Lindsay Underperforms

Lindsay Corporation (LNN - Analyst Report) reported fiscal fourth-quarter earnings of 17 cents per share, well below the Zacks Consensus Estimate of 35 cents per share and year-ago earnings of 90 cents per share. The company’s cost-reduction initiatives could not fully offset the impact of lower sales.

The company posted revenue of $73.4 million for the quarter, down 50% from the year-ago revenue of $147.2 million. Current global economic conditions are adversely impacting the company’s businesses. Irrigation equipment revenue declined 53%, while Infrastructure revenue was down 42% year over year.

In the Irrigation segment, Lindsay witnessed a 59% drop in domestic sales and 41% drop in international revenue. Farmers have stayed away from purchasing capital goods due to the prevailing uncertain market conditions.

The Infrastructure business is highly dependent on government funding of transportation projects. During the past several months, federal, state and local governments have cut down spending on infrastructure projects, pending the availability of funds.

Gross margin dropped 140 basis points 24.0%, primarily due to unfavorable product mix in Lindsay’s infrastructure business. The company managed to cut down operating expenses by 22% through its cost cutting initiatives. However, this was not sufficient to fully offset the impact of lower sales and unfavorable product mix on the company’s margins.

For the full year, Lindsay posted net income of $1.11 per share, compared to the Zacks Consensus Estimate of $1.28 and fiscal 2008 earnings of $3.20 per share. Annual revenue of $336.2 million was down 29% compared to last year.

Lindsay had a backlog of $43.6 million at the end of fiscal 2009, compared to $92.3 million as of Aug. 31, 2008. The current backlog includes approximately $19.0 million of the Mexico City Movable Barrier project. Lindsay has received the required initial deposit for the project during the fourth quarter and now expects to complete the project by the end of fiscal 2010.

Farmers continue to hold themselves back from investing in capital goods and net farm income for 2009 is estimated to come well below 2008 levels. Subdued outlook for farm spending combined with uncertainty surrounding federal highway funding limits near-term visibility on Lindsay’s top-line. However, we believe Lindsay’s long-term outlook remains positive due to the need for increased food production driven by the worldwide population growth and the strong need to improve transportation infrastructure globally.

We maintain a Neutral recommendation on LNN.