Lindsay Reports Robust Second Quarter

Mar.31.11 | About: Lindsay Corporation (LNN)

Lindsay Corporation (NYSE:LNN) delivered an EPS of 89 cents in its fiscal 2011 second quarter ended February 28, 2010, ahead of the Zacks Consensus Estimate of 70 cents and up 85% from 48 cents in the year-ago quarter.

Total revenues in the quarter were $120.2 million, up 41% year over year and above the Zacks Consensus Estimate of $110 million. Total irrigation equipment revenues increased 35% year over year to $91.7 million. On the domestic front, irrigation revenues perked up 72% to $66.5 million while international irrigation revenues dipped 14% to $25.2 million. Infrastructure revenues upped 65% to $28.5 million driven by increased sales of QuickChange Moveable Barrier product.

Cost of operating revenues increased 37% year over year to $86.1 million. Gross margin expanded 230 basis points year over year to 28.3%. Infrastructure margins were higher primarily due to increased revenues of higher margin QuickChange Moveable Barrier product. Irrigation margins were flat after eliminating the benefit realized from Nebraska’s state economic development incentive wage and investment credits included in the year-ago quarter’s margins.

Operating expenses increased 11% year over year to $16.9 million due to higher research and development expenses, elevated personnel-related costs, sales commissions for QuickChange Moveable Barrier product and the acquisition of Digitec Inc. and WMC businesses.

These increases were partially offset by lower expenses for environmental monitoring and remediation as a $0.7 million expense was recorded in the comparable quarter last year. Operating margin expanded 610 basis points year over year to 14.2%.

Backlog

As of February 28, 2011, Lindsay’s backlog was $64.3 million compared with $59.7 million as of November 30, 2010, and $33.6 million as of February 28, 2010.

Financial Position

Lindsay had cash and cash equivalents of $78.4 million as of February 28, 2011, lower than $80.5 million as of November 30, 2010. The company generated net cash of $1.7 million from operating activities in the quarter compared with $1.5 million in the year-earlier quarter.

Total debt decreased to $10.7 million as of February 28, 2011, from $11.8 million as of November 30, 2010. The debt-to-capitalization ratio improved to 4% as of February 28, 2011 from 5% as of November 30, 2010.

Our Take

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.

The United States Department of Agriculture forecasts farm income to increase 19.8% in 2011 compared with 2010, despite a $20-billion jump in production expenses. The 2011 forecast is the second highest inflation-adjusted value for net farm income recorded in the past 35 years.

Lindsay’s irrigation segment will thus benefit from rising farm income and will reflect in 2011 results. The irrigation segment also stands to benefit from a continuing shift from flood irrigation to more efficient systems and exposure to fast-growing international irrigation markets.

On the flipside, the outlook for the infrastructure segment remains unclear due to government budget constraints and a delay in the congressional passage of a new federal highway bill. We thus maintain our Neutral long-term recommendation on Lindsay. The company currently retains a Zacks #2 Rank (short-term Buy 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 road safety products. The company competes with Valmont Industries Inc. (NYSE:VMI).