Don't Let This Company's Dry Quarter Scare You Off

Despite a bad quarter, this company's necessary, but underutilized, products still have huge potential over the long-term

Jan 4, 2014 at 4:00PM

Lindsay (NYSE:LNN) reported disappointing but not surprising first quarter results on Friday. The company is one of two major sellers of irrigation equipment in the United States, the other being Valmont (NYSE:VMI). A combination of increased rainfall and decreased crop prices caused a decline in irrigation sales and overall profits. On the bright side, management announced a plan to increase dividends annually -- starting by doubling the quarterly dividend beginning this quarter -- and to make strategic share repurchases.

The bad
Despite a very dry start to the year, the Midwest finally got the rain it needed to beat 2012's disastrous drought. According to the U.S. Drought Monitor, one year ago, 72% of the Midwest region was experiencing some kind of drought. Today, that number has fallen to just 33%, almost none of which is categorized as severe.

That's great news for farmers and food buyers, but not so great for Lindsay. Lindsay made large sales gains in 2012 when irrigation was the only game in town for watering crops, and had difficult comparisons this time around, despite sales that were still historically high.

The other problem is that crop prices have fallen as a result of increased yields. That leaves farmers in a tricky situation, as they may have more product to sell, but they have to sell it at a lower price. If you're worried about falling crop prices, and the rains have been good lately, you might just put off buying that fancy new center-pivot irrigator a bit longer.

One caveat to note, however, is that even though Lindsay's management has cited difficult comparisons and reduced demand, Valmont doesn't seem to buy into this narrative. The competing irrigator hasn't yet released its results for the quarter, but it did show great gains in its irrigation segment last quarter, "led by strong North American demand," while Lindsay's U.S. irrigation revenues fell last quarter. It remains to be seen whether Valmont will beat its competitor again in this recent quarter.

The good
While Lindsay's U.S. sales have been down, international sales have been very strong, to the tune of 32% this quarter. Globally, surface irrigation – essentially just dumping water on a field -- is by far the most dominant method, but it is also extremely inefficient. Lindsay's center-pivot systems are vastly superior and can increase crop yields significantly. They use an intricate trellis system hanging just above the plants, so that very little water is lost to wind or evaporation. They even employ satellite imagery and GPS guidance to ensure an even amount of water is applied to all of the crops. This method of irrigation ensures that about 90% of the water used makes it to the crops, versus about 50% for traditional methods. While they are still in low use even in America, the opportunity abroad is huge.

This is part of the reason management announced its capital allocation plan. With farmers worldwide needing to double crop yields by 2050 to keep up with rising population demands, efficient irrigation systems are one of the best investments they can make -- especially when another drought comes along. Despite lower sales this quarter, the company expects the long term to be very profitable, and it's putting its money where its press release is, by committing to reward shareholders with a rising dividend and buy back stock based on cyclical and seasonal fluctuations.

Other stocks with rising dividends
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Fool contributor Jacob Roche has no position in any stocks mentioned. The Motley Fool owns shares of Lindsay and Valmont Industries. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

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This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

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KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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