Lindsay Corporation (LNN) recently reported results for the first quarter of fiscal 2010. The company posted quarterly earnings of 53 cents per share, above the Zacks Consensus Estimate of 24 cents and year-ago earnings of 51 cents per share. The better than expected performance in the quarter was driven by strong revenues and margins in the infrastructure business as well as the company’s cost-reduction initiatives.
First quarter revenue of $86.0 million was down 26% from the year-ago revenue of $113.1 million. Irrigation equipment revenue declined 38%, where as Infrastructure revenue was up 20% year over year. Lindsay had a backlog of $36.1 million as on November 30, 2009, compared to $40.1 million last year.
In the Irrigation segment, Lindsay witnessed a 39% drop in domestic sales and 37% drop in international revenue. Farmers continued to stay away from purchasing capital goods due to the prevailing uncertain market conditions.
The Infrastructure segment benefited from the Mexico City Movable Barrier project. The company had delivered about 80% of the ordered by the end of the first quarter and expects to complete the project during the second quarter. Excluding this project, outlook for infrastructure business continues to be uncertain due to delay in the renewal federal highway bill.
Gross margin improved by 470 basis points year over year to 30.0%, primarily driven by growth in infrastructure margins resulting from higher sales of quick moveable barrier products. Moreover, the company managed to cut down operating expenses by 13% through its cost cutting initiatives. Operating margin increased to 13.0% in the first quarter of fiscal 2010 from 10.4% in the comparable quarter of fiscal 2009.
Subdued outlook for farm spending combined with uncertainty surrounding federal highway funding limits near-term visibility on Lindsay’s top-line. However, we believe Lindsay’s long-term outlook remains positive due to the need for increased food production driven by the worldwide population growth and the strong need to improve transportation infrastructure globally.
We maintain a Neutral recommendation on LNN.
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