Lindsay Corporation
Q4 2009 Earnings Call Transcript

Published: 21 Oct 2009

[Operator:]

Good morning. My name is Christy and I will be your conference operator today. At this time, I would like to welcome everyone to the Lindsay Corporation Fourth Quarter 2009 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remark, there will be a question-and-answer session. (Operator Instructions) During this call, management may make forward-looking statements that are subject to risks and uncertainties and which reflect management's current beliefs and 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 proceeded by, followed by or including the words

[Richard W. Parod:]

Good morning and thank you for joining us today. Revenues for the fourth quarter of fiscal 2008 were 73.4 million, 50% below the same quarter last year. Net earnings were 2.1 million or $0.17 per diluted share compared with 11.3 million or $0.90 per diluted share in the prior year's fourth quarter. Total revenues for fiscal 2009 were 336.2 million, down 29% from last year. Net earnings for the fiscal year were 13.8 million or $1.11 per diluted share compared to 39.4 million or $3.20 per diluted share in fiscal 2008. As you may recall, last year at this time, the company reported record domestic and international irrigation revenue in the record backlog, resulting from high commodity prices, strong bio-fuel demand and concern over the adequacy of global food supplies. Early in the first quarter of fiscal 2009, the economic recession significantly affected farmers' sentiment regarding capital investments resulting in a dramatic decrease in irrigation equipment demand in the U.S. market shortly followed by a similar decrease in the international market. Since then, near record projected harvest have resulted in a significantly lower commodity prices compared to prices at the same time last year. Commodity prices for corn, soybeans and weed are approximately 25 to 40% lower. USDA projections for 2009 net prime income show a 38% decline from 2008 estimates and is projected to be 15% towards the 10 year average. Throughout the traditional selling season and fiscal 2009 and in the typically slower fourth quarter, farmers remain cautious about making investments to capital goods. In the domestic irrigation market, revenues were 29.3 million for the fourth quarter, decreasing 59% over the same quarter last year. For the total fiscal 2009 year, domestic irrigation revenues were 158 million down 34% from last year, given the weaker commodity prices. International irrigation revenues were 25.5 million for the fourth quarter 41% lower than the same period last year. Export decreased in Australia, Central America and in Middle East partially offset with increases in China and Mexico. Fourth quarter revenues from our international irrigation business units in Brazil and South Africa were also significantly lower than the fourth quarter of last year. For the full fiscal 2009 year, international irrigation revenues were 97.5 million down 28% from the prior year. While global farmer's sentiment regarding capital goods purchases was impacted by general economic conditions and lower commodity prices, the long term market drivers remain positive. With a growing worldwide population, the benefit with mechanized irrigation and expanding yield, improving water use efficiencies and reducing inadvertent pollution remain a very compelling proposition for farmers. In our infrastructure business segment, revenues declined 42% from the fourth quarter of last year. This is primarily attributable to decreased revenues from our diversified manufacturing and Barrier Systems business unit compared to the prior years fourth quarter. For our Barrier Systems business, the initial deposit was received on the previously announced Mexico City road project and the revenues and profits from the project are expected to be revised in the first half of fiscal 2010. Our additional project has resulted from the federal stimulus package. Future project maybe impacted by the uncertainty surrounding the passage of the new federal highway built. It's unknown as to winning new multi year build providing funding will be passed and a significant delay is likely to affect the sort of planned projects. Diversified manufacturing revenues were down primarily on sales of 2 million contract manufacturing with an equipment manufacturer. Revenues were also lower and should meet the railroad signaling structures called the GE Transportation Systems. During the fourth quarter, Lindsay Corporation purchased this product line from GE and is transitioning to selling these products directly to railroads and system integrators. We expect this to improve gross margins of diversified manufacturing as this change is fully implemented. For the total fiscal 2009 year, infrastructure revenues were 80.7 million, down 19% from last year. Various systems revenues were down 32% while Snoline revenues increased 10% compared to last year. Overall, gross profit fall to 17.6 million for the fourth quarter versus 37.4 million in the same quarter last year due to the lower irrigation unit volume and infrastructure product mix. Total gross margins declined to 24% compared to 25.4% for the fourth quarter last year and 50% lower revenues reflecting good pricing discipline in irrigation markets and effective cost management. For the full year of fiscal 2009, gross profit was 80.6 million compared to 123.8 million in the prior year. Gross margin was 24% for the year compared to 26.1% last year. Total operating expenses for the quarter were 14.1 million versus 18 million in the same quarter last year. Significant reductions in personal related expenses were the primary origin of the reduced spending levels. For the quarter, operating expenses were 19.2% of sales compared to 12.2% in the prior years fourth quarter due to the lower sales rate. For fiscal 2009, total operating expenses were 58.2 million compared to 61.6 million for fiscal 2008, reflecting higher spending in the first quarter after a reduction made throughout year. In the first quarter of fiscal 2009 operating expenses were higher than the same quarter last year due to the inclusion of Watertronics, which was acquired in the second quarter of fiscal 2008 and staff additions made in support of the higher revenues of growth opportunity proceeds at that time. Expense reductions began during the first quarter of fiscal 2009. Our order backlog was 43.6 million on August 31st 2009 as compared to 40.2 million; May 31st 2009 and 93.3 million August 31st 2008. Irrigation equivalent backlog was about equal for the backlog at May 31st 2009 and down from August 31st 2008, which was a record backlog for year end. Infrastructure backlog including the Mexico City project at August 31st 2009 was up from the backlog of the previous quarter and higher than the same time last year. Our balance sheet is in excellent condition. Cash and cash equivalents are at 85.9 million, and are more than 35 million higher than the same time last year. Long term debt has been reduced to 20 million, improving our net cash position by more than 41 million. Accounts receivables decreased 45.5 million from the same time last year due to the lower revenues and days sales outstanding, and receivables decreased to 52 days. Inventories decreased 7.2 million over the same time last year while we carried approximately 8 million of inventory for the Mexico City project at yearend. Balance sheet initiatives remain focused on working capital reductions in overall cash management. In summary, global economic conditions adversely impacted our irrigation and infrastructure businesses in the quarter and through fiscal 2009. Globally, farmers demonstrated hesitancy in purchasing capital goods through most of the traditional selling seasons due to the economic recession and the uncertainties regarding farm income opportunities. Infrastructure projects and stimulus funds have been implemented. For the periods of those projects have had minimal incremental effect on demand as states have faced reduced tax revenues resulting in curtailing other planned infrastructure project. In addition to early similar sponsors primarily to shovel-ready (ph) maintenance project versus more significant road-widening or road construction projects, which are more likely to use on moveable barrier and crash cushion products. We've responded to those contracted market activates with reductions in our work force and overall spending reduction in all of our operations. In addition, we have implement actions to enhance cash flow resulting in a stronger balance sheet with a further improved net cash position. I am very pleased with our management team prompt action to reduce costs and expenses and in establishing appropriate control. In spite of the near term challenges, we are confident that increasing agricultural yield to grow fruit supply, improve water use efficiency extending bio-fuel production and improving our transportation infrastructure will remain global priorities and respond to market. Our balance sheet has positioned Lindsay well to benefit from future growth opportunities. I'd now like to open it up for your questions.

[Operator:]

(Operator Instructions) Your first question comes from the line of Michael Cox of Piper Jaffray.

[Michael Cox:]

Good morning gentlemen, thank you for taking my question.

[Richard Parod:]

Good morning.

[Michael Cox:]

My first question is on the G&A line item. I was just wondering if you could provide a little more color around the sequential increase in G&A this quarter despite the sales dropping off a little bit?

[Richard Parod:]

G&A in total was down for the quarter in dollars. Are you referring to a percentage basis or you're looking at the year?

[Michael Cox:]

Well, just the G&A line item; it looks like there is 8 million, up from 7. Maybe I have my math wrong here, I was subtracting out the previous quarters.

[Richard Parod:]

Just one moment; do you have that, Dave?

[David Downing:]

For the year, Michael, we are actually down on G&A.

[Michael Cox:]

Okay.

[David Downing:]

But I'd have to look back at that for the specific quarter number.

[Michael Cox:]

Okay, that's fine. Looking at the -- seasonally, it's nice to see the backlog stabilize on the irrigation side. Would you expect as we move through the seasonal flow period that will see sales and the irrigation business stabilize at these depressed levels.

[Richard Parod:]

Well, I think it would be probably more fair or appropriate to talk about farmers' sentiment a little bit in terms of what we're hearing and seeing the recession. The way I would describe that today is that farmer sentiment is much improved over the same time last year. If you recall last year, we had a large backlog in the going into the first quarter of fiscal 2009; however, orders dropped off precipitously at one point, because farmer sentiment was very negative as the recession will have started to have an impact. So that's much improved over that time. And I think that the farmers and our builders would describe the sentiment and position they are in today as more average or normal than anything else. So, I wouldn't call it depressed; I would say that they do it as a more normal perspective today.

[Michael Cox:]

Okay, that's helpful. And in terms of the cash and the balance sheet, certainly a good problem to have; could you talk a little bit about opportunities to deploy that cash?

[Richard Parod:]

Certainly; the first priority when we look at the cash is the organic growth opportunities and investments that we make in our business. And coming to that, we expect that our CapEx for this next year is probably about $10 million similar to what we did in 2009 and also about equal to depreciation and amortization. We'll have internal investment or in organic growth opportunities like our expansion of our plants in China, which is underway and other growth opportunities that we foresee and that are built into our plant. And in addition to that, we see acquisition opportunities in both the infrastructure and in water areas that we continue to peruse and those would be the first couple of priorities that would be on our list of before our use of cash.

[Michael Cox:]

Okay, that's helpful. My last question is on pricing in the irrigation market. I was just wondering if you can comment on what you are seeing from a pricing perspective or either what you are doing or what you are seeing in the marketplace and perhaps compared to that where pricing was a year ago.

[Richard Parod:]

Yeah. Well, if you look at the full year pricing for irrigation is up from last year affected probably somewhere in the 7 to 9% range in terms of year-over-year increase in pricing, most of that in the domestic market. So I'd say that pricing discipline has been strong. And there has been certainly some movement of fuel price is down, but pricing systems within our market has not followed that directly.

[Michael Cox:]

Okay, great. Thank you.

[Richard Parod:]

Thank you.

[Operator:]

Your next question comes from the line of Joe Giamichael of Rodman & Renshaw.

[Joe Giamichael:]

Good morning Rick.

[Richard Parod:]

Good morning.

[Joe Giamichael:]

In your conversations with dealers, what have you been hearing in terms of the trends of the inventories of their carrying? Do you think that part of your slowdown is the fact they've been sort of selling through and not re-ordering? Or what is -- and then also I guess along line, what has the difficult credit environment done to impact the end market demand that they are seeing.

[Richard Parod:]

First, I'll take the inventory question first. And typically the dealers do not carry much of any inventory. What we do have is, when we see a big year as we did in 2008, we'll have dealers that will take some inventory at the end of the fiscal year, possibly little bit at the beginning of the fiscal year, very early on in anticipation of the big season. And because they know that we're running at peak production levels, it may stretch out lead times to get those units later in the year or during the peak selling season. And we did see that, during fiscal 2009. So the very early days and the beginning of the quarter, there were some dealers taking stock as there was at the end of fiscal 2008. Now, that stock has basically been burnt off or sold through, but I don't really believe there is any stock out there at all this point as far as it could be down from a unit or two, but really nothing of any significance. So dealers are now really prepared for this next season.

[Joe Giamichael:]

Okay. And then just in the interest of the credit environment, is there still purchase being made with some form of financing, and it's obviously that the environment that we are in is probably standing a lot of that demand.

[Richard Parod:]

What we have seen historically the -- with our purchase with financing, it's probably about a third of the units are covered by financing and the financing provided by third parties. And that has continued to be pretty strong. We haven't really seen an issue there. What we have seen in 2009 was a little bit of tightening in the terms of the financing provided, really not that much and overall significant drop off and following up with at least one of those financing companies or comments for the financing has been strong, money is still available and they really don't see it as an issue.

[Joe Giamichael:]

Okay, great. And then just in looking at the cash, we think, you've made a small acquisition in Q4; is that right?

[Richard Parod:]

Yes, in my opening comments, I referenced the small product line purchase from GE Transportations Systems, which was a railroad signaling structure. We made those on a contract manufacturing basis for GE Transportation Systems in the past. And they decided that it was really not a core activity for them and we purchased that product line, which really doesn't add a great deal in incremental revenue probably something similar to the acquisition amount. But it does recover some margin, because we were passing those through and it's been through GE to the railroad. So now we will be a direct sale to those customers.

[Joe Giamichael:]

Okay, great. I will jump out and let other people ask.

[Richard Parod:]

Thank you.

[Operator:]

Your next question comes from the line of Ned Borland of Next Generation Equity.

[Ned Borland:]

Good morning Rick and Dave.

[Richard Parod:]

Good morning Ned.

[Ned Borland:]

First of all -- maybe I missed it, but do you have the operating income by segment?

[Richard Parod:]

It is in the slide deck, Ned that was posted on the website. I don't know if you pulled that off. But it would be I think the last page of the slide deck. And I do believe we have that handy, maybe second last page, I think...

[David Downing:]

Yeah, sure. And Ned to give you a little bit more detail, recently we have made some converted efforts to allocate direct G&A expenses to the respective segments that will evaluate business segments and the company as a whole. So in addition to that, prior year disclosures will be re-tapped in the -- featuring for the 10-K. But specific numbers for irrigation and infrastructure, operating income is 35.5 million for irrigation with an operating margin of 13.9% and infrastructure had zero operating income at zero margins for the full year.

[Ned Borland:]

All right, and just sticking with margin when the questions here; what did you realize in restructuring savings over the course of the fiscal 2009 and where do that track with your expectations and how much of that is permanent?

[Richard Parod:]

I don't have the total amount of hand. I think the, we have talked about this in the past, probably about the $7 million range in terms of total restructuring savings or let's say reductions that we've made during the year. Some of those -- I'd have to pull that back, Ned, to find that out. We'll research that in just a second. But I would say that majority of it is permanent in the sense that they are not variable expenses that are going to be forced to that will go up with revenue automatically. We will, on other hand, look at some incremental investment as we see the opportunities come up.

[Ned Borland:]

Okay. And then in terms of the irrigation demand, the three buckets replacement, new farm and mechanized irrigation, I mean is it -- do we have to see the replacement so the equation kind of pick up first in order to get a recovery in irrigation or other drivers that you see out that are going to more meaningful in near term?

[Richard Parod:]

No, I don't think that will be the case. But it's interesting to look at that information, because what we saw in 2008 is where that mix had been fairly even in terms of a third, a third, a third roughly between dry land conversion and replacement market. In 2008, we saw a significant increase, a fairly sizeable increase and installation at the dry land. And that moved up to about 40%. And I think that was really driven by the higher commodity prices in the fast feedback. It is achievable by moving from dry land to irrigated farm land. What I've seen in 2009 and looking at the data is that mix is very close to a third, a third, a third again. So it's come back to let's say more normal levels. And I think the indications that we've if -- that we would see is -- if commodity prices move up and profitability, opportunity moves up, dry land is the first to move up.

[Ned Borland:]

Okay. And then one final question on infrastructure, it seems like there was a whole, funds that was drilled out over the summer, July, August timeframe, and I guess some industry resources are saying that some of these projects connected with the stimulus had sort of a longer tales of them. Is that the sort of thing that you are hearing? And if so, would you expect to see some sort of rebound from those projects over the first half of 2010?

[Richard Parod:]

Well, we do expect to see more benefit come from the stimulus funds and from some of the project that were delayed. I think there is a couple of issues that come into play. One is if you look at the American Recovery and Reinvestment Act of 2009 from the Federal Highway Administration and the data that they put out, it shows that about 26 billion was incorporated for the infrastructure. Let's say highway type infrastructure project of which about 20 billion of that has been obligated or 73% and 12.6 billion of it about 64% is in process and only 2.7 billion has been expanded today, so roughly 10%. So there are a lot still in process that's hasn't been expanded and there is still some more to be appropriated. I think that's certainly one factor. Now the other factor that comes into play is I think that as that stimulus money has been built out, the states of course have faced reduced tax revenues, and I think that's impacted their willingness or ability to take on other projects. So while we expected to see more market growth come from this, what we have seen is more of a leveling take place. That probably be my best description of it. I expect that there still will be stimulus effect that we will see. I'm not really sure of the third, and I think if the economy continues to lag, and if there is more money that's invested and trying to stimulate it, it certainly would be in that area.

[Ned Borland:]

Okay, thank you.

[Richard Parod:]

Thank you.

[Operator:]

Your next question comes from the line of Brian Drab of William Blair.

[Brian Drab:]

Good morning.

[Richard Parod:]

Good morning.

[Brian Drab:]

First question

[Richard Parod:]

Okay. We'll take the moratorium discussion. The moratorium discussion has taken place for quite a while in Nebraska. And as you know from moratoriums could have placed in the western part of the state. But I think that discussion will probably continue, but there was a period, a couple of months back when those quite a bit of activity in that and decisions was made not to put in moratoriums, so that will be reverse that fully appropriate at that time. So, some of those moratorium discussions I'd say had been softened a bit, because the they really with some challenges to the clients in terms of how much water has been used and how much is still available to use. So there is a fair amount of discussions that's taking place. I think to comment on that also somewhat of a global discussion from time to time. We see that in markets like Australia as well, and yet we'll see conditions that will restrict or limit water availability for a period of time. But generally water conservation in the acknowledgement of the water efficiency improvement required is good for our business. Moratoriums, of course, are not, but general water concerned in restrictions are good for our business. And I think California is the sate that's going through a fair amount of discussion about it right now. And it would be interesting to see what comes with that, because the discussion of -- do they provide the water to the farmers or do they put in some restrictions that are going through somewhat they pay how that water is used. And from a restriction standpoint that can be beneficial for us, and we've seen more sales in California in the last couple of years than we have in the past. And we expect that it will be beneficial for us. However, when it goes to the exchange, moratoriums are cutting off water that always is difficult for our business. I will add one other point that when we have seen moratoriums go in advance usually there is a fair amount of activity in the state, where they are pulling in new wells in advance of moratoriums and we'll see a short-term profit apart from that in some markets.

[Brian Drab:]

Okay.

[Richard Parod:]

Yeah, the tax incentive one, I am not sure specifically what you are referring to. I don't know of any thing specific on the tax incentive. I know we have some in 2008 taxes that I am not familiar with have been not familiar with this specific from that.

[Brian Drab:]

Okay. Well, let's just pass that one. I've heard from some of the vendors in the tax base that maybe there are some tax incentives driving in near term for the balance of the year; I'll leave that for later.

[Richard Parod:]

Okay. We'll come back to the -- I think, the more global one. I think you are asking in terms of subsidies thing. Certainly, we do have some government subsidies in China that are beneficial to us. I am not aware of any new specific subsidies going into place at this point. I do know that as countries and regions are becoming more aware of their water issues; that is discussed and I think I would expect to see more in the future. I would expect to see possibly once in markets like India in the future. But we haven't seen that really to-date that would impact our business.

[Brian Drab:]

And a follow up to that

[Richard Parod:]

No. I think equip in 2009 was about the same. I think there were some delays in terms of getting funding out people, which certainly created some issues, maybe delayed some of the conversion that should have taken place. So that could be somewhat beneficial the next year. I couldn't estimate the amount of that, but I think equipment is one of those program that is perceived by the government to be very beneficial, because it does involve and improved water efficiency and proceed by farmers and local regions is being beneficial as well. So I think it's a very positive program in total.

[Brian Drab:]

Great. And then just one more question

[Richard Parod:]

The plant start up is going fine. I was over there about two or three weeks ago. And I was watching some of the training that was taken place with employees there. We're now at a position today, where I'd say that the next orders that come in are for China will be directed through that plant. So we're able to produce at that plant. Some of the start up will continue in a sense through the next couple of months in terms of bringing and still some additional equipment and expanding the capabilities in that factory. But overall, it's on schedule in producing and doing well. In terms of the overall capacity or what we expect out of that plant, I really wouldn't comment too much on the volume part of it for competitive purposes. But I would say, initially for this year, we expect it to be pretty class and neutral in terms of having any margin impact, because there is this startup versus the offset or the benefit of producing in countries with traditions will breakup and promoting. So this year, I would anticipate of being pretty neutral through the bottom-line and next year I'd expect to be more beneficial.

[Brian Drab:]

Okay, great thanks a lot.

[Richard Parod:]

Thank you.

[Operator:]

Your next question comes from the line of Ryan Connors of Boenning & Scattergood, Inc.

[Ryan Connors:]

Hi Rich.

[Richard Parod:]

Good morning, Brian.

[Ryan Connors:]

Yeah, I wonder if you could just go back to the discussion you get started into a little bit require to prior parts about the cyclicality of the irrigation business. And just give us some more of your from a high level, just trying to get the arms around, where we are in the cycle. I know that you -- I think correctly made the distinction that these are not depressed levels; I mean correct me if I'm wrong. Even though where this is a big year-over-year decline, this is a second highest fourth quarter revenue in the company's history at least by the record that we are looking at. So keeping just leadership perspective on where we are in the cycle what do you think this really is; you kind of characterize it as a normal level or do we ultimately sell out somewhat of a level below that is normal. How abnormal was 2008 and how long you think it might be until we get back to a level if ever and just kind of give us from a high level your perspective on the cyclicality of the business and where we are in the cycle right now.

[Richard Parod:]

Okay. I think the best way I'd characterize that I have come back to the earlier comment about whether we call it as a distress levels in terms of the fact of where the business today, and I would not. I characterize it as in terms of kind of paint the picture a little bit. 2008 was an exceptional year in terms of the run up in commodity prices, the profitability for the farmers, and it built up to 2007. So there were a number of really exceptional things that occurred in 2008, which I do believe are repeatable. I don't think these are one-off, I think that we will see again. I firmly believe that they are repeatable and were driven by some very positive things like the bio-fuel demand and the recognition of global food supplies as well as what was happening with oil prices and things with the time. So from that standpoint, 2008 was somewhat exceptional. Now 2009 was exceptional, but in a different way. It started out almost as a fairly normal year with a very high backlog, but a fairly normal order activity and then collapse pretty quickly, but given some things that were happening with the government at the time. The discussion about the stimulus spending and those things. And when it became evident that I think consumers and farmers are like all viewed the country was in recession and it was time to make some changes. Farmers pulled back, we're making spending decisions and buying capital good as well as trucks and anything else they would be looking at. So we saw a pretty drastic drop off in orders, which I think it was uncharacteristic of any other year that I have seen. So when I say a normal year, I am looking at it in terms of what we're seeing in the fourth quarter of fairly good still order activity, good order activity. The farmer sentiment is half that crash that they saw on 2009. I wouldn't say it's a 2008 kind of foolishness in level, but a fairly normal kind of perspective at this point and the kind that we've seen in the years pervious to 2008.

[Ryan Connors:]

Okay.

[Richard Parod:]

That's probably the best color I could add to this at this point, Ryan.

[Ryan Connors:]

Sure. And then obviously we are entering or I guess we are kind of been already to have a seasonally slow period here for the business for the seasonal standpoint and so can you give us an idea, then you sort of touched on this earlier, but if you could expand on it. As you managed your capacity and try to have the business, where it needs to be in next say spring when we answer the next the 2010 selling season, what are some of the indicators that you watch in terms of how you see that market jumping up? Especially things that we in a financial community can follow. I mean is it as simple as watching corn prices and net corn income projections or are there some other niche indicators that you look at? If so what are they, and what are the kind of levels at which you start to think that things might be looking a little better or where things are you get a little more worried?

[Richard Parod:]

Well, I think the primary things are, I certainly watch commodity prices. And I certainly do watch -- in some years we'll watch more of weather conditions things like drought situations, things like that, which really wouldn't be a factor today. In fact let's say it's probably quite wet in a lot of regions with suspecting harder. So, we'll look at really just a multitude of factors. In fact, I would come to that the late harvest of taking place may affect some early order or pre-season kind of ordering that we could see in the first quarter. I am not hearing that as of this time. I am just saying, I think that's a reality of -- it could affect order flow, not full year demand, but certainly a timing of orders. So, we've watched things like that. In terms of anything, I think the biggest one that I found in last few years really has been that farmers sentiment going forward much more important than looking at the farm income or looking at the projections for farm income. Because if the farmer view is that the significant opportunity that's ahead of them, he'll look at the capital investment like the irrigation equipment that's going to improve his yield and improve his return as investment. So, those are the general factors that there's not anything that we'll clear that you can look at or any direct co-relation that you could try.

[Ryan Connors:]

Okay. Well, that's very helpful; thanks a lot Rick.

[Richard Parod:]

Yes. Thank you.

[Operator:]

(Operator Instructions)

[David Downing:]

Going to that question if I could just comment and come back to Michael Cox's question; this is Dave Downing. Our SG&A was down in the quarter, Michael. Our G&A was down in the quarter, so actually each line item in the fourth quarter for our SG&A between selling, administrative and engineering were all down. Administrative was down about a quarter of the total of the 3.9 that we were down in the quarter, so...

[Richard Parod:]

We were down about $40 million for the quarter roughly 3.9 to $4 million and all of those line items were down. Okay. Are there any other questions?

[Operator:]

We do have a question from the line of Michael Coleman of Sterne Agee.

[Michael Coleman:]

Good morning. That's a good segue.

[Richard Parod:]

Yeah.

[Michael Coleman:]

Why to kind of look at, what you realized in terms of your cost saving from plans that you implemented early in the year. What you realize in 2009 and kind of what the carryover might be in 2010?

[Richard Parod:]

Well, I think that we are attempting to address this question a little earlier, I think that as it's a hard one to characterize, I think the SG&A piece of it is probably in that 4 to $5 million. I think I said earlier probably about seven, which included some that would be more factory related, but probably 4 to 5 million in the SG&A line. And particularly the second part of that question is really how much of the fix or how variable is it and I think the SG&A is fairly solid in terms of most of it, (ph) but we will address opportunities as we see those coming up in the next year. And what I mean by that is, we do see some additional growth opportunities and a few markets, where we'll probably add a sales person or two. And I don't want to get too specific on that. But in general the cost that we've taken out is relatively solid.

[Michael Coleman:]

Okay. So, to just understand that, you took out about 45 million on the annual basis for the SG&A, and about 7 million of the factories you got 11 to 12 million in growth.

[Richard Parod:]

No, that was -- I was referring to about 7 million in total. I was referring to there was a couple million of more factories related say in direct type cost that were also taken out that are fairly sticky as well.

[Michael Coleman:]

Okay, thank you. In the event that grand markets remain weaken so forth. Where do you see yourselves, in terms of what you've done so far, but what do you have in terms of opportunities to continue to attack costs, what kind of actions, further actions might you have available to you?

[Richard Parod:]

Certainly from the operational side, there is a lot of opportunity in terms of our LEAN implementation, which we were down the path on, and I would probably put it in the range of maybe 40 to 50% level of implementation. Particularly, in the U.S. irrigation business and we really haven't made that kind of progress or we will have much more opportunity in our infrastructure business in terms of implementation of LEAN. But I think there is some very significant cost reduction opportunities better available to us, and we will be working on during this next fiscal year.

[Michael Coleman:]

Okay. Couple of quarters ago, I think you had a benefit from your steel price coming down faster than your end market pricing; it didn't look like you had a benefit in the quarter from that. Is that correct or has that great cost gap cleaned up or was there still some lagging benefit in the quarter?

[Richard Parod:]

It's a little more difficult to answer for this fourth quarter, because there was more volatility and steel pricing. We saw a drop down a little bit early in the quarter that moved up towards the end of the quarter. We have a little more volatility, I would say that we have some forward buys that we made on steel that put us in a pretty good position in terms of we are comfortable with where we are for at least the next quarter. So we are either after below market in terms of our steel pricing on hand for the next quarter, but in terms of the pricing gap itself, I'd say that we probably didn't see much impact of the pricing gap from steel to and pricing during the fourth quarter.

[Michael Coleman:]

Okay. And kind of sticking with pricing, historically, I think if you go back a couple of conference calls, you've given an average price in the quarter, realized for pivot. I was wondering you might share that if and what that would compare with say in the previous fourth quarter?

[Richard Parod:]

I don't have those numbers offhand Mike. I'd have to pull that, but I just -- I'm sorry. I just don't have that available right now.

[Michael Coleman:]

Okay. Kind of going back to you mentioned farmer sentiment is much improved on the year-over-year basis more normal, and that the sentiments really kind of a key indicator. Does price have a role in terms of that sentiment or in driving orders in the sense that or to assume that your pivot pricing is still material higher than it was a few years ago and kind of on the side lines waiting see gain to see a pricing does come down. So, I guess the question is

[Richard Parod:]

I think the price elasticity question is the difficult question in a sense that we really haven't seen that in the past, where if pricing move a little bit in and I guess you defined a little bit, let's say 5 to 10% in the quarter, which could be pretty sizable price that change. I think that you trying you will probably pick up some market share in the quarter, you probably would not create additional demand and that's what we found in the past. So, the pricing does heat up to that extend on a competitive basis and somebody will take more a drastic pricing action, we usually will find some market share shift, but not much demand change. So, this is very little elasticity in terms of really creating more demand through pricing. Now that doesn't mean that there was a real significant change in pricing that more demand wouldn't be created, because I think obviously that could be, but we just haven't seen that happen in the past.

[Michael Coleman:]

Okay. And you also going back, I don't know you had some long-term target for sales growth, return on capital et cetera and you updated these given the kind of volatility in the last year, do we revert -- I don't have them in front of me, but we do revert to this kind of target or so de have new targets?

[Richard Parod:]

I think the targets that we set, which we are -- and I don't have those in front of me either, but fairly strong targets for both of our sales and revenue growth, our operating margin RONA numbers, we believe are still the same target. We did have a fair amount of pressure in 2008. Often some difficulty when we talked to you about moving those up. But I'd say that both targets are still quite strong and there the things like the revenue growth target is 10 to 15% per year, RONA is 9 to 14 -- and sorry, operating margin 9 to 14 and RONA, 9 to 15. So, I believe that those are still the appropriate targets for our business.

[Michael Coleman:]

And obviously that's typical influences, but the sales growth of 10 to 15% per year. Is that still, would you revise that today or look at it differently?

[Richard Parod:]

No, I wouldn't revise it. I still feel the same way about it. I would say that windows were set, we expected that in some years, part of that is going to come from acquisitions, whether it's a product line acquisition or business acquisition. And some -- as we find 2008 the growth was 60%, so those years will see some larger swings one way or other, but in some years, it will come from acquisitions.

[Michael Coleman:]

Okay, thank you.

[Richard Parod:]

Thank you.

[Operator:]

Your next question comes from the line of Omar Hasan (ph) of Centerra Capital.

[Unidentified Analyst:]

Hi, thanks for taking the questions. Just going back to pricing for a minute; you answered earlier that the pricing for the full year was up 7 to 9% on the again on the call. I know you don't have the specific numbers for Q4 on pivot pricing as we just entered. But could you maybe give some more directional sense on Q4 year-over-year pricing as opposed to the full year?

[Richard Parod:]

Yes, for the quarter, I would say, it was down about probably 5 to 6% for compared to the same quarter of last year. And that was due to the lower steel prices that we experienced in the third and fourth quarter.

[Unidentified Analyst:]

That's helpful, thanks. And then looking forward if you see fuel prices continue to weaken, do you think the reaction on sell through pricing on your end would be similarly elastic; would you see a reaction within a quarter or two?

[Richard Parod:]

Generally if the pricing is moving up on steel, we're able to pass that through very quickly, so we -- in fact our pricing is generally, guarantees for no more than 30 days. So we have the opportunity to pass that through or we have steel commitment to our steel on hand as we do now, we may extend that. Our pricing commitment, because we are locked in for a period of time. When pricing is -- when the steel is going down, we haven't seen the rapid pass through either from us or from competitors in terms of passing that back as quickly. And then partly because there's been so much volatility in this steel market. As we're talking about pricing going down, pricing steel have actually moved up from where we were in the third quarter. So it's been pretty volatile for the last -- couple of last years.

[Unidentified Analyst:]

Got it. Thank you.

[Richard Parod:]

Thank you.

[Operator:]

Your next question is a follow up from the line of Michael Cox of Piper Jaffrey.

[Michael Cox:]

Thanks and thanks for circling back on the SG&A question. And I recognized that it is down year-over-year. I guess I was looking sequentially; your revenues were down about 10 million sequentially. But either looking at full SG&A or just SG&A alone or probably just G&A alone, it does look like your expenses went up sequentially. That's what I was specifically asking about.

[David Downing:]

Okay, thanks for clarifying that. We are up slightly sequentially and there are some -- there is a couple of small year end items that are in their, Michael, but not significant and it is up just 600,000 really for the quarter sequential. So, it's not a significant item, and it does go back to year end adjustments to happen generally on an annual basis.

[Michael Cox:]

So, I guess maybe a probably different question then for the current run rate of sales, is this a good SG&A rates that's 13.5 and to 14 million range we've see in the past three quarters.

[David Downing:]

I think that's a fair assessment, Michael.

[Michael Cox:]

Okay, great. Thank you.

[Operator:]

There are no further questions at this time. I would now like to turn today's conference back over to Mr. Parod for any closing remarks.

[Richard Parod:]

For our business overall, global long-term drivers water conservation population growth increase in important bio-fuels improvements in infrastructure remains very positive. In addition, the overall business enhancement that have taken place, we continue to have an ongoing structure the acquisition process that will generate additional growth opportunities throughout world in water and infrastructure. Lindsay is committed to achieving earnings growth from global market expansion improvements in margins and strategic acquisitions. I'd like to thank you for your participating in this, and thank you for your questions.

[Operator:]

This concludes today's conference call, you may now disconnect.