Lower crop prices, coupled with the elimination of enhanced
Section 179 tax depreciation benefit, led to a 36% fall to $1.28
per share in third-quarter fiscal 2014 (ended May 31, 2014)
). Reported earnings also lagged the Zacks Consensus Estimate of
$1.39 per share.
Shares of Lindsay Corp. fell nearly 5% and closed at $83.81 after
posting disappointing third-quarter results.
The manufacturer of irrigation equipment reported a 22.6%
year-over-year decline in revenues to $169.9 million, missing the
Zacks Consensus Estimate of $184 million. The fall was led by a 26%
drop in total irrigation equipment revenues, while infrastructure
revenues increased 13%. Corn prices have declined roughly 30% as
compared with a year ago. Domestic irrigation revenues and
international irrigation revenues both registered a decline of 26%.
Cost of operating revenues decreased 22% year over year to $122
million. Gross profit declined 23.5% to $48 million with gross
margin contracting 30 basis points (bps) to 28.4%. Irrigation
margin dropped less than 1 percentage point due to fixed cost
deleverage on lower sales. Infrastructure margin increased around 3
percentage points due to favorable sales mix and leverage on higher
Operating expenses went down 2% year over year to $23 million in
the quarter due to reduction in incentive compensation and bad debt
expenses. Operating income in the quarter declined 36% year over
year to $25 million. Operating margin in the quarter contracted 320
bps to 14.8% from 18% in the prior-year quarter.
Lindsay Corp.'s backlog at the quarter-end was $73.6 million,
compared with $80 million at the end of the year-ago quarter.
Decrease in backlog in the international irrigation market was
offset by the rise in U.S. irrigation and infrastructure backlog.
The higher U.S. irrigation backlog reflects replacement of machine
orders received at the end of the quarter, driven by the spring
The infrastructure backlog includes a $12.8 million Road Zipper
System order from the Golden Gate Bridge which is expected to be
recognized in revenues in fiscal 2015.
Cash and cash equivalents were $182 million at the end of the third
quarter of fiscal 2014 versus $170 million at the end of the third
quarter of fiscal 2013. The company generated $65.9 million in cash
from operating activities for the period of nine months ended May
31, 2014 compared with $40.9 million for the period of nine months
ended May 31, 2013. Lindsay Corp. has no debt at present.
During the quarter the company repurchased 129,104 shares for $11.2
Lindsay Corp. expects capital expenditures for 2014 to be in the
range of $10 to $15 million, which is down significantly from the
investments made at the beginning of the year due to project
timing. The projects which have been delayed are generally capacity
expansion projects in developing markets, deferred due to
government approval processes or regional conflicts.
The company will also continue to execute the capital allocation
plan announced in Jan 2014. However, it anticipates a continuation
of lower agricultural equipment demand in the near term.
Lindsay Corp. will benefit from the expansion of its global
irrigation equipment manufacturing capacity. Sustained growth in
the infrastructure business and development of new Road Zipper
system will also drive growth. In addition, rise in population,
increased food production and efficient water use bodes well for
the company's growth in the long run.
The company will continue to invest in growth and productivity,
both organically and through acquisition based on a strong balance
sheet position. Lindsay Corp. remains optimistic about growth in
global applications of technologies and a multi-year highway bill
with similar or improved funding levels which would likely benefit
the company's performance.
However, lower crop prices are likely to pressure irrigation demand
during the rest of the year. Moreover, political instability in
Iraq has made it more difficult for Lindsay Corp. to complete its
contract, on which it had a total exposure of $4.4 million, in the
country. The company has not provided a reserve however, it will
continue to assess the situation as developments in the country
The current forecast for 2014 U.S. net farm income is down 27% from
2013. The prices of metals can also have a significant impact on
profit. Moreover, lower commodity prices and lack of visibility
into the primary selling season for irrigation equipment remain
Omaha, NE-based Lindsay Corp. is a leading designer and
manufacturer of self-propelled center pivot and lateral move
irrigation systems, which are primarily used for agriculture
purposes to increase or stabilize crop production while saving
water, energy and labor at the same time.
Lindsay Corp. carries a Zacks Rank #3 (Hold). Some better-ranked
stocks worth considering in the sector include
). While Kubota Corporation and Komatsu carry a Zacks Rank #1
(Strong Buy), Caterpillar holds a Zacks Rank #2 (Buy).
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