Why Is Lindsay (LNN) Up 5.4% Since the Last Earnings Report?

A month has gone by since the last earnings report for Lindsay Corporation LNN. Shares have added about 5.4% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it 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 Q3 Earnings Beat Estimates, Outlook Impressive

Lindsay reported third-quarter fiscal 2017 earnings of $1.02 per share compared with $0.90 per share recorded in the prior-year quarter. Earnings surpassed the Zacks Consensus Estimate of $0.92, generating a positive earnings surprise of around 10.9%.

The irrigation equipment manufacturer reported revenues of $152 million, beating the Zacks Consensus Estimate of $145 million. Revenues increased nearly 7.2% on a year-over-year basis.

Irrigation segment revenues were up 2% year over year to $120 million. U.S irrigation and international irrigation revenues both recorded 2% growth. Domestic irrigation revenues increased mainly due to higher average selling prices and improved irrigation equipment unit volume. International irrigation revenues were up primarily on the back of the continuation of a notable recovery in Brazil, increased project activity in developing markets, and a slightly favorable currency translation impact.

Infrastructure segment revenues surged 31% to $31.5 million, driven by higher Road Zipper system sales and lease revenue, as well as rise in sales of road safety products in international markets.

Operational Update

Cost of operating revenues increased 6% year over year to $105.6 million. Gross profit went up 9.8% to $45.9 million from $41.8 million in the year-ago quarter. Gross margin also expanded 71 basis points (bps) to 30.3%. Higher margins in the infrastructure segment were more than offset by lower margin in the irrigation segment. Improved infrastructure margin resulted from higher Road Zipper system sales, and lease revenue and volume leverage from higher road safety product sales.

Operating expenses flared up 7.5% year over year to $28.5 million in the quarter, mainly from higher product development costs and professional fees. The company posted an operating profit of $17.4 million, a 13.6% rise from $15.3 million recorded in the year-earlier quarter. Operating margin advanced 70 bps to 11.5% in the third quarter of fiscal 2017 compared to the prior year’s third quarter.

Financial Position

Lindsay had cash and cash equivalents of $113.2 million at the end of the fiscal third quarter compared with $101.2 million at the end of third-quarter fiscal 2016. The company reported cash flow from operating activities of $24.5 million for the nine-month period ended May 31, 2017, compared with $20.3 million recorded in the prior-year period. Lindsay had long-term debt of $116.8 million at the end of the fiscal third quarter, flat year over year.

There were no share repurchases during the fiscal third quarter. As of Feb 28, 2017, shares worth around $63.7 million remained under the company’s buyback program.

Lindsay’s backlog as of May 31, 2017, was $70.1 million compared with $61.2 million as of May 31, 2016.

Outlook

Lindsay expects that stabilization in the U.S. irrigation equipment market, a consistent recovery in Brazil and increased project activity in developing international markets will drive growth. The company also stated that its irrigation operating margin performance in the U.S. will likely benefit from the strength and growth of technology products. Further, growers’ sentiment in the U.S. has been displaying signs of improvement.

Moreover, Lindsay is poised to gain from improving activity levels in the international irrigation and infrastructure markets. In addition, population growth, increased food production, efficient water use and infrastructure upgrades are likely to propel long-term growth.

However, overall market conditions and capital investment continue to be constrained by lower commodity prices and farm income. Additionally, Lindsay is likely to witness escalated costs and near-term volatility in the road safety product revenues.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. There have been four revisions higher for the current quarter. In the past month, the consensus estimate has shifted upward by 5.7% due to these changes.

Lindsay Corporation Price and Consensus

 

Lindsay Corporation Price and Consensus | Lindsay Corporation Quote

VGM Scores

At this time, the stock has a strong Growth Score of 'A', though it is lagging a bit on the momentum front with a 'B'. However, the stock was allocated a grade of 'D' on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregte VGM Score of 'B'. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for growth investors than momentum investors.

Outlook

Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. It comes with little surprise that the stock has a Zacks Rank #2 (Buy). We are expecting an above average return from the stock in the next few months.

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