Lindsay Corporation (LNN) Q4 2017 Earnings Report, Transcript and Summary

Good morning. My name is Amy and I will be your conference operator today. At this time, I would like to welcome everyone to the Lindsay Corporation Fourth Quarter 2017 Earnings Call. All participants will be in listen-only mode. [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. After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference 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 fourth quarter of fiscal 2017 were $131.9 million, decreasing 1% over the same quarter last year. Net earnings for the quarter were $6.3 million or $0.59 per diluted share compared to net earnings of $7.8 million or $0.73 per diluted share in the same quarter last year. A higher effective income tax rate for the quarter decreased net earnings $1.1 million or $0.10 per diluted share compared to the same prior year period. Total revenues for the full fiscal year of 2017 were $518 million, reflecting a slight increase over the previous year and the first year-over-year increase in revenues since the most recent cyclical peak in fiscal 2013 when Lindsay revenue exceeded $690 million. Net earnings for fiscal 2017 were $23.2 million or $2.17 per diluted share compared with $20.3 million or $1.85 per diluted share in fiscal 2016. Fiscal 2017 net earnings reflect a higher effective income tax rate for the full year decreasing net earnings by $1.5 million or $0.14 per diluted share compared to fiscal 2016. Revenues for the irrigation segment in the fourth quarter were $101.9 million, increasing 2% over the same quarter last year. Irrigation operating income for the quarter was 9.8 million, reflecting an increase of 10% over the same quarter last year. Irrigation operating margin was 9.6% of sales in the fourth quarter, compared to 8.9% in the same quarter last year. In the U.S. irrigation market, fourth quarter revenues were 55.6 million decreasing 3% from the same quarter last year, driven primarily by lower filtration and pump system revenues. The majority of the decrease in the filtration and pump system revenues were in drip irrigation filtration and pump systems for landscape and golf applications markets outside of pivot irrigation. Pivot and Lateral irrigation equipment revenues increased in the quarter on higher average selling prices and higher unit sales volume. The higher average selling prices were due to the pass through of higher material costs primarily steel. This was the second consecutive quarter of increased unit sales volume for irrigation equipment in the U.S. In the international irrigation markets, revenues in the fourth quarter were 46.3 million, increasing 9% over the same quarter last year. The increase resulted from a continued market recovery in Brazil, increased project activity in developing markets and a slightly favorable currency translation impact. Quoting activity for projects in international markets remain strong, as we continue to see sizeable agricultural projects undertaken in developing regions of the world. For the full fiscal year of 2017, total irrigation segment revenues were 418 million and were 1% lower than the same period last year. U.S. irrigation revenues of 242.6 million were 7% lower than last year, international irrigation revenues of 175.4 million for the total year were 10% higher than last year, driven by the recovery in Brazil and project in developing regions. The irrigation segment generated operating income of 42.8 million for the year, operating margin of 10.2% of sales compared to operating income of 49.2 million and operating margin of 11.7% in the same period last year. Infrastructure segment revenues in the fourth quarter were 30 million declining 9% from the same quarter last year. In the quarter, Higher Road Zipper lease revenue and higher sales of road safety products in the international markets were more than offset by lower Road Zipper system sales and lower sales of road safety products in the U.S. Infrastructure segment generated operating income of 7.5 million for the quarter and operating margin of 25.1% of sales, compared to operating income of 9.3 million and operating margin 28.1% in the same quarter last year. The fourth quarter of fiscal 2016 included three mid-sized Road Zipper system sales contributing profit unmatched in this year’s comparable quarter. As previously stated, we run a higher level of engineering and R&D expenses in infrastructure segment for development and testing of products to the MASH standard for road safety hardware. Under the Federal Highway program, road safety hardware will be evaluated for reimbursement under MASH standards with various effective dates that extend through December 2019. However, several states have moved or will move to the new standards before the required federal dates. We’ve already received letters of eligibility from the FHWA for products tested and submitted for review and are in process of completing testing and preparing request for eligibility of the next group of products. The level of development and testing is expected to continue through the next fiscal 2018 as we complete the transition of the core product lines to the new standards. For the full year of fiscal 2017 total infrastructure segment revenues were $99.9 million and were 5% higher than for the same period last year. The segment generated operating income of $20.1 million for the year and operating margin was 20.1% of sales compared to operating income of $18.5 million and operating margin of 19.6% of sales in the same period last year. We're very pleased with the significantly improved performance in the infrastructure business. For the total company, gross margin for the fourth quarter of fiscal 2017 was 28.6% of sales compared to 30.1% of sales in the same quarter last year. Margins were slightly lower in both irrigation and infrastructure segments. In the irrigation segment, U.S. Irrigation Equipment margins were comparable to the prior year while overall gross margins were lower due to a higher mix of revenue from international markets where gross margins are typically lower due to less vertically integrated manufacturing processes and competitive project revenues. Operating expenses for the fourth quarter of fiscal 2017 were $26.3 million a decrease of $1.7 million or 6% compared to the same quarter last year. The decrease resulted from reductions in selling and administrative expenses. Operating expenses were 19.9% of sales in the fourth quarter compared to 21% of the sales in the same quarter last year. Operating income for the fourth quarter of fiscal 2017 was $11.5 million a decrease of 4% compared to $12 million in the same quarter last year. Irrigation segment income increased on higher revenue and lower operating expenses while infrastructure segment operating income decreased in comparison to an exceptionally strong fourth quarter last year. operating margin for the fourth quarter of fiscal 2017 was 8.7% of sales compared to 9% in the same quarter last year. The order backlog in August 31, 2017 was $51.8 million compared to $50.7 million, August 31, 2016. Irrigation segment backlog was higher at the end of the quarter in the same time last year and infrastructure segment backlog was lower. Our backlog typically represents some longer-term irrigation and infrastructure projects as well as short lead time orders and therefore is not necessarily good indication of future quarters' revenues. Cash and cash equivalents were $121.6 million at the end of the fourth quarter compared to $101.2 million at the same time last year. Cash generated from operations in fiscal 2017 were $39.4 million compared to $33.1 million generated in fiscal 2016. Capital expenditures in fiscal 2017 were $8.9 million compared to $11.5 million last year. Capital expenditures were lower than planned as some capacity expansion projects would deferred based on market conditions. In the upcoming fiscal year capital expenditures are expected to be in the range of $12 million to $16 million. And we have share repurchases made during the fourth 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 investments in organic growth initiatives, strategic and accretive acquisitions and other initiatives to drive improved return for shareholders including share repurchases. We've now completed the fourth full year of the cyclical downturn our U.S. agricultural equipment market and it appears that the market has reached the level of stabilization. The latest USDA estimate of net farm income for 2017 is projected to be 3% higher than last year, the first such increase following three years of significant decline. In addition, the recalibration of financial cost and general economic optimism have also contributed to improved sentiment towards investment, particularly in efficiency and high yield-enhancing equipment such as our irrigation equipment and irrigation management platform. In our upcoming fiscal year, we expect modest growth in US irrigation business as well as continued aggressive market penetration of our technology products. We also expect growth in the international markets through ongoing market recovery, expansion of developed markets as well as some project activity in developing markets. In the infrastructure segment, we continue to see rising interest in Road Zipper System projects as well as increased global demand for road safety products. On the recurring federal highway build that have been in place for close to two years now, we have not yet seen significant incremental increase in spending for surface transportation projects. In addition, the current order flow for road safety products in the US is negatively impacted by the ongoing transition to MASH compliant products. However, there continues to be a need for infrastructure development and improvement in US that will continue to drive growth and demand for critical road safety products. While the agriculture markets are cyclical, farmer remains acutely aware of the benefits provided by efficient irrigation and increasing crop yields and quality. Throughout the downturn in this cycle, we continue to drive and invest in issues 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. As you will recall in February, I announced my intention to retire from Lindsay Corporation effective December 1, after more than 17 years as President and CEO of the company. In July, the Board of Directors announced the appointment of Tim Hassinger as my successor in this role effective next Monday October 16. In my retirement from Lindsay, I’m extremely confident the growth potential as a differentiated market position established, the global footprint created and most importantly the purpose driven intelligent management team here along with a superb group of bright, dedicated, multinational women and men throughout the organization. The entire organization is passionate about Lindsay Corporation’s contributions for its expanded food production, the efficient use of natural resource and transportation safety. This organization remains committed to building value for our shareholders while demonstrating respect and integrity. As I leave this role, I wish to thank all of you, our shareholders, my fellow supported board members, our dealers, distributors, suppliers and others associated with helping our company be successful during my time at the help. Most importantly, I wish to thank the employees, past and present who have helped build this platform for future profitable growth. I’m confident that Lindsay will be in good hands under Tim's thoughtful leadership. I’d like to now open it up for your questions.

[Operator Instructions] The first question is from Brian Drab, William Blair.

Good morning, and Rick congratulations on a great run, we’re going to miss you.

Well, thank you I’m going to miss you guys too. This quarter had been a little stronger at the end, but it’s been a fantastic opportunity and we've got people in the past I have had the best job in the world.

Well, great. Well, yes, congrats again. And yes, a bit of a rough stock reaction today, but I mean you’re up 27% over the last 12 months, I wouldn’t beat yourself up too much and you’ve had a great run.

Thank you.

So, can you just talk a little bit more about where the confidence in growth in the domestic irrigation business comes from? I understand you pointed out the tick up in net farm income, some of the new products. Clearly net farm income is still way down from the level it was at three years ago. So, is it just a combination of all these things, the backlog and these other things that you mentioned, could you talk about may be which is the most important factor in forming the forecast for growth next year?

Well, I think a number of factors enter into this. One, we do need to see what happens with real data as we complete this harvest and we’ll give a little bit more insight into that later today. But based on what we are hearing in terms of overall farmer optimism, I would say it’s definitely a little different climate than it was even a year ago, I commented on that last quarter as well. I also believe that there’s still excellent share growth opportunities for Lindsay. I know I mentioned there’s excellent opportunities for rapid expansion of our technology platform. I also believe that there’s more expansion opportunities, and quite significant expansion opportunities for project sales. And we have seen a little quieting of projects in the United States in the last year, year and a half. But I expect that will start to pick up and we are definitely seeing it pick up in the international market.

Okay, okay. And then on the infrastructure side, has there been any impact to your business at this point you think from this incident in Tennessee late last year? It doesn’t seem like there really has been, is that resolved?

I think we saw some of the states take our X-LITE product offering their qualified products list. However, what that equated to is roughly less than 0.5% of our total company sales. That would be reflected in those removed from that list. Now at the same time, that product is getting chased out. I would say that hasn’t had a significant effect. There is an effect however of the conversion to MASH where states are making either different purchase decisions or differing purchase decisions during that time period.

Alright. So, this product that was the subject of the incident would be phased out in longer term, everyone is competing of the MASH products anyway. And you could be proved with the MASH products in these states.

I anticipate X-LITE will be replaced by other products, of MASH compliant products by the end of the calendar year as states transition from the NCHRP 350 standard to MASH.

Okay. So, the states where you have had the -- where you've been taking off the approved list you should be able to get back on the approval list with the new products next year?

Well we are certainly going to apply to all of those states and obviously all of the states are making their own decisions and some are asking additional questions other than just whether [attach some past] MASH standards. So, this will be ongoing discussion with each state.

Okay, great. And then may be a question for Brian. And I don’t know if I missed this but just a small one on the tax rate that you are expecting for next year, did he say that?

Yes, for next year Brian I would expect it to be in that range of 34%, could be slightly lower depending on the mix of earnings, but I think 34% would be, what I would model.

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

My first question, I just wanted to ask about competition and pricing and what you are sort of seeing on your peer out there. While the last three or four years you guys had done a really good job, you’ve been outperforming your peers' irrigation segment. But the last three years or so quarters it seems like you maybe been underperforming, but I know also that your peer have a pretty big project in North America, that’s maybe skewing the numbers a little bit. So just wondering sort of what you’re seeing, what competition, pricing, specifically domestically, because that’s where it seems maybe you are underperforming a little bit or give me your thoughts on that and also internationally as well? Thank you.

Well, as you would expect whenever, we report, I’m sure, our competition dive as deep as they can into our numbers as we do when they report. So, get as good a look as we can and I would characterize of most of what we see as project related generally and we’ve seen pricing remain pretty rationale across the board. From time-to-time, we see some things we're beginning to make get aggressive in a region, whether it’s in a domestic region or international project and often can't tell whether it’s just the dealer's aggressiveness or the company. But generally speaking, I would say as continue to remain rationale across the board and normally it is project related where you will see those what appear to be share shifts during that period of time. And I think I’ve seen overall of my tenure here share shift is, does take place and there are some gradual share changes that have taken place. We believe, we picked up some share in a number of markets certainly in the international ones as we’ve entered those. But outside of that, most of the share shift we see from a quarter-to-quarter basis tends to be more regional or project related.

And I wanted to ask you on the infrastructure side, that segment has being doing really good. You even mentioned that the Road Zipper business performed quite well and I know that’s higher margin. Just curious what the outlook with the leasing side of Road Zipper looks like, as well as project compared to ‘17, sort of what your outlook in ’18. How does that look like?

Without getting to a point of guidance, I’d say that the project activity, from a leasing standpoint is still very good and strong. And I think you can correlate this closely obviously to road construction. So, when you see, leasing is generally going to be during the construction season and in construction projects. We do have some leasing that maybe is high to some longer-term projects as well but generally its leasing during that construction process. In terms of the sales process and what we see in the pipeline, we continue to have a very good pipeline on the sales project lists. In fact, I would say it's better than what we saw two years ago or three years ago or even a year ago. So, I’m optimistic from that standpoint on the projects. Now I'd comment as well that the projects can be anything from a project that maybe a couple of million dollars in size to a project that could be $20 million in size. And we see all of those potentially in that pipeline. So, from the overall standpoint and we would be very optimistic about the potential of the Road Zipper systems so as everything.

And in '17 could you just remind us what sort of project activity you saw if at all regarding QMB projects?

For most of the QMB projects we saw in '17 were what I would consider to be small-to-medium sized. And I characterize in the probably $2 million to $5 million size, but we were seeing multiple of those. If you would then of those even as we talked about in the comparison in the fourth quarter of last year was the same thing. So, we're seeing more of those smaller projects which is good. And now Brian, do you have specific on any large one in '17, I don't recall in that small-to-mid sized range?

And just so I'm sure on sort of what you're looking at. It looks like the next 24 months' outlook looks a little better maybe or improving from what you saw in terms of '17 activity.

If I were looking at the next 24 months let's say in terms of sales of Road Zipper systems I believe it looks better. If I were to look from a leasing standpoint, I wouldn't make that call yet, and it's primarily because it's tied to how this money is spent on highway build spending and road improvement. Let's say that we haven't seen a significant increase there, we have made progress in terms of getting announcing more construction projects as they occur a higher percentage of them. But I haven't seen a significantly increase -- if the data would show there is not a significant increase in surplus projects, road projects with a new highway build yet.

Okay. And then just one last question for me. Brian, I was just wondering on working capital, it looked like your inventory increased fairly substantially at the end of, compared to the end of '17 versus the end of '16. Just wondering what your thoughts are on working capital for 2018 is?

Yeah, I think where we ended the year it was clearly higher than last year. Now we would normally anticipate being I think pretty much all of that was driven by international irrigation and a slight increase in the domestic inventories, but again that was to help support the international business. So, going forward, I would expect that to moderate and come down a little bit, but if you looked back over the last couple of years, it will probably average a little bit higher just because of the increasing growth in the international sales and just longer lead times and things like that involved in the supply chain.

The next question is from Brett Wong at Piper Jaffray.

Great. Thanks for taking my questions. And Rick I too want to voice our appreciation for everything over the years and wish you all the best going forward. But digging into the domestic irrigation demand expectations again are you seeing that in your order book, I know you mentioned irrigation being up, but is that domestic or international? I know you tend to not really break that down. But are you seeing the order book up for domestic?

Well we're not going to split out backlog numbers between domestic and international. I'd characterize it as I said as we definitely have seen more optimism with the domestic dealers and the international ones. And visiting the international dealers in fact was visiting with some dealers last weekend definitely see more optimism there as well. Part of that I would attribute to readjusting to existing commodity prices where commodity price is input costs having recalibrated some, but definitely sounds more optimism in both the domestic and international one that we won't see that really translate into anything significant in terms of order rate in the domestic market until we get into the selling season which we’re not in that now. We may see some bump as they complete harvest it, generally we’re really not going to see a good day yet.

Okay. And what do you think needs to happen in order to see a meaningfulness in domestic irrigation demand or run rate where you think quarter or rent prices need to move to?

Yeah. I’m not sure there is a specific price, I’d say that the prices we’re seeing with quarter are not bad. I am sure if cost $4 everybody would feel better. But I do think that some stability is essential too. And I think finally where we can come out with this harvest will be beneficial to farmers in terms of making their decisions for this next season and that will be beneficial for the demand overall. One of the things we see during this year and looking at the split of unit sold whether it’s conversion or dry land or replacement is pretty typical what we would see in the fourth quarter and I think very similar to what we saw in the fourth quarter of last year or about 25% going into conversion, 22% into dry land and 53% in replacement. That’s pretty normal for the fourth quarter, because you are going to get a lot of the storm damage and people that are making decisions and also at this time prior to harvest that’s what we would expect to see. I think what we’ll see as time goes on and commodity prices do improve obviously we see that dry land percentage go up.

Yeah. Perfect. That makes sense. And last one on the international irrigation side, can you just provide a little more color on the comment of increased activity and developing markets where are you more specifically seeing some of that growth. And then overall, I know you don’t obviously provide formal guidance, but as we look at next year, what kind of growth can we expect given you do have or tend to have more visibility there. And is it something similar to this year or there is just some sort of qualification would be helpful?

Well, I think to I guess just give you a little more color on what we’re seeing, we’re definitely seeing projects in Africa, we’re seeing some larger projects now in China, we’re seeing projects in South America. More project activity in Russia, Ukraine, the CIS region and those have all been encouraging in terms of either projects that have been in process and ones that are potentially in development. Now, when you get to growth rates we typically talk about the international markets in same -- we expect that they’re going to be in that low to mid-teens growth on average over a three year to five-year time period. And it’s a difficult one to peg, because we have some very developed international markets where we -- they probably more closely reflect growth rates that we’re seeing in the domestic market in the US than we have some of these regions that are developing where we may have 20% to 40% growth rate. So, it really varies but with accumulation we are putting them all together we say that we expect that kind of mid teen -- low to mid-teens growth for international market.

The next question is from Nathan Jones from Stifel.

I’d like to talk a little bit about the balance sheet which is now got itself back into a net cash position, the company is always running a very conservative balance sheet. Where do you think the most efficient level of leverage would be for the company and how do you plan to get there? I mean are there M&A transactions in the wings, are you going to be more aggressive on share repurchase? I know you talked about investing in organic growth but that’s not going to take up all that cash.

Well let me take one part this and I’ll let Brian take the -- may be the -- what the leverage would be. But I'd say that what we’re currently in a situation where obviously we’re having a CEO transition and it has made the acquisition process a little more challenging. And I said that we had some good contacts. Our people have identified some good companies and had discussions. However, it’s not the time to complete those. And they obviously as a seller interested in who will be the CEO and when they come in and I think some of those discussions will be picked up again after this transition takes place. And I think that’s similar in terms of the cash booked by the stock repurchases at this point is that our philosophy has not changed. I think we have work to do in terms of the utilization of cash resources from a best return for shareholder standpoint. However, during this transition that pace has slowed. So, I think you should expect that to change with the transition. Brian?

Yes. And Nathan just in response to the question on leverage, I mean I think right at the end of the year we’re probably at 1.9 times trailing EBITDA. We certainly have the ability to increase our leverage but being in the net cash position that we are in today, don’t really see the need for that. But we’ll certainly do if the right opportunity on the acquisition side has the ability to and willingness to improve or increase the leverage.

May be could ask you this a little different way. What kind of size of transaction do you think the company could handle doing both in terms of liquidity and increasing the liquidity if necessary and also in terms of bandwidth and experience at integrating larger deals?

I wouldn’t set a dollar limit but I would say the deals that we’ve looked at and have traditionally felt that we would be comfortable with would be in the 100 million to 150 million in purchase price. And I wouldn’t say that it couldn’t go bigger because we could with better --, additional leverage in the balance sheet but certainly in that range I would say would be comfortable.

Okay. And did I hear you say to the last question that you expected low to mid-teens growth in international irrigation?

I am sorry what was that?

Did you say you expected low to mid-teens growth in international irrigation in ‘18?

So, on a three to five-year look when we look at our …

Three to five-year look.

Our goals we anticipate that three -- that low to mid teen growth rate over that time period. That’s not projecting it for any specific year.

Got you. I would assume that you expect to have higher growth in international with your project opportunities than you do in domestic in 2018. Is there any help you can give us with the kind of margin dilution we should expect just from that mix shift in ‘18?

There isn’t because it really depends on where the projects are and what type of project its consistent whether it’s a complete project with pump stations and other things in it or whether it’s just the pivots and competitive nature of those deals. I will say, one of things to keep in mind from an international standpoint is that as that part of the business grows, yes, it’s true, that there are some lower margins that are generated in that today with some of the projects, but it’s also one of the best opportunities long-term. In two different ways, one is that as that market gross, we will see more complete projects going in with potentially more complete solutions. We’ll also have opportunities for an additional efficiency in our factory including the adding additional equipment, such as a whether it’s galvanizing or two mills, but the vertical integration of our plans to further reduce costs.

Next question is from Chris Shaw of Monness, Crespi.

I think, I have asked this question before. But let me try again, because I now see you have evidence of that on your website. For the infrastructure for Road Zipper business with Richmond-San Rafael Bridge can you talk about that project at all, I mean, just be size it at all, because there seems like a little bit longer or maybe even the Golden Gate. And then maybe, is it maybe not a sale, but a lease. So, I haven’t nearly seen it show up yet I think, I thought it was a sale and the numbers just yet?

No. It hasn’t shown up yet, we haven’t talk about it as a project. And one of the things that we adopted a number of years ago is to not talk about any projects that we’re working on specifically unless we have permission to do it or there is reason to do it. Because we had some instances in the past where, we talked about a project and then had analysts or others calling me, there is some respected customer and pushing it to a point where they became uncomfortable and things happened. So, we don’t go into any discussion on a project until it’s actually booked and we’ve got until order on the books and at that time we will talk about projects. There is no doubt that’s a project that we know we’re working on. But I would leave it at that and just say that when that is some order or something to talk about.

But just for your information, there is -- you do have some mentions on your website as a project you’re working on, on the Barrier Systems Inc. website.

Yes. And it is a project that’s been worked on, but as I said, it’s until we have, that as an order I wouldn’t go into any more debt in terms of size of those, anything else of that at this stage, in terms of character of it.

Next question comes from Joe Mondillo with Sidoti & Company.

Thanks for taking my follow-up question. So, I wanted to ask you guys last November quarter surprisingly was a very tough quarter, I think it shocked most of the people on the street. And so, I’m just wondering given the high yields that we’re expecting, the low commodity prices and that November is seasonally the weakest quarter. Going back to what you remember about last year in the November quarter. Is there any dynamics that are a little different or going into this November quarter or we expected to see a similar sort of weak quarter just relative to Farm income that’s being low commodity price is et cetera?

Joe, this is Brian. I think one of the things in the first quarter last year, I think we were caught a little bit off guard as the order rates were quite a bit lower than what a typical first quarter would have been. So, from an operational standpoint, we got caught a little bit off guard. I think going into the first quarter this year, we're much more prepared for that and I wouldn't expect to have a similar situation this year.

The next question is from Mike Shilsky of Seaport Global.

Good morning, guys. And Rick, of course I also wish you my absolute best in your retirement. Hope you really enjoy it. Thanks. I'll ask about the first quarter as well, on the cost side. I was wondering if there are any unusual cost you have to kind of watch for in the fiscal first quarter here because of the CEO changeover, whether it's on the Rick side or on Tim side. Is there any kind of a single comp or double comp we should be aware of here?

Yes, I mean Mike, it's Brian. There will be a little bit of overlap on the comp side for one or two months. But I don't view that as being significant in total. And outside of that, I don't see any incremental, any other unusual type incremental cost.

Got it, thanks. I also wanted to ask about the prices of some metals. Could you possibly quantify the impact in the fourth quarter, are there any big increases in either galvanizing or steel and kind of thoughts you can give us for the outlook for fiscal '18 on both galvanizing and steel.

In regard to steel, I think from a market standpoint, we saw slight peak during our third quarter. And since then it's maintained at fairly steady levels may be moderated a little bit. But compared to the first quarter which was lower on a relative basis is up probably 30% to 40% on coil. From a market standpoint, obviously we have at any point in time hedge wise in place as we steel increase to lessen the impact of that. But I think our outlook going forward at the present time is for steel to maintain where it's at today for the most part which is how it's been over the last couple of quarters, it's been fairly steady.

And as far as galvanizing cost, has that been up as well?

Yeah, I think earlier in the year, it was up I think it's moderated somewhat since them. And that's a smaller percentage of our total cost obviously than what steel is.

Okay, got it. And just a quick question on your outlook for U.S. irrigation next year as well. Is any of the tailwinds that you think might be taking place next year, is any of it based on parts and service or are you still balancing a lot more of the growth on the new system or replacement system sales?

It is always good opportunity and more opportunity in the parts and service. Let's say it's primarily based on new systems that we're referring to. I think there is more opportunity on parts and service globally for us to pick up market share.

Okay. And one last one for me on Brazil. So, this quarter ended in August, is there quite a bit of more star season sales in September that we should be aware of the first quarter on your international business. I mean you had a good fourth quarter, could you also have a good first quarter there just on those conditions alone, back any guidance of course?

I don’t have really -- I can’t really, I’m not going to project anything for the quarter, I would say that I would expect to be comparable to previous years. We have seen overall comparable to previous years meaning from quarter-to-quarter so overall, we've seen a general improvement in Brazil that appears to be ongoing. So that is about as specific as I could get with it.

Is there a way -- I can ask you a different way, is September an important month for deliveries and installations in Brazil? Or is it already past that time, their planning season?

I think it’s getting kind of towards the end of the planning season. So, we would expect it to tail off a little bit, but depending on I think their planting met a little later this year because of weather conditions.

Okay. Got it. Thank you.

The latest information on Brazil is really that their planting pace is really picking up in terms of they’re trying to make up for some delays that they had in planting after having some needed rains and at this point I think probably the amount of growth of region they’re picking up their planting pace. So, it’s about the extent of it, so I don’t think it really impacts necessarily demand for our equipment and the timing of anything at this stage.

This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Parod for any closing remarks.

First of all, I’d like to thank all of you, it’s been a pleasure to know you and work with you. And I wish all of you the best. Lindsay Corporation is committed to creating shareholder value through investments in organic growth, dividend increases, strategic water related acquisitions and share repurchases can grow with our capital allocation plan. We thank you for your questions and participation on the call.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.