Lindsay Misses; Shares Up on Div Hike
Shares of Lindsay Corporation (LNN) edged up 1% to close at $83.10 on Jan 3 despite the company reporting a 31% year-over-year drop in its earnings per share to 79 cents in the first quarter of fiscal 2014. The earnings drop was anticipated as significantly lower agricultural commodity prices were expected to affect domestic irrigation revenues in the quarter.
The announcement of a dividend hike and share repurchases lent support to the stock. Reported results were well short of the Zacks Consensus Estimate of 91 cents per share.
Operational Update
Total revenue remained flat year over year at $147.7 million, ahead of the Zacks Consensus Estimate of $141 million. Total irrigation equipment revenues decreased 4% while infrastructure revenues increased 41%. Domestic irrigation revenues declined 18%, while international irrigation revenues shot up 32% driven by robust demand in South America and Australia.
Cost of operating revenues increased 3% to $107.5 million. Gross profit declined 6% to $40.1 million with gross margin contracting 190 basis points to 27%. Irrigation margin dipped 2 percentage points as higher domestic margins were offset by higher mix of low margin international sales. Infrastructure margins increased 5 percentage points on larger mix of Road Zipper sales.
Operating expenses went up 17% to $24.1 million in the quarter driven by higher personnel and acquisition expenses. Operating income in the quarter declined 28% to $16 million. Operating margin in the quarter was 10.8%, contracting 430 basis points to 10.8% from the prior-year quarter.
Lindsay’s backlog at the end of the quarter was $86.6 million compared with $85.1 million at the end of the year-ago quarter. Increase in backlog in international irrigation markets and infrastructure was offset by a dip in backlog on U.S. irrigation markets. The infrastructure backlog includes a $12.7 million Road Zipper System order from the Golden Gate Bridge Highway & Transportation District.
Financial Position
Cash and cash equivalents were $151.8 million at the end of the first quarter of fiscal 2014 compared with $152 million as at the end of the first quarter of fiscal 2013. The company generated $6 million in cash from operating activity in the first quarter of fiscal 2014 compared with $13.4 million in the prior-year quarter. Lindsay has no debt at present.
Lindsay also discussed its plans for capital allocation including plans for enhancing returns for shareholders. Priorities for uses of cash include investing in organic growth, annual hikes in dividends, synergistic water related acquisitions that provide attractive returns to shareholders, and share repurchases.
In line with this, Lindsay’s board of directors increased the regular quarterly cash dividend by 100% to 26 cents per share. The increased dividend will be paid on Feb 28, 2014, to shareholders of record on Feb 14, 2014.
Lindsay’s board of directors also replaced its existing share repurchase authorization with an increased authorization to repurchase up to $150 million of common stock.
Our Take
Demand for Lindsay’s products will increase in the long term, driven by soaring demand for food production owing to worldwide population growth, efficient water use, biofuel production and improving transportation infrastructure.
However, U.S. irrigation sales is expected to be lower in 2014 due to lower commodity prices as well as challenging comparisons to the record results in the first three quarters of 2013. Nevertheless, Lindsay will continue to benefit from the strong demand for irrigation systems in the international markets.
Furthermore, in some international markets, adoption of center pivot systems remains in nascent stages and the demand for more efficient water use in agriculture is on the rise.
Being one of the market leaders, Lindsay Corporation is well positioned to capitalize on the demand. The company has a strong balance sheet with no debt. This will enable the company to invest in organic growth opportunities while continuing to pursue accretive acquisitions that add new businesses and product lines as well as executing potential share buybacks or increasing dividend. Recovery in the U.S. construction sector and new projects will benefit Lindsay’s infrastructure business.
Omaha, NE-based Lindsay Corporation is a leading designer and manufacturer of self-propelled center pivot and lateral move irrigation systems, which are used principally for agriculture purposes to increase or stabilize crop production while conserving water, energy, and labor.
Lindsay retains a Zacks Rank #2 (Buy). Some other stocks worth considering in the Some other stocks worth considering in the sector are Kubota Corp. (KUBTY), Alamo Group, Inc. (ALG) and Terex Corp. (TEX). While Kubota holds a Zacks Rank #1 (Strong Buy), Alamo and Terex hold a Rank #2 (Buy).
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