Earnings Call Transcript - LNN Q1 2020

Operator, Operator

Good morning. My name is Andrea, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lindsay Corporation First Quarter Fiscal Year 2020 Earnings Call. During this call, management may make forward-looking statements that are subject to risks and uncertainties, which reflects 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 expectation, outlook, could, may, should or similar expressions. For these statements, we claim the protection of the Safe Harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. I would now like to turn the call over to Mr. Tim Hassinger, President and Chief Executive Officer. Please go ahead.

Tim Hassinger, CEO

Good morning and thank you for joining our call. With me on today's call is Brian Ketcham, Chief Financial Officer; and Lori Zarkowski, our Chief Accounting Officer. The objective of this call is to discuss our quarter one results. Before we go to that overview, I will make a few introductory comments. For the domestic irrigation business, in the first quarter, farmer sentiment continued to be impacted by the unresolved trade issues and lower commodity prices. On the positive side, the recent market facilitation payments administered through USDA have helped farmer income in this challenging environment. In addition, the expected U.S.-China Phase 1 trade deal completion this month does provide potential for stronger commodity prices moving forward. Our innovate and collaborate strategic direction in irrigation continues to progress. Last fiscal year, we launched Pivot Watch, and it is exciting to see the market interest continue to increase for this product. In addition to the farmer interest for this product that is sold through the Lindsay dealer network, Farmers Edge will be deploying Pivot Watch to their irrigated customers to support their agronomic capabilities. This will allow as-applied irrigation information to be fed to their farm command platform through FieldNET. By integrating these two digital platforms, the goal is to have this fully connected water management solution on 2 million acres by the end of 2021. Our collaboration partnerships continue to expand, and we see them as key enablers to further the current FieldNET market leadership position. Our sales data shows a direct correlation of our FieldNET penetration percentage to the market share of our pivot business. For this reason, we see our technology leadership position as being an important part of our overall growth strategy. For the Infrastructure business, we continue to see favorable signs that the Road Zipper business is moving in a positive direction. In our first quarter, we secured a multiyear lease in Germany. Also, currently there are potential projects in our sales funnel across significantly more countries than we’ve had in prior years, which reflects our desire to expand our geographical footprint. We also continue to focus on our shift-left strategy. A key U.S. Midwest partner state is planning to more than double the number of projects and miles of barrier for this upcoming summer construction season. These are great examples that we are successfully addressing the need to grow this business and increase the leasing business. As we have said before, by addressing these two objectives, we can help to reduce the lumpiness associated with this business. Our focus on these two objectives is moving this business forward at an accelerated rate. Our overall sales funnel, projects based on a 50% probability of success, is at the highest level it has ever been. Also, the number of machines being leased is at the highest level ever. As these projects progress to the signed agreement stage, we will announce them on future updates. Our innovate and collaborate strategy is also advancing in the Infrastructure business. Our focus on innovating and making the Road Zipper system a more attractive option is rapidly moving forward. We will be launching a new machine design this fiscal year for Nexco East, a company engaged in the construction, management, and operation of expressways in the eastern part of Japan, which will allow the machine to be transported between worksites without having to secure and load the machine onto special trailers to handle this task. This ease-of-use improvement will make the Road Zipper system even more attractive in that market as well as other markets around the world. Lastly, regarding our foundation for growth initiative, we have previously stated that we expect to realize $13 million to $18 million in margin improvement from the four work streams that have been highlighted. Since the beginning of this transformational journey, our goal was to have these margin improvement projects implemented by the beginning of our fiscal year 2020. While we recognize that market conditions will have an impact on our ability to achieve our goal of 11% to 12% operating income, I can confirm that these margin improvement projects have been implemented and are delivering as we expected. What is clear to us is that our foundation for growth initiative has led to a transformational change for Lindsay. So now, let's move to our Q1 results. For that, I will turn the call over to Brian.

Brian Ketcham, CFO

Thank you, Tim, and good morning, everyone. My comments regarding first-quarter comparisons will refer to adjusted results for the prior year, which omit the impact of foundation for growth costs. Adjusted results for the prior year are detailed in the Regulation G disclosure at the end of the press release. No adjustments were made to current period results. Total revenues for the first quarter of fiscal 2020 were $109.4 million compared to $112 million in the same quarter last year. Net earnings for the quarter were $8.3 million or $0.77 per diluted share compared to net earnings of $4.1 million or $0.38 per diluted share in the same quarter last year. Prior year revenues included $3.3 million associated with the company-owned irrigation dealership that was divested in the first quarter of fiscal 2019, while the net earnings impact of this divestiture was insignificant. Irrigation segment revenues for the first quarter of fiscal 2020 were $82.4 million compared to $87.6 million in the same quarter last year. North America irrigation revenues of $52.6 million were relatively flat compared to the prior year after excluding the impact of the divestiture. Higher irrigation system unit volume was offset by the impact of lower average selling prices and lower sales of replacement parts. Higher irrigation system unit volume came from regions supported by potato and dairy markets and was partially offset by lower volume in regions supported by grain and cotton markets. Average selling prices were lower than the first quarter last year as a result of the pass-through of lower steel costs. Domestic steel prices were approaching peak levels during the first quarter last year before starting to decline and moderate. Lower sales of replacement parts were the result of a timing difference in deliveries under our fall restocking program compared to the prior year. In the international irrigation markets, revenues of $29.7 million compared to $31.7 million in the same quarter last year, with approximately $1.1 million of the decrease resulting from differences in foreign currency translation rates. Increased sales in Brazil and certain other markets were offset by lower sales in developing markets. Although we continue to see a healthy amount of project opportunities in developing markets, delays in start dates have continued during the first quarter, pushing these projects to later in the fiscal year and creating risk to their eventual start date. Total Irrigation segment operating income for the first quarter of $9.8 million was $1.9 million higher than the prior year, and operating margin improved to 11.8% compared to 9% in the prior year. Improved operating margin performance was driven by the execution of various margin improvement initiatives. The impact of these improvements was partially offset by the negative mix impact from lower sales of replacement parts. Infrastructure segment revenues for the first quarter of fiscal 2020 were $27 million, an increase of $2.7 million or 15% compared to the same quarter last year. The increase resulted from higher sales of road safety products and an increase in Road Zipper system lease revenue. A higher-than-expected portion of the Japan Road Zipper order was delivered during the quarter, with the remainder expected to be delivered in the second quarter. The prior year quarter included the majority of the revenue associated with the San Rafael bridge project. Infrastructure segment operating income for the first quarter of $8.8 million increased $4.5 million compared to the prior year. Operating margin for the quarter was 32.4% of sales compared to 17.6% of sales in the prior year. Improved operating margin resulted from a more favorable mix of higher margin revenue and from improved costs and pricing performance. Cash and cash equivalents were $120.9 million at the end of the quarter compared to $127.2 million at the end of the prior fiscal year. Cash was utilized in the quarter to fund working capital increases in support of sales growth, as well as capital expenditures and dividend payments. No share repurchases were made during the quarter. However, a total of $63.7 million remains available under our share repurchase authorization. At this time, I would like to turn the call over to the operator to take your questions.

Operator, Operator

Our first question comes from Nathan Jones of Stifel. Please go ahead.

Nathan Jones, Analyst

Good morning, guys.

Tim Hassinger, CEO

Good morning, Nathan.

Brian Ketcham, CFO

Good morning, Nathan.

Nathan Jones, Analyst

You guys had said a few years ago when you started this journey an 11% to 12% margin target for fiscal 2020. And I think certainly consensus in our expectation was that you weren't going to make that in 2020 due to the reduction in volume in the irrigation business. You guys did 11.2% operating margin in the first quarter. That is typically one of your lower margin quarters seasonally. Maybe you could give us an update on whether or not you think you can achieve that 11% to 12%, with all of the work that you've done and maybe a better environment in irrigation that we're looking at this year. Just any update you could give us on whether you think you can actually reach that 11% to 12% target even despite the lower irrigation volume?

Brian Ketcham, CFO

Yes. Nathan, this is Brian. Our view right now is that we will need help from the North America irrigation market to get to the 11% to 12% operating margin target. We feel good about the incremental $10 million to $12 million of value to be delivered through our margin improvement initiatives that we’ve indicated in the past. We do expect our infrastructure business to get back to the 2017 and even 2018 type performance levels. But to get to the 11% to 12%, we would still expect market improvement from North America irrigation.

Nathan Jones, Analyst

Okay. I think that's fair. And then could you maybe talk about some of the things that got you over an 11% margin in this quarter that maybe don't repeat as we go forward that have the rest of the year a little bit below that 11% level?

Brian Ketcham, CFO

This is Brian again. The key point is the Japan order we previously mentioned. We had around $12 million remaining to deliver in the first and second quarters. We delivered just over $7 million of that in the first quarter, and this is a unique order because it consists of kits for the barrier rather than the barrier itself, and it doesn't include the machine, resulting in higher than average margins. We will see some continuation of that into the second quarter, but not as much as in the first quarter. Additionally, our infrastructure segment was positively impacted in the first quarter by increased sales of our road safety products and improved margins compared to previous periods, but we expect a seasonal reduction in the second quarter. Our leasing business also saw an uptick in the first quarter in the U.S. due to the construction season, but we anticipate that to decline a bit in the second quarter. Therefore, we expect our second quarter results to be lower as a consequence of these factors.

Nathan Jones, Analyst

That’s really helpful. And just one more. I noticed your selling expense year-over-year was down about $1.5 million, which in percentage terms is really quite a lot on pretty similar revenue. Can you talk about if that’s more unusual this year, more unusual last year? And if that’s the kind of selling expense level you think you can maintain?

Brian Ketcham, CFO

Yes. So, a portion of the decrease is related to the divestiture, roughly $400,000 to $500,000. We also had lower sales commissions due to the project delays in the international irrigation business. And I would say the other thing that is impacting the first quarter is just the mix of activity and how that affects sales commissions in infrastructure. For the full year, we expect selling expenses to be slightly higher than last year.

Nathan Jones, Analyst

Okay. That’s helpful. I will pass it on. Thanks very much, guys.

Operator, Operator

Our next question comes from Brian Drab of William Blair. Please go ahead.

Joe Aiken, Analyst

Hi. This is Joe Aiken on for Brian this morning, and thanks for taking my question. My first question, I just wanted to ask on the Japan order, you said a little over $7 million was delivered in the first quarter. How much revenue related to that project is remaining to be delivered and is that all expected to come in the second quarter?

Brian Ketcham, CFO

Yes, Joe, this is Brian. It will be a little less than $5 million that we expect to finish delivering in the second quarter, and that will complete that order.

Joe Aiken, Analyst

Got it. Thanks. And then I know on the previous earnings call, you guys discussed the impact of regulation being removed as related to the use of federal funds on patented products. Are you able to better frame at this point the potential opportunity that could create for the business?

Tim Hassinger, CEO

Yes, Joe, this is Tim. Difficult to give you a number rather than just described. It takes away what has historically been a barrier for some projects. So, as we're continuing to increase our funnel, think of it as this is one last barrier that we have to overcome to get additional sales. So, we see it as a positive lift, but difficult to quantify for you right now.

Joe Aiken, Analyst

Okay. Thanks. And then just one last housekeeping item. What was the breakdown for the dry land replacement conversion percent in the first quarter?

Brian Ketcham, CFO

So, for the quarter, it broke down as dry land at 24%, conversion at 39%, and replacement at 37%.

Joe Aiken, Analyst

Okay, great. Thanks for taking my questions.

Tim Hassinger, CEO

Thanks, Joe.

Operator, Operator

Our next question comes from Ryan Connors of Boenning & Scattergood. Please go ahead.

Ryan Connors, Analyst

Thank you and congratulations on the impressive results, particularly in the Infrastructure sector. I would like to discuss Infrastructure from a broader perspective. You have performed exceptionally well, and considering your competitive position, I’m curious about the intellectual property situation regarding patents. Are there competitors starting to emerge with potential knock-offs? Any insights you can provide on the competitive landscape and the IP environment concerning Road Zipper would be greatly appreciated.

Tim Hassinger, CEO

Yes. So, Ryan, why don't we just even brought it out a little bit further. There's two areas that we are putting a lot of focus on. One, that we've talked about, I mentioned in my opening comments Road Zipper, we put in a high emphasis on the shift-left strategy. We are seeing an increased interest on a global basis with this product. In terms of IP, we do have some IP, whether machines are on the barriers. At this point, we haven't seen a direct competitor, but I'm not going to say that won't ever happen, but at this point in time to answer your question, we don't. But in terms of the demand that we're creating, as I mentioned, we're right now in our sales funnel. We've got more machines being leased than we've ever seen before. We've got more potential projects in more countries than we've ever had before. And we can claim that confidently that our overall sales funnel is the best it's ever been. Now if you move to the road safety products, the key driver, the key factor there has been the implementation to MASH. And so where are we related to our road safety portfolio in the U.S. and we have made the submissions for our new products to FHWA, ABSORB-M is one product that we highlighted. This is a very important product for us going forward. It's a crash cushion. That has been granted eligibility status from FHWA and many of the key states that we will be selling into have now approved it. So for fiscal year '20, we would say describe it as we’ve a full portfolio in place. Now what’s exciting for us is this new portfolio is primarily crash cushions versus prior year when in terminals where a larger percent of the total sales for this business. So we see the potential of this new portfolio as being better than prior year's potential of the portfolio that we had. So as we are bringing innovation, obviously that’s opening the opportunity for IP. And back on Road Zipper, the new product that we are going to be selling into Japan, that's a good example of bringing new innovation that opens the door for IP.

Ryan Connors, Analyst

Okay, great. Well, that's a comprehensive overview. I appreciate that. Now, earlier you mentioned selling expenses in relation to irrigation. What about infrastructure? Given your earlier comments, do you think there will be a need to invest in the sales organization on the infrastructure side, or do you believe you are already in the right position?

Brian Ketcham, CFO

Yes, Ryan, this is Brian. We are investing in the commercial organization for infrastructure and project management resources. Overall, we expect our SG&A for the year to be up around 5% compared to last year's adjusted number. This also includes ongoing investment in R&D for both irrigation and infrastructure.

Ryan Connors, Analyst

Okay. Okay. And then my only question on irrigation was a little surprised to see replacement parts down. I guess the thesis would be that if there's some pressure on the overall market that maybe older machines are being fixed up a little more than they otherwise would and that would help replacement parts. So any color around why replacement parts were kind of down in the quarter?

Brian Ketcham, CFO

Yes. I think two things I mentioned. Typically, we have a fall restocking program, that we’ve post-harvest and due to late harvest the timing of those deliveries has shifted. We will probably see some of that picked up in our second quarter. The late harvest has also impacted just what would be your typical repair and replacement after the season. So those are the key things. But the restocking program is the thing that impacted the part sales more than anything.

Ryan Connors, Analyst

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

Tim Hassinger, CEO

Thanks, Ryan.

Operator, Operator

Our next question comes from Joseph Mondillo of Sidoti & Co. Please go ahead.

Joseph Mondillo, Analyst

Hi, guys. Good morning.

Tim Hassinger, CEO

Good morning, Joe.

Brian Ketcham, CFO

Good morning, Joe.

Joseph Mondillo, Analyst

First wanted to ask just regarding the volumes that you saw in irrigation. Are you at all surprised that you saw volumes up considering the late harvest and the uncertainties with the trade deal? And could you also address when your farming customers receive the government subsidies and did that at all play a factor?

Tim Hassinger, CEO

Yes, this is Tim. We weren't surprised, but we were definitely encouraged to see volumes increase. As Brian mentioned, there was a later harvest, particularly in the Midwest, where we have a broader presence. That was a positive development. Most of the market facilitation payments have been made, allowing farmers to assess their tax situations positively at the end of the year. We're noticing an improvement in farmer sentiment; I'd describe it as a wait-and-see approach. There is still uncertainty regarding the final yields for 2019 and key trade agreements, particularly USMCA, Japan, and most importantly, China. January has the potential to clarify much of that uncertainty. The next USDA supply and demand report is due out tomorrow, and with expectations that these three trade deals will be concluded this month, we are seeing increased interest from farmers. While they remain in a wait-and-see phase, their focus on these issues is greater than it was a year ago.

Joseph Mondillo, Analyst

I wanted to follow up on the question regarding the Foundation for Growth. Excluding the divestiture and currency effects, your irrigation sales were approximately flat. The operating income increased by about $2 million, which I assume is primarily linked to your procurement efforts and other initiatives related to Foundation for Growth. As of now, it seems that most of the foundational work or significant changes were completed by the end of fiscal '19. Can you provide insight into whether we can expect further incremental improvements beyond what we observed in the first quarter going forward? Additionally, please clarify the savings we've achieved so far and what we can anticipate moving ahead.

Tim Hassinger, CEO

Yes. Joe, I will try to frame this a bit. We realized a little over $3 million in our first quarter, with most of that coming from sourcing and operations, and some also from commercial work streams. The split was about $2 million in Irrigation and about $1 million in Infrastructure. Going forward, some of this will be volume-dependent, so we will see some variation. However, we feel confident that we are on track for the incremental 10% to 12% we indicated. We expect the operating margin performance we saw in Irrigation in our first quarter to be sustainable going forward. There was some negative impact from lower parts volume compared to a year ago, but we expect to sustain those levels of operating margins.

Joseph Mondillo, Analyst

Thank you for that. On the international irrigation front, I would have expected you to have some favorable comparisons, particularly since Brazilian farmers have been performing well with the increased volume from the U.S. to Brazil. I'm unsure about the situation in other parts of the world, but I thought you might have begun to see some organic growth internationally. Can you provide an update on what you're observing internationally? Additionally, the backlog increased by 25% from the previous quarter. Was this increase related to international projects?

Tim Hassinger, CEO

Yes, I will address your question about international markets and then Brian can provide insights on the backlog. In Brazil, there are strong market fundamentals, and we are definitely seeing the benefits in the market. Additionally, we are observing the growth of a third corn crop that follows the traditional safrinha crop, which could enhance our profitability and support increased irrigation growth. A favorable factor in Brazil is that the Central Bank lowered their key rate to a record low of 4.5% in December, which is encouraging news. Conversely, in Africa and the Middle East, we are experiencing an economic slowdown in South Africa that is affecting the agricultural segment, with land reform serving as a negative factor. Regarding the significant project in the Middle East mentioned previously, we have retained a considerable down payment, but the project has been delayed due to awaiting site approvals. We anticipate that shipping for this project will commence in the near term, which could occur in either the current or next quarter. In Australia and New Zealand, as reported in the news, sales remain below historical levels because of the extended drought and severe fires affecting the core irrigation market. Overall, we are optimistic about the potential in Brazil and the project opportunities in the Middle East and Africa, but there is uncertainty about the timing of these projects, which introduces additional risk. Moreover, the market recovery in Australia and New Zealand has not yet materialized. Brian, would you like to address the backlog?

Brian Ketcham, CFO

Yes. Joe, regarding the backlog, I would say the irrigation backlog is slightly up compared to last year, with most of the increase coming from the infrastructure side of the business.

Joseph Mondillo, Analyst

Okay. I have a couple of other questions, but I will hop back in queue. Thanks.

Operator, Operator

Our next question comes from Jon Braatz of Kansas City Capital. Please go ahead.

Jon Braatz, Analyst

Good morning, Tim, Brian.

Tim Hassinger, CEO

Good morning, Jon.

Jon Braatz, Analyst

Tim, you began by discussing the partnership with Farmers Edge and the digital platform. Can you elaborate on the financial opportunities this partnership may create for Lindsay? I understand it will take some time to develop, but what is the potential upside? Could you share your insights on the financial implications of this partnership?

Tim Hassinger, CEO

Yes. We will share this one here. Jon, similar to our last discussion, let me outline what we are doing with Farmers Edge and the reasons behind it, and then Brian can provide more details regarding your question. This partnership was announced in June 2018. We have taken steps to integrate digital platforms, which will enable us to provide a fully connected water solution on irrigated acres. We stated in the press release and in my opening remarks that we anticipate having this joint offering available on 2 million acres by the end of 2021. This arrangement allows FieldNET customers access to high-resolution satellite imagery from Farmers Edge, while Farmers Edge will promote Pivot Watch to their customers. This represents a significant strategic opportunity. On the other hand, these Farmers Edge agronomic tools are offered and sold through the Lindsay Global Dealer network, supported by the Farmers Edge agronomy team. As we have discussed, with the shift towards irrigation scheduling, the need for enhanced agronomic capabilities is critical. This partnership strategically addresses that requirement. Now regarding your question about the financial impact, I will let Brian explain that in more detail.

Brian Ketcham, CFO

Yes, Jon. Initially, we are seeing an increased adoption of our Pivot Watch product as it expands to more fields and irrigated acres. Out of the 2 million, some already utilize Pivot Watch. We are integrating the Farmers Edge capabilities, which will lead to a significant rise in Pivot Watch adoption. This involves a hardware component, the Pivot Watch itself, along with an ongoing subscription for users. Ultimately, we believe this will drive the adoption of FieldNET advisor and additional subscriptions. At this time, we aren’t disclosing the total financial impact, but we will provide updates on our progress during future calls.

Nathan Jones, Analyst

Morning again, guys. A couple of extra questions. You talked about these government payments having gone out late in 2019. Trade deal gets signed, hopefully here in the next week. I’m wondering in terms of timing and farmers capital budgeting for the 2020 year, do these things come in time to have much of an impact on farmer spending on domestic irrigation here in 2020, or are these things kind of something that will be more of a seed for 2021, removing the uncertainty as we go forward there just based on when farmers are typically doing their capital budgeting for the following year?

Tim Hassinger, CEO

Yes, this is Tim. Today, we have a wait-and-see approach. Farmers will be observing the effects of recent developments on commodity prices to determine if they are sustainable. Their decisions will be influenced by this, which will ultimately answer your question. If the uncertainty dissipates around January, it will be beneficial for the business, though the extent of the impact is yet to be determined. However, it clearly indicates a positive direction for the business.

Nathan Jones, Analyst

And you think it will be positive in '20 rather than in '21?

Tim Hassinger, CEO

Well, I definitely would agree with you that it will have a larger impact in '21, but we do believe it will have a positive impact on '20 also.

Nathan Jones, Analyst

Fair enough. And then I had a follow-up on the Infrastructure business, on the Road Zipper business. You're talking about pretty good growth here in the leasing side of the business. Is there much of a requirement for CapEx that could maybe depress cash flow a little bit here in the near-term in order to build more machines, build more barriers that's going out into the leasing market. Understanding full well that, that's very high return kind of CapEx?

Brian Ketcham, CFO

Yes, Nathan. We plan to expand our lease fleet for both machines and barriers, which will be reflected in our capital expenditures. Currently, we expect our capital expenditures for the year to be between $15 and $20 million, but this could increase depending on how leasing opportunities develop. Leasing will be included in capital expenditures. Additionally, for other sales-related projects, any increases will generally be recorded as inventory until they are delivered.

Nathan Jones, Analyst

Well, he is hoping that CapEx is a little bit higher than $15 to $20 million, then. Okay. Thanks very much for the help.

Operator, Operator

Our next question comes from Chris Shaw of Monness Crespi. Please go ahead.

Chris Shaw, Analyst

I would like to follow up on Nathan's question regarding the leasing and its impact on cash flow. I noticed a new line on your balance sheet for operating lease right-of-use assets. Is that related to the infrastructure leasing?

Brian Ketcham, CFO

No. Chris, that's really related to the adoption of the new leasing standard. So that required is for operating leases basically to be put under the balance sheet. So that increased we got that asset on the books, and then you've also got the long-term liability related to the lease commitments.

Chris Shaw, Analyst

Got it. I have another question regarding steel prices and irrigation. Last year, prices were higher, but I understand the dollar margin hasn't been affected because you've been passing those costs through. Did we see any significant impact, and should we expect any effect this year on the percent margin for the irrigation business, or was it not that substantial?

Tim Hassinger, CEO

Yes, I believe that regarding changes in the steel market, we can occasionally gain a margin advantage due to the timing of pass-throughs. For the full year, we expect margin expansion, which will primarily stem from our sourcing and operations initiatives. We have observed steel prices beginning to rise this quarter, and it remains uncertain how the post-China trade deal will affect them. Our expectation is that steel prices will generally stabilize or increase slightly for the year. However, our margin improvements are mainly driven by our sourcing initiatives and reductions in operating costs, rather than market fluctuations.

Chris Shaw, Analyst

You just mentioned the trade deal, can you remind me if the uncertainty that was present in the U.S. irrigation market due to the trade war is going to shift to Brazil? Given that they may be at a disadvantage in this trade deal, do you have any insights on that?

Tim Hassinger, CEO

I wouldn't say uncertainty. Definitely Brazil has benefited from the U.S. trade war conflicts, especially the China one, but there's enough other factors going on in Brazil favorable. But I wouldn't say it goes to a negative, but it could moderate some of the enthusiasm that exists today.

Operator, Operator

And our next question is from Joseph Mondillo of Sidoti & Co. Please go ahead.

Joseph Mondillo, Analyst

Hi, everyone. I have a follow-up question about the Infrastructure segment and the Road Zipper business. I know you recently secured a significant multiyear lease in Germany, and it seems that the leasing business has been growing. I'm curious about the consistency of the leasing revenue on a quarterly and yearly basis. Additionally, how is leasing revenue trending as a percentage of total segment sales?

Brian Ketcham, CFO

Yes, Joe, this is Brian. There are a couple of different aspects to the leasing. Tim mentioned the Germany lease, which will begin in our second quarter. I believe this is a two-year lease, so it should remain steady. The Midwest partner we have gained additional leasing with tends to be more seasonal due to the construction season. We experienced good leasing activity in our first quarter, which will decrease a bit in the second quarter and rise again in the third. However, as we expand our leasing business into different regions that might not be as affected by weather, we will mitigate some of that seasonality simply due to the size of the business. Still, as a percentage of sales, leasing remains a relatively low portion of our overall infrastructure revenues, but we anticipate growth in this area, which is where we are focusing our efforts.

Tim Hassinger, CEO

And Joe, the emphasis with shift-left can't stress enough, that's a critical part of our overall strategy because what we are seeing when we are successful with that, getting to the planning design stage as opposed to waiting until after the fact to solve a problem we have found that to be quite sticky. So what has evolved for us over the last 12 to 14 months is internal confirmation that the shift-left strategy is the direction that we want to go.

Joseph Mondillo, Analyst

All right. Just a follow-up. I guess one of the things that I’m trying to understand and try to absorb when I’m trying to sort of model out the segment is and maybe I can ask it a different way. How much as sort of road safety, I think that's much more of a stable business, how has that been trending as a whole over the last couple of years on an annual basis?

Tim Hassinger, CEO

Over the past couple of years, road safety has been declining for a few reasons. One reason is the shift in our portfolio, including moving some products to MASH. We have also shifted our focus away from certain parts of the business, particularly the terminal aspect, and are concentrating more on crash cushions. We now have a comprehensive range of MASH-enhanced road safety products to advance our portfolio. We saw improvement in road safety year-over-year in our first quarter, and we anticipate that for the full year, road safety will show an increase compared to last year.

Joseph Mondillo, Analyst

Okay. I guess what I was more sort of asking for was sort of the absolute dollar value and how that’s been trending. I’m not sure if you want to divulge that because obviously that you can extrapolate what the Road Zipper business has been jumping around to?

Tim Hassinger, CEO

Yes. And Joe, you're right. At this point we have not broken out the sales dollars between the two.

Joseph Mondillo, Analyst

Okay. All right. Thanks for taking my questions. Appreciate it. Have a good day.

Tim Hassinger, CEO

Thanks.

Brian Ketcham, CFO

Thanks.

Operator, Operator

At this time there appear to be no more questions. Mr. Hassinger, I will turn the call back to you for closing remarks.

Tim Hassinger, CEO

Well this concludes our first quarter earnings call. Thank you for your interest and participation. Have a great day.

Operator, Operator

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