A month has gone by since the last earnings report for Lindsay (LNN). Shares have added about 1.7% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Lindsay due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Lindsay Q1 Earnings Miss Estimates, Up Y/Y
Lindsay Corporation delivered adjusted net income of 38 cents per share in the first quarter of fiscal 2019 (ended Nov 30, 2018), lagging the Zacks Consensus Estimate of 47 cents. Market headwinds in North America hindered demand for irrigation equipment in the reported quarter. However, the figure was higher than the year-ago quarter’s earnings per share of 30 cents.
Including the after-tax costs related to the company’s Foundation for Growth initiative, earnings in the reported quarter came in at 11 cents, down 63% from 30 cents reported in the year-ago quarter.
Lindsay reported revenues of $112 million, down 10% year over year. Revenues decreased $14 million as a result of the completion of previously announced business divestitures. Revenues missed the Zacks Consensus Estimate of $113 million.
Irrigation segment revenues declined 15% year over year to $88 million. Domestic irrigation revenues recorded growth of 5% from the year-ago quarter while international irrigation revenues declined 13% from the prior-year quarter.
Infrastructure segment revenues improved 15% year over year to $24 million. Higher Road Zipper System sales were partially negated by lower sales of road safety products.
Cost of operating revenues went down 10% year over year to $83 million. Gross profit declined 12% to $29 million from $32 million reported in the year-earlier quarter. Gross margin contracted 40 basis points to 25.6%.
Operating expenses inched up 2% year over year to $27 million in the reported quarter. The company reported an operating profit of $2 million, down 67% from the comparable period last year.
The Irrigation segment’s operating income dipped 1% to $8 million in the first quarter. Adjusted irrigation segment operating margin was 9% compared with 7.6% recorded in the prior-year quarter. This can be attributed to improvement in North America, supported by the impact of the divestitures as well as price realization and a more favorable product mix.
However, operating income in the infrastructure segment rose 27% year over year to $4.2 million. Adjusted infrastructure segment operating margin was 17.6% compared with 15.5% in the prior-year quarter aided by a more favorable product mix and lower operating costs compared with the prior year.
Lindsay had cash and cash equivalents of $137 million at the end of fiscal first-quarter 2019 compared with $109 million recorded at the end of year-ago quarter. The company utilized $14 million of cash in operating activities in the fiscal first quarter, compared with $5 million in the prior-year quarter. Lindsay had long-term debt of $117 million at the end of the reported quarter, flat from the end of the prior-year quarter.
Lindsay’s backlog as of Nov 30, 2018, was $49 million compared with $80 million as of Nov 30, 2017 due to decline in both irrigation and infrastructure backlogs. Approximately $13 million of the backlog reduction was owing to business divestitures and $14 million was from a large infrastructure project completed in the prior fiscal.
Lindsay had introduced a performance improvement initiative – Foundation for Growth, with the objectives of simplifying the business. A key financial objective is to achieve operating margin performance between 11% and 12% in fiscal 2020.
The company’s growth objectives include setting strategic direction, defining priorities and improving overall operating performance. The company expects to incur additional costs regarding this initiative over each of the next several quarters. These additional costs are anticipated to be recovered through improved operating income in fiscal 2020.
The passage of the 2018 farm bill instills optimism in North America irrigation market conditions. In the international markets, improved conditions in Brazil and increased interest in developing markets will aid the segment’s results. Lindsay’s Infrastructure business is poised to gain from a growing backlog of Road Zipper projects.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -28.07% due to these changes.
At this time, Lindsay has a poor Growth Score of F, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Lindsay has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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