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Why Is Lindsay (LNN) Down 10.8% Since Last Earnings Report?

Zacks Equity Research
·4 mins read

It has been about a month since the last earnings report for Lindsay (LNN). Shares have lost about 10.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Lindsay due for a breakout? 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's Q2 Earnings & Revenues Surpass Estimates

Lindsay delivered adjusted net earnings of 51 cents per share in the second quarter of fiscal 2020 (ended Feb 29, 2020) compared with 2 cents per share in the prior-year quarter. The bottom-line figure surpassed the Zacks Consensus Estimate of 49 cents. The company’s Foundation for Growth initiative continues to drive margins in the Irrigation and Infrastructure segment. Revenue growth, margin improvement and a favorable mix of higher-margin revenues led to improved results in the infrastructure business.

Including the after-tax costs related to the company’s Foundation for Growth initiative, net earnings for the quarter were 51 cents as against a loss per share of 32 cents reported in the prior-year quarter.

Lindsay generated revenues of $113.8 million, up 4% year over year. The revenue figure beat the Zacks Consensus Estimate of $113.7 million.

Operational Update

Cost of operating revenues declined 5% year over year to $80.4 million. Gross profit increased 36% to $33.4 million from the $24.5 million in the year-earlier quarter. Gross margin came in at 29.3% compared with 22.4% in the year-ago quarter.

Operating expenses declined 14.5% year over year to $24.8 million in the fiscal second quarter. The company reported an adjusted operating income of $8.6 million compared to the prior-year quarter’s $0.8 million. Operating margin came in at 7.6% compared with 0.7% in the comparable period last year.

Segment Results

The Irrigation segment revenues declined 4% year over year to $92.1 million in the fiscal second quarter. North America irrigation revenues increased 14% from the year-ago quarter due to higher sales of replacement parts, increased irrigation equipment unit volumes and escalated revenues from engineering project services. International irrigation revenues decreased 31% year over year, mainly due to a large project sale in a developing market in the prior year that did not repeat this year. The segment’s operating income rose 28% year over year to $9.6 million. Operating margin in the reported quarter was 10.4% compared with the prior-year quarter’s 7.9%.

The Infrastructure segment revenues increased 62% year over year to $21.7 million, driven by higher year-over-year sales of road safety products, Road Zipper System sales and lease revenues. The segment reported an operating income of $6.4 million against an operating loss of $0.4 million in the prior-year period. This improvement can be attributed to increased sales in higher margin product lines and improved cost and pricing performance.

Financial Position

Lindsay had cash and cash equivalents of $101.3 million at the end of the fiscal second quarter compared with $102.8 million at the end of the year-earlier quarter. The company utilized $2.2 million of cash in operating activities in the quarter compared with $39.8 million in the prior-year quarter.

Lindsay had a long-term debt of $115.8 million at the end of the fiscal second quarter, flat compared with the prior-year quarter’s end. Its backlog as of Feb 29, 2020, was $104.4 million compared with $45.6 million as of Feb 28, 2019.

Outlook

Lindsay’s Infrastructure business is poised to grow on the recently-awarded Road Zipper System project along with Highways England, while the impact of the U.S.-China Phase 1 trade deal on the Irrigation business remains uncertain.

The impact of the coronavirus pandemic on the company’s business is difficult to predict at the moment. However, the company is well poised to offset the negative impact of COVID-19 with a strong balance sheet and a solid liquidity position.

 

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 46.32% due to these changes.

VGM Scores

Currently, Lindsay has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. 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 aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, Lindsay has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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