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Lindsay Misses Estimates

LNN

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Lindsay Corporation (LNN - Analyst Report) reported fourth-quarter fiscal 2012 earnings of 68 cents per share compared to the year-ago quarter’s earnings of 46 cents. Results missed the Zacks Consensus Estimate of 76 cents per share.

Operational Update

Total revenue improved 10% year over year to $127.8 million, missing the Zacks Consensus Estimate of $129 million. The year-over-year increase in revenues stemmed from an 18% improvement in total irrigation equipment revenues, driven by an 18% rise in domestic irrigation revenues as well as a 19% improvement in international irrigation revenues. On the other hand, infrastructure revenues fell 20% during the quarter.

Cost of goods sold increased 10% to $95.1 million. Gross profit improved 9% to $32.7 million. However, gross margin dropped 30 basis points year over year to 25.6%. Irrigation margins improved 1% due to fixed cost leverage and year-over-year efficiency gains.

Operating expenses declined 1.1% to $20.1 million in the quarter. Operating income in the quarter soared 29.9% to $12.7 million. Operating margin expanded 150 bps to 9.9%.

Lindsay’s backlog at the end of fourth-quarter fiscal 2012 was $57.1 million compared with $46 million at the end of fourth-quarter fiscal 2011 and $44.5 million at the end of third-quarter fiscal 2012.

Financial Position

Lindsay ended the fourth-quarter fiscal 2012 with cash and cash equivalents of $143.4 million from $108.2 million at the end of fourth-quarter fiscal 2011. Total debt was $4.3 million as of August 31, 2012, compared to $8.6 million as of August 31, 2011. The company generated $52.4 million of net cash from operating activity in the quarter compared with $43.1 million in the year-ago quarter.

Fiscal 2012 Performance

For fiscal 2012, Lindsay reported earnings of $3.38 per share, missing the Zacks consensus Estimate of $3.77. Total revenue rose 15% year over year to $551.3 million, missing the Zacks Consensus Estimate of $552 million.

Outlook

Lindsay expects that positive farmer sentiment, farm incomes and commodity prices affected by dry weather prevailing in the U.S. will positively impact the company in the first few months of fiscal 2013. Moreover, the new highway bill and the cost reduction initiatives in the infrastructure business will boost revenues in fiscal 2013. Lindsay expects long-term demand to remain high, driven by increased food production and efficient water use.

Our View

Demand for Lindsay’s products will increase, driven by soaring demand for food production due to worldwide population growth, efficient water use, mounting need for biofuel and improving transportation infrastructure. Moreover, the new highway bill will increase government spending on infrastructure favoring Lindsay in the space.

Lindsay’s debt was reduced by $4.3 million in the reported quarter, improving the debt-to-capitalization ratio to 1.4% as of August 31, 2012, from 3% as of August 31, 2011, and 1.7% as of May 31, 2012.

Lindsay retains a short-term Zacks #1 Rank (Strong Buy). We have a long-term Neutral recommendation on the stock.

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