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Lindsay Corporation (NYSE:LNN)

F2Q 2014 Results Earnings Conference Call

March 26, 2014 11:00 AM ET

Executives

Rick Parod - President and CEO

Jim Raabe - CFO

Lori Zarkowski - CAO

Analysts

Brett Wong - Piper Jaffray

Richard Hall - Stifel

Brian Drab - William Blair

Joe Mondillo - Sidoti & Company

Schon Williams - BB&T Capital Markets

Chris Shaw - Monness Crespi

Kevin Bennett - Sterne Agee

Peter Van Roden - Spitfire Capital

Operator

Good morning. My name is [Salina] [ph], and I will be your conference operator today. At this time, I would like to welcome everyone to the Lindsay Corporation Second Quarter 2014 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, 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, 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 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. Rick Parod, President and Chief Executive Officer.

Rick Parod

Good morning and thank you for joining us today. Joining me on today's call is Jim Raabe, Lindsay Corporation’s Chief Financial Officer; and Lori Zarkowski, our Chief Accounting Officer.

Total revenues for the second quarter of fiscal 2014 were $152.8 million, 13% lower than the same quarter last year. Sales in the U.S. irrigation market declined 21%, partially offset by a 32% increase in infrastructure sales.

Lindsay Corporation's operating margins decreased to 13.7% in the quarter, compared to 16.8% in the same quarter last year. Net earnings were $13.5 million or $1.04 per diluted share, compared with $19.4 million or $1.50 per diluted share in the prior year.

For the first six months of fiscal 2014, total revenues were $300.5 million, decreasing 7% from the same period last year. Net earnings were $23.7 million or $1.83 per diluted share, compared to $34.1 million or $2.65 per diluted share in the prior year.

For the irrigation segment, sales totaled $135.9 million in the quarter, decreasing 16% from the same quarter last year. Irrigation operating margins declined to 18.1% of sales from 21.7% last year due to the deleveraging of fixed expenses on lower revenue.

In the U.S. irrigation market, revenues were $92.8 million in the quarter, declining 21%. Excluding U.S. sales from the Lakos filtration business acquired, U.S. irrigation sales declined 25%, representing a slightly larger decrease than we experienced in the first quarter of fiscal 2014.

The elimination of the enhanced Section 179 depreciation benefit may have contributed to this decline. However, we believe the most significant impact to sales trend has been the year-over-year declining crop prices. While we have seen some upward movement in corn prices over the last several weeks, they remain more than 30% lower than year ago.

The current forecast for 2014 U.S. net farm income is 27% below 2013. For the remainder of fiscal 2014, we expect U.S. irrigation equipment revenues to continue to be below last year’s levels.

In the international irrigation markets, revenues for the second quarter were $43.1 million, decreasing $2.4 million over the same quarter last year. The revenue reductions occurred primarily in the Middle East, Russia and Ukraine and were generally related to the timing of specific projects.

While we don’t believe the current political issues with Russia and Ukraine affected the demand in the quarter, we do believe the issues now represent a headwind for irrigation equipment growth in the region.

Irrigation revenues in Brazil have remained very strong but are now compared against record revenues last year that along with the substantial completion of the $39 million Iraq project make the potential for increases in international irrigation revenues challenging for the remainder of fiscal 2014.

For the first six months of fiscal 2014, total irrigation segment revenues decreased 11% to $265.1 million. In the U.S. irrigation markets, revenues were $172.6 million, decreasing 19% from the previous year. In the international markets, irrigation revenues were $92.4 million, increasing 11% over the previous year, with most the significant increases in Australia and South America.

Infrastructure segment revenues were $16.9 million in the quarter, increasing 32% from the same quarter last year with the most notable increases in road, safety and rail products. In operating income, the infrastructure segment achieved breakeven as compared to an operating loss of $2.1 million in the second quarter last year.

For the first six months of fiscal 2014, infrastructure revenues increased 36% to $35 million, with increases in nearly all product lines. I’m very please with the progress in the infrastructure business and the improvement in performance in the quarter, which is the lowest seasonal quarter period for the business segment.

We have aggressively pursued sales growth, while improving gross margins and reducing SG&A expenses. We are confident that we are on the path to returning the infrastructure segment to consistent profitability and value creation.

Gross profit in the second quarter for the company in total was $42.7 million or 27.9% of sale versus $50.4 million or 28.7% of sale in the same quarter last year. The decline in gross margin represents an overall shift in sales mix caused by the decline in U.S. irrigation equipment revenues.

Gross margins in irrigation declined by approximately 1 percentage point, while infrastructure gross margins improved by approximately 7 percentage points attributable to a combination of sale mix changes and leverage on higher sales.

During the second quarter the company’s operating expanses increased by $800,000, including the incremental $2.2 million of operating expenses associated with the newly acquired Lakos business.

Excluding the acquisition, operating expenses declined $1.4 million led by reduction in incentive compensation and marketing related expenses. Operating expenses were 14.2% of sales for the quarter, compare to 11.9% of sales for the same period last year, reflecting the revenue declines.

The order backlog in February 28, 2014, was $89.3 million, compared to $159.3 million at February 28, 2013 and $86.6 million on November 30, 2013. Year-over-year backlog for U.S. and international irrigation declined and infrastructure backlog increased with the inclusion of the Golden Gate Bridge project.

Excluding the Iraq contract from the prior year, international irrigation backlog increased year-over-year. Our backlog typically represents long-term projects as well as short lead time orders, is therefore generally not a good indication of the next quarter’s revenues.

Cash and cash equivalents of $165.5 million were $5.9 million higher compared to the same time last year, while debt decreased $2.1 million. Accounts receivable were $6 million higher and inventory was $3 million year-over-year, primarily due to the acquisition of the filtration business.

Our current estimate for capital expenditures for 2014 is between $15 million and $20 million. Our capital expenditure plan investments include the manufacturing operations in Turkey, which is planned to be operational early in fiscal 2015. This plan should accommodate our long-term growth plans in Europe, Africa and the Middle East and other developing regions as needed.

During the quarter, we repurchased 79,000 shares in the few weeks available while the window was open as part of our capital allocation plans announced January 2014. We also continue to pursue water-related acquisitions to enhance our competitive position and provide attractive returns to shareholders.

In summary, the U.S. irrigation market has slowed significantly as compared to the past several years of record crop prices under significant drought. International markets remain active but small and large projects have experienced some delays, which we attribute to the declining global grain prices.

Despite the political and cyclical headwinds, we are optimistic about the future and are expanding our irrigation equipment manufacturing capacity selectively. The Infrastructure business has improved its profit profile and generated growth in an environment of constrained government spending. We believe this business can continue to grow and improve in profitability, as we gain share in each of our markets and as we identify and develop new different system applications worldwide.

In addition, our balance sheet remains strong. We will continue to invest in growth and productivity, both organically and through acquisition and we will utilize excess cash to improve returns to shareholders. We believe there are opportunities for strategic synergistic acquisitions that further differentiate our market position and add new growth opportunities. We will maintain our acquisition discipline to ensure we achieve value creation for shareholders.

I would now like to open it up for your questions.

Question-and-Answer Session

Operator

(Operator Instructions) The first question comes from Brett Wong of Piper Jaffray.

Brett Wong - Piper Jaffray

Hi. Thanks for taking my questions. First, just wanted to dig into the Eastern Europe issues little bit more. I’m wondering if you can provide some more color around the previous overall growth expectations that you had in Russia and Ukraine and how the political concerns in the region have now changed those views.

Rick Parod

So, I think I would address it by talking about the international market in total and we have historically described the growth rates for international markets as double digit in the 15% growth range. And some of the markets are more developed similar to the U.S. like Europe and Brazil and likely to respond to what we see in terms of commodity changes.

Many of the other markets are developing that are more project based and Russia, Ukraine definitely fit that category and they will be affected by commodity prices as well. But also by other changes, for example the political situation we are seeing and capital availability etcetera.

I’d characterize Russia and Ukraine as - the changes taking place today as being important in terms of producing, basically creating a headwind for us going forward. But I would also say from a risk standpoint, our sales in that region have been below 5% of our Irrigation revenues in total, so there is not a significant risk to our revenue base. I do think that we could see some delay in projects given the political situation.

Brett Wong - Piper Jaffray

Great. Thanks. And then on the Infrastructure side, what are your current thoughts, expectations around highway funding bills specifically on timing and based on your view, what impacts are you seeing for the Infrastructure segment next year?

Rick Parod

Specific view in terms of the timing of the highway funding -- highway bill funding, I really don’t know what will happen with that. There is obviously many different perspectives. I do think that getting a longer term highway bill in place will be beneficial to our business. I apologize for the siren in the background.

We do think that not having that in place today has been really a bit of a difficulty in terms of providing growth opportunities in that market, but at the same time we’ve been able to pick up market share and we’ll continue to be aggressive in gaining sales in other ways.

Brett Wong - Piper Jaffray

Great. Thank you very much. I will hop back in line.

Rick Parod

Thank you.

Operator

The next question comes from the line of Nathan Jones of Stifel.

Richard Hall - Stifel

Hey. Good morning, guys. This is actually Richard Hall for Nathan Jones today.

Rick Parod

Good morning.

Richard Hall - Stifel

You guys hear me with that siren in the background?

Rick Parod

Yeah. I apologize for that. It happens to be apparently a test but yes, go ahead.

Richard Hall - Stifel

Okay. Sorry about that. But you briefly mentioned this in your prepared remarks, if we think domestically, obviously corn price were down significantly year-over-year but [inaudible] the beginning of 2014 and 2013, corn prices are up very significantly about 20%. And have you heard anything notable, any kind of [Technical Difficulty]?

Rick Parod

One second, sorry. Go ahead.

Richard Hall - Stifel

Did you get any of my question?

Rick Parod

Yeah. Could you just repeat that last part, you started with have we heard anything?

Richard Hall - Stifel

Yeah. I’m just curious, corn prices are up pretty significantly since the beginning of 2014. Have you heard anything significant from any dealers as far as tone or confidence on a quarter-over-quarter basis for the year?

Rick Parod

No, I think the way that the dealers would describe it is -- would describe it is that they had seen difficulty during the first quarter and at the end of the first quarter into the second of still a significant amount of enquiries and quotes and lot of activity but more difficulty in terms of just getting the deals closed.

I think that remains the situation today. There is still lot of interest. It may not be certainly as high as it was last year. But getting those turned into closed orders has been more difficult for them. That’s how the dealers would characterize it.

Richard Hall - Stifel

Okay. Great, thanks. And then, switching over to infrastructure, I guess, could you provide us with any update on the Golden Gate project. If there is any, I mean, I recall you expect the first, that revenue to hit and first -- the beginning fiscal 2015 and substantially get most out - I guess have the project finished by the end of 2015. Is that still the case?

Rick Parod

Yeah. That project is beginning from the standpoint of – we’ve begun production on many of the components for that on the elements of the project. And that will be, we will begin installation on that, I believe it’s in the fall of this year. So we’ll see that revenue next year.

Richard Hall - Stifel

Great. Thanks guys.

Rick Parod

Thank you.

Operator

Our next question comes from Brian Drab of William Blair.

Brian Drab - William Blair

Good morning, Rick. Good morning, Jim.

Rick Parod

Good morning.

Brian Drab - William Blair

So first question on gross margin, so 27.2% in the first quarter and then adjusting for 150 basis points warranty issue would have been 28.7% and looking at the sequentially gross margin moved from that 28.7% down to 27.9% in the second quarter. So I’m just thinking about the major factors that could impact gross margin sequentially. We have total revenue up a touch about $5 million. Typically international irrigation sales are lower, lower margins then the domestic sales and international went from 40% or so of irrigation in the first quarter, down 32% in the second quarter. So that should have been a bit of a tailwind for margins. So I’m just wondering what drove sequentially the 80 bps of gross margin compression as it -- does it have to do with -- my guess is would be it has to do with QMB mix within infrastructure, maybe pricing in the irrigation business?

Jim Raabe

Yeah. Brian, I would say that when you talk about it sequentially excluding the adjustment in the first quarter, it is primarily mix related. There wasn’t really anything unique about the quarter but there is a little bit of mix shift in total in the businesses and that’s really where the majority of the shift would have been.

Brian Drab - William Blair

And Jim, could you talk any more about the mix shift? Is it within irrigation or was it within the infrastructure business and am I correct in thinking maybe QMB sales stepped down a touch from first quarter. You sounded a little more -- I think you sounded a little more optimistic about or positive about the QMB results in the first quarter?

Jim Raabe

Yeah. No, it’s really kind of a mix between the businesses more than anything else. And then I would also say we had a little bit better - in the first quarter we had a little bit better pricing versus cost impact in the core international business where this quarter on a year-over-year basis, we didn’t lose margin from price and costs but we didn’t really pick up any margin either. So there is a little bit of a margin impact there within the domestic business.

Brian Drab - William Blair

Okay. And then, what’s the balance today between -- within irrigation, between the large corporate farms in the U.S. and individual farmers. How does that break down and what was the -- what did the relative decline look like in each of those categories in the quarter?

Rick Parod

I can’t split out that percentage of the large farms versus others for you. At this point, I don’t have that segment data but I can tell you that when I look at where the decline took place as is the same situation with first quarter was relatively consistent across the corn-belt region. We saw still pretty solid sales with specific northwest and few other pockets but across the corn belt, the impact was fairly consistent.

Brian Drab - William Blair

Rick, am I safe in still assuming, I think in the past you said that the individual farmers account for the majority of, like 50% to 70% probably somewhere in that range of the sales?

Rick Parod

Yeah. They certainly account for very high percentage Brian. I don’t have a specific amount. But let’s say that also I characterize customers that purchased more than one pivot as a very high percentage. In other words, one that we have multiple pivots in by over multiple years. Our equipment would be at pretty high percentage as well.

I think the other observation out of the quarter is that we often talked about is the percentage -- the equipment that we sold that we announced into dry land application or replacement or conversion. And what we saw in this quarter was about 40% of the machines were going to replacement. Around the same time last year, that would have been about 29% and last year, we would have seen about 50% -- over 50% going into dry land, this year it was about 39% in the quarter.

So I think that’s showing a significant change due to the commodity price and what the difference is in application of the equipment today.

Brian Drab - William Blair

Okay. That’s very interesting information. And the last thing, I just ask on, are moratoriums, we’ve heard a little bit more about moratoriums especially in Eastern Nebraska lately. Are you feeling the impaction matter that’s relatively minor?

Rick Parod

It’s relatively minor at this point. I think we could see more but at this stage, I would say it’s relatively minor.

Brian Drab - William Blair

Okay. Thanks guys.

Rick Parod

Thank you.

Operator

The next question comes from Joe Mondillo with Sidoti & Company.

Joe Mondillo - Sidoti & Company

Hi guys. How are you doing?

Rick Parod

Good morning.

Joe Mondillo - Sidoti & Company

The international backlog, just wondering if you can give us a little more color on that in terms of the back half of this fiscal year, are you anticipating -- I know you’re going up against a very tough comp compared to a year ago. But sequentially, compared to this first half of the year, are you expecting sequential growth to sort of similar type of levels that we saw in the first half?

Rick Parod

I think to go back to the comments I made earlier, Joe, the international backlog is higher when you take out the Iraq contract, and obviously the Iraq contract was a significant element of our backlog in the past. We really don’t define our backlog or break that out any further for competitive purposes and other reasons in terms of the detail of that. But I would just say that I think international markets are still performing well. But as I mentioned also, we do have the tough comps, particularly in South America and Brazil.

Joe Mondillo - Sidoti & Company

Right. So I don’t recall how big that -- I don’t know if you -- I think you disclosed something in terms of the Iraq contract, but I don’t recall how big that was. I guess just directionally -- I am not looking for actual numbers, but just directionally, are you expecting an absolute sequential growth first half to second half? Or are we looking at similar sort of type levels, don’t know, you know what the backlog?

Jim Raabe

Let me just speak to it -- this is Jim by the way, let me just speak to it more from the year-over-year standpoint, because last year our international revenues were larger in the second half than they were in the first half. And I think as Rick alluded to you see some headwinds in the international. We are not counting out the possibility of having year-over-year growth, but obviously it will be much more difficult to do without having the Iraq contract in the back half of the year as well as some of the other political headwinds that we have. So I make it look at more on a year-over-year basis than certainly a sequential basis.

Joe Mondillo - Sidoti & Company

Okay. So we could potentially meet the levels that you saw last year even still without that huge Iraq contract?

Jim Raabe

I think it would be very difficult to have growth with the Iraq contract last year.

Joe Mondillo - Sidoti & Company

Okay. All right. Good enough.

Rick Parod

If it’s possible, certainly it is. I think the concern we have is the Iraq contract completion, the comps in Brazil, and also what’s happening in Russia and Ukraine today. And I think that definitely affects -- creates the headwind and affects the ability to see the projects that we did see last year. Even though they are not significantly material, those affect our growth rate for international.

Joe Mondillo - Sidoti & Company

Okay. In terms of the irrigation margin overall, there is a couple different dynamics going on, specifically with international, is that some gets bigger that sort of weighs on the margin, but it looks like if you do the -- it does look like you’re going to see a tough comp in the back half of the year. So if you do see more international sales, as a percent of the total at least compared to the first half of this year, it looks like as a percent of the total international will be flowing possibly. So how do we look at sort of that dynamic versus sort of the deleveraging dynamic on the smaller sales base? In other words, is it sort of going to offset and you sort of see flattish type margins that you saw from a year ago or if you still anticipate sort of year-over-year headwind on the margin profile?

Rick Parod

Well, I think that last year we saw -- we actually saw international as a percentage of the total irrigation actually higher in the second half than it was in the first half, and I wouldn’t be surprised to see it’s higher again this year. So that would actually have a little bit of the negative impact on the margin. Now that does include export business as well from the U.S. So it isn’t just a U.S. versus international when you look at the leverage within the U.S. manufacturing.

So I do think that we will have -- there is certainly a good probability that we will have a higher percentage of international in the second half than we had in the first half and that will have some downward pressure. And then I would just say, we continue to work on how we manage the costs within our plants to reduce the amount of deleverage. But probably the last thing I would say is, as we’ve said in the past, the bigger impacts on margin tends to be pricing in input costs and we haven’t seen a little bit of pressure on the field side. And we don’t have great visibility into the pricing side, but if we do see more competitive pressure from in a down cycle, that would have an impact as well.

Joe Mondillo - Sidoti & Company

So was in -- in the first half of this year the margin decompression that you’ve seen on the year-over-year comparison, has that been largely pricing an input prices or has that been more so international mix or smaller sales base?

Rick Parod

It’s been larger the mix because we have had the bigger decreases in sales have come in the domestic market where year-to-date our international markets are actually up a little bit. So as a percentage of total on year-over-year basis, the mix is shifted more to the international side. If you are asking about the second half versus the first half, I think the international mix as a percentage of the total will also be higher than the first half.

Joe Mondillo - Sidoti & Company

Okay. And then just lastly, we’re just curious, are you guys -- did you see any benefit, are you starting to see any benefits from the drought that we saw in the West Coast and how much does the West Coast sort of makeup both your domestic sales?

Rick Parod

Well, to speaking of California specifically, it’s not a significant percentage of sales. It has been a growing market in the last couple years with good potential, but it is not the significant or material piece of our revenue. That drought is not making a big difference at this point. I think it’s getting to a stage of whether or not farmers will have and has gone through the stage really, whether or not farmers will have water available for Irrigation at all. And that’s the battle that’s going on right now. And the longer that drought goes on, the more severe it could become and therefore if that -- whether or not there’s any irrigation in operation.

But at this point, it really hasn’t had an impact on our sales. I think that there’s definitely opportunities there and the opportunities would be to really see the gravity irrigation or flood irrigation eliminated and switch to more efficient irrigation such as our optimism mechanized irrigation equipment. I’d like to see the state investing more in it. They’ve announced some subsidies for changing to more efficient irrigation, but we haven’t really seen what that’s going to tail yet.

Joe Mondillo - Sidoti & Company

So, with that region sort of less than 5% of your domestic sales, I know you have a concentration. I mean, you look at that map of yours, with the concentration it looks like you do have a good footprint there but I guess the total sales is just not, I think?

Rick Parod

I don’t have the specific number in terms of the size of what impact that has on our revenue. I will just say that it’s not a very significant impact. It is a growing region for us, but it’s not a significant impact on our revenue today.

Joe Mondillo - Sidoti & Company

Okay. All right. Thank you.

Rick Parod

Yeah. Thank you.

Operator

The next question comes from Schon Williams of BB&T Capital Markets.

Schon Williams - BB&T Capital Markets

Good morning.

Rick Parod

Good morning.

Jim Raabe

Good morning.

Schon Williams - BB&T Capital Markets

Rick, you mentioned Section 179 possibly having some effect. I’m just wondering, my understanding was most of the systems had to be installed by December. Did you see a bit of a rush to get systems out the door and installed in December and then a bit of a drop-off as we moved into January, February timeframe?

Rick Parod

Yes. Schon, you talked about this a little in after the first quarter and we really didn’t see anything we could define as kind of a rush in terms of getting things in at the end of the calendar year. So, I really didn’t expect that this had much impact. Now, we’ve heard since them from dealers is that it did have more of an impact and it wasn’t so much represented as a rush, as people were really taking advantage of the enhanced Section 179, probably for many months towards the end of the year. So it’s a pretty good lower orders coming in, and we did see a change and we do believe that it had some impact. We just really don’t know how much and it’s very hard to differentiate that between the effective commodity prices.

Schon Williams - BB&T Capital Markets

Is there an expectation that that maybe re-implemented maybe at a lower level? I mean, our dealers counting on that at this point. I mean, there’s been some talk about possibly maybe after the Fall Elections, extended it retroactively through beginning of the year. I mean, I’m just trying to get a sense of, what are dealers telling you at this point, are they counting on an extension of that, or they are not counting on that and more demand we’ve seen as again become more of a functions on just where commodity prices are?

Rick Parod

The comments I hear from people are that they are expecting or have some level of expectations that it will get reinstated and we will see more enhanced Section 179 in place. However, I think as we all feel like, it’s really hard to know what will get approved today. But that is an expectation that’s been discussed because it has been done in the past.

Schon Williams - BB&T Capital Markets

Can you just help me understand on the buyback and just how the timing works? I know you announced the capital allocation plan in January. I was assuming there is some kind of blackout period as you get towards the February. Can just maybe help me understand what’s your corporate policy is and how long the blackout last and just some of the timing issues?

Jim Raabe

Sure. Basically, we follow the blackout period that’s similar to what we follow-up for our officers, which is a couple of weeks just prior to the end of the quarter. So to your point, we did start the repurchase after we announced the capital allocation plan. But there was just relatively short period of time for us to execute repurchases prior to running up against that blackout period.

Rick Parod

The other comment I’d make is that, as we outlined in our capital allocation plan, we plan to invest a $100 million to $150 million in opportunistic share repurchases. And we plan to have repurchase activity every quarter during the open window period.

Schon Williams - BB&T Capital Markets

All right. That’s helpful, guys. Thanks for the color.

Rick Parod

Thank you.

Operator

(Operator Instructions) The next question comes from Chris Shaw of Monness Crespi.

Chris Shaw - Monness Crespi

Hey. Good morning, gentlemen. How are you doing?

Rick Parod

Good morning.

Chris Shaw - Monness Crespi

You mentioned the timing of projects in international. There was a strong first quarter for international irrigation. It’s hard to predict the timing of projects maybe fall to somewhere, I guess, more concentrated in the first quarter and then just natural course of that and some investment in second quarter. So a more proper look at how that business is sort of combining -- looking at the entirety of the first half and not just quarter-by-quarter?

Rick Parod

I’m not sure I got the last half of that question, please. I didn’t understand that.

Chris Shaw - Monness, Crespi

I was just saying, is it (indiscernible) to look at the full year or a half year versus the quarter-to-quarter because the projects are somewhat lumpy?

Rick Parod

I think the nature of the projects that we participate in the irrigation projects are lumpy. And I wouldn’t read much into the change from one quarter to the next in a sense that many cases and especially in the developing markets like Russia and Ukraine, parts of Africa and even China, they will be project based.

So the timing slipping may not be really indicative of anything other than the fact that it’s a project and there could be delays in whether you see the land acquisition or various activities that could cause that to happen. So I wouldn't read more in that and I think looking at it over a six-month period is a better picture, looking at it over a full year is a better picture. But quarter-to-quarter it's difficult looking at the international revenues because of that project level of activity.

Chris Shaw - Monness Crespi

Okay. And then so U.S. irrigation, did you, I mean did dealers talk about any impact from weather? I know it’s always -- winter is not the best time to buy irrigation or think about it, in a sense. Did the snow keep people out of the dealerships at all? Did you get any feedback from dealers on that?

Rick Parod

We haven't heard a lot of feedback regarding the weather other than the fact that some areas is concerned about delay in planting and that means therefore customers making some decisions as well in terms of buying equipment. So there could be some impact. I really don't have much more than some general comments on that. So there really hasn't been a lot more that we’ve heard on the weather impact.

Chris Shaw - Monness Crespi

Okay. Finally on LAKOS, I think that if you work back on the percentage growth numbers, LAKOS maybe contributed $5 million in sales this quarter. If that’s right, that seems like less than I would have thought? Maybe I’ve got seasonality wrong on that, but I thought it would be stronger than I think $5 million in sales?

Jim Raabe

Well, I think the math that you're running is off of the kind of with and without LAKOS number that we're giving but that’s domestic number. So there is international business as well. And historically they've had up to a third of their business on the international side. So your math would be more on the domestic side.

Chris Shaw - Monness Crespi

Right, okay. Great, thank you.

Operator

Your next question comes from Kevin Bennett of Sterne Agee.

Kevin Bennett - Sterne Agee

Hey guys, good morning. How are you?

Rick Parod

Good morning.

Kevin Bennett - Sterne Agee

Jim, I just had a quick follow-up on the corporate expense line. It looks like you took a nice step down in the second quarter. And I was wondering if you could help out for the year, is this $3.5 million bucks is good for the rest of the year, will it set back up?

Jim Raabe

It is a little bit lower, tends to be a little bit lower in the second quarter because we have some of our kind of audit and another costs take a step down in the second quarter. We also had some benefit on the some of our healthcare costs, some of the change that we made in our health insurance program. So we do expect that to step up a little bit although I would expect it to be kind of in that $4 million range or maybe $0.5 million higher or so balance of the year.

Kevin Bennett - Sterne Agee

Got it, perfect, that's helpful. And then Rick, I know you guys are actively looking in the M&A market. Is there anything you can tell us or help us what you're looking at and how close anything maybe or what you're seeing in the market?

Rick Parod

Well, I couldn't comment on how close we are. I'd say that we're still seeing lot of activity in the market in terms of a lot of potential candidates primarily around the water aspect of the pumping and filtration side, things that we have pieces of today. And I am optimistic about those however most of them were pretty small. So we're not really talking about large deals but we're talking about ones that further strengthen our differentiated position but add to growth opportunities for the future?

Kevin Bennett - Sterne Agee

Got it, perfect. That makes sense. Thank you, guys. I appreciate it.

Rick Parod

Thank you.

Operator

And the final question will come from the line of Peter Van Roden with Spitfire Capital.

Peter Van Roden - Spitfire Capital

Hey, guys.

Rick Parod

Good morning.

PeterVan Roden - Spitfire Capital

Just a quick question on irrigation margins. Some have been talking about sort of where they think it’s going. But it seems to me you guys have done a pretty good job of keeping them where they are today given the downdraft in the domestic market. Can you talk about some of the stuff that you have been doing to kind of keep that steady?

Rick Parod

I think a couple of key points to this has been, one, what's happening with the pricing environment and rightly what we've seen in the pricing environment is, it is competitive. So we haven't really seen a significant change in the competitive intensity in pricing. Generally, we had some cost increases that came through the form of steel and some other commodities that we have been able to pass through in terms of pricing.

So that's a big factor in it. In addition, our factor has been very responsive and lot of this has tied to lean the implementation and the fantastic job that our manufacturing and operation has done and been able to respond to higher and lower volumes. So it has been able to ramp up in the peak of the season and at different times in the peak of the cycle and be able to pull back as needed and thus get more difficult at times as volume come down, but it's been very effective in terms of taking cost out as the lower production levels. In addition, we’ve had some small staff reductions, minor ones but generally tied to the pricing environment and the reaction from the -- that our factory has made.

Peter Van Roden - Spitfire Capital

Got it. And then final question for me is you guys talked a little bit inventory was up year-over-year because of LAKOS deal but days have also been creeping up little bit over the past couple of quarters, is there any reason for that?

Jim Raabe

Are you talking days in the inventory?

Peter Van Roden - Spitfire Capital

Yeah.

Jim Raabe

Yeah, it's up a little bit, just some of that is just some of the seasonality, the various part of location increased their inventory a little bit in advance of the third quarter. So we would expect that to come down over the balance of the year.

Peter Van Roden - Spitfire Capital

Okay. That's all I have. Thanks guys.

Jim Raabe

Thank you.

Operator

Thank you. I will now turn today's conference call over to Mr. Parod for any final remarks.

Rick Parod

While we have experienced a near-term decline from peak irrigation revenues, drivers for the company's markets, the population growth, expanded food production, and efficient water use support our long-term growth goals. We're committed to create shareholder value through investments in organic growth, dividend increases, strategic water-related acquisitions and share repurchases congruent with our capital allocation plan. We thank you for your questions and participation in this call today. Thank you.

Operator

Thank you. This will conclude today's conference call. You may now disconnect your line.

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