On Jun 29, 2015, 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 strong balance sheet, productivity improvement and geographic expansion, continuous focus on developing its cost structure and investments in product development However, a competitive pricing environment, strengthening dollar and uncertainty of highway funding remain near-term headwinds.
In third-quarter fiscal 2015 (ended May 31, 2015), Lindsay reported earnings of $1.10 per share, a 14% decline year over year. Revenues decreased around 5.4% from $169.9 million in the prior-year quarter, mainly due to a slump in international irrigation revenues. Unfavorable currency exchange hurt International irrigation sales while U.S. irrigation sales inched down 2%, primarily due to reduction in commodity prices and lower storm damage sales. These were partly offset by rise in Infrastructure sales.
Lindsay has not provided any guidance for fiscal 2015. The company remains optimistic about productivity improvement and geographic expansion. It also hopes to benefit from balance-sheet strength and acquisitions. Lindsay’s continuous focus on developing its cost structure, investing in product development and expanding global sales capabilities will also drive growth. The company continues to strengthen its irrigation product offerings through innovative technology such as GPS positioning and guidance, variable rate irrigation, wireless irrigation management, and smartphone applications as well as through acquisition of products and services that will allow the company to provide a more comprehensive solution.
Lindsay’s capital allocation plan remains in place with the company’s prioritization of cash use through investment in organic growth, including capital expenditures, primarily for increasing capacity and reducing costs. Capital expenditure is projected at $20 million to $25 million annually over the next 3 years. Lindsay intends to increase its dividend annually and to spend $100 million to $150 million for acquisitions over the next three years, using cash and debt. Acquisitions are expected to help the company to attain its annual revenue growth goal of 10–15%.
Lindsay remains positive about the long-term drivers of water conservation including population growth, importance of biofuels and the need for safer as well as more efficient transportation solutions. The company is confident about the incremental profit potential of global expansion plans.
However, the U.S. irrigation market continues to be impacted by lower commodity prices and farm incomes. Further, Lindsay anticipates a reduction in export demand while ethanol production is likely to remain under pressure. Changing currency rates and uncertainty of long-term U.S. highway bill also remain headwinds for the company.
Lindsay carries a Zacks Rank #3 (Hold).
Stocks That Warrant a Look
Some better-ranked players in the same industry include Kubota Corporation KUBTY, Advanced Emissions Solutions, Inc. ADES and AGCO Corporation AGCO. While Kubota and Advanced Emissions sport a Zacks Rank #1 (Strong Buy), AGCO Corporation holds a Zacks Rank #2 (Buy).
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