On Jun 13, we issued an updated research report on Lindsay Corporation LNN. The company is well poised on its Foundation for Growth initiative, introduction of technologically-advanced products and strong order activity for the Road Zipper projects. However, current weakness in North American agricultural markets and inflated costs are concerns.
Foundation for Growth initiative – A Game Changer
Lindsay remains focused on simplifying its business in order to improve productivity. In sync with this, Lindsay’s Foundation for Growth initiative, launched in 2018, continues to progress and is bringing in positive changes. The company has streamlined its leadership team structure, made four divestitures, closed the Omaha, NE manufacturing facility, announced shared services consolidation plans and improved several internal business processes. A key financial objective of the initiative is to achieve operating margin performance between 11% and 12% by fiscal 2020. The company is fully focused on gaining margin expansion in four primary areas — manufacturing footprint, G&A, the shared services activities, sourcing and commercial.
Technologically Advanced Products to Provide Competitive Edge
Lindsay anticipates its irrigation operating margin performance in the United States will benefit from the introduction of technologically-advanced products. In the Irrigation business, the company rolled out FieldNET Advisor — an irrigation management solution — in April 2017. FieldNET Advisor enables growers to maximize profitability through better irrigation management by helping them maximize their yield output and crop performance, reduce input costs, and conserve water, save time and labor by providing quick, simple, intuitive irrigation management recommendations and alerts. The company remains focused on the company’s strategy to expand its global reach with FieldNET Advisor.
During the fiscal second quarter of 2019, the company introduced Field NET Pivot Watch, a low-cost solar-powered remote telemetry device that mounts onto any central pivot irrigation system. Lindsay announced a partnership that will enable Nutrien Ag Solutions crop consultants to leverage Lindsay's remote irrigation management and scheduling platform to supplement Nutrien Ag Solutions offers. Also, Lindsay and The Climate Corporation announced a platform agreement that will establish data connectivity between Climate FieldView digital agricultural platform and Lindsay's FieldNET platform. These two agreements in the agronomic space are aligned with Lindsay’s strategy to increase the use of FieldNET Advisor.
Infrastructure Business Poised Well for Growth
Lindsay’s infrastructure business continues to generate growth on the back of strong order activity for the Road Zipper projects. Road Zipper is a highly differentiated product that positively addresses key infrastructure needs such as reducing congestion, lowering carbon emission and increasing driver safety and consequently gaining popularity globally. Further, demand for the company’s transportation safety products continues to gain traction owing to population growth and the need for improved road safety. The American Road & Transportation Builders Association projects U.S transportation construction spending to increase 4% in 2019. The company continues to focus on growing this business.
Weak Domestic Agricultural Market to Dent Performance
Per USDA’s latest available report, net farm income is likely to rise 10% to $69.4 billion in 2019. However, it still remains substantially below the 10-year U.S. net farm income average of $85.3 billion (in nominal dollars) primarily due to weaker prices for most major crops. This weak forecast, along with lower commodity prices, signals the likelihood of continued constrained demand for irrigation equipment in North America. This will continue to drag Lindsay’s revenues.
Inflated Costs a Woe
The company uses steel as a major raw material to manufacture products. Steel prices in the United States flared up primarily as a result of tariffs that were implemented on imported steel.
Lindsay will also bear the brunt of elevated costs incurred in connection with its Foundation for Growth performance improvement initiative.
Share Price Performance
Over the past year, Lindsay’s shares have dipped 19.9% compared with the industry's decline of 0.8%.
Zacks Rank & Key Picks
Lindsay currently carries a Zacks Rank #3 (Hold).
Some better top-ranked stocks in the Industrial Products sector are Chart Industries, Inc. GTLS, Lawson Products, Inc. LAWS and Harsco Corporation HSC, each sporting a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Chart Industries has an estimated earnings growth rate of 52.9% for the ongoing year. The company’s shares have gained 13.8%, in the past year.
Lawson Products has an expected earnings growth rate of 24.5% for the current year. The stock has appreciated 44.4% in a year’s time.
Harsco has a projected earnings growth rate of 9.1% for 2019. The company’s shares have gained 8.9%, over the past year.
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