Lindsay Corporation (LNN) announced results for its fiscal third quarter ended May 31, 2011. The quarter delivered an EPS of $1.20, beating the Zacks Consensus Estimate of 96 cents and 50 cents in the year-earlier quarter.
Total revenue in the quarter increased at a whopping 53% to $153.4 million from $100.1 million in the prior-year quarter, slightly beating the Zacks Consensus Estimate of $153 million.
Total revenue for irrigation equipment increased 58% to $126.9 million. On the domestic front revenue surged 60% year over year to $76.7 million, while revenue for international irrigation perked up 55% year over year to $50.2 million. Infrastructure revenue in the quarter increased 35% year over year to $26.5 million.
Costs and Margins
Cost of goods sold in the quarter increased to $111.9 million from $74.8 million in the year-ago quarter. Gross profit was up 64% year over year to $41.5 million in the quarter. Consequently, gross margin also increased 180 basis points year over year to 27%.
The improvement in gross margins is attributable to higher international irrigation margins and diversified manufacturing including, railroad signals and structures, commercial tubing and contract manufacturing.
Operating expenses increased to $18.4 million in the quarter from $15.2 million in the year-earlier quarter. The increase in expenses was attributable to higher personnel cost and additional expenses due to the acquisitions of Digitec Inc., and WMC Technology Limited.
Another contributing factor was expenses incurred for environmental monitoring and remediation, as a part of the ongoing development and implementation of the EPA work plan at Lindsay's Nebraska facility.
Operating income in the quarter amounted to $23.1 million up from $10 million in the year-ago quarter. Consequently, operating margin increased 510 basis points year over year to 15.1% in the quarter.
Financial Position
Cash and cash equivalent as of May 31, 2011 amounted to $100.6 million, up from $83.5 million, as of May 31, 2010. Receivables amounted to $87.6 million versus $56.8 million as of May 31, 2010.
The company generated $28.3 million of net cash from operating activity. As of May 31, 2011 Lindsay’s backlog was $43.3 million versus $33.9 million as of May 31, 2010.
Long-term debt of the company decreased drastically to $5.4 million as of May 31, 2011, from $9.6 million as of May 31, 2010. The debt-to-capitalization ratio improved further to 2% as of May 31, 2011 from 4% as of February 28, 2011 and 5% as of November 30, 2010.
Lindsay contends that the agricultural markets across the globe continued to perform well throughout the irrigation selling season. Agricultural commodity prices remained high compared to the previous year thereby, benefiting the farmers.
Moreover, the company’s long-term drivers including water use efficiency, population growth, increasing importance of biofuel and improvements in infrastructure safety and security, are expected to remain in the company’s favor.
Our Take
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 agriculture 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. (VMI).


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