What happened
Shares of Lindsay Corporation (LNN -11.55%) were falling hard today, down 13.4% as of 3:03 p.m. ET.
The irrigation equipment and infrastructure company posted its fiscal second-quarter earnings today, yielding a big miss on revenue, albeit with a beat of profits.
While cost management and the actual expansion of operating income is a welcome sign, apparently investors couldn’t shake off today’s revenue declines, fearing a larger downturn may be in the cards.
What happened
In its fiscal second quarter ending at the end of February, Lindsay posted a revenue decline of 16.9% to $166.2 million, missing analyst expectations. On the other hand, earnings per share of $1.63 was actually up 23.5% over the prior year, beating expectations.
Lindsay’s main segment is in irrigation equipment, which one would think would be booming right now, given the rise in food prices around the world. However, the company is lapping some difficult comparables from the prior-year quarter, especially in its international segment.
While U.S. sales were only down 10%, international sales were down 28% from last year. This is due to lower sales to Russia and Ukraine, as well as the lapping of a large project in Egypt that did not repeat this year. Moreover, the recent election of a new government in Brazil caused delays to purchases from Lindsay’s Brazilian customers, as South American farmers look for more clarity on government policies. In addition, the rapid rise in interest rates and fears of an economic slowdown are causing farmers to generally be more cautious about their capital investments.
Yet on the bright side, it appears Lindsay is reaping the benefits from lower input prices of commodities such as steel, all while keeping its equipment pricing generally in line. The spike in commodity prices caused a big margin compression last year, but the company is seeing relief on input costs today; therefore, Lindsay impressively managed to grow operating profits, even in a quarter in which sales were down markedly.
Now what
Lindsay’s stock may be down today, but it does have some tailwinds behind it. If one thinks global warming will continue to increase the difficulty in food production, Lindsay’s irrigation segment should benefit over the long-term by helping farmers make more food with less water.
In addition, the company has a smaller infrastructure segment, which made up about 11% of sales last quarter. This segment includes road safety equipment that is used when working on roads and bridges, and should be a beneficiary of the infrastructure spending over the next few years from laws that have already been passed by the government.
So while Lindsay’s stock may suffer in a recession brought on by the Fed’s rate hikes, it should still see demand for its products over the long term. If the company’s valuation falls further from the current 20 P/E multiple, it’s a name to keep on your buy list.