Earnings Call Transcript - LNN Q4 2025

Operator, Operator

Good day, and welcome to the Lindsay Corporation Fiscal Fourth Quarter 2025 Earnings Conference Call. 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.

Randy Wood, President and CEO

Thank you, and good morning, everyone. Welcome to our fourth quarter and full year 2025 earnings call. With me today is Brian Ketcham, our Chief Financial Officer. I'm extremely pleased with our fiscal year 2025 results. I'm proud of our team for demonstrating resilience in the face of challenging market fundamentals and a volatile macroeconomic environment. Double-digit revenue and operating income growth in both our businesses, combined with execution of our key strategic initiatives, enabled us to achieve record earnings and earnings per share for the year. Our fourth quarter performance was marked by revenue growth in our Irrigation segment, driven by double-digit increases in our international Irrigation business as South America, the Middle East, North Africa and Australia all delivered strong results. In North America, low commodity prices and weak crop receipts continue to negatively impact demand. We also saw a large reduction in storm damage volume versus prior year, impacting whole goods orders and aftermarket revenues in the quarter. We also dealt with the wet summer that impacted our runtime hours. Pivot analytics data indicates irrigated hours across the core Midwest markets of Nebraska, Oklahoma and Texas were down over 20% versus prior year. Our Global Road Safety Products business delivered strong results, underscoring the resilience and demand in this segment. However, this performance was offset by lower sales and a decline in global leases within our Road Zipper business. Turning to our outlook. We expect North American irrigation headwinds to persist. Near-record yields will be offset by low commodity prices and weak crop returns, and the effect of trade disruptions will continue to weigh on customer sentiment. Increased government support may create a safety net, but we don't expect this to drive significant market activity. We anticipate demand for irrigation equipment in North America to remain suppressed until the outlook for commodity prices and overall net farm income meaningfully improves. Internationally, we're encouraged by the early signs of recovery we're seeing across several key growth markets, particularly Brazil, where demand for irrigation equipment remains stable. However, high interest rates and ongoing credit constraints will continue to present market headwinds in the near term. We continue to execute international irrigation projects during the quarter including the $100 million project in the Middle East, North Africa region that we expect to complete in our first quarter of our 2026 fiscal year. During the fourth quarter, we also began delivery of an additional $20 million project in the region which we also expect to complete in the first quarter of fiscal 2026. Looking ahead, we continue to see other compelling opportunities within our project pipeline, particularly in the MENA and other developing regions. These project opportunities remain a long-term growth opportunity for our business as the region continues to adopt mechanized irrigation to address food security and GDP diversification. We are pleased at the momentum we have been able to generate and expect to realize additional project volume during fiscal 2026. In our Infrastructure business, we expect to see growth in Road Zipper System leasing and road safety product sales this fiscal year due to ongoing implementation of the IIJA and the introduction of new products. The Road Zipper System project sales fund remains active but we do not anticipate a large project will exit the funnel in 2026 to offset the $20 million project delivered in fiscal 2025. We do see the potential for several smaller projects to fill a portion of this gap. The large capital project at our Lindsay, Nebraska facility is going well, and we've activated our new state-of-the-art automated tube mill, providing increased safety, efficiency and throughput. We recently began construction of our next-generation galvanizing facility, which will provide us with industry-leading capabilities and increase capacity. Our initial plans anticipated completion of this contract by the end of the calendar year. However, with the expanded galvanizing scope, we anticipate this work will be completed by the end of calendar year 2026. Innovation leadership continues to be a strategic priority and a core piece of our growth strategy. During the quarter, we advanced our position as a leader in precision irrigation with the introduction of TowerWatch. This is the first new product introduction on our Smart Pivot platform that allows customers to diagnose machine faults at individual towers. In testing, this reduced troubleshooting time by up to 75%, enabling growers to save time and maximize yields and profitability. This solution is a direct response to the voice of the customer feedback we've received and helps our growers make faster decisions, strengthening their field net user experience. We continue to leverage capabilities like the new TowerWatch to differentiate and increase penetration of our technology portfolio. This has allowed us to surpass 150,000 total connected devices while delivering 20% year-over-year growth in annual recurring revenue. Entering fiscal 2026, we remain dedicated to investing in opportunities and technology advancements that will continue to drive growth and extend our leadership position. Before I turn the call over to Brian, I'd like to take a moment and acknowledge his upcoming retirement. Since joining Lindsay in 2016, Brian has played a pivotal role in strengthening our financial foundation, promoting transparency and shaping an organization that's become recognized for excellence. Under his leadership, we've achieved record earnings performance, maintained a consistently strong balance sheet and laid the groundwork for continued growth across our businesses. While this retirement marks a significant transition, we're pleased that he'll continue to serve as a consultant through 2026, helping ensure a smooth transition. On a more personal note, I'm deeply grateful for Brian's partnership and friendship. On behalf of all of us at Lindsay, thank you, Brian. We wish you the very best in your well-earned retirement. I'm also pleased to formally welcome Sam Hinrichsen, who will join us in November and transition to the CFO role with Brian's departure in January. Sam brings strong financial leadership experience, investor engagement and will be instrumental in continuing our focus on disciplined execution and creating value for our shareholders. Now I'll turn the call over to Brian for a review of our financial results.

Brian Ketcham, Chief Financial Officer

Thank you, Randy, and good morning, everyone. Total revenues for the fourth quarter of fiscal 2025 were $153.6 million, a decrease of 1% compared to the fourth quarter last year. Net earnings for the quarter were $10.8 million or $0.99 per diluted share compared to net earnings of $12.7 million or $1.17 per diluted share in the fourth quarter last year. Total revenues for the full year increased 11% to $676.4 million and net earnings increased 12% to $74.1 million and earnings per share increased 13% to $6.78. These record results were driven by double-digit revenue growth and operating income growth in both Irrigation and Infrastructure for the year. Turning to our segment results. Irrigation segment revenues for the fourth quarter increased 3% to $129 million compared to the prior year. North America irrigation revenues for the fourth quarter decreased 19% to $50 million. The decrease in revenues resulted primarily from lower unit sales volume while average selling prices were up slightly compared to the prior year. Lower unit sales volume was due primarily to less storm damage replacement demand compared to the prior year, along with soft market conditions. Higher selling prices reflected the pass-through of tariff-related raw material cost increases. In international irrigation markets, revenues for the fourth quarter increased 23% to $79 million. The increase resulted primarily from higher sales volume in South America, increased project sales in the MENA region and higher sales volume in Australia. Markets in South America are benefiting from increased exports of agricultural products to China. In the MENA region, as Randy mentioned, we continued delivery of a $100 million project and began delivering a separate $20 million project during the quarter. Total Irrigation segment operating income for the fourth quarter was $17.7 million, an increase of 4% compared to last year and operating margin was 13.7% of sales compared to 13.6% of sales last year. For the full fiscal year, total Irrigation segment revenues increased 11% to $568 million. North America irrigation revenues of $273.8 million decreased 9%, primarily due to lower unit sales volume compared to the prior year. International irrigation revenues of $294.2 million increased 39%, primarily due to project sales in the MENA region and supported by higher sales volume in Brazil and other parts of South America. The unfavorable impact of foreign currency translation was approximately $9.5 million compared to the prior year. This marks the first time in company history that international irrigation revenues were greater than North America revenues in a fiscal year, highlighting the value of our geographical diversification. Operating income for the Irrigation segment for the full fiscal year was $97 million, an increase of 11% compared to the prior year and operating margin of 17.1% of sales was similar to the prior year. Infrastructure segment revenues for the fourth quarter decreased 16% to $24.5 million. The decrease in revenues resulted primarily from lower Road Zipper System project sales and lease revenues, while sales of road safety products were slightly higher compared to the prior year. The prior year fourth quarter included Road Zipper project sales that did not repeat in the current year. Infrastructure segment operating income for the fourth quarter decreased 37% to $3.5 million and Infrastructure operating margin for the quarter was 14.4% of sales compared to 19.2% of sales in the fourth quarter last year. Lower operating income and operating margin resulted from lower revenues and a less favorable margin mix of revenues compared to the prior year. For the full fiscal year, Infrastructure segment revenues increased 16% to $108.4 million. The increase was primarily due to higher Road Zipper System project sales and higher sales of road safety products while Road Zipper lease revenues were slightly lower compared to the prior year. Infrastructure operating income for the full fiscal year increased 39% to $26.3 million. Operating margin for the year was 24.3% of sales compared to 20.4% of sales in the prior year. Increased operating income and operating margin resulted from higher revenues and a more favorable margin mix of revenues compared to the prior year. Turning to the balance sheet and liquidity. Our total available liquidity at the end of the fourth quarter was just over $300 million, which included $250 million in cash and cash equivalents and $50 million available under our revolving credit facility. Our record earnings performance for the year, along with active working capital management, resulted in free cash flow of 122% of net earnings and included capital expenditures of $42.5 million. Our demonstrated cash flow generation further strengthens our balance sheet and positions us well to continue executing on our capital allocation priorities of investing in the business, balancing organic and inorganic investments and returning capital to our shareholders. During the quarter, we completed share repurchases of $8.8 million, bringing the total share repurchases to $11.5 million for the year. As I conclude my remarks, I would like to say that it has been a tremendous experience to serve as CFO of Lindsay. I'm deeply grateful for the talented colleagues I've had the honor of working alongside and proud of all that we've accomplished together. I'm confident in Lindsay's continued success and in the team that we have built, and I look forward to working with Sam Hinrichsen on the CFO transition over the next couple of months. And now with that, I will turn the call over to the operator to take your questions.

Operator, Operator

Our first question comes from Kristen Owen with Oppenheimer.

Kristen Owen, Analyst

Just understanding that there's a lot of uncertainty in your ag markets right now. I'm hoping you can outline just some of the catalysts that you're watching that are shaping your outlook for fiscal '26. And then my follow-up question is related. So just assuming that we are in this more cautious ag investment backdrop, what are the margin levers that you have at your disposal that you're thinking about for next year?

Randy Wood, President and CEO

This is Randy. I'll take the first part and then have Brian cover the cost levers that we're actively managing. And from a market perspective, it really depends where you are. In Brian's comments, he talked about the geographic diversity of our business. And when you look at North America, obviously, anybody providing a narrative or commentary on North American market conditions, there's not a lot of tailwinds there right now. And we've been here before. We know how to manage through these cycles. And again, Brian will comment on some of that. But I think we're blessed right now to be a global company. And we're going to see more than half of our revenues come from outside of the U.S. this year. So I think we've battened down the hatches. We manage responsibly in North America and the catalyst that we look for some of those customer sentiment indicators right now are approaching lows that we haven't seen since the pandemic. Farm income, there's not a lot of positive upside in trade or demand side of the equation to drive pricing. We do see some potential government support, which to me, as I've said, is a bit of a safety net that bridges guys to next year, but they're not going to invest that money like they would crop receipts and profits that they get from growing, marketing and selling a crop. So in 2026, North American expectations are not for significant growth. We will probably bounce along the bottom of the trough. And again, we know how to do that. Internationally, Brazil is stable and maybe not at all-time highs, but still a very strong business for us. The project business continues to deliver. And as we've stated, 2026 should see us realize more project opportunity. Australia, New Zealand, the Asia Pacific region, we see some signs of a strong recovery there. So I think when you separate the mature versus the project business, we see two different narratives, Kristen. And right now, I think we're well positioned to manage through the trough conditions here and capitalize on the growth opportunities in those international markets. And again, I'll ask Brian to comment on some of those cost levers.

Brian Ketcham, Chief Financial Officer

Yes. Kristen, on the margin side, obviously, North America is softer, that's going to pressure margins, just like it did in the fourth quarter. But I think that the things that we can manage, starting with price. And we've increased price with some of the raw material cost increases that we've seen. We always try to get out ahead of that when it comes to price, but maintaining pricing discipline going forward is going to be key to maintaining margins, managing the costs, as Randy has said. And then the other thing that is supportive of margins, we saw that in the last couple of quarters, and we expect to see that continue into 2026 is just the growth in our recurring subscription revenue, and that's high margin revenue, and it's really cycle proof. Farmers aren't going to decide not to invest when the market is down. It's something that is going to continue to grow. So those are a couple of things related to North America, primarily. And then in Brazil, we've seen as that volume is picking up we've seen some margin improvement happening in that market.

Operator, Operator

Our next question comes from Nathan Jones with Stifel.

Nathan Jones, Analyst

Congratulations, Brian. And thank you for all the help over the years. I guess maybe just trying to set some expectations here for 2026. There's obviously some demand headwinds and some discrete comparison headwinds that you're going to have heading into 2026. We're clearly bumping along the bottom in North America. Is it your expectation for North America irrigation that will be somewhere close to flat in '26? Or should we expect to see that market be down overall given the lack of real catalysts there? I guess I'll start with that one and then I'll go to international.

Brian Ketcham, Chief Financial Officer

Yes, Nathan, on the North America side, our expectation is volume will be down, maybe low to mid-single digits in 2026. But offsetting that, partially offsetting that is price. We do expect that the price increases that we put in place will carry over into the first two or three quarters next year. I think the other thing that I just mentioned is subscription revenue being up. So when you balance lower volume, higher price, higher subscription revenue. I think from a revenue standpoint, we're expecting to be more flattish for '26 overall compared to 2025.

Nathan Jones, Analyst

And then you probably actually with that, have some tailwinds on the margin side just in the North America business, particularly. Prices obviously drop through at 100% kind of margin carrying over from this year and subscription revenue is going to be higher margin. And you're going to have some benefits, I imagine from all of the upgrades that you've been doing within the manufacturing footprint. So could we expect that on a flat revenue number in North America irrigation your profit would be higher?

Brian Ketcham, Chief Financial Officer

I would say our expectations would be that having the operating margin be relatively similar to last year. We do have some additional depreciation coming on board in the Lindsay factory that in the short term will put some pressure on margins. But as volume picks up in the future, that's where we'll see the benefit of those investments and our ability to respond quickly to market demand without adding a lot of costs. So in the short term, a little bit of a headwind on margins just because of the additional depreciation.

Nathan Jones, Analyst

Fair enough. I guess I'll just slug on in on international revenue. You obviously had a large project and a smaller large project to deliver in fiscal 2025. I think that the outlook for the project business is pretty solid, but there's always timing dependency on that. I mean is it possible that you could overcome the headwind from the lack of the Middle East project in 2026? Or is the starting point assumption for that in 2026 should be that revenue will be down in international?

Randy Wood, President and CEO

Nathan, this is Randy. I'll take that one. And I think you used the keyword there. The potential is there to kind of lap that project and backfill with additional project volume that could be close to that revenue. But you're absolutely right. The timing is unknown and the project funnel for us. There's lots of moving pieces in many different parts of the world. And when one pops through, we'll be very clear in how we communicate when it's going to start, when it's going to stop, the magnitude of the project. And we do expect to have more news on that as we go into fiscal year '26 and continue through the year. But that potential does exist.

Operator, Operator

Our next question comes from Brian Drab with William Blair.

Brian Drab, Analyst

Congratulations, Brian, and we'll discuss more later when we're not on a public call. I want to follow up on Nathan's questions about the outlook for agriculture. I want to ensure I understood your comments about volume being down low single digit to mid-single digit. Was that specifically referring to North America?

Brian Ketcham, Chief Financial Officer

Yes, that's right.

Brian Drab, Analyst

For fiscal '26?

Brian Ketcham, Chief Financial Officer

For North America, correct.

Brian Drab, Analyst

Yes, I understand. I believe Randy mentioned that you anticipate more revenue from the international irrigation business in '26 compared to domestic. Did I understand that correctly?

Brian Ketcham, Chief Financial Officer

Yes. That's our expectation today. We do see continuing improvement in the South America markets next year. We've seen some recovery continuing in Australia. But then as Randy referred to the project side of the business, we feel pretty confident that there's the opportunity to replace the projects that we've had in 2025. So our view right now is international revenues overall could be up slightly in 2026. We're not expecting to take a big step backwards.

Brian Drab, Analyst

Okay. Do you have to have an additional project hit in the EMEA region? In addition to the $20 million that you announced for that to happen?

Randy Wood, President and CEO

I think, Brian, we would require and it doesn't have to be in the EMEA region or the MENA region. We would require some project volume coming through the funnel and starting to deliver in the year for that to be true.

Brian Drab, Analyst

Okay. And then can you put any more of a fine point on the revenue that you had from the $100 million project in the quarter? And then how much of that carries over into '26? And then do you ship the whole $20 million on the additional project in the first quarter?

Brian Ketcham, Chief Financial Officer

Yes. So on the $100 million project, we had been able to pull forward some of that into the second and third quarters of the past year. In the fourth quarter, we delivered, let's say, round numbers, roughly $10 million of that another $10 million remaining for the first quarter. And then of that $20 million project, we delivered about half of that in the fourth quarter. So the remainder will be in the first quarter. So first quarter comparisons on the project side year-over-year should be fairly similar with the two remaining projects.

Brian Drab, Analyst

Okay. Got it. So in total, $10 million from each of those in the first quarter is a good estimate.

Brian Ketcham, Chief Financial Officer

Yes, I'd say in round numbers.

Brian Drab, Analyst

Okay. Got it. And then I'll just ask one more, if that's all right. On the infrastructure side, you said that the mix was weighing on margins in the near term. And I'm just wondering how do you see that mix playing out going forward and the margin dynamics related to that?

Brian Ketcham, Chief Financial Officer

Yes. The large project we had in the second quarter this year significantly boosted our overall margins for the year above 24%. As Randy stated, we do not expect another $20 million project in 2026, but we anticipate that with some smaller projects and an increase in leasing, our business should maintain an operating margin around 20% without the large projects. This indicates a slight decline since we won’t have a replacement for the $20 million project, but we still expect solid operating margin performance.

Operator, Operator

Our next question comes from Ryan Connors with Northcoast Research.

Ryan Connors, Analyst

Congratulations, Brian. I want to start by discussing the international situation, particularly in Brazil. Randy, you mentioned credit constraints there, and I'm curious if you could elaborate on that. There was a peer company that recently spoke about bad debt and increased bad debt reserves specific to Brazil. Can you provide more detail on the comment regarding credit constraints? Is this purely related to the impact on actual sales, or are you also experiencing actual credit loss issues?

Randy Wood, President and CEO

I believe our comments were not related to credit loss at all. We maintain a strong approach to credit risk in Brazil. So, from our standpoint, there’s nothing significant to report there. The remarks mainly pertain to our customers' ability to secure low financing rates for irrigation and investments. We have the FINAME program, and currently, total government funding for this initiative has increased year-over-year since its launch in July. However, we are observing only mid-single-digit utilization, indicating that the funds are not reaching the growers. The interest rate for that program is approximately 12.5%, whereas the rate for loans at banks for agricultural equipment is around 20%. This disparity may lead some customers to take a wait-and-see approach, especially with an election next year, as they may be hoping for additional support or funding. Conversely, we do have three crops a year, which allows us to generate incremental yields and returns from irrigation. While this presents a short-term challenge in the market, there are still strong fundamentals for investing in irrigation. Therefore, we characterize the market as stable, but we might not see the expected increase due to trade disruptions, as some of the demand from China could be shifting to Latin America, and I would say that credit issues are likely the primary reason for this situation.

Ryan Connors, Analyst

Got it. Very helpful. And then one housekeeping for you, Brian, before I have a big picture question. But just you mentioned the capital project in Lindsay, extending out now towards the end of calendar '26. Can you give any update on the corresponding impact on the capital investment in dollar terms there associated with that? Or is that just the same dollars? Or are we adding dollars?

Brian Ketcham, Chief Financial Officer

So we'll be adding dollars, Ryan. And our expectation for 2026 is CapEx of around $50 million. The scope of the project did expand, mainly due to the galvanizing investment where we've decided to increase the scope of that. So we will have elevated CapEx again next year, a little bit higher than what we had in 2025.

Ryan Connors, Analyst

Got it. Okay. Lastly, Randy, you mentioned several times that growers do not utilize government support money in the same manner as profits. However, I know there is significant lobbying happening for additional federal support. Is there a way this support could be structured to better help manufacturers like Lindsay, or is there anything the industry is aiming to include that would provide more advantages? Should we assume that any federal benefits we observe do not really benefit the company?

Randy Wood, President and CEO

I think this is a thoughtful question, and in my opinion, the structure of the funds doesn’t really matter. It’s not about how they are described, administered, or applied for. That does not influence how customers view the use of that money. To me, it has always been seen as rainy day funds—money that we will not receive next year, distinct from what I earn through growing, marketing, selling, and shipping my grain. There will always be a perception that this is money for emergencies. Therefore, I don’t believe any administrative changes in the programs would alter that customer perception. Currently, we are observing an additional $10 billion, and there has been considerable discussion regarding American and Argentinian beef recently, which has created some buzz. I’m confident that there will be support for the farmers if necessary due to some trade impacts; it’s just a question of timing and how they choose to invest that support. However, our position is that this will not be a windfall and won't lead to a significant change in market demand. Farm income this year is around $180 billion, both in terms of net cash farm income and net farm income. Of that, $35 billion consists of ad hoc government support related to payments and weather-related issues from last year. So, although farm income is up this year, which you would expect to be supportive of the market fundamentally, that is not what we are seeing. This reinforces our belief that customers will not invest government payments in the same manner as crop receipts. This trend continues to persist.

Operator, Operator

Our next question comes from Jon Braatz with Kansas City Capital.

Jon Braatz, Analyst

Congratulations on your retirement, Brian. I wish you all the best and hope you enjoy the Lake of the Ozarks. Randy, I want to discuss Brazil briefly. Your commentary suggests it's stable, but there are certainly some challenges. I read yesterday that Banco do Brasil noted an increase in rural loan defaults in the second quarter. How do you assess the current situation in Brazil, particularly regarding the downside risks compared to a stable environment?

Randy Wood, President and CEO

I wouldn't view the downside risk as significant. And then again, I think you kind of combined the headwinds and the tailwinds. And certainly, there's more demand going there from China, in particular. So that bodes well. There's a currency overlay that's a little complex. And the credit thing, obviously, we've talked a lot about creates a bit of a headwind. So stable is the best word, I think, that describes where the market is. I don't think we're going to see that huge upside from the increases in demand. But I also don't think that market continues to decline in any significant way. So we'll watch for signs. That's a market that's a year-round market, not as seasonal as what we see in the Northern Hemisphere. So we'll know pretty quickly if things do start to turn, then we'll react to that. But right now, I don't project or foresee any significant downturn issues with the Brazil market. There's too much good news there. And again, the investments in irrigation, we know are going to support and prop up a customers' bottom line and allow them to grow more three crops a year, those fundamental market conditions for us really gives us a bit of a parachute there.

Jon Braatz, Analyst

Okay. And Brian, obviously, free cash flow was very strong this year. Working capital, very good. How would you view that in 2026? Do you see that similar type of potential? Or are we going to see a little bit less in terms of free cash flow?

Brian Ketcham, Chief Financial Officer

Yes, I think the potential for next year may be somewhat lower. We have managed our inventories well this past year, but I don't expect the same level of potential going forward. Additionally, our capital expenditures are projected to increase by nearly $10 million compared to this year. Historically, we have maintained around 100% free cash flow, but this increase in capital expenditures will certainly have an impact.

Operator, Operator

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

Randy Wood, President and CEO

Thank you again for joining us today. We appreciate your interest and believe fiscal 2026 will be another strong year for Lindsay, and we look forward to updating everyone at our first quarter earnings call. Thanks for joining us.

Operator, Operator

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