Lindsay Corporation (LNN) Earnings

Management highlights

- Overall Market Context - Management notes the business is operating through a cyclical bottom in agricultural markets, with ongoing headwinds from trade uncertainty, high grower input costs, and weak farmer sentiment, but the team maintained strong execution and focus on pricing, cost control, and operational efficiency, while continuing strategic long-term investments. - North American irrigation customers continue to delay large capital purchases amid poor farm economics, leading to lower unit sales in line with management expectations. While commodity prices have improved slightly and government programs provide modest relief, neither has meaningfully lifted demand. - International Irrigation Market - Long-term growth outlook for Brazil remains highly attractive, underpinned by large underlying demand for irrigation to boost yields, enable year-round growing, and improve water efficiency. The recent reduction in official financing rates from 12.5% to 11.5% for the 2026-2027 crop plan is a positive development that should encourage demand from wait-and-see customers, though total allocated funding for irrigation under the FONAMI program was cut from ~2.75 billion reais to 1.7 billion reais, leaving credit availability still constrained. Management remains cautiously optimistic in the short term. - A large irrigation project in the MENA region will continue delivery through Q4 fiscal 2026. The broader regional growth outlook remains positive, driven by government priorities for food security and water management, with the company's execution track record, technology, and local presence positioning it for future wins, though project timing remains unpredictable. - Technology and Strategy - Connected irrigation technology platforms (FieldNet, FieldWise, SmartPivot) continue to accelerate adoption. The new Tower Watch diagnostic feature reduces equipment downtime, improves customer economics, and increases retention, while expanding the company's recurring revenue base and improving margin mix. Management expects double-digit technology revenue growth for full fiscal 2026. - Infrastructure Business - Global road safety product sales are expected to continue growing. The road zipper project pipeline remains strong, though project timing is unpredictable. The bipartisan Build America 250 Act, a $580 billion five-year transportation reauthorization, has advanced out of committee, providing long-term funding stability for U.S. infrastructure investment. - Operational Capital Investments - The new automated tube mill in Lindsay, Nebraska has been successfully commissioned and is now in full production, improving safety, efficiency, throughput, and demand responsiveness, which better prepares the company to operate through market cycles. Full benefits of productivity gains will require a market recovery to be fully captured. - The new galvanizing facility remains on schedule for production startup in early calendar 2027, which will expand galvanizing capacity, improve quality, and open new growth opportunities. - Cost Restructuring - Management has launched a restructuring and right-sizing initiative to optimize the operating cost structure, align resources with current market demand, improve efficiency, and reduce complexity, building a more agile organization. The initiative does not reduce investment commitments to core strategic priorities including innovation, digital solutions, manufacturing capabilities, and growth opportunities. Cost savings from the initiative are expected to begin in fiscal 2027.

Guidance

- Management does not expect a meaningful near-term recovery in North American irrigation demand until grower production costs decline relative to commodity prices, which is projected to remain unfavorable for key crops through the coming year. - No large road zipper project is expected to be completed in fiscal 2026. $70 million of the $80 million MENA large irrigation project will be revenue-recognized in fiscal 2026, with the remaining $10 million recognized in early fiscal 2027. - Sustained double-digit technology revenue growth is expected for full fiscal 2026, and continued growth is expected for global road safety product sales. - After the galvanizing facility comes online in early 2027, annual capital expenditures will step down to normalized levels, consisting of maintenance capital and high-return organic growth investments. - Q4 fiscal 2026 is expected to be the typical low-volume quarter for the company, with softer-than-average storm replacement volume year-over-year, leading to revenue down from Q3 2026 and lower fixed cost absorption impacting margins. Initial demand from Brazil's new financing program is not expected to impact Q4 2026 results, with initial contributions likely to come in early fiscal 2027.

Segment performance

Irrigation segment: Total Q3 2026 revenues were $133 million, a 7% year-over-year decrease from $143.7 million, accounting for 82.7% of total company revenue. North America irrigation revenues were $61.3 million, an 11% YoY decrease driven by lower unit sales volume, partially offset by higher average selling prices. International irrigation revenues were $71.7 million, a 4% YoY decrease driven by lower sales volumes in Brazil, partially offset by growth in other international markets. Irrigation operating income was $20.3 million, down from $27.2 million YoY, with an operating margin of 15.3% of sales (down from 18.9% YoY). Infrastructure segment: Total Q3 2026 revenues increased 8% YoY to $27.7 million, accounting for 17.3% of total company revenue, marking three consecutive quarters of growth driven by higher road safety product revenues. Road zipper lease revenues were flat YoY, with no large road zipper project expected this fiscal year.

Risks & headwinds

- Cyclical headwinds in global agricultural markets: persistently negative grower economics (production costs exceeding commodity prices) continue to suppress large capital equipment purchases, creating pressure on sales volumes and margins from fixed cost deleveraging. - In Brazil, even with lower financing rates, reduced total program funding leaves credit availability constrained, limiting near-term demand growth. - Domestic irrigation pricing has become more competitive in a soft volume market, creating margin pressure amid ongoing input cost escalation. - Extreme drought in core U.S. irrigation regions has reached levels that could reduce grower ability to complete crops, creating near-term negative pressure on irrigation demand, even as it supports long-term adoption of efficient water management technology. - The timing of large project wins and deliveries in international irrigation and the road zipper business is inherently unpredictable, creating revenue volatility. - Input cost escalation has outpaced the impact of previous pricing actions, creating near-term margin pressure.

Analyst Q&A

• Q: An analyst asks for an update on the MENA large irrigation project and the broader regional outlook amid ongoing regional conflict. /

  A: Management states the project itself is on track for delivery per plan, with no disruption from conflict. At a macro level, regional governments remain committed to investing in domestic agricultural production for food security, so the total long-term market opportunity has not shifted. Management notes it is early innings for the company in the region, with significant additional growth opportunity remaining, though infrastructure development timelines may create near-term variability.

• Q: An analyst asks about the company's work applying AI to irrigation technology, outside of common agricultural AI use cases like weed detection. /

  A: Management explains the company is actively investing in AI for two core irrigation use cases. First, AI powers updated irrigation scheduling tools in FieldNet Advisor, which combine historical and forecast weather, crop growth stage, and soil data to tell growers exactly how much water to apply where, reducing energy use and improving yield outcomes. Second, machine learning is used on the SmartPivot platform to pre-diagnose mechanical equipment failures before they occur, reducing downtime. Management notes it is early innings for AI applications, but sees significant potential to improve customer value.

• Q: An analyst asks for clarification on management's outlook for Brazil irrigation growth, given seemingly mixed signals of lower financing rates but lower total program funding. /

  A: Management confirms the lower rate is a positive development that will unlock shovel-ready projects that had been on hold waiting for program details. While total funding is 38% lower year-over-year, past programs were never fully allocated, so the impact will be softer than the headline number suggests. Management does not expect material revenue impact from these new projects in the current Q4, and projects initial demand will start to flow in the first quarter of fiscal 2027, with no immediate sharp spike in growth expected.

• Q: An analyst asks for an update on U.S. domestic drought conditions and their impact on irrigation demand. /

  A: Management notes severe to exceptional drought currently covers over a third of the U.S., up from 15% a year ago, with most of the core Midwest irrigation states facing extreme drought in their western growing regions. While drought typically drives adoption of efficient irrigation, extreme drought that leaves growers without enough water to finish a crop can create near-term negative demand pressure. Drought-driven supply reductions could eventually support higher commodity prices, which would improve long-term grower economics and demand.