Lindsay Lags Bottom Line Est.

Lindsay Corporation’s (LNN - Analyst Report) operating earnings of 59 cents per share for the fiscal fourth quarter lagged the Zacks Consensus Estimate by 5 cents. Results were however, 23% above the prior year earnings of 48 cents.

Including 13 cents of costs and expenses pertaining to the fourth quarter implementation of the new enterprise resource planning system (ERP) and an adverse administrative tax ruling in a foreign business unit, the company reported earnings of 49 cents for the quarter under review.

Fiscal 2011 operating earnings were $3.03 per share, a substantial improvement from $1.98 per share earned in fiscal 2010. Results were 6 cents below the Zacks Consensus Estimate.

Operational Update

Total revenue in the fourth quarter increased 32.2% to $116.1 million from $87.2 million in the prior-year quarter, beating the Zacks Consensus Estimate of $109 million. The improvement stemmed from a 60% year over year total irrigation equipment revenues increase, a 41% year over year domestic irrigation revenues increase and a 87% year over year international irrigation revenues increase.

However, a 18% year over year decline in infrastructure revenues due to lower sales of Quick-Change Moveable Barrier (QMB) product was a drag.

Total revenue for fiscal 2011 increased 34% year over year on the heels of  a 43% increase in total irrigation equipment revenues and a 9% increase in infrastructure revenues.

Cost of goods sold in the quarter increased to $86.1 million from $61.5 million in the year-ago quarter. Gross margin also contracted 360 basis points year over year to 25.9% largely attributable to lower revenues from the higher-margin QMB product.

Full year cost of goods sold increased to $349.1 million from $259.5 million in 2010. Gross margin contracted 50 basis points attributable to regional sales mix, product mix, and factory inefficiencies resulting from the ERP implementation.

Operating expenses increased to $20.3 million in the quarter from $16.0 million in the year-earlier quarter. Full year operating expenses also increased $73.2 million from $61.1 million in 2010, due to investments in sales and marketing, higher research and development expenses, acquisitions completed in 2010 along with increased incentive compensation.

Operating income in the quarter amounted to $9.8 million, almost flat with  the year ago quarter. Full year operating income was $56.6 million, up from $37.8 million in 2010.

Financial Position

Lindsay ended fiscal 2011 with cash and cash equivalent of $107.2 million, up from $83.4 million, as fiscal 2010 end.

Long term debt was $4.3 million as of year end, a substantial decline from $8.6 million at 2010 end.

The company generated $43.1 million of net cash from operating activity in fiscal 2011, a whopping increase of 80.6% year over year.

Capital expenditure increased to $8.4 million in fiscal 2011 from $5.8 million in 2010.

Dividend

In July, the board of directors of  Lindsay Corporation authorized a 6% increase in its quarterly dividend. The increased dividend amounted to 9 cents per share with annualized dividend of 36 cents per share.

Outlook

Lindsay remains optimistic about positive farmer sentiment as well as higher commodity prices.

Moreover, the company’s long-term drivers including expanded food production, water use efficiency and transportation safety products, population growth are expected to hold course.

Our Take

The United States Department of Agriculture forecasts farm income in 2011 to be 31% higher than 2010, which will also be the highest on record. Lindsay’s irrigation segment will thus benefit from rising farm income. The irrigation segment also stands to benefit from a continuing shift from flood irrigation to more efficient systems and exposure to fast-growing international irrigation markets.

We retain our Outperform long-term recommendation on Lindsay. The quantitative Zacks #1 Rank (short-term Strong Buy rating) for the company indicates upward pressure on the stock over the near term.

Omaha, Nebraska-based Lindsay Corporation is a leading designer and manufacturer of self-propelled center pivot and lateral move irrigation systems, which are used principally in agriculture to increase or stabilize crop production while conserving water, energy and labor. The company also manufactures and markets road safety products. The company competes with Valmont Industries Inc. (VMI - Analyst Report).

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