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Lindsay Bets on Foundation for Growth Strategy Amid Headwinds

Zacks Equity Research
·5 mins read

On Apr 9, we issued an updated research report on Lindsay Corporation LNN. The company is on track with its Foundation for Growth initiative that is expected to improve overall earnings. Focus on growth objectives, development of technology products, business simplification and capital-allocation plan also bodes well. Further, the infrastructure business continues to fuel growth on the back of strong order activity for the Road Zipper projects and robust demand for transportation safety products. However, the impact of the coronavirus outbreak and lower oil prices are likely to impact Lindsay’s revenues in the near term.

Solid Q2 Results

Lindsay delivered adjusted net earnings of 51 cents per share in second-quarter fiscal 2020 (ended Feb 29, 2020), surpassing the Zacks Consensus Estimate of 49 cents. Further, the figure improved significantly over 2 cents per share reported in the prior year quarter. This improvement can be attributed to the company’s Foundation for Growth initiative, which continues to drive margins in the Irrigation and Infrastructure segment.

Notably, Lindsay has surpassed the Zacks Consensus Estimate in three of the trailing four quarters, while missing in one. It has a trailing four-quarter positive earnings surprise of 10.8%, on average.

Positive Earnings Growth Projections

The Zacks Consensus Estimate for earnings for fiscal 2020 is currently pegged at $2.39, indicating growth of 64.8% from the prior-year reported figure. The consensus estimates for fiscal 2021 stands at $2.40, suggesting year-over-year growth of 0.4%.

Foundation for Growth Initiative: A Game changer

Lindsay is poised to gain from focus on margin expansion, growth objectives, and development of technology products, business simplification and capital-allocation plan. The company is focused on simplifying business, in order to improve productivity. In sync with this, Lindsay’s Foundation for Growth initiative, launched in 2018, continues to progress, bringing in positive changes. 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.

Infrastructure Business Poised Well

Lindsay’s Road Zipper System is a highly differentiated product that positively addresses key infrastructure needs including reducing congestion, lowering carbon emission and increasing driver safety, and thus has been gaining popularity globally.  A large project in the U.K., a new order from Japan and a second multi-year lease in Germany was secured in second-quarter fiscal 2020. Further, demand for the company’s transportation safety products continues to gain traction on the back of population growth and the need for improved road safety. It continues to focus on growing this business.

Growing Farm Income Bodes Well

Further, per the U.S. Department of Agriculture's (“USDA”) latest available projections, net farm income is anticipated to improve 3.3% year over year to $96.7 billion in 2020. This will persuade farmers to resume spending on agricultural equipment, which in turn will drive Lindsay’s irrigation segment’s top line.

The company’s capital-allocation plan is to continue investing in revenues and earnings growth, combined with a strategic process for enhancing returns to stockholders. Its balance-sheet strength will drive growth initiatives, both organic and through acquisitions, and other initiatives to improve returns for shareholders.

Coronavirus Outbreak Casts a Shadow

The final impact of the coronavirus pandemic on the company’s results remains uncertain at this time. The potential impact from coronavirus include facility closures, supply chain disruption, additional costs, logistics, workforce disruption, reduced demand for products, and delay in implementation of projects. Lower oil prices are putting downward pressure on ethanol demand and corn prices. This will also impact Lindsay’s irrigation segment’s performance this year.

Per the U.S-China Phase one trade deal, China had pledged to increase purchases of agricultural products by $32 billion over a period of 2 years. However, it is unclear at this point whether China will be able to honor its commitment following the coronavirus outbreak.

Price Performance

Lindsay, along with Deere & Company DE and AGCO Corporation AGCO fall under the Zacks Manufacturing – Farm Equipment Industry. In the past year, the company’s shares have gained 19.8% against the industry’s decline of 12.7%.

Zacks Rank & a Stock to Consider

At present, Lindsay carries a Zacks Rank #3 (Hold).

A better-ranked stock in the Industrial Products sector is Sharps Compliance Corp SMED, which currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Sharps Compliance has an estimated earnings growth rate of 800% for 2020. In a year, the company’s shares have gained 120%.

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