LINDSAY CORP Q4 FY2024 earnings call

• Irrigation Market: North America irrigation saw slight volume increase in quarter due to storm damage carryover, but cropping segment still faces headwinds; international irrigation in Brazil persists softness, but MENA region project started shipping. Market outlook for 2025 is slightly down unless net farm income improves significantly.
• Infrastructure: First TauXR express repair cushion installed in Nevada in June, positive market response; expect increase in U.S. infrastructure spending in 2025, Road Zipper lease and project sales demand to grow.
• Technology and Innovation: Continued growth in Field Net and field-wise irrigation management platforms; first commercial sale of Impact Alert product in Infrastructure; over 140,000 connected devices, annual recurring revenue from device subscriptions grew 28% in fiscal 2024.
• Operational Footprint: Progress on $50 million investment at Lindsay, Nebraska facility to manage variable costs and support demand fluctuations.

Irrigation Segment

• Fourth Quarter 2024: Revenues were $125.9 million, a decrease of 12% compared to prior year. North America irrigation revenues were $61.7 million, up 2% due to higher unit sales volumes from storm damage replacement demand, offset by lower replacement parts sales. International irrigation revenues were $64.2 million, down 23% mainly due to lower Brazil revenues, partially offset by higher project sales in developing markets. Total irrigation segment operating income was $17.1 million, a decrease of 43% compared to last year.
• Full Fiscal Year 2024: Total irrigation segment revenues were $513.9 million, down 12% compared to prior year. North America irrigation revenues were $302.1 million, down 2% due to lower replacement parts sales and slightly lower average selling prices. International irrigation revenues were $211.7 million, down 23% primarily from lower Brazil and other Latin American markets, partially offset by higher project sales in developing markets. Operating income was $87.6 million, a decrease of 28% compared to prior year.

Infrastructure Segment

• Fourth Quarter 2024: Revenues were $29.1 million, up 24% compared to prior year due to higher Road Zipper System sales and lease revenues. Operating income was $5.6 million, up 79% compared to prior year.
• Full Fiscal Year 2024: Infrastructure segment revenues were $93.2 million, up 6% compared to prior year. Operating income increased 57% compared to prior year.

• Irrigation: Expect slightly down market overall in first half of 2025 unless net farm income improves significantly; storm damage replacement demand in Southeast too early to quantify; continue shipping MENA project through fiscal 2025.
• Infrastructure: Anticipate increase in U.S. infrastructure spending in fiscal 2025, demand for Road Zipper lease and project sales to grow, with line of sight to additional projects in 2025.

• Irrigation: Market softness in Brazil due to lower grower profitability and poor customer sentiment; unfavorable foreign currency translation impact on international revenues; low customer sentiment surveys in cropping segment.
• Infrastructure: International market sales fluctuations; potential impact of pricing pressure in certain regions.

Q: Good morning, everyone. Let's start off with a question about the decremental margins, both in the quarter and the year. I think for the year, it was almost 50% for the quarter, it was above 70%. So just some commentary on what led to that, I guess, over deleveraging that you've seen in the quarter and the year.

A: Yes, when you look at the year-over-year decremental margins, it's entirely related to the international irrigation business. When you look at North America, and we don't break this out, but I would say North America margins have maintained and even slightly improved this year. And when you look at last year, especially in the fourth quarter, it was a a record fourth quarter for Brazil and the amount of leverage we got on that additional volume and price, obviously, was very strong last year. So very strong year last year in Brazil this year off quite a bit. So that deleverage there is pretty significant. And then a little bit of the mix and the shift of less Brazil volume this year, and we got the additional volume from the project business, which is slightly dilutive to overall margins as well. But the biggest single impact was the year-over-year Brazil change.

Q: Can you talk about the Middle East project that started shipping in the fourth quarter? Like how much revenue shifted in the fourth quarter, how much ships in 2025? And I guess given that you're going to have growth in these international projects next year, and it's probably fairly likely that Brazil is going to be one of the weaker markets for you again in 2025, should we think that there's some mix headwinds and additional deleveraging that would get in Brazil that create headwinds for margins in 2025?

A: Yes. First of all, in the fourth quarter, we shipped roughly $14 million of the project. And next year, we anticipate roughly $80 million, which would be spread throughout each of the 4 quarters. So there is a dilutive effect because the margins on the large projects like that are generally going to be below our normal margins. But if you look at it in context of the entire segment, for the full year, I mean, there's clearly more deleverage on the gross margin line, but you get leverage on SG&A. So when you get down to operating margin for the full year, it's probably in the neighborhood of about 100 basis points of dilution.

Q: So I wanted to actually push on the margins a little bit because if you cite the negative volume leverage, but if I look at the gross margin, actually, we held up pretty well close to 30%, but SG&A actually ramped pretty significantly year-over-year, 20% up in selling about 10% up in G&A. So it seems like there's certainly some upward creep in cost in addition to the negative leverage. So just want to try to reconcile that and if you can provide any color around the SG&A drivers as well.

A: Yes. This is Brian. I would say on the SG&A side, one of the components is on these project businesses both in infrastructure and in irrigation. There's going to be sales commissions that are going to accompany those. So some of that increase is just related to sales commissions. We also continue to invest in some of our R&D and technology development. And when you look at the project activity that we're seeing in the MENA region, there's some additional resources that we've deployed to address that. But to offset that, we have taken action to reduce costs in some other areas where we can. But we'll probably see more of an impact in 2025. I would say just the other thing on the gross margin side that we talked about, not just the deleveraging of fixed costs, but we did -- we have spoken before about Brazil and how pricing has been under pressure in Brazil. And so that's also contributing to the bit of the margin compression.

Q: Kind of addressed part of it already in the previous question. But I was curious with the momentum in the infrastructure side of the business, is the outsized opportunity you see really, I guess, state side? Or I know there have been some similar kind of physical infrastructure support packages passed and some of your other international markets, I guess both for road safety products as well as Road Zipper opportunities, how you're thinking about the opportunity set in fiscal '25 and beyond, international versus domestic?

A: Yes, Brett, this is Brian. I think as we look at 2025, the growth that we're expecting next year is going to be primarily U.S. And again, a lot of that supported by just the additional funding that's in the sector. But as Randy mentioned, the funnel includes global opportunities as well. But just the near-term growth that we expect would be primarily in the U.S. And on the Road Zipper project sales side, there's potential outside the U.S. as well. But the near line of sight that we have is primarily U.S.-based.

Q: And Brian, Randy or Ryan, can you talk a little bit about the level of maybe storm revenues that you saw this year? And then maybe the impact the hurricanes might have over the next couple of months. Are you going to see some storm-related revenue from the hurricanes?

A: Yes, Jon, I'll take the first part of that. This is Brian, and then Randy can speak about the second part of your question. But I would characterize this year, our fourth quarter storm damage activity being slightly above average. If you recall, last year, we were below average in storm damage replacement following 2022, which was probably an all-time record for storm damage replacement. So relatively speaking, over a longer period, this was, I would say, above average. We look at our unit volumes for the quarter being up without the storm damage, we were probably been down low single digits. So it did have an impact on the quarter. But when you put it in perspective of what has been in other years. It's, I would say, again, slightly above average.

Q: Randy, secondly, you seem to be very positive on the EMEA region in terms of activity. And I sense maybe it's picked up a little bit maybe from last year or whatever. But is there something maybe changing in the EMEA region that supports -- that's supporting the additional activity, irrigation activity?

A: I would say that the interest in investing in irrigation connected to population growth, connected to food security, the motivation this year is consistent with last year and even the year before. Maybe some shifts in credit availability access to capital. There’s been some funding into that region that has now maybe given a more ability to invest and purchase than they’ve had historically. But I think those long-term secular drivers and motivators, they’re as strong and as positive as they’ve ever been. Just maybe more ability now to execute those because the funds are available to them. But that is going to continue to be, as we’ve said, as others have said, a pretty significant growth opportunity for the industry. And we like the way that we’re positioned. We like our competitiveness, our ability to identify, compete and win and then execute those projects very well.