Lindsay Corporation (LNN) Q2 2025 Earnings Report, Transcript and Summary

Good day, and welcome to the Lindsay Corporation's Fiscal Second Quarter 2025 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Randy Wood, President and CEO. Please go ahead.

Thank you, and good morning, everyone. Welcome to our fiscal 2025 second quarter earnings call. With me today is Brian Ketcham, our Chief Financial Officer. I'm extremely proud of our team and their execution during the second quarter as our results reflect record quarterly net earnings supported by revenue growth in both business segments. These results demonstrate our commitment to deliver on our long-term goals despite market headwinds in our key irrigation markets. Our irrigation business delivered year-over-year revenue growth led by strength in our international markets, while the domestic irrigation market has continued to perform in line with our expectations. We continue to deliver the large project in the MENA region and also saw growth in other non-project business in this part of the world. We're encouraged by the recent improvement in market conditions in Brazil, with unit sales volumes returning to levels comparable to the prior year. Turning to our Infrastructure segment, our team delivered very strong results this quarter as they completed the Road Zipper project in the Northeast valued at over $20 million that we mentioned during our first quarter call. We remain optimistic in our Road Depot project sales pipeline. However, the timing on large projects such as this one remains challenging to predict. Our leasing revenues and unit sales of road safety products were slightly lower compared to the prior year. However, as we've mentioned on prior calls, we remain focused on growing our Road Zipper system leasing business over the long term as this supports a higher and more stable margin profile for the segment and our overall results. We're also pleased to receive FHWA approval on our new TAO XR Express Repair crash cushion in the quarter. This product is designed for high-frequency impact locations, improving safety for motorists and ease of maintenance for work groups. This product ships fully assembled and can be repaired in less than thirty minutes after a head-on or side impact. Shifting gears to our market outlook, in North America, we don't expect meaningful improvement in market conditions in the near term. While the USDA is forecasting a 29% increase in farm income for 2025, this increase is primarily due to higher government support payments, while crop receipts are projected to be slightly lower compared to last year. We anticipate demand for irrigation equipment in the second half of our fiscal 2025 will be stable relative to the prior year, barring any significant storm damage activity. In our international irrigation markets, particularly the developing regions, we expect to see continued growth driven by project activity as these countries continue to prioritize food security and water resource conservation. In Brazil, we are encouraged to see some improvement in commodity prices supporting increased customer sentiment. However, rising interest rates and a more challenging credit environment do provide a headwind that can temper demand. Regarding infrastructure, our strong year-to-date performance sets us up for full-year growth in fiscal 2025. Our Road Zipper sales funnel continues to be strong. And while additional project sales are on the horizon, the timing of these more complex sales remains uncertain. For the second half of the year, we expect overall activity to be comparable with last year. Before I turn the call over to Brian, I would like to outline our approach to addressing the tariff plan released by the White House yesterday. We've already implemented a comprehensive action plan that includes supplier negotiation, strategic inventory placement, and other supply chain initiatives to manage potential cost impacts to our business. We anticipate the impact of the proposed tariffs to result in a marginal increase to our cost of goods, which we will pass through in increased pricing. We are also evaluating the potential impact of additional or retaliatory tariffs. While the situation remains fluid, we have the structure in place to react quickly and plan to utilize our global footprint and supply chain to minimize the potential impact of these actions on our business and our customers. I'd now like to turn the call over to Brian to discuss our second quarter financial results. Brian?

Thank you, Randy, and good morning, everyone. Consolidated revenues for the second quarter of fiscal 2025 increased 23% to $187.1 million compared to $151.5 million in the prior year. Revenue growth in international irrigation and infrastructure was partially offset by lower North America irrigation revenues compared to the prior year. Net earnings for the quarter increased 47% to $26.6 million or $2.44 per diluted share compared to net earnings of $18.1 million or $1.64 per diluted share in the prior year. As Randy mentioned, these results represent the highest quarterly net earnings and earnings per share in the company's history. Turning to our segment results, irrigation segment revenues for the quarter increased 11% to $148.1 million compared to $133 million in the prior year. Decreased 7% compared to the prior year. The decrease resulted primarily from lower sales volume, unit sales volume of irrigation equipment, slightly lower average selling prices, and lower sales of replacement parts compared to the prior year. This decline in unit sales volume was slightly less than expected as we did see year-over-year growth in certain regions of the U.S. In international irrigation markets, revenues of $71 million increased 42% compared to the prior year. The increase resulted from revenues related to our large project in the MENA region along with higher sales in other parts of this region compared to the prior year. This increase was partially offset by lower revenue in other international markets and by the unfavorable effects of foreign currency translation of approximately $4.7 million compared to the prior year. As Randy mentioned, the Brazil market showed signs of improvement during the quarter, with unit sales volume being comparable to the prior year. Irrigation segment operating income for the quarter of $27.4 million increased 7% compared to the prior year, while operating margin was 18.5% of sales compared to 19.3% of sales in the prior year. Operating income increased due to higher revenues, while a larger percentage of project revenues resulted in some dilution to operating margin compared to the prior year. Infrastructure segment revenues for the quarter of $38.9 million more than doubled compared to revenues of $18.5 million in the prior year. The increase resulted primarily from the completion of a large Road Zipper system project valued at over $20 million that was delivered during the quarter. While Road Zipper lease revenue and sales of road safety products were slightly lower compared to the prior year. Infrastructure segment operating income for the quarter of $13.3 million more than tripled compared to $3.5 million in the prior year. Infrastructure operating margin for the quarter was 34.1% of sales compared to 19% of sales in the prior year. The increase in operating income and operating margin resulted primarily from higher revenues and a more favorable mix margin mix of revenues as Road Zipper system sales represented a higher percentage of revenues compared to the prior year. Turning to the balance sheet and liquidity, our total available liquidity at the end of the second quarter was $236.7 million, which includes $186.7 million in cash, cash equivalents, and marketable securities, and $50 million available under our revolving credit facility. The strength of our balance sheet and ample access to liquid capital resources continue to serve as a strategic asset for Lindsay Corporation as we execute our capital allocation strategy that creates enhanced and sustained value for our shareholders. This concludes my remarks. And at this time, I'll turn the call over to the operator to take your questions.

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

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

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

Okay. All right. Thanks. And then someone's going to ask you to dig into the tariffs situation more on the levers you can pull. So I'll just be the one to do that. But can you just elaborate on where your most significant exposures are and really what other actions are you going to have to take besides just passing on price to the consumers? And really, I guess, the main focus here is on the irrigation side, but I think that on the infrastructure side, the whole highway spending situation has been under pressure in part because prices are higher and the projects are more expensive. Can you just talk about how it affects both businesses a little bit more and what you can do to offset that?

Yeah. No. You're right. The biggest impact is gonna be on our irrigation business. And, you know, we've been anticipating the at least the China Mexico Canada tariffs for some time now. But, you know, yesterday, with the additional tariffs, I think you know, pull in from our standpoint, you know, Taiwan and Korea where we do source some products. But, you know, I think on the cost side, the other thing, you know, we source our steel all domestically, but we have seen steel prices going up, steel coil prices going up. A lot of that's been driven by companies building inventories in anticipation of tariffs impact. We don't necessarily consider that to be a long-term increase. But we, you know, I think to your question, you know, in terms of what we've been doing, some of it has been some inventory build. We've had shifted some suppliers around a little bit already. But, you know, I would say, you know, when you look at it, in total, Randy mentioned a marginal increase in our cost of goods. It's something if we were to quantify it today, ballpark, it'd probably be like mid-single-digit kind of an impact on our cost of goods.

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

Yeah. I think electrical components would be one. And some of this had already been addressed as we considered potential, you know, China, Taiwan conflict, things like that. You know, we do have an operation in China and a fair amount of our internal components come from China. But some of the supply chain stuff has been in the works for a while.

Yes, understood. Okay, thank you very much.

Our next question will come from Ryan Connors with Northcoast Research Partners. Morning. Thanks for taking my questions.

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

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

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

Yeah. Good morning, Ryan. This is Randy. I'll take that one. I think obviously when you look at $27 billion worth of U.S. Ag exports going out into the world, if any of that is in jeopardy, then you have a disruption on the demand side of the equation that is gonna have to have and will have some impact on the pricing side of the equation. I know that the government's working aggressively to develop new markets in parts of the world where maybe we haven't exported grain. If you look at the WASDE forecast, that's roughly 16% of the corn this year demand is export demand. And if that goes away, I think there is going to have some impact. I would say if we look at historical perspective, when we've had issues like this in the past, whether it's trade, we've seen the government step up to support the American farmers. And we just had roughly $30 billion in aid rolled out here in the past several months. And then again, when we've had historic trade disruptions like this potential that we see today, the government has stepped in. So I'm not sure there's gonna be a natural market demand driver that's gonna open up a lot of new markets to offset what we might lose. And, again, this is we might lose. We don't know with certainty what the retaliatory tariffs are gonna look like. I think we've got some measure of confidence that we're gonna see some additional support if and when the American farmers need it. But certainly, the element of uncertainty, I don't think is gonna help customer sentiment, and it's not gonna make customers more eager to go out and get loans or take on additional capital investment. So something we're watching closely and you're right to highlight that this is really twofold for us. What it does on the COGS side and then what it might do for the end markets as well.

Got it. Thanks for your time this morning. Thanks.

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

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

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

Okay. Thanks for that. And then if the trade war continues to ramp up, and if the US is hit with retaliatory tariffs, could that potentially be a benefit for investment in Brazil if some of the production shifts around?

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

Yeah. Thank you for taking my questions.

You bet.

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

Thank you all for joining us today. We're very pleased with our year-to-date results and our record second quarter performance. Our teams continue to execute well and we're positioned to manage through the market headwinds in our American irrigation market while leveraging opportunities in the expanding international irrigation regions. Our Road Zipper funnel will continue to drive long-term growth, and our global footprint and supply chain will allow us to effectively manage through tariff uncertainty. This concludes our second quarter earnings call. We look forward to updating you on our continued progress following the close of our fiscal 2025 third quarter. Thanks for joining us.

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