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Why Is Lindsay (LNN) Down 5.9% Since Last Earnings Report?

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A month has gone by since the last earnings report for Lindsay (LNN - Free Report) . Shares have lost about 5.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Lindsay due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Lindsay's Earnings Beat, Sales Miss Estimates in Q4

Lindsay Corporation delivered adjusted net earnings of 54 cents per share in the fourth quarter of fiscal 2019 (ended Aug 31, 2019), surpassing the Zacks Consensus Estimate of 34 cents. Further the bottom-line figure improved 28.5% year over year. Challenging market conditions weighed on irrigation-equipment demand during the reported quarter. However, strong Road Zipper System sales drove Infrastructure results during this period.

Including the after-tax costs related to the company’s Foundation for Growth initiative, net earnings for the quarter were 14 cents compared with the net earnings of 46 cents recorded in the prior-year quarter.

Lindsay generated revenues of $101.9 million, down 17.3% year over year. The revenue figure missed the Zacks Consensus Estimate of $105 million. This downside resulted from the previously-announced business divestitures in the irrigation segment which were part of the Foundation for Growth initiative.

Operational Update

Cost of operating revenues slipped 22.7% year over year to $70.3 million. Gross profit was down 2.5% to $31.4 million from the $32.2 million witnessed in the year-earlier quarter. Gross margin came in at 30.8% compared with the 26.1% recorded in the year-ago quarter.

Operating expenses flared up 7% year over year to $27.4 million in the fiscal fourth quarter. The company reported an adjusted operating income of $8.8 million compared with the prior-year quarter’s $6.5 million. Adjusted operating margin came in at 8.6% compared with the 5.3% recorded in the comparable period last year.

Segment Results

Irrigation segment revenues declined 28% year over year to $69.5 million in the fiscal fourth quarter. While North America irrigation revenues declined 31.4% from the year-ago quarter, International irrigation revenues decreased 21.4% year over year. Higher revenues from engineering project services and the impact of higher average selling prices were offset by lower irrigation equipment unit volume. The segment’s operating income plunged 67.3% year over year to $3.4 million.

Infrastructure segment revenues increased 19.6% year over year to $32.3 million, driven by year-over-year higher Road Zipper System sales and lease revenues. The segment reported operating income of $9.3 million compared with the operating income of $3.8 million recorded in the prior-year period. Year-over-year favorable revenue mix and lower operating expenses drove the segment’s operating margin.

Financial Position

Lindsay had cash and cash equivalents of $127.2 million at the end of fiscal 2019 compared with the $160.7 million recorded at the end of fiscal 2018. The company generated $3.8 million of cash in operating activities in fiscal 2019 compared with $34 million in the prior fiscal year. Lindsay had a long-term debt of $115.8 million as of Aug 31, 2019, compared with $116 million as of Aug 31, 2018.

Lindsay’s backlog as of Aug 31, 2019, was $55.4 million compared with $53.3 million as of Aug 31, 2018.
 
Growth Initiatives

In 2018, Lindsay introduced a performance-improvement initiative — Foundation for Growth — with the objective of simplifying its business. One of its key financial objectives is to achieve operating margin performance between 11% and 12% in fiscal 2020.

Outlook

Irrigation equipment demand in North America will remain soft due to trade uncertainty. However, the company expects to see overall growth in international irrigation, driven by improvement in Brazil and developing markets. In fiscal 2020, Lindsay expects growth and performance improvement from the infrastructure business backed by strong growth in Road Zipper. Additionally, it expects improvement in operating margin through the execution of projects, which are part of Foundation for Growth initiative.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

Currently, Lindsay has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision looks promising. Notably, Lindsay has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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