Lindsay Corp. Posts Dismal Q2 Earnings - Analyst Blog

Lindsay Corporation LNN reported disappointing results for the second quarter of fiscal 2014 (ended Feb 28, 2014). Earnings per share came in at $1.04, down 31% year over year. The reported figure also lagged the Zacks Consensus Estimate of $1.13 per share.

Operational Update

Total revenue decreased 13% year over year to $152.8 million, missing the Zacks Consensus Estimate of $165 million. Total irrigation equipment revenue decreased 16% while infrastructure revenues increased 32%. Domestic irrigation revenues and international irrigation revenues registered a decline of 21% and 5%, respectively.

Cost of operating revenues decreased 12% to $110 million. Gross profit declined 15% to $42.6 million with gross margin contracting 80 basis points (bps) to 27.9%. Irrigation margin dipped 1 percentage point due to fixed cost deleverage on lower sales and a higher mix of international sales. Infrastructure margins increased 7 percentage points due to sales mix and leverage on higher sales.

Operating expenses went up 4% to $21.8 million in the quarter due to increased costs related to the Lakos acquisition, partly offset by reduction in incentive compensation and advertising expenses. Operating income in the quarter declined 29% year over year to $20.9 million. Operating margin in the quarter was 13.7%, down 310 bps from 16.8% from the prior-year quarter.

Lindsay Corp.'s backlog at the quarter-end was $89.3 million, compared with $159.3 million at the end of the year-ago quarter. Decrease in backlog in the U.S. and international irrigation markets offset the rise in infrastructure backlog. The infrastructure backlog includes a $12.8 million Road Zipper System order from the Golden Gate Bridge.

Financial Position

Cash and cash equivalents were $165.5 million at the end of the second quarter of fiscal 2014 versus $159.5 million at the end of the second quarter of fiscal 2013. The company generated $32 million in cash from operating activity in the second quarter of fiscal 2014, as against $26 million in the prior-year quarter. Lindsay Corp. has no debt at present.

During the quarter the company repurchased 78,520 shares for $6.6 million.

Our Take

Lindsay Corp. will benefit from consistent focus on managing margins and the sustained momentum in the irrigation market for the remainder of the year. In addition, population rise, increased food production and efficient water use will likely drive the company's growth in the long run.

Moreover, Lindsay Corp. is committed to increase shareholder returns through execution of the capital allocation plan outlined in Jan 2014. Continued progress toward sustainable and profitable performance in the infrastructure segment, including enhanced selling methods in the markets will also drive growth.

The company's current estimate for capital expenditures for 2014 lies between $15 million to $20 million. Capital expenditure investments plan includes the manufacturing operations in Turkey, which will be operational early in fiscal 2015. This is in tandem with the company's long-term growth plans in Europe, Africa, the Middle East and other developing regions. Lindsay Corp. will continue to invest in growth and productivity, both organically and through acquisitions.

However, lower grain prices and the political tensions in Russia and Ukraine are likely to pressure irrigation demand in the second half of the year. The current forecast for 2014 U.S. net farm income down 27% from 2013. For the remainder of fiscal 2014, Lindsay Corp. expects U.S. irrigation equipment revenues to remain below the previous year's level. Moreover, lower expectations for U.S. irrigation sales in 2014 and lack of visibility into the primary selling season for irrigation equipment remain concerns.

Omaha, NE-based Lindsay Corp. is a leading designer and manufacturer of self-propelled center pivot and lateral move irrigation systems, which are primarily used for agriculture purposes to increase or stabilize crop production while saving water, energy and labor at the same time.

Lindsay Corp. carries a Zacks Rank #4 (Sell). Some better-ranked stocks worth considering in the sector include Alamo Group, Inc. ALG, Komatsu Ltd. (KMTUY) and The Manitowoc Company, Inc. MTW. All of these have a Zacks Rank #2 (Buy).