On Sep 24, 2014, Zacks Investment Research downgraded Lindsay Corporation (LNN) to a Zacks Rank #5 (Strong Sell) based on lower crop prices and weakness in the international markets.
Why the Downgrade?
Lindsay posted a 36% year-over-year decline in its third-quarter fiscal 2014 earnings due to lower crop prices and elimination of enhanced Section 179 tax depreciation benefit. Lower crop prices are likely to pressure irrigation demand during the rest of the year in turn affecting earnings of the company. 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 cash receipts for crops and, to a lesser degree, higher production expenses along with reduced government farm payments, will lead to the expected drop in net farm income.
The manufacturer of irrigation equipment reported a 22.6% year-over-year decline in revenues to $169.9 million, missing the Zacks Consensus Estimate of $184 million. The fall was led by a 26% drop in total irrigation equipment revenues, while infrastructure revenues increased 13%. Corn prices have declined roughly 30% as compared with a year ago. Domestic irrigation revenues and international irrigation revenues both registered a decline of 26%.
Lindsay also reported a decrease in backlog in third-quarter fiscal 2014 due to decline in orders from the international markets. The prior-year irrigation backlog included an equipment and installation contract in Iraq, of which $2.6 million remained in backlog on May 31, 2014. If Lindsay fails to complete its work, it will not be able to realize the remaining amount due under the contract.
Lindsay expects capital expenditures for 2014 to be in the range of $10 to $15 million, which is down significantly from the investments made at the beginning of the year, due to project timing. Further uncertainties regarding government approval processes or regional conflicts will hurt expansion projects in the developing markets.
Share price of Lindsay has thus been on the decline since its third-quarter earnings. Furthermore, the estimates for Lindsay moved south in the past 90 days following its prior-quarter earnings release. The Zacks Consensus Estimate for 2014 decreased 6% to $3.71 per share and for 2015 the same reduced 10% to $4.25 per share. Lindsay has also underperformed the Zacks Consensus Estimate in each of the four trailing quarters with an average negative surprise of 10.01%.
Other Stocks That Warrant a Look
Some better-ranked players in the same industry include Multi-Color Corp. (LABL), ACCO Brands Corporation (ACCO) and ARC Document Solutions, Inc. (ARC). While Multi-Color Corp sports a Zacks Rank #1 (Strong Buy), ACCO Brands and ARC Document Solutions carry a Zacks Rank #2 (Buy).
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