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Lindsay Earnings: The Return To Normalcy

William Bias profile picture
William Bias
345 Followers

Summary

  • Fundamentals decline stemming from reduced demand due to lower commodity prices and tax incentives for farmers.
  • International markets and road infrastructure business serve as bright spots in the most recent quarter.
  • A rock solid balance sheet should help the company get through tough times.

On Jan. 6, farm irrigation and road infrastructure maker Lindsay (NYSE: NYSE:LNN) came out with its Q1 FY 2015 earnings statement. It's obvious that Lindsay is dealing with a supply/demand whiplash. Let's take a deeper look.

Fundamental decline

In the most recent quarter, Lindsay saw its revenue, net income and free cash flow decline 9%, 26%, and 43%, respectively. The company's domestic irrigation equipment segment served as the primary drag on these results. In recent times, a prolonged drought caused hardship on farmers and subsequent decline in the supply of their crops serving as the catalyst for the demand of irrigation equipment.

High crop prices, like corn for example (see chart below), and waning drought brought in additional players upping the supply of crops and lessening the economic need for the irrigation equipment. What you are seeing is a return to normalcy for the company. On a bright note, the company is seeing increased demand in the international arena and in its road infrastructure business.

US Corn Farm Price Received Chart

US Corn Farm Price Received data by YCharts

Acquisition related expenses in addition to revenue declines served as catalysts for the decline in net income. Capital expenditures increased 53% serving as the primary contributor to the decline in free cash flow.

Balance sheet remains in good shape

Lindsay's balance sheet remains in good shape. Lindsay's $139 million in cash equates to 40% of stockholder's equity. I like to see companies with a cash stash greater than 20% of stockholder's equity to get them through hard times. Lindsay possesses no long-term debt which represents a good thing. Long-term debt creates interest which chokes out profitability and eats into cash flow. This company stands ready to work through its temporary downturn in business.

Dividends

Lindsay does pay a dividend. The best way to judge dividend sustainability is to

This article was written by

William Bias profile picture
345 Followers
I have been analyzing stocks since 1992 and a freelance writer since 2012.

Analyst’s Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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Comments (6)

William Bias profile picture
I don't understand why the financial community thinks that companies having a lot of cash on its balance sheet is a bad thing.
Amerlafrance profile picture
Because cash is earning nothing; it is a short term view that unfortunately pervades modern financial analysis. Buffet beleives cash has value for long term optionality when opporunities present themsleves and debt may be impossible to get. I agree with Warren.
William Bias profile picture
I believe that cash can provide acquisition opportunities and the ability to pay bills during difficult times.
Ján Mazák profile picture
I would suggest to the author to go through the earnings call transcript. Lindsay is currently executing its plan to get rid of the excess cash via share repurchases (ca 70M of 150M authorization has been already used up) and is issuing about 100M of bonds, partially to finance acquisition of Elecsys. After the next quarter, the balance sheet will look much different.

In addition, P/E ratio over 20 is kind of typical for companies in cyclical industries in the times of downturn. Consequently, it is rather useless for comparisons with S&P 500.
William Bias profile picture
Jan,

I noted some of that stuff in my last article about the company.

http://seekingalpha.co...

Thanks,

William
William Bias profile picture
Why is it useless to compare the P/E to the S&P 500? It's a comparison to an index and provides a little context in relation to some of the best companies of the overall market.
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