Lindsay Corporation (LNN) reported its first-quarter (ended Nov 30, 2014) fiscal 2015 results, wherein adjusted earnings decreased about 7.6% to 73 cents per share from 79 cents in the year-earlier quarter. Moreover, the reported figure missed the Zacks Consensus Estimate of 80 cents.
Including environmental expenses and acquisition costs of 11 cents per share, earnings came in at 62 cents in the reported quarter. There were no adjustments in the year-ago quarter.
Operational Update
This manufacturer of irrigation equipment reported revenues of $135 million, a decline of 9% from $148 million in the prior-year quarter. Revenues also missed the Zacks Consensus Estimate of $140 million. U.S. irrigation revenues decreased 21% year over year, partly offset by a 4% increase in International irrigation revenues and a 9% rise in Infrastructure sales.
Cost of operating revenues decreased 9% year over year to $97.9 million. Gross profit declined 3.5% to $36.9 million, while gross margin expanded 20 basis points (bps) to 27.4%. Irrigation margin decreased by approximately 1 percentage point, whereas Infrastructure margin increased by approximately 6 percentage points.
Operating expenses grew 3.5% year over year to $25 million in the quarter. Operating income decreased 25.6% year over year to $11.9 million. Operating margin also decreased to 8.8% from 10.8% in the prior-year quarter.
Lindsay Corp.’s backlog at the quarter-end was $68.3 million compared with $86.6 million at the end of the year-ago quarter. The infrastructure backlog includes a $12.7 million Road Zipper System order from the Golden Gate Bridge which is expected to be recognized in revenue in fiscal 2015.
Financial Position
Cash and cash equivalents were $139.3 million at the end of first-quarter fiscal 2015 versus $151.8 million at the end of the year-ago quarter. The company generated $5.7 million in cash from operating activities during the quarter compared with $5.9 million in the prior-year quarter.
Lindsay Corp. expects to raise $100 million through a placement of long-term debt over the next several months. In addition, the company repurchased 381,619 shares for $30 million during the first quarter of fiscal 2015.
Guidance
Lindsay Corp. has not provided any guidance for fiscal 2015. The company remains concerned about the U.S. irrigation market in 2015, which will be affected by lower commodity prices, uncertainty surrounding renewal of tax incentives and lower farm incomes.
However, the company remains positive about the infrastructure business which will improve due to growth in sales pipeline and margin structure. The company will continue to benefit from population growth, expanded food production, efficient water use and infrastructure upgrades in the long term.
Lindsay Corp. will continue to expand its international footprint including the opening of a factory in Turkey during the second quarter of fiscal 2015. Although, the additional capacity may create some short term fixed expense absorption pressure, it will enhance profit potential.
The company will continue to aggressively pursue expansion into new and developing markets. Lindsay Corp. also remains confident that investments in competitive advantage products and services, including technology and solutions offering, will aid growth.
Further, Lindsay Corp.’s agreement to acquire Elecsys Corp. will help in expanding the company’s technology offering while providing additional platforms for growth. The deal is expected to close in Jan 2015 and Lindsay Corp. expects it be accretive in the first year.
Our Take
Lindsay Corp. will benefit from the expansion of its global irrigation equipment manufacturing capacity. Sustained growth in the Infrastructure business and development of the new Road Zipper system will also drive growth.
The company will continue to invest in growth and productivity initiatives, both organic and inorganic, utilizing its strong balance sheet position. However, lower crop prices are likely to pressure irrigation demand.
Omaha, NE-based Lindsay Corp. is a leading designer and manufacturer of self-propelled center pivot and lateral move irrigation systems, which are primarily used for agricultural purposes to increase or stabilize crop production, while saving water, energy and labor at the same time.
Lindsay Corp. carries a Zacks Rank #4 (Sell).
Some better-ranked stocks in the sector include Adept Technology Inc. (ADEP), Advanced Emissions Solutions, Inc. (ADES) and AO Smith Corp. (AOS). All these stocks carry a Zacks Rank #2 (Buy).
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