region. The weather conditions also affected the delivery in installation of some pump system projects. Overall, we were pleased to see U.S. irrigation equipment order levels improved during the second quarter after experiencing a slower than expected first quarter. In the international irrigation markets, revenues in the second quarter were $44.7 million, an increase of 46% over the same quarter last year. This increase was driven primarily by increased project activity in the Commonwealth of Independent States region and Africa and by overall improved demand in Brazil. Coating activity for projects in the international markets remained strong where our complete turnkey solution differentiates us from all others in the industry. We have continued to see global agricultural development throughout the cyclical trough. For the first six months of fiscal 2017, total irrigation segment revenue were $196.1 million and were 4% lower than for the same period last year. U.S. irrigation revenues of $111.8 million were 15% lower than last year, while international irrigation revenues of $84.3 million were 16% higher than last year. The irrigation segment generated operating income of $16.5 million or 8.4% of sales in the first six months of fiscal 2017 compared to a 11.6% of sales in the same period last year. Infrastructure segment revenues in the second quarter were $17.9 million increasing 2% over the same quarter last year. The increase resulted from improved demand for road safety products and from higher Road Zipper system sales and lease revenue. The infrastructure segment generated operating income of $1.6 million for the quarter and operating margin of 8.9% of sales compare to operating income of $1.5 million and operating margin of 8.8% in the same quarter last year. Infrastructure business continued to perform well in the second quarter of fiscal 2017 even at seasonally lower revenue levels. The pipeline of Road Zipper projects remain solid with production levels higher than last year in support of anticipated future sales. As we stated previously, we are currently running at a higher level of engineering and R&D expense in the infrastructure segment for product development and testing related to the new mass standards for road safety products. We are making good progress in this area but expect the increased product development and testing activity to continue throughout the current fiscal year. For the first six months of fiscal 2017, total infrastructure segment revenues of $38.4 million were 2% higher for the same period last year. The segment generated operating income of $4.6 million or 11.9% of sales in the first six months of fiscal 2017 compared to 12.2% in the same period last year. For the total company, gross margin for the second quarter fiscal 2017 was 26.5% of sales down slightly from the 26.9% of sales in the same period last year. Irrigation gross margins were slightly lower than the same quarter last year due to a higher mix of international project revenue comparatively lower margins. U.S. irrigation gross margins improved during the quarter on a favorable mix of higher margin technology products. Overall selling margins on irrigation machines remained relatively stable in spite of raw material inflation experienced during the quarter. After a difficult first quarter with irrigation volumes below expectations our primary irrigation factory in the U.S. did an excellent job of boosting efficiencies and reducing spending in view of the changing conditions. Infrastructure gross margins improved due to increased cost absorption from Road Zipper system production and volume leverage from the higher road safety product sales. Operating expenses for the second quarter of fiscal 2017 were $24.4 million, a decrease of $12.7 million from the same quarter last year. Excluding the impacts of the environmental remediation expenses in the prior year second quarter, operating expenses were slightly higher in the current year primarily due to increased new product development in testing cost related to road safety products. The order backlog at February 28, 2017 was $62.3 million compared to $52.6 million at February 29, 2016. Our order backlog in both irrigation and infrastructure are higher in comparison to the same time last year. As we've stated before, our backlog typically represents the longer term irrigation and infrastructure projects as well as short lead-time motors and therefore is not necessarily a good indication of future quarter's revenues. Cash and cash equivalents were $102.8 million at the end of the second quarter compared to $101.2 million at the end of the prior fiscal year and $89.5 million at the end of the prior year second quarter. Cash generated from operations in the first months of the current year were $10.7 million compared to cash used in operations of $5 million in the same period last year. Cash expenditures in the first six months of the current year were $4.2 million compared to $7.4 million in the same prior year period. Capital expenditures for the current fiscal year are expected to be approximately at the same level as the prior fiscal year. However, current CapEx spending levels are below our expectations. There were no share repurchases made during the second quarter in a total of $63.7 million remains available under our share repurchase authorization at the end of the quarter. The strength of our balance sheet continues to position us for additional growth through acquisitions and other initiatives to drive improved returns for shareholders including share repurchases. We are currently in the midst of the primary selling season for irrigation equipment in North America and seen overall market stabilization. Comparatively demand continues to be affected by lower commodity price and farm income environment. Pricing for irrigation equipment remains competitive but rationale in both domestic and international markets. Raw material prices particularly steel and zinc have continued to increase and we expect to be successful in passing through cost increases to the market as we have in the past. I'm pleased with the response and flexibility of our domestic irrigation operation during the quarter and adjustments have been made to improve our operational efficiencies under dynamic market condition. In addition, we continue to recognize benefits from water related acquisitions completed over the past few years. From a financial standpoint, these acquisitions have helped us to improve gross margins, produce revenue synergies and provide incremental revenues in markets outside of agriculture. From a strategic standpoint, these acquisitions in water engineering services integrated pumping systems, filtration, irrigation control systems and machine-to-machine controls have positioned us as the recognized leader in fully integrated irrigation solution providing a differentiated value added proposition to our customers. The turnkey nature of our value added proposition is particularly important in the international high growth potential markets. In the infrastructure segment, we continue to see strong interest domestically and internationally in Road Zipper System projects as well as increased demand for our road safety products. Under the current Federal Highway Bill that has been in place for over a year now that has not been a significant incremental increase in spending for surface transportation for projects. However, we expect continued development of the project pipeline to drive growth in advance for critical road safety products. For the agriculture, the markets are cyclical and underlying drivers for our business remain intact, throughout the peaks and valleys of the cycle, farmers remain acutely aware of the benefits of the efficient irrigation and increasing crop yields and quality. We continue to drive initiatives to strengthen our market position, expand our solutions offering and improve our global cost structure. All of these will benefit the company now and long-term. In February, I announced my intension to retire from Lindsay Corporation on December 1, 2017 after 17 years as President and CEO of the company. My rationale for this decision is to have more time to spend with family and enjoy other interest including personal travel. In my retirement from Lindsay Corporation, I'm extremely confident in the differentiated market positions established a global growth opportunities and most importantly the purpose driven intelligent management team here along with the superb group of dedicated multinational employees. The entire organization is passionate about our contributions towards expanded food production, efficient use of natural resources and transportation safety and committed to building value for all of our shareholders. With that, I would like to open it up for your questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Nathan Jones of Stifel. Your line is now open.

Good morning, everyone.

Good morning.

Good morning.

Rick, I wonder if you could give us a little more color on the international markets, you talked about improved project activity and also improved underlying activity in South America. I think that probably implies that Brazil is getting better and the project activity is probably Africa and the Commonwealth of Independent States. Could you tell us a little bit about what drove the upside in that segment of the business and split it out between underlying improvements in discrete projects?

Yes. I think I will give a little more color on that to the best that I can. I would say that definitely the Brazilian market has improved. We have seen stronger market demand improved farmer sentiment, overall, improved conditions and also I would say the harvest information in Brazil has been pretty positive. So in general that market is more upbeat than we have seen for a while now. We have also seen improved demand in the Southern African market, which includes South Africa and some export regions within there and that would be overall demand similar to what we would see in Brazil or in some other market. So it's overall grower interest in demand and putting in efficient irrigation systems. It has been an addition to that; we have seen significant project activity in the CIS region as we refer to and in Africa. And these are projects that have been brewing for a while, we are starting to see more of them now culminating coming to the point of been implemented and we see a backlog of those kinds of projects still being discussed or in some various stages of production. So, from our standpoint, I'm optimistic and positive about the project level of activity. I would say that we have not seen a big sustained growth in terms of overall international markets with the typical growers at this point on a very broad basis, but I would say that it's pretty sound in general and we are seeing some real upside in terms of Brazil and a few other markets.

Good. Then, I guess on the project business, is there anyway you could quantify to us, what that contributed to the quota, and then, what the backlog of projects looks like, what's in backlog to maybe ship over directly this year, and then, how the coating activity for projects is? What I'm trying to get at is, is this a more of a one-time event or is this something where you are seeing a more repetitive improvement in the project outlook where -- lumpy this might be able to -- to be to continue at a higher level for a longer period of time.

Yes. I understand your question on this Nathan. I don't have -- what I have to really identify how much of that growth from international would be say sustainable just general market growth versus specific projects. I would say that it is a combination of both that we are seeing and I really don't have a split out for those pieces. I would probably characterize it as the project activity in the international markets and what it contributed was a little better than what we expected and probably better than a comparable period last year. But, not anything that I consider to be really extraordinary and a one-time event necessarily.

Okay. And then, the outlook for -- higher than we have seen project activity over the next year or two?

Well, I think the outlook for project activity is very positive and very good and I may characterize it as higher than what we have seen that the problem with the project activity is, it can be lumpy, so I can be optimistic and aim about the projects that we're having discussions on and things that are pending. I couldn't really project how it impacts the next quarter for example. So I'd say from the overall optimism standpoint yes, absolutely but difficult to project the timing of those.

Yes. I understand that. Okay. Thanks very much. That's helpful. I'll jump back in queue.

Yes. Thank you.

Thank you. And our next question comes from Mike Shlisky of Seaport Global. Your line is now open.

Good morning guys.

Good morning.

So a bottom-line here, I wanted to ask about irrigation first, I mean, I guess do you feel better about that seven now than three months ago, I was looking at a growth here now when you count all in between domestic and international just some directional view as to how you feel on irrigation for the rest of 2017?

It was difficult to defining as a growth here or anything at this point, I'd say to answer the first part of the question, I definitely feel more optimistic about than I did three months ago, a big part of that is, we were really sure what was going to happen as the season turned on and there were a lot of unknowns and variables in this. So, as it started and where we were sitting at the end of the first quarter, I was concerned -- more concerned than I'm today, I'd say that what we have seen is good underlying demand. Now, one of the other things that does give me some I guess positive perspective on this is, when I look at things that we typically watch which is how much of what we sell on machines are going into conversion or dryland and replacement. I see that the drylands -- the machines going into dryland during the quarter were about 35% of our sales of machines in the domestic market. If I look back on a comparative basis over the last few years, I've seen that move upwards just a little bit, so say for mid 33% to 34% to 35% in the comparable quarters. So I think there is some signs that there is good demand in dryland putting in your irrigation for the first time, good demand in terms of replacement and in conversation as well.

Okay. I also wanted to touch on the Northwest region issues in the quarter; I guess is a two part question. And one, are there any delay or they might be coming here in fiscal Q3? And then, secondly, I mean given the harsh weather does it mean, there is going to be some good parts in service demand in fiscal Q3 in that region because some stock may have been damaged during those weather events.

Well, I haven't heard -- I'll take the second part of that. I haven't heard anything really significant in terms of damage in the weather events that's been primarily is cold, wet and a lot of snow on the ground. And I haven't heard of much in terms of the damage of systems. But, I think that really is determined more now when the systems turn on as they're able to get into the market and really start activity which is probably starting, but I'm really not up to-date to know how much of that has taken place at this stage. Now, on the other side of it, I think there is some revenue that would have fallen out of the second quarter that moves into the third, I wouldn't call it a very substantial amount, but I'd say that there is some because they're definitely with our own -- company-owned store that there were projects that were delayed in terms of getting sold and installed that were anticipated, so they will move. What we always see with conditions like this when you have a weather situation effective region is -- it will cause a little bit of revenue shift from one period to another, it may cause some projects that will also shift out of the year towards at the end of the year in terms of we get so many things done during the season. I don't see that as a significant factor, I think that most of this revenue that would have taken place will still take place, but it's not a substantial amount that will really change your models significantly.

Okay. I also wanted to comeback to a question that I asked a while back, if acreage changes in the U.S. in 2017 in other word, can I have some data on this tomorrow and there is some consensuses out there. If we see the acreage for soybeans were up by 5 million acres and we see corn go down by let's say 3 million and wheat down by 4 million. Can you just give us a sense of what that might mean to your business or your products using a different way for different crops, and farmer, they have to change their acres while they have to bind new parts or software if they have a different crop out here, just kind of some thoughts of how that might changed up this year?

Right. Well, the primary impact between corn and soybeans for example would probably be very little in terms of revenue impact as far as changing machines or buying more for one crop versus another typically they're often in rotation, so farmers will grow both and they will switch based on commodity prices in a number of factors that will be involved in that decision-making. We've seen evidence or at least signs that there isn't a change that's taking place from last year to this season with corn acreage planted and versus soybean acreage planted. There is some shift that's taking place that in itself is not impactful on our revenue from because of the type of machine or types of crop that's grown. It has a bigger impact in terms of farmer sentiment and what it does to commodity prices. And I believe that most of that is anticipated and probably baked into commodity prices to-date, but there can always be some surprises now in planting reports that would cause that to shift more. Higher commodity prices in general are obviously going to be beneficial, higher corn prices are typically even more beneficial to us in terms of farmer sentiment and willingness to buy equipment.

Okay. Got you. I will just kind of squeeze in one more here, again, a follow-up from an earlier question from -- I think few quarters back. The balance sheet for the U.S. farmer, they are under a little bit more stress this year as we've been hearing, kind of where dealers telling you about farmer desire to borrow this year and their ability to borrow the equipment and what are some of the banks telling you about rates for the rest of 2017 as they can offer to some of these farmers.

Yes. Mike, this is Brian. Yes, when you look at the overall farm credit environment, there is clearly some overall deterioration being seen, but up to this point we have not seen it have any impact on our business and really even anecdotally we haven't heard where that's putting any constraints on our customers in particular.

Okay. Thanks Brian and thanks Rick. I'll pass it along.

Thank you. And our next question comes from Ryan Connors of Boenning. Your line is now open.

Great. Thank you and congratulations on your upcoming retirement, Rick.

Thank you.

I actually wanted to switchover to the infrastructure segment a little bit and you talked few times both in the slides and your prepared remarks about increased lease revenue. And I'm wondering if you can just talk to us about how that business is transitioning but should we interpret that to mean that business is going to evolve into more of a recurring revenue type business or you get more of that lease revenue that's less project oriented than that business has been historically? And then, what are the margin impacts of that, can you just walk us through that lease revenue dynamic?

Yes. One, the Road Zipper System side of it, excuse me, removable barrier side, that has always been lease revenue where the projects that we will be involved in and leasing the barrier and machines for construction projects or other kinds of applications. That has been an emphasis in the last year or two to really expand that lease revenue and being involved in more and more projects globally and we're seeing that payoff in terms of there are more projects taking place. Now, let's say -- what we would expect as there is more infrastructure spending that would also take place and more projects undertaken that will be more opportunities for leasing. We'd like to see a higher percentage of this -- that revenue coming from leasing it's very profitable or sustainable so lot of good benefits that come with that, but it's somewhat tied to construction activity primarily today still in North America, but certainly globally we're involved in lease projects as well.

Okay. And if you had [indiscernible], what do you prefer, do you prefer the leases system or I guess you probably prefer to sell it, right?

I love the sales. I think they're both very profitable for us. I think having a nice mix of both is excellent and the reason I say that is, the project sales are great from the standpoint of profitability and there are another -- it's another installation and what we typically find is the more of these systems we sell, the more those customers will buy because they often will not just put one end, they'll do another one in the state or two XY multiple projects. So they tend to generate more additional ones, but at the same time having a sustainable lease platform is also very beneficial because it's a little bit of a buffer to the project spiking.

Got it. Okay. And I'm trying a bigger picture question on the irrigation side, just a big picture question, I guess you take on, it seems like if you look at some of the new administration, some of their moves pretty big cuts to the USDA budget exiting the TPP agreement even some of the immigration stuff having impacting some areas of agriculture in terms of the labor force. It seems like there is a bit of a -- a lot of the stuff is maybe not intended to be negative for the ag space, but the ag space clearly not something to be a priority and some of these developments may be negative on the margin and you should give us your take on whether any of those things concerns you or is material to your business and what's your outlook is in terms of policy?

Well, I think the points that you have raised in terms of the topics discussed in some of the action proposed are concerning and something definitely to be watched. We definitely look at or trying to anticipate what's going to be actions regarding ethanol as well as the discussions has been taking place on USDA budget cuts, as you know that the number that was proposed with something like 21% reduction, which would make up the third largest reduction of the departmental budget cuts proposed and that would mean a lot of people, lot of USDA plus some programs out of USDA. But at this point, what we really have in all of these topics, whether it's the trade -- potential trade restrictions or whether it's budget cuts or any of these other topics is primarily at the stage, it's worth and we really don't have a clear view in terms of where it's going to go and underlying that there is a lot of farmers at stake and farmers wealth at stake, it affects a lot of people. So I'm not really overly concerned about these things at this stage, but they're definitely all ones that we're watching and keeping an eye on that could have a big impact.

Yes. And would you -- I assume that's impacting sentiment at least to see some of the stuff isn't really helping sentiment in terms of farmers either.

I think it might, but I don't really hear a lot of farmers talking about this from a sentiment standpoint, they are like all -- rest of us are talking about it from -- what the heck is happening perspective. But, from a sentiment standpoint, I think they're probably more influenced by today in terms of what are the commodity prices and what's happening and the opportunity for farm income potential in the next year or two possibly not taking into consideration, all of these other topics that are being discussed. I think it's just too soon to have a very significant impact or much of an impact on farmer sentiment.

Got it. Thanks for your time.

Thank you.

Thank you. And our next question comes from Joe Mondillo of Sidoti & Company. Your line is now open.

Good morning guys. I was wondering, can you tell us what the net effective pricing net of material inflation was -- slightly positive?

Yes. Joe, it's Brian. Yes, for the quarter, I would say there is -- when you look at -- factor in that, the raw material inflation that we've seen as well as our pricing actions, I would say there was really no impact on our overall margins. I think we saw during the quarter both steel and zinc raised double digits, if you go back a little more towards the early part of November, steel coil prices have gone up about 30%, but because of inventory levels and hedge buys that we put in time of rising prices, our actual costs aren't impacted to the same degree as what the market price increases that we've seen. The other thing steel, it represents about a third of our cost of goods sold, so the impact on total product cost is limited by that. But, I think more in terms of potential headwinds in the future continuing to manage the pricing side of it. We had no impact on the current quarter, but clearly something that if raw material increases continue, we'll have to take additional pricing actions.

Okay. And in terms of the international margins they've historically been lower than the domestic and I think as you mentioned they continue to be, but are those trending closer to the domestic margins and given the strength that we're seeing in the international markets, do you expect at some point in time, I don't know if it's a couple of years or what not, if we're going to see margins somewhat more similar to the domestic margins that you're seeing on the irrigation side.

Let's say that the international margins are probably not trending much closer than where they were a couple of years ago and from our international operations and part of it is because of the lower volume through a cyclical trough period. As we were seeing a couple of years back we had a one or two plants that were at the stage of probably moving to the next level of automation and integration in their operations which would have been beneficial to those margins. I think as the market recovers, we're going to see that volume impact allow us to do more in terms of moving those margins up in the international operations. From an overall pricing standpoint in terms of how things are working in the international markets, we really haven't seen a change that has made it significantly more competitive and reduced margins. But we haven't really seeing much that as really changed that in the last couple of years, but a big opportunity for the incremental margin improvement in the international operations will come as the market recovers and we see the more volume and growth going through there.

Okay. And then, just last question from me, as we start to get into possible recovery in the overall market globally, do you have any idea and I don't know if you do or not, any idea of sort of where the demand in terms of farming CapEx will be -- do you think that irrigation is going to be the number one sort of area where farming -- farmers start to spend more, or is it more so fertilizers have the equipment or anything else. Do you have any idea or thoughts about sort of that?

Well, in the past, as I talked about this, I've characterized it as the longer the trough period goes, the more likely it is that there will be some things that may get in front of some irrigation equipment in a recovery in North America or in some markets and that could be things like trackers or trucks or things that are little more interesting or more let's say fun than a pivot would be, if it's along bottom of the cycle. On the other hand, one of the highest paybacks thing that they can really achieve will be putting irrigation onto the dryland and continue with the irrigation implementation and what we've seen over the time. And I wouldn't describe it necessarily at pent-up demand when we come out of the cycles as I see this continuation of adding irrigation to dryland and farming the most efficient land that they can which would be that land that they put pivots on. But, in addition to that adding converting that flood irrigation to pivot irrigation. So that process is always going on, but it gets accelerated with higher commodity prices without a doubt, but we do see, and have seen at least once in one of the cycle recoveries that some things that they haven't able to buy for say five years which could have been tractors or trucks got in front of that for a short period of time. And when I say short period of time, it was probably a six month process and then we saw the pivots really kind of coming back in, but I've only seen that one time and that was because of a longer down cycle.

Longer than the one that we've seen currently?

Well, as I said -- I think it depends on when the recovery takes place. I will put a time period on it, I would just say that when we're seeing that they haven't bought some of that new equipment for five or seven years than we've seen some of those purchases might move in front for various reasons, but that's a -- we've only seen that one time.

Okay. All right. Thanks a lot. I appreciate it.

Thank you.

Thank you. And our next question comes from Tyler Etten of Piper Jaffray. Your line is now open.

Good morning and congratulations, Rick.

Good morning.

Okay. I was wondering if you could talk a little bit about the infrastructure segments and the Highway Bill, we haven't seen anything come through yet, just any new visibility from your guys' perspective on when some of that spending would come through?

Yes. I would say the spending is coming through. What we haven't really seen is a real up tick in terms of projects where there is a major step-up in terms of any spending. Keep in mind that the Highway Bill is really at a comparable level to what the previous Highway Bill was. So there wasn't a significant amount of additional spending -- that was in the Highway Bill, but what we did anticipate is that by having the multiyear Highway Bill in place that additional visibility would give the states more confidence in terms of taking on projects and getting projects started. Now one of the things I think that is entering into this and factoring in today is, some of the current discussion about a much larger infrastructure spending bill. And from that standpoint, I think there is probably a bit of wait and see taking place with some of the states. And in terms of accelerating projects are doing much more; they are running at a similar rates of what they did in the past. So, we're not seeing a real acceleration taking place and there I think there is a bit of waiting to find what's going to happen now with the new administration whether or not this huge infrastructure bill will take place.

Excellent, that's helpful. And then, maybe bigger picture here some ag lenders have talked about the fact that some high cost firms are getting close to the end of their credit lines. If we see some land turnover to much lower cost farmers, do you believe that that can drive some growth in the irrigation segment or do you think that CapEx for those hypothetical turnover would remain level?

I don't really have a specific view on that. I'd say that we don't really see a major CapEx spike or a spike. I will say CapEx investment necessarily taking place on land transfer or change in ownership. It does when it moves from let's say maybe the smaller farmer who has a piece of land and it has been consolidated with some larger farmers who farm it in a different commercial perspective and they will often put irrigation on right away when they do that. So there is not a significant change that I would expect there, but it definitely does happen in some cases.

Got it. Thank you very much.

Okay.

Thank you. And our next question comes from Chris Shaw of Monness, Crespi. Your line is now open.

Yes. Good morning everyone. How are you doing?

Hi.

Congrats Rick on your pending retirement.

Thank you.

In international, I'm curious, how big is the average project size, is there something like sort of the delta, the 50 million delta in revenue segment, maybe how many products that was year-over-year that made the difference?

Very difficult to define an average project in terms of the international markets but I'd say that we have had -- project could be anything from few million dollars in terms of size to a $40 million contract we had with RAC at one point which was pivots and pumps and installation and number of other things. Now that was probably on the high end. Typically, what we're more likely to see in terms of project ranges would be, I would say in the -- maybe $15 million to $20 million range that's probably more typical some of the agricultural projects and probably more of them in that $3 million to $10 million would be probably more of a cluster. But it does very depending on location and the investors and what they are attempting to do.

Okay. The $15 million increase in sales that segment could have been technically one project, I'm not going ask you if you are going to detail but that's the kind of range we're seeing on those project sizes I guess.

It could but those are a little rare and on the higher end, but it does happen yes.

Right, okay. And then switching to infrastructure for a second, you guys know and can we do has the -- it did gone out for the Richmond-San Rafael Bridge in Oakland, yes, the movable medium barrier project there.

I don't want to get into discussing any specific pending project or once that we're talking about. So I really don't want to get into any of those that are at that kind of a stage, I'd say I'm aware of that project, but that's really all I can comment on at this point.

Okay, I understand. But, I guess -- just quick one back to irrigation. I think you saw some strength in South America. What is the main crop that, say Brazil uses irrigation for? Is it corn?

I'd say, soybeans have been one of the largest and probably, I haven't seen the analysis recently, but I guess that it is still the largest. It's also used in corn, also in sugarcane.

But, they do use it for the soybean as well, okay, all right, that's all I have then. Thanks a lot.

Thank you.

Thank you. And our next question comes from Brian Drab of William Blair. Your line is now open.

Hi, good morning. This is Kyle Dicke on for Brian Drab.

Good morning.

Hi, yes, can you give us an update on the M&A market, it's been a couple of years since you did deals, just wondering if you've seen any changes in the marketplace there recently?

Well, I wouldn't describe anything as changes, I'd say that we're still active in it and we continue to see and evaluate water-related acquisitions as well as some technology related acquisitions that are synergistic to our business and add additional growth opportunities and we always have some in the pipeline that we're talking with. I think we've seen a little more activity recently in terms of some technology oriented acquisitions related to agriculture that are small companies, some profitable, some not, that probably are indicating more of -- from a seller standpoint that they see this upside potential in terms of the market maybe turning so we're seeing a little more activity on some of those technology projects than we have over the last couple of years, but I'd say that the pipeline is still good in terms of overall projects and we're continuing to look. Now, I am disappointed that we didn't get one completed in the last fiscal year that's always a disappointment to me if we don't, but we still see a lot of good potential acquisitions and continue to work the process.

Okay. Thanks. And sticking with the capital allocation, it looks like CapEx is trending kind of below your annual target of $15 million to $20 million, do you expect spending kind of ramp-up here in the second half of the year is a target for 2017 going to be a little bit lower than that of $15 million to $20 million.

Yes. Kyle, this is Brian. Yes, I mean the year-to-date capital spending is definitely lower than we anticipate or where we would like to see it, but there is a number of projects currently in the planning stage that where the actual spend hasn't occurred yet. So that's why we're anticipating full year CapEx to be at a similar level to last year which was about $11.5 million, but certainly that's an important part of our capital allocation and areas where we look to drive continued improvement and efficiencies in our operations.

Okay, great. And then, just one last quick one, I think you commented last quarter in a kind of expected total operating expenses to be in that 19% of revenue range for the full year, I know you've commented on some of the other operating expenses this quarter, but is that still an appropriate rough estimate for the year?

Yes. I would say it's still in that 19%, 19.5% range that we're looking out for the full year.

Okay, great.

And that includes the first quarter where -- it was higher than what would normally be on a run rate basis.

Right. All right. Thank you. That's all I had.

Thank you. And our next question comes from Jose Garza of Gabelli & Company. Your line is now open.

Hey, good morning guys.

Good morning.

Hey, I just wanted to get just a -- if you had a quantification of the impact from the weather in the Northwest.

Not a specific number that we would breakout, I'd just say that a majority of the North America sales difference that we saw in the quarter was due to the Northwest, a substantial amount of that. And it was really split between somewhat evenly between sales to dealers and sales to our sales from our own company store, but it was all an indication of the weather impact in that rough specific region.

Okay. And Rick you gave the dryland conversation, I was just wondering if you could just kind of give me the rest of the numbers on a domestic side.

Yes. So the -- in the quarter of the machine sold and this is basically North America conversation was 24%, dryland 35% and replacements 39% and you find there is maybe half of point or two and it's due to some machines that we didn't have the data on.

Okay, great. And just in terms of the backlog -- you noted the backlog on the infrastructure side improved a little bit. I was wondering if there was anything there to callout in terms of larger projects or anything there.

Yes, Jose. The backlog on infrastructure I would say the improvement in both road safety and Road Zipper, probably more of it, so more so on the Road Zipper side and it's a combination of -- there is probably a couple of smaller projects in there as well as some of the lease business.

Okay, excellent. Thanks very much guys and congrats, Rick.

Thank you.

Thank you. And our next question comes from Nathan Jones of Stifel. Your line is now open.

Hi guys.

Hi.

I just wanted to follow-up a little bit on that, on the steel costs here. I heard a question was asked about the impact it had on margins. Can you talk a little bit about the impact that it had on the top-line, I mean, you're looking at in an environment here where and I know you guys have managed some of this, so it doesn't hit you, but steel is up over 100% year-over-year and it's 30% of COGS that would imply that you have to raise prices 30%. Can you talk about just what impact it had so far and if steel prices stay here, then I guess eventually that's going to catch up and you're going to have to [Technical Difficulty]?

Yes. I think Nathan, if steel prices maintain where they're at, clearly they would have an impact on the selling prices. I think what we've seen over the past year is some kind of some peaks and valleys. We have gone on another price increase here in the last quarter or so. Some projections have steel softening into the next quarter. But, again, the percentages workout in terms of the steel cost increases and how they affect our product cost. And again, our intension is to pass those along to maintain our overall gross margins.

Is there any quantification you can give us on the impacts of revenue, say on a year-over-year basis from passing those increases, steel prices through?

I really don't have that quantification on a full year or a year-over-year basis, again, it varies a little bit quarter-to-quarter depending on how the cost move. And again, the way we operate our inventory and our hedge buys, we kind of avoid the peaks and sometimes also don't take forward advantage of the valleys and some of the steel cost. So, we have up on a more stable cost environments and what the market pricing would indicate.

Okay. And then, I wonder Rick, I could just get a comment on weather or not you are seeing increasing prices also could have an impact on demand maybe farmers say okay, it's too expensive, wait until steel prices come down. Have you seen or do you expect to see anything, any impact from that?

I have not. And it says that historically what we have seen is that, as steel prices have moved up and we passed it through in pricing and I will go back even over the last 15 years. There has been sometimes where it has moved up very rapidly. We have seen it impact demand in a short-term basis, just as farmers were adjusting to the new reality of where steel prices were. But, they are also -- when that does happen, they have seen it in tractors and trucks and everything else that they buy. So, they adjust to it, they understand the steel market and its impact, I will say that what we have seen recently in terms of steel pricing passing through and what's happened with it and will not affect the demand, demand is much more impacted and obviously the primary driver has been commodity prices and farm income and not really what's happened with steel.

Okay. Thanks very much.

Thank you. And at this time, there appear to be no more questions. Mr. Parod, I will turn the call back over to you for closing remarks.

While the global long-term drivers of water conservation, population growth, importance of bio-fuels and the need for safer more efficient transportation solution remain positive. We are uniquely positioned for developing and delivering turnkey solutions. Our offerings include a broad line of market leading irrigation solutions for agriculture, providing the best irrigation management and controlled technology, engineered, integrated pumping and filtration solutions as well as providing energy absorbing both safety solutions and solutions for expanding the capacity of existing roads and bridges. We are 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.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Have a great day everyone.