Lindsay Beats Expectation

Lindsay Corporation (LNN - Analyst Report) reported earnings of $1.47 per share for the fiscal third quarter 2012; surpassing the Zacks Consensus Estimate of $1.36 and a year ago quarter’s earnings of $1.20 per share.

Operational Update

Total revenue in the quarter increased 12% year over year to $172.1 million, beating the Zacks Consensus Estimate of $166 million. The improvement was driven by an 18% increase in total irrigation equipment revenues that largely stemmed from a 38% rise in domestic irrigation revenues. On the other hand, international irrigation revenues decreased 12% and infrastructure revenues fell 15% during the quarter.

Cost of goods sold increased 10% to $123.1 million. Gross profit rose 18% to $49.0 million; consequently gross margin increased 150 basis points year over year to 28.5%. Irrigation margins improved due to favorable sales mix and infrastructure margins were benefited by higher product pricing in road safety and diversified products coupled with lower manufacturing costs.

Operating expenses increased 10.3% to $20.2 million in the quarter. Operating income in the quarter amounted to $28.8 million, up 24.4% year over year. Operating margin was 16.7%, up 160 basis points year over year.

Lindsay’s backlog at the end of third-quarter 2012 was $44.5 million compared with $43.3 million at the end of third-quarter 2011 and $87.3 million at the end of second-quarter 2012.

Financial Position

Lindsay ended the third quarter of fiscal 2012 with cash and cash equivalents of $119.8 million from $100.6 million at the end of third-quarter 2011. Long-term debt declined to $1.1 million from $5.4 million as of May 31, 2011. The company generated $25.9 million of net cash from operating activity in the quarter compared with $28.3 million in the year-ago quarter.

Outlook

Lindsay expects global irrigation equipment demand to remain high, driven by increased food production and efficient water use. However, the company is skeptic about infrastructure demand due to tight government spending on infrastructure and roads.

Our view

Increased food production coupled with efficient water use has been driving Lindsay’s irrigation equipment demand. We expect food production to increase further, driven by the spurt in worldwide population and growth and efficient water use.

However, the infrastructure segment remains a concern due to uncertainty regarding the new highway bill. Tight credit conditions make the situation worse as customers find it difficult to obtain loans.

Lindsay faces competition from companies like Valmont Industries Inc. (VMI - Analyst Report). The share retains a short-term Zacks #3 Rank (Hold). We have a long-term Neutral recommendation on Lindsay.