On Nov 21, 2014, we issued an updated research report on Lindsay Corporation (LNN). The designer and manufacturer of self-propelled center pivot and lateral move irrigation systems is poised to benefit from its capital allocation plan, growth in infrastructure business and development of new Road Zipper system. However, lower crop prices and geopolitical instability will continue to affect its irrigation business in the near term.
Lindsay reported fiscal 2014 earnings per share of $4.00, down nearly 27% year over year. Revenues for fiscal 2014 decreased 11% year over year to $617.9 million due to a 14% decline in irrigation revenues. Domestic irrigation revenues were affected by lower crop prices and elimination of enhanced Section 179 tax depreciation benefit. In addition, the U.S. Department of Agriculture (USDA) estimated U.S. 2014 net farm income to be $113.2 billion, down about 14% from 2013 forecast of $131.3 billion. Lower crop prices and farm income will negatively impact irrigation demand during the rest of the year in turn affecting earnings of the company. Geopolitical uncertainty and lower global crop prices will also continue to weigh on international irrigation revenues. Lindsay thus anticipates lower irrigation segment revenues in fiscal 2015.
Nevertheless, in the long run, Lindsay will benefit from the expansion of its global irrigation equipment manufacturing capacity. In addition, rise in population, increased food production and efficient water use bodes well for the company’s growth in the future.
The infrastructure products segment has improved its profit profile and delivered growth despite constrained government spending. In Aug 2014, the U.S. government enacted a $10.8 billion temporary highway-funding bill to fund highway and bridge projects, the latest in a series of short term funding bills over the last several years. This will boost the segment’s performance in the next few quarters. Demand for the Company’s transportation safety products continues to be driven by population growth and the need for improved road safety. However, unless a long-term U.S. Highway Bill is passed, future growth of the infrastructure segment remains questionable.
In Jan 2014, Lindsay announced its capital allocation plan, which lays out the company’s intent to make investments that will lead to revenue and earnings growth and at the same time enhance shareholder return. Lindsay intends to repurchase shares worth $100 million to $150 million over the next 24 months and increase its dividend annually. In line with its strategy, during fiscal 2014, Lindsay repurchased 497,899 shares for $41 million. It has $109 million left to buy back of its $150 million repurchase authorization. The company’s balance sheet is in great shape with cash of $172 million and no debt.
Lindsay also targets a cash balance of $60 million to $75 million for 2014, according to the capital allocation plan. Capital expenditure is projected at $20 million to $25 million annually, over the next 3 years. The company also intends to spend $100 million to $150 million on acquisitions over the next three years using cash and debt. Acquisitions are expected to help in achieving the annual revenue growth goal of 10–15%.
Lindsay has recently entered into a definitive agreement to acquire Elecsys Corp. for $70.5 million. Elecsys is a provider of machine-to-machine (M2M) technology and custom electronic systems to a variety of end markets. The deal is expected to close in Jan 2015 and Lindsay expects it be accretive in the first year. The deal expands and enhances the company’s technology offering and also provides additional platforms for growth as in addition to agriculture and water markets, Elecsys also serves the oil, gas, electricity, rail, aerospace, military, security and safety markets.
Lindsay carries a Zacks Rank #3 (Hold).
Other Stocks That Warrant a Look
Some better-ranked players in the same industry include Alamo Group, Inc. (ALG), Briggs & Stratton Corporation (BGG) and Blount International Inc. (BLT). All of these stocks hold a Zacks Rank #1 (Strong Buy).
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