Lindsay Corporation (LNN) has been upgraded to Outperform considering its steady progress in every quarter with its Irrigation and Infrastructure revenues growing substantially.
The company’s long-term outlook for the Irrigation segment looks promising as the United States Department of Agriculture (USDA) projects farm income to increase by 20% in 2011. However, revenues for the Infrastructure segment depend on government funding of transportation projects, which have been facing pressure from budget cutbacks.
Lindsay Corporation recently reported its second quarter results delivering an EPS of 89 cents, ahead of the Zacks Consensus Estimate of 70 cents and up 85% from 48 cents in the year-ago quarter.
Total revenue in the quarter was $120.2 million, up 41% year over year, outperforming the Zacks Consensus Estimate of $110 million. Total irrigation equipment revenues soared 35% year over year to $91.7 million. On the domestic front, irrigation revenues perked up 72% to $66.5 million while international irrigation revenues dipped 14% to $25.2 million. Infrastructure revenues spiked 65% to $28.5 million, driven by increased sales of QuickChange Moveable Barrier product.
In addition, the company’s backlog increased to $64.3 million as of February 28, 2011 from $59.7 million as of November 30, 2010 and $33.6 million as of February 28, 2010.
Lindsay’s cash and cash equivalents, however, decreased to $78.4 million as of February 28, 2011 from $80.5 million as of November 30, 2010. The company also generated net cash of $1.7 million from operating activities in the quarter compared with $1.5 million in the prior-year quarter.
Lindsay is sure to benefit from farm income, which is projected to increase 20% year over year in 2011, according to the United States Department of Agriculture, despite a $20 billion rise in production expenses.
Further, the company’s Irrigation segment will benefit from a continuing shift from flood irrigation to a more efficient system and exposure to fast growing international irrigation markets.
As far as its Infrastructure segment is concerned, after declining during the global economic meltdown, the segment’s revenue increased 65% during its fiscal second quarter to $28.5 million, owing to increased sales of the QuickChange Moveable Barrier product. Consequently, margins in the Infrastructural segment have improved during the quarter.
Lindsay also improved its balance sheet by reducing its debt to $10.7 million as of February 28, 2011 from $11.8 million as of November 30, 2010, thereby improving the debt-to-capitalization ratio to 4% from 5% in the corresponding periods.
Further, the company also expects to benefit in the long term from demand for increased food production, driven by worldwide population growth, efficient water use, mounting need for biofuel and improving transportation infrastructure.
On the flip side, Lindsay’s Infrastructure revenues depend on government funding of transportation projects. The segment has been experiencing pressure from budget cutbacks. Thus, the outlook for the Infrastructure segment remains unclear due to government budget constraints and a delay in the congressional passage of a new federal highway bill.
The other concern for Lindsay is price volatility for certain commodities, like steel and zinc, which are used in making its products. Given the price competition that the company faces in both its irrigation and infrastructure businesses, it may find it difficult to immediately pass on higher input costs to its customers.
In the end, considering all possible factors, we upgrade Lindsay to Outperform from a Neutral rating.
Omaha, Nebraska-based Lindsay Corporation is a leading designer and manufacturer of self-propelled center pivot and lateral move irrigation systems, which are used principally in the agricultural industry to increase or stabilize crop production while conserving water, energy and labor. The company also manufactures and markets road safety products. The company competes with Valmont Industries Inc. (VMI).
LINDSAY CORP (LNN): Free Stock Analysis Report
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