Lindsay Corporation (LNN) delivered an EPS of 48 cents in its fourth quarter, ended August 31, 2010, up a whopping 182% from 17 cents in the year-ago quarter and handily beating the Zacks Consensus Estimate of 28 cents. Factors such as improved domestic irrigation sales and robust demand of higher margin Quick-Change Moveable Barrier (“QMB”) products fueled the increase.
Total revenues in the quarter were $87.2 million, up 19% year over year and above the Zacks Consensus Estimate of $85 million. Total irrigation equipment revenues increased 4% year over year to $57.2 million.
On the domestic front, irrigation revenues perked up 16% while international irrigation revenues were a dampener, declining 9% due to lower export revenues. Infrastructure revenues were the sweet spot, surging 61% year over year to $30 million on the back of increased sales of QMB products, rail structures and lights and commercial tubing.
Operating expenses increased 13.5% year over year on an absolute basis due to higher research and development expenses, commissions and incentive compensation costs. However, expressed as a percentage of revenues, operating expenses decreased 86 basis to 18.3% compared with the prior-year quarter.
Gross margin expanded 550 basis points year over year to 29.5% and operating margin climbed 630 basis points from the year-ago quarter to 11.1%. The company noted increased irrigation margins from improved factory efficiencies at its Lindsay, Nebraska facility owing to increased sales of higher-margin QMB products.
Fiscal 2010 at a Glance
In fiscal 2010, EPS jumped 78% to $1.98, marking Lindsay’s second highest earnings year. The company’s earnings had touched an all time high of $3.20 in fiscal 2008. Similar to the fourth quarter, the company surpassed the Zacks Consensus Estimate of $1.64 in fiscal 2010. Revenues upped 7% to $358 million compared with last year, topping the Zacks Consensus Estimate of $355 million.
On a year-over-year basis, total irrigation equipment revenues increased 1% to $258.6 million and infrastructure revenues increased 24% to $99.8 million. Domestic irrigation revenues dipped 2% in the year, offset by international irrigation revenue growth of 6% driven by strength in South America, South Africa and Europe, as well as Mexico.
Backlog
As of August 31, 2010, Lindsay’s backlog was $38.4 million compared with $33.9 million as of May 31, 2010, and $43.6 million as of August 31, 2009. The backlog as on August 31, 2010 included a project worth $14.8 million for the QMB system, which Lindsay expects to ship in the first half of fiscal 2011. The August 31, 2009 backlog included $19.6 million for the Mexico City QMB project, which was completed in the first half of fiscal 2010.
Financial Position
Lindsay had cash and cash equivalents of $83.5 million as of August 31, 2010, lower than $85.9 million as of August 31, 2009. The company generated $25.2 million net cash from operating activities in fiscal 2010 compared with $57.5 million in the previous year.
Total debt decreased to $12.8 million as of August 31, 2010, from $25.6 million as of August 31, 2009. Debt-to-capitalization ratio as of August 31, 2010, improved to 5% compared with 11% as of August 31, 2009.
On July 20, 2010, Lindsay announced that it had increased its regular quarterly cash dividend by 6% to 8.5 cents per share from 8 cents.
Outlook
Lindsay contends that in the irrigation markets farmer sentiment has improved with higher commodity prices and USDA (United States Department of Agriculture) projecting a 24% increase in farm income for 2010, the fourth highest on record boding well for the farmers. The company maintains that growth drivers of expanded food production, efficient water use and improvement in transportation infrastructure remain positives for Lindsay for the long term.
In the infrastructure segment QMB systems, which provide a cost effective method for safely managing traffic congestion, exhibited strong sales. However, the segment’s outlook remains uncertain with a multi-year highway bill unlikely until sometime next year.
Our View
The company stands to benefit in the long term from demand for increased food production, driven by worldwide population growth, efficient water use, mounting need for biofuels and improving transportation infrastructure. Its strong balance sheet allows it to invest in both organic and inorganic growth initiatives.
Its irrigation segment will benefit from a forecast for rising farm income, as well as a continuing shift from flood irrigation to more efficient systems and exposure to fast-growing international irrigation markets. However, the outlook for the infrastructure segment remains cloudy due to government budget constraints and a delay in the congressional passage of a new federal highway bill. We currently have a Zacks #3 Rank (short-term Hold recommendation) on the stock.
Omaha, Nebraska-based Lindsay Corporation is a leading designer and manufacturer of self-propelled center pivot and lateral move irrigation systems, which are used principally in the agricultural industry to increase or stabilize crop production while conserving water, energy and labor. The company also manufactures and markets infrastructure and road safety products.
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