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Lindsay (LNN) Q3 Earnings Beat Estimates, Outlook Impressive

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Lindsay Corporation LNN reported third-quarter fiscal 2017 (ended May 31, 2017) earnings of $1.02 per share compared with 90 cents per share recorded in the prior-year quarter. Earnings surpassed the Zacks Consensus Estimate of 92 cents, generating a positive earnings surprise of around 10.9%.

The irrigation equipment manufacturer reported revenues of $152 million, beating the Zacks Consensus Estimate of $145 million. Revenues increased nearly 7.2% on a year-over-year basis.

Irrigation segment revenues were up 2% year over year to $120 million. U.S irrigation and international irrigation revenues both recorded 2% growth. Domestic irrigation revenues increased mainly due to higher average selling prices and improved irrigation equipment unit volume. International irrigation revenues were up primarily on the back of the continuation of a notable recovery in Brazil, increased project activity in developing markets, and a slightly favorable currency translation impact.

Lindsay Corporation Price, Consensus and EPS Surprise

 

Lindsay Corporation Price, Consensus and EPS Surprise | Lindsay Corporation Quote

Infrastructure segment revenues surged 31% to $31.5 million, driven by higher Road Zipper system sales and lease revenue, as well as rise in sales of road safety products in international markets.

Operational Update

Cost of operating revenues increased 6% year over year to $105.6 million. Gross profit went up 9.8% to $45.9 million from $41.8 million in the year-ago quarter. Gross margin also expanded 71 basis points (bps) to 30.3%. Higher margins in the infrastructure segment were more than offset by lower margin in the irrigation segment. Improved infrastructure margin resulted from higher Road Zipper system sales, and lease revenue and volume leverage from higher road safety product sales.

Operating expenses flared up 7.5% year over year to $28.5 million in the quarter, mainly from higher product development costs and professional fees. The company posted an operating profit of $17.4 million, a 13.6% rise from $15.3 million recorded in the year-earlier quarter. Operating margin advanced 70bps to 11.5% in the third quarter of fiscal 2017 compared to the prior year’s third quarter.

Financial Position

Lindsay had cash and cash equivalents of $113.2 million at the end of the fiscal third quarter compared with $101.2 million at the end of third-quarter fiscal 2016. The company reported cash flow from operating activities of $24.5 million for the nine-month period ended May 31, 2017, compared with $20.3 million recorded in the prior-year period. Lindsay had long-term debt of $116.8 million at the end of the fiscal third quarter, flat year over year.

There were no share repurchases during the fiscal third quarter. As of Feb 28, 2017, shares worth around $63.7 million remained under the company’s buyback program.

Lindsay’s backlog as of May 31, 2017, was $70.1 million compared with $61.2 million as of May 31, 2016.

Outlook

Lindsay expects that stabilization in the U.S. irrigation equipment market, a consistent recovery in Brazil and increased project activity in developing international markets will drive growth. The company also stated that its irrigation operating margin performance in the U.S. will likely benefit from the strength and growth of technology products. Further, growers’ sentiment in the U.S. has been displaying signs of improvement.

Moreover, Lindsay is poised to gain from improving activity levels in the international irrigation and infrastructure markets. In addition, population growth, increased food production, efficient water use and infrastructure upgrades are likely to propel long-term growth.

However, overall market conditions and capital investment continue to be constrained by lower commodity prices and farm income. Additionally, Lindsay is likely to witness escalated costs and near-term volatility in the road safety product revenues.

Year to date, Lindsay’s stock has outperformed the Zacks categorized Machinery-Farm industry. While the stock has gained 22.5%, the Zacks sub-industry recorded 18.2% growth over the same time frame.

Lindsay currently carries a Zacks Rank #2 (Buy).

Other top-ranked stocks in the same space include AGCO Corporation (AGCO - Free Report) , Apogee Enterprises, Inc. APOG and Deere & Company DE. All three stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

AGCO has an average positive earnings surprise of 40.39% for the trailing four quarters.

Apogee generated an average positive earnings surprise of 3.42% over the past four quarters.

Deere has a remarkable average positive earnings surprise of 70.41% for the last four quarters.

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