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Lindsay (NYSE:LNN)
Q1 2020 Earnings Call
Jan 09, 2020, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good morning. My name is Andrea, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lindsay Corporation first-quarter fiscal year 2020 earnings call. During this call, management may make forward-looking statements that are subject to risks and uncertainties, which reflect management's current beliefs, estimates of future economic circumstances, industry conditions, company performance and financial results.

Forward-looking statements include the information concerning possible or assumed future results of operations of the company and those statements preceded by, followed by or including the words expectation, outlook, could, may, should or similar expressions. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. I would now like to turn the call over to Mr. Tim Hassinger, president and chief executive officer.

Please go ahead.

Tim Hassinger -- President and Chief Executive Officer

Good morning, and thank you for joining our call. With me on today's call is Brian Ketcham, chief financial officer; and Lori Zarkowski, our chief accounting officer. The objective of this call is to discuss our quarter 1 results. Before we go to that overview, I'll make a few introductory comments.

For the domestic irrigation business in the first-quarter farmer sentiment continued to be impacted by the unresolved trade issues and lower commodity prices. On the positive side, the recent market facilitation payments administered through USDA have helped farmer income in this challenging environment. In addition, the expected U.S.-China Phase 1 trade deal completion this month does provide potential for stronger commodity prices moving forward. Our innovate and collaborate strategic direction in irrigation continues to progress.

Last fiscal year, we launched pivot watch, and it is exciting to see the market interest continued to increase for this product. In addition to the farmer interest for this product that is sold through the Lindsay dealer network. Farmers edge will be deploying pivot watch to their irrigated customers to support their agronomic capabilities. This will allow as applied irrigation information to be fed to their farm command platform through field net.

By integrating these two digital platforms the goal is to have this fully connected water management solution on 2 million acres by the end of 2021. Our collaboration partnerships continue to expand, and we see them as key enablers to further the current field net market leadership position. Our sales data shows a direct correlation of our field net penetration percent to the market share of our pivot business. For this reason, we see our technology leadership position as being an important part of our overall growth strategy.

For the infrastructure business, we continue to see favorable signs that the road zipper business is moving in a positive direction. In our first quarter, we secured a multiyear lease in Germany. Also, currently, there are potential projects in our sales funnel across significantly more countries than we've had in prior years, which reflects our desire to expand our geographical footprint. We also continue to focus on our shift-left strategy.

A key U.S. Midwest partner state is planning to more than double the number of projects and miles of barrier for this upcoming summer construction season. These are great examples that we are successfully addressing the need to grow this business and increase the leasing business. As we have said before, by addressing these two objectives, we can help to reduce the lumpiness associated with this business.

Our focus on these two objectives is moving this business forward at an accelerated rate. Our overall sales funnel, projects based on a 50% probability of success is at the highest level it has ever been. Also, the number of machines being leased is at the highest level ever. As these projects progress to the signed agreement stage, we will announce them on future updates.

Our innovate and collaborate strategy is also advancing in the infrastructure business. Our focus on innovating and making the road zipper system, a more attractive option is rapidly moving forward. We will be launching a new machine design this fiscal year for Nexco East, a company engaged in the construction, management and operation of expressways in the eastern part of Japan, which will allow the machine to be transported between work sites without having to secure and load the machine onto special trailers to handle this task. This ease of use improvement will make the road zipper system even more attractive in that market as well as other markets around the world.

Lastly, regarding our foundation for growth initiative. We have previously stated that we expect to realize $13 million to $18 million in margin improvement from the four work streams that have been highlighted. Since the beginning of this transformational journey, our goal was to have these margin improvement projects implemented by the beginning of our fiscal year 2020. While we recognize that market conditions will have an impact on our ability to achieve our goal of 11% to 12% operating income, I can confirm that these margin improvement projects have been implemented and are delivering as we expected.

What is clear to us. Our foundation for growth initiative has led to a transformational change for Lindsay. So now let's move to our Q1 results. For that, I'll turn the call over to Brian.

Brian Ketcham -- Chief Financial Officer

Thank you, Tim, and good morning, everyone. My comments regarding first-quarter comparisons will refer to adjusted results for the prior year, which omit the impact of foundation for growth costs. Adjusted results from the -- for the prior year are detailed in the Regulation G disclosure at the end of the press release. No adjustments were made to current period results.

Total revenues for the first quarter of fiscal 2020 were $109.4 million compared to $112 million in the same quarter last year. Net earnings for the quarter were $8.3 million or $0.77 per diluted share compared to net earnings of $4.1 million or $0.38 per diluted share in the same quarter last year. Prior-year revenues included $3.3 million associated with the company-owned irrigation dealership that was divested in the first quarter of fiscal 2019. While the net earnings impact of this divestiture was insignificant.

Irrigation segment revenues for the first quarter of fiscal 2020 were $82.4 million compared to $87.6 million in the same quarter last year. North America irrigation revenues of $52.6 million were relatively flat compared to the prior year after excluding the impact of the divestiture. Higher irrigation system unit volume was offset by the impact of lower average selling prices and lower sales of replacement parts. Higher irrigation system unit volume came from regions supported by potato and dairy markets, and was partially offset by lower volume in regions supported by grain and cotton markets.

Average selling prices were lower than the first quarter last year as a result of the pass-through of lower steel costs. Domestic steel prices were approaching peak levels during the first quarter last year before starting to decline and moderate. Lower sales of replacement parts were the result of a timing difference in deliveries under our fall restocking program compared to the prior year. In the international irrigation markets, revenues of $29.7 million compared to $31.7 million in the same quarter last year, with approximately $1.1 million of the decrease resulting from differences in foreign currency translation rates.

Increased sales in Brazil and certain other markets were offset by lower sales in developing markets. Although, we continue to see a healthy amount of project opportunities in developing markets, delays in start dates have continued during the first quarter, pushing these projects to later in the fiscal year and creating risk to their eventual start date. Total irrigation segment operating income for the first quarter of $9.8 million was $1.9 million higher than the prior year, and operating margin improved to 11.8% compared to 9% in the prior year. Improved operating margin performance was driven by the execution of various margin improvement initiatives.

The impact of these improvements was partially offset by the negative impact -- negative mix impact from lower sales of replacement parts. Infrastructure segment revenues for the first quarter of fiscal 2020 were $27 million, an increase of $2.7 million or 15% compared to the same quarter last year. The increase resulted from higher sales of road safety products and an increase in road zipper system lease revenue. A higher-than-expected portion of the Japan road zipper order was delivered during the quarter, with the remainder expected to be delivered in the second quarter.

The prior-year quarter included the majority of the revenue associated with the San Rafael Bridge project. Infrastructure segment operating income for the first quarter of $8.8 million increased $4.5 million compared to the prior year. Operating margin for the quarter was 32.4% of sales compared to 17.6% of sales in the prior year. Improved operating margin resulted from a more favorable mix of higher-margin revenues and from improved cost and pricing performance.

Cash and cash equivalents were $120.9 million at the end of the quarter, compared to $127.2 million at the end of the prior fiscal year. Cash was utilized in the quarter to fund working capital increases in support of sales growth as well as capital expenditures and dividend payments. No share repurchases were made during the quarter. However, a total of $63.7 million remains available under our share repurchase authorization.

At this time, I would like to turn the call over to the operator to take your questions.

Questions & Answers:


Operator

[Operator instructions] Our first question comes from Nathan Jones of Stifel. Please go ahead.

Nathan Jones -- Stifel Financial Corp. -- Analyst

Good morning, guys.

Tim Hassinger -- President and Chief Executive Officer

Good morning, Nathan.

Brian Ketcham -- Chief Financial Officer

Good morning, Nathan.

Nathan Jones -- Stifel Financial Corp. -- Analyst

You guys had said a few years ago when you started this journey on a 11% to 12% margin target for fiscal 2020. And I think certainly consensus in our expectation was that you weren't going to make that in 2020 due to the reduction in volume in the irrigation business. You guys did 11.2% operating margin in the first quarter. That is typically one of your lower margin quarters seasonally.

Maybe you can give us an update on whether or not you think you can achieve that 11% to 12%, with all of the work that you've done and maybe a better environment in irrigation that we're looking at this year. Just any update you could give us on whether you think you can actually reach that 11% to 12% target, even despite the lower irrigation volume?

Brian Ketcham -- Chief Financial Officer

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

But to get to the 11% to 12%, we do -- we still would expect to have market improvement from North America irrigation.

Nathan Jones -- Stifel Financial Corp. -- Analyst

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

Brian Ketcham -- Chief Financial Officer

Yeah. This is Brian again. I think the one key thing is the Japan order that we've called out in the past. We had about $12 million left to deliver in our first and second quarters.

We delivered a little over $7 million of that in the first quarter. And that's a unique order in that it is the kits that go into the barrier, it's not the barrier itself, and it doesn't include a machine. So it's higher-than-average margins. So we'll see some of that continue into the second quarter, but not as much as first quarter.

Another thing that impacted the first quarter on the infrastructure side is our road safety products, sales being up, but also margins improving over what they have been. We'll see seasonally that reduction take place in the second quarter. The other thing would be our leasing business, which was up in the first quarter in the U.S., on a seasonal basis because it's tied to the construction season. We'd see that tail off a bit in the second quarter as well.

So sequentially, we would expect our second quarter to be lower as a result of those items.

Nathan Jones -- Stifel Financial Corp. -- Analyst

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

Brian Ketcham -- Chief Financial Officer

Yeah. So a portion of the decrease is related to the divestiture, roughly $400,000 to $500,000. We also had lower sales commissions due to the project delays in the international irrigation business. And I would say the other thing is impacting the first quarter is just the mix of activity and how that affects sales commissions in infrastructure.

For the full year, we expect selling expenses to be slightly higher than last year.

Nathan Jones -- Stifel Financial Corp. -- Analyst

OK. That's helpful. I'll pass it on. Thanks very much guys.

Operator

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

Joe Aiken -- William Blair and Company -- Analyst

Hi. This is Joe Aiken on for Brian this morning. Thanks for taking my question. My first question, I just wanted to ask on the Japan order.

You said a little over $7 million was delivered in the first quarter. How much revenue related to that project is remaining to be delivered and is that all expected to come in the second quarter?

Brian Ketcham -- Chief Financial Officer

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

Joe Aiken -- William Blair and Company -- Analyst

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

Tim Hassinger -- President and Chief Executive Officer

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

So we see it as a positive lift, but difficult to quantify for you right now.

Joe Aiken -- William Blair and Company -- Analyst

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

Brian Ketcham -- Chief Financial Officer

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

Joe Aiken -- William Blair and Company -- Analyst

OK. Great. Thanks for taking my questions.

Brian Ketcham -- Chief Financial Officer

Thanks, Joe.

Operator

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

Ryan Connors -- Boenning and Scattergood -- Analyst

Great. Thank you. Congratulations on the great results, especially as it relates to infrastructure. And I wondered if we could just -- if you can help us think about infrastructure just from a bigger picture standpoint.

You've done very well and just from a competitive standpoint if we look at it from kind of a swat analysis. I mean, when you're doing this well and the profitability, is this good? I mean, what's the IP situation there as it relates to patents? Are there other competitors starting to sniff around the business with sort of knock offs and things like that. I mean, any updates you can give us on kind of the competitive dynamics and the IP dynamics as it relates to road zipper?

Tim Hassinger -- President and Chief Executive Officer

Yeah. So Ryan, why don't we just even broaden it out a little bit further. There's two areas that we are putting a lot of focus on. One that we've talked about and I mentioned in my opening comments, road zipper.

We put in a high emphasis on the shift-left strategy. We're seeing an increased interest on a global basis with this product. In terms of IP, we do have some IP, whether machines are on the barriers. At this point, we haven't seen a direct competitor, but I'm not going to say that won't ever happen, but at this point in time, to answer your question, we don't.

But in terms of the demand that we're creating, as I mentioned, we're right now in our sales funnel. We've got more machines being leased than we've ever seen before. We've got more potential projects in more countries than we've ever had before, and we can claim that confidently that our overall sales funnel is the best it's ever been. Now if you move to the road safety products the key driver, a key factor there has been the implementation to MASH.

And so where are we related to our road safety portfolio in the U.S. and we have made the submissions for our new products to FHWA, ABSORB-M is one product that we highlighted. This is a very important product for us going forward. It's a crash cushion that has been granted eligibility status from FHWA and many of the key states that we'll be selling and to have now approved it.

So for fiscal year '20, we would say, describe it as we have a full portfolio in place. Now what's exciting for us is this new portfolio is primarily crash cushions versus prior years went in terminals where a larger percent of the total sales for this business. So we see the potential of this new portfolio is being better than prior year's potential of the portfolio that we had. So as we are bringing innovation, obviously, that's opening the opportunity for IP.

And back on road zipper, the new product that we are going to be selling into Japan, that's a good example of bringing new innovation that opens the door for IP.

Ryan Connors -- Boenning and Scattergood -- Analyst

OK, great. Well, that's a comprehensive lowdown. I appreciate that. Now earlier, you talked about the selling expense more as it relates to irrigation.

What about infrastructure? And given the comments you just laid out. I mean, do you feel like there's going to be a need to invest in the sales organization on the infrastructure side? Or do you feel like you're already where you need to be?

Brian Ketcham -- Chief Financial Officer

Yeah, Ryan, this is Brian. No, we are making investments in the commercial organization for infrastructure as well as project management resources. Our overall SG&A for the year, with -- if you compare to last year's adjusted number, we're probably expecting to be up around 5%. That also includes continued investment in R&D in both irrigation and infrastructure.

Ryan Connors -- Boenning and Scattergood -- Analyst

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

Brian Ketcham -- Chief Financial Officer

Yeah. I think two things, I mentioned, typically, we have a fall restocking program that we have post harvest. And due to late harvest, the timing of those deliveries has shifted. We'll probably see some of that picked up in our second quarter.

And that's also the late harvest is also impacted just what would be your typical repair and replacement after the season. So those are the key things. But the restocking program is the thing that impacted the part sales more than anything.

Ryan Connors -- Boenning and Scattergood -- Analyst

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

Tim Hassinger -- President and Chief Executive Officer

Thanks, Ryan.

Operator

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

Joseph Mondillo -- Sidoti and Company LLC -- Analyst

Hi, guys. Good morning.

Tim Hassinger -- President and Chief Executive Officer

Good morning, Joe.

Brian Ketcham -- Chief Financial Officer

Good morning, Joe.

Joseph Mondillo -- Sidoti and Company LLC -- Analyst

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

Tim Hassinger -- President and Chief Executive Officer

Yes. So Joe, this is Tim. I wouldn't say we were surprised, but we were definitely encouraged seeing volumes up, as Brian said, there was a later harvest in, especially through the Midwest. But obviously, we sell across a broader range in the Midwest.

So that was very positive. The market facilitation payments, which is what you're referring to. Majority of those payments have been made, so farmers were able to see at the end of the year, a good or comprehensive look of where they were at from a tax standpoint. So that obviously helps there.

But we are seeing farmer sentiment encouraged is the way I would describe. We've called it a wait and see attitude. We think it's still a wait and see attitude. But with the level of uncertainty that has existed in this market.

On what is the final yields from 2019 going to be and the key trade deals, whether it's USMCA, Japan and now -- and the biggest one being the China. Where we're at right now is, January has the potential of addressing a lot of that uncertainty. You've got the next USDA supply demand report coming out tomorrow. And with expectation that these three trade deals will have conclusion or finalization this month.

It has definitely brought an interest in farmers still in a wait and see attitude, but I would say the attention to it is higher than what we saw a year ago.

Joseph Mondillo -- Sidoti and Company LLC -- Analyst

All right. And then I wanted to just sort of follow-up with the question on the foundation for growth. So excluding the divestiture and excluding currency, your irrigation sales were sort of roughly flattish. The operating income was up about $2 million.

I assume that was mostly, if not all, related to what you're doing with procurement and the other initiatives that you're doing with foundation for growth. At this point in time, I understood it as if most of the legwork or the heavy lifting or structural changes were pretty much done by the end of fiscal '19. And so how -- do we see incremental improvements beyond what we saw in the first quarter going forward? Or just help me understand the savings that we get, what we saw in the first quarter and then going forward?

Brian Ketcham -- Chief Financial Officer

Yeah. Joe, I'll try to frame this a bit. We realized a little over $3 million in our first quarter, with the majority of that coming from sourcing and operations with some also coming from commercial work streams. That split was about $2 million in irrigation and about $1 million in infrastructure.

Going forward, we would -- some of this is going to be volume dependent. So we'll see some variation, but we feel like we're on track for -- but what we had indicated is that incremental $10 million to $12 million. And so that we expect that operating margin performance that we saw in irrigation in our first quarter to be sustainable going forward. There was some negative impact with the lower parts volume compared to a year ago, but we would expect to be able to sustain those levels of operating margin.

Joseph Mondillo -- Sidoti and Company LLC -- Analyst

OK, perfect. Thanks for that. And then on the international irrigation side, I would have almost anticipated that you have some easy comps? And I think the Brazilian farmers have been doing quite well with a lot of the China volume going from the U.S. to Brazil.

I'm not sure what else is -- what's happening elsewhere in the world. But I would have thought you would have started to see a little bit of growth in International on an organic basis. So could you update us on what you're seeing internationally? And then just maybe related to this, the backlog was up 25% quarter over quarter. Was that related to international projects?

Tim Hassinger -- President and Chief Executive Officer

Yes. So let me -- Joe, I'll take your question on international, and then Brian can give you some color related to the backlog. Brazil, as you said, there are strong market fundamentals there, and we're seeing it. And definitely the market is benefiting from that.

Another thing I'll throw out in Brazil that we're seeing is seeing the growth of a third of cotton crop that follows the traditional safrinha crop. So that can even lead to better grow our profitability that's going to support more irrigation growth. The other factor in Brazil that's favorable is, the Central Bank of Brazil voted in December to trim their key rate to four and a half percent, which is a record low. So very encouraging there.

If you now move over, though to Africa, Middle East, we are seeing an economic slowdown in South Africa that is impacting the Ag segment. Land reform is definitely a negative factor there. And for the large Middle East project that I had mentioned in the prior call, we had retained a significant down payment for this purchase but this project has been delayed, waiting for site approvals. We do expect this project to start shipping in the near term.

And for us, that means this current or the following quarter for us. And then Australia and New Zealand, as we've seen in the news, sales continue to be below historical levels there, the region due to the prolonged drought and now the real significant fires that are going on that -- and lot of that is happening in the core irrigation market. So overall, we're encouraged by the Brazil potential. The project opportunities in the Middle East, Africa region that are being realized, but there is some uncertainty on the timing of these projects.

And when you have that, it brings more risk to those projects. And then lastly, it's just the market recovery in the Australia and New Zealand region has not yet occurred. And on the backlog, Brian, do you want to address that, please?

Brian Ketcham -- Chief Financial Officer

Yes, Joe. On the backlog, irrigation, I would characterize the irrigation backlog is being up slightly compared to last year. And with the majority of the backlog increase year over year coming from the infrastructure side of the business.

Joseph Mondillo -- Sidoti and Company LLC -- Analyst

OK. I have a couple of other questions but I'll hop back in queue. Thanks.

Operator

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

Jon Braatz -- Kansas City Capital -- Analyst

Good morning Tim and Brian.

Brian Ketcham -- Chief Financial Officer

Good morning.

Tim Hassinger -- President and Chief Executive Officer

Good morning.

Jon Braatz -- Kansas City Capital -- Analyst

Tim, you started off talking about the partnership with farmers edge and the digital platform. Can you talk about -- a little bit about what the financial opportunities that may lay ahead with this partnership for Lindsay. I know it's going to take a while to get going, but what's -- what might be the upside. Can you tell me a little -- can you tell -- talk a little bit about the ramifications on the financial side of this partnership?

Tim Hassinger -- President and Chief Executive Officer

Yeah. Well, let's -- we'll tag team this one here. Jon, just like we did on the last one. And let me just frame what we're doing with farmers edge and some of the why, and then Brian can help put a little more color to it to your question.

But this partnership was announced back in June of 2018. So what we've done here is we've taken steps to integrate digital platforms. And of course, what that's going to do is allow us to bring a fully connected water solution on the irrigated acres. And we stated in the press release and also in my opening comments, that we expect to have this joint offering on 2 million acres by the end of 2021.

Now this arrangement provides the field net customers access to high daily resolution of satellite imagery from farmers edge. And then farmers edge will be offering and promoting pivot watch to their customers. So that's a -- the real strategic opportunity here. And of course, on the other side, these Farmer Edge agronomic tools are offered and sold by the Lindsay global dealer network.

And then they're supported by the farmers edge agronomy team. And as you've heard us talk about, as we've moved toward irrigation scheduling, the need to have more agronomic capabilities is extremely important. So strategically, this fits that need extremely well. Now to your question, what's the financial impact, I'll let Brian frame that a little bit more in detail for you.

Brian Ketcham -- Chief Financial Officer

Yeah, Jon. So initially, this is, obviously, a increased penetration of our pivot watch product, getting that out on more fields, more irrigated acres of that 2 million, some of those already have pivot watch on. So it's bringing in the farmers edge capabilities to that, but there will be a pretty significant increase in the penetration of pivot watch. So that means there's a hardware component the pivot watch itself.

And then that would be an ongoing subscription on top of that. Ultimately, what we think this will lead to is then a FieldNET Advisor adoption and additional subscription. So at this point, we're obviously not disclosing what we think this will be from a total financial impact standpoint. But what we will do on future calls is give an update on where we're at.

Jon Braatz -- Kansas City Capital -- Analyst

OK Brian, thank you very much.

Operator

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

Nathan Jones -- Stifel Financial Corp. -- Analyst

Morning again, guys. A couple of extra questions. You talked about the government payments having gone out late in 2019. Trade deal gets signed, hopefully here in the next week.

I'm wondering in terms of timing and farmers capital budgeting for the 2020 year. Do these things come in time to have much of an impact on farmer spending on domestic irrigation here in 2020? Or are these things kind of something that will be more of a seed for 2021, removing the uncertainty as we go forward there just based on when farmers are typically doing their capital budgeting for the following year?

Tim Hassinger -- President and Chief Executive Officer

Yeah. So Nathan, this is Tim. What I would describe it as, today, what we've said is this wait and see attitude. All these things happen, let's assume for a moment.

Farmers are going to be looking to see what impact that has on commodity prices and is that sustainable. And they'll be making their decision to that, and that will drive the answer to what your question is. So we think the -- if that uncertainty goes away in the January time frame, it is positive for the business. The level of impact to be determined, but it's clearly positive direction for the business.

Nathan Jones -- Stifel Financial Corp. -- Analyst

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

Tim Hassinger -- President and Chief Executive Officer

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

Nathan Jones -- Stifel Financial Corp. -- Analyst

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

Brian Ketcham -- Chief Financial Officer

Yeah, Nathan. We are planning to increase our lease fleet for both machines and barrier, which would show up in capex. And that we currently put out -- we expect capex for the year to be 15% to 20%. That could vary, could be higher depending on how the leasing opportunities develop.

But the leasing would show up in capex, some of the other sales related projects would generally -- those increases would show up in inventory until those are delivered.

Nathan Jones -- Stifel Financial Corp. -- Analyst

Well, here's hoping that capex is a little bit higher than 15% to 20% then. OK. Thanks very much for the help.

Operator

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

Chris Shaw -- Monness Crespi Hardt & Co. Inc. -- Analyst

I guess, maybe just following up on the -- Nathan just asked about the leasing and the impact on the cash flow, but there's a new -- it looks like on your balance sheet, on the assets there is a new operating lease right-of-use assets line. Is that related to the infrastructure leasing?

Brian Ketcham -- Chief Financial Officer

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

Chris Shaw -- Monness Crespi Hardt & Co. Inc. -- Analyst

Got it. And then I had another question along the lines of steel prices and irrigation. I know they have come down, they're higher last year. I know the dollar margin really isn't impacted because you've been passing it through.

But is it -- was there a material impact? And will we see any sort of impact this year on the percent margin for the irrigation business or was that not that meaningful?

Brian Ketcham -- Chief Financial Officer

Yeah. I think on the market changes in steel those generally, we -- because of the timing of pass through. There's times when we can get -- gain some margin advantage there. But I would say for the full year, we do expect margin expansion, but it's going to be coming from our sourcing and operations initiatives.

We have seen steel prices start to increase this quarter, remains to be seen what happens with post China trade deal. But our view for the year steel will probably be more or less moderated to up slightly, but our margin improvement is really being driven by our separate from market changes, our sourcing initiatives and operations cost reductions.

Chris Shaw -- Monness Crespi Hardt & Co. Inc. -- Analyst

You just mentioned the trade deal, it just reminded me. You haven't seen -- is the uncertainty that was in the U.S. irrigation market because of the trade war, is that uncertainty not going to shift to the Brazil, do you think, given that they're now sort of maybe a loser in this trade deal? Or have you had any sense of that?

Tim Hassinger -- President and Chief Executive Officer

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

Chris Shaw -- Monness Crespi Hardt & Co. Inc. -- Analyst

Got it. Thanks so much.

Operator

[Operator instructions] And our next question is a follow-up from Joseph Mondillo of Sidoti & Co. Please go ahead.

Joseph Mondillo -- Sidoti and Company LLC -- Analyst

Hi, guys. Just one follow-up question related to the infrastructure segment and the road zipper business. Just regarding the leases, I understand you just stated that you won this pretty sizable multiyear lease in Germany. And I think, correct me if I'm wrong, the lease business has been increasing.

Just wondering how sticky is the leasing revenue from a quarter to quarter or year-over-year basis. And as a percent of the segment sales as a total, how has that been trending?

Brian Ketcham -- Chief Financial Officer

Yeah, Joe, this is Brian. I would say there's a couple of different aspects to the leasing. Tim had mentioned the Germany lease, which will start in our second quarter. That's I believe, a two-year lease.

So that is -- will be pretty steady. I would say that the Midwest partner that we've gained some additional leasing with that would tend to be a little more seasonal with the construction season. So we saw some good leasing activity in our first quarter that will tail off a bit in the second quarter and pick back up in third. But as we get more and more lease business and in different geographies that maybe aren't impacted by weather as much, we'll see that just the size alone and take some of that seasonality away there.

But as a percent of sales, I would say it's still a fairly low percentage of the overall infrastructure revenues, but we expect that to grow. That's where we're putting a lot of emphasis.

Tim Hassinger -- President and Chief Executive Officer

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

Joseph Mondillo -- Sidoti and Company LLC -- Analyst

All right. Just a follow-up. I guess, one of the things that I'm trying to understand and try to absorb when I'm trying to sort of model out the segment is and maybe I can ask it a different way. How much has sort of road safety -- I think that's much more of a stable business.

How has that been trending as a whole over the last couple of years on an annual basis?

Brian Ketcham -- Chief Financial Officer

I would say, over the last couple of years, road safety has been trending down, and there's a couple of reasons for that. One is the portfolio shift that we've been talking about. And some of it was the moving of some of the products to MASH. We've also deemphasized the -- and terminal part of the business and are focused more on the crash cushion part of the business.

So we now have the full portfolio of MASH approved road safety products that we want to go forward with in our portfolio. So we saw year-over-year improvement in our first quarter from road safety. And I would -- we expect for the full year that road safety will be up over last year.

Joseph Mondillo -- Sidoti and Company LLC -- Analyst

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

Brian Ketcham -- Chief Financial Officer

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

Joseph Mondillo -- Sidoti and Company LLC -- Analyst

OK. All right. Thanks for taking my questions. Appreciate it.

Have a good day.

Tim Hassinger -- President and Chief Executive Officer

Thanks.

Brian Ketcham -- Chief Financial Officer

Thanks.

Operator

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

Tim Hassinger -- President and Chief Executive Officer

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

Operator

[Operator signoff]

Duration: 50 minutes

Call participants:

Tim Hassinger -- President and Chief Executive Officer

Brian Ketcham -- Chief Financial Officer

Nathan Jones -- Stifel Financial Corp. -- Analyst

Joe Aiken -- William Blair and Company -- Analyst

Ryan Connors -- Boenning and Scattergood -- Analyst

Joseph Mondillo -- Sidoti and Company LLC -- Analyst

Jon Braatz -- Kansas City Capital -- Analyst

Chris Shaw -- Monness Crespi Hardt & Co. Inc. -- Analyst

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