Lindsay (LNN) Q3 Earnings Miss On Higher Operating Costs

Lindsay Corporation’s (NYSE:LNN) third-quarter fiscal 2016 (ended May 31, 2016) adjusted earnings declined 18% year over year to 90 cents per share, falling short of the Zacks Consensus Estimate of 97 cents. Shares of Lindsay dipped around 1.45% to close at $67.86 yesterday.

The irrigation equipment manufacturer reported revenues of $141 million, which fell short of the Zacks Consensus Estimate of $148 million. Revenues also decreased around 12% from $161 million in the prior-year quarter.

U.S. irrigation revenues fell 18% year over year to $73.4 million due to lower unit volume and reduced market pricing. International irrigation revenues rose 4% to $44 million, including a 4% unfavorable currency impact. While sales improved in several markets, Brazil and other markets witnessed declines. Total irrigation equipment revenues declined 11% year over year to $117 million.

On the other hand, infrastructure revenues deteriorated 18% to $24 million as relatively flat sales in road safety products were offset by lower Road Zipper System project sales compared with the prior year.

Operational Update

Gross margin was 29.6%, up 70 basis points from 28.9% in the prior-year quarter, with improvement in both irrigation and infrastructure margins. Irrigation margins improved on the back of lower material costs. Infrastructure margin growth was driven by revenue growth and cost leverage in Europe while U.S. margins remained relatively flat with improved cost leverage in road safety products offset by the impact of lower Road Zipper System revenue.

Cost of operating revenues declined 13% year over year to $100 million. Gross profit decreased 10% to $42 million from $46 million in the year-ago quarter. Gross margin contracted 70 basis points to 29.6%.

Operating expenses went up 6% year over year to $26 million in the quarter. The company posted an operating profit of $15 million, down 21% from $21 million in the year-ago quarter.

Lindsay’s backlog as of May 31, 2016, was $61.2 million compared with $53.2 million as of May 31, 2015. The increase in backlog was mainly driven by the infrastructure segment, with higher backlog in both Road Zipper and road safety product lines.

Financial Position

Lindsay had cash and cash equivalents of $91.5 million as of May 31, 2016, compared with $154 million as of May 31, 2015. The company reported cash flow of $20.2 million for the nine-month period ending May 31, 2016, compared with $35.4 million in the comparable year-ago period. Lindsay had long-term debt of $117 million at the end of the quarter, flat year over year.

During the fiscal third quarter, Lindsay repurchased 219,578 shares for $16 million. During the first nine months of fiscal 2016, the company repurchased a total of 688,790 shares for $48.3 million. As of May 31, 2016, shares worth around $63.7 million remained under the company’s buyback program.

Outlook

Lindsay’s irrigation markets continue to be constrained by lower commodity prices and farm income. However, the stabilization of commodities and recalibration of farm input costs suggest that farmer sentiment toward investment will improve. This is expected to result in increased investment in efficiency and yield-enhancing equipment. This bodes well for Lindsay’s irrigation machines and irrigation management platform. Further, activity in the infrastructure market is improving which will benefit its infrastructure business.

Long-term trends remain positive for Lindsay owing to increased agricultural production for the growing population, higher food production, efficient water use and infrastructure upgrades, and expansion.

Zacks Rank

Lindsay currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the sector include Alamo Group, Inc. (NYSE:ALG) , Astec Industries, Inc. (NASDAQ:ASTE) and Terex Corporation (NYSE:TEX) . All these stocks hold a Zacks Rank #2 (Buy).