During the third-quarter fiscal 2016 conference call, Lindsay Corporation 's LNN President and Chief Executive Officer Rick Parod stated that even though challenging agricultural market conditions will persist in the near term, the stabilization of commodities and recalibration of farm input costs signal that farmer sentiments will improve towards investment. This, in turn, will trigger demand for the company's irrigation machines and irrigation-management platform.
Lindsay's shares dipped 1% following its earnings release on Jun 30. The company reported an 18% drop in adjusted earnings to 90 cents per share due to higher operating expenses.
The irrigation-equipment manufacturer reported a 12% fall in revenues to $141 million, as both irrigation and infrastructure revenues declined in the quarter. Domestic irrigation revenues decreased 15% due to lower unit volume and reduced market pricing while international irrigation revenues rose 4%. While sales improved in several markets, Brazil and other markets witnessed declines.
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Parod is concerned that lower commodity prices and reduced farm income will affect farmer sentiments regarding capital goods purchases. The USDA's current projection for 2016 net farm income is $54.8 billion, down 3% from the prior year. This also marks a plunge of nearly 56% from the record high set in 2013. In the international arena, Brazil remains a near-term challenge with slow FINAME funding for equipment purchases and significant government turmoil. However, on a positive note, he added that Brazil has been an excellent growth driver in recent years and as economic conditions improve, it will resume its growth trajectory.
Following Brexit, an economic uncertainty has been created in the U.K. However, Lindsay generates a meager 1% of its revenues from the U.K, though revenues in Europe are around 10%. Lindsay Corporation has a hedging policy in place for large dollar denominated or large non-dollar denominated transactions and for foreign assets.
Infrastructure segment revenues decreased in the quarter primarily due to fewer larger Road Zipper system projects completed as compared to the prior year. Parod states that the recent passage of the Highway Bill provides a strong ground for future growth of road-safety products sales and Road Zipper Systems sales and leases. It has been instrumental in the recent increase in current order backlog. Backlog at May 31, 2016 was $61.2 million compared to $53.2 million in May 31, 2015. He also added that the development of the Road Zipper System potential project pipeline is positive.
Lindsay continues to recognize benefits from the water-related acquisitions completed over the past few years. These acquisitions have helped the company boost its gross margins, provided incremental revenue and profits derived from non-agricultural markets and delivered platforms for future growth. While these smaller strategic businesses currently carry higher SG&A run rates than the company's core pivot irrigation business, these additions position it well in the irrigation market. Going forward, the company expects the water-related businesses obtained to further leverage SG&A expenses and to generate attractive growth rates and operating margins.
Despite near-term headwinds, long-term trends remain positive for Lindsay owing to increased agricultural production for the growing population, higher food production, efficient water use and infrastructure upgrades and expansion.
Lindsay Corporation is a leading designer and manufacturer of self-propelled center pivot and lateral-move irrigation systems. It belongs to the machinery-farming industry along with Alamo Group, Inc. ALG , AGCO Corporation AGCO and Deere & Company DE .