Lindsay Reports Sound 2Q - Analyst Blog

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Lindsay Corporation ( LNN ) reported EPS of $1.00 per share for the fiscal second quarter 2012; outperforming the Zacks Consensus Estimate of 83 cents. Results improved 12% from the year ago quarter of 89 cents per share.

Operational Update

Total revenue in the quarter increased 10% year over year to $132.1 million, beating the Zacks Consensus Estimate of $129 million. The improvement is attributed to a 28% rise in total irrigation equipment revenues, in turn driven by a 25% increase in domestic irrigation revenues and a 36% increase in international irrigation revenues.

However, infrastructure revenues declined 47% year over year to $15.1 million due to lower sales and leases of the company's Quick-Change Moveable Barrier (QMB) product.

Cost of goods sold in the quarter increased 11% to $95.6 million. Gross profit rose 7.3% to $36.5 million, whereas gross margin contracted 70 basis points year over year to 27.6%, largely attributable to lower sales of the higher-margin QMB product.

Operating expenses increased 3.5% to $17.5 million in the quarter from $16.9 million in the year-earlier quarter.  Operating income in the quarter amounted to $18.9 million, up 11.1% year over year. Operating margin was 14.3%, up 10 basis points year over year.

Lindsay's backlog at the end of second quarter 2012 was $87.3 million compared with $64.3 million at the end of second quarter 2011 and $52.8 million at the end of first quarter 2012.

Financial Position

Lindsay ended the second quarter of fiscal 2012 with cash and cash equivalents of $104.9 million, up 34% from $78.4 million at the end of first quarter 2011. Long-term debt declined to $2.1 million from $6.4 million as of February 28, 2011. The company generated $4.9 million of net cash from operating activity in the quarter, up 24% from $3.9 million in the year-ago quarter.

Outlook

Lindsay expects farm incomes and commodity prices to remain at high levels in 2012. According to the company, this will impel a positive farmer sentiment. Further, it 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 including QMB projects due to funding issues and project delays.

Our Take

Lindsay expects to benefit in the long term from demand for increased food production, driven by worldwide population growth, efficient water use, mounting need for biofuel and improving transportation infrastructure. According to the United States Department of Agriculture, net farm income is expected to remain high at $91.7 million in 2012. Lindsay's irrigation segment will thus benefit from a rising farm income.

The infrastructure segment's outlook remains unclear due to government budget constraints and delay in the congressional passage of a new federal highway bill. In addition, the current expansion of government's ability to fund the transportation program will be expiring on March 31.

Our long-term recommendation on Lindsay remains Neutral. Currently, the stock retains a Zacks #3 Rank, implying a short-term Hold rating.

Lindsay Corporation is a leading designer and manufacturer of self-propelled center pivot and lateral move irrigation systems, which are used principally for agriculture to increase or stabilize crop production while conserving water, energy, and labor. Lindsay maintains its corporate offices in Omaha, Nebraska.


 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



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