How will you react when you come across a company that fails to report exciting numbers in spite of belonging to the one sector that has shown resilience to economic slowdowns? Frown? Doubt the stock? How about take a second look?
Lindsay Corp. (NYS: LNN) is one such company that is worth a second look. The irrigation equipment maker reported a slight fall in its fourth-quarter bottom line, but there still might be reasons to be positive about the company.
High revenues but weak profits
Lindsay's bottom line might have slipped marginally from $6 million to $5.9 million year-on-year, but investors should take heart that its revenues surged a solid 33% from last year to $116.1 million. Clearly, there is something else behind the fall in net income.
Growing demand for irrigation equipment pushed up Lindsay's top line. But a drop of 18% in infrastructure segment revenues remains a cause for concern, especially because the demand for a particular product that generates high margins slumped.
But it was the higher costs that mainly dampened things. Operating expenses came in 27% higher at $20.3 million. One factor behind this rise was the expenses relating to a foreign tax ruling that the company will record. Another important component was additional costs incurred in relation to an ERP implementation that the company has undertaken.
These costs weakened Lindsay's bottom line. But note that these costs are more or less a one-time charge. What's important to keep in mind here is the strong growth in revenues.
What should work for Lindsay
There's no point in guessing why Lindsay's revenues have been on the rise. When it comes to beating the economic slowdown, agriculture clearly stands out. With firm crop prices pushing up farm activity, agriculture equipment has seen a strong surge in demand globally, be it irrigation equipment or tractors.
Peer Valmont's (NYS: VMI) irrigation segment clocked a whopping 71% jump in global sales in its latest quarter. Farm equipment maker Deere (NYS: DE) saw its global agriculture equipment sales rise by 22% in its third quarter. Even seed giant Monsanto's (NYS: MON) latest quarter revenues were up by 15%, driven by higher global demand for its products. Clearly, agriculture is the king here.
With the ever-growing global population and higher need for food and food products, agriculture-related companies have a lot to keep their businesses ticking. An advantage Lindsay also has is its center-pivot irrigation systems, which are better equipped to manage water than traditional equipment.
Low debt on the books and ample free cash flow also give Lindsay enough scope to go for acquisitions when an opportunity arises. Overall, the company definitely stands to gain because of its booming core agriculture-related business.
The Foolish bottom line
Given the use of Lindsay's products, they should see higher demand in the future. Lindsay's strong presence in markets outside the U.S. gives it opportunities to benefit from global trends. I think this is a good stock to watch out for in the long run.
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At the time thisarticle was published Neha Chamaria does not own shares of any of the companies mentioned in this article. Motley Fool newsletter services have recommended creating a synthetic long position in Monsanto. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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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