The agricultural sector has done extremely well in recent years, as demographic trends across the world have led to increased demand for food and higher crop prices for farmers. Among the long-term beneficiaries of this trend is Lindsay (NYSE:LNN), which manufactures irrigation systems that make it possible to farm land that would otherwise remain fallow.
More recently, though, Lindsay has seen the business cycle for the agricultural industry turn against it somewhat, and that had investors nervous about the company's prospects coming into this morning's earnings report. Those short-term fears proved unwarranted, as Lindsay performed better than many investors had expected. Yet continued pressure on agriculture leaves Lindsay's future uncertain, despite the relatively strong performance of its smaller infrastructure division. Let's take a closer look at how Lindsay did during the quarter and whether it can overcome the slump in its share price during 2014.
Lindsay defies predictions of a big pullback
On its face, Lindsay's fiscal fourth-quarter report didn't look all that impressive. Revenue of $147.5 million was down about half a percent from the year-ago level, and net income of $11.3 million was less than $1 million higher than Lindsay posted during the same quarter in 2013. For the full fiscal year, Lindsay saw revenue drop 11% from fiscal 2013, while earnings declined 27%.
Yet even those somewhat tepid numbers showed far better performance from Lindsay than most investors had expected. Coming into the report, analysts had anticipated a 13% drop in sales for the quarter and thought that earnings per share would take a 30% plunge. As a result, the year-over-year gain in earnings to $0.89 per share was especially impressive.
Looking more closely at the results, Lindsay's performance was affected by a number of one-time factors. Domestically, revenue from irrigation systems soared 31%, with storm damage adding between $15 million and $20 million to sales during the quarter. Internationally, though, the loss of $17 million in sales from Lindsay's now-completed contract in Iraq sent revenue sharply lower. Lindsay said that revenue would have fallen by a much more dramatic 11% in the segment without various one-time factors, and that points to the continued struggle Lindsay faces under current conditions.
Lindsay's infrastructure division, though, looks much stronger. Sales of the company's road-safety and rail-product offerings jumped 7%, with a major $12.7 million project for the Golden Gate Bridge giving Lindsay greater exposure for its Road Zipper System for moving concrete barriers to manage traffic flow.
Will Lindsay keep seeing improvement?
Over the long run, Lindsay remains optimistic about its prospects. As CEO Rick Parod said in a press release, "Longer term, drivers for the Company's markets of population growth, expanded food production and efficient water use, and infrastructure upgrades and expansion support our expectation for growth." A nearly 20% rise in order backlogs supports that longer-range vision of Lindsay's prospects.
In the short run, though, Lindsay expects the divergence of its infrastructure and agriculture segments to continue. Parod pointed to the season's storms as providing an upward boost to Lindsay's results, but he noted that commodity prices dropped during the quarter. The CEO concluded: "It is too early to predict the effect the lower commodity prices and projected reductions in farm income will have in fiscal 2015. However, the expected conditions position the U.S. irrigation markets lower, while we expect further improvements in sales and profits in our infrastructure segment."
Lindsay stock responded extremely favorably to the better-than-expected short-term results, rising more than 5% in pre-market trading after the announcement. Looking forward, though, long-term investors need to focus on whether Lindsay can overcome headwinds from a weaker agricultural industry environment and find ways to keep growing.